Loblaw Companies Limited Reports 2008 Fourth Quarter and Fiscal Year Ended January 3, 2009 Results(1)



    BRAMPTON, ON, February 18, 2009 /CNW/ - Loblaw Companies Limited (TSX: L)
("Loblaw" or the "Company") today announced its unaudited financial results
for the fourth quarter and fiscal year ended January 3, 2009.

    
    2008 Fourth Quarter Summary

    For the periods ended
     January 3, 2009 and
     December 29, 2007
     (unaudited)

                        --------                  ---------
    ($ millions except     2008     2007              2008      2007
     where otherwise        (13      (12               (53       (52
     indicated)           weeks)   weeks) Change     weeks)    weeks) Change
    -------------------------------------------------------------------------
    Sales               $ 7,745  $ 6,967   11.2%  $ 30,802  $ 29,384    4.8%
    Operating expenses    7,428    6,833    8.7%    29,756    28,648    3.9%
    Operating income        317      134  136.6%     1,046       736   42.1%
    Net earnings            188       40  370.0%       545       330   65.2%
    Basic net earnings
     per common share ($)  0.69     0.14  392.9%      1.99      1.20   65.8%
    -------------------------------------------------------------------------
    Same-store sales
     increase (%)         10.6%     2.6%              4.2%      2.4%
    Operating margin       4.1%     1.9%              3.4%      2.5%
    EBITDA(2)           $   441  $   268   64.6%  $  1,631  $  1,324   23.2%
    EBITDA margin(2)       5.7%     3.8%              5.3%      4.5%
    Free cash flow(2)   $   216  $   335  (35.5%) $   (49)  $    402 (112.2%)
    -------------------------------------------------------------------------
                        --------                  ---------
    

    Sales in the 13-week fourth quarter of 2008 were $7,745 million compared
with $6,967 million in the 2007 12-week fourth quarter, an increase of 11.2%.
The extra selling week in 2008 positively impacted sales by 7.9%. Net earnings
were $188 million, a 370.0% increase compared with $40 million in 2007.
EBITDA(2) of $441 million for the fourth quarter represented a 64.6% increase
over $268 million in 2007. Basic net earnings per common share for the fourth
quarter were $0.69, compared with $0.14 in the fourth quarter last year.

    
    The following items influenced the Company's operating income in the
fourth quarter of 2008 compared to the fourth quarter of 2007:

    -   Income of $8 million related to lower than anticipated restructuring
        costs in 2008 compared to charges of $36 million in 2007. The effect
        on basic net earnings per common share was income of $0.02 in 2008
        versus a charge of $0.09 in 2007.
    -   Income related to stock-based compensation net of the equity
        forwards of $17 million in 2008 compared to a charge of $52 million
        in 2007. The effect on basic net earnings per common share was a
        gain of $0.07 for 2008 versus a charge of $0.21 in 2007.
    -   Gain of $22 million on the sale of the Company's food service
        business in the fourth quarter of 2008. The effect on basic net
        earnings per common share was a gain of $0.06.
    

    On an equivalent 12 week basis and excluding the above items, operating
income, EBITDA(2) and basic net earnings per common share in the fourth
quarter of 2008 improved compared to the fourth quarter of 2007.
    Sales for fiscal year 2008 (53 weeks) were $30,802 million compared to
$29,384 million in 2007 (52 weeks), an increase of 4.8%. Net earnings were
$545 million, a 65.2% increase compared to $330 million last year. EBITDA(2)
of $1,631 million represented a 23.2% increase over last year's $1,324
million. Basic net earnings per common share were $1.99, a 65.8% increase
compared to $1.20 for fiscal year 2007.

    
    (1) This News Release contains forward-looking information. See Forward-
        Looking Statements for a discussion of material factors that could
        cause actual results to differ materially from the conclusions,
        forecasts and projections herein and of the material factors and
        assumptions that were used. This News Release must be read in
        conjunction with Loblaw Companies Limited's filings with securities
        regulators made from time to time, all of which can be found at
        www.sedar.com and at www.loblaw.ca.
    (2) See Non-GAAP Financial Measures.

    "Our fourth quarter performance demonstrated that we are continuing to
edge forward," said Galen G. Weston, Executive Chairman, Loblaw Companies
Limited. "However, given the unpredictable economy and tough competitive
environment, we remain cautious and are prepared for a challenging 2009."

    Highlights of the Quarter
    -------------------------

    -   The Company is making good progress in all facets of its five-point
        plan to drive profitable sales momentum. The five-point plan includes
        focus on a "Back-to-Best" great food renewal in Ontario, a Western
        Canada refurbishment, local market merchandising, improvements in
        foundational infrastructure and private label innovation.

    -   Total sales were $7,745 million in the fourth quarter of 2008
        compared to $6,967 million in 2007, an increase of 11.2%. Same-store
        sales in the quarter increased by 10.6%. Sales and same-store sales
        growth in the fourth quarter of 2008 were positively impacted by
        approximately 7.9% as a result of an additional selling week. Sales
        and same-store sales growth were positively impacted by 0.8% as a
        result of a shift of the Thanksgiving holiday into the fourth
        quarter. Sales and same-store sales growth were also negatively
        impacted by approximately 1.0% as a result of a strike in certain
        Maxi stores in Quebec.

    -   On an equivalent 12 week basis:
        -  Total sales growth in both food and drugstore was strong in the
           fourth quarter;
        -  Apparel sales growth was strong in the fourth quarter but this
           did not offset the decline in core general merchandise sales
           growth, which primarily declined due to reductions in assortment
           and square footage;
        -  Gas bar sales growth was negative in the fourth quarter compared
           to the fourth quarter of 2007 as a result of lower fuel prices;
        -  Item count growth declined marginally, while customer count growth
           was flat; and
        -  The Company's analysis indicated that internal retail food price
           inflation was higher than the year-to-date trend, but lower than
           the national food price inflation as measured by "The Consumer
           Price Index for Food Purchased from Stores". In the fourth quarter
           of 2007, the Company experienced internal retail food price
           deflation.

    -   Operating income increased by $183 million, or 136.6%, to $317
        million in the fourth quarter of 2008, compared with $134 million in
        the fourth quarter of 2007. Operating margin was 4.1% for the fourth
        quarter of 2008 compared to 1.9% in 2007. Included in operating
        income is a charge of $29 million (2007 - $33 million) for fixed
        asset impairments related to asset carrying values in excess of fair
        values for specific store locations. Operating income and operating
        margin were positively influenced by lower restructuring and net
        stock-based compensation costs, higher sales and the Company's cost
        reduction initiatives.

    -   EBITDA(1) for the quarter was $441 million, representing an increase
        of 64.6% compared to $268 million in the fourth quarter of 2007.
        EBITDA margin(1) increased to 5.7% in the quarter from 3.8% in 2007.

    -   Basic net earnings per common share increased $0.55 or 392.9% to
        $0.69 for the fourth quarter of 2008, compared to $0.14 in the same
        quarter last year.

