RONA INC.
TSX : RON

RONA INC.

February 19, 2009 08:47 ET

RONA Announces Results for Fiscal 2008

Strong PEP program performance and rigorous balance sheet management increase cash flow from operations by 27% and reduce net debt by 25%

BOUCHERVILLE, QUEBEC--(Marketwire - Feb. 19, 2009) - RONA (TSX:RON)

FINANCIAL HIGHLIGHTS

- Consolidated sales up 2.2%.

- Sales in the distribution sector up 4.9% as a result of higher comparable sales by RONA affiliate dealer-owners and new dealer recruitments.

- Adjusted gross margin, excluding unusual items, increased 89 basis points, or 101 basis points if calculated excluding the impact of a significant shift in the distribution sector's relative weighting.

- Comparable inventories were reduced by $118 million, or 13.8%, and capital asset investments by $37.5 million, or 16.1%.

- Cash flow from operations of $350.3 million, or $3.03 per share, up 26.6% over 2007.

- Net debt was reduced by $163.2 million, or 25.0%, compared to 2007.

- Net earnings totalled $160.2 million, or $1.37 diluted earnings per share, compared with $185.1 million, or $1.59 diluted earnings per share, in 2007. Excluding unusual items of $11.0 million after-tax, or $0.10 per share, posted in 2008, diluted net earnings per share were $1.47, down 7.5% from 2007.

- Continued expansion of the network, with six new RONA store openings, major renovations of 10 stores, including 8 Reno-Depot stores in Quebec, recruitment of 31 new independent dealers and completion of over 160 upgrade and expansion projects in affiliated stores.

RONA (TSX:RON), the largest Canadian distributor and retailer of hardware, renovation and gardening products, announced a 2.2% increase in its consolidated sales, which stood at $4,891.1 million in fiscal year 2008, compared to $4,785.1 million in 2007. This increase is attributable to improved sales by RONA affiliate dealer-owners, recruitment of new dealers, new store openings and acquisitions in late 2007 and early 2008. These factors have more than compensated for the 4% decrease in same-store sales in our corporate and franchise store network, which faced more difficult market conditions than expected throughout the entire year in certain regions of the country, particularly in Alberta, British Columbia and Ontario.

Operating income (EBITDA), including unusual items, stood at $377.1 million for fiscal 2008, compared to $400.2 million posted in 2007. The EBITDA margin decreased from 8.36% in 2007 to 7.71% in 2008. In 2008, unusual items of $16.0 million ($11.0 million after tax) were recorded for the cost of store closures and cancellation of future commitments, net of gains on disposal of non-core assets. Of this amount, $12.2 million affected EBITDA. Excluding these unusual items, operating income was $389.3 million for fiscal 2008, down $10.9 million or 2.7% from 2007. This change is explainable primarily as a result of downward pressure on sales in the construction/renovation industry attributable to the drop in consumer confidence. This pressure had a more substantial impact on first and fourth quarter results than on the second and third quarters, since the beginning and end of the year are the periods when store traffic is at its lowest and variable costs are harder to contain. New stores that had not yet reached their full potential also contributed to the decrease in operating income. However, the numerous efficiency improvements introduced under the PEP program (Phase 1 of our 2008-2011 strategic plan) have helped offset these negative factors.

EBITDA margin excluding unusual items decreased from 8.36% in 2007 to 7.96% in 2008. This decline is largely explained by the strong growth in distribution sector activities stemming both from our recruitment of new independent dealers and strong performance by our existing network of affiliates. These distribution activities generate lower margins than retail activities, which explains the downward pressure on the EBITDA margin. Although these development activities negatively affected the EBITDA margin, they generated a positive impact on the Company's return on capital. It should be added that pressure on sales in the construction/renovation industry due to the decline in consumer confidence also affected the EBITDA margin for the year. Greater efficiency as a result of the PEP program, however, helped mitigate this negative effect.

Net earnings, including unusual items, stood at $160.2 million in 2008, or $1.37 diluted earnings per share, compared to $185.1 million in 2007, or $1.59 diluted earnings per share. Excluding unusual items, net earnings were $171.2 million for fiscal 2008, or $1.47 diluted earnings per share, compared to $185.1 million in 2007, or $1.59 diluted earnings per share, a decrease of $13.9 million or 7.5%. The factors that affect operating income also apply to this change in net earnings. Higher fixed costs involved in expanding the network were an additional factor, particularly the amortization costs associated with recent store openings and acquisitions.

"At the beginning of 2008, RONA adopted proactive measures to meet a more difficult economic environment than we had expected. In every quarter of this year, we improved our operating efficiency under the PEP program (productivity, efficiency, profitability). We also improved our balance sheet considerably, reducing our level of debt by more than $160 million as a result of, among other things, an increase of nearly 27% in cash flow from operations, which reached a record $350 million in 2008. The vitality of our affiliate dealer-owner network and our recent dealer recruitment successes also helped us post a 4.9% growth in sales from our distribution sector in 2008 and 15.3% in the fourth quarter. These various factors helped offset the negative impact on our results caused by the drop in Canadian consumer confidence as well as the decline in construction/renovation activities in certain regions of the country", said RONA President and CEO Robert Dutton.

"The current environment remains highly favourable to ongoing consolidation of our market in Canada, especially through recruitment of independent dealer-owners who want to join a strong brand with a highly promising business development plan. This was the reason behind my decision to get directly involved in recruiting and supporting these dealers. In 2008, we recruited 31 independent dealers representing $132 million in retail sales. Since the start of 2009, 4 more dealers, representing retail sales of $19 million, have been added. We still have more prospects that we're looking at and will continue to develop this growth vector vigorously in the upcoming quarters", Dutton added.

"However, given the uncertainly around the potential impact of the global economic crisis on consumer activity, we will continue to be disciplined in our other developments. We are starting 2009 with an improved PEP program and an optimized organizational structure. We will be very careful throughout this fiscal year to adapt our operations and capital asset investments to the unusual economic conditions we anticipate in 2009. Already in this early part of the year, we plan to reduce our capital investments by nearly $50 million, or 25% less than in 2008. We want to maintain a solid balance sheet so that we can take advantage of the opportunities for growth that will arise during or near the end of the recession", Dutton concluded.

While the PEP program helped to largely offset the negative effects of conditions that were more difficult than expected since the beginning of the year, the extent of the current global economic crisis brings a high degree of uncertainty in terms of future consumer activity, RONA's management believes that the expected decline in the economic environment over upcoming quarters will prevent the Company from achieving its low-single-digit-growth objective for average earnings per share in the first half of the 2008-2011 business plan.

Management is nevertheless optimistic about the fundamental factors that support the demand and popularity of renovation projects, especially as this demand should be stimulated by the renovation tax credits introduced by the provincial and federal governments at the start of fiscal 2009, and by RONA's own complementary incentive measure. The Company intends to actively pursue the various measures underway to stimulate sales and improve efficiency in the PEP program over the next few quarters.

Finally, management believes that periods of major economic uncertainty often lead to major shifts in consumer activity, and this represents an outstanding opportunity to develop more innovative store concepts for the recovery to come. The Company also plans to maintain a solid balance sheet in order to seize the growth opportunities that will arise during or near the end of the recession.

FINANCIAL HIGHLIGHTS OF 2008

Economic conditions

Overall conditions in 2008 were relatively favourable for renovations in Quebec and the Atlantic Provinces, where RONA generates nearly 50% of its sales. But significant increases in housing prices continued to affect construction/renovation activities in the western part of the country, especially in Alberta, which had accumulated a high inventory of unsold new homes, and in British Columbia, where housing prices had become very expensive. In Ontario, single-family home construction/renovation activities were affected by economic difficulties in the province, which has been deeply affected by the auto industry slowdown.

Furthermore, housing starts for urban single-family homes dropped 18.1% in Canada in 2008, according to CMHC estimates. The decline was particularly heavy in Alberta, where housing starts for single-family homes decreased by 44%, compared to 19.8% in British Columbia and 15.1% in Ontario. In Quebec, the decline in housing starts was far less pronounced, at 5.3%, while in the Atlantic Provinces single-family housing starts increased by 13.2%, reflecting robust economic growth in Nova Scotia and Newfoundland. The most recent statistics for housing resales and average house prices also show a decline, especially in Alberta, British Columbia and Ontario.

Starting in the third quarter, the economic situation changed drastically across the country. In the face of the current global financial and economic crisis, economic uncertainty has reached new heights, and consumer confidence has been severely eroded. According to a recent poll published by the Conference Board of Canada, Canadian consumer confidence reached its lowest ebb in 26 years last December, in spite of a slight rally due to the major decrease in gas prices in November.

