George Weston Limited Q2 2010

TORONTO, July 30 /CNW/ -

Quarterly Report to Shareholders

George Weston Limited

24 Weeks Ended June 19, 2010

FORWARD-LOOKING STATEMENTS

This Quarterly Report for George Weston Limited ("GWL") and its subsidiaries (collectively, the "Company"), including this Management's Discussion and Analysis ("MD&A"), contains forward-looking statements about the Company's objectives, plans, goals, aspirations, strategies, financial condition, liquidity, obligations, results of operations, cash flows, performance, prospects and opportunities. Words such as "anticipate", "expect", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive", "will", "may" and "should" and similar expressions, as they relate to the Company and its management, are intended to identify forward-looking statements. These forward-looking statements are not historical facts but reflect the Company's current expectations concerning future results and events.

These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including, but not limited to:

    
    -   the possibility that the Company's plans and objectives will not be
        achieved;
    -   changes in economic conditions including the rate of inflation or
        deflation;
    -   changes in consumer spending and preferences;
    -   heightened competition, whether from new competitors or current
        competitors;
    -   the availability and increased costs relating to raw materials,
        ingredients and utilities, including electricity and fuel;
    -   changes in the Company's or its competitors' pricing strategies;
    -   failure of the Company's franchised stores to perform as expected;
    -   risks associated with the terms and conditions of financing programs
        offered to the Company's franchisees;
    -   failure to realize sales growth, anticipated cost savings or
        operating efficiencies from the Company's major initiatives,
        including investments in the Company's information technology
        systems, supply chain investments and other cost reduction
        initiatives, or unanticipated results from these initiatives;
    -   the inability of the Company to successfully implement its
        infrastructure and information technology components of its plan;
    -   the inability of the Company's information technology infrastructure
        to support the requirements of the Company's business;
    -   the inability of the Company to manage inventory to minimize the
        impact of obsolete or excess inventory and to control shrink;
    -   failure to execute successfully and in a timely manner the Company's
        major initiatives, including the implementation of strategies and
        introduction of innovative and reformulated products or new and
        renovated stores;
    -   unanticipated results associated with the Company's strategic
        initiatives, including the impact of acquisitions or dispositions of
        businesses on the Company's future revenues and earnings;
    -   the inability of the Company's supply chain to service the needs of
        the Company's stores;
    -   failure to achieve desired results in labour negotiations, including
        the terms of future collective bargaining agreements which could lead
        to work stoppages;
    -   changes to the regulatory environment in which the Company operates;
    -   the adoption of new accounting standards and changes in the Company's
        use of accounting estimates;
    -   fluctuations in the Company's earnings due to changes in the value of
        stock-based compensation and equity derivative contracts relating to
        GWL and Loblaw Companies Limited ("Loblaw") common shares;
    -   changes in the Company's tax liabilities including changes in tax
        laws or future assessments;
    -   detrimental reliance on the performance of third-party service
        providers;
    -   public health events;
    -   risks associated with product defects, food safety and product
        handling;
    -   changes in interest and foreign currency exchange rates;
    -   the inability of the Company to collect on its credit card
        receivables;
    -   any requirement of the Company to make contributions to its funded
        defined benefit pension plans in excess of those currently
        contemplated;
    -   the inability of the Company to attract and retain key executives;
        and
    -   supply and quality control issues with vendors.
    

These and other risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Enterprise Risks and Risk Management section of the MD&A included in GWL's 2009 Annual Report. These forward-looking statements contained herein and in particular in the Report to Shareholders and MD&A reflect management's current assumptions regarding these risks and uncertainties and their respective impact on the Company.

Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's expectations only as of the date of this Quarterly Report. The Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

CONSOLIDATED RESULTS OF OPERATIONS

George Weston Limited's second quarter 2010 basic net earnings per common share from continuing operations were $0.89 compared to a basic net loss of $0.05 for the same period in 2009. The Company's positive results in the second quarter of 2010 were due to improvements in operating performance in both operating segments, Loblaw Companies Limited and Weston Foods. In addition, the notable items specifically identified below and in the Management's Discussion and Analysis ("MD&A") had a favourable impact on the Company's net earnings in the second quarter of 2010 when compared to the same period in 2009. Basic net earnings in the second quarter of 2010 were negatively impacted by $0.05 per common share compared to $0.61 per common share in the same period in 2009 due to unrealized foreign exchange losses associated with the effect of foreign exchange on a portion of the U.S. dollar denominated cash and short term investments. In addition, basic net earnings in the second quarter of 2009 were negatively impacted by $0.28 per common share related to the extinguishment of a portion of the GWL 12.7% Promissory Notes.

Loblaw continues to make progress on its overall renewal plan; however it is now in the critical period of heightened risk for the infrastructure and information technology components of the plan. As previously stated, Loblaw expects investments associated with this to continue to negatively impact its operating income during this period. Weston Foods brand and product development efforts continue, while its continuing focus on plant and distribution optimization along with other ongoing cost reduction initiatives continue to ensure a low cost operating structure.

    
                         12 Weeks Ended             24 Weeks Ended
                       ---------                  ---------
    (unaudited)
    ($ millions except
     where otherwise    Jun. 19, Jun. 20,          Jun. 19, Jun. 20,
     indicated)            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Sales               $ 7,530  $ 7,484     0.6%  $14,707  $14,506     1.4%
    Operating income    $   389  $   288    35.1%  $   663  $   389    70.4%
    Operating margin       5.2%     3.8%              4.5%     2.7%
    Interest expense and
     other financing
     charges            $    98  $   147  (33.3)%  $   221  $   184    20.1%
    Net earnings (loss)
     from continuing
     operations         $   125  $     4     NM(3) $   167  $   (23)    NM(3)
    Net earnings        $   125  $     4     NM(3) $   167  $   867     NM(3)
    Basic net earnings
     (loss) per common
     share from
     continuing
     operations ($)     $  0.89  $ (0.05)    NM(3) $  1.14  $ (0.33)    NM(3)
    Basic net earnings
     (loss) per common
     share ($)          $  0.89  $ (0.05)    NM(3) $  1.14  $  6.56     NM(3)
    -------------------------------------------------------------------------
    EBITDA(1)           $   550  $   437    25.9%  $   988  $   682    44.9%
    EBITDA margin(1)       7.3%     5.8%              6.7%     4.7%
    Net debt(1)         $   362  $   369   (1.9)%  $   362  $   369   (1.9)%
    -------------------------------------------------------------------------
                       ---------                  ---------
    

Sales in the second quarter of 2010 were $7,530 million compared to $7,484 million for the same period in 2009, an increase of 0.6%.

Operating income for the second quarter of 2010 was $389 million compared to $288 million in the same period in 2009, an increase of 35.1%. Consolidated operating margin for the second quarter of 2010 was 5.2% compared to 3.8% for the same period in 2009. Year-over-year changes in the following items together with additional factors outlined in the MD&A influenced the Company's operating income in the second quarter of 2010 compared to the same period in 2009:

    
    -   a charge of $6 million (2009 - $90 million) related to unrealized
        foreign exchange losses associated with the effect of foreign
        exchange on a portion of the U.S. dollar denominated cash and short
        term investments held by Dunedin Holdings S.à r.l. ("Dunedin"), a
        subsidiary of GWL, and certain of its affiliates. The effect on basic
        net earnings per common share from continuing operations was a charge
        of $0.05 (2009 - $0.61);

    -   a charge of $23 million (2009 - nil) related to an asset impairment
        due to the closure of a Loblaw distribution centre in Quebec. The
        effect on basic net earnings per common share from continuing
        operations was a charge of $0.08 (2009 - nil);

    -   a charge of $6 million (2009 - income of $11 million) related to the
        effect of stock-based compensation net of equity derivatives of both
        GWL and Loblaw. The effect on basic net earnings per common share
        from continuing operations was nominal (2009 - income of $0.05); and

    -   income of $10 million (2009 - $20 million) related to the commodity
        derivatives fair value adjustment at Weston Foods. The effect on
        basic net earnings per common share from continuing operations was
        income of $0.05 (2009 - $0.10).
    

Excluding the impact of the specific items noted above, operating income in the second quarter of 2010 was strong compared to the same period in 2009, with growth at both Loblaw and Weston Foods. The improvement in operating income at Loblaw was primarily attributable to continued buying synergies, disciplined vendor management, improved control label profitability and inventory management and a stronger Canadian dollar, partially offset by investments in pricing and incremental costs related to the investment in information technology and supply chain. Included in the incremental costs were costs related to changes in Loblaw's distribution network in Quebec. Weston Foods operating income was positively impacted in the second quarter of 2010 by the benefits realized from productivity improvements and other cost reduction initiatives, lower input costs and lower restructuring charges, which were partially offset by the impact of lower pricing including increased promotional spending.

Interest expense and other financing charges for the second quarter of 2010 decreased by $49 million to $98 million from $147 million in the second quarter of 2009 primarily due to:

    
    -   a loss of $41 million recorded in the second quarter of 2009 on the
        extinguishment of a portion of the GWL 12.7% Promissory Notes. The
        effect on second quarter 2009 basic net earnings per common share
        from continuing operations was a charge of $0.28; and

    -   a decrease in the non-cash charge related to the fair value
        adjustment of Weston Holdings Limited's, a subsidiary of GWL, forward
        sale agreement for 9.6 million Loblaw common shares of $13 million
        when compared to the same period in 2009. The effect of the fair
        value adjustment on basic net earnings per common share from
        continuing operations was a charge of $0.12 (2009 - $0.19).
    

Excluding the impact of the two specific items noted above, interest expense and other financing charges increased by $5 million.

The effective income tax rate decreased to 30.9% in the second quarter of 2010 compared to 43.3% in the second quarter of 2009. The decrease in the effective income tax rate compared to the same period in 2009 was primarily due to a decrease in non-deductible foreign exchange losses. This decrease was partially offset by a year-over-year increase in income tax expense relating to certain prior year income tax matters when compared to the same period in 2009.

Net Debt(1)

The Company's net debt(1) as at the end of the second quarter of 2010 was $362 million compared to $299 million as at year end 2009. The increase was primarily due to fixed asset purchases at Loblaw and dividend payments, partially offset by positive cash flows from operating activities.

OPERATING SEGMENTS

Weston Foods

Weston Foods sales for the second quarter of 2010 of $359 million decreased 9.1% compared to the same period in 2009. Foreign currency translation negatively impacted sales by approximately 4.9%. Of the remaining decline of 4.2%, approximately 3.0% was attributable to lower pricing across key product categories and approximately 1.2% was due to lower sales volumes.

Weston Foods operating income was $67 million in the second quarter of 2010 compared to $56 million in the second quarter of 2009. Operating margin was 18.7% for the second quarter of 2010 compared to 14.2% in the same period in 2009. Excluding the impact of the effect of stock-based compensation net of equity derivatives and the commodity derivatives fair value adjustment which are more fully described in the MD&A, Weston Foods operating income was strong when compared to the same period in 2009. Operating income was positively impacted by the benefits realized from productivity improvements and other cost reduction initiatives, lower input costs and lower restructuring charges, which were partially offset by the impact of lower pricing including increased promotional spending.

Loblaw

Loblaw sales for the second quarter of 2010 of $7,317 million increased 1.2% compared to the second quarter of 2009. T&T Supermarket Inc. ("T&T") sales positively impacted Loblaw's sales by 1.9%. Same-store sales in the quarter declined 0.3%. Sales growth in food was flat and in drugstore was modest, sales growth in apparel was strong while sales of other general merchandise declined significantly and gas bar sales increased significantly as a result of higher retail gas prices and strong volume growth. Loblaw experienced internal retail food price deflation compared to flat national food price inflation as measured by "The Consumer Price Index for Food Purchased from Stores". Loblaw's measure showed greater internal retail food price deflation in the second quarter of 2010 than in the first quarter of 2010 and compared to internal retail food price inflation in the second quarter of 2009.

Loblaw operating income for the second quarter of 2010 was $328 million compared to $322 million in the same period in 2009, an increase of 1.9%. Loblaw operating margin was 4.5% for the second quarter of 2010 and for the second quarter of 2009. Excluding the impact of the effect of stock-based compensation net of equity forwards and the asset impairment charge due to the closure of a distribution centre in Quebec, operating income improved as a result of continued buying synergies, disciplined vendor management, improved control label profitability and inventory management and a stronger Canadian dollar, partially offset by investments in pricing and incremental costs related to the investment in information technology and supply chain. Included in the incremental costs were costs related to changes in Loblaw's distribution network in Quebec.

OUTLOOK(2)

The consolidated results of George Weston Limited will continue to reflect the operating performance of both the Weston Foods and Loblaw operating businesses for the remainder of 2010. In addition, the Company's results will be subject to earnings volatility caused by the impact of changes in U.S. foreign currency exchange rates on a portion of the U.S. dollar denominated cash and short term investments held by Dunedin and certain of its affiliates. Earnings volatility may also result from other non-operating factors including commodity prices and their impact on the Company's commodity derivatives, the Loblaw common share price and its impact on the forward sale agreement for 9.6 million Loblaw common shares and short term interest rates.

Weston Foods expects satisfactory operating performance for the remainder of 2010. The Company is continuing its efforts to reduce costs through improved efficiencies and productivity and is focused on growing sales by optimizing product mix and product innovation to meet changing consumer buying preferences.

Loblaw continues to make progress on its overall renewal plan. As it has just entered the critical period of heightened risk for the infrastructure and information technology components of the plan, Loblaw continues to expect associated investments to negatively impact operating income during this period. For the remainder of 2010, Loblaw expects sales and margins will remain challenged by deflation and increased competitive intensity.

George Weston Limited is continuing to assess strategic options for the deployment of its significant holdings of cash and short term investments.

    
    (signed)

    W. Galen Weston                   Toronto, Canada
    Chairman and President            July 29, 2010
    

Management's Discussion and Analysis

The following Management's Discussion and Analysis ("MD&A") for George Weston Limited ("GWL") and its subsidiaries (collectively, the "Company") should be read in conjunction with the Company's 2010 unaudited interim period consolidated financial statements and the accompanying notes of this Quarterly Report, the audited annual consolidated financial statements and the accompanying notes for the year ended December 31, 2009 and the related annual MD&A included in the Company's 2009 Annual Report. The Company's second quarter 2010 unaudited interim period consolidated financial statements and the accompanying notes have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and are reported in Canadian dollars. These unaudited interim period consolidated financial statements include the accounts of the Company and variable interest entities ("VIEs") that the Company is required to consolidate in accordance with Accounting Guideline 15, "Consolidation of Variable Interest Entities". A glossary of terms and ratios used throughout this Quarterly Report can be found beginning on page 114 of the Company's 2009 Annual Report. In addition, this Quarterly Report includes the following terms: "rolling year net debt(1) to EBITDA(1)", which is defined as net debt(1) divided by cumulative EBITDA(1) for the latest four quarters; "rolling year return on average net assets(1)", which is defined as cumulative operating income for the latest four quarters divided by average net assets(1); "rolling year return on average common shareholders' equity", which is defined as cumulative net earnings available to common shareholders from continuing operations for the latest four quarters divided by average total common shareholders' equity; and "operating working capital" which is defined as the sum of accounts receivable, inventories and prepaid expenses and other assets less accounts payable and accrued liabilities.

The information in this MD&A is current to July 29, 2010, unless otherwise noted.

CONSOLIDATED RESULTS OF OPERATIONS

As disclosed previously, the fresh bread and baked goods business in the United States ("U.S. fresh bakery business") was sold on January 21, 2009. The results and the gain on the sale of the U.S. fresh bakery business have been reflected separately as discontinued operations in the comparative results.

Sales

Sales for the second quarter of 2010 increased 0.6%, or $46 million, to $7,530 million from $7,484 million in the second quarter of 2009. On a year-to-date basis, sales increased 1.4% to $14,707 million. The impact of foreign currency translation on the Weston Foods operating segment negatively impacted consolidated sales growth by approximately 0.3% for the second quarter of 2010 and on a year-to-date basis. When compared to the same period last year, the Company's consolidated sales for the second quarter of 2010 were impacted by each of its reportable operating segments as follows:

    
    -   Negatively by 0.5% as a result of a sales decrease of 9.1% at Weston
        Foods. Foreign currency translation negatively impacted Weston Foods'
        sales by approximately 4.9%. Of the remaining decline of 4.2%,
        approximately 3.0% was attributable to lower pricing across key
        product categories and approximately 1.2% was due to lower sales
        volumes.

