The Jean Coutu Group (PJC) Inc.
TSX : PJC.SV.A

The Jean Coutu Group (PJC) Inc.

October 11, 2005 06:30 ET

The Jean Coutu Group-First Quarter Results Reflect Costs of the Brooks Eckerd Integration

LONGUEUIL, QUEBEC--(CCNMatthews - Oct. 11, 2005) - The Jean Coutu Group (PJC) Inc. (TSX:PJC.SV.A)

The Company is Now Well Positioned to Grow Sales Profitably

The Jean Coutu Group (PJC) Inc. (the "Company" or the "Jean Coutu Group") reported its financial results for the quarter ended August 27, 2005 today. Quarterly revenues are up by 100.7% year-over-year as a result of the addition of Eckerd drugstore operations.



SUMMARY OF RESULTS
(in millions of US dollars except per share amounts)

---------------------------------------------------------

Q1/2006 Q4/2005 Q1/2005
---------------------------------

Revenues 2,683.1 2,768.4 1,336.7

Operating income before
amortization ("OIBA") 104.4 148.4 61.9

Net earnings 11.1 46.2 22.3

Net earnings per share $0.04 $0.18 $0.09

---------------------------------------------------------

HIGHLIGHTS

- The Canadian network continues to perform well and is gaining
market share in prescription scripts.
- The sale of non-core Canadian real estate assets will allow the
Company to reduce indebtedness.
- Pharmacy sales are being impacted by the increasing conversion of
brand name drugs to generics.
- Slow sales growth in the United States and the cost of running dual
head office infrastructures impacted results, with the final phases
of the Brooks Eckerd Information Technology conversion being
completed during the quarter.



"The first quarter's financial results of The Jean Coutu Group were impacted by slow sales growth at Brooks Eckerd Pharmacy combined with integration costs," said Francois J. Coutu, President and Chief Executive Officer. "Given that we have completed the IT conversion and undertaken numerous sales growth initiatives, we are better positioned for increased profitability for the balance of fiscal 2006. Over the coming quarters, we will strive to profitably grow the sales of our US network, while continuing to improve the performance of our Canadian network."

Net earnings

For the first quarter, net earnings were $11.1 million ($0.04 per share) compared with $22.3 million ($0.09 per share) for the same period last year and $46.2 million ($0.18 per share) for the fourth quarter of last year. As previously reported, fourth quarter 2005 results were positively impacted by changes in estimates for some Eckerd network operating expenses and revenues on the basis of new information obtained in the quarter. Of these favourable changes in estimates, approximately $12 million impacted the cost of goods sold and $9 million the general and operating expenses in the last quarter of fiscal 2005.

In the first quarter of fiscal 2006, the Canadian network performed well, while top line growth was constrained in the US network. At the same time, the Company completed the final stages of the Brooks Eckerd integration and store closures, resulting in non-recurring costs of approximately $12 million.

Revenues

Total revenues of the Company's Canadian operations for the first quarter reached $364.7 million compared with $312.6 million for the first quarter of the 2005 fiscal year, an increase of $52.1 million or 16.7%. First quarter Canadian revenues increased by 7.0% year-over-year excluding the impact of currency exchange rate fluctuations.

Our American operations generated total revenues of $2.318 billion, up $1.294 billion or 126.4% from the first quarter of fiscal 2005. Pharmacy sales were negatively impacted by the conversion of brand name drugs to generics, which generally have a lower selling price, but higher gross margins to the drugstore retailer. Generics as a percentage of total Brooks Eckerd pharmacy sales increased to 54.7% by quarter-end with the generic substitution rate increasing to 94.2%. The effect of generic drugs replacing brand drugs on US pharmacy sales growth was 2.3% during the first quarter of fiscal 2006. During the first quarter of fiscal 2006, the Company closed 78 non-performing Eckerd drugstores, with 45 transfers of script files to the nearest Eckerd store and the sale of script files and related inventories for the other 33 stores. As a result of these closures, first quarter revenues decreased by $26 million compared with the fourth quarter of 2005.

First quarter 2006 total revenues increased by $1.346 billion or 100.7% to $2.683 billion from $1.337 billion in fiscal 2005.

Retail sales

Retail sales figures quoted herein are denominated in local currency in order to exclude the impact of currency rate fluctuations. As of August 1, 2005, the Company is reporting the same-store sales for the Eckerd drugstores acquired on July 31, 2004. Going forward, the Company will publish this information on the Canadian and United States networks on a monthly basis.