In light of these circumstances and the projected decline in the consumer price index, the Bank of Canada reduced its prime rate several times over the last few months. After the recent decrease of 50 basis points in January, the prime rate stood at 1.50%. According to the Bank of Canada's latest Monetary Policy Report in January, Canadian GDP is expected to shrink by 1.2% in 2009. In 2008, the Canadian economy posted a 0.7% increase in GDP, while in 2007 GDP grew by 2.7%.

The current interest rate environment remains favourable to high levels of housing starts and resales. In addition, inflationary pressures have declined considerably in recent months. Access to credit is more limited, however, and as previously mentioned, consumer confidence is at an extremely low level.

We must keep in mind, however, that fundamental trends are very favourable for renovations in Canada. More than 65% of existing dwellings are over 25 years old. Baby boomers represent roughly 30% of the population and they are investing major sums in their home or cottage. And there is still plenty of interest in interior decorating and gardening activities. Another strong trend is developing for backyard and patio decoration, as consumers embrace "outdoor living." Last but not least, next-generation Canadians are looking for one-stop solutions for their renovation projects and outstanding service in a friendly store near their home. RONA is tracking all these different trends closely as we develop new store formats and concepts, select our products and develop innovative services.

The current business environment is also highly favourable to the consolidation of the construction/renovation market in Canada, especially through recruitment of independent dealer-owners. RONA's recruitment results demonstrate clearly that in difficult times, independents want to join ranks with an organization that enjoys a strong reputation and can provide not only increased purchasing power but also management and development tools to help them improve their performance and establish a solid growth plan.

Consolidated sales

Consolidated sales for the year ended December 28, 2008, stood at $4,891.1 million, up $106.0 million, or 2.2% higher than the $4,785.1 million posted in 2007. This growth stems from six new stores opened during the year, recruitment of 31 new affiliate dealer-owners and integration of recent acquisitions. Excluding major acquisitions (Noble Trade, Dick's Lumber, Centre de Renovation Andre Lessard and Best-MAR), however, consolidated sales were 1.3% lower. Sales generated by the new stores opened or recruited over the last 12 months could not compensate for the decline in our same-store sales, which decreased 4.0% in 2008, excluding 0.6% deflation in the average price of forest products.

The decline in sales excluding acquisitions can be attributed, as explained earlier, to the ongoing decline in the level of consumer confidence in Canada, as well as the drop in housing starts and resales of single-family homes, especially in Alberta, Ontario and British Columbia. Despite lower figures for in-store transactions, due to the factors mentioned above, RONA's loyalty-building and sales-boosting activities, combined with employee efforts to offer the best service and shopping experience in the industry, have helped increase our average shopping basket. Sales declined in most product categories, indicating a general decline in consumer activity since the beginning of the year. Sales of RONA private brand products and installation services, however, experienced strong growth since the beginning of the year.

Adjusted Gross margin

The adjusted gross margin, excluding unusual items, rose by 89 basis points in 2008, from 29.24% in 2007 to 30.13% in 2008. If calculated excluding the effect of the significant shift in weighting of the distribution segment, the margin actually increased by 101 basis points. Adjusted gross margin in the retail segment increased by 116 basis points. This growth stems from better management of our product categories, higher private brand sales, reduced store losses (shrinkage) and ongoing improvement of terms and conditions from our suppliers.

Unusual items

Over the course of 2008, as part of a broad program to improve efficiency and optimize the existing RONA store network, the Company made a decision to close four non-performing stores and transfer the business volume from these stores to other nearby RONA stores. During the second quarter, the Company sold certain non-core assets and realized a before-tax gain of $1.4 million. During the third quarter, the Company recorded unusual costs related to the cancellation of future commitments. Also in the fourth quarter, the Company posted unusual costs of $0.9 million related to the store closures announced in the second quarter. For the year ended December 28, 2008, net unusual costs of $16.0 million were accounted for, of which $12.2 million affected operating income and $3.8 million affected amortization, depreciation and financing costs. After taxes, the total unusual costs for 2008 were $11.0 million.

Consolidated operating income

Operating income, including unusual items, was $377.1 million for the year ended December 28, 2008, down $23.1 million, or 5.8%, from the $400.2 million posted in 2007. The EBITDA margin dropped 65 basis points from 8.36% in 2007 to 7.71%, largely due to the unusual items explained above and downward pressure on same-store sales.

Excluding the unusual items posted in the second, third and fourth quarters of 2008, operating income was $389.3 million for 2008, down $10.9 million or 2.7% from 2007. The EBITDA margin dropped 40 basis points to 7.96% from the 8.36% recorded in 2007.

This decline in operating income is largely the result of current pressure on sales in the construction/renovation industry due to the low level of consumer confidence. This pressure had a more substantial impact on first and fourth quarter results than on the second and third quarters because the beginning and end of the year represent the period when store traffic is at its lowest and variable costs are harder to contain. New stores that had not yet reached their full potential also contributed to the decline in operating income. The numerous efficiency improvements introduced under the PEP program in the first phase of the 2008-2011 strategic plan have nevertheless helped offset the negative effects of these factors. Since the beginning of the year, the PEP program has, for example, allowed us to improve our adjusted gross margin, reduce inventory levels, optimize the network of existing stores, improve logistics, accelerate recruitment of independent dealers and improve the process for opening new stores.

The main reason for the decline in the EBITDA margin is the strong growth in distribution activities stemming from recruitment of independent dealer-owners and strong performance by our existing network of affiliates. We should mention here that distribution activities generate lower margins than retail activities, which explains the downward pressure on the EBITDA margin. Although these development activities negatively affected the EBITDA margin, they generated a positive impact on the Company's return on capital. It should be added that pressure on sales in the construction/renovation industry as a result of the decline in consumer confidence also affected the EBITDA margin this year, although the efficiency improvements under the PEP program helped mitigate these negative effects.

Net earnings

Net earnings for 2008, including unusual items, dropped by 13.4% to $160.2 million, or $1.37 diluted earnings per share, compared to $185.1 million in 2007, or $1.59 diluted earnings per share. The factors that affected operating income also apply to the change in net earnings. Net earnings were also influenced by the increase in fixed costs related to the growth of the network, especially the amortization related to recent store openings and acquisitions.

Excluding unusual items, net earnings totalled $171.2 million in 2008, or $1.47 diluted earnings per share, compared to $185.1 million or $1.59 diluted earnings per share in 2007. This amounts to a decrease of $13.9 million or 7.5%, reflecting pressure on sales in the construction/renovation industry, which could not be entirely compensated for by the efficiency improvement measures implemented at the beginning of the year.

FINANCIAL HIGHLIGHTS, FOURTH QUARTER 2008

Consolidated sales

Consolidated sales in fourth quarter 2008 totalled $1,124.6 million, $37.6 million, or 3.5%, higher than the $1,087.0 million figure in 2007. This growth stemmed from store openings, recruitment of new affiliate dealer-owners and acquisitions. Consolidated growth (minus major acquisitions - Dick's Lumber, Centre de Renovation Andre Lessard and Best-MAR) was 1.5%. Sales generated by new stores opened in the past 12 months and the $34.2 million increase, or 15.3%, in distribution sector sales as a result of a very strong performance by our affiliate dealer-owner network and rapid integration of recently recruited dealers, more than compensated for the decrease in our same-store sales. The higher distribution sector sales stem from a temporary increase in inventories of certain low-priced building materials at year end and higher sales of building materials by our affiliate store network, given an improved purchasing program introduced for our building material specialists.

Same-store sales in fourth quarter 2008 decreased by only 0.8%, excluding 0.6% deflation in the average price of forest products. Quebec, the Prairies and the Atlantic Provinces performed very well in this quarter, but could not entirely offset the current pressure on sales in Alberta, British Columbia and Ontario, which have been more severely affected by the economic slowdown.

Despite a decline in in-store transactions due to the factors mentioned above, RONA's loyalty-building and sales-boosting activities, combined with employee efforts to offer the best service and shopping experience in the industry, helped hold the average shopping basket to a level only slightly lower than in the fourth quarter of 2007. Sales decreased in most product categories, indicating a general decline in consumer activity during this quarter.

As mentioned in our analysis of the year-end results, however, sales of RONA's private label products and installation services sales experienced strong growth since the beginning of the year.