    -   Positively by 1.1% due to sales growth of 1.2% at Loblaw. T&T
        Supermarket Inc. ("T&T") sales positively impacted Loblaw's sales by
        1.9%. Same-store sales in the quarter declined 0.3%. Sales growth in
        food was flat and in drugstore was modest, sales growth in apparel
        was strong while sales of other general merchandise declined
        significantly and gas bar sales increased significantly as a result
        of higher retail gas prices and strong volume growth. Loblaw
        experienced internal retail food price deflation compared to flat
        national food price inflation as measured by "The Consumer Price
        Index for Food Purchased from Stores" ("CPI"). Loblaw's measure
        showed greater internal retail food price deflation in the second
        quarter of 2010 than in the first quarter of 2010 and compared to
        internal retail food price inflation in the second quarter of 2009.
    

Operating Income

Operating income for the second quarter of 2010 was $389 million compared to $288 million in the second quarter of 2009. Consolidated operating margin of 5.2% for the second quarter of 2010 increased compared to 3.8% for the same period in 2009. When compared to the same period last year, the Company's change in operating income for the second quarter 2010 was impacted positively by 3.8% due to an increase in operating income at Weston Foods, and positively by 2.1% due to an increase in operating income at Loblaw. In addition, the reduction in foreign exchange losses associated with the effect of foreign exchange on a portion of the U.S. dollar denominated cash and short term investments held by Dunedin Holdings S.à r.l. ("Dunedin"), a subsidiary of GWL, positively impacted operating income growth by 29.2%.

The year-over-year change in the following items influenced operating income for the second quarter of 2010 compared to the second quarter of 2009:

    
    -   a charge of $6 million (2009 - $90 million) related to unrealized
        foreign exchange losses associated with the effect of foreign
        exchange on a portion of the U.S. dollar denominated cash and short
        term investments held by Dunedin, a subsidiary of GWL, and certain of
        its affiliates;
    -   a charge of $23 million (2009 - nil) related to an asset impairment
        due to the closure of a Loblaw distribution centre in Quebec;
    -   a charge of $6 million (2009 - income of $11 million) related to the
        effect of stock-based compensation net of equity derivatives of both
        GWL and Loblaw; and
    -   income of $10 million (2009 - $20 million) related to the commodity
        derivatives fair value adjustment at Weston Foods.
    

Year-to-date operating income for 2010 was $663 million compared to $389 million in 2009. Operating margin for the first half of 2010 was 4.5% compared to 2.7% in 2009.

The year-over-year change in the following items influenced operating income for the first half of 2010 compared to the first half of 2009:

    
    -   a charge of $35 million (2009 - $186 million), of which $35 million
        (2009 - $152 million) related to foreign exchange losses associated
        with the effect of foreign exchange on a portion of the U.S. dollar
        denominated cash and short term investments held by Dunedin, a
        subsidiary of GWL, and certain of its affiliates and nil (2009 - a
        charge of $34 million) related to the reversal of cumulative foreign
        currency translation losses;
    -   nil (2009 - a charge of $73 million) related to the non-cash goodwill
        impairment in Weston Foods' biscuits, cookies, cones and wafers
        business;
    -   a charge of $23 million (2009 - nil) related to an asset impairment
        due to the closure of a Loblaw distribution centre in Quebec;
    -   a charge of $10 million (2009 - $12 million) related to the effect of
        stock-based compensation net of equity derivatives of both GWL and
        Loblaw; and
    -   income of $10 million (2009 - $29 million) related to the commodity
        derivatives fair value adjustment at Weston Foods.
    

Included in the foreign exchange loss reported in the first half of 2009 was a $48 million charge related to the conversion of U.S. $2.4 billion of cash and short term investments to approximately $3.0 billion Canadian dollars following the sale of the U.S. fresh bakery business. This loss was a result of the appreciation of the Canadian dollar relative to the U.S. dollar between the closing date of the sale and the dates on which the proceeds were converted to Canadian dollars.

Excluding the impact of the specific items noted above, operating income for the second quarter and year-to-date 2010 was strong compared to the same periods in 2009.

EBITDA(1) increased by $113 million to $550 million in the second quarter of 2010 compared to $437 million in the second quarter of 2009. EBITDA margin(1) for the second quarter of 2010 increased to 7.3% from 5.8% in the same period in 2009. On a year-to-date basis, EBITDA(1) increased by $306 million to $988 million compared to $682 million in 2009. Year-to-date EBITDA margin(1) increased to 6.7% from 4.7% in 2009. EBITDA(1) and EBITDA margins(1) for the second quarter and year-to-date 2010 were positively impacted by the reduction in foreign exchange losses associated with the effect of foreign exchange on a portion of the U.S. dollar denominated cash and short term investments held by Dunedin and certain of its affiliates, and higher EBITDA margins(1) at both Weston Foods and Loblaw. The year-to-date 2009 EBITDA margin(1) at Weston Foods was negatively impacted by the non-cash goodwill impairment charge recorded in the first quarter of 2009.

Interest Expense and Other Financing Charges

Interest expense and other financing charges for the second quarter of 2010 decreased by $49 million to $98 million from $147 million in the second quarter of 2009. The decrease was primarily the result of:

    
    -   a loss of $41 million recorded in the second quarter of 2009 on the
        extinguishment of a portion of the GWL 12.7% Promissory Notes; and

    -   a decrease in the non-cash charge related to the fair value
        adjustment of Weston Holdings Limited's ("WHL"), a subsidiary of GWL,
        forward sale agreement for 9.6 million Loblaw common shares of
        $13 million when compared to the same period in 2009. The fair value
        adjustment of the forward contract is a non-cash item resulting from
        fluctuations in the market price of the underlying Loblaw common
        shares that WHL owns. WHL does not record any change in the market
        price associated with the Loblaw common shares it owns. Any cash paid
        under the forward contract could be offset by the sale of the Loblaw
        common shares.
    

Year-to-date interest expense and other financing charges increased by $37 million to $221 million from $184 million in 2009. This increase was primarily due to the year-over-year change in the fair value adjustment of WHL's forward sale agreement for 9.6 million Loblaw common shares of $68 million when compared to 2009, partially offset by the loss of $41 million recorded in the second quarter of 2009 on the extinguishment of a portion of the GWL 12.7% Promissory Notes.

Income Taxes

The effective income tax rates for the second quarter and year-to-date 2010 were 30.9% and 34.4% (2009 - 43.3% and 56.1%), respectively. Both the second quarter and year-to-date 2010 decreases in the effective income tax rates compared to the same periods in 2009 were primarily due to decreases in non-deductible foreign exchange losses. These decreases were partially offset by year-over-year increases in income tax expenses relating to certain prior year income tax matters when compared to the same periods in 2009.

In March 2010, the federal budget proposed changes that impact the tax deductibility of cash-settled stock options. As at the end of the second quarter of 2010, the Company had $11 million in current and future tax assets relating to outstanding employee stock options that will be expensed when the proposed changes are substantively enacted.

Net Earnings (Loss) from Continuing Operations

Net earnings from continuing operations for the second quarter of 2010 were $125 million compared to $4 million in the second quarter of 2009 and on a year-to-date basis, net earnings from continuing operations were $167 million compared to a net loss from continuing operations of $23 million in 2009. Basic net earnings per common share from continuing operations for the second quarter of 2010 were $0.89 compared to a basic net loss per common share from continuing operations of $0.05 in the same period in 2009 and year-to-date 2010 basic net earnings per common share from continuing operations were $1.14 compared to a basic net loss per common share from continuing operations of $0.33 in 2009.

Basic net earnings per common share from continuing operations in the second quarter of 2010 compared to the second quarter of 2009 were affected by the following factors:

    
    -   a $0.05 per common share charge (2009 - $0.61) related to unrealized
        foreign exchange losses associated with the effect of foreign
        exchange on a portion of the U.S. dollar denominated cash and short
        term investments held by Dunedin and certain of its affiliates;
    -   nil per common share (2009 - $0.28 per common share charge) related
        to the extinguishment of a portion of the GWL 12.7% Promissory Notes;
    -   a $0.08 per common share charge (2009 - nil) related to an asset
        impairment due to the closure of a Loblaw distribution centre in
        Quebec;
    -   a $0.12 per common share non-cash charge (2009 - $0.19) related to
        the accounting for WHL's forward sale agreement for 9.6 million
        Loblaw common shares;
    -   a nominal per common share charge (2009 - income of $0.05) related to
        the effect of stock-based compensation net of equity derivatives of
        both GWL and Loblaw; and
    -   $0.05 per common share income (2009 - $0.10) related to the commodity
        derivatives fair value adjustment at Weston Foods.
    

The 2010 year-to-date basic net earnings per common share from continuing operations compared to the 2009 year-to-date basic net loss per common share from continuing operations were affected by the following factors:

    
    -   a $0.27 per common share charge (2009 - $1.28), of which $0.27
        (2009 - $1.02) related to foreign exchange losses associated with the
        effect of foreign exchange on a portion of the U.S. dollar
        denominated cash and short term investments held by Dunedin and
        certain of its affiliates and nil (2009 - charge of $0.26) related to
        the reversal of cumulative foreign currency translation losses;
    -   a $0.36 per common share non-cash charge (2009 - $0.04 per common
        share non-cash income) related to the accounting for WHL's forward
        sale agreement for 9.6 million Loblaw common shares;
    -   nil per common share (2009 - $0.38 per common share charge) related
        to the non-cash goodwill impairment in Weston Foods' biscuits,
        cookies, cones and wafers business;
    -   nil per common share (2009 - $0.28 per common share charge) related
        to the extinguishment of a portion of the GWL 12.7% Promissory Notes;
    -   a $0.08 per common share charge (2009 - nil) related to an asset
        impairment due to the closure of a Loblaw distribution centre in
        Quebec;
    -   $0.05 per common share income (2009 - $0.15) related to the commodity
        derivatives fair value adjustment at Weston Foods; and
    -   a nominal per common share charge (2009 - $0.07) related to the
        effect of stock-based compensation net of equity derivatives of both
        GWL and Loblaw.
    

Discontinued Operations

Net earnings from discontinued operations were nil for the second quarter of 2010 and 2009. On a year-to-date basis, net earnings from discontinued operations were nil in 2010 compared to $890 million in 2009. Included in year-to-date 2009 net earnings from discontinued operations was a gain on disposal of the U.S. fresh bakery business of $921 million ($883 million, net of tax).

Net Earnings

Net earnings for the second quarter of 2010 were $125 million compared to $4 million in the same period in 2009 and on a year-to-date basis, net earnings were $167 million compared to $867 million in 2009. Basic net earnings per common share for the second quarter of 2010 were $0.89 compared to a basic net loss per common share of $0.05 in the same period in 2009. Year-to-date 2010 basic net earnings per common share of $1.14 compared to $6.56 in 2009, including net earnings from discontinued operations per common share of nil compared to $6.89 in 2009.

GWL's ownership of Loblaw was 62.6% as at the end of the second quarter of 2010 and 62.5% as at year end 2009. GWL's ownership of Loblaw was 61.9% as at the end of the second quarter of 2009 and as at year end 2008. The increases in GWL's ownership have been due to the Company's participation in the Loblaw Dividend Reinvestment Plan and Loblaw's repurchase of 1.7 million of its common shares during the fourth quarter of 2009.

REPORTABLE OPERATING SEGMENTS

Weston Foods

The Weston Foods operating segment continued to achieve satisfactory financial results despite soft sales in the second quarter of 2010. Weston Foods sales were negatively impacted by foreign currency translation, lower pricing and lower sales volumes. Operating income increased in the second quarter of 2010 compared to the same period in 2009 and after excluding the impact of the commodity derivatives fair value adjustment, the impact of stock-based compensation net of equity derivatives and also foreign currency translation, operating income in the second quarter of 2010 was strong. Operating income was positively impacted by the benefits realized from productivity improvements and other cost reduction initiatives, lower input costs and lower restructuring charges, which were partially offset by the impact of lower pricing including increased promotional spending.

Sales

Weston Foods sales for the second quarter of 2010 of $359 million decreased 9.1% compared to the same period in 2009. Foreign currency translation negatively impacted sales by approximately 4.9%. Of the remaining decline of 4.2%, approximately 3.0% was attributable to lower pricing across key product categories and approximately 1.2% was due to lower sales volumes.

On a year-to-date basis, sales of $744 million decreased 10.6% compared to the same period in 2009. Foreign currency translation negatively impacted sales by approximately 6.3%. Of the remaining decline of 4.3%, approximately 3.4% was attributable to lower pricing across key product categories and approximately 0.9% was due to lower sales volumes.

The following sales analysis excludes the impact of foreign currency translation.

Fresh bakery sales decreased approximately 1.8% in the second quarter of 2010 compared to the same period in 2009. On a year-to-date basis, sales decreased 1.2% compared to the same period in 2009, driven by lower pricing primarily due to increased promotional spending. Volume increased in the second quarter of 2010 and year-to-date due to the growth in the Gadoua, Wonder and D'Italiano brands, partially offset by the continued softness in the food service market and lower sales of private label products. The introduction of new products, such as Gadoua MultiGo, Wonder Invisibles, Wonder SimplyFree and D'Italiano Focaccia, contributed positively to branded sales during the second quarter and year-to-date 2010.

Frozen bakery sales decreased approximately 2.5% in the second quarter of 2010 and 2.7% on a year-to-date basis compared to the same periods in 2009, due to lower sales volumes and lower pricing including increased promotional spending. Overall, volume in the second quarter and year-to-date decreased compared to the same periods in 2009 due to decreases in certain product categories including the continued softness in the food service market and the loss of certain distributed products. Sales and volumes in the second quarter of 2010 were negatively impacted by the timing of customer orders related to the Easter holiday when compared to the same period in 2009.

Biscuit sales, principally wafers, ice-cream cones, cookies and crackers, decreased approximately 11.5% in the second quarter of 2010 and 10.5% year-to-date compared to the same periods in 2009, due to lower sales volumes and lower pricing in certain product categories. The volume decline was driven by lower wafer, cup, cone and Girl Scout cookie sales in the second quarter and year-to-date compared to the same periods in 2009.

Operating Income

Weston Foods operating income was $67 million in the second quarter of 2010 compared to $56 million in the same period in 2009. Operating margin was 18.7% for the second quarter of 2010 compared to 14.2% in the second quarter of 2009.

The year-over-year change in the following items influenced operating income for the second quarter of 2010 compared to the second quarter of 2009:

    
    -   income of $10 million (2009 - $20 million) related to the commodity
        derivatives fair value adjustment; and
    -   income of $5 million (2009 - $4 million) related to the effect of
        stock-based compensation net of equity derivatives.
    

On a year-to-date basis, Weston Foods operating income increased to $112 million from $29 million in 2009. Operating margin for 2010 was 15.1% compared to 3.5% in 2009.

The year-over-year change in the following items influenced operating income for the first half of 2010 compared to the first half of 2009:

    
    -   nil (2009 - a charge of $73 million) related to the non-cash goodwill
        impairment in Weston Foods' biscuits, cookies, cones and wafers
        business;
    -   income of $10 million (2009 - $29 million) related to the commodity
        derivatives fair value adjustment; and
    -   income of $10 million (2009 - a nominal charge) related to the effect
        of stock-based compensation net of equity derivatives.
    

In addition, operating income for the second quarter and year-to-date 2010 was negatively impacted by foreign currency translation due to a stronger Canadian dollar relative to the U.S. dollar.

Weston Foods is exposed to commodity price fluctuations primarily as a result of purchases of certain raw materials, fuels and utilities. In accordance with the Company's risk management strategy, Weston Foods enters into commodity derivatives to reduce the impact of price fluctuations in forecasted raw material purchases over a specified period of time. These commodity derivatives are not acquired for trading or speculative purposes. Certain of these derivatives are not designated for financial reporting purposes as cash flow hedges of anticipated future raw material purchases, and accordingly hedge accounting does not apply. As a result, changes in the fair value of these derivatives, which include realized and unrealized gains and losses related to future purchases of raw materials, are recorded in operating income. Weston Foods recorded income of $10 million (2009 - $20 million) during the second quarter of 2010, and on a year-to-date basis income of $10 million (2009 - $29 million), related to the fair value adjustment of exchange traded commodity derivatives that were not designated within a hedging relationship. Despite the impact of accounting for these commodity derivatives on the Company's reported results, the derivatives have the economic impact of largely mitigating the associated risks arising from price fluctuations in the underlying commodities during the period that the commodity derivatives are held.