In the first quarter, the Company's Canadian franchise network showed a 3.6% increase in retail sales compared with the same period last year. The American corporate pharmacy network posted a 126.3% increase in retail sales when compared with the same quarter of the 2005 fiscal year.

In terms of comparable stores, the Canadian network's retail sales were up 3.5%, pharmacy sales gained 5.4% and front-end sales picked up 1.4% year-over-year. In the United States, retail sales rose by 0.3%, pharmacy sales gained 1.3% and front-end sales decreased 2.3% compared with the same quarter last year. This measure now includes same-store sales for the acquired Eckerd drugstores as of August 1, 2005. Front-end trends have nevertheless improved over the year, with strong growth in core health and beauty categories and private label products, with a slight decline in overall front-end sales year-over-year, due to drops in beverage and photo categories.



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13 weeks 4 weeks
ended ended
RETAIL SALES GROWTH August 27, August 27,
2005 2005
-------------------------
CANADA
Total sales growth
Total 3.6% 4.5%
Pharmacy 5.5% 7.5%
Front-end 1.4% 1.4%
Same store
Total 3.5% 4.5%
Pharmacy 5.4% 7.5%
Front-end 1.4% 1.4%

UNITED STATES
Total sales growth
Total 126.3% (1.7)%
Pharmacy 131.0% (0.1)%
Front-end 114.3% (6.1)%
Same store
Total 0.3% (0.8)%
Pharmacy 1.3% 0.6%
Front-end (2.3)% (4.5)%

---------------------------------------------------------



For the month of August 2005, the Company's Canadian franchise network showed a 4.5% increase in sales compared with the same period last year. The American corporate pharmacy network posted a 1.7% decrease in sales when compared with the same month of the 2005 fiscal year, partly due to the closure of 78 drugstores.

In terms of comparable stores, the Canadian network's retail sales were up 4.5%, pharmacy sales gained 7.5% and front-end sales picked up 1.4% year-over-year. Pharmacy sales accounted for 58% of total sales in the month. In the United States, retail sales decreased by 0.8%, pharmacy sales gained 0.6% and front-end sales decreased 4.5% compared with the same month last year. Pharmacy sales accounted for 74% of total sales for the month. This measure includes same-store sales for the Brooks Eckerd network for the full period. Canadian results were stronger, whereas United States results were affected by continuing generic conversions and weak front-end trends.

OIBA

In the first quarter, operating income before amortization ("OIBA") amounted to $104.4 million against $61.9 million for the corresponding quarter last year, an increase of $ 42.5 million. The increase in OIBA year-over-year reflects the operation of the acquired Eckerd drugstores for the full first quarter of fiscal 2006.

Store network development

During the first quarter, 13 drugstores were opened, of which 7 were relocations, one drugstore was acquired and 78 were closed. On August 27, 2005, there were 2,172 stores in the system, comprised of 321 Canadian PJC stores, and 1,851 Brooks and Eckerd drugstores in the United States.

Other initiative

On October 7, 2005, the Company entered into an agreement to sell certain non-core Canadian real estate assets of the Company. These assets consist of 30 commercial properties, composed of strip malls located in the Provinces of Quebec and Ontario, containing Jean Coutu drugstores and other retail tenants. Concurrently, the Company will lease back the drugstore locations under equivalent lease conditions.

The agreement foresees the payment of the full amount of the $C 111.7 million purchase price on November 1, 2005, the scheduled closing date. The transaction will generate a pre-tax gain of approximately $C 26 million, of which $C 16 million will be recorded in fiscal 2006 and $C 10 million representing the leaseback portion for the Jean Coutu drugstores will be deferred over the life of the leases. The Company intends to use the net proceeds to repay a portion of its Senior Secured Credit facilities.

Outlook

The Jean Coutu Group is well positioned to capitalize on the growth in the North American drugstore retailing industry, based on its strong brands, a focus on excellence in customer service in pharmacy and front-end innovation with an emphasis on health and beauty. Demographic trends in Canada and the United States are expected to contribute to growth in the consumption of prescription drugs, and to the increased use of pharmaceuticals as the primary intervention in individual healthcare. Management believes that these trends will continue and that the Company will achieve sales growth through quality of offering and service levels in its drugstore network.

The Company operates its Canadian and US networks with a focus on sales growth, network renovation, relocation and expansion projects and operating efficiency. In its US network, the Company eliminated dual infrastructures late in the first quarter of fiscal 2006 and began to capture the related savings during the month of August 2005. The Company will continue to optimize logistics and supply chain efficiency over fiscal 2006. The Company also right sized its Eckerd network during the first quarter of fiscal 2006 and will continue its store opening program, with a focus on growing network sales profitably.

