METRO reports record net earnings of $89.3 million for the third quarter of 2007



    MONTREAL, Aug. 9 /CNW Telbec/ -

    
    Third Quarter 2007 Highlights

    - The Company realized net earnings of $89.3 million compared to
      $85.1 million, an increase of 4.9%. Fully diluted net earnings per
      share reached $0.77, up 5.5% from $0.73.
    - Excluding non-recurring items recorded in the third quarter of 2007 and
      2006, adjusted net earnings(1) for the third quarter of 2007 would have
      been $91.1 million, an increase of 16.3%, and adjusted fully diluted
      net earnings per share(1) would have been $0.78, an increase of 14.7%.
      Non-recurring items include integration and rationalization costs of
      $5.4 million before taxes for the third quarter of 2007 and
      $3.9 million before taxes for the corresponding quarter of 2006, as
      well as third quarter income tax expense decrease of $1.8 million in
      2007 and $9.4 million in 2006.
    - Sales increased 0.1% to $3,341 million. Excluding decreased sales of
      tobacco products and lost sales due to the disposal, in the fourth
      quarter of 2006, of our interest in a grocery wholesaler, sales would
      have increased by 3.2%. Same-store sales increased by 2.1%.
    - During the third quarter, we continued the integration of A&P Canada
      and recorded synergies of $27.9 million compared to $15.5 million in
      the same quarter last year.

    Highlights for the 2007 40-Week Period Ended July 7, 2007

    - The Company realized net earnings of $219 million, up 25.8% from
      $174.1 million. Fully diluted net earnings per share were $1.88, up
      25.3% from $1.50.
    - Excluding non-recurring items recorded in the 40-week periods of 2007
      and 2006, adjusted net earnings(1) for the 2007 40-week period would
      have been $228.2 million, a 22.3% increase, and adjusted fully diluted
      net earnings per share(1) would have been $1.96 compared to $1.61 for
      the 2006 40-week period, a 21.7% increase. The non-recurring items are
      integration and rationalization costs of $16.4 million before taxes for
      the first 40 weeks of 2007 and of $24.8 million before taxes for the
      corresponding period of 2006, as well as income tax expense decrease of
      $1.8 million for the first 40 weeks of 2007 and $4.1 million for the
      corresponding period of 2006.
    - Sales for the first 40 weeks of 2007 reached $8,212.2 million, down
      0.7%. Excluding decreased sales of tobacco products and lost sales due
      to the disposal, in the fourth quarter of 2006, of our interest in a
      grocery wholesaler, sales would have increased by 2.3%.
    - Synergies of $67.5 million were achieved in the first 40 weeks of 2007
      versus $32.6 million in the same period of the previous fiscal year.


    METRO INC. realized net earnings of $89.3 million in the third quarter of
2007, compared to $85.1 million in the corresponding quarter of the previous
fiscal year, and fully diluted net earnings per share of $0.77 versus $0.73
last year. Non-recurring items were recorded in the third quarters of 2007 and
2006, namely integration and rationalization costs of $5.4 million before
taxes in 2007 and $3.9 million before taxes in 2006, as well as third quarter
income tax expense decrease of $1.8 million in 2007 and $9.4 million in 2006.
Excluding these non-recurring items, adjusted net earnings(1) for the third
quarter of 2007 would have been $91.1 million compared with $78.3 million for
the corresponding quarter of 2006, an increase of 16.3%, and adjusted fully
diluted net earnings per share(1) would have been $0.78 compared with $0.68
for the corresponding quarter of 2006, an increase of 14.7%.

    SALES

    Third quarter sales reached $3,341 million, an increase of 0.1% compared
to fiscal 2006 third quarter sales of $3,336.7 million. Excluding decreased
sales of tobacco products and lost sales due to the disposal, in the fourth
quarter of 2006, of our interest in a grocery wholesaler, sales would have
increased by 3.2%. Third quarter same-store sales increased by 2.1%.
    Sales for the first 40 weeks of 2007 reached $8,212.2 million, down 0.7%
compared to sales of $8,270.5 million for the corresponding period of fiscal
2006. Excluding decreased sales of tobacco products and lost sales due to the
disposal, in the fourth quarter of 2006, of our interest in a grocery
wholesaler, sales would have increased by 2.3%.