Weston Foods continuously evaluates strategic and cost reduction initiatives related to its manufacturing assets, distribution networks and administrative infrastructure with the objective of ensuring a low cost operating structure. Restructuring activities related to these initiatives are ongoing. In the second quarter of 2010, a charge of nil (2009 - $5 million), and on a year-to-date basis a charge of $6 million (2009 - $7 million) were recorded in operating income related to restructuring activities. During the first quarter of 2010, Weston Foods approved a plan to close a fresh bakery manufacturing facility in Quebec as a result of the Company's inability to reach a satisfactory collective agreement with the union and recorded a charge of $6 million relating to employee termination benefits. The fixed assets relating to this facility, including land and building, are currently being evaluated and it is anticipated that accelerated depreciation charges up to $5 million will be recorded throughout the remainder of the year until the facility is closed, which is anticipated to be in the fourth quarter of 2010. A gain or loss on sale of the land and building will be recorded when the facility is sold. In addition, site closing and other exit costs of $3 million are anticipated and will be recorded as incurred.

Weston Foods operating income for the second quarter and year-to-date 2010 were impacted by changes in the following items when compared to the same periods in 2009: the commodity derivatives fair value adjustment, the effect of stock-based compensation net of equity derivatives, and also foreign currency translation. Operating income on a year-to-date basis was positively impacted by the non-cash goodwill impairment charge in Weston Foods' biscuits, cookies, cones and wafers business recorded in the first quarter of 2009. Excluding these specific items, operating income in the second quarter and year-to-date 2010 was strong compared to the same periods in 2009. Operating income was positively impacted by the benefits realized from productivity improvements and other cost reduction initiatives, lower input costs and lower restructuring charges, which were partially offset by the impact of lower pricing including increased promotional spending.

Gross margin, including the impact of the commodity derivatives fair value adjustment, decreased slightly in the second quarter of 2010 and was flat on a year-to-date basis compared to the same periods in 2009.

EBITDA(1) increased by $9 million to $79 million in the second quarter of 2010 compared to $70 million in the second quarter of 2009. On a year-to-date basis EBITDA(1) increased by $81 million, to $136 million compared to $55 million in 2009, mainly due to the non-cash goodwill impairment charge recorded in the first quarter of 2009. EBITDA margin(1) increased in the second quarter of 2010 to 22.0% from 17.7% in 2009 and on a year-to-date basis to 18.3% from 6.6% in 2009.

Loblaw

Sales

Sales for the second quarter of 2010 increased by 1.2% to $7,317 million compared to $7,233 million in the second quarter of 2009. The following factors explain the major components of the increase:

    
    -   T&T sales positively impacted Loblaw's sales by 1.9%;
    -   same-store sales decline of 0.3%;
    -   sales growth in food was flat and in drugstore was modest;
    -   sales growth in apparel was strong while sales of other general
        merchandise declined significantly due to reductions in assortment
        and square footage;
    -   gas bar sales increased significantly as a result of higher retail
        gas prices and strong volume growth;
    -   Loblaw experienced internal retail food price deflation compared to
        flat national food price inflation of 0.3% as measured by CPI. CPI
        does not necessarily reflect the effect of inflation on the specific
        mix of goods sold in Loblaw stores. Loblaw's measure showed greater
        internal retail food price deflation in the second quarter of 2010
        than in the first quarter of 2010 and compared to internal retail
        food price inflation in the second quarter of 2009; and
    -   during the second quarter of 2010, net retail square footage remained
        flat, as 3 stores opened and 6 stores closed. During the last four
        quarters, 39 stores were opened, including 17 acquired T&T stores,
        and 32 stores were closed, resulting in a net increase of 0.7 million
        square feet, or 1.4%.
    

On a year-to-date basis, sales increased by 2.1% to $14,243 million compared to 2009. The following factors, in addition to the quarterly factors mentioned above, further explain the increase:

    
    -   T&T sales positively impacted Loblaw's sales by 1.9%;
    -   same-store sales growth of 0.1%; and
    -   sales and same-store sales growth were positively impacted by
        approximately 0.3% as a result of a labour disruption during the
        first quarter of 2009 in certain Maxi stores in Quebec. These stores
        reopened in the first quarter of 2009, except for two stores that
        were permanently closed.
    

Operating Income

Operating income was $328 million for the second quarter of 2010 compared to $322 million in the same period in 2009, an increase of 1.9%. Operating margin was 4.5% for the second quarter of 2010 and for the second quarter of 2009.

Gross profit increased by $104 million to $1,793 million in the second quarter of 2010 compared to $1,689 million in the second quarter of 2009. Gross profit as a percentage of sales was 24.5% in the second quarter of 2010 compared to 23.4% in the same period in 2009. In the second quarter of 2010, the increase in gross profit and gross profit as a percentage of sales was primarily attributable to continued buying synergies, disciplined vendor management, improved control label profitability and inventory management and a stronger Canadian dollar, partially offset by investments in pricing.

The increase in operating income was primarily due to the increase in gross profit, partially offset by an increase in depreciation and amortization of $14 million, a charge of $11 million (2009 - income of $7 million) related to stock-based compensation net of the equity forwards and incremental costs of $41 million related to Loblaw's investment in information technology and supply chain. Included in the incremental costs was $16 million of costs related to changes in Loblaw's distribution network in Quebec. In addition, in connection with the distribution network changes a $23 million asset impairment charge was recorded for the closure of a distribution centre. The second quarter of 2009 was positively impacted by a gain of $8 million from the sale of financial investments by President's Choice Bank ("PC Bank"), a wholly owned subsidiary of Loblaw.

EBITDA(1) increased by $20 million, or 4.4%, to $477 million in the second quarter of 2010 compared to $457 million in the second quarter of 2009. EBITDA margin(1) increased in the second quarter of 2010 to 6.5% from 6.3% in the same period in 2009. The increases in EBITDA(1) and EBITDA margin(1) were primarily due to the increases in gross profit and gross profit as a percentage of sales, partially offset by costs related to changes in Loblaw's distribution network including the $23 million asset impairment charge.

Year-to-date operating income for 2010 increased by $40 million, or 7.3%, to $586 million, and resulted in an operating margin of 4.1% compared to 3.9% in 2009.

Year-to-date gross profit increased by $210 million to $3,513 million compared to $3,303 million in 2009. Year-to-date gross profit as a percentage of sales was 24.7% compared to 23.7% in 2009. In the first half of 2010, the increase in gross profit and gross profit as a percentage of sales was primarily attributable to continued buying synergies, disciplined vendor management, improved control label profitability and inventory management and a stronger Canadian dollar, partially offset by investments in pricing in the second quarter of 2010.

The year-to-date increases in operating income and operating margin were primarily due to the increases in gross profit and gross profit as a percentage of sales, partially offset by an increase in depreciation and amortization of $34 million, a charge of $20 million (2009 - $12 million) related to stock-based compensation net of the equity forwards, incremental costs of $69 million related to Loblaw's investment in information technology and supply chain and the $23 million asset impairment charge recorded in the second quarter of 2010. Year-to-date operating income in 2009 included a gain of $8 million from the sale of financial investments by PC Bank.

Year-to-date EBITDA(1) increased by $74 million, or 9.1% to $887 million compared to $813 million in 2009. EBITDA margin(1) improved to 6.2% compared to 5.8% in 2009. The year-to-date increases in EBITDA(1) and EBITDA margin(1) were primarily due to the improvements in gross profit and gross profit as a percentage of sales, partially offset by costs related to changes in Loblaw's distribution network including the $23 million asset impairment charge recorded in the second quarter of 2010.

CONSOLIDATED FINANCIAL CONDITION

Financial Ratios

The Company's net debt(1) to equity ratio at the end of the second quarter of 2010 was 0.05:1 compared to 0.04:1 at year end 2009. The slight increase in this ratio when compared to year end 2009 was due to the increase in net debt(1) as discussed in the net debt(1) section below.

The rolling year net debt(1) to EBITDA(1) ratio was 0.2 times at the end of each of the second quarter of 2010 and the second quarter of 2009 and at year end 2009.

The interest coverage ratio in the second quarter of 2010 increased to 3.8 times compared to 1.9 times in the second quarter of 2009. This increase was due to both the increase in operating income and the decrease in interest expense and other financing charges. On a year-to-date basis, the interest coverage ratio increased to 2.9 times in 2010 compared to 2.0 times in 2009. This increase was due primarily to the increase in operating income.

The Company's rolling year return on average net assets(1) at the end of the second quarter of 2010 was 11.9% compared to 10.1% at the end of the same period in 2009 and 9.3% at year end 2009. The Company's rolling year return on average common shareholders' equity was 4.5% at the end of the second quarter of 2010 compared to 8.1% at the end of the same period in 2009 and 1.5% at year end 2009.

Capital Securities

Of the 12.0 million authorized non-voting Loblaw second preferred shares, Series A, 9.0 million were outstanding at the end of the second quarter of 2010.

Dividends on capital securities are presented in interest expense and other financing charges in the consolidated statements of earnings.

Outstanding Share Capital

GWL's outstanding share capital is comprised of common shares and preferred shares. An unlimited number of common shares is authorized and 129.1 million common shares were outstanding at the end of the second quarter of 2010. Ten million preferred shares, Series I, are authorized and 9.4 million were outstanding, 10.0 million preferred shares, Series III, are authorized and 8.0 million were outstanding and 8.0 million preferred shares, Series IV and Series V, are authorized and were outstanding, in each case, at the end of the second quarter of 2010.

During the second quarter of 2010, GWL renewed its Normal Course Issuer Bid ("NCIB") to purchase on the Toronto Stock Exchange or enter into equity derivatives to purchase up to 5% of its common shares outstanding. GWL did not purchase any shares under its NCIB in the first half of 2010 or in 2009.

Dividends

On July 1, 2010, common share dividends of $0.36 per share and preferred share dividends of $0.32 per share for the Series III and Series IV preferred shares and dividends of $0.30 per share for the Series V preferred shares were paid as declared by GWL's Board of Directors. On June 15, 2010, preferred share dividends of $0.36 per share for the Series I preferred shares were paid as declared by the Board.

Subsequent to the end of the second quarter of 2010, common share dividends of $0.36 per share and preferred share dividends of $0.32 per share for the Series III and Series IV preferred shares and dividends of $0.30 per share for the Series V preferred shares, payable on October 1, 2010, were declared by GWL's Board of Directors. In addition, dividends of $0.36 per share for Series I preferred shares, payable on September 15, 2010, were also declared.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows from Operating Activities of Continuing Operations

Second quarter 2010 cash flows from operating activities of continuing operations were $660 million compared to $846 million in the same period in 2009. On a year-to-date basis, cash flows from operating activities of continuing operations were $419 million compared to $470 million in 2009. The decreases in cash flows from operating activities were primarily due to the change in non-cash working capital. Also impacting second quarter and year-to-date 2009 cash flows from operating activities was a $38 million payment to a counterparty to extinguish a portion of the liability associated with equity forwards by Glenhuron Bank Limited ("Glenhuron"), a wholly owned subsidiary of Loblaw.

Cash Flows used in Investing Activities of Continuing Operations

Second quarter 2010 cash flows used in investing activities of continuing operations were $269 million compared to $341 million in the same period in 2009. On a year-to-date basis, cash flows used in investing activities of continuing operations were $107 million compared to $1,147 million in 2009. The decreases in cash flows used in investing activities of continuing operations were primarily due to the changes in short term investments, partially offset by the changes in security deposits. The year-to-date 2010 decrease in cash flows used in investing activities of continuing operations was also partially offset by PC Bank's repurchase of $90 million of co-ownership interest in securities receivables from an independent trust in the first quarter of 2010. Capital investment for the second quarter of 2010 amounted to $241 million (2009 - $210 million) and $392 million (2009 - $347 million) year-to-date, including $19 million, which was financed by Loblaw through a capital lease in the second quarter of 2010. The Company expects to invest approximately $1.0 billion in capital expenditures in 2010.

Cash Flows used in Financing Activities of Continuing Operations

Second quarter 2010 cash flows used in financing activities of continuing operations were $14 million compared to $639 million in the same period in 2009. On a year-to-date basis, cash flows used in financing activities of continuing operations were $48 million compared to $640 million in 2009. The decreases in cash flows used in financing activities of continuing operations were primarily due to the repayment of short term and bank indebtedness and the redemption of GWL's 10.6 million preferred shares, Series II, for $265 million in the second quarter of 2009. The second quarter 2010 decrease in cash flows used in financing activities of continuing operations was partially offset by Loblaw's repayment of the $300 million 7.10% Medium Term Notes ("MTN").

During the second quarter of 2010, Loblaw issued $350 million principal amount of 10 year unsecured MTN, Series 2-B pursuant to its MTN, Series 2 program. Interest on the notes is payable semi-annually at a fixed rate of 5.22%. The notes are unsecured obligations and are redeemable at the option of Loblaw. In the second quarter of 2009, Loblaw issued $350 million principal amount of 5 year unsecured MTN, Series 2-A which pay a fixed rate of interest of 4.85% payable semi-annually.

During the second quarter of 2010 Loblaw's $300 million, 7.10% MTN due May 11, 2010 matured and was repaid. During the first quarter of 2009, Loblaw repaid its $125 million 5.75% MTN and GWL repaid its $250 million 5.90% MTN, both of which matured.

Net Debt(1)

The Company's net debt(1) as at the end of the second quarter of 2010 was $362 million compared to $299 million as at year end 2009. The increase was primarily due to fixed asset purchases at Loblaw and dividend payments, partially offset by positive cash flows from operating activities.

Sources of Liquidity

The Company holds significant cash and short term investments denominated in Canadian and United States dollars. These funds are invested in highly liquid marketable short term investments consisting primarily of Canadian and United States government treasury bills and treasury notes, United States government sponsored debt securities, Canadian bank term deposits and corporate commercial paper.

Loblaw expects that cash and cash equivalents, short term investments, future operating cash flows and the amounts available to be drawn against its credit facility will enable it to finance its capital investment program and fund its ongoing business requirements, including working capital, pension plan funding and financial obligations over the next twelve months. In addition, given reasonable access to capital markets, Loblaw does not foresee any impediments in securing financing to satisfy its long term obligations.

PC Bank participates in bank supported and term securitization programs which provide the primary source of funds for the operation of its business. Under these securitization programs, a portion of the total interest in the credit card receivables is sold to independent trusts. During the first quarter of 2010, PC Bank repurchased $90 million (2009 - nil) of co-ownership interest in securitized receivables from an independent trust. The independent trusts' recourse to PC Bank's assets is limited to PC Bank's excess collateral (June 19, 2010 - $114 million; June 20, 2009 - $124 million; December 31, 2009 - $121 million) as well as standby letters of credit issued (June 19, 2010 - $103 million; June 20, 2009 - $116 million; December 31, 2009 - $116 million) on a portion of the securitized amount. A portion of the securitized receivables that is held by an independent trust facility with a term of 364 days is subject to renewal during the third quarter of 2010. If the facility is not renewed, collections must be accumulated on behalf of the trust prior to the expiry. In the absence of renewal or other securitization, Loblaw would be required to use its cash and short term investments or raise alternative financing by issuing additional debt or equity instruments.

Loblaw has traditionally obtained its long term financing primarily through a MTN program. Loblaw may refinance maturing long term debt with MTN if market conditions are appropriate or it may consider other alternatives.

The following table sets out the current credit ratings of Loblaw:

    
                                Dominion Bond
                               Rating Service           Standard & Poor's
                           --------------------------------------------------
    Credit Ratings             Credit                  Credit
    (Canadian Standards)       Rating      Trend       Rating      Outlook
    -------------------------------------------------------------------------
    Commercial paper      R-2 (middle)    Stable          A-2       Stable
    Medium term notes             BBB     Stable          BBB       Stable
    Preferred shares            Pfd-3     Stable    P-3 (high)      Stable
    Other notes and
     debentures                   BBB     Stable          BBB       Stable
    -------------------------------------------------------------------------
    

The rating organizations listed above base their credit ratings on quantitative and qualitative considerations. These credit ratings are forward-looking and are intended to give an indication of the risk that Loblaw will not fulfill its obligations in a timely manner.

