RONA INC.
TSX : RON

RONA INC.

August 12, 2008 08:23 ET

RONA Announces Results for Second Quarter 2008

Despite Difficult Economic Conditions, RONA Posts Substantial Efficiency Gains and a Stronger Balance Sheet Highlights - Year opens with record recruitment of independent dealers with estimated annual retail sales of over $100 million - Gross margin improved by 120 basis points in the second quarter of 2008 - Tight discipline of balance sheet management resulting in lower comparable inventories by $118 million and reduced bank loans by $204.8 million in the second quarter of 2008 - $150 million added to RONA credit facility for a total of $650 million available as of July 11, 2008 - $0.69 diluted earnings per share ($0.72, excluding an unusual charge of $0.03 in the second quarter of 2008) compared to $0.74 in 2007

BOUCHERVILLE, QUEBEC--(Marketwire - Aug. 12, 2008) - RONA (TSX:RON), the largest Canadian distributor and retailer of hardware, renovation and gardening products, announced a slight increase in its consolidated sales, which stood at $1,473.3 million in the second quarter of 2008, compared to $1,469.1 million in 2007. Same-store sales decreased by 4.4% in the quarter. This decrease reflects a drop in consumer activity related to the decline in consumer confidence compared to the corresponding period in 2007. Operating income reached $157.3 million in the second quarter of 2008, down 2.8% from 2007. Operating margin decreased by 33 basis points at 10.68%. Unusual items related to the cost of store closures net of the gain on disposal of non-core assets amounted to $2.8 million before interest, taxes, depreciation and amortization were accounted for in the second quarter of 2008. Excluding these unusual items, operating income was $160.1 million, down 1.0% from 2007. The operating margin declined 14 basis points in 2008 from 11.01% to 10.87% in 2007. Net earnings reached $80.1 million, or $0.69 per share, diluted, in the second quarter of 2008, a 7.0% decrease compared to the second quarter of 2007. Excluding unusual items of $4 million after-tax or $0.03 per share, net earnings were $84.1 million, or $0.72 per share diluted, compared to $86.2 million, or $0.74 per share diluted in 2007 - a decline of 2.4%.

These results are significantly superior to the current year's first quarter results, given the highly seasonal nature of construction and renovation activity, as well as the positive effects of the PEP program (productivity, efficiency, profitability) introduced at the beginning of the year.

"Results for the second quarter of 2008 clearly show that the efficiency improvement measures we introduced at the beginning of the year are producing gains and have helped mitigate the downward pressure on sales stemming from the current slowdown in the economy. In current context, our employees have done an outstanding job, significantly improving our gross margin, optimizing sales and efficiency in our stores and distribution network and imposing very rigorous management of the Company's balance sheet," said RONA President and CEO Robert Dutton.

"The current business environment is highly favourable to ongoing consolidation of our market in Canada, especially through the recruitment of independent dealers that want to join a strong banner with a very promising plan for the future," Dutton added.

"With 21 new independent dealers representing over $100 million in annual sales added to the RONA network, we've set a record in terms of recruitment. We have a strong pipeline of prospects and we're confident that we can continue to develop this growth vector vigorously in the second half of the year," Dutton said.

Under the PEP program (productivity, efficiency, profitability), which represents Phase 1 of its 2008-2011 strategic plan, RONA introduced several promising initiatives during the second quarter of 2008, which have generated the following results:



- Gross margin increase of 120 basis points
- Comparable inventories reduced by $118 million, or 12.3% compared to the
second quarter of 2007
- An 8% increase in private brand sales and a 30% increase in installation
service sales
- Bank loans reduced by $204.8 million
- Sale of non-core assets, generating $12.8 million


FINANCIAL HIGHLIGHTS, SECOND QUARTER 2008

Consolidated sales

Consolidated sales in the second quarter 2008 stood at $1,473.3 million, $4.2 million or 0.3% more than the $1,469.1 million posted in 2007. This growth can be mainly attributed to acquisitions, store openings and the recruitment of new affiliate dealer-owners. Excluding the contributions of our acquisitions - Dick's Lumber, Centre de Renovation Andre Lessard and Best-MAR - consolidated sales dropped by 2.2%. Sales generated by new stores opened in the last 12 months could not compensate for the drop in same-store sales, which decreased by 4.4% in the second quarter of 2008, excluding the 0.5% decline in the price of forest products. Same-store sales include a positive effect related to statutory holidays, evaluated at 1.1%. This year's second quarter is two working days longer than in 2007, since the Easter weekend (representing one statutory holiday) occurred this year in the first quarter, while Canada Day (representing a second statutory holiday) will be reflected in the third quarter. Both these holidays had occurred in the second quarter of 2007.

The decrease in sales (excluding acquisitions) stems from an ongoing decline in the level of consumer confidence in Canada, as well as a decline in housing starts and resale of single-unit homes, especially in Alberta. 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 our industry, have helped increase our average shopping basket. Sales declined in most product categories, indicating a general drop in consumer spending during the quarter. However, sales of the RONA private brand increased by over 8%, with especially strong growth in Western Canada and in various proximity stores nationwide. This growth can be explained by enhanced sales training for our employees and by the great popularity of the RONA by Design projects, which include a number of private brand products. The strong demand for our Project Guide service is also influencing our private brand sales and our sales of installation services. Second quarter sales of installation services grew by over 30%.