    INTEGRATION AND RATIONALIZATION COSTS

    Following the acquisition of A&P Canada, we developed a plan to integrate
and rationalize our operations. This three-part plan, dealing with our store
network, the integration of our overall operations, and the implementation of
our information systems at A&P Canada, continued during the third quarter of
2007.
    During the third quarter, we completed the implementation of our retail
information systems in all of our stores and our payroll and human resources
management systems.
    On July 13, 2007, we disconnected the last A&P US information systems,
thereby terminating the systems outsourcing period with A&P US a few weeks
before the anticipated deadline of two years.
    Over fiscal 2006, integration and rationalization plan costs totalled
$28 million. Costs incurred during the 40-week period of 2007 totalled
$16.4 million, $5.4 million of which were in the third quarter. As a result of
the third quarter decision to further integrate Loeb Canada's operations into
A&P Canada's, we revised our initial figure of $55 million to $59 million.

    Integration and Rationalization Costs
    (Millions of $)
                                                            Antici-
                                        Incurred             pated     Total
                                   2007           2006
                           (16 weeks)(40 weeks)(53 weeks)
    -------------------------------------------------------------------------
    Stores                         -       2.2      11.9       5.1      19.2
    Integration of
     operations                  0.5       5.0      13.9       5.2      24.1
    Implementation of
     information systems         4.9       9.2       2.2       4.3      15.7
    -------------------------------------------------------------------------
                                 5.4      16.4      28.0      14.6      59.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
    (EBITDA)(1)

    EBITDA for the third quarter of 2007 were $195.9 million, up 1.9% over the
$192.3 million for the same quarter last year. Third quarter EBITDA
represented 5.9% of sales versus 5.8% last year. Third quarter integration and
rationalization costs were $5.4 million and $3.9 million in 2007 and 2006
respectively. Our third quarter equity earnings from our investment in
Alimentation Couche-Tard were $3.9 million in 2007 compared to $3.7 million in
2006.
    Excluding integration and rationalization costs as well as equity earnings
from our investment in Alimentation Couche-Tard, 2007 third quarter EBITDA
would have been $197.4 million or 5.9% of sales versus $192.5 million or 5.8%
of sales in 2006. This improvement in EBITDA is due mainly to further
synergies in 2007. Despite more competitive market conditions, we managed to
keep gross margin levels similar to those for the corresponding period of the
previous fiscal year.
    In the third quarter of 2007, we recorded $27.9 million in synergies
compared to $15.5 million in the third quarter of 2006. With these results, we
expect to achieve close to $90 million of synergies for fiscal year-end.
    EBITDA for the 40-week period rose 11.4% to $490.6 million or 6% of sales
compared to $440.4 million or 5.3% of sales for the same period last year. We
incurred integration and rationalization costs of $16.4 million in the first
40 weeks of 2007 versus $24.8 million over the same period in 2006. Equity
earnings from our investment in Alimentation Couche-Tard were $17.7 million
for the 40-week period compared to $17.1 million in 2006.
    Excluding integration and rationalization costs and earnings from our
investment in Alimentation Couche-Tard, our EBITDA for the first 40 weeks of
2007 would have been $489.3 million or 6% of sales compared to $448.1 million
or 5.4% for the same period of fiscal 2006.
    The increase in EBITDA is due mainly to effective merchandising and
further synergies achieved in 2007. Despite more competitive market conditions
starting in the third quarter, we were able to increase 2007 40-week period
gross margins over the same period of last year.
    We achieved $67.5 million in synergies in the first 40 weeks of 2007
versus $32.6 million in the same period of fiscal 2006. These synergies
consist mainly of lower costs for goods purchased for resale.

    INTEREST, DEPRECIATION AND AMORTIZATION

    Total depreciation and amortization expenses for the third quarter and
first 40 weeks of fiscal 2007 amounted to $51.1 million and $126 million
respectively, compared with $57.3 million and $135.2 million for the same
periods last year. These decreases result primarily from additional
amortization charges in fiscal 2006 following the reassessment of the useful
life of certain assets. Third quarter interest expenses totalled $19.2 million
versus $21.2 million last year, while interest expenses for the 40-week period
totalled $47.6 million versus $53 million last year. These decreases are due
primarily to a debt reduction of $107.6 million since the end of the third
quarter of 2006. Interest rates for the first 40 weeks of 2007 averaged 5.4%
compared with 4.9% for the corresponding period of the previous fiscal year.

