METRO's fully diluted net earnings per share increased by 10.9% in the third
quarter of 2010

    
    -------------------------------------------------------------------------
    2010 THIRD QUARTER HIGHLIGHTS

    - Net earnings of $120.0 million, up 6.6%
    - Fully diluted net earnings per share of $1.12, up 10.9%
    - Sales of $3,561.3 million, up 1.4%
    - Declared dividend of $0.17 per share, up 23.6%
    -------------------------------------------------------------------------
    

MONTREAL, Aug. 11 /CNW Telbec/ - METRO INC. (TSX: MRU.A) announced its results today for the fiscal 2010 third quarter ended July 3, 2010. METRO realized net earnings of $120.0 million, an increase of 6.6% over the same quarter last year, and fully diluted net earnings per share of $1.12 versus $1.01 last year, an increase of 10.9%.

"We are pleased with our third quarter results as they improved upon last year's excellent third quarter, despite persistent deflation in certain product categories and continuing consumer caution. Following the successful launch of our new Metro & Me loyalty card in Québec City last April, we will roll out this new program throughout the other Québec regions in the fall. Going forward, we are confident that our customer centric strategies combined with disciplined cost control will allow us to sustain(2) our growth," stated Eric R. La Flèche, President and Chief Executive Officer.

SALES

2010 third quarter sales reached $3,561.3 million compared to $3,513.3 million last year, an increase of 1.4%. Sales for the first 40 weeks of 2010 reached $8,783.0 million, up 1.4% compared to sales of $8,663.5 million for the corresponding period of fiscal 2009.

These increases were achieved despite a slight drop in the value of our basket, whereas last year, high food price inflation and the temporary closing of several stores of a competitor due to a labour conflict had a positive impact on our sales for the first three quarters. Same-store sales declined 0.6% in the third quarter due to deflation in certain product categories.

EARNINGS BEFORE FINANCIAL COSTS, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)(1)

Third quarter EBITDA(1) in 2010 was $247.7 million, up 6.3% from $233.0 million for the same quarter last year. Third quarter EBITDA(1) represented 7.0% of sales versus 6.6% last year.

EBITDA(1) for the first 40 weeks of 2010 was $601.4 million or 6.8% of sales compared to $565.8 million or 6.5% of sales for the same period of 2009. Excluding non-recurring costs of $0.9 million and $8.7 million before taxes to convert our Ontario supermarkets to the Metro banner in the first 40 weeks of 2010 and 2009 respectively, adjusted EBITDA(1) represented 6.9% of sales in 2010 and 6.6% in 2009.

These increases are due mainly to an increase in our gross margins driven by our improved store operations.

Our share of earnings from our investment in Alimentation Couche-Tard for the third quarter and the first 40 weeks of 2010 were $8.0 million and $25.3 million respectively, compared to $5.2 million and $25.7 million for the corresponding periods of fiscal 2009. Excluding non-recurring items as well as our share of earnings from our investment in Alimentation Couche-Tard, our adjusted EBITDA(1) for the third quarter and the first 40 weeks of 2010 were $239.7 million and $577.0 million respectively or 6.7% and 6.6% of sales versus $230.7 million or 6.6% of sales for the third quarter of 2009 and $548.8 million or 6.3% of sales for the 40-week period of 2009.

EBITDA(1) Adjustments

    
    (Millions of                    16 weeks / Fiscal Year
      dollars,                2010                          2009
      unless     ------------------------------------------------------------
      otherwise     EBITDA     Sales    EBITDA/   EBITDA     Sales    EBITDA/
      indicated)                      Sales (%)                     Sales (%)
    -------------------------------------------------------------------------
    EBITDA           247.7   3,561.3       7.0     233.0   3,513.3       6.6
    Banner
     conversion
     costs               -         -                 2.9         -
    -------------------------------------------------------------------------
    Adjusted
     EBITDA          247.7   3,561.3       7.0     235.9   3,513.3       6.7
    Share of
     earnings
     from our
     investment in
     Alimentation
     Couche-Tard      (8.0)        -                (5.2)        -
    -------------------------------------------------------------------------
    Adjusted EBITDA
     excluding share
     of earnings     239.7   3,561.3       6.7     230.7   3,513.3       6.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (Millions of                    40 weeks / Fiscal Year
      dollars,                2010                          2009
      unless     ------------------------------------------------------------
      otherwise     EBITDA     Sales    EBITDA/   EBITDA     Sales    EBITDA/
      indicated)                      Sales (%)                     Sales (%)
    -------------------------------------------------------------------------
    EBITDA           601.4   8,783.0       6.8     565.8   8,663.5       6.5
    Banner
     conversion
     costs             0.9         -                 8.7         -
    -------------------------------------------------------------------------
    Adjusted
     EBITDA          602.3   8,783.0       6.9     574.5   8,663.5       6.6
    Share of
     earnings
     from our
     investment in
     Alimentation
     Couche-Tard     (25.3)        -               (25.7)        -
    -------------------------------------------------------------------------
    Adjusted EBITDA
     excluding share
     of earnings     577.0   8,783.0       6.6     548.8   8,663.5       6.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

DEPRECIATION AND AMORTIZATION AND FINANCIAL COSTS

Total amortization expenses for the third quarter and the first 40 weeks of fiscal 2010 amounted to $62.2 million and $155.9 million respectively, compared with $58.6 million and $142.8 million for the same periods of 2009. Third quarter financial costs totalled $13.9 million in 2010 versus $14.6 million last year, while 2010 40-week financial costs totalled $35.2 million versus $37.9 million last year. Interest rates for the first 40 weeks of 2010 averaged 3.9% versus 4.6% for the corresponding period last year.

INCOME TAXES

The 2010 third quarter and 40-week period income tax expenses of $51.6 million and $111.9 million represented effective tax rates of 30.1% and 27.3% respectively. In the first quarter of 2010, we benefited from a $10.0 million reduction in our net future income tax liabilities and income tax expenses. Excluding this reduction, our effective tax rate for the first 40 weeks of 2010 was 29.7%. In 2009, the third quarter and 40-week period income tax expenses of $47.2 million and $115.1 million represented effective tax rates of 29.5% and 29.9% respectively. In the third quarter of 2009, the Québec government reduced the tax rate on investment income and this reduction cut our future tax liability by $2.7 million and our tax expenses by the same amount. Excluding this reduction, our effective 2009 third quarter and 40-week tax rates were 31.2% and 30.6% respectively.

NET EARNINGS

The 2010 third quarter net earnings were $120.0 million compared to $112.6 million for the corresponding quarter last year, an increase of 6.6%. Fully diluted net earnings per share rose 10.9% to $1.12 from $1.01 last year. Excluding banner conversion costs of $2.9 million before taxes and the tax expense decrease of $2.7 million recorded in the third quarter of 2009, our 2010 third quarter net earnings and fully diluted net earnings per share were up 7.3% and 10.9% respectively.

Net earnings for the first 40 weeks of 2010 reached $298.4 million versus $270.0 million last year, up 10.5%. Fully diluted net earnings per share were $2.77 compared to $2.42 last year, an increase of 14.5%. Excluding the 2010 first quarter and 2009 third quarter income tax expense decreases of $10.0 million and $2.7 million respectively and pre-tax banner conversion costs of $0.9 million in 2010 and $8.7 million in 2009, adjusted net earnings(1) for the 2010 40-week period were $289.0 million, up 5.8% from the $273.1 million for the corresponding period of 2009. Adjusted fully diluted net earnings per share(1) were $2.68, up 9.4% from $2.45 last year.