Gross margin

The Company's gross margin in the second quarter of 2008 improved by 120 basis points, increasing from 28.1% in 2007 to 29.3% in 2008. This growth is the result of better terms and purchasing conditions from our suppliers, a reduction of in-store losses (shrink), an increase in sales of private brand products and better management of product categories.

Cost of store closures and gains on disposal of assets (unusual items)

As part of a vast 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 corporate stores and affiliates. Operating losses in these stores had amounted to a few million dollars. Two were big box stores: one in Richmond, British Columbia, and the other in Scarborough, Ontario. The others two were small proximity stores operating under the Cashway banner in Ontario.

The estimated total cost of these store closures is $14.8 million, $11.6 million of which will affect RONA's 2008 EBITDA, including $5.0 million representing the present value of future commitments related to these stores. In the second quarter of 2008, the Company entered $6.9 million as cost of store closures, $4.2 million of which affected EBITDA. Remaining costs will be booked between now and the end of fiscal 2008.

This decision will allow the Company to eliminate operating losses and transfer business volume to corporate stores and affiliates in better locations with much greater potential for growth and profit. This decision represents a very good return on investment, since the payback period to recover the above-mentioned costs will be very short.

As mentioned at the beginning of the year, RONA had put certain non-strategic assets up for sale as part of Phase 1 of our 2008-2011 strategic plan. In the second quarter, the Company sold off some of these assets, earning a pre-tax gain of $1.4 million.

Consolidated operating income

Operating income, including unusual items related to the cost of store closures and the gain on disposal of assets mentioned above, was $157.3 million in the second quarter of 2008, down $4.5 million or 2.8% from the $161.8 million figure posted in 2007. EBITDA declined 33 basis points from 11.01% in 2007 to 10.68% in 2008. This decline is largely attributable to the cost of our store closures and downward pressure on same-store sales.

Excluding unusual items, net operating income was $160.1 million in the second quarter of 2008, down $1.7 million or 1.0% from 2007, while our EBITDA margin declined 14 basis points, from 11.01% to 10.87%.

This decline is largely the result of downward pressure on sales in the construction and renovation industry due to lower consumer confidence levels. The decline is also attributable to an unfavourable variance related to exchange rate items, rising transportation costs and results from recently opened stores that have not yet reached their full potential. However, the numerous efficiency improvements posted under the PEP program that is the first phase of the 2008-2011 strategic plan have helped offset the impact of these negative factors. In the second quarter, the PEP program has, among other things, allowed us to improve our gross margin, reduce inventory levels and optimize the network of existing stores and distribution centres.

Net earnings

Net earnings, including unusual items in the second quarter of 2008, were $80.1 million or $0.69 diluted earnings per share, a 7% decline, compared to $86.2 million or $0.74 diluted earnings per share in 2007. The factors that affected operating income also apply to net earnings. Additional factors include an increase in fixed costs related to growth of our store network, particularly amortization related with recent store openings and acquisitions.

Excluding the unusual items related to the cost of store closures and the gain on disposal of assets mentioned above, net earnings were $84.1 million in the second quarter of 2008, or $0.72 diluted earnings per share, compared to $86.2 million in 2007, or $0.74 diluted earnings per share - a decline of $2.1 million or 2.4%. This reflects the major efforts made throughout this quarter to compensate for the negative effects of downward pressure on sales in the construction and renovation industry.

FINANCIAL HIGHLIGHTS, FIRST HALF OF 2008

Consolidated sales

Consolidated sales in the first half of 2008 stood at $2,384.8 million, a $37.2 million or 1.6% increase over the $2,347.6 million figure in 2007. This growth can be mainly attributed to acquisitions, store openings, and the recruitment of new affiliate dealer-owners. Excluding the contributions of our acquisitions - Noble Trade, Dick's Lumber, Centre de Renovation Andre Lessard and Best-MAR - consolidated sales declined by 2.9%. Sales generated by new stores opened in the last 12 months could not compensate for the decline in same-store sales, which decreased by 5.8% in the first half of 2008, excluding the 0.5% decline in the price of forest products.

As mentioned above, this decrease in sales (excluding acquisitions) stems from an ongoing decline in the level of consumer confidence in Canada, as well as a decline in housing starts and resales of single-unit homes, especially in Alberta. 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 our industry, have helped increase our average shopping basket. Sales declined in most product categories, indicating a general drop in consumer activity since the year began. Private brand products and sales of installation services, however, as mentioned in the analysis of second quarter results, experienced strong growth since the beginning of the year.

Gross margin

In the first half of 2008, the Company's gross margin improved by 120 basis points, increasing from 28.2% in 2007 to 29.4% in 2008. This growth is the result of better terms and purchasing conditions from our suppliers, a reduction of in-store losses (shrink), an increase in sales of private brand products and better management of product categories.