Loblaw's and PC Bank's ability to obtain funding from external sources may be restricted by downgrades in Loblaw's current credit ratings should Loblaw's financial performance and condition deteriorate. In addition, credit and capital markets are subject to inherent global risks that may negatively affect Loblaw's access and ability to fund its financial and other liabilities. Loblaw mitigates these risks by maintaining appropriate levels of cash and short term investments, committed lines of credit and by diversifying its sources of funding and the maturity profile of its debt and capital obligations.

The Company (excluding Loblaw) expects that cash and cash equivalents, short term investments and future operating cash flows will enable it to finance its capital investment program and fund its ongoing business requirements, including working capital and pension plan funding over the next 12 months. The Company (excluding Loblaw) does not foresee any impediments in satisfying its long term obligations.

The following table sets out the current credit ratings of GWL:

    
                                Dominion Bond
                               Rating Service           Standard & Poor's
                           --------------------------------------------------
    Credit Ratings             Credit                  Credit
    (Canadian Standards)       Rating      Trend       Rating      Outlook
    -------------------------------------------------------------------------
    Commercial paper        R-2 (high)    Stable          A-2       Stable
    Medium term notes             BBB     Stable          BBB       Stable
    Preferred shares            Pfd-3     Stable    P-3 (high)      Stable
    Other notes and
     debentures                   BBB     Stable          BBB       Stable
    -------------------------------------------------------------------------
    

The rating organizations listed above base their credit ratings on quantitative and qualitative considerations. These credit ratings are forward-looking and are intended to give an indication of the risk that GWL will not fulfill its obligations in a timely manner.

GWL's ability to obtain funding from external sources may be restricted by downgrades in its current credit ratings, should its financial performance and condition deteriorate. In addition, credit and capital markets are subject to inherent global risks that may negatively affect GWL's access and ability to fund its financial and other liabilities. The Company (excluding Loblaw) mitigates these risks by maintaining appropriate levels of cash and short term investments, committed lines of credit when required and by diversifying its sources of funding and the maturity profile of its debt and capital obligations.

Independent Funding Trusts

Certain independent franchisees of Loblaw obtain financing through a structure involving independent trusts, which were created to provide loans to the independent franchisees to facilitate their purchase of inventory and fixed assets, consisting mainly of fixtures and equipment. These trusts are administered by a major Canadian chartered bank.

The gross principal amount of loans issued to Loblaw's independent franchisees by the independent trusts as at June 19, 2010 was $390 million (June 20, 2009 - $387 million; December 31, 2009 - $390 million), including $178 million (June 20, 2009 - $149 million; December 31, 2009 - $163 million) of loans payable by VIEs consolidated by the Company. Loblaw has agreed to provide credit enhancement of $66 million (June 20, 2009 - $66 million; December 31, 2009 - $66 million) in the form of a standby letter of credit for the benefit of the independent funding trust representing not less than 15% of the principal amount of the loans outstanding. This standby letter of credit has never been drawn upon. This credit enhancement allows the independent funding trust to provide financing to Loblaw's independent franchisees. As well, each independent franchisee provides security to the independent funding trust for its obligations by way of a general security agreement. In the event that an independent franchisee defaults on its loan and Loblaw has not, within a specified time period, assumed the loan, or the default is not otherwise remedied, the independent funding trust would assign the loan to Loblaw and draw upon this standby letter of credit.

During the second quarter of 2010, the $475 million, 364-day revolving committed credit facility that is the source of funding to the independent trusts was renewed. The financing structure has been reviewed and Loblaw determined there were no additional VIEs to consolidate as a result of this financing.

Equity Derivative Contracts

As at June 19, 2010, Glenhuron had equity forward contracts to buy 1.5 million (June 20, 2009 - 3.2 million; December 31, 2009 - 1.5 million) Loblaw common shares at an average forward price of $66.73 (June 20, 2009 - $53.82; December 31, 2009 - $66.25) including $10.51 (June 20, 2009 - $9.20; December 31, 2009 - $10.03) per common share of interest expense. As at June 19, 2010, the interest and unrealized market loss of $40 million (June 20, 2009 - $62 million; December 31, 2009 - $48 million) was included in accounts payable and accrued liabilities. In the second quarter of 2009, Glenhuron paid $38 million to a counterparty to terminate a portion of the equity forwards representing 1.6 million shares, which led to the extinguishment of a corresponding portion of the associated liability.

Also as at June 19, 2010, GWL had equity swaps to buy 1.7 million (June 20, 2009 - 1.7 million; December 31, 2009 - 1.7 million) GWL common shares at an average forward price of $103.17 (June 20, 2009 - $103.17; December 31, 2009 - $103.17). As at June 19, 2010, the unrealized market loss of $49 million (June 20, 2009 - $72 million; December 31, 2009 - $61 million) was included in accounts payable and accrued liabilities.

Employee Future Benefit Contributions

During the second quarter of 2010, the Company contributed $23 million (2009 - $24 million) and on a year-to-date basis, contributed $54 million (2009 - $49 million) to its funded defined benefit pension plans. The Company expects to contribute $122 million to these plans during 2010. The actual amount paid may vary from the estimate based on actuarial valuations being completed, market performance and regulatory requirements. The Company regularly monitors and assesses plan experience and the impact of changes in participant demographics, changes in capital markets and other economic factors that may impact funding requirements, employee future benefit costs and actuarial assumptions.

QUARTERLY RESULTS OF OPERATIONS

Under an accounting convention common to the food distribution industry, the Company follows a 52-week reporting cycle which periodically necessitates a fiscal year of 53 weeks. 2008 was a 53-week year. The 52-week reporting cycle is divided into four quarters of 12 weeks each except for the third quarter, which is 16 weeks in duration. The following is a summary of selected consolidated financial information derived from the Company's unaudited interim period consolidated financial statements for each of the eight most recently completed quarters. This information was prepared in accordance with Canadian GAAP.

Quarterly Financial Information (unaudited)

    
    ($ millions except                 Second Quarter        First Quarter
     where otherwise indicated)       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Sales                          $  7,530   $  7,484   $  7,177   $  7,022
    Net earnings (loss) from
     continuing operations         $    125   $      4   $     42   $    (27)
    Net earnings                   $    125   $      4   $     42   $    863
    -------------------------------------------------------------------------
    Net earnings (loss) per
     common share from
     continuing operations ($)
    Basic                          $   0.89   $  (0.05)  $   0.25   $  (0.28)
    Diluted                        $   0.89   $  (0.05)  $   0.25   $  (0.28)
    -------------------------------------------------------------------------
    Net earnings (loss) per
     common share ($)
    Basic                          $   0.89   $  (0.05)  $   0.25   $   6.61
    Diluted                        $   0.89   $  (0.05)  $   0.25   $   6.61
    -------------------------------------------------------------------------


    ($ millions except                 Fourth Quarter        Third Quarter
     where otherwise indicated)       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Sales                          $  7,537   $  8,050   $  9,777   $  9,879
    Net earnings (loss) from
     continuing operations         $     79   $    357   $     71   $    119
    Net earnings                   $     82   $    405   $     86   $    180
    -------------------------------------------------------------------------
    Net earnings (loss) per
     common share from
     continuing operations ($)
    Basic                          $   0.53   $   2.69   $   0.44   $   0.81
    Diluted                        $   0.52   $   2.69   $   0.44   $   0.81
    -------------------------------------------------------------------------
    Net earnings (loss) per
     common share ($)
    Basic                          $   0.56   $   3.06   $   0.56   $   1.29
    Diluted                        $   0.55   $   3.06   $   0.56   $   1.29
    -------------------------------------------------------------------------
    

Quarterly sales for the last eight quarters were impacted by the following significant items:

    
    -   the acquisition of T&T by Loblaw in the third quarter of 2009;
    -   foreign currency exchange rates;
    -   seasonality and the timing of holidays;
    -   the additional week of operating results in the fourth quarter of
        2008; and
    -   the sales of Weston Foods' dairy and bottling operations which was
        sold in the fourth quarter of 2008.
    

Quarterly net earnings for the last eight quarters were impacted by the following significant items:

    
    -   the asset impairment charge due to the closure of a Loblaw
        distribution centre in Quebec in the second quarter of 2010;
    -   the loss on the extinguishment of a portion of the GWL 12.7%
        Promissory Notes in the second quarter of 2009;
    -   accounting for WHL's forward sale agreement of 9.6 million Loblaw
        common shares;
    -   foreign exchange losses associated with the effect of foreign
        exchange on a portion of the U.S. dollar denominated cash and short
        term investments held by Dunedin and certain of its affiliates,
        beginning in the first quarter of 2009;
    -   the non-cash goodwill impairment charge in Weston Foods' biscuits,
        cookies, cones and wafers business in the first quarter of 2009;
    -   the reversal of the cumulative foreign currency translation loss
        associated with Dunedin and certain of its affiliates in the first
        quarter of 2009;
    -   the reversal of the cumulative foreign currency translation loss
        associated with the reduction in the Company's U.S. net investment in
        self-sustaining foreign operations in the fourth quarter of 2009;
    -   fluctuations in stock-based compensation net of equity derivatives of
        both GWL and Loblaw;
    -   the commodity derivatives fair value adjustment at Weston Foods;
    -   the incremental costs related to Loblaw's investment in information
        technology and supply chain;
    -   restructuring and other charges incurred by Weston Foods and Loblaw;
    -   the gain on sale of Weston Foods' U.S. fresh bakery business in the
        first quarter of 2009;
    -   the income of Weston Foods' dairy and bottling operations which was
        sold in the fourth quarter of 2008; and
    -   the gain on disposal of Weston Foods' dairy and bottling operations
        and the gain on sale of Loblaw's food service business in the fourth
        quarter of 2008.
    

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company and its subsidiaries is gathered and reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure.

Management is also responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP.

In designing such controls, it should be recognized that due to inherent limitations, any controls, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and may not prevent or detect misstatements. Additionally, management is necessarily required to use judgment in evaluating controls and procedures.

Management has evaluated whether there were changes in the Company's internal controls over financial reporting that occurred during the twelve weeks ended June 19, 2010 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Management has determined that no material changes occurred during this period.

ENTERPRISE RISKS AND RISK MANAGEMENT

Detailed descriptions of the operating and financial risks and risk management strategies are included in the Enterprise Risks and Risk Management Section on page 35 of the 2009 annual MD&A as well as note 28 to the audited annual consolidated financial statements, included in the Company's 2009 Annual Report. The following is an update to those enterprise risks and risk management strategies:

Labour Relations

A majority of Loblaw's store level and distribution centre workforce is unionized. Renegotiating collective agreements may result in work stoppages or slowdowns, which could negatively affect the Company's financial performance, depending on their nature and duration. In 2010, 73 collective agreements affecting approximately 35,000 Loblaw colleagues will expire including Loblaw's single largest agreement covering approximately 13,700 colleagues in Ontario which expired in July, 2010. Loblaw has commenced negotiations for the renewal of the Ontario agreements. During the second quarter a provincial conciliator was appointed to assist Loblaw and its unions to reach an agreement in Ontario. No agreement was reached and subsequent to the end of the quarter the unions received strike mandates from their members. Loblaw and the union continue to negotiate with the assistance of a provincial mediator. No strike deadlines have been communicated. The negotiations are expected to continue through the third quarter of 2010. There can be no assurance as to the outcome of these negotiations or the timing of their completion. Loblaw will also continue to negotiate the 66 collective agreements carried over from prior years. Although Loblaw attempts to mitigate work stoppages and disputes through early negotiations, work stoppages or slowdowns remain possible.

Regulatory

Recently, the provincial governments of Ontario, Alberta, Nova Scotia and British Columbia introduced amendments to the regulation of generic prescription drug prices paid by provincial governments pursuant to their public drug benefit plans. Under these amendments, manufacturer costs of generic drugs paid by the provincial drug plans will be reduced and in Ontario the current system of drug manufacturers paying professional allowances to pharmacies will be eliminated. The amendments also reduce the manufacturer costs of generic drugs purchased out-of-pocket or through private employer drug plans. Loblaw is assessing the potential impact of these amendments and is exploring opportunities throughout the business to mitigate their impact. These charges could have a material impact on the financial results of the Company if Loblaw is not able to effectively mitigate the negative impact of the current amendments.

FUTURE ACCOUNTING STANDARDS

Business Combinations

In January 2009, the Canadian Institute of Chartered Accountants ("CICA") issued Section 1582, "Business Combinations", which will replace Section 1581 of the same title and issued Sections 1601, "Consolidated Financial Statements", and 1602, "Non-Controlling Interests". These standards will harmonize Canadian GAAP with International Financial Reporting Standards ("IFRS"). The amendments establish principles and requirements for determining how an enterprise recognizes and measures the fair value of certain assets and liabilities acquired in a business combination, including non-controlling interests, contingent consideration and certain acquired contingencies. The amendments also require that acquisition related transaction expenses and restructuring costs be expensed as incurred rather than capitalized as a component of the business combination. The impact of implementing these amendments is currently being assessed.

International Financial Reporting Standards

The Canadian Accounting Standards Board will require all public companies to adopt IFRS for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011.

Project Status

A detailed description of the Company's IFRS project structure and status is included in section 16 "Future Accounting Standards" on page 47 of the 2009 annual MD&A included in the Company's 2009 Annual Report.

The IFRS conversion project continues to progress. Targeted training regarding anticipated changes resulting from IFRS implementation continues to be provided to appropriate business units and finance colleagues. In addition, the Company will continue its quarterly and additional IFRS information sessions for the Board of Directors which provide updates on the changes to IFRS standards in 2010, transitional adjustments including policy choices, implications of IFRS standards to the business, and their impact on the financial statements. The Company also intends to provide an information session to key external stakeholders regarding the impacts of IFRS.

The IFRS conversion project is integrated with Loblaw's enterprise resource planning system ("ERP") implementation. As ERP phases are deployed, Loblaw is ensuring that the requirements of IFRS adoption are incorporated.

The Company has commenced integration of IFRS into certain business processes to ensure that it will be ready to address the broader impact of IFRS on its business. For instance, the implementation of IFRS is expected to have an impact on financial metrics that are used in calculating Loblaw's financial covenants under certain of its debt agreements. These debt agreements provide for adjustments to the covenants to neutralize the impact of the transition to IFRS. Loblaw will be working with the lenders under these debt agreements to formalize the required adjustments in conjunction with the implementation of IFRS. To the extent that Loblaw and its lenders under these agreements are unable to agree upon the covenant adjustments, the existing covenants will continue to apply and will be calculated on the basis of Canadian GAAP as it exists immediately prior to the conversion to IFRS. The Company has also commenced the education process to enable the integration of IFRS adjustments into its budgeting and internal reporting processes.

Key milestones for the remainder of the year which are in line with the Company's original plan include: completion of the opening transitional balance sheet, compilation of the quarterly financial statements and changes to the Company's internal controls over financial reporting, which may include enhancement of existing controls or the design and implementation of new controls. The Company continues to progress on its IFRS transition plan as expected except for the finalization of the documentation of internal controls related to accounting policy changes which is now expected to be completed in the fourth quarter of 2010.

The information below is provided as an update to allow investors and others to obtain a better understanding of the possible effects on the Company's consolidated financial statements and operating performance measures. Readers are cautioned, however, that it may not be appropriate to use such information for any other purpose and the information is subject to change.

Changes in Accounting Policies and First-Time Adoption of IFRS

The Company continues to assess the aggregate effect of adopting IFRS, and the relevant changes in accounting policies. The changes identified below should not be regarded as a complete list of changes that will result from the transition to IFRS as it is intended to highlight those areas where significant progress has been made and that are believed to be most significant at this point in the project. The International Accounting Standards Board has significant ongoing projects that could affect the ultimate differences between Canadian GAAP and IFRS and their impact on the Company's consolidated financial statements. Therefore, the Company's analysis of changes and accounting policy decisions have been made based on the accounting standards that are currently effective.

The adoption of IFRS will require the application of IFRS 1, "First Time Adoption of IFRS" ("IFRS 1"), which provides guidance for an entity's initial adoption of IFRS. IFRS 1 generally requires retrospective application of all IFRS effective at the reporting date, with the exception of certain mandatory exceptions and limited optional exemptions provided in the standard.

The Company is currently assessing the quantitative impact of the transitional adjustments on the consolidated financial statements as a result of changes in accounting policies as well as the certain IFRS 1 elections and exemptions, and provided preliminary indication as to the impact of certain standards, elections and exemptions in the 2009 annual MD&A. The impacts provided below represent updates to those provided in the 2009 annual MD&A. As further impacts are determined throughout 2010, additional updates will be provided.