    -   Free cash flow(1) for the fourth quarter of 2008 was $216 million
        compared to $335 million in the fourth quarter of 2007. The decrease
        in the fourth quarter was primarily due to increased capital
        spending, timing of common share dividend payments, partially offset
        by an increase in cash flows from operating activities. On a year-to-
        date basis, free cash flow (1) was negative $49 million compared to
        $402 million in 2007. The year-to-date change was primarily due to a
        decrease in operating cash flows, an increase in capital
        expenditures and the timing of the payment of common share dividends.

    Outlook(2)
    ----------
    
    The Company remains confident in its approach and will continue to focus
on making measured progress on its key transformation priorities, including
food renewal, store enhancements, product innovation, infrastructure, and
customer value. During 2009 the Company will step up investments in
information technology and supply chain which will increase the associated
expense by approximately $100 million. This investment, coupled with the
continuing economic challenges and competitive pressures are expected to
challenge results in 2009.

    
    (1) See Non-GAAP Financial Measures.
    (2) To be read in conjunction with "Forward-Looking Statements".

    Results of Operations
    ---------------------

    Sales

    Sales in the 13-week fourth quarter increased by 11.2% to $7,745 million
compared to $6,967 million in the 12-week fourth quarter of 2007.

    The following factors explain the major components in the change in sales
for the fourth quarter of 2008 compared to the fourth quarter of 2007:

    -   same-store sales growth of 10.6% including an increase in sales and
        same-store sales growth of 7.9% due to the extra selling week in the
        fourth quarter of 2008;
    -   a shift of the Thanksgiving holiday to the fourth quarter of 2008
        resulted in higher sales and same-store sales growth of approximately
        0.8% during the fourth quarter of 2008;
    -   sales and same-store sales growth were negatively impacted by 1.0%
        due to a strike in certain Maxi stores in Quebec;
    -   on an equivalent 12 week basis, total sales growth in both food and
        drugstore was strong;
    -   on an equivalent 12 week basis, apparel sales growth was strong in
        the fourth quarter but this did not offset the decline in core
        general merchandise sales growth, which primarily declined due to
        reductions in assortment and square footage;
    -   on an equivalent 12 week basis, item count growth declined
        marginally, while customer count growth remained flat versus the
        fourth quarter of 2007;
    -   on an equivalent 12 week basis gas bar sales growth was negative as
        a result of lower fuel prices;
    -   the Company's analysis indicated that internal retail food price
        inflation was higher than the year-to-date trend, but lower than the
        national food price inflation of 8.4% as measured by "The Consumer
        Price Index for Food Purchased from Stores". In the fourth quarter of
        2007, the Company experienced internal retail food price deflation;
        and
    -   during the fourth quarter of 2008, 16 new corporate and franchised
        stores were opened and 10 were closed, resulting in a net increase of
        0.2 million square feet or 0.5%.

    Sales in 2008 (53 weeks) increased by 4.8% to $30,802 million, from sales
of $29,384 million in 2007 (52 weeks). The following factors, in addition to
the quarterly factors mentioned above, explain the change in 2008 sales over
the prior year including same-store sales growth of 4.2%:

    -   an increase in sales and same-store sales growth of 1.9% due to the
        53rd week in 2008; and
    -   during the year, 37 new corporate and franchised stores were opened,
        including stores which underwent conversions and major expansions,
        and 37 stores were closed resulting in a net increase of 0.2 million
        square feet or 0.5%.

    Operating Income

    Operating income of $317 million for the fourth quarter of 2008 compared
to $134 million in 2007, an increase of 136.6%. Operating margin was 4.1% for
the fourth quarter of 2008 compared to 1.9% in 2007. The increase in operating
income was mainly due to lower restructuring and lower net stock-based
compensation costs, higher sales, and cost reduction initiatives.

    The following items influenced operating income in the fourth quarter of
2008 compared to the fourth quarter of 2007:

    -   income of $8 million (2007 - charge of $36 million) due to lower
        than anticipated restructuring costs;
    -   income of $17 million (2007 - charge of $52 million) related to
        stock-based compensation net of the equity forwards. A non-cash gain
        on equity forwards resulted from an increase in the Company's share
        price during the fourth quarter of 2008; and
    -   gain of $22 million on the sale of the Company's food service
        business in the fourth quarter of 2008.
    

    Included in 2008 fourth quarter operating income is a fixed asset
impairment charge of $29 million (2007 - $33 million). In the fourth quarter
of 2007, an $11 million gain was realized related to the sale of an office
building in Calgary, Alberta. On an equivalent 12 week basis and excluding the
above items, operating income in the fourth quarter of 2008 improved compared
to the fourth quarter of 2007.
    The Company experienced higher store labour costs in the fourth quarter
of 2008 as a result of higher sales.  Labour productivity decreased slightly
in the fourth quarter of 2008 compared to the same period in 2007 as a result
of investments in training and the Company's commitment to improve customer
service during the holiday season.  Labour productivity has improved on a year
over year basis.
    EBITDA(1) increased by $173 million, or 64.6%, to $441 million in the
fourth quarter of 2008 compared to $268 million in the fourth quarter of 2007.
EBITDA margin(1) increased in the fourth quarter of 2008 to 5.7% compared to
3.8% in 2007. The increases in EBITDA(1) and EBITDA margin(1) were due to
lower restructuring charges, lower net stock-based compensation costs, higher
sales and cost reduction initiatives.

    (1) See Non-GAAP Financial Measures.

    2008 operating income increased by $310 million, or 42.1%, to $1,046
million, and resulted in an operating margin of 3.4% compared to 2.5% in 2007.

    
    The following items influenced operating income in 2008 compared to 2007:

    -   income of $1 million (2007 - charge of $222 million) related to lower
        than anticipated restructuring costs;
    -   a charge of $7 million (2007 - $72 million) related to stock-based
        compensation net of the equity forwards. A non-cash gain on equity
        forwards resulted from an increase in the Company's share price in
        2008; and
    -   gain of $22 million on the sale of the Company's food service
        business in the fourth quarter of 2008.
    

    Included in 2008 operating income was a $14 million gain from the sale of
financial investments by President's Choice Bank ("PC Bank"), a wholly owned
subsidiary of the Company and a $29 million fixed asset impairment charge.
Included in 2007 operating income is an $11 million gain related to the sale
of an office building in Calgary, Alberta, a $33 million fixed asset
impairment charge, and a $24 million charge as a result of adjustments in
estimates related to post-employment and long term disability benefits,
deferred product development and information technology costs.
    2008 EBITDA(1) increased by $307 million, or 23.2%, to $1,631 million
compared to $1,324 million in 2007. EBITDA margin(1) increased to 5.3%
compared to 4.5% in 2007.

    
    Interest Expense and Other Financing Charges

    Interest expense and other financing charges for the fourth quarter of
2008 were $65 million compared to $59 million in 2007. The following items
impacted interest expense in the quarter:

    -   interest on long term debt of $70 million (2007 - $66 million);
    -   interest on financial derivative instruments, which includes the
        effect of the Company's interest rate swaps, cross currency basis
        swaps and equity forwards, of nil (2007 - charge of $2 million);
    -   net short term interest income of $2 million (2007 - nil);
    -   interest income on security deposits of $2 million (2007 - $4
        million);
    -   interest expense of $5 million (2007 - $5 million) was capitalized to
        fixed assets; and
    -   dividends on capital securities of $4 million (2007 - nil).
    