Consolidated operating income

Operating income, including unusual items, was $190.7 million in the first half of 2008, down $11.9 million or 5.9% from the $202.6 million figure posted in 2007. The EBITDA margin declined 63 basis points, from 8.63% in 2007 to 8.00% in 2008. This decline is largely attributable to the cost of our store closures and downward pressure on same-store sales.

Excluding unusual items related to the cost of store closures and the gain on disposal of assets posted in the second quarter of 2008, operating income was $193.5 million in the first half of 2008, down $9.1 million or 4.5% from 2007. The EBITDA margin declined 51 basis points from 8.63% in 2007 to 8.12% in 2008.

This decline is largely the result of current downward pressure on sales in the construction and renovation industry due to lower consumer confidence levels. This had a more substantial impact on first quarter results than on results in the second quarter, since the first three months are the time of year when store traffic is lowest and variable costs are very difficult to reduce. The decline can also be attributed to results from recently opened stores that have not yet reached their full potential. Rising transportation costs and an unfavourable variance related to exchange rate items explain the rest of the decline. However, as mentioned in the analysis of second-quarter results, the numerous efficiency improvements posted under the PEP program that is the first phase of the 2008-2011 strategic plan have helped offset the negative effects of these three factors. In the first half of 2008, the PEP program allowed us, among other things, to improve our gross margin, reduce inventories and optimize the network of existing stores and distribution centres.

Net earnings

Net earnings, including unusual items in the first half of 2008, dropped by 14.8% to $81.1 million or $0.70 diluted earnings per share, compared to $95.2 million or $0.82 diluted earnings per share in 2007. The factors that affected operating income also apply to net earnings. Additional factors include higher fixed costs related to growing our network, particularly amortization related to recent store openings and acquisitions.

Excluding the unusual items related to the cost of store closures and the gain on disposal of assets mentioned in our analysis of second quarter results, net earnings amounted to $85.1 million in the first half of 2008, or $0.73 diluted earnings per share, compared to $95.2 million in 2007, or $0.82 diluted earnings per share. This is a drop of $10.1 million or 10.6%, which reflects the downward pressure on sales in the construction and renovation industry. This decline was partly (though not entirely) compensated for by the improved efficiency measures introduced this year.

TREASURY AND FINANCIAL POSITION

Operations generated $110.6 million in the second quarter of 2008, compared to $111.5 million in the same quarter of 2007. Excluding variations in working capital items, operations generated $275.2 million, compared to $169.8 million in 2007. We should mention that during the second quarter of 2008 same-store and distribution centre inventories decreased by $118 million.

During the second quarter of 2008, we invested $47.8 million in fixed assets, compared to $65.4 million in 2007. These investments related to the expansion of our retail network, for the construction of new stores as well as repairs, renovations and upgrades of existing stores to reflect our new concepts, especially for stores flying the Reno-Depot banner. We also authorized part of these investments for ongoing improvements to our information systems, in order to increase operational efficiency. The Company practiced disciplined financial management for the entire quarter and strictly monitored investments in fixed assets. Non-core assets were also sold during this quarter, generating an additional $12.8 million inflow.

After six months of activity, RONA has invested $90.0 million in fixed assets - $18.2 million or 16.8% less than the $108.1 million invested in 2007. During the second quarter of the current fiscal year, RONA decided to reduce the Company's capital spending program by 20%, in view of market conditions more difficult than expected. Accordingly, we will hold our capital spending at approximately $200 million, or $40 million less than the amount initially planned at the beginning of this year. Of this amount, $160 million will be allocated to store construction, improvements or renovations, and property acquisition, while some $40 million will be allocated for ongoing upgrades to our information systems. Given our significant improvements in managing merchandise flow and lowering inventories, we have postponed the expansion of the Calgary distribution centre and new needs assessment studies are in progress.

The substantial funds generated by disciplined management of our working capital during this quarter allowed us to reduce our bank loans and revolving credit by $204.8 million.

RONA's balance sheet remains very strong. On June 29, 2008, the ratio of total debt to capital was 29.8%, compared to 37.9% at the end of the corresponding quarter in 2007. RONA's equity/asset ratio stood at 51.0% at the end of second quarter 2008, compared to 46.7% at the same date in 2007.

The Company's operations produce significant cash flow. With relatively low debt and long-term fixed rates on most of our long-term debt, RONA also has significant liquidity and can borrow many millions more at competitive rates. Our financial resources are therefore sufficient to pursue disciplined development on our four growth vectors: growing sales in our existing store network, construction of new corporate and franchise stores, recruitment of new affiliate stores as well as acquisitions.

OUTLOOK

Three major factors in the second quarter of 2008 influenced the Canadian economy as well as consumer confidence and activity in Canada: the prolonged slowdown of the US economy, ongoing turbulence in global financial markets and sharp increases in the prices of certain basic commodities, particularly energy. This situation, combined with a decrease in housing starts and resale of single-unit homes in Canada, especially in Alberta, will continue to put downward pressure on sales in our industry.