Finally, customer focused initiatives have been taken and will continue to be implemented to drive sales growth profitably. The goal is to differentiate the network through quality of offering and customer service levels.

Dividend

The Board of Directors of The Jean Coutu Group declared a quarterly dividend of C$0.03 per share. This dividend is payable on November 10, 2005 to all holders of Class A Subordinate Voting shares and holders of Class B shares listed in the Company's shareholder ledger as of October 27, 2005.

Conference call

Financial analysts are invited to attend the first quarter results conference call to be held on October 11, 2005 at 9:00 AM eastern time. The toll free call-in number is 1-888-575-8232. Media and other interested individuals are invited to listen to the live or deferred broadcast on The Jean Coutu Group corporate web site at www.jeancoutu.com. A full replay will also be available by dialing 1-800-408-3053 code 3163933 (pound sign) until November 11, 2005.

Supporting documentation (additional information and investor presentation) is available at www.jeancoutu.com using the investors link. Readers may also access additional information and filings related to the Company using the following links to the www.sedar.com (Canada) and www.sec.gov (United States) websites.

About The Jean Coutu Group

The Jean Coutu Group (PJC) Inc. is the fourth largest drugstore chain in North America and the second largest in both the eastern United States and Canada. The Company and its combined network of 2,172 corporate and franchised drugstores (under the banners of Brooks and Eckerd Pharmacy, PJC Jean Coutu, PJC Clinique and PJC Sante Beaute) employ more than 60,000 people.

The Jean Coutu Group's United States operations employ 46,000 people and comprise 1,851 corporate owned stores located in 18 states of the Northeastern, mid-Atlantic and Southeastern United States. The Jean Coutu Group's Canadian operations and franchised drugstores in its network employ over 14,000 people and comprise 321 PJC Jean Coutu franchised stores in Quebec, New Brunswick and Ontario.

Certain statements contained in this press release may constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The words "looking forward," "looking ahead," "believe(s)," "should," "may," "expect(s)," "anticipate(s)," "likely," "opportunity," and similar expressions, among others, identify forward-looking statements. The Company undertakes no obligation to update any forward-looking statements contained in this press release.

This press release also contains certain non-GAAP financial measures. Such information is reconciled to the most directly comparable financial measures, as set forth in the "additional information" section, which is attached to the Company's financial statements.



THE JEAN COUTU GROUP (PJC) INC.


Consolidated statements of earnings 13 weeks
Periods ended August 27, 2005 and August 28, 2004 2005 2004
---------------------------------------------------------------------
(in millions of US dollars,
unless otherwise noted) $ $
(unaudited) (unaudited)

Sales 2,637.8 1,298.3
Other revenues (note 2) 45.3 38.4
---------------------------------------------------------------------
2,683.1 1,336.7
Operating expenses
Cost of goods sold 2,021.2 1,028.1
General and operating expenses 558.4 247.5
Amortization (Note 3) 60.7 25.3
---------------------------------------------------------------------
2,640.3 1,300.9
---------------------------------------------------------------------
Operating income 42.8 35.8
---------------------------------------------------------------------
Financing expenses
Interest on long-term debt 48.9 15.0
Other financing expenses, net 1.8 2.7
---------------------------------------------------------------------
50.7 17.7
---------------------------------------------------------------------
Earnings (loss) before income taxes (7.9) 18.1
Income tax recovery (19.0) (4.2)
---------------------------------------------------------------------
Net earnings 11.1 22.3
---------------------------------------------------------------------
---------------------------------------------------------------------

Net earnings per share, in dollars (Note 4)
Basic 0.04 0.09
Diluted 0.04 0.09
---------------------------------------------------------------------
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Consolidated statements of retained earnings 13 weeks
Periods ended August 27, 2005 and August 28, 2004 2005 2004
---------------------------------------------------------------------
(in millions of US dollars) $ $
(unaudited) (unaudited)

Balance, beginning of period 787.6 708.6
Net earnings 11.1 22.3
---------------------------------------------------------------------
798.7 730.9
Dividends 6.5 6.0
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Balance, end of period 792.2 724.9
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The segmented information and the accompanying notes are an integral
part of these unaudited interim consolidated financial statements.


THE JEAN COUTU GROUP (PJC) INC.