Net Earnings Adjustments

    

                                    16 weeks / Fiscal Year
                          2010                2009              Change (%)
                 ------------------------------------------------------------
                 (Millions     Fully (Millions     Fully       Net     Fully
                        of   diluted        of   diluted  earnings   diluted
                   dollars)      EPS   dollars)      EPS                 EPS
                            (Dollars)           (Dollars)
    -------------------------------------------------------------------------
    Net earnings     120.0      1.12     112.6      1.01       6.6      10.9
    Banner
     conversion
     costs after
     taxes               -         -       1.9      0.02
    Decrease in
     tax expense         -         -      (2.7)    (0.02)
    -------------------------------------------------------------------------
    Adjusted net
     earnings(1)     120.0      1.12     111.8      1.01       7.3      10.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                    40 weeks / Fiscal Year
                          2010                2009              Change (%)
                 ------------------------------------------------------------
                 (Millions     Fully (Millions     Fully       Net     Fully
                        of   diluted        of   diluted  earnings   diluted
                   dollars)      EPS   dollars)      EPS                 EPS
                            (Dollars)           (Dollars)
    -------------------------------------------------------------------------
    Net earnings     298.4      2.77     270.0      2.42      10.5      14.5
    Banner
     conversion
     costs after
     taxes             0.6         -       5.8      0.05
    Decrease in
     tax expense     (10.0)    (0.09)     (2.7)    (0.02)
    -------------------------------------------------------------------------
    Adjusted net
     earnings(1)     289.0      2.68     273.1      2.45       5.8       9.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Quarterly Highlights

    
    (Millions of dollars, unless       2010       2009       2008     Change
     otherwise indicated)                                                 (%)
    -------------------------------------------------------------------------
    Sales
      Q1                            2,645.0    2,600.5          -        1.7
      Q2                            2,576.7    2,549.7          -        1.1
      Q3                            3,561.3    3,513.3          -        1.4
      Q4                                  -    2,532.5    2,476.0        2.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings
      Q1                               98.1       81.1          -       21.0
      Q2                               80.3       76.3          -        5.2
      Q3                              120.0      112.6          -        6.6
      Q4                                  -       84.4       72.5       16.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted net earnings(1)
      Q1                               88.7       84.1          -        5.5
      Q2                               80.3       77.2          -        4.0
      Q3                              120.0      111.8          -        7.3
      Q4                                  -       85.9        72.5      18.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Fully diluted net earnings
      per share (Dollars)
      Q1                               0.91       0.73          -       24.7
      Q2                               0.74       0.68          -        8.8
      Q3                               1.12       1.01          -       10.9
      Q4                                  -       0.77       0.65       18.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted fully diluted net
      earnings per share(1) (Dollars)
      Q1                               0.82       0.76          -        7.9
      Q2                               0.74       0.68          -        8.8
      Q3                               1.12       1.01          -       10.9
      Q4                                  -       0.78       0.65       20.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

First, second and third quarter sales for 2010 were up 1.7%, 1.1% and 1.4% respectively over those in fiscal 2009. These increases were achieved despite persistent deflation in certain product categories in 2010, whereas last year, high food price inflation and the temporary closing of several stores of a competitor due to a labour conflict had a positive impact on our sales for the corresponding quarters.

Fourth quarter sales for 2009 were up 2.3% over those for 2008. Effective merchandising programs allowed us to post this increase. Excluding decreased tobacco sales, 2009 fourth quarter sales were up 3.2% over 2008.

First quarter net earnings and fully diluted net earnings per share for 2010 were up 21.0% and 24.7% respectively over those in fiscal 2009. Excluding banner conversion costs of $0.9 million and $4.5 million before taxes recorded respectively in the first quarters of 2010 and 2009, as well as the income tax expense decrease of $10.0 million in the first quarter of 2010 further to future decreases in the Ontario tax rate, adjusted net earnings(1) were up 5.5% and adjusted fully diluted net earnings per share(1) were up 7.9%.

Second quarter net earnings and fully diluted net earnings per share for 2010 were up 5.2% and 8.8% respectively from those in 2009.

Third quarter net earnings and fully diluted net earnings per share in 2010 were up 6.6% and 10.9% respectively from 2009. Excluding non-recurring items recorded in the third quarter of 2009, namely $2.9 million before taxes to convert our Ontario supermarkets to the Metro banner as well as an income tax expense decrease of $2.7 million, net earnings and fully diluted net earnings per share for the third quarter of 2010 were up 7.3% and 10.9%, compared to adjusted net earnings(1) and adjusted fully diluted net earnings per share(1) for the third quarter of 2009.

Fourth quarter net earnings and fully diluted net earnings per share in 2009 were up 16.4% and 18.5% over those for 2008. Excluding 2009 fourth quarter banner conversion costs of $2.3 million before taxes, adjusted net earnings(1) and adjusted fully diluted net earnings per share(1) for the fourth quarter of 2009 were up 18.5% and 20.0% over net earnings and fully diluted net earnings per share for the fourth quarter of 2008. The fourth quarter of 2009 saw an increase in gross margins due to the increase in sales and our ongoing efforts to improve execution in Ontario.

    
                               2010                     2009            2008
    (Millions of      -------------------------------------------------------
     dollars)            Q1     Q2     Q3     Q1     Q2     Q3     Q4     Q4
    -------------------------------------------------------------------------
    Net earnings       98.1   80.3  120.0   81.1   76.3  112.6   84.4   72.5
    Banner conversion
     costs after taxes  0.6      -      -    3.0    0.9    1.9    1.5      -
    Decrease in tax
     expense          (10.0)     -      -      -      -   (2.7)     -      -
    -------------------------------------------------------------------------
    Adjusted net
     earnings(1)       88.7   80.3  120.0   84.1   77.2  111.8   85.9   72.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                               2010                     2009            2008
    (Dollars and      -------------------------------------------------------
     per share)          Q1     Q2     Q3     Q1     Q2     Q3     Q4     Q4
    -------------------------------------------------------------------------
    Fully diluted net
     earnings          0.91   0.74   1.12   0.73   0.68   1.01   0.77   0.65
    Banner conversion
     costs after taxes    -      -      -   0.03      -   0.02   0.01      -
    Decrease in tax
     expense          (0.09)     -      -      -      -  (0.02)     -      -
    -------------------------------------------------------------------------
    Adjusted fully
     diluted net
     earnings(1)       0.82   0.74   1.12   0.76   0.68   1.01   0.78   0.65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Cash position

OPERATING ACTIVITIES

Operating activities generated cash flows of $190.4 million in the third quarter and $368.5 million over the first 40 weeks of 2010, compared to $115.2 million in the third quarter and $289.3 million in the first 40 weeks of 2009. The increases in generated cash are due primarily to increased net earnings and variations in non-cash working capital.

INVESTING ACTIVITIES

Investing activities required outflows of $55.4 million in the third quarter and $309.6 million in the first 40 weeks of 2010 compared to $73.7 million and $164.0 million respectively in the corresponding periods of fiscal 2009. The decrease in third quarter outflows in 2010 compared with 2009 is due primarily to reduced acquisition of fixed assets in 2010, while the increase in 40-week outflows in 2010 compared with 2009 is attributable to the 2010 acquisition of 18 stores for valuable cash consideration of $152.3 million (net of cash acquired totalling $0.3 million).

During the first 40 weeks of 2010, the Company and its retailers invested $231.6 million in our retail network, for a net expansion of 406,200 square feet or 2.1%. Major renovations and expansions of 32 stores were completed, and 13 new stores were opened.

FINANCING ACTIVITIES

Financing activities required outflows of $86.7 million in the third quarter of 2010 compared to $86.0 million in the third quarter of 2009.

Financing activities required outflows of $180.1 million for the 40-week period of 2010 compared to $112.9 million for the corresponding period of 2009. The increase of outflows is attributable to a greater number of Class A Subordinate shares being repurchased, and a decrease in issuance of shares in 2010 compared to 2009.

Financial Position

Despite the difficult economic environment, we do not anticipate(2) any liquidity risk and consider our financial position at the end of the third quarter of fiscal 2010 as very solid. We had an unused authorized revolving line of credit of $400.0 million. Our long-term debt corresponded to 29.5% of the combined total of long-term debt and shareholders' equity (long-term debt/total capital).