The numerous optimization measures introduced under the PEP program in Phase 1 of our 2008-2011 strategic plan and the various initiatives undertaken to stimulate sales and boost customer loyalty will continue to produce gains over the next quarters. These measures will help offset the negative impact arising from the downward pressure on sales in our industry.

We are keeping our sights on our 2008-2011 financial objectives. We are making good progress toward reaching our key objectives in Phase 1 - the PEP program - with major improvement of our gross margin, rigorous management of assets and liabilities and introduction of numerous measures to improve the performance and efficiency of our stores and distribution centres. Achievement of our low single digit growth objective for average earnings per share in the first half of the plan, however, has turned out to be a bigger challenge than we expected, given a slowdown much greater than anticipated in Canadian economic activity and an even swifter and sharper decline in construction and resale of single-family homes, especially in Alberta. We are nevertheless optimistic about the fundamental factors that support the demand for, and interest in, renovation projects.

Finally, current market conditions represent major potential for consolidation of Canada's construction and renovation market, especially through recruitment of independent stores. So far this year, RONA's recruitment results clearly show that when times are tough, many store owners are eager to join the ranks of a purchasing group that has a major reputation, a dynamic team and a promising development plan.

SUBSEQUENT EVENTS

On July 11, RONA agreed with its principal bankers to increase the amount of its available revolving credit by an additional $150 million under its existing credit facility, which expires in October 2012. The terms and conditions associated with this additional amount are the same as for the $500 million available under the existing credit facility. RONA will then be able to access $650 million in revolving credit as of July 11, 2008. At the end of the second quarter, $119 million had been drawn on this facility.

FURTHER INFORMATION

The Management Discussion and Analysis and financial statements for the second quarter of 2008 can be viewed in the "Investor Relations" section of RONA's website at www.rona.ca or at www.sedar.com. Readers can also access our 2007 Annual Report and Annual Information Form (also available at SEDAR online).

CONFERENCE CALL WITH THE FINANCIAL COMMUNITY

On Tuesday, August 12, 2008, at 11:00 AM (EDT), RONA will hold a telephone conference for the financial community. To join this phone conference, please call 514 861-4190 or 1 877 677-7769. To follow the conference online, please go to http://events.startcast.com/events/153/B0024.

NON GAAP PERFORMANCE MEASURE

In this news release, as in our internal management, we use the concept of "earnings before income taxes, interest, 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.

While EBITDA does not have a meaning standardized by GAAP, it is widely used in our industry and financial circles to measure the profitability of operations, excluding tax considerations and the cost and use of capital. Because it is not standardized, EBITDA cannot be strictly compared from one company to the next. Still, we establish it in the same way for the segments identified, and, unless expressly mentioned, our method does not change over time. EBITDA should not be considered separately from, or as a substitute for, other performance measures calculated according to GAAP, but rather as additional information.

In second quarter 2008, RONA accounted for unusual items related to the cost of store closures and gains on disposal of assets. This press release contains variance analysis of 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 news release includes "forward-looking statements" that involve risks and uncertainties. All statements other than statements of historical facts included in this news release, including statements regarding the prospects of the industry and prospects, plans, financial position and business strategy of the Company, may constitute forward-looking statements within the meaning of the Canadian securities legislation and regulations. Investors and others are cautioned that undue reliance should not be placed on any forward-looking statements.

For more information on the risks, uncertainties and assumptions that would cause the Company's actual results to differ from current expectations, please also refer to the Company's public filings available at www.sedar.com and www.rona.ca. In particular, further details and descriptions of these and other factors are disclosed in the Management Discussion and Analysis 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 of August 11, 2008, 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 close to 700 corporate, franchise and affiliate stores of various sizes and formats. With over 27,000 employees working under its family of banners in every region of Canada and more the 15 million square feet of retail space, the RONA store network generates over $6.3 billion in annual retail sales.



RONA
Consolidated Financial Statements
June 29, 2008 and July 1, 2007

RONA inc.
Consolidated Earnings
For the thirteen and twenty-six-week periods ended June 29, 2008 and July
1, 2007
(Unaudited, in thousands of dollars, except earnings per share)
-------------------------------------------------------------------------

Second Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------

Sales $1,473,254 $1,469,100 $2,384,788 $2,347,596
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Earnings before
the following
items (Note 3) 157,284 161,778 190,685 202,628
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Interest on
long-term debt 8,260 8,163 15,922 14,410
Interest on bank
loans 719 858 977 1,642
Depreciation and
amortization
(Note 3) 29,113 22,412 54,360 44,017
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38,092 31,433 71,259 60,069
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Earnings before
income taxes and
non-controlling
interest 119,192 130,345 119,426 142,559
Income taxes 36,713 41,797 36,783 45,475
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Earnings before
non-controlling
interest 82,479 88,548 82,643 97,084
Non-controlling
interest 2,360 2,385 1,509 1,894
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Net earnings and
comprehensive
income $80,119 $86,163 $81,134 $95,190
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Net earnings per
share (Note 14)
Basic $0.69 $0.75 $0.70 $0.83
Diluted $0.69 $0.74 $0.70 $0.82
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The accompanying notes are an integral part of the interim consolidated
financial statements.