    INCOME TAXES

    The 2007 third quarter and 40-week period income tax expenses of
$39.2 million and $99.1 million represent effective tax rates of 31.2% and
31.3% respectively. The 2006 third quarter and 40-week period income tax
expenses of $26.5 million and $74.3 million represented effective tax rates of
23.3% and 29.5% respectively. In the third quarter of 2007, the Canadian
government completed the approval process for the federal budget tabled
March 19, 2007 providing, among other things, for a 0.5% decrease in the large
business tax rate, effective January 1, 2011. This future decrease in the
federal tax rate reduced our future tax liabilities by $1.8 million as well as
our third quarter income tax expenses by the same amount.
    In the first quarter of 2006, an approval milestone was met with regard to
the Québec government's budget tabled on April 21, 2005 providing, among other
things, for increases of the large business tax rate from 8.9% to 11.9%
planned between January 1, 2006 and January 1, 2009. Accordingly, in the first
quarter, we recorded a $5.3 million increase in our future income tax
liabilities and an additional tax expense in the same amount corresponding to
the future 3% Québec income tax increase that will apply to our future tax
liabilities. During the third quarter, an approval milestone was also met with
regard to the federal budget tabled on May 2, 2006 providing, among other
things, for a decrease in the tax rate from 22.12% to 19% planned between
January 1, 2008 and January 1, 2010. These future decreases in the federal tax
rate reduced our future tax liabilities by $9.4 million as well as our third
quarter income tax expenses by the same amount. Excluding all these additional
tax expense changes, the effective tax rates for the third quarter and first
40 weeks of fiscal 2007 would have been 32.7% and 31.9% respectively, compared
with 31.5% and 31.1% for the third quarter and first 40 weeks of fiscal 2006
respectively.

    NET EARNINGS

    Third quarter net earnings were $89.3 million compared to $85.1 million
for the corresponding quarter of fiscal 2006, an increase of 4.9%. Fully
diluted net earnings per share increased 5.5% to $0.77 compared to $0.73 last
year. Excluding third quarter integration and rationalization costs of
$5.4 million before taxes in 2007 and of $3.9 million before taxes in 2006 as
well as third quarter income tax expense decrease of $1.8 million in 2007 and
$9.4 million in 2006, adjusted net earnings(1) for the third quarter would
have been $91.1 million, up 16.3% from net earnings for the same quarter last
year. Adjusted fully diluted net earnings per share(1) would have been $0.78
compared to $0.68 for the corresponding period of 2006, an increase of 14.7%.
    Net earnings for the first 40 weeks of 2007 reached $219 million versus
$174.1 million last year, a 25.8% increase. Fully diluted net earnings per
share rose 25.3% to $1.88 versus $1.50 last year. Excluding integration and
rationalization costs of $16.4 million before taxes for the first 40 weeks of
2007 and of $24.8 million before taxes for the first 40 weeks of 2006 as well
as income tax expense decrease of $1.8 million for the 2007 40-week period and
of $4.1 million for the first 40 weeks of 2006, adjusted net earnings(1) for
the 2007 40-week period would have been $228.2 million, up 22.3% over the
$186.6 million for the corresponding period last year. Adjusted fully diluted
net earnings per share(1) would have been $1.96 compared to $1.61 for the 2006
40-week period, an increase of 21.7%.

    Quarterly Highlights
    (Millions of dollars, except earnings per share)

                                    2007        2006        2005   Variation
                               (52 weeks)  (53 weeks)  (52 weeks)(Percentage)
    -------------------------------------------------------------------------
    Sales (Restated - EIC-156)
    Q3                           3,341.0     3,336.7           -         0.1
    Q2                           2,356.2     2,412.1           -        (2.3)
    Q1                           2,515.0     2,521.7           -        (0.3)
    Q4                                 -     2,673.5     1,951.8        37.0
    -------------------------------------------------------------------------
    Net earnings
    Q3                              89.3        85.1           -         4.9
    Q2                              61.8        57.0           -         8.4
    Q1                              67.9        32.0           -       112.2
    Q4                                 -        78.9        50.2        57.2
    -------------------------------------------------------------------------
    Adjusted net earnings
    Q3                              91.1(1)     78.3(1)        -        16.3
    Q2                              65.5(1)     58.7(1)        -        11.6
    Q1                              71.6(1)     49.6(1)        -        44.4
    Q4                                 -        71.0(1)     50.2        41.4
    -------------------------------------------------------------------------
    Fully diluted net earnings
     per share (Dollars)
    Q3                              0.77        0.73           -         5.5
    Q2                              0.53        0.49           -         8.2
    Q1                              0.58        0.28           -       107.1
    Q4                                 -        0.68        0.48        41.7
    -------------------------------------------------------------------------
    Adjusted fully diluted net
     earnings per share (Dollars)
    Q3                              0.78(1)     0.68(1)        -        14.7
    Q2                              0.56(1)     0.50(1)        -        12.0
    Q1                              0.62(1)     0.43(1)        -        44.2
    Q4                                 -        0.61(1)     0.48        27.1
    -------------------------------------------------------------------------