Securitization of Receivables

International Accounting Standard ("IAS") 39, "Financial Instruments: Recognition and Measurement", ("IAS 39") contains criteria that are different from Canadian GAAP for the derecognition of financial assets and requires an evaluation of the extent to which an entity retains the risks and rewards of ownership. Under Canadian GAAP these financial assets qualify for sale treatment. The Company has determined that under IFRS certain securitized credit card receivables will not qualify for derecognition. The Company expects to record, upon implementation of IFRS, an increase in credit card receivables of approximately $1.2 billion before the provision for loan losses. The quantification of the loan provision for the loan loss commenced during the second quarter of 2010.

Under IAS 27, "Consolidated and Separate Financial Statements" and Standing Interpretations Committee 12, "Consolidation - Special Purpose Entities", consolidation is assessed using a control model. Under IFRS, Eagle Credit Card Trust, the independent trust that funds the purchase of asset interests from PC Bank through the issuance of notes, will be consolidated resulting in an increase of approximately $500 million of credit card receivables before the provision for loan losses. The quantification of the loan provision for the loan loss commenced during the second quarter of 2010.

Employee Benefits

IAS 19, "Employee Benefits", provides a policy choice regarding recognition of actuarial gains and losses for defined benefit pension plans and post retirement benefit plans, permitting deferred recognition using the corridor method or immediate recognition in either other comprehensive income within equity or through earnings. Under Canadian GAAP the Company applies the corridor method. Upon adoption of IFRS the Company currently intends to recognize actuarial gains and losses immediately through other comprehensive income within equity for defined benefit pension plans and post retirement benefit plans and through earnings for post employment and long term disability benefit plans.

In addition, IFRS 1 provides an optional election, which the Company expects to apply, that will result in the recognition of all cumulative actuarial gains and losses through retained earnings on transition to IFRS. The Company's choice must be applied to all defined benefit pension plans and other benefit plans consistently. As a result of this election the Company has engaged its external actuaries to quantify this amount and will reclassify the unamortized net actuarial loss to retained earnings on transition to IFRS.

Foreign Currency

IFRS 1 provides an optional election whereby cumulative translation gains or losses in accumulated other comprehensive loss can be reclassified to retained earnings on transition to IFRS. The Company currently expects to utilize this election by reclassifying the cumulative translation loss of $103 million recorded in accumulated other comprehensive loss at December 31, 2009 to retained earnings. Cumulative translation gains and losses will be recognized prospectively from the date of transition.

Hedging Relationships

IAS 39 requires the incorporation of credit value adjustments in the measurement of effectiveness and ineffectiveness of a hedging relationship. Glenhuron has entered into cross-currency and interest rate swaps which were designated as effective cash flow hedging relationships under Canadian GAAP. Certain tranches of the swaps that were part of the hedging relationship have expired in 2010 and will continue to expire up to mid-2011. For this hedging relationship, Loblaw has concluded to not assess hedge effectiveness under IFRS which will result in derecognition at the date of transition to IFRS. A transitional adjustment of approximately $10 million, net of minority interest, from accumulated other comprehensive loss to retained earnings will be recorded.

Impairment of Assets

IAS 36 requires that assets be tested for impairment at the level of cash generating units ("CGU"), which are defined as the lowest level of assets that generate largely independent cash inflows. The Company has completed its analysis and concluded that the cash generating unit for Weston Foods will be at a lower level than under Canadian GAAP but will continue to be the major production categories and geographic regions where cash inflows are largely dependent on each other. For Loblaw, the cash generating unit will predominantly be an individual store compared to Canadian GAAP where store net cash flows are grouped together by primary market areas, where they are largely dependent on each other. The Company has also completed the assessment of the events triggering potential impairments, including potential reversals of impairments, and is in the process of determining the fair value and value in use of these CGUs, where necessary.

ENTERPRISE RESOURCE PLANNING SYSTEM IMPLEMENTATION

On July 18, 2010, Loblaw implemented the second phase of its ERP system which involved integrating its general ledger and related reporting for finance across the business and launching additional functionality including its Corporate Administrative function's accounts payable and marketing procurement processes.

OUTLOOK(2)

The consolidated results of George Weston Limited will continue to reflect the operating performance of both the Weston Foods and Loblaw operating businesses for the remainder of 2010. In addition, the Company's results will be subject to earnings volatility caused by the impact of changes in U.S. foreign currency exchange rates on a portion of the U.S. dollar denominated cash and short term investments held by Dunedin and certain of its affiliates. Earnings volatility may also result from other non-operating factors including commodity prices and their impact on the Company's commodity derivatives, the Loblaw common share price and its impact on the forward sale agreement for 9.6 million Loblaw common shares and short term interest rates.

Weston Foods expects satisfactory operating performance for the remainder of 2010. The Company is continuing its efforts to reduce costs through improved efficiencies and productivity and is focused on growing sales by optimizing product mix and product innovation to meet changing consumer buying preferences.

Loblaw continues to make progress on its overall renewal plan. As it has just entered the critical period of heightened risk for the infrastructure and information technology components of the plan, Loblaw continues to expect associated investments to negatively impact operating income during this period. For the remainder of 2010, Loblaw expects sales and margins will remain challenged by deflation and increased competitive intensity.

George Weston Limited is continuing to assess strategic options for the deployment of its significant holdings of cash and short term investments.

ADDITIONAL INFORMATION

Additional information about the Company has been filed electronically with the Canadian securities regulatory authorities through the System for Electronic Document Analysis and Retrieval (SEDAR) and is available online at www.sedar.com.

This Quarterly Report includes selected information on Loblaw Companies Limited, a 62.6%-owned public reporting company with shares trading on the Toronto Stock Exchange. For information regarding Loblaw, readers should also refer to the materials filed by Loblaw with the Canadian securities regulatory authorities from time to time.

    
    --------------------
    (1) See Non-GAAP Financial Measures.
    (2) To be read in conjunction with "Forward-Looking Statements".
    (3) NM - not meaningful.
    

NON-GAAP FINANCIAL MEASURES

The Company uses the following non-GAAP measures: EBITDA and EBITDA margin, net debt, rolling year net debt to EBITDA, net debt to equity and rolling year return on average net assets. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by Canadian GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with Canadian GAAP.

EBITDA and EBITDA Margin

The following tables reconcile earnings from continuing operations before minority interest, income taxes, interest and depreciation and amortization ("EBITDA") to Canadian GAAP net earnings reported in the unaudited interim period consolidated statements of earnings for the twelve and twenty-four week periods ended as indicated. For each of its reportable operating segments, segment EBITDA is reconciled to segment operating income. EBITDA is useful to management in assessing the performance of the Company's ongoing operations and its ability to generate cash flows to fund its cash requirements, including the Company's capital investment program.

EBITDA margin is calculated as EBITDA divided by sales.

    
                                                              12 Weeks Ended
                                  -------------------------------------------
                                                               Jun. 19, 2010

                                     Weston                          Consoli-
    ($ millions)                      Foods     Loblaw    Other(2)     dated
    -------------------------------------------------------------------------
    Net earnings from continuing
     operations                                                     $    125
    Add impact of the following:
      Minority interest                                                   76
      Income taxes                                                        90
      Interest expense and other
       financing charges                                                  98
    -------------------------------------------------------------------------
    Operating income (loss)        $     67   $    328   $     (6)  $    389
    Depreciation and
     amortization(1)                     12        149                   161
    -------------------------------------------------------------------------
    EBITDA                         $     79   $    477   $     (6)  $    550
    -------------------------------------------------------------------------
                                  -------------------------------------------

                                                              12 Weeks Ended

                                                               Jun. 20, 2009

                                     Weston                          Consoli-
    ($ millions)                      Foods     Loblaw    Other(2)     dated
    -------------------------------------------------------------------------
    Net earnings from continuing
     operations                                                     $      4
    Add impact of the following:
      Minority interest                                                   76
      Income taxes                                                        61
      Interest expense and other
       financing charges                                                 147
    -------------------------------------------------------------------------
    Operating income (loss)        $     56   $    322   $    (90)  $    288
    Depreciation and
     amortization(1)                     14        135                   149
    -------------------------------------------------------------------------
    EBITDA                         $     70   $    457   $    (90)  $    437
    -------------------------------------------------------------------------
                                  -------------------------------------------


                                                              24 Weeks Ended
                                  -------------------------------------------
                                                               Jun. 19, 2010

                                     Weston                          Consoli-
    ($ millions)                      Foods     Loblaw    Other(2)     dated
    -------------------------------------------------------------------------
    Net earnings (loss) from
     continuing operations                                          $    167
    Add impact of the following:
      Minority interest                                                  123
      Income taxes                                                       152
      Interest expense and other
       financing charges                                                 221
    -------------------------------------------------------------------------
    Operating income (loss)        $    112   $    586   $    (35)  $    663
    Depreciation and
     amortization(1)                     24        301                   325
    -------------------------------------------------------------------------
    EBITDA                         $    136   $    887   $    (35)  $    988
    -------------------------------------------------------------------------
                                  -------------------------------------------

                                                              24 Weeks Ended

                                                               Jun. 20, 2009

                                     Weston                          Consoli-
    ($ millions)                      Foods     Loblaw    Other(2)     dated
    -------------------------------------------------------------------------
    Net earnings (loss) from
     continuing operations                                          $    (23)
    Add impact of the following:
      Minority interest                                                  113
      Income taxes                                                       115
      Interest expense and other
       financing charges                                                 184
    -------------------------------------------------------------------------
    Operating income (loss)        $     29   $    546   $   (186)  $    389
    Depreciation and
     amortization(1)                     26        267                   293
    -------------------------------------------------------------------------
    EBITDA                         $     55   $    813   $   (186)  $    682
    -------------------------------------------------------------------------
                                  -------------------------------------------

    (1) Includes depreciation of $9 million (2009 - $10 million) and
        year-to-date of $19 million (2009 - $21 million) included in cost of
        inventories sold.
    (2) Operating income for the second quarter and year-to-date 2010
        includes a loss of $6 million and $35 million (2009 - $90 million and
        $152 million), respectively, related to foreign exchange losses
        associated with the effect of foreign exchange on a portion of the
        U.S. dollar denominated cash and short term investments held by
        Dunedin and certain of its affiliates, which are integrated foreign
        subsidiaries for accounting purposes. Year-to-date 2009 operating
        income also includes the cumulative foreign currency translation loss
        of $34 million associated with Dunedin and certain of its affiliates,
        which was reversed from accumulated other comprehensive loss on the
        date of the sale of the U.S. fresh bakery business.
    

Net Debt

The following table reconciles net debt used in the net debt to equity and rolling year net debt to EBITDA ratios to Canadian GAAP measures reported as at the periods ended as indicated.

The Company calculates net debt as the sum of bank indebtedness, short term debt, long term debt, certain other liabilities and the fair value of the related financial derivatives less cash and cash equivalents, short term investments, security deposits and the fair value of the related financial derivatives. The Company believes this measure is useful in assessing the amount of financial leverage employed.

    
                                                            As at
                                             ----------
                                               Jun. 19,   Jun. 20,   Dec. 31,
    ($ millions)                                  2010       2009       2009
    -------------------------------------------------------------------------
    Bank indebtedness                         $     14   $      4   $      2
    Short term debt                                317        282        300
    Long term debt due within one year             403        396        343
    Long term debt                               5,384      5,315      5,377
    Other liabilities                               37                    36
    Fair value of financial derivatives
     related to the above                         (303)      (293)      (327)
    -------------------------------------------------------------------------
                                                 5,852      5,704      5,731
    -------------------------------------------------------------------------
    Less:
      Cash and cash equivalents                  3,599      3,059      3,368
      Short term investments                     1,429      1,741      1,538
      Security deposits                            280        423        348
      Fair value of financial derivatives
       related to the above                        182        112        178
    -------------------------------------------------------------------------
                                              $  5,490   $  5,335   $  5,432
    -------------------------------------------------------------------------
    Net debt                                  $    362   $    369   $    299
    -------------------------------------------------------------------------
                                             ----------
    

Capital securities are excluded from the calculation of net debt. For the purpose of calculating net debt, the fair values of financial derivatives are not credit value adjusted in accordance with Emerging Issues Committee Abstract 173, "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities". As at June 19, 2010, the credit value adjustment was a loss of $5 million (June 20, 2009 - $7 million; December 31, 2009 - $4 million).

Net Assets

The following table reconciles net assets used in the rolling year return on average net assets ratio to Canadian GAAP measures reported on the consolidated balance sheets as at the periods ended as indicated. The Company believes the rolling year return on average net assets ratio is useful in assessing the return on productive assets.

Net assets is calculated as total assets less cash and cash equivalents, short term investments, security deposits, the fair value of Weston Holdings Limited's ("WHL"), a subsidiary of GWL, forward sale agreement for 9.6 million Loblaw common shares and accounts payable and accrued liabilities.

    
                                                            As at
                                             ----------
                                               Jun. 19,   Jun. 20,   Dec. 31,
    ($ millions)                                  2010       2009       2009
    -------------------------------------------------------------------------
    Canadian GAAP total assets                $ 20,078   $ 19,305   $ 20,143
    Less: Cash and cash equivalents              3,599      3,059      3,368
          Short term investments                 1,429      1,741      1,538
          Security deposits                        280        423        348
          Fair value of WHL's forward
           sale agreement for 9.6 million
           Loblaw shares                           401        421        446
          Accounts payable and accrued
           liabilities                           3,359      3,058      3,616
    -------------------------------------------------------------------------
    Net assets                                $ 11,010   $ 10,603   $ 10,827
    -------------------------------------------------------------------------
                                             ----------



    Consolidated Statements of Earnings
    (unaudited)

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
    ($ millions except where        Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
     otherwise indicated)              2010       2009       2010       2009
    -------------------------------------------------------------------------
    Sales                          $  7,530   $  7,484   $ 14,707   $ 14,506
    Operating Expenses
      Cost of inventories sold
       (note 11)                      5,596      5,639     10,915     10,891
      Selling, administrative
       and other expenses             1,393      1,418      2,823      2,881
      Depreciation and
       amortization (note 11)           152        139        306        272
      Goodwill impairment (note 12)                                       73
    -------------------------------------------------------------------------
                                      7,141      7,196     14,044     14,117
    -------------------------------------------------------------------------
    Operating Income                    389        288        663        389
    Interest Expense and Other
     Financing Charges (note 6)          98        147        221        184
    -------------------------------------------------------------------------
    Earnings from Continuing
     Operations Before
     the Following:                     291        141        442        205
    Income Taxes (note 7)                90         61        152        115
    -------------------------------------------------------------------------
                                        201         80        290         90
    Minority Interest                    76         76        123        113
    -------------------------------------------------------------------------
    Net Earnings (Loss) from
     Continuing Operations              125          4        167        (23)
    Discontinued Operations (note 4)                                     890
    -------------------------------------------------------------------------
    Net Earnings                   $    125   $      4   $    167   $    867
    -------------------------------------------------------------------------
    Net Earnings (Loss) per Common
     Share - Basic and Diluted ($)
      Continuing Operations
       (note 8)                    $   0.89   $  (0.05)  $   1.14   $  (0.33)
      Discontinued Operations                                       $   6.89
      Net Earnings (Loss)          $   0.89   $  (0.05)  $   1.14   $   6.56
    -------------------------------------------------------------------------
                                  ----------            ----------

    See accompanying notes to the unaudited interim period consolidated
    financial statements.



    Consolidated Statements of Changes in Shareholders' Equity
    (unaudited)


                                                            24 Weeks Ended
                                                        ----------
                                                          Jun. 19,   Jun. 20,
    ($ millions except where otherwise indicated)            2010       2009
    -------------------------------------------------------------------------
    Share Capital
    Preferred Shares                                     $    817   $    817
    Common Shares                                             133        133
    -------------------------------------------------------------------------
    Total Share Capital, Beginning and End of Period     $    950   $    950
    -------------------------------------------------------------------------

    Retained Earnings, Beginning of Period               $  6,084   $  5,282
    Cumulative impact of implementing new accounting
     standards (note 2)                                                   (4)
    Net earnings                                              167        867
    Dividends declared
      Per common share ($)
        - $0.72 (2009 - $0.72)                                (93)       (93)
      Per preferred share ($)
        - Series I - $0.73 (2009 - $0.73)                      (7)        (7)
        - Series III - $0.65 (2009 - $0.65)                    (5)        (5)
        - Series IV - $0.65 (2009 - $0.65)                     (5)        (5)
        - Series V - $0.60 (2009 - $0.60)                      (5)        (5)
    -------------------------------------------------------------------------
    Retained Earnings, End of Period                     $  6,136   $  6,030
    -------------------------------------------------------------------------

    Accumulated Other Comprehensive Loss, Beginning
     of Period                                           $    (92)  $   (322)
    Cumulative impact of implementing new accounting
     standards (note 2)                                                   (1)
    Other comprehensive (loss) income                         (16)       224
    -------------------------------------------------------------------------
    Accumulated Other Comprehensive Loss, End
     of Period (note 18)                                 $   (108)  $    (99)
    -------------------------------------------------------------------------

    Total Shareholders' Equity                           $  6,978   $  6,881
    -------------------------------------------------------------------------
                                                        ----------

    See accompanying notes to the unaudited interim period consolidated
    financial statements.