RONA inc.
Consolidated Retained Earnings
Consolidated Contributed Surplus
For the twenty-six-week periods ended June 29, 2008 and July 1, 2007
(Unaudited, in thousands of dollars)
-------------------------------------------------------------------------

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

Consolidated Retained Earnings
Balance, beginning of period, as previously
reported $892,967 $709,467
Financial instruments - recognition and
measurement - (1,589)
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Restated balance, beginning of period 892,967 707,878
Net earnings 81,134 95,190
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Balance, end of period $974,101 $803,068
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Consolidated Contributed Surplus
Balance, beginning of period $11,045 $9,182
Compensation cost relating to stock option plans 758 1,008
Exercise of stock options - (219)
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Balance, end of period $11,803 $9,971
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The accompanying notes are an integral part of the interim consolidated
financial statements.



RONA inc.
Consolidated Cash Flows
For the thirteen and twenty-six-week periods ended June 29, 2008 and July
1, 2007
(Unaudited, in thousands of dollars)
-------------------------------------------------------------------------

Second Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Operating activities
Net earnings $80,119 $86,163 $81,134 $95,190
Non-cash items
Depreciation and
amortization 29,113 22,412 54,360 44,017
Derivative
financial
instruments (473) (2,406) 95 (3,630)
Future income
taxes 23 1,802 101 (2,479)
Net gain on
disposal of assets (1,519) (241) (1,491) (181)
Compensation cost
relating to stock
option plans 379 537 758 1,008
Non-controlling
interest 2,360 2,385 1,509 1,894
Other items 624 836 1,393 1,655
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110,626 111,488 137,859 137,474
Changes in working
capital items 164,534 58,306 11,429 (99,237)
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Cash flows from
operating
activities 275,160 169,794 149,288 38,237
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Investing activities
Business
acquisitions
(Note 4) (1,758) (167,638) (3,886) (170,661)
Advances to joint
ventures and other
advances 1,986 615 7,929 4,640
Other investments (2,440) (588) (2,440) (588)
Fixed assets (47,844) (65,364) (89,979) (108,144)
Other assets (2,070) (1,738) (4,172) (3,231)
Disposal of assets 12,818 1,650 15,849 2,920
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Cash flows from
investing activities (39,308) (233,063) (76,699) (275,064)
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Financing activities
Bank loans and
revolving credit (204,798) 122,534 (52,075) 245,572
Other long-term debt - 11 1,977 933
Repayment of other
long-term debt
and redemption of
preferred shares (9,284) (4,811) (12,302) (14,553)
Issue of common
shares 2,414 1,092 2,970 3,312
Issue of equity
securities to non
controlling interest - 750 - 750
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Cash flows from
financing
activities (211,668) 119,576 (59,430) 263,014
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Net increase
(decrease) in cash 24,184 56,307 13,159 (813)
Cash, (outstanding
cheques), beginning
of period (8,159) 1,366 2,866 58,486
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Cash, end of period $16,025 $57,673 $16,025 $57,673
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Supplementary
information
Interest paid $3,525 $4,655 $18,649 $11,323
Income taxes paid $27,911 $25,218 $51,794 $62,680
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The accompanying notes are an integral part of the interim consolidated
financial statements.



RONA inc.
Consolidated Balance Sheets
June 29, 2008, July 1, 2007 and December 30, 2007
(In thousands of dollars)
-------------------------------------------------------------------------

2008 2007 2007
June 29 July 1 December 30
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Assets
Current assets
Cash $16,025 $57,673 $2,866
Accounts receivable 358,142 328,328 237,043
Income taxes receivable 20,796 7,476 5,684
Inventory (Note 5) 911,553 958,839 856,326
Prepaid expenses 65,796 51,432 27,913
Derivative financial
instruments (Note 11) 25 1,809 1,168
Future income taxes 10,351 14,839 12,279
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1,382,688 1,420,396 1,143,279
Investments 9,270 14,559 11,901
Fixed assets 816,389 716,237 816,919
Fixed assets held for sale (Note 6) 41,294 - -
Goodwill 457,845 438,609 454,882
Trademarks 3,971 3,593 4,145
Other assets 28,485 25,589 28,685
Future income taxes 23,378 20,364 22,635
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$2,763,320 $2,639,347 $2,482,446
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Liabilities
Current liabilities
Bank loans $13,388 $26,861 $19,574
Accounts payable and accrued
liabilities 674,418 583,021 421,446
Derivative financial
instruments (Note 11) 19 562 1,067
Future income taxes 3,716 2,442 3,650
Instalments on long-term debt 31,614 37,474 34,239
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723,155 650,360 479,976
Long-term debt 553,206 687,131 602,537
Other long-term liabilities 26,292 22,190 24,526
Future income taxes 22,631 21,303 23,781
Non-controlling interest 27,968 26,076 26,420
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1,353,252 1,407,060 1,157,240
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Shareholders' equity
Capital stock (Note 7) 424,164 419,248 421,194
Retained earnings 974,101 803,068 892,967
Contributed surplus 11,803 9,971 11,045
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1,410,068 1,232,287 1,325,206
-------------------------------------------------------------------------
$2,763,320 $2,639,347 $2,482,446
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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