Adjusted Gross margin

In fourth quarter 2008, adjusted gross margin, excluding unusual items, decreased from 30.82% in 2007 to 30.59% in 2008, a difference of 23 basis points. This decrease in adjusted gross margin is attributable primarily to strong growth in distribution sector activities as a result of our recruitment of new independent dealers and a strong performance by our existing affiliate dealer-owners. It is also attributable to a greater relative weighting of forest products and building materials in the fourth-quarter 2008 sales mix, stemming from a temporary increase in inventories of certain low-priced building materials at year end and higher sales of building materials by our affiliate store network, given an improved purchasing program introduced for our dealer-owners specializing in building materials. We should mention here that distribution activities generate smaller margins than retail activities and that the margin on sales of forest products and building materials is generally lower than the margin on hardware products. This explains the downward pressure on our adjusted gross margin. Although these growth activities may have negatively affected the adjusted gross margin, they have generated a positive impact on the Company's return on capital. If calculated eliminating the impact of a major variation in the distribution sector's relative weighting, adjusted gross margin increased 32 basis points. Adjusted gross margin in the retail segment increased by 95 basis points. This growth is tied to better management of product categories, higher private brand sales, reduced shrinkage in our stores and ongoing efforts to obtain better terms and conditions from our suppliers

Unusual items

In our analysis of the year-end results, we mentioned that as part of a broad program to improve efficiency and optimize the existing RONA stores network, the Company made a decision to close four non-performing stores and transfer the business volume from these stores to other nearby RONA stores. During fourth quarter 2008, the Company booked unusual costs of $0.9 million related to these store closures. After taxes, these unusual costs were $0.6 million.

Consolidated operating income

Operating income, including the unusual items mentioned above, was $70.9 million in fourth quarter 2008, compared to $75.9 million in 2007. The EBITDA margin decreased from 6.99% in 2007 to 6.31% in 2008. Excluding unusual items, however, operating income was $71.8 million in fourth quarter 2008, down $4.2 million, or 5.5%, from 2007, while the EBITDA margin decreased by 61 basis points from 6.99% in 2007 to 6.38% in 2008.

Besides the change in mix mentioned in our adjusted gross margin analysis, this decline can be explained by the current pressure on sales in the construction/renovation industry due to the decline in consumer confidence. This pressure had a much more substantial impact on first and fourth quarter results than on the second and third quarters, since the beginning and end of the year are the period when store traffic is at its lowest and variable costs are harder to contain. The decline is also attributable to recently opened stores that have not yet reached their full potential. As mentioned in our analysis of year-end results, the numerous efficiency improvements posted under the PEP program (Phase 1 of our 2008-2011 strategic plan) have helped mitigate the negative impact of these three factors. Since the start of the fiscal year, the PEP program has, among other things, allowed us to improve our adjusted gross margin, reduce inventory levels, optimize our network of existing stores, improve logistics, accelerate recruitment of independent dealers and improve the process for opening new stores

Net earnings

Net earnings, including unusual items in fourth quarter 2008, were $25.7 million or $0.22 diluted earnings per share, compared to $30.5 million in 2007, or $0.26 diluted earnings per share. Excluding the unusual items mentioned above, net earnings were $26.3 million in fourth quarter 2008, or $0.23 diluted earnings per share, compared to $30.5 million in 2007, or $0.26 diluted earnings per share. This represents a decrease of $4.2 million or 13.8%. The factors that affected operating income also apply to this change in net earnings. Higher fixed costs involved in expanding the RONA network were an additional factor, particularly the amortization costs associated with recent store openings and acquisitions.

CASH FLOWS AND FINANCIAL POSITION

Operations generated cash flows of $275.0 million in 2008, compared to $286.2 million in 2007. Net of changes in working capital, operations generated $350.3 million, compared to $276.8 in 2007, an increase of $73.5 million or 26.6%. Comparable inventories were reduced by $118 million in 2008. As the table below shows, comparable inventory levels declined significantly in every quarter in 2008.

Reductions in comparable inventories



--------------------------------------------------------------------------
(In millions First quarter Second quarter Third quarter Fourth quarter
of dollars) 2008 2008 2008 2008
--------------------------------------------------------------------------
Inventory at
end of the
corresponding
period in 2007 $944 $959 $872 $856
--------------------------------------------------------------------------
Reduction in comparable
inventories $83 $118 $80 $118
--------------------------------------------------------------------------
Reduction (percent) 8.8% 12.3% $9.2% 13.8%
--------------------------------------------------------------------------


In second quarter 2008, RONA decided to reduce its planned capital spending program from $240 million to $200 million, in view of market conditions that were more difficult than expected. RONA ended the year with investments in capital assets totalling $196.1 million, a difference of $37.6 million, or 16.1% less than the $233.7 million invested in 2007.

These investments were dedicated to the expansion of our retail network, including new store construction, as well as repairs, renovations and upgrades in existing stores to reflect new concepts - particularly stores under the Reno-Depot banner. We also committed part of these investments to ongoing improvements to our information systems in order to increase operational efficiency. The Company practised disciplined financial management throughout the year and strictly monitored its capital asset investments.

Thanks to the substantial funds generated by disciplined management of our working capital and capital spending since the beginning of the year, the Company's net debt on December 28, 2008, was $490.3 million. This is a decrease of $163.2 million, or 25.0%, compared to 2007.

RONA's balance sheet remains very strong. On December 28, 2008, the ratio of total debt to capital was 25.2%, compared to 33.1% at the end of 2007. The equity/asset ratio was 59.6% at the end of 2008, compared to 53.4 % a year earlier.

RONA's access to revolving credit increased by $150 million on July 11, 2008, for a current total of $650 million. At the end of fiscal 2008, $42 million had been drawn on the total. Renewal of this credit facility is projected for 2012, and the unsecured debentures that constitute the major portion of the Company's long-term debt mature in 2016. RONA's operations also produce significant cash flows. With relatively low debt and long-term fixed rates on most of its long-term debt, RONA has significant liquidity and can borrow many millions more at advantageous rates. Our financial resources are therefore sufficient to face the current recession and pursue the disciplined development of our four growth vectors: growing sales in our existing store network, construction of new corporate and franchise stores, recruitment of new affiliate stores and acquisitions.

OUTLOOK

As the "Economic conditions" section explained in some detail, the economic situation changed significantly towards the end of the third quarter 2008. In the current ongoing global financial and economic crisis, economic uncertainty has reached new heights, with the result that consumer confidence has been hit hard, according to the most recent surveys.

With the Bank of Canada's numerous rate decreases in 2008 and early 2009, the current interest rate environment remains favourable to high housing starts and resale levels. Access to credit, however, is becoming increasingly limited, and consumer confidence is lower than at any time in the past 26 years.

While the PEP program largely offset the negative effects related to worse-than-anticipated conditions caused by the scope of the global economic crisis since the beginning of the year, RONA management believes that the expected decline in the economic environment over the next few quarters will prevent the Company from achieving its low-single-digit growth objective for average earnings per share in the first half of the 2008-2011 business plan.

Management is nevertheless optimistic about the fundamental factors that support the demand for and popularity of renovation projects, especially as this demand should be stimulated by the renovation tax credits announced by the federal and provincial governments in early 2009, and by RONA's own complementary incentive measure.

The Company intends to actively pursue the various efficiency improvement measures underway in the PEP program to stimulate sales and improve efficiency over the next quarters. Some of these are promising initiatives we introduced in 2008. Others are new initiatives, which will be also based on the four major projects unveiled in 2008. Key measures to be put in place under the PEP program in 2009 are as follows:

Improve the profitability of our corporate stores network:

- Continue to increase the retail segment's adjusted gross margin.

- Continue to reduce loss rates in stores (shrinkage).

- Continue to optimize our network by introducing improvement plans for under-performing stores.

- Continue to improve the Company's various information systems for greater ease and efficiency in our next wave of growth through acquisitions.

- Continue to sell off non-core assets.

Optimize our supply chain:

- Continue to reduce comparable inventories and generate better turnover
rates in our stores and distribution centres.

- Further improve inventory quality by working more closely with our suppliers.

- Continue to optimize our distribution channels and review transportation contracts.

- Grow our Commercial and Professional Market division's distribution capacity.

Accelerate recruitment of independent dealer-owners:

- Accelerate the recruitment of independent dealer-owners and further improve loyalty among our current affiliates.

- Promote expansion projects among current affiliate dealer-owners.

Improve sales and customer loyalty in the RONA network:

- Introduce a revitalization program for existing big-box stores and create an innovative concept for future stores openings.