At the end of the third quarter of 2010, the main elements of our long-term debt were as follows:

    
                       Interest Rate              Balance           Maturity
                                                (Millions
                                               of dollars)
    -------------------------------------------------------------------------
    Credit A Facility  Rates fluctuate with
                        changes in bankers'
                        acceptance rates            369.3    August 15, 2012

    Series A Notes     4.98% fixed rate             200.0   October 15, 2015

    Series B Notes     5.97% fixed rate             400.0   October 15, 2035
    -------------------------------------------------------------------------
    

At the end of the quarter, one interest rate swap agreement in the notional amount of $50.0 million was outstanding under our Credit A Facility. This agreement provides for the exchange of variable interest payment for fixed interest payment according to the following term:

    
    Fixed Rate                Notional Amount                       Maturity
                         (Millions of dollars)
    -------------------------------------------------------------------------
    4.0425%                              50.0              December 16, 2010
    -------------------------------------------------------------------------
    

Giving effect to this swap agreement, at the end of the quarter, long-term indebtedness comprised $650.0 million at fixed rates ranging from 4.4925% to 5.97% and $319.3 million at variable rates which fluctuate with changes in bankers' acceptance rates.

At the end of the third quarter, we also had foreign exchange forward contracts to hedge against the effect of foreign exchange rate fluctuations on our future U.S. dollar denominated purchases. The fair value of these short-term foreign exchange forward contracts was insignificant.

FINANCIAL RATIOS

    
                                                        As at          As at
                                                       July 3,  September 26,
                                                         2010           2009
    -------------------------------------------------------------------------
    Financial structure
      Long-term debt (Millions of dollars)            1,004.9        1,004.3
      Shareholders' equity (Millions of dollars)      2,400.5        2,264.1
      Long-term debt/total capital (%)                   29.5           30.7

                                                  Fiscal 2010    Fiscal 2009
                                                    (40 weeks)     (40 weeks)
                                                 ----------------------------
    Results
      EBITDA(1)/Financial costs (Times)                  17.1           14.9
    -------------------------------------------------------------------------


    CAPITAL STOCK, STOCK OPTIONS AND PERFORMANCE SHARE UNITS

                                                        As at          As at
                                                       July 3,  September 26,
                                                         2010           2009
    -------------------------------------------------------------------------
    Number of Class A Subordinate Shares
      outstanding (Thousands)                         105,209        107,830
    Number of Class B Shares outstanding
     (Thousands)                                          631            718
    Stock options:
      Number outstanding (Thousands)                    1,737          1,864
      Exercise prices (Dollars)                      20.20 to       17.23 to
                                                        44.19          39.17
      Weighted average exercise price (Dollars)         31.75          28.53
    Performance share units:
      Number outstanding (Thousands)                      309            268
      Weighted average maturity (Months)                   19             18
    -------------------------------------------------------------------------
    

NORMAL COURSE ISSUER BID PROGRAM

The Company decided to renew the issuer bid program as an additional option for using excess funds. Thus, we will be able to decide, in the shareholders' best interest, to reimburse debt or to repurchase Company shares. Subject to regulatory approval, the Board of Directors authorized the Company to repurchase, in the normal course of business, between September 8, 2010 and September 7, 2011, up to 6,000,000 of its Class A Subordinate Shares representing approximately 5.7% of its issued and outstanding shares at the close of the Toronto Stock Exchange on August 6, 2010. Repurchases will be made through the stock exchange at market price and in accordance with its policies and regulations. The Class A Subordinate Shares so repurchased will be cancelled. Under the existing normal course issuer bid program covering the period from September 8, 2009 to July 30, 2010, the Company repurchased 3,496,300 Class A Subordinate shares at an average price of $39.76 per share for a total of $139.0 million.

DIVIDENDS

On August 10, 2010, the Company's Board of Directors declared a quarterly dividend of $0.17 per Class A Subordinate Share and Class B Share payable September 3, 2010, an increase of 23.6% over last year. On an annualized basis, this dividend represents 20.3% of 2009 net earnings.

SHARE TRADING

The value of METRO shares remained in the $33.02 to $45.56 range over the first three quarters of fiscal 2010. During this period, a total of 58.1 million shares traded on the Toronto Stock Exchange. The closing price on Friday, July 30, 2010 was $43.94, compared with $34.73 at the end of fiscal 2009.

New Accounting Policy Recently Published

International Financial Reporting Standards

On February 13, 2008, the Accounting Standards Board confirmed the date of the changeover from GAAP to International Financial Reporting Standards (IFRS). Canadian enterprises with public disclosure obligations must adopt IFRS for their interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company's IFRS changeover date will be the first day of fiscal 2012, namely September 25, 2011.

We set up a project structure to achieve the changeover of our consolidated financial statements to IFRS. A multidisciplinary working group analyzes, recommends accounting policy choices and implements each IFRS standard. A steering committee made up of senior executives approves accounting policy choices and makes sure that information technology, internal control, contractual and any other adjustments are made. The external auditors are notified of our choices and consulted on them. The Company's Audit Committee ensures that management fulfills its responsibilities and successfully accomplishes the changeover to IFRS.

We developed a work plan whose phases are outlined in the following tables, with actions, timetable and progress.

    
    Phase 1: Preliminary Study and Diagnostic
    -------------------------------------------------------------------------
    Actions       Identification of the IFRS standards that will require
                  changes with regard to measurement in consolidated
                  financial statements and disclosure.
                  -----------------------------------------------------------
                  Rank of standards based on their anticipated impact on our
                  consolidated financial statements and the effort their
                  implementation requires.
    -------------------------------------------------------------------------
    Timetable     End of our 2008 fiscal year.
    -------------------------------------------------------------------------
    Progress      Completed.
    -------------------------------------------------------------------------


    Phase 2: Standards Analysis
    -------------------------------------------------------------------------
    Actions       Analysis of the differences between GAAP and IFRS.
                  -----------------------------------------------------------
                  Selection of the accounting policies that the Company will
                  apply on an ongoing basis.
                  -----------------------------------------------------------
                  Company's selection of IFRS 1 exemptions at the date of
                  transition.
                  -----------------------------------------------------------
                  Calculation of the quantitative impact on the consolidated
                  financial statements.
                  -----------------------------------------------------------
                  Disclosure analysis.
                  -----------------------------------------------------------
                  Preparation of draft consolidated financial statements and
                  notes.
                  -----------------------------------------------------------
                  Identification of the collateral impacts in the following
                  areas:
                  - information technology (IT)
                  - internal control over financial reporting (ICFR)
                  - disclosure controls and procedures (DC&P)
                  - contracts
                  - compensation
                  - taxation
                  - training
    -------------------------------------------------------------------------
    Timetable     We have prepared a detailed timetable that contemplates the
                  bulk of the analysis that will be completed by the end of
                  September 2010. We prioritized standards based on their
                  ranking in the diagnostic, the time needed to complete the
                  analysis and implementation as well as working group
                  members' availability.
    -------------------------------------------------------------------------
    Progress      At the end of the third quarter of fiscal 2010, analysis of
                  all IFRS standards and interpretations that may have an
                  impact on our Company was underway or completed.

                  Given a weighting system based on the individual
                  standards' complexity and degree of implementation
                  difficulty, we estimate overall progress at 87%. We are
                  satisfied with this result, are following our work plan,
                  and are confident that we shall meet our deadline.

                  As for ICFR and DC&P, analysis of IFRS standards and
                  interpretations shows that the impact will not be material.
                  However, for the year of transition, we will have to
                  implement further controls regarding comparatives and
                  additional information that will be disclosed.
    -------------------------------------------------------------------------


    Phase 3: Implementation
    -------------------------------------------------------------------------
    Actions       Preparation of the opening balance sheet at the date of
                  transition.
                  -----------------------------------------------------------
                  Compilation of the comparative financial data.
                  -----------------------------------------------------------
                  Production of the interim consolidated financial statements
                  and the associated disclosure.
                  -----------------------------------------------------------
                  Production of the annual consolidated financial statements
                  and the associated disclosure.
                  -----------------------------------------------------------
                  Implementation of changes regarding collateral impacts.
    -------------------------------------------------------------------------
    Timetable     At the end of fiscal 2011, our opening balance sheet,
                  comparative financial data under IFRS and changes regarding
                  collateral impacts will be completed.
                  -----------------------------------------------------------
                  In fiscal 2012, we will produce our interim and annual
                  consolidated financial statements and disclosure in
                  accordance with IFRS.
    -------------------------------------------------------------------------
    Progress      We have identified and begun implementation of an IT
                  solution that will allow us to run parallel integrated GAAP
                  and IFRS systems from the start of fiscal 2011 for the
                  comparative financial statements.