Consolidated balance sheets As at As at
August 27, 2005 May 28, 2005
---------------------------------------------------------------------
(in millions of US dollars) $ $
(unaudited) (audited)
Assets
Current assets
Cash and cash equivalents 97.0 132.2
Temporary investments 82.6 78.5
Accounts receivable 525.7 544.8
Inventories 1,719.4 1,678.2
Prepaid expenses 59.6 41.0
Income taxes receivable 18.8 6.8
--------------------------------------------------------------------
2,503.1 2,481.5
Investments 20.4 18.8
Capital assets 1,492.9 1,492.5
Intangible assets 723.1 729.6
Goodwill 867.4 866.5
Other long-term assets 108.1 106.0
--------------------------------------------------------------------
5,715.0 5,694.9
--------------------------------------------------------------------
--------------------------------------------------------------------

Liabilities
Current liabilities
Accounts payable and accrued
liabilities 1,054.9 1,109.9
Income taxes payable - 32.9
Future income taxes 106.0 97.8
Current portion of long-term debt 66.2 65.6
--------------------------------------------------------------------
1,227.1 1,306.2
Long-term debt 2,583.3 2,495.8
Other long-term liabilities (Note 5) 453.2 480.8
--------------------------------------------------------------------
4,263.6 4,282.8
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Shareholders' equity
Capital stock 577.9 577.5
Contributed surplus 1.0 0.8
Retained earnings 792.2 787.6
Foreign currency translation adjustments 80.3 46.2
--------------------------------------------------------------------
1,451.4 1,412.1
--------------------------------------------------------------------
5,715.0 5,694.9
--------------------------------------------------------------------
--------------------------------------------------------------------


The segmented information and the accompanying notes are an integral
part of these unaudited interim consolidated financial statements.


THE JEAN COUTU GROUP (PJC) INC.


Consolidated statements of cash flows 13 weeks
Periods ended August 27, 2005 and August 28, 2004 2005 2004
---------------------------------------------------------------------
(in millions of US dollars, $ $
(unaudited) (unaudited)
Operating activities
Net earnings 11.1 22.3
Items not affecting cash
Amortization 60.7 25.3
Amortization of incentives paid to franchisees 0.9 0.8
Amortization of deferred financing fees 3.0 1.4
Future income taxes (18.3) (0.4)
Gain on disposal of assets (6.9) -
Other 0.7 2.8
---------------------------------------------------------------------
51.2 52.2
Net changes in non-cash asset and liability items (146.6) (138.8)
---------------------------------------------------------------------
Cash flow used in operating activities (95.4) (86.6)
---------------------------------------------------------------------
Investing activities
Business acquisitions - (2,514.5)
Investments and temporary investments (0.6) 5.3
Purchase of capital assets (37.8) (20.6)
Proceeds from the disposal of capital assets 0.8 0.4
Purchase of intangible assets (5.5) (0.6)
Proceeds from the disposal of intangible assets 7.8 -
Other long-term assets (0.7) (73.1)
---------------------------------------------------------------------
Cash flow used in investing activities (36.0) (2,603.1)
---------------------------------------------------------------------
Financing activities
Changes in bank loans - (15.0)
Issuance of long-term debt 100.0 2,550.0
Repayment of long-term debt (12.2) (185.5)
Issuance of capital stock 0.4 424.6
---------------------------------------------------------------------
Cash flow provided by financing activities 88.2 2,774.1
---------------------------------------------------------------------
Foreign currency translation adjustments 8.0 2.6
---------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (35.2) 87.0
Cash and cash equivalents, beginning of period 132.2 14.6
---------------------------------------------------------------------
Cash and cash equivalents, end of period 97.0 101.6
---------------------------------------------------------------------
---------------------------------------------------------------------

See complementary cash flow information in Note 8.

The segmented information and the accompanying notes are an integral
part of these unaudited interim consolidated financial statements.



THE JEAN COUTU GROUP (PJC) INC.
Consolidated segmented information
Periods ended August 27, 2005 and August 28, 2004
(in millions of US dollars)
---------------------------------------------------------------------


The Company has two reportable segments: franchising and retail sales. Within the franchising segment, the Company carries on the franchising activity of the "PJC Jean Coutu" banner, operates a distribution center and coordinates several other services for the benefit of its franchisees. The Company operates retail sales outlets selling pharmaceutical and other products under the "Brooks" and "Eckerd" banners.

The Company analyzes the performance of its operating segments based on their operating income before amortization, which is not a measure of performance under Canadian generally accepted accounting principles ("GAAP"); however, management uses this performance measure for assessing the operating performance of its reportable segments.