- Develop new concepts of specialized stores.

- Increase our private brand penetration from 17% to 18%.

- Increase our Commercial and Professional Market division's sales force in order to increase sales to these customers throughout the RONA network.

- Diversify the Commercial and Professional Market division's activities into other renovation product categories such as heating, ventilation and air-conditioning (HVAC) products.

- Continue to develop new RONA by Design renovation projects, including Building-by-Design and Decorating-by-Design projects.

- Continue to improve installation sales and promote use of the Project Guide for customers' major renovation projects and take full advantage of the renovation tax credits announced by the federal government and Quebec's government, as well as RONA's own complementary incentive measures.

- Continue to increase the number of its customers who use the AIR MILES® program as well as the RONA Desjardins credit card.

- Continue to market eco-responsible products and develop a range of eco-energy products using the life cycle analysis approach.

- Market new product categories and launch a repair service for private brand products and garden equipment.

To give the organization renewed vitality and establish a solid basis for the continued pursuit of the 2008-2011 strategic plan, RONA has made some changes to its organizational structure over the last few months. The operations of big-box stores and proximity stores have been combined under a single department. RONA's marketing activities have been consolidated and expanded, and they now focus more directly on innovation and the customer experience. A new vice-presidency was created for supply chain management, and the recruitment and support of independent dealer-owners has come under the direct supervision of the president and CEO. Finally, new talent management and executive succession planning tools will be introduced in 2009.

RONA started off 2009 with an improved PEP program and an optimized organizational structure. The Company will nevertheless remain vigilant throughout the year to adapt its operational activities and capital investments to the economic conditions projected for 2009. Even this early in the year, RONA is already planning to reduce capital spending from the $196.1 million spent in 2008 to $150 million in 2009. Of the seven stores currently under construction, three will open in 2009: a Reno-Depot expansion in LaSalle, Quebec, a new proximity store in Strathmore, Alberta, under the TOTEM banner, and the reconstruction and relocation of a RONA store after a fire in St-Georges-de-Beauce, Quebec. Four more stores will open in early 2010: three in Ontario and one in Alberta.

Management believes, however, that the current market conditions present significant potential for further consolidation of the Canadian construction/renovation market, especially in terms of recruitment of independent dealer-owners. Management also believes that periods of great economic uncertainty often lead to major changes in consumer behaviour, and this represents an excellent opportunity to develop innovative new store concepts in preparation for our sector's recovery. The Company therefore plans to maintain a solid balance sheet in order to be able to seize growth opportunities that will arise during or toward the end of the recession.

COMPANY BUSINESS

Last January, at the seventh annual Awards for Excellence in Corporate Governance presented by Korn/Ferry and Commerce Magazine, RONA was named the winner in the large business category. This recognition is testimony to the major efforts RONA management and members of our Board of Directors have made for many years to maintain exemplary standards in our corporate governance and business practices.

ADDITIONAL INFORMATION

The Management Discussion and Analysis (MD&A) and unaudited financial statements for the 2008 fiscal year 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 19, 2009, at 11:00 a.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/C0003/Default.aspx.

NON-GAAP PERFORMANCE MEASURES

In this press 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 and adjusted gross margin do not have definitions standardized by generally accepted accounting principles in Canada (GAAP), they are widely used in our industry and financial circles to measure the profitability of operations, excluding tax considerations and the cost and use of capital. Given that they 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 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.

In 2008, RONA accounted for unusual items related to the cost of store closures and gains on disposal of assets, as well as unusual costs related to the cancellation of future commitments. This document contains variance analyses of adjusted gross margin, EBITDA, EBITDA margin, net earnings and earnings per share excluding these unusual items. While these measures do not have a meaning standardized by GAAP, the management of the Company believes they represent good indicators of the operating performance of existing activities.

FORWARD-LOOKING STATEMENTS

This press release includes "forward-looking statements" that involve risks and uncertainties. All statements other than statements of historical facts included in this press 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 19, 2009, 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 over 29,000 employees working under its family of banners in every region of Canada and more than 15 million square feet of retail space, the RONA store network generates over $6.3 billion in annual retail sales.




RONA

Consolidated Financial Statements
December 28, 2008 and December 30, 2007




RONA inc.
Consolidated Earnings
Years ended December 28, 2008 and December 30, 2007
(Unaudited, in thousands of dollars, except earnings per share)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Fourth Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------

Sales $1,124,612 $1,087,035 $4,891,122 $4,785,106
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings before
the following
items (Note 5) 70,914 75,940 377,101 400,207
-------------------------------------------------------------------------

Interest on
long-term debt 5,694 6,599 28,106 28,270
Interest on bank
loans 590 894 2,134 3,329
Depreciation and
amortization
(Notes 11, 13
and 14) 26,192 23,397 108,091 90,901
-------------------------------------------------------------------------
32,476 30,890 138,331 122,500
-------------------------------------------------------------------------

Earnings before
income taxes and
non-controlling
interest 38,438 45,050 238,770 277,707
Income taxes
(Note 6) 11,838 13,925 73,541 88,130
-------------------------------------------------------------------------
Earnings before
non-controlling
interest 26,600 31,125 165,229 189,577
Non-controlling
interest 903 636 5,030 4,488
-------------------------------------------------------------------------
Net earnings and
comprehensive
income $25,697 $30,489 $160,199 $185,089
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net earnings per
share (Note 25)
Basic $0.22 $0.26 $1.39 $1.61
Diluted $0.22 $0.26 $1.37 $1.59
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.



RONA inc.
Consolidated Retained Earnings
Consolidated Contributed Surplus
Years ended December 28, 2008 and December 30, 2007
(Unaudited, in thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

2008 2007
-------------------------------------------------------------------------

Consolidated Retained Earnings
Balance, beginning of year, as previously
reported $892,967 $709,467
Financial instruments - recognition and
measurement (Note 3) - (1,589)
-------------------------------------------------------------------------
Restated balance, beginning of year 892,967 707,878
Net earnings 160,199 185,089
-------------------------------------------------------------------------
Balance, end of year $1,053,166 $892,967
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Consolidated Contributed Surplus
Balance, beginning of year $11,045 $9,182
Compensation cost relating to stock option plans 1,518 2,082
Exercise of stock options - (219)
-------------------------------------------------------------------------
Balance, end of year $12,563 $11,045
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.



RONA inc.
Consolidated Cash Flows
Years ended December 28, 2008 and December 30, 2007
(Unaudited, in thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Fourth Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Operating activities
Net earnings $25,697 $30,489 $160,199 $185,089
Non-cash items
Depreciation and
amortization 26,192 23,397 108,091 90,901
Derivative financial
instruments 1,011 819 1,192 (2,483)
Future income taxes (1,696) 2,032 (1,733) 1,894
Net loss (gain)
on disposal of
assets (926) 152 (2,796) 1,041
Compensation cost
relating to stock
option plans 380 537 1,518 2,082
Non-controlling
interest 903 636 5,030 4,488
Other items 1,259 731 3,465 3,158
-------------------------------------------------------------------------
52,820 58,793 274,966 286,170
Changes in working
capital items
(Note 7) 36,896 69,294 75,336 (9,361)
-------------------------------------------------------------------------
Cash flows from
operating activities 89,716 128,087 350,302 276,809
-------------------------------------------------------------------------
Investing activities
Business acquisitions
(Note 8) (765) (53,162) (4,824) (228,502)
Advances to joint
ventures and other
advances (18) (7,666) 8,139 (2,795)
Other investments (715) - (3,155) (588)
Fixed assets (66,463) (73,175) (196,145) (233,662)
Other assets (7,085) (3,489) (13,380) (9,414)
Disposal of fixed
assets 2,776 9,339 11,686 10,375
Disposal of
investments 1,909 556 10,618 6,653
-------------------------------------------------------------------------
Cash flows from
investing
activities (70,361) (127,597) (187,061) (457,933)
-------------------------------------------------------------------------
Financing activities
Bank loans and
revolving credit (25,354) 16,488 (131,518) 156,128
Other long-term
debt 6,583 807 8,560 1,740
Repayment of other
long-term debt
and redemption of
preferred shares (15,904) (17,601) (33,946) (36,472)
Issue of common
shares 1,194 1,160 5,592 5,318
Issue of equity
securities to
non controlling
interest - - - 750
Cash dividends
paid by a
subsidiary to
non-controlling
interest (2,450) (1,960) (2,450) (1,960)
-------------------------------------------------------------------------
Cash flows from
financing
activities (35,931) (1,106) (153,762) 125,504
-------------------------------------------------------------------------
Net increase
(decrease) in
cash (16,576) (616) 9,479 (55,620)
Cash, beginning
of year 28,921 3,482 2,866 58,486
-------------------------------------------------------------------------
Cash, end of year $12,345 $2,866 $12,345 $2,866
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary
information
Interest paid $1,541 $2,933 $33,165 $28,555
Income taxes paid $8,255 $23,782 $75,508 $100,952
-------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.