    Interest expense and other financing charges for the year were $263
million compared to $252 million in 2007.

    Income Taxes

    The effective income tax rate in the fourth quarter of 2008 was 24.2%
(2007 - 36.0%). The quarter over quarter reduction in the effective income tax
rate is primarily due to a change in the proportions of taxable income earned
across different tax jurisdictions, lower Canadian federal and certain
provincial statutory income tax rates relative to the fourth quarter of 2007
and a decrease in income tax accruals relating to certain income tax matters
which was partially offset by a 2007 cumulative adjustment of future taxes
pursuant to a reduction in Canadian federal and certain provincial statutory
income tax rates.
    The 2008 effective income tax rate was 29.1% (2007 - 31.0%). The year
over year reduction in the effective income tax rate is primarily due to a
change in the proportions of taxable income earned across different tax
jurisdictions, lower Canadian federal and certain provincial statutory income
tax rates relative to 2007 which was partially offset by an increase in income
tax accruals relating to certain income tax matters and a 2007 cumulative
adjustment of future taxes pursuant to a reduction in the Canadian federal and
certain provincial statutory income tax rates.

    Net Earnings

    Net earnings for the fourth quarter increased by $148 million, or 370.0%,
to $188 million from $40 million in the fourth quarter of 2007 and increased
by $215 million, or 65.2%, to $545 million for the year from $330 million in
2007. Basic net earnings per common share for the fourth quarter increased by
$0.55, or 392.9%, to $0.69 from $0.14 in the fourth quarter of 2007 and
increased by $0.79, or 65.8%, to $1.99 for the year compared to $1.20 in 2007.

    
    Basic net earnings per common share were affected in the fourth quarter of
2008 by the following:

    -   income of $0.02 (2007 - charge of $0.09) per common share related to
        lower than anticipated restructuring costs;
    -   income of $0.07 (2007 - charge of $0.21) per common share for the
        stock-based compensation net of the equity forwards; and
    -   a gain of $0.06 per common share from the sale of the Company's food
        service business.

    (1) See Non-GAAP Financial Measures.

    Basic net earnings per common share for 2008 were affected by the
following:

    -   income of nil (2007 - charge of $0.53) per common share related to
        lower than anticipated restructuring costs;
    -   charge of $0.04 (2007 - $0.30) per common share for stock-based
        compensation net of the equity forwards; and
    -   gain of $0.06 per common share for the sale of the Company's food
        service business.

    Liquidity and Capital Resources
    -------------------------------
    
    Cash and cash equivalents, short term investments and security deposits
included in other assets, future operating cash flow and the amounts available
to be drawn against its credit facility are expected to enable the Company to
finance its capital investment program and fund its ongoing business
requirements including working capital and pension plan funding. The Company
believes it has sufficient funding available to meet these requirements over
the next twelve months. Given reasonable access to capital markets, the
Company does not foresee any difficulty in securing financing to satisfy its
long term obligations.

    Cash Flows from Operating Activities

    Fourth quarter cash flows from operating activities were $627 million in
2008 compared to $508 million in the comparable period in 2007. The increase
can be attributed to the increase in net earnings before minority interest and
restructuring charges. Also impacting operating cash flow in the current
quarter was a $63 million contribution to the Company's registered funded
defined benefit pension plans, and consideration received of $65 million in
exchange for entering into a long-term supply agreement. Cash flows from
operating activities for 2008 were $989 million compared to $1,245 million in
2007. The decrease is attributable to the change in non-cash working capital
as the increase in 2008 net earnings was offset by a reduction in
restructuring charges in 2008 relative to 2007. The Company's 2008 on-shelf
availability project is the primary reason for the increase in inventory
relative to 2007, and the primary driver of the change in non-cash working
capital.

    Cash Flows used in Investing Activities

    Fourth quarter cash flows used in investing activities were $427 million
compared to $306 million in 2007. The increase was due to increased capital
spending associated with the Company's investment in its infrastructure and
less proceeds from asset sales, partially offset by a decrease in the change
in cash flows from credit card receivables. In 2008 cash used in investing
activities was $607 million compared to $851 million in 2007. The change was
primarily due to the change in credit card receivables, after securitization,
and movement in short-term investments, partially offset by increased capital
spending and less proceeds from asset sales. Capital investment in the fourth
quarter amounted to $353 million (2007 - $173 million) and $750 million (2007
- $613 million) for the full year. The Company's estimate of capital
expenditures for 2009 is $750 million.

    Cash Flows used in Financing Activities

    Fourth quarter cash flows used in financing activities were $161 million
in 2008 compared to $166 million in 2007. The change is a result of less
short-term borrowing requirements in the current quarter, which were partially
offset by the timing of the payment of common share dividends of $58 million
in 2008. In 2008, cash flows used in financing activities were $371 million
compared to $472 million in the prior year. In 2008, the Company received
proceeds of $218 million and $296 million from issuances of capital securities
and unsecured notes, respectively, which were used to reduce short-term
borrowings and retire 2008 debt maturities. Dividends paid in 2008 increased
by $58 million, which can be attributed to the timing of the payment of common
share dividends. Subsequent to year end, the Company repaid its $125 million
5.75% medium term note which matured.

    
    Risks and Risk Management

    Economic Environment
    
    In the last six months of 2008 and continuing into 2009, global economic
conditions have deteriorated which has resulted in increased risk to the
Company. Management regularly monitors economic conditions, including interest
rates, the debt market, inflation, employment rates and capital markets.
Management believes the Company has sufficient financial resources to meet its
ongoing business requirements.

    Financial Risk and Risk Management

    The Company is exposed to credit, interest rate, market and liquidity
risks as a result of holding financial instruments. The Company's risk
management practices in this area are described in Note 22 of the Consolidated
Financial Statements in the Company's 2007 Annual Report and in Note 18 of the
2008 Third Quarter Report to Shareholders. In addition, the recent economic
downturn has increased the risk of personal bankruptcies, higher risk of
credit card receivable write-offs, and increased funding costs of the credit
card portfolio.

    
    (1) See Non-GAAP Financial Measures.

    Employee Future Benefit Contributions
    
    Although the Company's registered funded defined benefit plans as of the
last filed actuarial valuations were adequately funded and historical returns
on defined benefit pension plan assets have been in line with long term
expectations, there can be no assurance that these trends will continue. If
the capital markets do not recover some of the recent significant losses in
the near term, the Company may experience a significant increase in pension
expense for its defined benefit plans and it is possible that future pension
plan contributions may be significantly greater than the current projected
contributions. During 2008, the Company contributed $138 million (2007 - $74
million) to its registered funded defined benefit pension plans, of which $63
million was contributed in the fourth quarter of 2008 as a result of the
Company's decision to increase 2008 contributions in excess of original
estimates. Contributions of $100 million to the Company's registered funded
defined benefit pension plans are planned for 2009. The Company continues to
assess the impact of capital markets on its funding requirements.