    Consolidated Statements of Comprehensive Income (Loss)
    (unaudited)

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
                                    Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
    ($ millions)                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Net earnings                   $    125   $      4   $    167   $    867
    -------------------------------------------------------------------------
    Other comprehensive (loss)
     income, net of income taxes
     and minority interest
      Foreign currency translation
       adjustment                        (2)       (68)       (13)        83
      Reclassification of
       cumulative foreign currency
       translation loss to net
       earnings (note 18)                                                144
    -------------------------------------------------------------------------
                                         (2)       (68)       (13)       227
    -------------------------------------------------------------------------
      Net unrealized loss on
       available-for-sale
       financial assets                            (11)        (3)        (7)
      Reclassification of net loss
       (gain) on available-for-sale
       financial assets to net
       earnings                           2         (6)         5        (15)
    -------------------------------------------------------------------------
                                          2        (17)         2        (22)
    -------------------------------------------------------------------------
      Net gain (loss) on
       derivatives designated as
       cash flow hedges                              5         (1)         2
      Reclassification of net (gain)
       loss on derivatives
       designated as cash flow
       hedges to net earnings            (2)         8         (4)        17
    -------------------------------------------------------------------------
                                         (2)        13         (5)        19
    -------------------------------------------------------------------------
    Other comprehensive (loss)
     income                              (2)       (72)       (16)       224
    -------------------------------------------------------------------------
    Total Comprehensive Income
     (Loss)                        $    123  $     (68)  $    151  $   1,091
    -------------------------------------------------------------------------
                                  ----------            ----------

    See accompanying notes to the unaudited interim period consolidated
    financial statements.



    Consolidated Balance Sheets

                                                            As at
                                             ----------
                                               Jun. 19,   Jun. 20,   Dec. 31,
                                                  2010       2009       2009
    ($ millions)                            (unaudited) (unaudited)
    -------------------------------------------------------------------------
    ASSETS
    Current Assets
      Cash and cash equivalents (note 9)      $  3,599   $  3,059   $  3,368
      Short term investments                     1,429      1,741      1,538
      Accounts receivable (note 10)                726        752        851
      Inventories (note 11)                      2,164      2,209      2,210
      Income taxes                                             16
      Future income taxes                           91         58         87
      Prepaid expenses and other assets            137        132         98
    -------------------------------------------------------------------------
    Total Current Assets                         8,146      7,967      8,152
    Fixed Assets                                 9,034      8,586      9,020
    Goodwill and Intangible Assets (note 12)     1,295      1,073      1,296
    Future Income Taxes                             57         66         61
    Other Assets                                 1,546      1,613      1,614
    -------------------------------------------------------------------------
    Total Assets                              $ 20,078   $ 19,305   $ 20,143
    -------------------------------------------------------------------------
    LIABILITIES
    Current Liabilities
      Bank indebtedness                       $     14   $      4   $      2
      Accounts payable and accrued
       liabilities                               3,359      3,058      3,616
      Income taxes                                  56                    78
      Short term debt (note 14)                    317        282        300
      Long term debt due within one year           403        396        343
    -------------------------------------------------------------------------
    Total Current Liabilities                    4,149      3,740      4,339
    Long Term Debt (note 15)                     5,384      5,315      5,377
    Future Income Taxes                            255        278        269
    Other Liabilities                              635        577        617
    Capital Securities (note 16)                   220        219        220
    Minority Interest                            2,457      2,295      2,379
    -------------------------------------------------------------------------
    Total Liabilities                           13,100     12,424     13,201
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY
    Share Capital                                  950        950        950
    Retained Earnings                            6,136      6,030      6,084
    Accumulated Other Comprehensive
     Loss (note 18)                               (108)       (99)       (92)
    -------------------------------------------------------------------------
    Total Shareholders' Equity                   6,978      6,881      6,942
    -------------------------------------------------------------------------
    Total Liabilities and Shareholders'
     Equity                                   $ 20,078   $ 19,305   $ 20,143
    -------------------------------------------------------------------------
                                             ----------

    Contingencies, commitments and guarantees (note 19).

    See accompanying notes to the unaudited interim period consolidated
    financial statements.



    Consolidated Cash Flow Statements
    (unaudited)

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
                                    Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
    ($ millions)                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Operating Activities
      Net earnings from
       continuing operations
       before minority interest    $    201   $     80   $    290   $     90
      Depreciation and
       amortization                     161        149        325        293
      Goodwill impairment
       (note 12)                                                          73
      Foreign exchange losses
       (note 20)                          6         90         35        186
      Loss on extinguishment of
       debt (notes 6 & 15)                          41                    41
      Settlement of equity forward
       contracts (note 17)                         (38)                  (38)
      Future income taxes                27        (18)       (13)       (29)
      Fair value adjustment of
       Weston Holdings Limited's
       forward sale agreement
       (note 6)                          20         33         61         (7)
      Change in non-cash working
       capital                          204        505       (311)      (115)
      Other                              41          4         32        (24)
    -------------------------------------------------------------------------
    Cash Flows from Operating
     Activities of Continuing
     Operations                         660        846        419        470
    -------------------------------------------------------------------------
    Investing Activities
      Fixed asset purchases            (222)      (210)      (373)      (347)
      Short term investments            (50)      (244)        82     (1,095)
      Proceeds from fixed asset sales     3          1         16          6
      Credit card receivables,
       after securitization
       (note 10)                         (9)       (21)       124        208
      Franchise investments and
       other receivables                  6          8          7         (9)
      Security deposits and other         3        125         37         90
    -------------------------------------------------------------------------
    Cash Flows used in Investing
     Activities of Continuing
     Operations                        (269)      (341)      (107)    (1,147)
    -------------------------------------------------------------------------
    Financing Activities
      Bank indebtedness                  10        (77)        10        (92)
      Short term debt                     8       (565)        17       (171)
      Long term debt
       - Issued                         352        352        377        360
       - Retired (note 15)             (311)        (4)      (322)      (389)
      Capital securities
       - Retired (note 16)                        (265)                 (265)
      Dividends
       - To common shareholders         (47)       (47)       (93)       (47)
       - To preferred shareholders      (11)       (11)       (22)       (14)
       - To minority shareholders       (15)       (22)       (15)       (22)
    -------------------------------------------------------------------------
    Cash Flows used in Financing
     Activities of Continuing
     Operations                         (14)      (639)       (48)      (640)
    -------------------------------------------------------------------------
    Effect of Foreign Currency
     Exchange Rate Changes on
     Cash and Cash Equivalents           (4)      (111)       (33)       (72)
    -------------------------------------------------------------------------
    Cash Flows from (used in)
     Continuing Operations              373       (245)       231     (1,389)
    Cash Flows from Discontinued
     Operations (note 4)                                               3,002
    -------------------------------------------------------------------------
    Change in Cash and Cash
     Equivalents                        373       (245)       231      1,613
    Cash and Cash Equivalents,
     Beginning of Period              3,226      3,304      3,368      1,446
    -------------------------------------------------------------------------
    Cash and Cash Equivalents,
     End of Period                 $  3,599   $  3,059   $  3,599   $  3,059
    -------------------------------------------------------------------------
                                  ----------            ----------

    See accompanying notes to the unaudited interim period consolidated
    financial statements.



    Notes to the Unaudited Interim Period Consolidated Financial Statements

    1.  Summary of Significant Accounting Principles

    Basis of Presentation

    The unaudited interim period consolidated financial statements were
    prepared in accordance with Canadian generally accepted accounting
    principles ("GAAP") and follow the same accounting policies and methods
    of application as those used in the preparation of the audited annual
    consolidated financial statements for the year ended December 31, 2009.
    Under Canadian GAAP, additional disclosure is required in annual
    financial statements and accordingly the unaudited interim period
    consolidated financial statements should be read together with the
    audited annual consolidated financial statements and the accompanying
    notes included in George Weston Limited's 2009 Annual Report.

    Basis of Consolidation

    The unaudited interim period consolidated financial statements include
    the accounts of George Weston Limited ("GWL") and its subsidiaries
    (collectively, the "Company") with provision for minority interest. The
    Company's interest in the voting share capital of its subsidiaries is
    100% except for Loblaw Companies Limited ("Loblaw"), which was 62.6% at
    the end of the second quarter of 2010, 61.9% at the end of the second
    quarter of 2009 and 62.5% at year end 2009. In addition, the Company
    consolidates variable interest entities ("VIEs") pursuant to the Canadian
    Institute of Chartered Accountants ("CICA") Accounting Guideline 15,
    "Consolidation of Variable Interest Entities", ("AcG 15"), that are
    subject to control by Loblaw on a basis other than through ownership of a
    majority of voting interest. AcG 15 defines a variable interest entity as
    an entity that either does not have sufficient equity at risk to finance
    its activities without subordinated financial support or where the
    holders of the equity at risk lack the characteristics of a controlling
    financial interest. AcG 15 requires the primary beneficiary to
    consolidate VIEs and considers an entity to be the primary beneficiary of
    a VIE if it holds variable interests that expose it to a majority of the
    VIEs' expected losses or that entitle it to receive a majority of the
    VIEs' expected residual returns or both. The Company has two reportable
    operating segments: Weston Foods and Loblaw.

    Use of Estimates and Assumptions

    The preparation of the unaudited interim period consolidated financial
    statements requires management to make estimates and assumptions that
    affect the reported amounts and disclosures made in the unaudited interim
    period consolidated financial statements and accompanying notes. These
    estimates and assumptions are based on management's historical
    experience, best knowledge of current events and conditions and
    activities that may be undertaken in the future. Actual results could
    differ from these estimates.

    Certain estimates, such as those related to valuation of inventories,
    impairment of fixed assets, employee future benefits, goodwill and
    intangible assets and income taxes depend upon subjective or complex
    judgments about matters that may be uncertain, and changes in those
    estimates could materially impact the consolidated financial statements.
    Illiquid credit markets, volatile equity, foreign currency, energy
    markets and declines in consumer spending have combined to increase the
    uncertainty inherent in such estimates and assumptions. As future events
    and their effects cannot be determined with precision, actual results
    could differ significantly from these estimates. Changes in those
    estimates resulting from continuing changes in the economic environment
    will be reflected in the financial statements in future periods.

    Future Accounting Standards

    Business Combinations

    In January 2009, the CICA issued Section 1582, "Business Combinations",
    which will replace Section 1581 of the same title, and issued Sections
    1601, "Consolidated Financial Statements", and 1602, "Non-Controlling
    Interests". These standards will harmonize Canadian GAAP with
    International Financial Reporting Standards. The amendments establish
    principles and requirements for determining how an enterprise recognizes
    and measures the fair value of certain assets and liabilities acquired in
    a business combination, including non-controlling interests, contingent
    consideration and certain acquired contingencies. The amendments also
    require that acquisition related transaction expenses and restructuring
    costs be expensed as incurred rather than capitalized as a component of
    the business combination. The impact of implementing these amendments is
    currently being assessed.

    Comparative Information

    Certain prior year information has been reclassified to conform with the
    current year presentation.

    2.  Implementation of New Accounting Standards

    Accounting Standards Implemented in 2009

    Goodwill and Intangible Assets

    In November 2007, the CICA issued amendments to Section 1000, "Financial
    Statement Concepts", and Accounting Guideline 11, "Enterprises in the
    Development Stage", issued a new Section 3064, "Goodwill and Intangible
    Assets" ("Section 3064") to replace Section 3062, "Goodwill and Other
    Intangible Assets", withdrew Section 3450, "Research and Development
    Costs" and amended Emerging Issues Committee ("EIC") Abstract 27,
    "Revenues and Expenditures During the Pre-operating Period" to not apply
    to entities that have adopted Section 3064. These amendments, in
    conjunction with Section 3064, provide guidance for the recognition of
    intangible assets, including internally developed assets from research
    and development activities, ensuring consistent treatment of all
    intangible assets, whether separately acquired or internally developed.
    The Company implemented these requirements as at January 1, 2009,
    retroactively with restatement of the comparative periods.

    Credit Risk and the Fair Value of Financial Assets and Financial
    Liabilities

    On January 20, 2009, the EIC issued Abstract 173, "Credit Risk and the
    Fair Value of Financial Assets and Financial Liabilities". The committee
    reached a consensus that a company's credit risk and the credit risk of
    its counterparties should be considered when determining the fair value
    of its financial assets and financial liabilities, including derivative
    instruments. The transitional provisions require the abstract to be
    applied retrospectively without restatement of prior periods. Financial
    assets and financial liabilities, including derivative instruments were
    remeasured as at January 1, 2009 to take into account the appropriate
    Company's credit risk and counterparty credit risk. As a result, a
    decrease in other assets of $12 million, a decrease in other liabilities
    of $4 million, a decrease in minority interest of $3 million, an increase
    net of income taxes and minority interest in accumulated other
    comprehensive loss of $1 million and a decrease in retained earnings net
    of income taxes and minority interest of $4 million were recorded on the
    consolidated balance sheet.

    Financial Instruments - Disclosures

    In June 2009, the CICA amended Section 3862, "Financial Instruments -
    Disclosures", to include additional disclosure relating to the
    measurement of fair value for financial instruments and liquidity risk.
    The amendment establishes a three level hierarchy that reflects the
    significance of the inputs used in fair value measurements on financial
    instruments. The amendment was implemented by the Company in 2009 and the
    additional disclosures are included in the notes to the audited annual
    consolidated financial statements included in the Company's 2009 Annual
    Report.

    3.  Business Acquisitions

    In the first quarter of 2010, Loblaw finalized the purchase price
    allocation related to the acquisition of T&T Supermarket Inc. acquired in
    2009 which resulted in a reduction of goodwill of $2 million (note 12).

    During the second quarter of 2010, Loblaw issued shares from treasury
    under its Dividend Reinvestment Plan (the "DRIP"). As a result of the
    Company's participation in the DRIP, the Company's proportional ownership
    of Loblaw increased and was accounted for as a step acquisition of Loblaw
    by the Company, resulting in an increase to goodwill of $3 million (2009
    - nil) (note 12).

    4.  Discontinued Operations

    As part of the sale of the fresh bread and baked goods business in the
    United States ("U.S. fresh bakery business") in the first quarter of 2009
    and typical of the normal process of selling a business, Dunedin Holdings
    S.à r.l. ("Dunedin") agreed to indemnify Grupo Bimbo in the event of
    inaccuracies in representations and warranties or if it fails to perform
    agreements and covenants provided for in the agreement of purchase and
    sale. The terms of the indemnification provisions vary in duration and
    may extend for an unlimited period of time. The indemnification
    provisions could result in future cash outflows and statement of earnings
    charges. The Company is unable to reasonably estimate its total maximum
    potential liability as certain indemnification provisions do not provide
    for a maximum potential amount and the amounts are dependent on the
    outcome of future contingent events, the nature and likelihood of which
    cannot be determined at this time.

    The results of discontinued operations presented in the comparative
    period consolidated statement of earnings were as follows:

                                                         12 Weeks   24 Weeks
                                                            Ended      Ended
                                                          Jun. 20,   Jun. 20,
    ($ millions)                                             2009     2009(1)
    -------------------------------------------------------------------------
    Sales                                                $      2   $    145
    -------------------------------------------------------------------------
    Operating income                                                       9
    Gain on disposal(2)                                                  921
    Interest income and other financing charges(3)                        (1)
    -------------------------------------------------------------------------
    Earnings before the following:                                       931
    Income taxes                                                          41
    -------------------------------------------------------------------------
    Earnings from discontinued operations                $          $    890
    -------------------------------------------------------------------------

    (1) Reflects results of the U.S. fresh bakery business up to the date of
        sale, January 21, 2009 and the gain on disposal.
    (2) Net of the reclassification of cumulative foreign currency
        translation loss of $110 million associated with the U.S. fresh
        bakery business that was previously reflected in accumulated other
        comprehensive loss (note 18).
    (3) In calculating earnings from discontinued operations, no general
        interest expense was allocated to these operations.