RONA inc.
Consolidated Balance Sheets
December 28, 2008 and December 30, 2007
(Unaudited, in thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

2008 2007
-------------------------------------------------------------------------

Assets
Current assets
Cash $12,345 $2,866
Accounts receivable (Note 9) 234,027 237,043
Income taxes receivable 6,046 5,684
Inventory (Note 4) 763,239 856,326
Prepaid expenses 33,104 24,249
Derivative financial instruments (Note 21) 1,089 1,168
Future income taxes (Note 6) 13,800 12,279
-------------------------------------------------------------------------
1,063,650 1,139,615
Investments (Note 10) 10,186 11,901
Fixed assets (Note 11) 875,634 816,919
Fixed assets held for sale (Note 12) 34,870 -
Goodwill 454,889 454,882
Trademarks (Note 13) 3,797 4,145
Other assets (Note 14) 38,466 32,349
Future income taxes (Note 6) 24,681 22,635
-------------------------------------------------------------------------
$2,506,173 $2,482,446
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities
Current liabilities
Bank loans (Note 15) $8,468 $19,574
Accounts payable and accrued liabilities 422,318 421,446
Derivative financial instruments (Note 21) 2,180 1,067
Future income taxes (Note 6) 4,854 3,650
Instalments on long-term debt (Note 16) 15,696 34,239
-------------------------------------------------------------------------
453,516 479,976
Long-term debt (Note 16) 478,475 602,537
Other long-term liabilities (Note 17) 28,571 24,526
Future income taxes (Note 6) 23,998 23,781
Non-controlling interest 29,098 26,420
-------------------------------------------------------------------------
1,013,658 1,157,240
-------------------------------------------------------------------------
Shareholders' equity
Capital stock (Note 19) 426,786 421,194
Retained earnings 1,053,166 892,967
Contributed surplus 12,563 11,045
-------------------------------------------------------------------------
1,492,515 1,325,206
-------------------------------------------------------------------------
$2,506,173 $2,482,446
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.



RONA inc.
Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Unaudited, in thousands of dollars, except amounts per share)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


1. Governing statutes and nature of operations

The Company, incorporated under Part 1A 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

At the beginning of 2008 the Company retroactively adopted without restatement of prior period financial statements the following new recommendations of the Canadian Institute of Chartered Accountants' (CICA) Handbook:

Financial instruments - Disclosures and presentation

Section 3862, Financial Instruments - Disclosures describes the required disclosures related to the significance of financial instruments on the entity's financial position and performance and the nature and extent of risks arising for financial instruments to which the entity is exposed and how the entity manages those risks. Section 3863, Financial Instruments - Presentation establishes standards for presentation of financial instruments and non-financial derivatives. These Sections complement the principles of recognition, measurement and presentation of financial instruments of Section 3855, Financial Instruments - Recognition and Measurement and Section 3865, Hedges and replace the presentation standards of Section 3861, Financial Instruments - Disclosure and Presentation.

Capital disclosures

Section 1535, Capital Disclosures establishes standards for disclosing information about the entity's capital and how it is managed to enable users of financial statements to evaluate the entity's objectives, policies and procedures for managing capital.

Inventories

Section 3031, Inventories, replaces Section 3030 of the same title and prescribes the basis and method for measuring inventories. It allows for the reversal of any previous write-down of inventories as a result of an increase in value. Finally, the Section prescribes new requirements on the disclosure of the accounting policies adopted, carrying amounts, amounts recognized as an expense, the amount of any write-down and the amount of any reversal of a write-down.

Adoption of these recommendations had no material impact on the Company's results, financial position or cash flows.

3. 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.

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.

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% and 5%
Leasehold improvements 5% to 33%
Furniture and equipment 10% to 30%
Computer hardware and software 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.

Trademarks having finite lives are amortized on a straight-line basis over periods ranging from five to seven years.

Goodwill and non-amortizable trademarks

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.

Non-amortizable trademarks are also tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized when the carrying amount of the asset exceeds the future undiscounted cash flows expected from the asset. The loss is determined by comparing the carrying value of the asset to its fair value. The fair value is based on discounted cash flows.

Other assets

Pre-opening expenses are amortized on a straight-line basis over a period of three years beginning at the start of operations.

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 should be measured at the grant date and should be 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.

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, long-term loans and advances and redeemable preferred shares (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 and redeemable preferred shares are recognized at amortized cost using the effective interest method less any amortization.

- 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 adoption of this CICA Handbook recommendation in 2007 resulted in a decrease of $4,824 in deferred financing costs (previously included in other assets), a decrease of $4,870 in long-term debt and an increase of $46 ($31 net of future income taxes) in opening retained earnings.

- 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 "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. The adoption of this CICA Handbook recommendation in 2007 resulted in an increase in current liabilities of $2,382 and a decrease in retained earnings of $2,382 ($1,620 net of future income taxes) at January 1, 2007. For the year ended December 30, 2007, this change resulted in an increase in earnings before interest, depreciation and amortization, income taxes and non controlling interest of $4,219, an increase in net earnings of $2,868 and an increase of net earnings per share and diluted net earnings per share of $0.03.

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 obligation. The excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation 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 (16 years at December 30, 2007);

- 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 28, 2008 and December 30, 2007 include 52 weeks of operations.

Comparative figures

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

4. Inventory

For the thirteen and fifty-two-week periods ended December 28, 2008, $815,797 and $3,571,962 of inventory was expensed in the consolidated results ($803,708 and $3,542,605 as at December 30, 2007). These amounts include an inventory write-down charge of $7,840 and $46,752 ($14,296 and $48,883 as at December 30, 2007).

5. 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 will close in 2009. During the thirteen and fifty-two-week period ended December 28, 2008, the Company recognized the following costs:



Fourth Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------

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


Additional estimated costs of $2,980 relating to store closures, notably lease obligations, will be recorded by the Company when the criteria for recognition have been met.

The liability for exit and disposal costs and write-down of assets is as follows:



2008 2007
-------------------------------------------------------------------------

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


Other closing costs

During the thirteen and fifty-two week periods ended December 28, 2008, 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 amount of $1,101 and $5,202. The Company estimates that additional costs of $1,255 will be incurred in the next quarter to complete the liquidation of these stores' assets.

6. Income taxes



2008 2007
-------------------------------------------------------------------------

Current $75,274 $86,236
Future (1,733) 1,894
-------------------------------------------------------------------------
$73,541 $88,130
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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:



2008 2007
-------------------------------------------------------------------------

Federal statutory income tax rate 19.5% 22.1%
Statutory rate of various provinces 11.2 9.8
-------------------------------------------------------------------------
Combined statutory income tax rate 30.7 31.9
Non-deductible costs 0.3 0.4
Other (0.2) (0.6)
-------------------------------------------------------------------------
Effective income tax rate 30.8% 31.7%
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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



2008 2007
-------------------------------------------------------------------------
Future income tax assets
Current
Non-capital loss carry-forwards $1,325 $2,024
Direct costs related to business acquisitions 700 674
Provisions not deducted and other 11,775 9,581
-------------------------------------------------------------------------
$13,800 $12,279
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Long-term
Non-capital loss carry-forwards $7,602 $5,754
Fixed assets and pre-opening expenses 7,095 7,152
Deferred gain on sale and leaseback transaction 3,645 4,137
Goodwill 1,101 1,101
Deferred revenue and other 5,238 4,491
-------------------------------------------------------------------------
$24,681 $22,635
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Future income tax liabilities
Current
Incentive payments received $2,691 $2,065
Other 2,163 1,585
-------------------------------------------------------------------------
$4,854 $3,650
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Long-term
Fixed assets and pre-opening expenses $13,392 $15,822
Goodwill 5,842 3,544
Pension plans 2,395 2,079
Other 2,369 2,336
-------------------------------------------------------------------------
$23,998 $22,781
-------------------------------------------------------------------------
-------------------------------------------------------------------------


7. Cash flow information

The changes in working capital items are detailed as follows:

2008 2007
-------------------------------------------------------------------------