                  We have also prepared a preliminary version of our annual
                  financial statements according to IFRS standards.
    -------------------------------------------------------------------------
    

So far, we have completed analysis of a number of IFRS standards. We have noted the differences in accounting treatment and presentation between some of these standards and our current accounting policies. We have made choices, as warranted, with regard to these standards. The most significant differences and our main choices are set out in the following tables:

Differences in accounting treatment and choices made

    
    -------------------------------------------------------------------------
    Standards         Comparison between IFRS     Preliminary Findings
                      and GAAP
    -------------------------------------------------------------------------
    Borrowing costs   IFRS: We have to            We will not capitalize
                      capitalize borrowing        borrowing costs on
                      costs on qualifying         qualifying assets, as
                      assets, i.e. assets that    they are deemed to be
                      require an extended         immaterial.
                      period of preparation
                      before they are usable
                      or saleable.

                      GAAP: These borrowing
                      costs may be capitalized.
    -------------------------------------------------------------------------
    Fixed and         IFRS: After initial         We will continue to use
    intangible        recognition, we can         the cost model in order
    assets and        measure our fixed and       to avoid balance sheet
    investment        intangible assets and       variations in the fair
    property          investment property         value of fixed and
                      using the cost model        intangible assets and
                      or the revaluation model.   investment property and
                                                  the corresponding impact
                      GAAP: The revaluation       on P&L statements.
                      model is not allowed.
    -------------------------------------------------------------------------
    Fixed assets      IFRS: We have to amortize   The roof and HVAC system
                      our fixed assets based on   will be amortized
                      their components.           separately from the
                                                  building.
                      GAAP: Component
                      identification rules are    The carrying value of
                      less stringent.             these assets and
                                                  corresponding depreciation
                                                  expense will be different,
                                                  but the impact should not
                                                  be material.
    -------------------------------------------------------------------------
    Impairment of     IFRS: Impairment testing    Our impairment testing will
    assets            of our assets is conducted  be conducted at the level
                      at the level of the cash    of each store (CGU).
                      generating unit (CGU) or
                      group of CGUs. A CGU is     Impairment testing of
                      the smallest identifiable   warehouses will be done at
                      group of assets that        the level of a group of
                      generates cash inflows      CGUs.
                      that are largely
                      independent of the cash     Impairment testing of
                      inflows from other assets   corporate assets and
                      or groups of assets.        goodwill will be conducted
                                                  at the level of different
                      GAAP: Impairment testing    groups of CGUs.
                      is conducted at the level
                      of a group of assets or a   Impairment testing results
                      reporting unit.             will be different, but
                                                  their impact should not be
                                                  material.
    -------------------------------------------------------------------------
    Share-based       IFRS: When stock option     The compensation expense
    payment           awards vest gradually,      will have to be recognized
                      each tranche is to be       over the expected term of
                      considered as a separate    each vested tranche. It
                      award.                      will be different, but
                                                  the impact should not be
                      GAAP: The gradually         material.
                      vested tranches could be
                      considered as a single
                      award.
    -------------------------------------------------------------------------
    Earnings per      IFRS: We have to            Diluted earnings per
    share             independently determine,    share will be different,
                      for the interim period      but the impact should
                      and the year-to-date,       not be material.
                      the number of potentially
                      dilutive shares to
                      consider in calculating
                      diluted earnings per share.

                      GAAP: The number is
                      independently determined
                      for the interim period,
                      but the year-to-date is a
                      weighted average of the
                      periods.
    -------------------------------------------------------------------------
    Customer          IFRS: As we are acting as   Sales will be different,
    loyalty programs  an authorized agent of      but the impact should
                      the Air Miles(TM) reward    not be material.
                      program, we have to record
                      the cost of points as a     There will be no impact
                      reduction in sales.         on net earnings.

                      GAAP: No standard exists,
                      but the Canadian practice
                      is to record the cost of
                      points in the cost of
                      sales and operating
                      expenses.
    -------------------------------------------------------------------------
    Employee          IFRS: We have the choice    We will recognize full
    Benefits          of deferring recognition    actuarial gains and losses
                      of actuarial gains and      immediately in
                      losses using the corridor   comprehensive income,
                      approach or of immediately  without impacting P&L.
                      recognizing actuarial
                      gains and losses in full
                      in P&L or in comprehensive
                      income.

                      GAAP: We have a similar
                      choice of accounting
                      policy without the
                      possibility of immediate
                      recognition to
                      comprehensive income.
                      -------------------------------------------------------
                      IFRS: We have to recognize  At the date of transition,
                      past service cost for       we will recognize past
                      vested benefits             service cost for vested
                      immediately in P&L.         benefits in retained
                                                  earnings. After the
                      GAAP: Past service cost     changeover, past service
                      has to be amortized in a    cost for vested benefits
                      straight line over the      will be recognized in P&L.
                      average remaining service
                      period of active
                      participants until the
                      full eligibility date,
                      regardless of vesting.
                      -------------------------------------------------------
                      IFRS: Recognition of        Valuation of future
                      defined benefit assets is   obligations calculated on
                      limited to the              a going concern and
                      availability of future      solvency basis should
                      contribution reductions     decrease the availability
                      based on future             of future contribution
                      obligations calculated on   reductions and increase
                      an accounting, going        our defined benefit
                      concern and solvency        obligations. We will
                      basis.                      recognize differences at
                                                  the date of transition
                      GAAP: Recognition of        in retained earnings,
                      defined benefit assets is   and future variations in
                      limited to the              comprehensive income.
                      availability of future
                      contribution reductions
                      based on future
                      obligations calculated
                      solely on an accounting
                      basis.
                      -------------------------------------------------------
                      IFRS: A multi-employer      Our multi-employer plans
                      plan with implicit          are defined benefit plans,
                      obligations shall be        however they will be
                      accounted for as a defined  accounted for as if they
                      benefit plan. However,      were defined contribution
                      when sufficient             plans since sufficient
                      information is not          information is not
                      available, it shall be      available to accurately
                      accounted for as if it      determine our obligations.
                      were a defined
                      contribution plan.          Additional information
                      Additional information      regarding this situation
                      shall be added to the       will have to be disclosed.
                      financial statements.
                      Furthermore, if there is
                      a contractual commitment,
                      it shall be recognized
                      in P&L.

                      GAAP: A multi-employer
                      plan is generally
                      accounted for as a
                      defined contribution
                      plan because information
                      is usually not available.
                      However, if sufficient
                      information is available,
                      it must be accounted for
                      as a defined benefit plan.
                      The employee future
                      benefits standard doesn't
                      specifically address the
                      accounting treatment of a
                      contractual agreement.
                      However, other GAAP
                      standards cover this type
                      of commitment and the
                      accounting treatment is
                      the same as IFRS.
    -------------------------------------------------------------------------
    Joint ventures    IFRS: We may account for    We will use the equity
                      our interests in joint      method. There will be no
                      ventures using              material impact on the
                      proportionate               presentation of financial
                      consolidation or the        statements and no impact on
                      equity method.              net earnings.

                      GAAP: We have to account
                      for them using
                      proportionate
                      consolidation.
    -------------------------------------------------------------------------
    Provisions        IFRS: We have to account    The impact on our
                      for a provision when we     provisions should not
                      have a present obligation   be material.
                      resulting from a past
                      event, it is more likely    Some provisions might be
                      than not (interpreted as    presented separately in the
                      50% and more) that an       statement of financial
                      outflow of resources will   position.
                      be required to settle the
                      obligation and its amount
                      can be reliably estimated.
                      Moreover, we have to
                      disclose total provisions
                      separately in the statement
                      of financial position
                      (GAAP: balance sheet).

                      GAAP: The criteria are the
                      same with the exception of
                      the high probability
                      (interpreted as
                      approximately 75% and
                      more) that an outflow of
                      resources will be required.
    -------------------------------------------------------------------------
    Business          IFRS: The fair value of     There will be no impact on
    combinations      issued stock is calculated  our past business
                      at the date of acquisition. combinations, since we
                                                  chose to take advantage of
                      GAAP: It's calculated over  the exemption from
                      a reasonable period before  retrospective application
                      and after the date of the   (IFRS 1).
                      transaction's announcement.
                      ---------------------------
                      IFRS: Acquisition-related
                      costs are expensed when
                      incurred.