    
    Non-GAAP Financial Measures
    ---------------------------
    
    The Company reports its financial results in accordance with Canadian
generally accepted accounting principles ("GAAP"). It has historically also
included in its Quarterly and Annual Reports certain non-GAAP financial
measures and ratios. Over the past year, the Company has reviewed its
practices with respect to the disclosure of non-GAAP financial measures. The
Company considered the separate presentation of non-GAAP financial measures
taking into account the discussion in the MD&A of the results of operations
and the impact of specific events on these results of operations, the
disclosure practices of its industry peers and best practices.
    Based on this review, the Company decided that effective the first
quarter of 2008 it would discontinue its use of the following non-GAAP
financial measures: sales and sales growth excluding the impact of tobacco
sales and variable interest entities ("VIEs"), adjusted operating income and
adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin and
adjusted basic net earnings per common share. The Company will continue to
discuss the impact of individual specific items that are important in
understanding the ongoing operations including those that relate to sales,
operating income and basic net earnings per common share.
    The Company will continue to use the following non-GAAP financial
measures: EBITDA and EBITDA margin, net debt and free cash flow. 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, may
not be comparable to similarly titled measures presented by other publicly
traded companies, nor should they be construed as an alternative to other
financial measures determined in accordance with Canadian GAAP.

    EBITDA and EBITDA Margin

    The following table reconciles earnings before minority interest, income
taxes, interest expense, and depreciation and amortization ("EBITDA") to
operating income which is reconciled to Canadian GAAP net earnings measures
reported in the unaudited interim period consolidated statements of earnings,
for the thirteen and fifty three week periods ended January 3, 2009 and the
twelve and fifty two week periods ended December 29, 2007. EBITDA is useful to
management in assessing the Company's performance of its 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.

                               ----------              ----------
                                    2008        2007        2008        2007
    ($ millions)               (13 weeks)  (12 weeks)  (53 weeks)  (52 weeks)
    -------------------------------------------------------------------------
    Net earnings                $    188    $     40    $    545    $    330
    Add impact of the following:
      Minority interest                3           8          10           4
      Income taxes                    61          27         228         150
      Interest expense and
       other financing charges        65          59         263         252
    -------------------------------------------------------------------------
    Operating income                 317         134       1,046         736
    Add impact of the following:
      Depreciation and
       amortization                  124         134         585         588
    -------------------------------------------------------------------------
    EBITDA                      $    441    $    268    $  1,631    $  1,324
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------              ----------

    Net Debt

    The following table reconciles net debt to Canadian GAAP measures reported
in the unaudited interim period consolidated balance sheets as at January 3,
2009 and December 29, 2007. The Company calculates net debt as the sum of long
term debt and short term debt less cash and cash equivalents, short term
investments and security deposits which are included in other assets and
believes this measure is useful in assessing the amount of leverage employed.

                                                       ----------
    ($ millions)                                            2008        2007
    -------------------------------------------------------------------------
    Bank indebtedness                                   $     52    $      3
    Commercial paper                                           -         418
    Short term debt                                          190           -
    Long term debt due within one year                       165         432
    Long term debt                                         4,070       3,852
    Less:  Cash and cash equivalents                         528         430
           Short term investments                            225         225
           Security deposits included in other assets        437         322
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net debt                                            $  3,287    $  3,728
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                       ----------

    Free Cash Flow

    The following table reconciles free cash flow to Canadian GAAP cash flows
used in operating activities reported in the unaudited interim period
consolidated cash flow statements for the thirteen and fifty three week
periods ended January 3, 2009 and the twelve and fifty two week periods ended
December 29, 2007. The Company calculates free cash flow as cash flows from
operating activities less fixed asset purchases and dividends. The Company
believes free cash flow is a useful measure of the change in the Company's
cash available for additional funding requirements.

                               ----------              ----------
                                    2008        2007        2008        2007
    ($ millions)               (13 weeks)  (12 weeks)  (53 weeks)  (52 weeks)
    -------------------------------------------------------------------------
    Cash flows from
     operating activities       $    627    $    508    $    989    $  1,245
    Less: Fixed asset purchases      353         173         750         613
          Dividends                   58           -         288         230
    -------------------------------------------------------------------------
    Free cash flow              $    216    $    335    $    (49)   $    402
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------              ----------

    

    FORWARD-LOOKING STATEMENTS

    This News Release for Loblaw contains forward-looking statements about
the Company's objectives, plans, goals, aspirations, strategies, financial
condition, results of operations, cash flows, performance, prospects and
opportunities. Words such as "anticipate", "expect", "believe", "forsee",
"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 the possibility that the Company's plans
and objectives will not be achieved. These risks and uncertainties include,
but are not limited to: changes in economic conditions; changes in consumer
spending and preferences; heightened competition, whether from new competitors
or current competitors; 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 and simplification initiatives;
increased costs relating to utilities, including electricity, and fuel; 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 issues 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; unanticipated costs
associated with the Company's strategic initiatives, including those related
to compensation costs; the inability of the Company's supply chain to service
the needs of the Company's stores; deterioration in the Company's relationship
with its employees, particularly through periods of change in the Company's
business; 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 including in relation to inventory
valuation; fluctuations in the Company's earnings due to changes in the value
of equity forward contracts relating to its common shares; changes in the
Company's tax liabilities resulting from changes in tax laws or future
assessments; detrimental reliance on the performance of third-party service
providers; public health events; the inability of the Company to obtain
external financing; the inability of the Company to collect on its credit card
receivables; any requirement of the Company to make contributions to its
registered 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 Risks and Risk Management section of the MD&A included in the
Company's 2007 Annual Report and its 2008 Quarterly Reports. These forward
looking statements 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 News Release. 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 Statements of Earnings


    For the periods ended
     January 3, 2009 and
     December 29, 2007
                               ----------              ----------
    ($ millions except where        2008        2007        2008        2007
     otherwise indicated)      (13 weeks)  (12 weeks)  (53 weeks)  (52 weeks)
                               (unaudited) (unaudited) (unaudited) (audited)
    -------------------------------------------------------------------------
    Sales                       $  7,745    $  6,967    $ 30,802    $ 29,384
    Operating Expenses
      Cost of sales, selling
       and administrative
       expenses                    7,312       6,663      29,172      27,838
      Depreciation and
       amortization                  124         134         585         588
      Restructuring                   (8)         36          (1)        222
    -------------------------------------------------------------------------
                                   7,428       6,833      29,756      28,648
    -------------------------------------------------------------------------
    Operating Income                 317         134       1,046         736
    Interest expense and
     other financing charges          65          59         263         252
    -------------------------------------------------------------------------
    Earnings before Income
     Taxes and Minority
     Interest                        252          75         783         484
    Income Taxes                      61          27         228         150
    -------------------------------------------------------------------------
    Net Earnings before
     Minority Interest               191          48         555         334
    Minority Interest                  3           8          10           4
    -------------------------------------------------------------------------
    Net Earnings                $    188    $     40    $    545    $    330
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Earnings Per
     Common Share ($)
    Basic and Diluted           $   0.69    $   0.14    $   1.99    $   1.20
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------              ----------