Accounts receivable $(6,518) $11,801
Inventory 94,455 (18,451)
Prepaid expenses (8,916) (3,740)
Accounts payable and accrued liabilities (4,495) 13,700
Income taxes (receivable) payable 810 (12,671)
-------------------------------------------------------------------------
$75,336 $(9,361)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


8. Business acquisitions

During 2008, the Company acquired two companies (seven companies in 2007), operating in the corporate and franchised stores segment, by way of asset purchases (share and asset purchases in 2007). Taking direct acquisition costs into account, these acquisitions were for a total consideration of $5,622 ($253,704 in 2007). 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 the acquisitions was established as follows:



2008 2007
-------------------------------------------------------------------------

Accounts receivable $2,697 $42,147
Inventory 2,997 50,871
Other current assets 66 805
Fixed assets 4,658 40,403
Goodwill 2,725 138,817
Trademarks - 2,981
Other assets - 118
Future income taxes - 1,240
Current liabilities (4,413) (18,636)
Long-term debt (3,108) (5,042)
-------------------------------------------------------------------------
5,622 253,704
Less: Accrued direct acquisition costs (48) (1,044)
Balance of purchase price (750) (24,158)
-------------------------------------------------------------------------
Cash consideration paid $4,824 $228,502
-------------------------------------------------------------------------
-------------------------------------------------------------------------


During the year, based on additional information obtained concerning the purchase price allocation of acquisitions of the fourth quarter of 2007, the Company reduced goodwill by $2,719 reduced other net assets acquired by $951 and reduced Balance of purchase price, accordingly.

The Company expects that the portion of goodwill deductible for tax purposes will be reduced by $1,206.

9. Accounts receivable



2008 2007
-------------------------------------------------------------------------

Trade accounts
Affiliated and franchised stores $63,361 $49,451
Joint ventures 6,443 8,176
Other (retail customers) 155,689 153,502
Advances to joint ventures, varying from prime
to prime plus 3% - 8,139
Other accounts receivable 6,806 13,492
Portion of investments receivable within one year 1,728 4,283
-------------------------------------------------------------------------
$234,027 $237,043
-------------------------------------------------------------------------
-------------------------------------------------------------------------


10. Investments

2008 2007
-------------------------------------------------------------------------

Joint ventures, at cost
Preferred shares, dividend rate of 6% $- $1,071
Mortgages, weighted average rate of 9.5% in 2007 - 693
Companies subject to significant influence
Shares, at equity value 3,342 2,387
Preferred shares, at cost, redeemable over ten
years, maturing in 2011 240 320
Advances and loans, at cost
Mortgages and term notes, weighted average rate
of 5.9% (5.7% in 2007), maturing at various
dates until 2016 7,667 11,071
Other 665 642
-------------------------------------------------------------------------
11,914 16,184
Portion receivable within one year 1,728 4,283
-------------------------------------------------------------------------
$10,186 $11,901
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The consolidated statement of earnings includes dividend income of
$29 ($82 in 2007) and interest income of $3,466 ($2,885 in 2007).


11. Fixed assets

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 and software 213,563 127,057 86,506
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 and software 21,252 16,570 4,682
--------------------------------------------------------------------------
$1,355,293 $479,659 $875,634
--------------------------------------------------------------------------
--------------------------------------------------------------------------


2007
--------------------------------------------------------------------------
Accumulated
Cost depreciation Net
--------------------------------------------------------------------------

Land and parking lots $166,386 $11,871 $154,515
Buildings 234,995 43,294 191,701
Leasehold improvements 174,231 67,198 107,033
Furniture and equipment 292,670 153,810 138,860
Computer hardware and software 166,544 105,665 60,879
Projects in process (a) 71,175 - 71,175
Land for future development 73,328 - 73,328
Assets under capital leases (b)
Furniture and equipment 18,690 7,706 10,984
Computer hardware and software 21,372 12,928 8,444
--------------------------------------------------------------------------
$1,219,391 $402,472 $816,919
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Depreciation of fixed assets amounts to $97,417 ($81,506 in 2007).

(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 $2,743 ($6,017 in 2007) of assets under capital leases.

12. 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.

13. Trademarks



2008 2007
-------------------------------------------------------------------------

Cost $4,495 $4,495
Accumulated amortization 698 350
-------------------------------------------------------------------------
Unamortized cost $3,797 $4,145
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Amortization of trademarks amounts to $348 ($216 in 2007). Non-
amortizable trademarks amounting to $2,321 are included in the cost.

14. Other assets

2008 2007
-------------------------------------------------------------------------

At unamortized cost
Pre-opening expenses $11,269 $15,753
Financing costs 3,657 3,122
Costs related to sale and leaseback agreements 2,879 2,653
Dealer recruitment costs 10,765 3,672
Accrued benefit asset (Note 22) 9,896 7,149
-------------------------------------------------------------------------
$38,466 $32,349
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Amortization of other assets amounts to $10,326 ($9,179 in 2007).


15. Credit facilities

a) Parent company and some subsidiaries

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 28, 2008, the letters of guarantee issued amount to $2,114. For 2008, the weighted average interest rate on the revolving credit is 4.5% (5.5% in 2007).

The Company is required to meet certain financial ratios. At December 28, 2008 and December 30, 2007, the Company is in compliance with these requirements.

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 28, 2008, the amount used is $31,258 ($29,493 in 2007).

b) Other subsidiaries

Bank loans are secured by an assignment of certain assets in the amount of $36,815 ($120,480 in 2007). These bank loans bear interest at rates varying from prime rate to prime rate plus 0.25% and are renewable annually. At December 28, 2008 the interest rates varied from 3.5% to 3.75% (6% to 7% in 2007). The amount authorized for these credit facilities is $21,000 ($58,250 in 2007) and the amount used is $7,340 ($17,142 in 2007).

c) Joint ventures

Bank loans are secured by an assignment of certain assets. The Company's share of these assets amounts to $10,672 ($12,408 in 2007). These bank loans bear interest at rates varying from prime rate to prime rate plus 1% and are renewable annually. At December 28, 2008, the interest rates varied from 3.5% to 4.5% (6% to 7% in 2007). The amount authorized for these credit facilities is $17,200 ($18,700 in 2007) and the amount used is $1,128 ($2,432 in 2007).

16. Long-term debt



2008 2007
-------------------------------------------------------------------------

Revolving credit, weighted average rate of 4.5
(5.5% in 2007) (Note 15) $39,789 $160,200
Debentures, unsecured, rate of 5.4%, due in
2016 (a) 396,182 395,821
Mortgage loans, secured by assets having a
depreciated cost of $58,557 ($43,069 in 2007),
rates varying from 1.68% to 7.95% (5.1% to 10.0%
in 2007) maturing on various dates until 2017 37,524 32,512
Obligations under capital leases, rates varying
from 0% to 12.4 % (2.9% to 12.4% in 2007),
maturing on various dates until 2016 11,058 15,317
Balance of purchase price, varying from prime
less 1% to 5%, payable on various dates
until 2010 5,618 27,926
Shares issued and fully paid
4,000,000 Class D preferred shares
(5,000,000 shares in 2007) (b) 4,000 5,000
-------------------------------------------------------------------------
494,171 636,779
Instalments due within one year 15,696 34,239
-------------------------------------------------------------------------
$478,475 $602,537
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(a) Effective rate of 5.5%

(b) During the year, the Company redeemed 1,000,000 shares (1,000,000
shares in 2007) for a cash consideration of $1,000 ($1,000 in 2007).
These shares are redeemable over a period of ten years.


Dividends affecting earnings amount to $200 ($240 in 2007).

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

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

2009 5,016 10,962
2010 3,689 6,300
2011 1,872 5,884
2012 653 10,397
2013 166 45,369
2014 and subsequent years 71 408,263
-------------------------------------------------------------------------
Total minimum lease payments 11,467
Financial expenses included in minimum lease
payments 409
-------------------------------------------------------------------------
11,058
-------------------------------------------------------------------------
-------------------------------------------------------------------------


17. Other long-term liabilities

2008 2007
-------------------------------------------------------------------------

Deferred gain on sale and leaseback transaction $12,470 $13,140
Deferred lease obligations 16,101 11,386
-------------------------------------------------------------------------
$28,571 $24,526
-------------------------------------------------------------------------
-------------------------------------------------------------------------


18. 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 $1,855. 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 $5,847.

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 62% of the cost of the inventories to a maximum of $66,894. 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 $74,366 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 $1,053,451.

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 $92,764 for the rental of premises and land on which the Company erected a building. In consideration thereof, the Company has signed subleasing agreements totalling $92,012.