                      GAAP: They are considered
                      in the purchase price
                      allocation if they
                      represent incremental
                      costs.
                      ---------------------------
                      IFRS: The provision for
                      restructuring costs,
                      considered in the
                      purchase price allocation,
                      excludes costs for a
                      restructuring plan
                      determined and developed
                      by the acquirer.

                      GAAP: These restructuring
                      costs can be included in
                      the purchase price
                      allocation if they meet
                      certain conditions.
    -------------------------------------------------------------------------
    Investments       IFRS: In applying the       It will have no impact
    in associates     equity method, the          on our investment in
                      difference between the      Alimentation Couche-Tard,
                      associate's reporting       since the difference
                      date and the investor's     between the two reporting
                      cannot be greater than      dates is always less than
                      three months.               three months.

                      GAAP: No time limit is
                      mentioned.
    -------------------------------------------------------------------------
    Income taxes      IFRS: Deferred tax (GAAP:   At the date of transition,
                      future income tax) is       we will recognize a
                      calculated on any           deferred tax adjustment
                      temporary difference.       for the assets concerned.
                      However, there are two      The impact at the date of
                      exemptions where no         transition should not be
                      deferred tax is             material.
                      recognized:
                                                  Additional deferred taxes
                      - initially on goodwill     may be recognized for
                                                  intangible asset that are
                      - on an asset acquired      deductible from the
                        outside a business        cumulative eligible
                        combination whose         capital acquired in a
                        carrying amount and tax   business combination
                        base differ.              through an assets
                                                  acquisition.
                      GAAP: Future income tax
                      is calculated on any
                      temporary difference.
                      However, no future income
                      tax is initially
                      recognized for goodwill
                      and for intangible asset
                      acquisition, deductible
                      from the cumulative
                      eligible capital amount
                      at 75% of its book value,
                      as its tax basis is
                      adjusted with the result
                      that it is deemed equal
                      to the carrying amount.

                      Moreover, when an asset
                      is acquired outside a
                      business combination and
                      its tax basis differs
                      from its carrying amount,
                      future income tax is
                      recognized on the variance
                      and the cost of the asset
                      is adjusted in
                      consideration.
                      -------------------------------------------------------
                      IFRS: Deferred tax assets   At the date of transition,
                      and liabilities are         we will examine current
                      measured using tax rates    bills, and adjust, if
                      that have been enacted or   necessary, our deferred
                      substantively enacted.      taxes.

                      GAAP: A tax rate has
                      effect or substantive
                      effect when a majority
                      government bill is tabled
                      for first reading or
                      when a minority government
                      bill is tabled for third
                      reading.
                      -------------------------------------------------------
                      IFRS: Accounting for        The impact of a change in
                      subsequent changes in       rate or regulations will
                      deferred tax of a           have to be recognized
                      transaction is consistent   where the initial
                      with the accounting for     transaction was
                      the transaction itself,     recognized.
                      i.e. in P&L, equity or
                      other comprehensive
                      income.

                      GAAP: When a subsequent
                      event affects the amount
                      of future income tax
                      initially recognized,
                      the adjustment of the
                      amount must be recognized
                      in P&L.
                      -------------------------------------------------------
                      IFRS: Deferred tax should   Deferred tax at the rate
                      be recognized on            of the entity acquiring
                      transactions between        the assets will have to
                      entities of a consolidated  be recognized on
                      group, whose profits are    intercompany transactions.
                      not realized, at the tax    The impact should not be
                      rate of the corporation     material.
                      acquiring the assets.

                      GAAP: No future income
                      tax is recognized on
                      transactions between
                      entities of a consolidated
                      group whose profits are
                      not realized.
    -------------------------------------------------------------------------
    

IFRS 1 provides exemptions from retrospective application of some of the above standards, from which we have made the choices set out in the following table:

    
    -------------------------------------------------------------------------
    Optional      Preliminary Findings
     Exemptions
    -------------------------------------------------------------------------
    Borrowing     This exemption allows us not to capitalize borrowing costs
    costs         on our qualifying assets before the IFRS transition date.

                  Given that we will not capitalize these borrowing costs,
                  we will not use the exemption.
    -------------------------------------------------------------------------
    Deemed        On the IFRS transition date, we can recognize each fixed
    cost          and intangible asset and investment property at its deemed
                  cost, which shall be its fair value.

                  We shall analyze our fixed and intangible assets and
                  investment property to determine whether or not to use the
                  exemption.
    -------------------------------------------------------------------------
    Share-based   This exemption would relieve us from applying the standard
    payment       to equity instruments acquired before the IFRS transition
                  date.

                  We have decided not to avail ourselves of this exemption.
    -------------------------------------------------------------------------
    Employee      The exemption allows us to recognize all actuarial gains
    benefits      or losses at the date of transition to IFRS in retained
                  earnings, regardless of the subsequent accounting
                  treatment chosen.

                  We have chosen to take advantage of this exemption.
    -------------------------------------------------------------------------
    Business      The exemption allows us not to apply the standard to
    combinations  business combinations occurred before the date of
                  transition to IFRS.

                  We have chosen to take advantage of this exemption for
                  business combinations concluded before September 26, 2010.
    -------------------------------------------------------------------------
    

Differences in presentation and choices made

    
    -------------------------------------------------------------------------
    Standards     Comparison between IFRS and GAAP/choices made as warranted
    -------------------------------------------------------------------------
    Statement     IFRS: A statement of financial position as at the beginning
    of financial  of the comparative period has to be presented when:
    position      - an accounting policy is applied retrospectively;
                  - items in financial statements are retrospectively
                    restated or reclassified.

                  GAAP: This third balance sheet column is not required.
                  -----------------------------------------------------------
                  IFRS: Deferred tax assets (liabilities) are classified as
                  non-current items (GAAP: long-term).

                  GAAP: The short-term and long-term future income tax assets
                  (liabilities) are presented separately.
    -------------------------------------------------------------------------
    Statement     IFRS: All items of income and expense recognized in a
    of compre-    period are to be presented:
    hensive       - in a single statement of comprehensive income; or
    income        - in two statements: a separate income statement and a
                    second statement beginning with profit or loss and
                    displaying components of other comprehensive income.

                  GAAP: All comprehensive income items may be presented:
                  - immediately under total net income; or
                  - in a separate statement beginning with net income.

                  Choice: We will continue to present two separate
                  statements.
                  -----------------------------------------------------------
                  IFRS: Expenses are classified based on their nature or
                  their function.

                  GAAP: This classification of expenses is not required.

                  Choice: We will keep the existing income statement and will
                  disclose, through a note to the financial statements,
                  expenses by nature or by function.
    -------------------------------------------------------------------------
    Statement     IFRS: A statement of changes in equity must show a
    of changes    reconciliation between the carrying amount at the beginning
    in equity     and the end of the period for each component of equity.

                  GAAP: Only a statement of retained earnings has to be
                  presented.
    -------------------------------------------------------------------------
    Statement     IFRS: In the statement of cash flows, interest and
    of cash       dividends may be classified as follows:
    flows         - interest and dividends paid: operating cash flows or
                    financing cash flows;
                  - interest and dividends received: operating cash flows or
                    investing cash flows.

                  GAAP: They may be classified as follows
                  in the cash flow statement:
                  - interest paid and received: operating cash flows;
                  - dividends paid: financing cash flows;
                  - dividends received and included in net income: operating
                    cash flows.

                  Choice: We will keep the existing classification of
                  interest and dividends in the statement of cash flows.
                  -----------------------------------------------------------
                  IFRS: Interim reports must present a statement of cash
                  flows cumulatively for the current financial year-to-date
                  and for the comparable period of the preceding financial
                  year.