Segmented information is summarized as follows:



13 weeks
2005 2004
----------------------------
$ $
(unaudited) (unaudited)
Revenues (1)
Franchising 364.7 312.6
Retail sales 2,318.4 1,024.1
-------------------------------------------------------------------
2,683.1 1,336.7
-------------------------------------------------------------------
-------------------------------------------------------------------

Operating income before amortization
Franchising 37.9 32.0
Retail sales 66.5 29.9
-------------------------------------------------------------------
104.4 61.9
-------------------------------------------------------------------
-------------------------------------------------------------------

Amortization
Franchising (2) 4.0 3.2
Retail sales 57.6 22.9
-------------------------------------------------------------------
61.6 26.1
-------------------------------------------------------------------
-------------------------------------------------------------------

Operating income
Franchising 33.9 28.8
Retail sales 8.9 7.0
-------------------------------------------------------------------
42.8 35.8
-------------------------------------------------------------------
-------------------------------------------------------------------

(1) Revenues include sales and other revenues.
(2) Including amortization of incentives paid to franchisees.


13 weeks
2005 2004
----------------------------
$ $
(unaudited) (unaudited)

Acquisition of capital assets and
intangible assets (3)
Franchising 5.0 3.1
Retail sales 38.3 18.1
-------------------------------------------------------------------
43.3 21.2
-------------------------------------------------------------------
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As at As at
August 27, 2005 May 28, 2005
---------------------------------
$ $
(unaudited) (audited)
Total assets
Franchising 786.5 737.2
Retail sales 4,928.5 4,957.7
-------------------------------------------------------------------
5,715.0 5,694.9
-------------------------------------------------------------------
-------------------------------------------------------------------

The Company's revenues, capital assets, intangible assets and
goodwill attributed to Canada and the United States are as follows:

13 weeks
2005 2004
----------------------------
$ $
(unaudited) (unaudited)

Revenues (1)
Canada 364.7 312.6
United States 2,318.4 1,024.1
-------------------------------------------------------------------
2,683.1 1,336.7
-------------------------------------------------------------------
-------------------------------------------------------------------

As at As at
August 27, 2005 May 28, 2005
----------------------------
$ $
(unaudited) (audited)

Capital assets, intangible assets
and goodwill
Canada 322.6 300.2
United States 2,760.8 2,788.4
-------------------------------------------------------------------
3,083.4 3,088.6
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(1) Revenues include sales and other revenues.
(2) Including amortization of incentives paid to franchisees.
(3) Excluding business acquisitions.


THE JEAN COUTU GROUP (PJC) INC.
Notes to the unaudited interim consolidated financial statements
Periods ended August 27, 2005 and August 28, 2004
(Tabular amounts are in millions of US dollars unless otherwise noted)
---------------------------------------------------------------------


1. Financial statement presentation

The unaudited interim consolidated financial statements have been prepared in accordance with Canadian GAAP. These financial statements do not contain all disclosures required by Canadian GAAP for annual financial statements and, accordingly, should be read in conjunction with the most recently prepared annual consolidated financial statements for the year ended May 28, 2005.

The preparation of consolidated financial statements in conformity with Canadian GAAP requires management to make certain estimates and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. They may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant areas requiring the use of management estimates relate to : inventory valuation, valuation of long-term assets, and reserves and allowances, specifically those related to store closures, workers' compensation and general liability, and income taxes.

These unaudited interim consolidated financial statements have been prepared based on accounting policies and methods of application consistent with those used in the preparation of the most recently prepared audited annual consolidated financial statements.


2. Other revenues



13 weeks
2005 2004
----------------------------
$ $

Royalties 19.5 17.3
Rent 14.6 12.2
Sundry 11.2 8.9
-------------------------------------------------------------------
45.3 38.4
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-------------------------------------------------------------------


3. Amortization

13 weeks
2005 2004
----------------------------
$ $

Capital assets 48.5 20.1
Intangible assets 12.2 5.1
Deferred costs - 0.1
-------------------------------------------------------------------
60.7 25.3
-------------------------------------------------------------------
-------------------------------------------------------------------


4. Net earnings per share

The reconciliation of the number of shares used to calculate the
diluted net earnings per share is established as follows:

13 weeks
2005 2004
----------------------------
$ $
(in millions)
Weighted average number of shares used to
compute basic net earnings per share 261.6 238.3
Effect of dilutive stock options 0.6 1.2
-------------------------------------------------------------------
Weighted average number of shares used to
compute diluted net earnings per share 262.2 239.5
-------------------------------------------------------------------
-------------------------------------------------------------------

The Company uses the treasury stock method for the calculation of
the diluted net earnings per share and excludes anti-dilutive
options.