The minimum lease payments (minimum amounts receivable) under lease agreements for the next five years are $120,466 ($10,033) in 2009, $117,025 ($10,033) in 2010, $111,956 ($10,077) in 2011, $105,061 ($10,037) in 2012 and $96,640 ($9,787) in 2013.

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 28, 2008, the balance due on these agreements is $28,508, i.e. $12,758 in 2009, $11,150 in 2010, $2,400 in 2011 and $2,200 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.

19. 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 16)


Issued and fully paid:

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

December 28, 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 (a) 3,744
-------------------------------------------------------------------------
$426,786
-------------------------------------------------------------------------
-------------------------------------------------------------------------


December 30, 2007
-------------------------------------------------------------------------
Number of shares Amount
-------------------------------------------------------------------------
Balance, beginning of year 114,935,569 $413,542
Issuance in exchange for common share
subscription deposits 120,715 2,513
Issuance under stock option plans 339,327 1,876
Issuance in exchange for cash 17,155 315
-------------------------------------------------------------------------
Balance before elimination of reciprocal
shareholdings 115,412,766 418,246
Elimination of reciprocal shareholdings (70,319) (401)
-------------------------------------------------------------------------
Balance, end of year 115,342,447 417,845
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deposits on common share subscriptions,
net of eliminations of joint ventures (a) 3,349
-------------------------------------------------------------------------
$421,194
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(a) 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.


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 can grant options for a maximum of 3,740,000 common shares. As at December 28, 2008 the 2,920,000 options granted have an exercise price of $3.47 and of this number, 1,538,500 options (1,449,500 options as at December 30, 2007) 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 28, 2008 and December 30, 2007.

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 and December 9, 2008, 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 28, 2008, the 1,959,052 options (1,700,852 options as at December 30, 2007) granted have exercise prices ranging from $10.86 to $26.87 ($14.29 to $26.87 as at December 30, 2007) and of this number, 85,100 options (85,100 options as at December 30, 2007) have been exercised and 274,450 options (163,700 options as at December 30, 2007) have been forfeited.

The fair value of stock options granted 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:



December 28, December 30,
2008 2007
-------------------------------------------------------------------------

Weighted average fair value per option granted $4.39 $8.50
Risk-free interest rate 3.19% 3.90%
Expected volatility in stock price 26% 26%
Expected annual dividend 0% 0%
Expected life (years) 6 6


Compensation costs expensed with respect to this plan were $380 and $1,518 for the thirteen and fifty-two-week periods ended December 28, 2008 ($537 and $2,082 as at December 30, 2007).

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:



December 28, 2008
-------------------------------------------------------------------------
Weighted
average
exercise
Options 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------


December 30, 2007
-------------------------------------------------------------------------
Weighted
average
exercise
Options price
-------------------------------------------------------------------------
Balance, beginning of year 3,162,479 $10.16
Granted 196,000 23.58
Exercised (339,327) 4.88
Forfeited (96,600) 20.94
-------------------------------------------------------------------------
Balance, end of year 2,922,552 11.31
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Options exercisable, end of year 2,011,194 $6.70
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The following table summarizes information relating to stock options
outstanding as at December 28, 2008:

Options Options
Exercise price Expiration date outstanding exercisable
--------------------------------------------------------------------------
$3.47 December 31, 2012 1,381,500 1,381,500
$10.86 December 9, 2018 15,000 -
$14.18 February 29, 2018 223,300 -
$14.29 December 16, 2013 432,550 432,550
$20.27 December 22, 2014 384,250 103,750
$21.21 February 24, 2016 340,500 -
$21.78 September 1, 2016 17,576 4,394
$23.58 March 8, 2017 163,250 43,375
$23.73 April 5, 2015 5,500 -
$26.87 February 24, 2016 17,576 -
--------------------------------------------------------------------------
2,981,002 1,965,569
--------------------------------------------------------------------------
--------------------------------------------------------------------------


20. Capital disclosures

The Company maintains a level of capital that is sufficient to meet several objectives, including an acceptable 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 28, 2008, the Company's debt-to-capital ratio is 25.2% (33.1% as at December 30, 2007).

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 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.

21. Financial instruments

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



December 28, 2008 December 30, 2007
-------------------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
-------------------------------------------------------------------------
Financial assets
held for trading
Cash $12,345 $12,345 $2,866 $2,866
Derivative
financial
instruments 1,089 1,089 1,168 1,168

Loans and receivables
Accounts
receivable 234,027 234,027 237,043 237,043
Redeemable
preferred shares - - 1,071 1,071

Financial liabilities
Bank loans 8,468 (a) 19,574 19,574
Accounts payable
and accrued
liabilities 422,318 422,318 421,446 421,446
Revolving credit 39,789 (a) 160,200 160,200
Debentures 396,182 302,640 395,821 372,145
Mortgage loans
and balance of
purchase price 43,142 (a) 60,438 60,438
Preferred shares 4,000 4,000 5,000 5,000

Financial liabilities
held for trading
Derivative financial
instruments 2,180 2,180 1,067 1,067

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

(a) See methods and assumptions on the following page.


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, substantially all of which have been granted to dealer-owners, has not been determined because such transactions have been conducted to maintain or to develop favourable trade relationships and do not necessarily reflect terms and conditions which would have been negotiated with arm's length parties. Moreover, the Company holds sureties on certain investments which provide it with potential recourse regarding the operations of the dealer-owners in question;

- In prior years there was little difference between the fair values and carrying amounts of bank loans and long-term debt bearing interest at rates that varied in accordance with market rates. However, due to the state of the financial markets, notably the current credit situation, the fair value of long-term debt could be lower than its carrying amount. The Company is unable to identify similar debt in the market, including current transactions, having substantially the same terms and conditions to permit an adequate measurement of the fair value of the debt. Management is of the opinion that the time and costs involved greatly exceeds the benefit of disclosing fair value and consequently fair value has not been determined.

- The fair value class D preferred shares, included in long-term debt, approximates their 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.

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



Fourth Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------

Interest on accounts
receivable $(330) $(606) $(2,603) $(2,978)
Interest on long-term
loans and advances (662) (727) (3,466) (2,885)
Dividends on redeemable
preferred shares - (19) (29) (82)
Interest on cash
and bank loans 590 894 2,134 3,329
Interest on
long-term debt 5,694 6,599 28,106 28,270
Loss (gain) on fair
value of derivative
financial instruments (824) (91) 846 (3,738)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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.

As at December 28, 2008, the aging of accounts receivable is as follows:



Current $168,836
Past due 0 - 30 days 36,342
Past due 31-120 days 20,076
Past due over 121 days 12,549
------------------------------------------------------------
Trade accounts receivable 237,803
Less: allowance for doubtful accounts 12,310
------------------------------------------------------------
$225,493
------------------------------------------------------------
------------------------------------------------------------


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

Balance as at December 30, 2007 $10,181
Doubtful accounts expense 3,384
Write-offs and recoveries (1,255)
-----------------------------------------------------------
Balance as at December 28, 2008 $12,310
-----------------------------------------------------------
-----------------------------------------------------------


As at December 28, 2008 the maximum exposure to credit risk is $247,461 ($242,148 as at December 30, 2007) which represents the carrying amount of financial instruments classified as assets.

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 table presents the financial liability instalments payable when contractually due, excluding future interest payments but including accrued interest as at December 28, 2008:



Less
than 1-2 3-4 5 years
Total 1 year years years and more
-------------------------------------------------------------------------

Revolving credit $39,789 $- $- $39,789 $-
Debentures 400,000 - - - 400,000
Mortgage loans and
balance of purchase
price 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 422,318 422,318 - - -
Derivative financial
instruments 2,180 2,180 - - -
-------------------------------------------------------------------------
Total $931,608 $448,944 $17,745 $56,585 $408,334
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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 28, 2008, the par value of forward exchange contracts is US $54,400. The average rate of these contracts is 1.1909 and they expire on various dates until April 2009.

On December 28, 2008, 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 $144 decrease or increase in the Company's net earnings for the thirteen and fifty-two-week periods ended December 28, 2008.

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 28, 2008, a 25-basis-point increase or decrease in interest rates, assuming that all other variables are constant, would have resulted in a $17 and $229 decrease or increase in the Company's net earnings for the thirteen and fifty-two-week periods ended December 28, 2008.

22. Employee future benefits

At December 28, 2008, the Company has nine defined contribution pension plans and four defined benefit pension plans.