RONA inc.
Notes to Interim Consolidated Financial Statements
June 29, 2008 and July 1, 2007
(Unaudited, in thousands of dollars, except amounts per share)


1. Basis of presentation

The accompanying unaudited interim consolidated financial statements are in accordance with Canadian generally accepted accounting principles for interim financial statements and do not include all the information required for complete financial statements. They are also consistent with the policies outlined in the Company's audited financial statements for the year ended December 30, 2007. The interim financial statements and related notes should be read in conjunction with the Company's audited financial statements for the year ended December 30, 2007. The interim operating results do not necessarily reflect the results for the full fiscal year. Accordingly, the comparative balance sheet at as July 1, 2007 is also included to reflect seasonal fluctuations that characterize the hardware, renovation and home garden industry. When necessary, the financial statements include amounts based on estimated information and management's best judgments.

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.

The adoption of the new recommendations had no material impact on the results, financial position and cash flows of the Company.

3. 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 by the end of the year. During the thirteen-week period ended June 29, 2008 the Company recognized costs of $2,183 included in Earnings before the following items and $2,303 included in Depreciation and amortization. Of these amounts, $226 relates to termination benefits, $1,957 to an inventory write-down and $2,303 to a write-down of fixed assets. Additional estimated costs of $5,393 relating to store closures, principally lease obligations, will be recorded by the Company when the criteria for recognition have been met.

Other closing costs

During the thirteen-week period ended June 29, 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 $2,411. The Company estimated that additional costs of $2,548 will be incurred in the coming quarters to complete the liquidation of these stores' assets.

4. Business acquisitions

During the twenty-six week period ended June 29, 2008, the Company acquired one company (four companies in 2007), operating in the corporate and franchised stores segment, by way of an asset purchase (share and asset purchases in 2007). Taking direct acquisition costs into account, this acquisition was for a total consideration of $5,432 ($184,260 in 2007). The Company financed this acquisition from its existing credit facilities. The results of operations of this company are consolidated from the date of acquisition.

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



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

Current assets $3,987 $62,112
Fixed assets 650 10,369
Goodwill 2,963 122,051
Trademarks - 2,321
Future income taxes - 820
Current liabilities (2,168) (9,889)
Long-term debt - (3,524)
-------------------------------------------------------------------------
5,432 184,260
Less : Accrued direct acquisition costs (46) (520)
Balance of purchase price (1,500) (13,079)
-------------------------------------------------------------------------
Cash consideration paid $3,886 $170,661
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The Company expects that an amount of $1,875 of goodwill will be deductible for tax purposes.

5. Inventory

For the thirteen and twenty-six-week periods ended June 29, 2008, $1,041,673 and $1,682,411 of inventory was expensed in the consolidated results ($1,055,601 and $1,684,914 as at July 1, 2007). These amounts include an inventory write-down charge of $15,963 and $23,753 ($13,312 and $20,750 as at July 1, 2007).

6. 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.

7. Capital stock

Issued and fully paid:

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



June 29, 2008
-------------------------------------------------------------------------
Number of shares Amount
-------------------------------------------------------------------------
Balance, beginning of period 115,412,766 $418,246
Issuance in exchange for common share
subscription deposits 197,854 3,349
Issuance under stock option plans 5,000 18
Issuance in exchange for cash 93,458 1,250
-------------------------------------------------------------------------
Balance before elimination of reciprocal
shareholdings 115,709,078 422,863
Elimination of reciprocal shareholdings (72,396) (435)
-------------------------------------------------------------------------
Balance, end of period 115,636,682 422,428
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deposits on common share subscriptions, net of
eliminations of joint ventures (a) 1,736
-------------------------------------------------------------------------
$424,164
-------------------------------------------------------------------------
-------------------------------------------------------------------------


July 1, 2007
-------------------------------------------------------------------------
Number of shares Amount
-------------------------------------------------------------------------
Balance, beginning of period 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 2,769 65
-------------------------------------------------------------------------
Balance before elimination of reciprocal
shareholdings 115,398,380 417,996
Elimination of reciprocal shareholdings (56,841) (341)
-------------------------------------------------------------------------
Balance, end of period 115,341,539 417,655
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deposits on common share subscriptions, net of
eliminations of joint ventures (a) 1,593
-------------------------------------------------------------------------
$419,248
-------------------------------------------------------------------------


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 June 29, 2008 the 2,920,000 options granted have an exercise price of $3.47 and of this number, 1,454,500 options (1,449,500 options as at July 1, 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 twenty-six-week periods ended June 29, 2008 and July 1, 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 and February 29, 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 June 29, 2008, the 1,944,052 options (1,700,852 options as at July 1, 2007) granted have exercise prices ranging from $14.18 to $26.87 ($14.29 to $26.87 as at July 1, 2007) and of this number, 85,100 options (85,100 options as at July 1, 2007) have been exercised and 193,475 options (141,550 options as at July 1, 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:



June 29, July 1,
2008 2007
-------------------------------------------------------------------------