5. Other long-term liabilities

As at As at
August 27, 2005 May 28, 2005
-----------------------------------
$ $

Deferred revenues 8.2 9.8
Deferred lease obligations 19.9 17.8
Unfavorable leases 32.0 32.3
Workers' compensation and
general liability 71.5 68.8
Liabilities for store closures (1) 93.1 96.6
Future income taxes 220.3 246.5
Other 8.2 9.0
---------------------------------------------------------------
453.2 480.8
---------------------------------------------------------------
---------------------------------------------------------------


(1) Liabilities for store closures consist of the present value of
lease obligations, net of estimated sublease rental income and
other exit costs associated with the acquisition of Eckerd as
of July 31, 2004. During the first quarter of fiscal 2006,
$5,478,000 (including short term portion) was paid with respect
to these leases.


6. Stock-based compensation plan

The Company has a fixed stock option plan. Since June 1, 2003,
stock-based compensation is recorded under the fair value method.
The expense recorded for the grants is approximately $200,000 and
$100,000 for the thirteen week periods ended August 27, 2005 and
August 28, 2004, respectively.

Had compensation cost been determined using the fair value based
method at the date of grant for awards granted during the year ended
May 31, 2003, the Company's net earnings for the period ended August
27, 2005 would have been reduced by approximately $100,000 (for the
period ended August 28, 2004 - $100,000). Basic net earnings per
share and diluted net earnings per share for those periods would have
been unchanged.


7. Pension plans

The Company offers defined benefit and defined contribution pension
plans providing pension benefits to its employees.

The defined benefit and defined contribution plans expenses are
as follows:

13 weeks
2005 2004
----------------------------
$ $
Defined contribution plans 5.5 2.0
Defined benefit plans 0.3 0.3
-------------------------------------------------------------------
5.8 2.3
-------------------------------------------------------------------
-------------------------------------------------------------------


8. Supplemental cash flow information

13 weeks
2005 2004
----------------------------
$ $
Interest paid 71.7 2.8
Income taxes paid 44.9 44.5
-------------------------------------------------------------------
-------------------------------------------------------------------


9. Comparative figures

Certain comparative figures have been reclassified to conform with
the presentation of the current period.


10. Subsequent event

On October 7, 2005, the Company entered into an agreement to sell certain non-core Canadian real estate assets of the Company. The agreement foresees the payment of the full amount of the $C 111.7 million purchase price on November 1, 2005, the scheduled closing date. The transaction will generate a pre-tax gain of approximately $C 26 million, of which $C 16 million will be recorded in fiscal 2006 and $C 10 million representing the leaseback portion for the Jean Coutu drugstores will be deferred over the life of the leases. The Company intends to use the net proceeds to repay a portion of its Senior Secured Credit facilities.


11. Reconciliation of Canadian GAAP to United States GAAP

These consolidated financial statements are prepared in accordance with Canadian GAAP, which differ, in certain material respects from generally accepted accounting principles in the United States ("US GAAP"). While the information presented below is not a comprehensive summary of all differences between Canadian GAAP and US GAAP, other differences are considered unlikely to have a significant impact on the consolidated financial statements of the Company.

All material differences between Canadian GAAP and US GAAP and the effect on net earnings and shareholders' equity are presented in the following tables with an explanation of the adjustments.



13 weeks
2005 2004
----------------------------
$ $
Reconciliation of net earnings
Net earnings - Canadian GAAP 11.1 22.3
Adjustment in respect of amortization (a) 0.1 0.1
Tax effect of above adjustment - -
--------------------------------------------------------------------
Net earnings - US GAAP 11.2 22.4
--------------------------------------------------------------------
--------------------------------------------------------------------

Net earnings per share - US GAAP (in dollars)
Basic 0.04 0.09
Diluted 0.04 0.09
--------------------------------------------------------------------
--------------------------------------------------------------------