    Consolidated Balance Sheets
                                                   -----------
                                                        As at          As at
                                                    January 3,   December 29,
                                                         2009           2007
    ($ millions)                                   (unaudited)      (audited)
    -------------------------------------------------------------------------
    Assets
    Current Assets
      Cash and cash equivalents                      $    528       $    430
      Short term investments                              225            225
      Accounts receivable                                 867            885
      Inventories                                       2,188          2,032
      Income taxes                                         40            111
      Future income taxes                                  41             56
      Prepaid expenses and other assets                    71             32
    -------------------------------------------------------------------------
    Total Current Assets                                3,960          3,771
    Fixed Assets                                        8,045          7,953
    Goodwill                                              807            806
    Other Assets                                        1,173          1,144
    -------------------------------------------------------------------------
    Total Assets                                     $ 13,985       $ 13,674
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current Liabilities
      Bank indebtedness                              $     52       $      3
      Commercial paper                                      -            418
      Short term debt                                     190              -
      Accounts payable and accrued liabilities          2,823          2,860
      Long term debt due within one year                  165            432
    -------------------------------------------------------------------------
    Total Current Liabilities                           3,230          3,713
    Long Term Debt                                      4,070          3,852
    Future Income Taxes                                   171            180
    Other Liabilities                                     445            368
    Capital Securities                                    219              -
    Minority Interest                                      20             16
    -------------------------------------------------------------------------
    Total Liabilities                                   8,155          8,129
    -------------------------------------------------------------------------
    Shareholders' Equity
    Common Share Capital                                1,196          1,196
    Retained Earnings                                   4,604          4,330
    Accumulated Other Comprehensive Income                 30             19
    -------------------------------------------------------------------------
    Total Shareholders' Equity                          5,830          5,545
    -------------------------------------------------------------------------
    Total Liabilities and Shareholders' Equity       $ 13,985       $ 13,674
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                   -----------



    Consolidated Cash Flow Statements


    For the periods ended
     January 3, 2009 and
     December 29, 2007
                               ----------              ----------
                                    2008        2007        2008        2007
    ($ millions)               (13 weeks)  (12 weeks)  (53 weeks)  (52 weeks)
                               (unaudited) (unaudited) (unaudited) (audited)
    -------------------------------------------------------------------------
    Operating Activities
      Net earnings before
       minority interest        $    191    $     48    $    555    $    334
      Depreciation and
       amortization                  124         134         585         588
      Restructuring                   (8)         36          (1)        222
      Future income taxes             29           8          27         (17)
      Change in non-cash
       working capital               251         276        (284)         35
      Other                           40           6         107          83
    -------------------------------------------------------------------------
    Cash Flows from
     Operating Activities            627         508         989       1,245
    -------------------------------------------------------------------------
    Investing Activities
      Fixed asset purchases         (353)       (173)       (750)       (613)
      Short term investments          48         (36)         45        (154)
      Proceeds from asset sales       64         175         125         223
      Credit card receivables,
       after securitization         (150)       (283)         82        (238)
      Franchise investments
       and other receivables         (16)          4         (37)         19
      Other                          (20)          7         (72)        (88)
    -------------------------------------------------------------------------
    Cash Flows used in
     Investing Activities           (427)       (306)       (607)       (851)
    -------------------------------------------------------------------------
    Financing Activities
      Bank indebtedness              (11)        (29)         50           2
      Commercial paper                (9)        179        (418)       (229)
      Short term debt                (83)       (306)        190           -
      Long term debt
        Issued                         -           -         301          25
        Retired                        -          (9)       (424)        (39)
      Capital securities issued        -           -         218           -
      Dividends                      (58)          -        (288)       (230)
      Other                            -          (1)          -          (1)
    -------------------------------------------------------------------------
    Cash Flows used in
     Financing Activities           (161)       (166)       (371)       (472)
    -------------------------------------------------------------------------
    Effect of foreign currency
     exchange rate changes on
     cash and cash equivalents        50           1          87         (60)
    -------------------------------------------------------------------------
    Change in Cash and
     Cash Equivalents                 89          37          98        (138)
    Cash and Cash Equivalents,
     Beginning of Period             439         393         430         568
    -------------------------------------------------------------------------
    Cash and Cash Equivalents,
     End of Period              $   528     $    430    $    528    $    430
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------              ----------
    

    Basis of Presentation

    This unaudited condensed interim financial information has been prepared
by management in accordance with Canadian GAAP and includes the accounts of
the Company. This financial information does not contain all disclosures
required by Canadian GAAP for annual or interim financial statements, and
accordingly, this financial information should be read in conjunction with the
most recently issued annual financial statements for the 52 weeks ended
December 29, 2007 contained in our 2007 Annual Report and interim financial
statements for the 16 and 40 week periods ended October 4,2008. All amounts
are expressed in millions, except where otherwise indicated.
    The Company consolidates VIEs pursuant to Canadian Institute of Chartered
Accountants 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.

    Use of Estimates and Assumptions

    The preparation of the unaudited interim period consolidated financial
information requires management to make estimates and assumptions that affect
the reported amounts and disclosures made in the unaudited interim period
consolidated financial information. 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,
goodwill, income taxes, Goods and Services Tax and provincial sales taxes,
credit card losses, fixed assets and employee future benefits, depend upon
subjective or complex judgments about matters that may be uncertain, and
changes in those estimates could materially impact the consolidated financial
information.

    
    Restructuring

    Project Simplify
    
    During 2007, the Company approved and announced the restructuring of its
merchandising and store operations into more streamlined functions as part of
Project Simplify. In the fourth quarter of 2008, the Company recognized nil
(2007 - $29) of restructuring costs resulting from this plan. The year-to-date
charge of $3 (2007 - $197) is comprised of $2 (2007 - $139) for employee
termination costs including severance, additional pension costs resulting from
the termination of employees and retention costs; and $1 (2007 - $58) of other
costs, primarily consulting directly associated with the restructuring. Cash
payments in the fourth quarter of 2008 were $2 (2007 - $19) and $36 (2007 -
$149) year-to-date. As at the end of the fourth quarter of 2008, a remaining
liability of $1 (2007 - $33) was recorded on the consolidated balance sheets
in respect of this initiative.

    Store Operations

    During 2007, the Company completed the previously announced restructuring
of its store operations. In the fourth quarter of 2008, the Company recognized
income of $2 (2007 - nil) and income of $3 (2007 - charge of $16) year-to-date
related to this plan. Cash payments in the fourth quarter of 2008 were nil
(2007 - $2) and $1 (2007 - $22) year-to-date. As at the end of the fourth
quarter of 2008, a remaining liability of nil (2007 - $3) was recorded on the
consolidated balance sheets in respect of this initiative.

    Supply Chain Network

    During 2005, the Company approved a comprehensive plan to restructure its
supply chain operations nationally. In the fourth quarter of 2008, the Company
recognized income of $6 (2007 - charge of $7) of restructuring costs resulting
from this plan. Year-to-date income of $1 (2007 - charge of $9) is composed of
income of $3 (2007 - charge of $7) for employee termination costs resulting
from planned involuntary terminations and a charge of $2 (2007 - $2) for site
closing and other costs. Cash payments in the fourth quarter of 2008 were $4
(2007 - $1) and $25 (2007 - $5) year-to-date. As at the end of the fourth
quarter of 2008, a remaining liability of $7 (2007 - $33) was recorded on the
consolidated balance sheets in respect of this initiative. As at January 3,
2009 no further restructuring charges will be recognized related to this
initiative.