                  GAAP: Besides a cash flow statement cumulatively for the
                  current financial year-to-date and for the comparable
                  period, interim reports must present a cash flow statement
                  for the interim period and one for the comparable period.
    -------------------------------------------------------------------------
    Notes to      IFRS: Reconciliations of the carrying amount at the
    financial     beginning and end of the period for several components of
    statements    the statement of financial position are presented in the
                  notes to financial statements.

                  GAAP: Reconciliations are limited to certain balance sheet
                  components.
                  -----------------------------------------------------------
                  IFRS: The total amount of key management personnel
                  compensation must be disclosed, by large categories, in the
                  notes to financial statements.

                  GAAP: This information is not required in financial
                  statements.

                  However, the Regulation 51-102 of the Canadian Securities
                  Administrators demands disclosure of similar information in
                  the proxy circular.
    -------------------------------------------------------------------------
    

Other key analyses are in progress. Consequently, preliminary findings on them do not appear in the above tables. Any choices made or variances identified will be communicated once the analyses have been completed. Furthermore, the release of International Accounting Standards Board discussion papers, exposure drafts and new standards could change our preliminary findings.

Press Release

The following press release sets out the financial position and consolidated results of METRO INC. on July 3, 2010. It should be read in conjunction with the unaudited interim consolidated financial statements and accompanying notes in this interim report with the consolidated financial statements for the fiscal year ended September 26, 2009 and related notes and MD&A presented in the Company's 2009 Annual Report. This press release is based upon information as at July 30, 2010 unless otherwise stated. Additional information, including the Certification of Interim Filings letters for the quarter ended July 3, 2010 signed by the President and Chief Executive Officer and the Senior Vice-President, Chief Financial Officer and Treasurer, is also available on the SEDAR website at: www.sedar.com.

Non-GAAP Measurements

In addition to the Canadian Generally Accepted Accounting Principles (GAAP) earnings measurements provided, we have included certain non-GAAP earnings measurements. These measurements are presented for information purposes only. They do not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similar measurements presented by other public companies.

Earnings before financial costs, taxes, depreciation and amortization (EBITDA)

EBITDA is a measurement of earnings that excludes financial costs, taxes, depreciation and amortization. We believe that EBITDA is a measurement commonly used by readers of financial statements to evaluate a company's operational cash-generating capacity and ability to discharge its financial expenses.

Adjusted EBITDA, adjusted net earnings and adjusted fully diluted net earnings per share

Adjusted EBITDA, adjusted net earnings and adjusted fully diluted net earnings per share are earnings measurements that exclude non-recurring items. We believe that presenting earnings without non-recurring items leaves readers of financial statements better informed as to the current period and corresponding period's earnings, thus enabling them to better evaluate the Company's performance and judge its future outlook.

Forward-looking Information

We have used, throughout this interim report, different statements that could, within the context of regulations issued by the Canadian Securities Administrators, be construed as being forward-looking information. In general, any statement contained herein, which does not constitute a historical fact, may be deemed a forward-looking statement. Expressions such as "sustain", "anticipate" and other similar expressions are generally indicative of forward-looking statements. The forward-looking statements contained herein are based upon certain assumptions regarding the Canadian food industry, the general economy, our annual budget, as well as our 2010 action plan.

These forward-looking statements do not provide any guarantees as to the future performance of the Company and are subject to potential risks, known and unknown, as well as uncertainties that could cause the outcome to differ significantly. An economic slowdown or recession, or the arrival of a new competitor, are examples described under the "Risk Management" section of the 2009 Annual Report which could have an impact on these statements. We believe these statements to be reasonable and pertinent as at the date of publication of this interim report and represent our expectations. The Company does not intend to update any forward-looking statement contained herein, except as required by applicable law.

Conference Call

Financial analysts and institutional investors are invited to participate in a conference call on the 2010 third quarter results at 10:00 a.m. (EDT) on Wednesday, August 11, 2010. To access the conference call, please dial (514) 807-9895 or (647) 427-7450 or (888) 231-8191. The media and investing public are invited to listen to the call in real time or delayed time on the METRO INC. Web site at www.metro.ca.

    
    (1) See section on "Non-GAAP measurements"
    (2) See section on "Forward-looking information"


    Consolidated Statements of Earnings
    Periods ended July 3, 2010 and July 4, 2009
    (Unaudited) (Millions of dollars, except for net earnings per share)

                                          16 weeks              40 weeks
                                         Fiscal Year           Fiscal Year
                                  ----------            ----------
                                       2010       2009       2010       2009
    -------------------------------------------------------------------------

    Sales                         $ 3,561.3  $ 3,513.3  $ 8,783.0  $ 8,663.5
    Cost of sales and operating
     expenses (note 8)             (3,321.6)  (3,282.6)  (8,206.0)  (8,114.7)
    Share of earnings in a
     public company subject to
     significant influence              8.0        5.2       25.3       25.7
    Banner conversion
     costs (note 3)                       -       (2.9)      (0.9)      (8.7)
    -------------------------------------------------------------------------
    Earnings before financial
     costs, taxes, depreciation
     and amortization                 247.7      233.0      601.4      565.8
    Depreciation and
     amortization                     (62.2)     (58.6)    (155.9)    (142.8)
    -------------------------------------------------------------------------
    Operating income                  185.5      174.4      445.5      423.0
    Financial costs, net (note 5)     (13.9)     (14.6)     (35.2)     (37.9)
    -------------------------------------------------------------------------
    Earnings before income taxes      171.6      159.8      410.3      385.1
    Income taxes (note 6)             (51.6)     (47.2)    (111.9)    (115.1)
    -------------------------------------------------------------------------
    Net earnings                    $ 120.0    $ 112.6    $ 298.4    $ 270.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per share
     (Dollars) (note 7)
    Basic                              1.12       1.02       2.78       2.44
    Fully diluted                      1.12       1.01       2.77       2.42
    -------------------------------------------------------------------------
                                  ----------            ----------
    See accompanying notes


    Consolidated Balance Sheets
    (Unaudited) (Millions of dollars)

                                                    ----------
                                                        As at          As at
                                                       July 3,  September 26,
                                                         2010           2009
    -------------------------------------------------------------------------
    ASSETS
    Current assets
    Cash and cash equivalents                         $ 120.2        $ 241.4
    Accounts receivable                                 341.7          315.8
    Inventories (note 8)                                682.2          681.3
    Prepaid expenses                                     20.5            8.3
    Income taxes receivable                               8.0            6.6
    Future income taxes                                  11.0           29.8
    -------------------------------------------------------------------------
                                                      1,183.6        1,283.2

    Investments and other assets                        231.8          204.0
    Fixed assets                                      1,323.5        1,305.8
    Intangible assets                                   315.3          325.4
    Goodwill                                          1,603.7        1,478.6
    Future income taxes                                   3.7            3.6
    Accrued benefit asset                                69.2           65.6
    -------------------------------------------------------------------------
                                                    $ 4,730.8      $ 4,666.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities
    Bank loans                                          $ 0.8          $ 0.8
    Accounts payable                                  1,043.7        1,111.2
    Income taxes payable                                 48.6           24.8
    Future income taxes                                  10.3            9.2
    Current portion of long-term debt                     3.3            6.4
    -------------------------------------------------------------------------
                                                      1,106.7        1,152.4
    Long-term debt                                    1,004.9        1,004.3
    Accrued benefit liability                            48.5           49.0
    Future income taxes                                 147.5          165.0
    Other long-term liabilities                          22.7           31.4
    -------------------------------------------------------------------------
                                                      2,330.3        2,402.1
    -------------------------------------------------------------------------
    Shareholders' equity
    Capital stock (note 9)                              706.5          716.7
    Contributed surplus (note 10)                         5.0            3.7
    Retained earnings                                 1,689.6        1,545.7
    Accumulated other comprehensive income
     (note 11)                                           (0.6)          (2.0)
    -------------------------------------------------------------------------
                                                      2,400.5        2,264.1
    -------------------------------------------------------------------------
                                                    $ 4,730.8      $ 4,666.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    ----------
    See accompanying notes


    Consolidated Statements of Cash Flows
    Periods ended July 3, 2010 and July 4, 2009
    (Unaudited) (Millions of dollars)