13 weeks
2005 2004
----------------------------
$ $
Other comprehensive income items
Cumulative translation adjustments,
net of tax (C) 34.1 18.2
Cumulative translation adjustments on

amortization, net of tax (C) (0.6) (0.4)
Changes in fair value of derivatives,
net of tax (b) 1.7 0.1
Reclassification of realized gain on
derivatives to the earnings (b) 0.1 2.2
--------------------------------------------------------------------
Other comprehensive income items 35.3 20.1
--------------------------------------------------------------------
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As at As at
August 27, 2005 May 28, 2005
---------------------------------
$ $
Statement of accumulated other
comprehensive income items
Accumulated other comprehensive
income items:
Cumulative translation adjustments,
net of tax (C) 80.3 46.2
Cumulative translation adjustments on
amortization, net of tax (C) (2.0) (1.4)
Cumulative changes in fair value of
derivatives net of reclassification
of realized gain (loss) to the
earnings and net of tax (b) 1.0 (0.8)
--------------------------------------------------------------------
Accumulated other comprehensive
income items 79.3 44.0
--------------------------------------------------------------------
--------------------------------------------------------------------

Reconciliation of shareholders' equity
Shareholders' equity - Canadian GAAP 1,451.4 1,412.1
Adjustment in respect of:
Amortization (a) (12.8) (13.0)
Tax effect of above adjustment 4.5 4.5
Cumulative translation adjustments,
net of tax (C) (80.3) (46.2)
Accumulated other comprehensive income
items (b) and (C) 79.3 44.0
--------------------------------------------------------------------
Shareholders' equity - US GAAP 1,442.1 1,401.4
--------------------------------------------------------------------
--------------------------------------------------------------------


The impact of differences between Canadian GAAP and US GAAP on
consolidated balance sheet items is as follows:

As at As at
August 27, 2005 May 28, 2005
--------------------------------------
Canadian US Canadian US
GAAP GAAP GAAP GAAP
------------------------------------
------------------------------------
$ $ $ $


Consolidated balance sheets items
Assets
Capital assets (a) 1,492.9 1,477.1 1,492.5 1,477.3
Other long-term assets (a)
and (b) 108.1 115.1 106.0 111.6

Liabilities
Other long-term liabilities (b) 453.2 453.7 480.8 482.0

Shareholders' equity 1,451.4 1,442.1 1,412.1 1,401.4



a) Amortization

Under Canadian GAAP, the Company has used the compounded interest method to depreciate its buildings held for leasing until May 31, 2004. This method is not acceptable under US GAAP. The Company records depreciation under US GAAP for its buildings held for leasing using the straight-line method at a rate of 2.5%.

b) Derivative financial instruments and hedging

On June 1, 2001, the Company adopted the provisions of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets or liabilities measured at their fair value. Gains and losses resulting from changes in the values of those derivatives are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The adoption of SFAS 133 was not material to the Company's consolidated financial statements.

The Company enters into interest swaps in order to fix the interest rate on a portion of its variable interest debt. These interest rate swaps are designated as cash flow hedges with changes in the fair value of those contracts recorded as a component of other comprehensive income items and subsequently recognized as interest on long-term debt in the period in which the hedged exposure takes place. Under Canadian GAAP, changes in the fair value of those contracts are not recognized.

c) Foreign currency translation adjustment

Under Canadian GAAP, the Company gains and losses arising from the translation of the financial statements are deferred in "foreign currency translation adjustments" in shareholders' equity. Under US GAAP, foreign currency translation adjustments are presented as a component of other comprehensive income items under shareholders' equity.



THE JEAN COUTU GROUP (PJC) INC.
Unaudited additional information
Periods ended August 27, 2005 and August 28, 2004
(In millions of US dollars except for margins)
-------------------------------------------------------------------
-------------------------------------------------------------------

13 weeks
2005 2004
---------------------------
$ $
Canada
Sales 322.8 275.3
Cost of goods sold 294.1 251.0
-------------------------------------------------------------------
Gross profit 28.7 24.3
As a % of sales 8.9% 8.8%

Other revenues (1) 42.8 38.1

General and operating expenses 33.6 30.4
-------------------------------------------------------------------
Operating income before amortization 37.9 32.0
Amortization (1) 4.0 3.2
-------------------------------------------------------------------
Operating income 33.9 28.8
-------------------------------------------------------------------
-------------------------------------------------------------------

United States
Sales 2,315.0 1,023.0
Cost of goods sold 1,727.1 777.1
-------------------------------------------------------------------
Gross profit 587.9 245.9
As a % of sales 25.4% 24.0%

Other revenues 3.4 1.1

General and operating expenses 524.8 217.1
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Operating income before amortization 66.5 29.9
Amortization 57.6 22.9
-------------------------------------------------------------------
Operating income 8.9 7.0
-------------------------------------------------------------------
-------------------------------------------------------------------

Consolidated
Sales 2,637.8 1,298.3
Cost of goods sold 2,021.2 1,028.1
-------------------------------------------------------------------
Gross profit 616.6 270.2
As a % of sales 23.4% 20.8%