The total expense is $9,326 ($8,818 in 2007) for defined contribution pension plans.

Total cash payments for employee future benefits for 2008, consisting of cash contributed by the Company to its defined benefit and defined contribution pension plans, were $12,218 ($12,528 in 2007).

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, 2006 and the others were valued as at December 31, 2007. The next actuarial valuations for funding purposes will be as at December 31, 2009 and December 31, 2010, respectively.

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



2008 2007
-------------------------------------------------------------------------

Accrued benefit obligation
Balance, beginning of year $40,736 $43,785
Current service cost 499 525
Employee contributions 227 227
Interest cost 2,246 2,230
Benefits paid (1,842) (2,915)
Actuarial gain (9,321) (2,105)
Settlement (218) (1,011)
-------------------------------------------------------------------------
Balance, end of year 32,327 $40,736
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Plan assets
Fair value, beginning of year $38,702 $39,264
Actual return (5,670) (544)
Employer contributions 4,016 3,710
Employee contributions 227 227
Benefits paid (1,842) (2,915)
Settlement (264) (1,040)
-------------------------------------------------------------------------
Fair value, end of year $35,169 $38,702
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Funded status - surplus (deficit) $2,842 $(2,034)
Unamortized past service cost 8 22
Unamortized net actuarial loss 7,023 9,034
Unamortized transitional obligation 45 87
Valuation allowance (29) (139)
-------------------------------------------------------------------------
Accrued benefit asset $9,889 $6,970
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Accrued benefit asset included in other
assets (Note 14) $9,896 $7,149
Accrued benefit liability included in accounts
payable and accrued liabilities $7 $179
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Allocation of plan assets
Equity securities 52% 58%
Debt securities 48% 42%
-------------------------------------------------------------------------
Total 100% 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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

2008 2007
-------------------------------------------------------------------------

Current service cost $499 $525
Interest cost 2,246 2,230
Actual return on plan assets 5,670 544
Actuarial gain (9,321) (2,105)
-------------------------------------------------------------------------
Elements of employee future benefits costs before
adjustments to recognize the long-term nature
of employee future benefits costs (906) 1,194
Adjustments to recognize the long-term nature
of employee future benefits costs:
Difference between expected return and actual
return on plan assets (8,396) (3,341)
Difference between actuarial loss recognized
and actual actuarial (gain) loss on accrued
benefit obligation 10,393 2,733
Gain on settlement 60 (2)
Amortization of past service costs 14 14
Amortization of transitional obligation 42 42
-------------------------------------------------------------------------
1,207 640
Valuation allowance relating to the accrued
benefit asset (110) 139
-------------------------------------------------------------------------
Defined benefit pension costs recognized $1,097 $779
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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

2008 2007
-------------------------------------------------------------------------

Accrued benefit obligation as at December 31:
Discount rate 7.5% 5.5%
Rate of compensation increase 3.5% 3.8%
Benefit costs for the years ended December 31 :
Discount rate 5.5% 5.2%
Expected rate of return on plan assets 7.0% 7.0%
Rate of compensation increase 3.4% 3.8%
-------------------------------------------------------------------------
-------------------------------------------------------------------------


23. 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:



2008 2007
-------------------------------------------------------------------------

Current assets $11,728 $14,459
Long-term assets 14,496 19,177
Current liabilities 6,854 16,250
Long-term liabilities 8,795 5,719
Sales 56,423 57,599
Earnings before interest, depreciation and
amortization, income taxes and non-controlling
interest 4,793 2,746
Net earnings 1,823 749
Cash flows from operating activities (3,847) 6,919
Cash flows from investing activities 4,808 (9,411)
Cash flows from financing activities 703 2,841
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The Company's sales include sales to joint ventures at fair value in the amount of $92,586 ($91,456 in 2007).

The Company's share in the commitments of these joint ventures amounts to $117 ($327 in 2007).

24. 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
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Segment sales (a)
Corporate and
franchised
stores $866,837 $863,443 $3,741,748 $3,688,966
Distribution 513,555 496,836 2,357,209 2,327,302
-------------------------------------------------------------------------
Total 1,380,392 1,360,279 6,098,957 6,016,268
-------------------------------------------------------------------------
Intersegment sales
and royalties (a)
Corporate and
franchised stores - - - -
Distribution (255,780) (273,244) (1,207,835) (1,231,162)
-------------------------------------------------------------------------
Total (255,780) (273,244) (1,207,835) (1,231,162)
-------------------------------------------------------------------------
Sales (a)
Corporate and
franchised stores 866,837 863,443 3,741,748 3,688,966
Distribution 257,775 223,592 1,149,374 1,096,140
-------------------------------------------------------------------------
Total 1,124,612 1,087,035 4,891,122 4,785,106
-------------------------------------------------------------------------
Earnings before
interest,
depreciation and
amortization, rent,
income taxes and
non-controlling
interest (a)
Corporate and
franchised stores 83,256 89,021 416,940 432,678
Distribution 19,866 20,237 99,141 97,677
-------------------------------------------------------------------------
Total 103,122 109,258 516,081 530,355
-------------------------------------------------------------------------
Earnings before
interest,
depreciation and
amortization, income
taxes and
non-controlling
interest (a)
Corporate and
franchised stores 55,949 61,004 299,998 324,305
Distribution 14,965 14,936 77,103 75,902
-------------------------------------------------------------------------
Total 70,914 75,940 377,101 400,207
-------------------------------------------------------------------------
Acquisition of
fixed assets
Corporate and
franchised stores 49,648 87,682 159,508 242,297
Distribution 17,392 13,632 41 832 28,857
-------------------------------------------------------------------------
Total 67,040 101,314 201,340 271,154
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Goodwill
Corporate and
franchised stores (1,456) 16,512 7 138,324
Distribution - - - -
-------------------------------------------------------------------------
Total (1,456) 16,512 7 138,324
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Total assets
Corporate and
franchised stores 2,114,290 2,129,570
Distribution 391,883 352,876
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Total $2,506,173 $2,482,446
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(a) During the first quarter of 2008, the Company reviewed its segmented
information analysis method and, as a result, modified the presentation
of such information between segments. The 2007 comparable period
was adjusted accordingly.


25. Earnings per share

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

Fourth Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------

Net earnings $25,697 $30,489 $160,199 $185,089
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Number of shares
(in thousands)
Weighted average
number of shares
used to compute
basic net
earnings per
share 115,746.4 115,346.2 115,643.6 115,289.2
Effect of dilutive
stock options (a) 965.5 1,296.4 1,060.1 1,447.4
-------------------------------------------------------------------------
Weighted average
number of shares
used to compute
diluted net
earnings per
share 116,711.9 116,642.6 116,703.7 116,736.6
-------------------------------------------------------------------------

Net earnings per
share - basic $0.22 $0.26 $1.39 $1.61

Net earnings per
share - diluted $0.22 $0.26 $1.37 $1.59
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(a) As at December 28, 2008, 1,166,952 common share stock options
(602,252 options as at December 30, 2007) were excluded from the
calculation of diluted net earnings per share since the unrecognized
future compensation cost of these options has an antidilutive effect.


26. Effect of new accounting standards not yet implemented

Goodwill and intangible assets

In February 2008, the CICA published Section 3064 Goodwill and Intangible Assets which replaces Section 3062 of the same title. The section applies to fiscal years beginning on or after October 1, 2008 or first quarter 2009 for the Company. The new section confirms that upon their initial recognition, intangible assets are to be recognized as such only if they meet the definition of an intangible asset and the recognition criteria. Section 3064 also provides further guidance for the recognition of internally generated intangible assets.

The Company is currently evaluating the impact of the new section on its consolidated financial statements. Based on analyses to date, certain assets included on the Company's balance sheet will no longer meet the requirements of the new section, notably, pre-opening expenses for stores and distribution centres (included in Other assets), advertising costs for store openings and costs incurred for Olympic and Paralympic sponsorship (included in Prepaid expenses). In first quarter 2009, the balances in these asset accounts as at December 31, 2007 - that is, at the beginning of first quarter 2008 - will be restated and included in Retained Earnings and the results of operations of 2008 will also be restated to conform to the 2009 presentation.

As at December 28, 2008 according to analyses completed to date, the impact of the recommendations of the new section on the consolidated financial statements for the first period of application consists of a $21,784 reduction in prepaid expenses ($12,143 as at December 31, 2007), a $11,269 reduction in other assets ($15,753 as at December 31, 2007), a $3,571 reduction in net earnings and a $31,467 reduction in retained earnings.

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.

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