    The cash flows from discontinued operations presented in the comparative
    period consolidated cash flow statement were as follows:

                                                         12 Weeks   24 Weeks
                                                            Ended      Ended
                                                          Jun. 20,   Jun. 20,
    ($ millions)                                             2009     2009(1)
    -------------------------------------------------------------------------
    Cash flows used in operations                        $          $   (105)
    Cash flows from investing                                          3,092
    Cash flows from financing                                             15
    -------------------------------------------------------------------------
    Cash flows from discontinued operations              $          $  3,002
    -------------------------------------------------------------------------

    (1) Reflects the proceeds received on the sale and the cash flows of the
        U.S. fresh bakery business up to the date of sale, January 21, 2009.

    5.  Distribution Network Costs

    On April 27, 2010, Loblaw announced changes to its distribution network
    in Quebec. In connection with these changes a certain distribution centre
    was closed and an asset impairment charge of $23 million was recorded as
    the carrying value of the facility exceeded the fair value. In addition,
    employee termination charges and other costs of $16 million were
    incurred. As at the end of the second quarter of 2010, $12 million was
    recorded on the consolidated balance sheet in accounts payable and
    accrued liabilities related to these charges.

    6.  Interest Expense and Other Financing Charges

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
                                    Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
    ($ millions)                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Interest on long term debt     $     84   $     85   $    172   $    170
    Loss on extinguishment of
     debt (note 15)                                 41                    41
    Interest expense on financial
     derivative instruments               2          1          4          3
    Other financing charges(1)           16         29         53        (16)
    Net short term interest income       (2)        (7)        (4)       (12)
    Interest income on security
     deposits                            (1)        (1)        (1)        (3)
    Dividends on capital securities       4          4          7         11
    Capitalized to fixed assets          (5)        (5)       (10)       (10)
    -------------------------------------------------------------------------
    Interest expense and other
     financing charges             $     98   $    147   $    221   $    184
    -------------------------------------------------------------------------
                                  ----------            ----------

    (1) Other financing charges for the second quarter and year-to-date 2010
        include a non-cash charge of $20 million (2009 - $33 million) and a
        non-cash charge of $61 million (2009 - non-cash income of $7
        million), respectively, related to the fair value adjustment of
        Weston Holdings Limited's ("WHL"), a subsidiary of GWL, forward sale
        agreement for 9.6 million Loblaw common shares. The fair value
        adjustment of the forward contract is a non-cash item resulting from
        fluctuations in the market price of the underlying Loblaw common
        shares that WHL owns. WHL does not record any change in the market
        price associated with the Loblaw common shares it owns. Any cash paid
        under the forward contract could be offset by the sale of the Loblaw
        common shares. Also included in other financing charges for the
        second quarter and year-to-date 2010 is forward accretion income of
        $8 million (2009 - $8 million) and $16 million (2009 - $17 million),
        respectively, and the forward fee of $4 million (2009 - $4 million)
        and $8 million (2009 - $8 million), respectively, associated with
        WHL's forward sale agreement.

    Interest on debt and dividends on capital securities paid in the second
    quarter and year-to-date 2010 were $133 million and $232 million (2009 -
    $134 million and $255 million), respectively, and interest received on
    cash, short term investments and security deposits was $16 million and
    $28 million (2009 - $28 million and $56 million), respectively.

    7.  Income Taxes

    The effective income tax rates for the second quarter and year-to-date
    2010 were 30.9% and 34.4% (2009 - 43.3% and 56.1%), respectively. Both
    the second quarter and year-to-date 2010 decreases in the effective
    income tax rates compared to the same periods in 2009 were primarily due
    to decreases in non-deductible foreign exchange losses. These decreases
    were partially offset by year-over-year increases in income tax expenses
    relating to certain prior year income tax matters when compared to the
    same periods in 2009.

    Net income taxes paid in the second quarter and year-to-date 2010 were
    $65 million and $179 million (2009 - $34 million and $204 million),
    respectively.


    8.  Basic and Diluted Net Earnings (Loss) per Common Share from
        Continuing Operations

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
    ($ millions except where        Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
     otherwise indicated)              2010       2009       2010       2009
    -------------------------------------------------------------------------
    Net earnings (loss) from
     continuing operations         $    125   $      4   $    167   $    (23)
    Prescribed dividends on
     preferred shares in
     share capital                      (10)       (10)       (20)       (20)
    -------------------------------------------------------------------------
    Net earnings (loss) from
     continuing operations
     available to common
     shareholders                  $    115   $     (6)  $    147   $    (43)
    -------------------------------------------------------------------------
    Weighted average common
     shares outstanding
     (in millions)                    129.1      129.1      129.1      129.1
    Dilutive effect of stock-based
     compensation(1) (in millions)
    -------------------------------------------------------------------------
    Diluted weighted average
     common shares outstanding
     (in millions)                    129.1      129.1      129.1      129.1
    -------------------------------------------------------------------------
    Basic and diluted net earnings
     (loss) per common share
     from continuing
     operations ($)                $   0.89   $  (0.05)  $   1.14   $  (0.33)
    -------------------------------------------------------------------------
                                  ----------            ----------

    (1) Stock options outstanding with an exercise price greater than the
        quarter and year-to-date average market prices of GWL's common shares
        are not included in the computation of diluted net earnings (loss)
        per common share from continuing operations. Accordingly, for the
        second quarter and year-to-date 2010, 300,638 and 906,296 stock
        options, with a weighted average exercise price of $108.69 and
        $84.31, respectively, were excluded from the computation of diluted
        net earnings per common share from continuing operations. For the
        second quarter and year-to-date 2009, 1,274,073 stock options, with
        an average exercise price of $86.32, were excluded from the
        computation of diluted net loss per common share from continuing
        operations.

    9.  Cash and Cash Equivalents

    The components of cash and cash equivalents were as follows:

                                                            As at
                                             ----------
                                               Jun. 19,   Jun. 20,   Dec. 31,
    ($ millions)                                  2010       2009       2009
    -------------------------------------------------------------------------
    Cash                                      $    127   $    211   $    294
    Cash equivalents - short term investments
      with a maturity of 90 days or less:
      Bank term deposits                         1,609        640      1,140
      Government treasury bills                  1,051      1,747      1,446
      Government-sponsored debt securities         283        197         99
      Corporate commercial paper                   503        253        389
      Foreign bonds                                 26         11
    -------------------------------------------------------------------------
    Cash and cash equivalents                 $  3,599   $  3,059   $  3,368
    -------------------------------------------------------------------------
                                             ----------

    As at June 19, 2010, June 20, 2009 and December 31, 2009, U.S.
    $2,282 million, U.S. $2,190 million and U.S. $2,220 million
    (June 19, 2010 - $2,332 million; June 20, 2009 - $2,488 million; December
    31, 2009 - $2,338 million), respectively, was included in cash and cash
    equivalents, short term investments and security deposits on the
    consolidated balance sheets.

    The following is a summary of unrealized foreign exchange losses as a
    result of translating U.S. dollar denominated cash and cash equivalents,
    short term investments and security deposits:

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
                                    Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
    ($ millions)                       2010       2009       2010       2009
    -------------------------------------------------------------------------
      Loblaw(1)                    $      4   $     92   $     29   $     63
      The Company
      (excluding Loblaw)(2)               6        126         39         83
    -------------------------------------------------------------------------
    Consolidated                   $     10   $    218   $     68   $    146
    -------------------------------------------------------------------------
                                  ----------            ----------

    (1) Includes losses of $2 million and $13 million (2009 - $37 million and
        $23 million) related to cash and cash equivalents, for the second
        quarter and year-to-date 2010, respectively.

        During the second quarter and year-to-date 2010, the loss on cash and
        cash equivalents, short term investments and security deposits was
        partially offset in operating income and other comprehensive (loss)
        income by the unrealized foreign exchange gain of $4 million and $29
        million (2009 - $90 million and $62 million), respectively, on
        Loblaw's cross currency swaps.

    (2) Includes losses of $2 million and $20 million (2009 - $74 million and
        $49 million) related to cash and cash equivalents, for the second
        quarter and year-to-date 2010, respectively.

        During the second quarter and year-to-date 2010, unrealized foreign
        exchange losses associated with the effect of foreign exchange on a
        portion of the U.S. dollar denominated cash and cash equivalents and
        short term investments held by Dunedin and certain of its affiliates
        of $6 million and $35 million (2009 - $90 million and $104 million),
        respectively, were recognized in operating income (note 20). The
        remaining unrealized foreign exchange losses as a result of
        translating U.S. dollar denominated net assets, including cash and
        cash equivalents, short term investments and security deposits held
        in self-sustaining foreign operations are recognized in other
        comprehensive (loss) income (note 18).

    10. Accounts Receivable

    The components of accounts receivable were as follows:

                                                            As at
                                             ----------
                                               Jun. 19,   Jun. 20,   Dec. 31,
    ($ millions)                                  2010       2009       2009
    -------------------------------------------------------------------------
    Credit card receivables                   $  1,906   $  1,991   $  2,128
    Amount securitized                          (1,635)    (1,775)    (1,725)
    -------------------------------------------------------------------------
    Net credit card receivables                    271        216        403
    Other receivables                              455        536        448
    -------------------------------------------------------------------------
    Accounts receivable                       $    726   $    752   $    851
    -------------------------------------------------------------------------
                                             ----------

    Credit Card Receivables

    From time to time, President's Choice Bank ("PC Bank"), a wholly owned
    subsidiary of Loblaw, securitizes certain credit card receivables by
    selling them to independent trusts that issue interest bearing
    securities. During the second quarter and year-to-date 2010, PC Bank
    repurchased nil and $90 million (2009 - nil and nil) of co-ownership
    interest in securitized receivables from an independent trust. The
    independent trusts' recourse to PC Bank's assets is limited to PC Bank's
    excess collateral of $114 million (June 20, 2009 - $124 million; December
    31, 2009 - $121 million) as well as standby letters of credit issued of
    $103 million (June 20, 2009 - $116 million; December 31, 2009 - $116
    million) on a portion of the securitized amount. A portion of the
    securitized receivables that is held by an independent trust facility
    with a term of 364 days is subject to renewal during the third quarter of
    2010.

    Other Receivables

    Other receivables consist mainly of receivables from Loblaw's independent
    franchisees, associated stores and independent accounts, and receivables
    from Weston Foods customers.


    11. Inventories

    The components of inventories were as follows:

                                                            As at
                                             ----------
                                               Jun. 19,   Jun. 20,   Dec. 31,
    ($ millions)                                  2010       2009       2009
    -------------------------------------------------------------------------
    Raw materials and supplies                $     34   $     37   $     36
    Finished goods                               2,130      2,172      2,174
    -------------------------------------------------------------------------
    Inventories                               $  2,164   $  2,209   $  2,210
    -------------------------------------------------------------------------
                                             ----------

    Cost of inventories sold includes $9 million and $19 million (2009 - $10
    million and $21 million) of depreciation during the second quarter and
    year-to-date 2010, respectively.

    For inventories recorded as at June 19, 2010, Loblaw recorded $16 million
    (June 20, 2009 - $32 million) as an expense for the write-down of
    inventories below cost to net realizable value.

    12. Goodwill and Intangible Assets
                                                            As at
                        -------------------------------
                                               Jun. 19,   Jun. 20,   Dec. 31,
                          Weston                  2010       2009       2009
    ($ millions)           Foods     Loblaw      Total
    -------------------------------------------------------------------------
    Goodwill, beginning
     of period          $     92   $  1,103   $  1,195   $  1,116   $  1,116
    Goodwill, acquired
     during the period
     (note 3)                             4          4                   156
    Adjusted purchase
     price allocation
     (note 3)                            (2)        (2)
    Goodwill
     impairment(1)                                            (73)       (73)
    Impact of foreign
     currency
     translation              (1)                   (1)                   (4)
    -------------------------------------------------------------------------
    Goodwill, end of
     period                   91      1,105      1,196      1,043      1,195
    Trademarks and
     brand names              13         51         64         13         64
    Other intangible
     assets                    4         31         35         17         37
    -------------------------------------------------------------------------
    Goodwill and
     intangible assets  $    108   $  1,187   $  1,295   $  1,073   $  1,296
    -------------------------------------------------------------------------
                        -------------------------------

    (1) Weston Foods reorganized its remaining operations subsequent to the
        disposition of the U.S. fresh bakery business in the first quarter of
        2009 resulting in a write-down of goodwill related to the biscuits,
        cookies, cones and wafers business.

    13. Employee Future Benefits

    The Company's total net benefit plan cost recognized in operating income
    was $47 million and $98 million (2009 - $47 million and $96 million) for
    the second quarter and year-to-date 2010, respectively. The total net
    benefit plan cost included costs for the Company's defined benefit
    pension and other benefit plans, defined contribution pension plans and
    multi-employer pension plans.

    14. Short Term Debt

    Included in short term debt are GWL's Series B debentures, due on demand,
    of $317 million (June 20, 2009 - $282 million; December 31, 2009 - $300
    million) as at the end of the second quarter of 2010.

    15. Long Term Debt

    As at June 19, 2010, June 20, 2009 and December 31, 2009, U.S.
    $300 million (June 19, 2010 - $307 million; June 20, 2009 - $341 million;
    December 31, 2009 - $316 million) of Loblaw fixed rate notes was recorded
    in long term debt on the consolidated balance sheets.

    During the second quarter of 2010, Loblaw issued $350 million principal
    amount of unsecured Medium Term Notes ("MTN"), Series 2-B pursuant to its
    MTN, Series 2 program. The Series 2-B notes pay a fixed rate of interest
    of 5.22% payable semi-annually commencing on December 18, 2010 until
    maturity on June 18, 2020. During the second quarter of 2009, Loblaw
    issued $350 million principal amount of unsecured MTN, Series 2-A which
    pay a fixed rate of interest of 4.85% payable semi-annually. The Series
    2-A and 2-B notes are subject to certain covenants and are unsecured
    obligations of Loblaw and rank equally with all the unsecured
    indebtedness of Loblaw that has not been subordinated. The Series 2-A and
    2-B notes may be redeemed at the option of Loblaw, in whole at any time
    or in part from time to time, upon not less than 30 days and not more
    than 60 days notice to the holders of the notes.

    During the second quarter of 2010, Loblaw's $300 million 7.10% MTN
    matured and was repaid. During the first quarter of 2009, Loblaw's $125
    million 5.75% MTN matured and was repaid.

    During the second quarter of 2009, GWL entered into an agreement to
    repurchase a portion of the 12.7% Promissory Notes, due 2030. Principal
    of $140 million and interest coupons of $48 million were repurchased from
    a single counterparty subsequent to the end of the second quarter of
    2009, for an aggregate purchase price of $57 million. This resulted in
    the extinguishment of a portion of the original liability and the
    recognition of a new liability as at the end of the second quarter of
    2009. During the second quarter of 2009, GWL recorded a pre-tax loss of
    $41 million in interest expense and other financing charges (note 6).

    During the first quarter of 2009, GWL's $250 million 5.90% MTN matured
    and was repaid.

    16. Capital Securities

    During the second quarter of 2009, GWL's 10.6 million 5.15% non-voting
    preferred shares, Series II, which were presented as capital securities
    and included in current liabilities, were redeemed for cash of $25.00 per
    share, or $265 million in aggregate plus accrued and unpaid dividends to
    but excluding April 1, 2009.

    Of the 12.0 million authorized non-voting Loblaw second preferred shares,
    Series A, 9.0 million were outstanding at the end of the second quarter
    of 2010.

    Dividends on capital securities are presented in interest expense and
    other financing charges in the consolidated statements of earnings
    (note 6).