    
    Interest Expense and Other Financing Charges

                       -----------                 -----------
                        January 3,   December 29,   January 3,   December 29,
                             2009           2007         2009           2007
                        (13 weeks)     (12 weeks)   (53 weeks)     (52 weeks)
    -------------------------------------------------------------------------
    Interest on long
     term debt           $     70       $     66     $    286       $    285
    Interest (income)
     expense on
     financial
     derivative
     instruments                -              2           (4)            12
    Net short term
     interest (income)
     expense                   (2)             -            2             (6)
    Interest income on
     security deposits         (2)            (4)          (9)           (17)
    Dividends on
     capital securities         4              -            8              -
    Capitalized to
     fixed assets              (5)            (5)         (20)           (22)
    -------------------------------------------------------------------------
    Interest expense
     and other
     financing charges   $     65       $     59     $    263       $    252
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                        ----------                  ----------
    

    Interest paid in the fourth quarter of 2008 was $111 (2007 - $96) and
interest received was $42 (2007 - $27). Interest paid year-to-date was $415
(2007 - $403) and interest received year-to-date was $145 (2007 - $134).

    Income Taxes

    The effective income tax rate in the fourth quarter of 2008 was 24.2%
(2007 - 36.0%). The quarter over quarter reduction in the effective income tax
rate is primarily due to a change in the proportions of taxable income earned
across different tax jurisdictions, lower Canadian federal and certain
provincial statutory income tax rates relative to the fourth quarter of 2007
and a decrease in income tax accruals relating to certain income tax matters
which was partially offset by a 2007 cumulative adjustment of future taxes
pursuant to a reduction in Canadian federal and certain provincial statutory
income tax rates.
    The 2008 effective income tax rate was 29.1% (2007 - 31.0%). The year
over year reduction in the effective income tax rate is primarily due to a
change in the proportions of taxable income earned across different tax
jurisdictions, lower Canadian federal and certain provincial statutory income
tax rates relative to 2007 which was partially offset by an increase in income
tax accruals relating to certain income tax matters and a 2007 cumulative
adjustment of future taxes pursuant to a reduction in the Canadian federal and
certain provincial statutory income tax rates.
    Net income taxes paid in the fourth quarter was $34 (2007 - $66), and
year-to-date was $122 (2007 - $220).

    
    Basic and Diluted Net Earnings per Common Share

                       -----------                 -----------
                        January 3,   December 29,   January 3,   December 29,
                             2009           2007         2009           2007
                        (13 weeks)     (12 weeks)   (53 weeks)     (52 weeks)
    -------------------------------------------------------------------------
    Net earnings for
     basic earnings per
     share ($ millions)  $    188       $     40     $    545       $    330
    Dividends on capital
     securities
     ($ millions)               4              -            8              -
    -------------------------------------------------------------------------
    Net earnings for
     diluted earnings
     per share
     ($ millions)        $    192       $     40     $    553       $    330
    -------------------------------------------------------------------------
    Weighted average
     common shares
     outstanding
     (in millions)          274.2          274.2        274.2          274.2
    Dilutive effect of
     stock-based
     compensation
     (in millions)            0.1              -          0.1              -
    Dilutive effect of
     capital securities
     (in millions)            6.7              -          3.6              -
    -------------------------------------------------------------------------
    Diluted weighted
     average common
     shares outstanding
     (in millions)       $  281.0       $  274.2     $  277.9       $  274.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted
     net earnings per
     common share ($)    $   0.69       $   0.14     $   1.99       $   1.20
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                        ----------                  ----------
    

    Stock options outstanding with an exercise price greater than the market
price of the Company's common shares at the end of the fourth quarter were not
recognized in the computation of diluted net earnings per common share.
Accordingly, for the fourth quarter of 2008, 4,690,732 (2007 - 6,390,459)
stock options, with a weighted average exercise price of $52.98 (2007 -
$52.67) per common share, were excluded from the computation of diluted net
earnings per common share.

    
    Cash and Cash Equivalents

    The components of cash and cash equivalents as at January 3, 2009 and
December 29, 2007 were as follows:
                                                   -----------
                                                        As at          As at
                                                    January 3,   December 29,
                                                         2009           2007
    -------------------------------------------------------------------------
    Cash                                             $     42       $     61
    Cash equivalents - short term investments
     with a maturity of 90 days or less:
      Bank term deposits                                    -             77
      Government treasury bills                           219            109
      Government-sponsored debt securities                 58             59
      Corporate commercial paper                          209            124
    -------------------------------------------------------------------------
    Cash and cash equivalents                        $    528       $    430
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                   -----------
    

    In the fourth quarter of 2008, the Company recognized an unrealized
foreign currency exchange gain of $116 (2007 - loss of $5) and $210 (2007 -
loss of $155) year-to-date as a result of translating its United States dollar
denominated cash and cash equivalents, short term investments and security
deposits which are included in other assets, of which a gain of $50 (2007 -
$1) and a gain of $87 (2007 - loss of $60) year-to-date related to cash and
cash equivalents. The resulting gain or loss on cash and cash equivalents,
short term investments and security deposits which are included in other
assets is partially offset in operating income and accumulated other
comprehensive income by the unrealized foreign currency exchange loss or gain
on the cross currency basis swaps.

    Accounts Receivable

    From time to time, PC Bank securitizes credit card receivables through
the sale of a portion of the total interest in these receivables to
independent trusts. During the fourth quarter of 2008, nil (2007 - nil) of
credit card receivables were securitized, $300 (2007 - $225) year-to-date to
an independent trust. A portion of the securitized receivables are in an
independent trust facility with a term of 364 days, subject to annual renewal.
If the term of this facility is not renewed, collections will be accumulated
prior to the expiry and the amount of that portion of the securitized
receivables will be repaid to the trust. The securitization yielded a $1 gain
(2007 - $1) based on the assumptions disclosed in note 10 of the consolidated
financial statements for the year ended December 29, 2007. The independent
trusts' recourse to PC Bank's assets is limited to PC Bank's retained
interests and is further supported by the Company through a standby letter of
credit for $116 (2007 - $89) on a portion of the securitized amount. Other
receivables consist mainly of receivables from independent franchisees,
associated stores and independent accounts.

    
                                                   -----------
                                                        As at          As at
                                                    January 3,   December 29,
                                                         2009           2007
    -------------------------------------------------------------------------
    Credit card receivables                          $  2,206       $  2,023
    Amount securitized                                 (1,775)        (1,475)
    -------------------------------------------------------------------------
    Net credit card receivables                           431            548
    Other receivables                                     436            337
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Accounts receivable                             $     867       $    885
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                   -----------
    

    Credit card receivables that are past due of $7 as at January 3, 2009 are
not classified as impaired as they are less than 90 days past due and most
receivables are reasonably expected to remedy the past due status. Any credit
card receivable balances with a payment that is contractually 180 days in
arrears or where the likelihood of collection is considered remote are
written-off. Concentration of credit risk with respect to receivables is
limited due to the Company's customer base being diverse. Credit risk on the
credit card receivables is managed as described in note 22 of the Company's
2007 Annual Report. Other receivables that are past due but not impaired
totaled $79 as at January 3, 2009, of which a nominal amount were more than 60
days past due.