Weighted average fair value per option granted $4,42 $8.50
Risk-free interest rate 3.25% 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 $379 and $758 for the thirteen and twenty-six-week periods ended June 29, 2008 ($537 and $1,008 as at July 1, 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:



June 29, 2008
-------------------------------------------------------------------------
Weighted
average
exercise
Options price
-------------------------------------------------------------------------
Balance, beginning of period 2,922,552 $11.31
Granted 243,200 14.18
Exercised (5,000) 3.47
Forfeited (29,775) 21.11
-------------------------------------------------------------------------
Balance, end of period 3,130,977 11.46
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Options exercisable, end of period 2,049,569 $7.07
-------------------------------------------------------------------------
-------------------------------------------------------------------------


July 1, 2007
-------------------------------------------------------------------------
Weighted
average
exercise
Options price
-------------------------------------------------------------------------
Balance, beginning of period 3,162,479 $10.16
Granted 196,000 23.58
Exercised (339,327) 4.88
Forfeited (74,450) 20.73
-------------------------------------------------------------------------
Balance, end of period 2,944,702 11.39
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Options exercisable, end of period 1,891,600 $6.21
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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 June 29, 2008:



Options Options
Exercise price Expiration date outstanding exercisable
--------------------------------------------------------------------------
$3.47 December 31, 2012 1,465,500 1,465,500
$14.18 February 29, 2018 240,300 -
$14.29 December 16, 2013 432,550 432,550
$20.27 December 22, 2014 411,250 103,750
$21.21 February 24, 2016 368,500 -
$21.78 September 1, 2016 17,576 4,394
$23.58 March 8, 2017 172,225 43,375
$23.73 April 5, 2015 5,500 -
$26.87 February 24, 2016 17,576 -
--------------------------------------------------------------------------
3,130,977 2,049,569
--------------------------------------------------------------------------
--------------------------------------------------------------------------


8. 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 $2,113. 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 $5,930.

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 inventory to a maximum of $57,246. 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.

9. Vendor rebates

In accordance with EIC-144 Accounting by a customer (including a reseller) for certain consideration received from a vendor, the Company must disclose the amount recognized for which the full requirements for vendor rebate entitlement have not yet been met. For the twenty-six-week period ended June 29, 2008, the Company recognized an amount of $6,556 ($9,325 as at July 1, 2007) which was estimated based on the attainment of specified requirements to receive the rebates.

10. 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 June 29, 2008, the Company's debt-to-capital ratio is 29.8% (37.9% as at July 1, 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 June 29, 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.

11. Financial instruments

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



June 29, 2008 July 1, 2007 December 30, 2007
---------------------------------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
---------------------------------------------------------------------------

Financial assets
held for trading
Cash $16,025 $16,025 $57,673 $57,673 $2,866 $2,866
Derivative financial
instruments 25 25 1,809 1,809 1,168 1,168

Loans and receivables
Accounts receivable 358,142 358,142 328,328 328,328 237,043 237,043
Redeemable preferred
shares - - 1,400 1,400 1,071 1,071

Financial liabilities
Bank loans 13,388 13,388 26,861 26,861 19,574 19,574
Accounts payable
and accrued
liabilities 674,418 674,418 583,021 583,021 421,446 421,446
Revolving credit 114,312 114,312 241,495 241,495 160,200 160,200
Debentures 395,999 317,715 395,648 376,078 395,821 372,145
Mortgage loans and
balance of
purchase price 55,460 55,460 64,501 64,501 60,438 60,438
Preferred shares 5,000 5,000 6,000 6,000 5,000 5,000

Financial liabilities
held for trading
Derivative financial
instruments 19 19 562 562 1,067 1,067
---------------------------------------------------------------------------
---------------------------------------------------------------------------



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, bank loans 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;

- The fair value of the revolving credit, mortgage loans and balance of purchase price is equivalent to their carrying amount given that significant loans bear interest at rates that fluctuate with the market rate;

- The fair value of debentures was determined using market prices;

- The fair value of class C preferred shares, Series 1 and 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:



Second Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------

Interest on accounts
receivable $(880) $(502) $(1,590) $(1,728)
Interest on long-term
loans and advances (1,181) (582) (2,245) (1,423)
Dividends on redeemable
preferred shares (3) (21) (29) (42)
Interest on cash and
bank loans 719 858 977 1,642
Interest on long
- term debt 8,260 8,163 15,922 14,410
Loss (gain) on fair
value of derivative
financial instruments (1,545) (2,853) 2,087 (3,128)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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 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 June 29, 2008, the aging of accounts receivable is as follows:



Current $289,298
Past due 0 - 30 days 43,867
Past due 31 - 120 days 15,904
Past due over 121 days 13,602
-----------------------------------------------------------
Trade accounts receivable 362,671
Less allowance for doubtful accounts 12,547
-----------------------------------------------------------
$350,124
-----------------------------------------------------------
-----------------------------------------------------------


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



Balance as at December 30, 2007 $10,181
Variance in allowance for doubtful accounts 2,366
-----------------------------------------------------------
Balance as at June 29, 2008 $12,547
-----------------------------------------------------------
-----------------------------------------------------------