    17. Stock-Based Compensation

    The following table summarizes the Company's cost recognized in operating
    income related to its stock-based compensation plans, restricted share
    unit plans and GWL's and Glenhuron Bank Limited's ("Glenhuron") equity
    derivatives:

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
                                    Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
    ($ millions)                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Stock option plans / share
     appreciation right plan
     expense                       $     12   $      3   $     25   $      3
    Restricted share unit plan
     expense                              6          4          9          6
    Equity derivative contracts
     (income) loss                      (12)       (18)       (24)         3
    -------------------------------------------------------------------------
    Net stock-based compensation
     expense (income)              $      6   $    (11)  $     10   $     12
    -------------------------------------------------------------------------
                                  ----------            ----------


    Stock Option Plan

    The following is a summary of GWL's stock option and share appreciation
    right plan activity:


                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
                                    Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
    Number of Options/Rights           2010       2009       2010       2009
    -------------------------------------------------------------------------
    Outstanding options/rights,
     beginning of period          1,587,445  1,827,449  1,761,345  1,616,344
    Granted                           2,948               171,799    230,430
    Exercised                       (76,315)    (2,962)   (86,033)   (18,987)
    Forfeited/cancelled             (65,525)   (38,159)  (398,558)   (41,459)
    -------------------------------------------------------------------------
    Outstanding options, end
     of period                    1,448,553  1,786,328  1,448,553  1,786,328
    -------------------------------------------------------------------------
    Share appreciation value
     paid ($ millions)             $      1   $          $      1   $
    -------------------------------------------------------------------------
                                  ----------            ----------


    During the second quarter of 2010, GWL granted stock options with an
    exercise price of $73.43 (2009 - nil).

    The share appreciation value paid by GWL in the second quarter and year-
    to-date 2009 was nominal.

    The following is a summary of Loblaw's stock option plan activity:

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
                                    Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
    Number of Options                  2010       2009       2010       2009
    -------------------------------------------------------------------------
    Outstanding options, beginning
     of period                    9,835,263 10,199,254  9,207,816  7,892,660
    Granted                          10,525     24,769  2,489,095  2,665,615
    Exercised                      (125,195)   (71,756)  (424,975)   (81,408)
    Forfeited/cancelled            (135,587)  (591,586)(1,686,930)  (916,186)
    -------------------------------------------------------------------------
    Outstanding options, end of
     period                       9,585,006  9,560,681  9,585,006  9,560,681
    -------------------------------------------------------------------------
    Share appreciation value
     paid ($ millions)             $      1   $          $      3   $
    -------------------------------------------------------------------------
                                  ----------            ----------


    During the second quarter of 2010, Loblaw granted stock options with an
    exercise price of $37.92 (2009 - $36.17).

    The share appreciation value paid by Loblaw in the second quarter and
    year-to-date 2009 was nominal.

    At the end of the second quarter of 2010, GWL outstanding stock options
    represented approximately 1.1% (2009 - 1.3%) of GWL's issued and
    outstanding common shares. Loblaw's outstanding stock options represented
    approximately 3.5% (2009 - 3.5%) of its issued and outstanding common
    shares. The number of stock options outstanding was within the Companies'
    guidelines of 5% of the total number of outstanding shares.

    Restricted Share Unit ("RSU") Plan

    The following is a summary of GWL's RSU plan activity:

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
                                    Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
    Number of Awards                   2010       2009       2010       2009
    -------------------------------------------------------------------------
    RSUs, beginning of period       166,295    154,128    152,555    151,769
    Granted                             421                47,899     61,677
    Cash settled                       (638)    (1,209)   (34,148)   (59,423)
    Cancelled                        (3,865)    (1,393)    (4,093)    (2,497)
    -------------------------------------------------------------------------
    RSUs, end of period             162,213    151,526    162,213    151,526
    -------------------------------------------------------------------------
    RSUs cash settled ($ millions) $          $          $      2   $      4
    -------------------------------------------------------------------------
                                  ----------            ----------

    The cash paid by GWL in the second quarters of 2010 and 2009 was nominal.

    The following is a summary of Loblaw's RSU plan activity:

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
                                    Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
    Number of Awards                   2010       2009       2010       2009
    -------------------------------------------------------------------------
    RSUs, beginning of period     1,097,910  1,054,156    973,351    829,399
    Granted                           1,469      3,994    372,725    429,087
    Cash settled                     (8,072)    (5,021)  (171,764)  (187,335)
    Cancelled                        (9,398)   (55,511)   (92,403)   (73,533)
    -------------------------------------------------------------------------
    RSUs, end of period           1,081,909    997,618  1,081,909    997,618
    -------------------------------------------------------------------------
    RSUs cash settled ($ millions) $          $          $      6   $      6
    -------------------------------------------------------------------------
                                  ----------            ----------

    The cash paid by Loblaw in the second quarters of 2010 and 2009 was
    nominal.

    Equity Derivative Contracts

    As at June 19, 2010, Glenhuron had equity forward contracts to buy
    1.5 million (June 20, 2009 - 3.2 million; December 31, 2009 -
    1.5 million) Loblaw common shares at an average forward price of $66.73
    (June 20, 2009 - $53.82; December 31, 2009 - $66.25) including $10.51
    (June 20, 2009 - $9.20; December 31, 2009 - $10.03) per common share of
    interest expense. As at June 19, 2010, the interest and unrealized market
    loss of $40 million (June 20, 2009 - $62 million; December 31, 2009 -
    $48 million) was included in accounts payable and accrued liabilities. In
    the second quarter of 2009, Glenhuron paid $38 million to terminate
    equity forwards representing 1.6 million shares, which led to the
    extinguishment of a corresponding portion of the associated liability.

    Also as at June 19, 2010, GWL had equity swaps to buy 1.7 million (June
    20, 2009 - 1.7 million; December 31, 2009 - 1.7 million) GWL common
    shares at an average forward price of $103.17 (June 20, 2009 - $103.17;
    December 31, 2009 - $103.17). As at June 19, 2010, the unrealized market
    loss of $49 million (June 20, 2009 - $72 million; December 31, 2009 - $61
    million) was included in accounts payable and accrued liabilities.

    18. Accumulated Other Comprehensive Loss

    The following tables provide further detail regarding the composition of
    accumulated other comprehensive loss:

                                         24 Weeks Ended Jun. 19, 2010
                                ---------------------------------------------
                                    Foreign
                                   currency  Available       Cash
                                translation  -for-sale       flow
    ($ millions)                 adjustment     assets     hedges      Total
    -------------------------------------------------------------------------
    Balance, beginning of period   $   (103)  $     (3)  $     14   $    (92)
    Foreign currency translation
     adjustment                         (13)                             (13)
    Net unrealized loss on
     available-for-sale financial
     assets(1)                                      (3)                   (3)
    Reclassification of loss on
     available-for-sale financial
     assets(2)                                       5                     5
    Net loss on derivatives
     designated as cash flow
     hedges(3)                                                 (1)        (1)
    Reclassification of gain on
     derivatives designated as
     cash flow hedges(4)                                       (4)        (4)
    -------------------------------------------------------------------------
    Balance, end of period         $   (116)  $     (1)  $      9   $   (108)
    -------------------------------------------------------------------------
                                ---------------------------------------------

    (1) Net of income taxes of nil and minority interest of $2 million.
    (2) Net of income taxes of nil and minority interest of $3 million.
    (3) Net of income taxes of nil and minority interest of $1 million.
    (4) Net of income taxes recovered of $1 million and minority interest of
        $2 million.

    The change in the foreign currency translation adjustment in the first
    half of 2010 of $13 million resulted from the appreciation of the
    Canadian dollar relative to the U.S. dollar.


                                        24 Weeks Ended Jun. 20, 2009

                                    Foreign
                                   currency  Available       Cash
                                translation  -for-sale       flow
    ($ millions)                 adjustment     assets     hedges      Total
    -------------------------------------------------------------------------
    Balance, beginning of period   $   (334)  $     10   $      2   $   (322)
    Cumulative impact of
     implementing new accounting
     standards(1)                                              (1)        (1)
    Foreign currency translation
     adjustment                          83                               83
    Reclassification of cumulative
     foreign currency translation
     loss to net earnings               144                              144
    Net unrealized loss on
     available-for-sale financial
     assets(2)                                      (7)                   (7)
    Reclassification of gain on
     available-for-sale financial
     assets(3)                                     (15)                  (15)
    Net gain on derivatives
     designated as cash flow
     hedges(4)                                                  2          2
    Reclassification of loss on
     derivatives designated as
     cash flow hedges(5)                                       17         17
    -------------------------------------------------------------------------
    Balance, end of period         $   (107)  $    (12)  $     20   $    (99)
    -------------------------------------------------------------------------

    (1) Net of income taxes recovered of $1 million and minority interest of
        $1 million.
    (2) Net of income taxes of nil and minority interest of $4 million.
    (3) Net of income taxes of $2 million and minority interest of $9
        million.
    (4) Net of income taxes of $3 million and minority interest of $2
        million.
    (5) Net of income taxes recovered of $6 million and minority interest of
        $6 million.

    The change in the foreign currency translation adjustment in the first
    half of 2009 of $83 million resulted primarily from the depreciation of
    the Canadian dollar relative to the U.S. dollar in the period prior to
    the sale of the U.S. fresh bakery business, partially offset by the
    appreciation of the Canadian dollar thereafter.

    The Company also reversed a cumulative foreign currency translation loss
    of $144 million in the first quarter of 2009, of which $34 million was
    recorded in operating income and $110 million was included in the results
    of discontinued operations (note 4).

    19. Contingencies, Commitments and Guarantees

    Guarantees - Independent Funding Trusts

    Certain independent franchisees of Loblaw obtain financing through a
    structure involving independent trusts, which were created to provide
    loans to the independent franchisees to facilitate their purchase of
    inventory and fixed assets, consisting mainly of fixtures and equipment.
    The trusts are administered by a major Canadian chartered bank.

    The gross principal amount of loans issued to Loblaw's independent
    franchisees outstanding as at June 19, 2010 was $390 million (June 20,
    2009 - $387 million; December 31, 2009 - $390 million) including $178
    million (June 20, 2009 - $149 million; December 31, 2009 - $163 million)
    of loans payable by VIEs consolidated by the Company. Loblaw has agreed
    to provide credit enhancement of $66 million (June 20, 2009 - $66
    million; December 31, 2009 - $66 million) in the form of a standby letter
    of credit for the benefit of the independent funding trust representing
    not less than 15% of the principal amount of the loans outstanding. The
    standby letter of credit has not been drawn upon.

    During the second quarter of 2010, the $475 million, 364-day revolving
    committed credit facility that is the source of funding to the
    independent trusts was renewed. The financing structure has been reviewed
    and Loblaw determined there were no additional VIEs to consolidate as a
    result of this financing.

    Standby Letters of Credit

    Standby letters of credit for the benefit of independent trusts with
    respect to the credit card receivables securitization program of PC Bank
    have been issued by major Canadian chartered banks. These standby letters
    of credit could be drawn upon in the event of a major decline in the
    income flow from or in the value of the securitized credit card
    receivables. Loblaw has agreed to reimburse the issuing banks for any
    amount drawn on the standby letters of credit. The aggregate gross
    potential liability under these arrangements, which represents 9% (June
    20, 2009 - 9%; December 31, 2009 - 9%) on a portion of the securitized
    credit card receivables amount, is approximately $103 million (June 20,
    2009 - $116 million; December 31, 2009 - $116 million) (note 10).

    Legal Proceedings

    The Company is the subject of various legal proceedings and claims that
    arise in the ordinary course of business. The outcome of all of these
    proceedings and claims is uncertain. However, based on information
    currently available, these proceedings and claims, individually and in
    the aggregate, are not expected to have a material impact on the Company.

    20. Segment Information

    The Company has two reportable operating segments: Weston Foods and
    Loblaw. The accounting policies of the reportable operating segments are
    the same as those described herein and in the Company's 2009 Annual
    Report. The Company measures each reportable operating segment's
    performance based on operating income. Neither reportable operating
    segment is reliant on any single external customer.

                                      12 Weeks Ended        24 Weeks Ended
                                  ----------            ----------
                                    Jun. 19,   Jun. 20,   Jun. 19,   Jun. 20,
    ($ millions)                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Sales
        Weston Foods               $    359   $    395   $    744   $    832
        Loblaw                        7,317      7,233     14,243     13,951
        Intersegment                   (146)      (144)      (280)      (277)
    -------------------------------------------------------------------------
      Consolidated                 $  7,530   $  7,484   $ 14,707   $ 14,506
    -------------------------------------------------------------------------
    Operating Income
        Weston Foods               $     67   $     56   $    112   $     29
        Loblaw                          328        322        586        546
        Other(1)                         (6)       (90)       (35)      (186)
    -------------------------------------------------------------------------
      Consolidated                 $    389   $    288   $    663   $    389
    -------------------------------------------------------------------------
                                  ----------            ----------


                                                            As at
                                             ----------
                                               Jun. 19,   Jun. 20,   Dec. 31,
    ($ millions)                                  2010       2009       2009
    -------------------------------------------------------------------------
    Total Assets
        Weston Foods                          $  1,584   $  1,926   $  1,674
        Loblaw                                  15,291     14,114     15,151
        Other(2)                                 3,203      3,265      3,318
    -------------------------------------------------------------------------
      Consolidated                            $ 20,078   $ 19,305   $ 20,143
    -------------------------------------------------------------------------
                                             ----------

    (1) Operating income for the second quarter and year-to-date 2010
        includes a loss of $6 million and $35 million (2009 - $90 million and
        $152 million), respectively, related to foreign exchange losses
        associated with the effect of foreign exchange on a portion of the
        U.S. dollar denominated cash and short term investments held by
        Dunedin and certain of its affiliates, which are integrated foreign
        subsidiaries for accounting purposes. Year-to-date 2009 operating
        income also includes the cumulative foreign currency translation loss
        of $34 million associated with Dunedin and certain of its affiliates,
        which was reversed from accumulated other comprehensive loss on the
        date of the sale of the U.S. fresh bakery business (note 18).
    (2) Other includes cash and cash equivalents and short term investments
        held by Dunedin and certain of its affiliates.
    

Corporate Profile

George Weston Limited is a Canadian public company, founded in 1882, engaged in food processing and distribution. The Company has two reportable operating segments: Loblaw and Weston Foods, and holds cash and short term investments. The Loblaw operating segment, which is operated by Loblaw Companies Limited and its subsidiaries, is Canada's largest food distributor and a leading provider of drugstore, general merchandise and financial products and services. The Weston Foods operating segment is a leading fresh and frozen baking company in Canada and is engaged in frozen baking and biscuit manufacturing in the United States.

Trademarks

George Weston Limited and its subsidiaries own a number of trademarks. These trademarks are the exclusive property of George Weston Limited and its subsidiary companies. Trademarks where used in this report are in italics.

Shareholder Information

    
    Registrar and Transfer Agent
    ----------------------------
    Computershare Investor     Toll free (Canada and U.S.A.): 1-800-564-6253
     Services Inc.             International direct dial: 514-982-7555
    100 University Avenue      Fax: (416) 263-9394
    Toronto, Canada            Toll free fax: 1-888-453-0330
    M5J 2Y1
    

To change your address or eliminate multiple mailings or for other shareholder account inquiries, please contact Computershare Investor Services Inc.

Investor Relations

Shareholders, security analysts and investment professionals should direct their requests to Mr. Geoffrey H. Wilson, Senior Vice President, Financial Control and Investor Relations, at the Company's Executive Office or by e-mail at investor@weston.ca.

Additional financial information has been filed electronically with the Canadian securities regulatory authorities in Canada through the System for Electronic Document Analysis and Retrieval (SEDAR). The Company holds an analyst call shortly following the release of its quarterly results. This call will be archived in the Investor Zone section of the Company's website.

This Quarterly Report includes selected information on Loblaw Companies Limited, a 62.6%-owned public reporting subsidiary company with shares trading on the Toronto Stock Exchange. For information regarding Loblaw, readers should also refer to the materials filed by Loblaw with the Canadian securities regulatory authorities from time to time. These filings are also maintained at Loblaw's corporate website at www.loblaw.ca.

Second Quarter Conference Call and Webcast

George Weston Limited will host a conference call as well as an audio webcast on Friday, July 30, 2010 at 11:00 a.m. (EST). To access via tele-conference, please dial (647) 427-7450. The playback will be made available two hours after the event at (416) 849-0833, passcode: 84951000 followed by the number sign. To access via audio webcast, please visit the "Investor Zone" section of www.weston.ca. Pre-registration will be available.

Ce rapport est disponible en français.



For further information: For further information: Mr. Geoffrey H. Wilson, Senior Vice President, Financial Control and Investor Relations at the Company's Executive Office, (416) 922-2500 or by e-mail at investor@weston.ca.


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890