    Inventories

    The cost of merchandise inventories recognized as an expense during the
fourth quarter of 2008 was $6,005 and $23,891 year-to-date. The Company
recorded $16 as an expense for the write-down of inventories below cost to net
realizable value for inventories recorded as at January 3, 2009. There was no
reversal of inventories written down previously that are no longer estimated
to sell below cost.

    Employee Future Benefits

    The Company's total net benefit plan cost recognized in operating income
was $35 (2007 - $43) and $161 (2007 - $187) for the fourth quarter of 2008 and
year-to-date, 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.
    During 2008, the Company contributed $138 (2007 - $74) to its registered
funded defined benefit pension plans, of which $63 was contributed in the
fourth quarter of 2008 as a result of the Company's decision to increase 2008
contributions in excess of original estimates. Contributions of $100 to the
Company's registered funded defined benefit pension plans are planned for
2009. The Company continues to assess the impact of capital markets on its
funding requirements.

    Debt and Capital Management

    In the first quarter of 2008, the Company entered into an $800, 5-year
committed credit facility, provided by a syndicate of banks, which contains
certain financial covenants. This facility is the primary source of the
Company's short term funding requirements and permits borrowings having up to
a 180-day term that accrue interest based on short term floating interest
rates. This facility replaced a $500, 364-day committed credit facility which
had no financial covenants and permitted borrowings having up to a 180-day
term that accrued interest based on short term floating interest rates. As at
January 3, 2009, $190 was drawn on the new 5-year committed credit facility.
    During the second quarter of 2008, the Company issued USD $300 of
fixed-rate unsecured notes in a private placement debt financing which
contains certain financial covenants. The notes were issued in two equal
tranches of USD $150 with 5 and 7 year maturities at interest rates of 6.48%
and 6.86%, respectively. The net proceeds from the issue of the notes were
used to repay maturing debt obligations, including a portion of the $390 of
6.00% Medium Term Notes which matured in June 2008. The Company entered into
two fixed cross currency swaps designated as cash flow hedges to manage the
foreign exchange risk. The ineffective portion of the gains or losses on the
derivatives within these hedging relationships was insignificant. As at
January 3, 2009, $361 was recorded in long term debt on the consolidated
balance sheet.
    During the third quarter, the Company closed its Canadian public offering
of 9 million cumulative redeemable convertible Second Preferred Shares, Series
A, at a price of $25.00 per share, to yield 5.95% per annum, for an aggregate
gross amount of $225 and the net proceeds of $218 were added to the general
funds of the Company. The preferred shares are presented as Capital Securities
on the Consolidated Balance Sheet and are classified as other financial
liabilities. The preferred shares have been listed and posted to trade on the
Toronto Stock Exchange ("TSX") under the symbol "L.PR.A". Dominion Bond Rating
Service ("DBRS") assigned a rating of Pfd-3 with a Negative trend and Standard
& Poor's ("S&P") assigned a rating of P-3 (high) to the Company's preferred
shares.
    From time to time, PC Bank securitizes credit card receivables through
the sale of a portion of the total interest in these receivables to
independent trusts. During the third quarter, $300 of credit card receivables
were securitized by PC Bank, through the sale of a portion of the total
interest in these receivables to an independent trust. A portion of the
securitized receivables are in an independent trust facility with a term of
364 days, subject to annual renewal. If the term of this facility is not
renewed, collections will be accumulated prior to the expiry and the amount of
that portion of the securitized receivables will be repaid to the trust.
Subsequent to year-end, one of the independent trusts filed a base shelf
prospectus which permits it to issue up to $1.5 billion of notes over a 25
month period, subject to the availability of capital markets.
    Cash and cash equivalents, short term investments and security deposits
included in other assets, future operating cash flow and the amounts available
to be drawn against its credit facility are expected to enable the Company to
finance its capital investment program and fund its ongoing business
requirements including working capital and pension plan funding. The Company
believes it has sufficient funding available to meet these requirements over
the next twelve months. Given reasonable access to capital markets, the
Company does not foresee any difficulty in securing financing to satisfy its
long term obligations. Subsequent to year end, the Company repaid its $125,
5.75% medium term note which matured.

    Dividends ($)

    The declaration and payment of dividends and the amount thereof are at
the discretion of the Board of Directors. Over the long term, the Company's
objective is for its common dividend payment ratio to be in the range of 20%
to 25% of the prior year's basic net earnings per common share adjusted as
appropriate for items which are not regarded to be reflective of ongoing
operations giving consideration to the year end cash position, future cash
flow requirements and investment opportunities. During the fourth quarter of
2008, the Board declared common share dividends of $0.21 (2007- $0.21) and
$0.84 (2007 - $0.84) year-to-date per common share. During the fourth quarter
of 2008, the Board of Directors declared dividends of $0.371875 and $0.911275
year-to-date per second preferred share. For financial statement presentation
purposes, preferred share dividends of $4 million and $8 million year-to-date
are included as a component of interest expense and other financing charges on
the Consolidated Statement of Earnings.

    Covenants and Regulatory Requirements

    The committed credit facility which the Company entered into during the
first quarter of 2008 and the USD $300 fixed-rate private placement notes
which the Company issued during the second quarter of 2008 both contain
certain financial covenants. The covenants under both agreements include
maintaining an interest coverage ratio as well as a leverage ratio, as defined
in the respective credit agreements, which the Company measures on a quarterly
basis. As at the end of the fourth quarter of 2008, the Company was in
compliance with these covenants.
    The Company is also subject to externally imposed capital requirements
from the Office of the Superintendent of Financial Institutions ("OSFI"), as
the primary regulator of PC Bank, and the Central Bank of Barbados, as the
primary regulator of Glenhuron Bank Limited ("Glenhuron"), both wholly-owned
subsidiaries of the Company. PC Bank's capital management objectives are to
maintain a consistently strong capital position while considering the Bank's
economic risks and to meet all regulatory capital requirements as defined by
OSFI. A new regulatory capital management framework, Basel II, has been
implemented in Canada that establishes regulatory capital requirements that
are more sensitive to a bank's risk profile. PC Bank met all applicable
capital targets as at the end of the fourth quarter of 2008. Glenhuron is
currently regulated under Basel I. Under Basel I, Glenhuron's assets are risk
weighted and the minimum ratio of capital to risk weighted assets is 8.0%.
Glenhuron's ratio of capital to risk weighted assets met the minimum
requirements under Basel I as at the end of the fourth quarter of 2008.