                                          16 weeks              40 weeks
                                         Fiscal Year           Fiscal Year
                                  ----------            ----------
                                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Operating activities
    Net earnings                    $ 120.0    $ 112.6    $ 298.4    $ 270.0
    Non-cash items
      Share of earnings in a
       public company subject to
       significant influence           (8.0)      (5.2)     (25.3)     (25.7)
      Depreciation and
       amortization                    62.2       58.6      155.9      142.8
      Amortization of deferred
       financing costs                  0.7        0.6        1.6        1.6
      Loss on disposal and
       write-off of fixed and
       intangible assets                1.1        0.9        1.3        0.3
      Gain on disposal of
       investments                        -       (0.1)         -       (0.1)
      Interest income on
       investments                     (0.1)         -       (0.1)      (0.2)
      Future income taxes               5.7       11.6        6.7       23.2
      Stock-based compensation
       cost                             1.9        1.7        4.4        3.8
      Difference between amounts
       paid for employee future
       benefits and current
       period cost                     (3.1)      (0.8)      (4.1)      (9.5)
    -------------------------------------------------------------------------
                                      180.4      179.9      438.8      406.2
    Net change in non-cash
     working capital items
     related to operations             10.0      (64.7)     (70.3)    (116.9)
    -------------------------------------------------------------------------
                                      190.4      115.2      368.5      289.3
    -------------------------------------------------------------------------
    Investing activities
    Business acquisition, net of
     cash acquired totalling
     $0.3 (note 2)                     (0.1)         -     (152.3)         -
    Net change in investments
     and other assets                  (2.1)       3.5       (6.5)       0.8
    Dividends from public
     company subject to
     significant influence              0.8        0.7        2.4        2.2
    Additions to fixed assets         (44.9)     (63.8)    (133.2)    (152.9)
    Proceeds on disposal of
     fixed assets                       0.1        0.9        4.4       12.7
    Additions to intangible
     assets                            (9.2)     (15.0)     (24.4)     (26.8)
    -------------------------------------------------------------------------
                                      (55.4)     (73.7)    (309.6)    (164.0)
    -------------------------------------------------------------------------
    Financing activities
    Net change in bank loans            0.1        0.3          -        0.5
    Issuance of shares (note 9)         3.7        7.3        7.9       43.5
    Redemption of shares (note 9)     (68.1)     (76.1)    (124.0)     (99.2)
    Acquisition of treasury
     shares (note 9)                      -          -          -       (4.3)
    Performance share units cash
     settlement (note 10)                 -       (0.5)      (0.5)      (0.5)
    Increase in long-term debt          0.7        0.6        2.8        4.4
    Repayment of long-term debt        (2.8)      (2.6)      (8.4)      (8.3)
    Net change in other
     long-term liabilities             (2.2)       0.2       (6.7)      (4.7)
    Dividends paid                    (18.1)     (15.2)     (51.2)     (44.3)
    -------------------------------------------------------------------------
                                      (86.7)     (86.0)    (180.1)    (112.9)
    -------------------------------------------------------------------------
    Net change in cash and cash
     equivalents                       48.3      (44.5)    (121.2)      12.4
    Cash and cash equivalents -
     beginning of period               71.9      208.6      241.4      151.7
    -------------------------------------------------------------------------
    Cash and cash equivalents -
     end of period                  $ 120.2    $ 164.1    $ 120.2    $ 164.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplementary information
    Interest paid                      20.5       21.5       42.4       44.8
    Income taxes paid                  32.6       33.9       83.9       86.8
    -------------------------------------------------------------------------
                                  ----------            ----------
    See accompanying notes


    Consolidated Statements of Retained Earnings
    40-week periods ended July 3, 2010 and July 4, 2009
    (Unaudited) (Millions of dollars)
                                                             Fiscal Year
                                                    ----------
                                                         2010           2009
    -------------------------------------------------------------------------
    Balance - beginning of period                   $ 1,545.7      $ 1,366.8
    Net earnings                                        298.4          270.0
    Dividends                                           (51.2)         (44.3)
    Share redemption premium (note 9)                  (103.3)         (81.0)
    -------------------------------------------------------------------------
    Balance - end of period                         $ 1,689.6      $ 1,511.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    ----------
    See accompanying notes


    Consolidated Statements of Comprehensive Income
    Periods ended July 3, 2010 and July 4, 2009
    (Unaudited) (Millions of dollars)

                                          16 weeks              40 weeks
                                         Fiscal Year           Fiscal Year
                                  ----------            ----------
                                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Net earnings                    $ 120.0    $ 112.6    $ 298.4    $ 270.0
    Other comprehensive
     income (note 11)
      Change in fair value of
       derivative designated as
       cash flow hedge                  0.5        0.9        2.0       (2.2)
    Corresponding income taxes         (0.1)      (0.3)      (0.6)       0.6
    -------------------------------------------------------------------------
    Comprehensive income            $ 120.4    $ 113.2    $ 299.8    $ 268.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  ----------            ----------
    See accompanying notes


    Notes to Interim Consolidated Statements
    Periods ended July 3, 2010 and July 4, 2009
    (Unaudited)(Millions of dollars, unless otherwise indicated)
    

1. Statement Presentation

The unaudited interim consolidated financial statements were prepared by management in accordance with Canadian generally accepted accounting principles (GAAP). The accounting policies and procedures used in preparing these interim consolidated financial statements are the same as those used in preparing the audited annual consolidated financial statements for the year ended September 26, 2009. The unaudited interim consolidated financial statements should be read along with the audited annual consolidated financial statements and notes to the statements in the Company's 2009 Annual Report. The operating results for the interim period covered do not necessarily reflect overall results for the fiscal year. Certain comparative figures have been reclassified to conform to the presentation being used in the current fiscal year.

2. Business Acquisition

In the first quarter of 2010, the Company acquired 18 affiliated stores which it already supplied. The total purchase price was $152.2 in cash.

The acquisition was accounted for using the purchase method. The stores' results have been consolidated as of their respective acquisition dates. The final total purchase price allocation was as follows:

    
    Cash                                                               $ 0.3
    Inventories                                                         14.9
    Other current assets                                                 0.3
    Fixed assets                                                        12.1
    Trade name                                                           1.3
    Goodwill                                                           122.3
    Future income tax assets                                             6.3
    Short-term liabilities assumed                                      (3.6)
    Integration and rationalization plan-related liabilities            (1.3)
    -------------------------------------------------------------------------
    Total net assets acquired                                        $ 152.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash consideration                                               $ 152.2
    Acquisition costs                                                    0.4
    -------------------------------------------------------------------------
    Consideration and acquisition costs                              $ 152.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The tax treatment of the goodwill is considered eligible capital property with the related tax deductions.

3. Banner Conversion Costs

In the first quarter of 2010, the Company completed the conversion of its 159 stores of its five Ontario banners to the Metro banner begun in the summer of 2008. Therefore, no conversion cost was recorded in the third quarter of 2010 (2009 - $2.9). For the first 40-week period of 2010, conversion costs totalled $0.9 (2009 - $8.7).