Other revenues (1) 46.2 39.2

General and operating expenses 558.4 247.5
-------------------------------------------------------------------
Operating income before amortization 104.4 61.9
Amortization (1) 61.6 26.1
-------------------------------------------------------------------
Operating income 42.8 35.8
-------------------------------------------------------------------
-------------------------------------------------------------------

(1) Amortization of incentives paid to franchisees are presented in
the amortization instead of other revenues


THE JEAN COUTU GROUP (PJC) INC.
Unaudited additional information
Periods ended August 27, 2005 and August 28, 2004
-------------------------------------------------------------------

13 weeks
2005 2004
---------------------------
$ $

Number of outlets
Beginning of period 2,243 655
Openings 13 18
Acquisitions 1 1,549
Relocations (7) (10)
Closings (78) (3)
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End of period 2,172 2,209
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Network performance - Retail sales
(In millions of US dollars)
Canada (1) 555.6 482.1
United States 2,315.0 1,023.0
-------------------------------------------------------------------
2,870.6 1,505.1
-------------------------------------------------------------------
-------------------------------------------------------------------


Network performance - Retail sales
Canada (1)
Pharmacy 58% 57%
Front-end 42% 43%

United States
Pharmacy 73% 72%
Front-end 27% 28%

(1) Franchised's outlet retail sales are not included in the
Company's consolidated financial statements.


THE JEAN COUTU GROUP (PJC) INC.
Unaudited additional information
Periods ended August 27, 2005 and August 28, 2004
-------------------------------------------------------------------

13 weeks
2005 2004
---------------------------

Retail sales growth (1)
Canada (2)
Total 3.6% 6.8%
Pharmacy 5.5% 9.8%
Front-end 1.4% 2.1%

United States
Total 126.3% 133.2%
Pharmacy 131.0% 143.9%
Front-end 114.3% 109.7%


Retail sales growth - same store (1)
Canada (2)
Total 3.5% 6.1%
Pharmacy 5.4% 9.0%
Front-end 1.4% 1.5%

United States (3)
Total 0.3% 2.2%
Pharmacy 1.3% 3.8%
Front-end (2.3)% (1.4)%


(1) Growth is calculated in local currency and is based on
comparable periods.
(2) Franchised's outlet retail sales are not included in the
Company's consolidated financial statements.
(3) This measure includes same-store sales for the acquired Eckerd
corporate outlets as of August 1, 2005.


THE JEAN COUTU GROUP (PJC) INC.
Unaudited additional information
Periods ended August 27, 2005 and August 28, 2004
(In thousands of US dollars)
-------------------------------------------------------------------


Non GAAP measures - Operating income before amortization ("OIBA")

OIBA is not a measure of performance under Canadian generally accepted accounting principles ("GAAP"); however management uses this performance measure in assessing the operating and financial performance of its reportable segments. Besides, we believe that OIBA is an additional measure used by investors to evaluate operating performance and capacity of a company to meet its financial obligations. However, OIBA is not and must not be used as an alternative to net earnings or cash flow generated by operating activities as defined by Canadian GAAP. OIBA is not necessarily an indication that cash flow will be sufficient to meet our financial obligations. Furthermore, our definition of OIBA may not be necessarily comparative to similar measures reported by other companies.

Net earnings, which is a performance measure defined by Canadian GAAP, is reconciled below with OIBA.



13 weeks
2005 2004
----------------
$ $

Net earnings 11.1 22.3
Interest on long-term debt 48.9 15.0
Other financing expenses, net 1.8 2.7
Income tax recovery (19.0) (4.2)
-------------------------------------------------------------------
Operating income 42.8 35.8
Amortization per GAAP financial statements 60.7 25.3
Amortization of incentives paid to franchisees (1) 0.9 0.8
-------------------------------------------------------------------
Operating income before amortization ("OIBA") 104.4 61.9
-------------------------------------------------------------------
-------------------------------------------------------------------

(1) Amortization of incentives paid to franchisees is grouped with
other revenues in the GAAP financial statements.


Contact Information

  • The Jean Coutu Group (PJC), Inc.
    Andre Belzile (Source)
    Senior Vice-President Finance and Corporate Affairs
    (450) 646-9760
    or
    The Jean Coutu Group (PJC), Inc.
    Michael Murray
    Director, Investor Relations
    (450) 646-9760
    or
    Helene Bisson
    Media and Public Relations
    (514) 393-1180, ext. 343 or 1-877-894-8993