    Stock-Based Compensation ($, except where otherwise indicated)

    The Company's compensation cost recognized in operating income related to
its stock option plan and the equity forwards and the restricted share unit
plan was as follows:

    
                       -----------                 -----------
                        January 3,   December 29,   January 3,   December 29,
                             2009           2007         2009           2007
    ($ millions)        (13 weeks)     (12 weeks)   (53 weeks)     (52 weeks)
    -------------------------------------------------------------------------
    Stock option plan
     expense             $      7       $      -     $      8       $      -
    Equity forwards
     (gain) loss              (28)            55          (10)            67
    Restricted share unit
     plan (income) expense      4             (3)           9              5
    -------------------------------------------------------------------------
    Net stock-based
     compensation (gain)
     expense             $    (17)      $     52     $      7       $     72
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                       -----------                 -----------
    

    Stock Option Plan

    During the four quarters of 2008, the Company paid the share appreciation
value of nil (2007 - a nominal amount) on the exercise of nil (2007 - 108,000)
stock options. In addition, 2,071,528 (2007 - 1,812,870) stock options were
forfeited or cancelled. Under its existing stock option plan, which allows for
settlement in shares or in the share appreciation value in cash at the option
of the employee, the Company granted 36,871 (2007 - 101,057) stock options
with an exercise price of $30.57 (2007 - $33.03) per common share during the
fourth quarter of 2008. During the third quarter of 2008, the Company granted
82,204 (2007 - 194,559) stock options with an exercise price of $29.30 (2007 -
$49.11) per common share. During the second quarter of 2008, the Company
granted 8,800 (2007 - 38,938 and 148,987) stock options with an exercise price
of $33.10 (2007 - $46.01 and $50.80) per common share. During the first
quarter of 2008, the Company granted 3,303,557 (2007 - 3,885,439) stock
options with an exercise price of $28.95 (2007 - $47.44) per common share.
    At the end of the fourth quarter of 2008, a total of 7,892,660 (2007 -
6,532,756) stock options were outstanding and represented approximately 2.9%
(2007 - 2.4%) of the Company's issued and outstanding common shares, which was
within the Company's guideline of 5%. The Company's market price per common
share at the end of the fourth quarter was $35.23 (2007 - $34.07).

    Restricted Share Unit ("RSU") Plan

    Under its existing RSU plan, the Company granted 5,179 (2007 - 18,888)
RSUs in the fourth quarter; 13,526 (2007 - 23,425) RSUs in the third quarter;
45,321 (2007 - 10,925) RSUs in the second quarter and 352,268 (2007 - 281,818)
in the first quarter of 2008. In addition, 103,103 (2007 - 161,621) RSUs were
cancelled year-to-date and 252,479 (2007 - 154,700) were settled in cash in
the amount of $9 million (2007 - $8 million) in the four quarters of 2008. At
the end of the fourth quarter, 829,399 (2007 - 768,687) RSUs remained
outstanding.

    Contingencies, Commitments and Guarantees

    Guarantees - Independent Funding Trusts

    Certain independent franchisees of the Company 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.
    During the first quarter of 2008, the Company was notified that an Event
of Termination of the independent funding trust agreement for the Company's
franchisees had occurred as a result of the Company's long term credit rating
downgrade by DBRS to "BBB (high)" from "A (low)". As a result of the Event of
Termination, during the second quarter of 2008, the Company finalized an
alternative financing arrangement for the independent funding trust in the
form of a $475, 364-day revolving committed credit facility provided by a
syndicate of banks.
    The gross principal amount of loans issued to the Company's independent
franchisees outstanding as of January 3, 2009 was $388 (2007 - $418) including
$152 (2007 - $153) of loans payable by VIEs consolidated by the Company. Based
on a formula, the Company has agreed to provide credit enhancement in the form
of a standby letter of credit for the benefit of the independent funding trust
equal to approximately 15% (2007 - 10%) of the principal amount of the loans
outstanding at any point in time, $66 (2007 - $44) as of January 3, 2009. The
standby letter of credit has not been drawn upon. This credit enhancement
allows the independent funding trust to provide favorable financing terms to
the Company'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 the Company 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 the Company and draw upon this standby
letter of credit. The Company has agreed to reimburse the issuing bank for any
amount drawn on the standby letter of credit. This new alternative financing
structure has been reviewed and the Company determined there were no material
implications with respect to the consolidation of VIEs. In accordance with
Canadian GAAP, the financial statements of the independent funding trust are
not consolidated with those of the Company.

    Legal Proceedings

    During the first quarter of 2007, the Company was one of 17 defendants
served with an action brought in the Superior Court of Ontario by certain
beneficiaries of a multi-employer pension plan in which the Company's
employees and those of its independent franchisees participate. In their claim
against the employers and the trustees of the multi-employer pension plan, the
plaintiffs claimed that assets of the multi-employer pension plan had been
mismanaged and are seeking, among other demands, damages of $1 billion. The
action was framed as a representative action on behalf of all the
beneficiaries of the multi-employer pension plan. In the second quarter of
2008, the Company received confirmation that the action against the Company
has been dismissed and in the third quarter the Company also received
confirmation that the action against the plan trustees has been dismissed.
    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 is uncertain. However, based on information currently available,
these claims, individually and in the aggregate, are not expected to have a
material impact on the Company.

    Related Party Transactions

    The Company entered into a long term supply agreement with a subsidiary
of the Company's majority shareholder, George Weston Limited ("Weston"), and
in exchange received cash proceeds of $65 which will be recognized into income
over the term of the agreement, of which $1 was recognized in 2008. As at
January 3, 2009, $8 was included in accounts payable and accrued liabilities
and $56 in other liabilities. Certain assets and liabilities of a wholly-owned
subsidiary were subsequently sold by Weston.

    Disposition of Food Service Business

    In the fourth quarter of 2008, the Company disposed of its food service
business for proceeds of $36 which resulted in a pre-tax gain of $22 in
operating income ($16, net of tax). The disposed business had annual sales and
EBITDA of approximately $150 and $5, respectively.

    Presentation

    Certain prior year information has been reclassified to conform with
current year presentation. Security deposits, which were previously presented
as cash and cash equivalents and short term investments on the consolidated
balance sheets, are now included in other assets on the consolidated balance
sheets and totaled $437 as at January 3, 2009 (2007 - $322). The Company's
unrealized equity forwards liability, which were previously presented as other
long term liabilities on the consolidated balance sheets, are now included in
accounts payable and accrued liabilities and totaled $92 as at January 3, 2009
(2007 - $91).

    
    2008 Annual Consolidated Financial Statements and MD&A
    ------------------------------------------------------
    The Company's audited consolidated financial statements and Management's
Discussion and Analysis ("MD&A") for the year ended January 3, 2009 will be
released on or before March 31, 2009. Both documents will be contained in the
Company's 2008 Annual Report and will be available in the Investor Zone
section of the Company's website at www.loblaw.ca or at www.sedar.com.

    Investor Relations
    ------------------
    
    Shareholders, security analysts and investment professionals should
direct their requests to Inge van den Berg, Vice President, Public Affairs and
Investor Relations at the Company's National Head Office or by e-mail at
investor@loblaw.ca.
    Additional information has been filed electronically with various
securities regulators in Canada through the System for Electronic Document
Analysis and Retrieval (SEDAR) and with the Office of the Superintendent of
Financial Institutions (OSFI) as the primary regulator for the Company's
subsidiary, President's Choice Bank.

    
    Conference Call and Webcast
    ---------------------------
    
    Loblaw Companies Limited will host a conference call as well as an audio
webcast on February 18, 2009 at 11:00 a.m. (EST).
    To access via Tele-conference please dial (416) 644-3419. The playback
will be made available one hour after the event at (416) 640-1917, passcode:
21290089 followed by number sign. To access via webcast please visit
www.loblaw.ca, go to Investor Zone and click on webcast. Pre-registration will
be available.
    Full details are available on the Loblaw Companies Limited website at
www.loblaw.ca.





For further information:

For further information: Inge van den Berg, Vice President, Public
Affairs and Investor Relations, (905) 459-2500, inge.vandenberg@loblaw.ca


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