4. Employee Future Benefits

The Company maintains several defined benefit and defined contribution plans which provide most participants with pension and other retirement benefits and other post-employment benefits. The Company's defined contribution plan and defined benefit plan expense was as follows:

    
                                                     16 weeks
                                                    Fiscal Year
                                  ---------------------
                                            2010                  2009
    -------------------------------------------------------------------------
                                    Pension      Other    Pension      Other
                                      plans      plans      plans      plans
    -------------------------------------------------------------------------
    Defined contribution plans        $ 8.7      $ 0.1      $ 8.7      $ 0.2
    -------------------------------------------------------------------------
    Defined benefit plans
    Current service costs               7.1        0.5        6.4        0.4
    Interest cost                      10.7        0.6       10.3        0.6
    Projected return on plan
     assets                           (12.9)         -      (12.1)         -
    Amortization of actuarial
     losses (gains) and past
     service costs                      0.5          -        0.5          -
    Plan amendments                       -       (0.1)         -          -
    -------------------------------------------------------------------------
                                        5.4        1.0        5.1        1.0
    -------------------------------------------------------------------------
                                     $ 14.1      $ 1.1     $ 13.8      $ 1.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  ---------------------

                                                     40 weeks
                                                    Fiscal Year
                                  ---------------------
                                            2010                  2009
    -------------------------------------------------------------------------
                                    Pension      Other    Pension      Other
                                      plans      plans      plans      plans
    -------------------------------------------------------------------------
    Defined contribution plans       $ 21.2      $ 0.4     $ 21.5      $ 0.5
    -------------------------------------------------------------------------
    Defined benefit plans
    Current service costs              18.0        1.2       16.0        1.0
    Interest cost                      26.9        1.5       25.8        1.5
    Projected return on plan
     assets                           (32.2)         -      (30.4)         -
    Amortization of actuarial
     losses (gains) and past
     service costs                      1.2          -        1.2       (0.1)
    Plan amendments                       -       (0.2)         -          -
    -------------------------------------------------------------------------
                                       13.9        2.5       12.6        2.4
    -------------------------------------------------------------------------
                                     $ 35.1      $ 2.9     $ 34.1      $ 2.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  ---------------------
    

5. Financial Costs, Net

    
                                          16 weeks              40 weeks
                                         Fiscal Year           Fiscal Year
                                  ----------            ----------
                                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Short-term interest               $ 0.3      $ 0.7      $ 1.2      $ 1.6
    Long-term interest                 13.4       13.5       33.6       36.3
    Amortization of deferred
     financing costs                    0.7        0.6        1.6        1.6
    Interest income                    (0.5)      (0.2)      (1.2)      (1.6)
    -------------------------------------------------------------------------
                                     $ 13.9     $ 14.6     $ 35.2     $ 37.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  ----------            ----------

    

6. Income Taxes

    
    The effective income tax rates were as follows:

                                          16 weeks              40 weeks
                                         Fiscal Year           Fiscal Year
                                  ----------            ----------
    (Percentage)                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Combined statutory income
     tax rate                          30.4       31.5       30.4       31.4
    Changes
      Impact on future taxes of
       4.0% total future
       decreases in Ontario tax
       rate                               -          -       (2.4)         -
      Impact of provincial tax
       rate decrease of 2.2% on
       future taxes related to
       capital gains                      -       (1.7)         -       (0.7)
      Share of earnings in a
       public company subject to
       significant influence           (0.8)      (0.6)      (1.0)      (1.1)
      Others                            0.5        0.3        0.3        0.3
    -------------------------------------------------------------------------
                                       30.1       29.5       27.3       29.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  ----------            ----------
    

7. Net Earnings per Share

Basic net earnings per share and fully diluted net earnings per share were calculated based on the following number of shares:

    
                                          16 weeks              40 weeks
                                         Fiscal Year           Fiscal Year
                                  ----------            ----------
    (Millions)                         2010       2009       2010       2009
    -------------------------------------------------------------------------
    Weighted average number of
     shares outstanding - Basic       106.6      110.7      107.3      110.8
    Dilutive effect under stock
     option and performance
     share units plans                  0.5        0.6        0.5        0.8
    -------------------------------------------------------------------------
    Weighted average number of
     shares outstanding -
     Diluted                          107.1      111.3      107.8      111.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  ----------            ----------
    

8. Inventories

    
    Inventories were detailed as follows:

                                                    ----------
                                                        As at          As at
                                                       July 3,  September 26,
                                                         2010           2009
    -------------------------------------------------------------------------
    Warehouse inventories                             $ 282.5        $ 304.0
    Retail inventories                                  399.7          377.3
    -------------------------------------------------------------------------
                                                      $ 682.2        $ 681.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    ----------
    

The cost of inventories expensed for the 16-week period ended July 3, 2010 totalled $2,914.7 (2009 - $2,892.3) and $7,180.5 for the 40-week period of 2010 (2009 - $7,134.1).

9. Capital Stock

    
    Outstanding
                              Class A                 Class B          Total
                        Subordinate Shares            Shares
                       --------------------- ---------------------
                          Number                Number
                      (Thousands)           (Thousands)
    -------------------------------------------------------------------------
    Balance as at
     September 26,
     2009                107,830    $ 715.3        718     $  1.4    $ 716.7
    Shares issued
     for cash                351        7.9          -          -        7.9
    Shares redeemed
     for cash,
     excluding
     premium of
     $103.3               (3,113)     (20.7)         -          -      (20.7)
    Released treasury
     shares                   54        0.3          -          -        0.3
    Stock options
     exercised                 -        2.3          -          -        2.3
    Conversion of
     Class B Shares
     into Class A
     Subordinate
     Shares                   87        0.1        (87)      (0.1)         -
    -------------------------------------------------------------------------
    Balance as at
     July 3, 2010        105,209    $ 705.2        631     $  1.3    $ 706.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Stock Option Plan

The outstanding options and the changes during the 40-week period ended July 3, 2010 were summarized as follows:

    
                                                                    Weighted
                                                                     average
                                                                    exercise
                                                       Number          price
                                                   (Thousands)      (Dollars)
    -------------------------------------------------------------------------
    Balance as at September 26, 2009                    1,864          28.53
    Granted                                               217          44.19
    Exercised                                            (342)         22.11
    Cancelled                                              (2)         31.78
    -------------------------------------------------------------------------
    Balance as at July 3, 2010                          1,737          31.75
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The exercise prices of the outstanding options ranged from $20.20 to $44.19 as at July 3, 2010 with expiration dates up to 2017. 440,860 of those options could be exercised at a weighted average exercise price of $27.72.

Compensation expense for these options amounted to $0.8 for the 16-week period ended July 3, 2010 (2009 -$0.8) and to $1.9 for the 40-week period of 2010 (2009 - $1.8).

Performance Share Unit Plan

Performance share units (PSUs) outstanding and changes during the 40-week period ended July 3, 2010 were summarized as follows:

    
                                                                      Number
                                                                      (Units)
    -------------------------------------------------------------------------
    Balance as at September 26, 2009                                 267,570
    Granted                                                          107,583
    Settled                                                          (65,860)
    Cancelled                                                           (389)
    -------------------------------------------------------------------------
    Balance as at July 3, 2010                                       308,904
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Class A Subordinate Shares of the Company are held in trust for participants until the PSUs vest or are cancelled. The trust, considered a variable interest entity, is consolidated in the Company's financial statements with the cost of the acquired shares recorded as treasury shares in reduction of capital stock.

As at July 3, 2010, 203,548 shares were held in trust for participants until the PSUs shall have vested or been cancelled (as at September 26, 2009 - 257,255 shares).

The compensation expense comprising all of these PSUs amounted to $1.1 for the 16-week period ended July 3, 2010 (2009 - $0.9) and to $2.5 for the 40-week period of fiscal 2010 (2009 - $2.0).

10. Contributed Surplus

    
    -------------------------------------------------------------------------
    Balance as at September 26, 2009                                   $ 3.7
    Stock-based compensation cost                                        4.4
    Stock options exercised                                             (2.3)
    Released treasury shares                                            (0.3)
    PSUs cash settlement                                                (0.5)
    -------------------------------------------------------------------------
    Balance as at July 3, 2010                                         $ 5.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

11. Accumulated Other Comprehensive Income

Derivative designated as cash flow hedge constitutes the sole component of Accumulated Other Comprehensive Income. The changes during the 40-week periods ended July 3, 2010 and July 4, 2009 were as follows:

    
                                                             Fiscal Year
                                                    ----------
                                                         2010           2009
    -------------------------------------------------------------------------
    Balance - beginning of period                      $ (2.0)        $ (1.0)
    Change in fair value of designated
     derivative net of income taxes of
     $0.6 (2009 - $0.6)                                   1.4           (1.6)
    -------------------------------------------------------------------------
    Balance - end of period                            $ (0.6)        $ (2.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    ----------
    

%SEDAR: 00001783EF

SOURCE METRO INC.

For further information: For further information: Richard Dufresne, Senior Vice-President, Chief Financial Officer and Treasurer, Tel.: (514) 643-1003; Investor Relations Department: Tel.: (514) 643-1055, E-mail: finance@metro.ca; Source: METRO INC.; METRO INC.'s corporate information and press releases are available on the Internet at: www.metro.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