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 June 29, 2008:



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

Revolving credit $114,312 $- $- $114,312 $-
Debentures 400,000 - - - 400,000
Mortgage loans and
balance of
purchase price 55,721 25,375 12,913 10,002 7,431
Obligations under
capital leases 14,627 5,899 7,150 1,482 96
Preferred shares 5,000 1,000 2,000 2,000 -
Bank loans 13,388 13,388 - - -
Accounts payable
and accrued
liabilities 674,418 674,418 - - -
Derivative
financial
instruments 19 19 - - -
--------------------------------------------------------------------------
Total $1,277,485 $720,099 $22,063 $127,796 $407,527
--------------------------------------------------------------------------
--------------------------------------------------------------------------


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 June 29, 2008, the par value of forward exchange contracts is US $34,300. The average rate of these contracts is 1.0116 and they expire on various dates until November 2008.

On June 29, 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 $108 increase or decrease in the Company's net earnings for the thirteen and twenty-six-week periods ended June 29, 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 June 29, 2008, a 25-basis-point increase or decrease in interest rates, assuming that all other variables are constant, would have resulted in a $51 and $188 increase or decrease in the Company's net earnings for the thirteen and twenty-six-week periods ended June 29, 2008.

12. Employee future benefits

As at June 29, 2008, the Company has eight defined contribution pension plans and four defined benefit pension plans. The net pension expense for the benefit plans is as follows:



Second Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------

Cost recognized for
defined contribution
pension plans $2,135 $2,188 $4,311 $4,272
Cost recognized for
defined benefit
pension plans 341 328 538 654
-------------------------------------------------------------------------
Net employee future
benefit costs $2,476 $2,516 $4,849 $4,926
-------------------------------------------------------------------------
-------------------------------------------------------------------------


13. 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.



Second Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Segment sales (a)
Corporate and
franchised
stores $1,130,019 $1,126,279 $1,813,048 $1,768,029
Distribution 716,982 715,705 1,208,383 1,210,678
-------------------------------------------------------------------------
Total 1,847,001 1,841,984 3,021,431 2,978,707
-------------------------------------------------------------------------
Intersegment sales
and royalties (a)
Corporate and
franchised stores - - - -
Distribution (373,747) (372,884) (636,643) (631,111)
-------------------------------------------------------------------------
Total (373,747) (372,884) (636,643) (631,111)
-------------------------------------------------------------------------
Sales (a)
Corporate and
franchised
stores 1,130,019 1,126,279 1,813,048 1,768,029
Distribution 343,235 342,821 571,740 579,567
-------------------------------------------------------------------------
Total 1,473,254 1,469,100 2,384,788 2,347,596
-------------------------------------------------------------------------
Earnings before
interest,
depreciation and
amortization,
rent, income taxes
and non-controlling
interest (a)
Corporate and
franchised stores 159,371 163,119 207,061 213,384
Distribution 32,393 32,928 52,253 53,628
-------------------------------------------------------------------------
Total 191,764 196,047 259,314 267,012
-------------------------------------------------------------------------
Earnings before
interest,
depreciation and
amortization, income
taxes and
non-controlling
interest (a)
Corporate and
franchised stores 130,524 135,103 149,789 159,905
Distribution 26,760 26,675 40,896 42,723
-------------------------------------------------------------------------
Total 157,284 161,778 190,685 202,628
-------------------------------------------------------------------------
Acquisition of fixed
assets
Corporate and
franchised stores 41,424 66,264 79,922 105,710
Distribution 6,436 7,092 10,707 11,650
-------------------------------------------------------------------------
Total 47,860 73,356 90,629 117,360
-------------------------------------------------------------------------
Goodwill
Corporate and
franchised stores 298 121,210 2,963 122,051
Distribution - - - -
-------------------------------------------------------------------------
Total $298 $121,210 $2,963 $122,051
-------------------------------------------------------------------------
Total assets
Corporate and
franchised
stores 2,268,928 2,098,438
Distribution 494,392 540,909
-------------------------------------------------------------------------
Total $2,763,320 $2,639,347
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(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.


14. Earnings per share

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



Second Quarter Year-to-date
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------

Net earnings $80,119 $86,163 $81,134 $95,190
-------------------------------------------------------------------------

Number of shares
(in thousands)
Weighted average
number of shares
used to compute
basic net
earnings per
share 115,614.8 115,339.1 115,579.7 115,234.1
Effect of dilutive
stock options (a) 1,078.2 1,460.6 1,113.0 1,547.8
-------------------------------------------------------------------------
Weighted average
number of shares
used to compute
diluted net
earnings per
share 116,693.0 116,799.7 116,692.7 116,781.9
-------------------------------------------------------------------------

Net earnings per
share - basic $0.69 $0.75 $0.70 $0.83

Net earnings per
share - diluted $0.69 $0.74 $0.70 $0.82
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(a) As at June 29, 2008, 1,232,927 common share stock options (620,652
options as at July 1, 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.


15. Effect of new accounting standards not yet implemented

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. In the coming quarters, the Company will determine the effect of adopting this new section in its consolidated financial statements.

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