    The variations in our results over the last four quarters are due
primarily to the August 13, 2005 acquisition of A&P Canada, the effect of our
integration plan during those quarters, and the synergies achieved.
    The impact of this acquisition is well demonstrated by the increase in
fourth quarter sales in 2006 over those of 2005. A&P Canada results were
included for the entire fourth quarter in 2006, comprising 13 weeks versus
12 weeks for the corresponding quarter of 2005, while the fourth quarter of
2005 included only 6 weeks of such results. Sales for the first three quarters
of 2007 are comparable to those for the corresponding quarters of 2006 with
respect to the acquisition of A&P Canada.
    Quarterly sales for 2007 compared with those for 2006 were affected by
decreased sales of tobacco products, lost sales due to the disposal, in the
fourth quarter of 2006, of our interest in a grocery wholesaler, and the fact
that Christmas week fell in the first quarter of 2007 rather than in the
second quarter as in 2006. Excluding these items, 2007 first, second and third
quarter sales would have been up 0.6%, 3%, and 3.2% respectively over 2006.
    Over the last four quarters, net earnings and fully diluted net earnings
per share were impacted by, among other things, integration and
rationalization costs related to the acquisition of A&P Canada, a gain on
disposal of an investment and income tax expense variations resulting from
fluctuations in tax rates applicable to large corporations announced by both
governments.
    Excluding these non-recurring items, increases in fiscal 2006 fourth
quarter adjusted net earnings(1) and adjusted fully diluted net earnings per
share(1), compared with those for fiscal 2005, are due primarily to the
acquisition of A&P Canada, synergies and the impact of the 53rd week of 2006.
Increases in adjusted net earnings(1) and adjusted fully diluted net earnings
per share(1) for the first three quarters of fiscal 2007, compared with those
of 2006, are due primarily to more effective merchandising programs and
further synergies.

                                   2007                        2006
    -------------------------------------------------------------------------
    Net earnings
    (Millions of         Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4
     dollars)
    -------------------------------------------------------------------------
    Adjusted net
     earnings(1)       71.6   65.5   91.1      -   49.6   58.7   78.3   71.0
    Integration and
     rationalization
     costs after
     taxes             (3.7)  (3.7)  (3.6)     -  (12.3)  (1.7)  (2.6)  (2.1)
    Investment
     disposal gain,
     after taxes          -      -      -      -      -      -      -    8.6
    Decrease
     (increase) in
     tax expense          -      -    1.8      -   (5.3)     -    9.4    1.4
    -------------------------------------------------------------------------
    Net earnings       67.9   61.8   89.3      -   32.0   57.0   85.1   78.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                   2007                        2006
    -------------------------------------------------------------------------
    Fully diluted
     net earnings
     per share           Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4
    (Dollars)
    -------------------------------------------------------------------------
    Adjusted fully
     diluted net
     earnings(1)       0.62   0.56   0.78      -   0.43   0.50   0.68   0.61
    Integration and
     rationalization
     costs after
     taxes            (0.04) (0.03) (0.03)     -  (0.10) (0.01) (0.03) (0.02)
    Investment
     disposal gain,
     after taxes          -      -      -      -      -      -      -   0.07
    Decrease
     (increase) in
     tax expense          -      -   0.02      -  (0.05)     -   0.08   0.02
    -------------------------------------------------------------------------
    Fully diluted
     net earnings
     per share         0.58   0.53   0.77      -   0.28   0.49   0.73   0.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Synergies, before taxes
    (Millions of dollars)
                                                              Fiscal Year
                                                          2007          2006
                                                       ----------------------
    Q1                                                    19.0           7.9
    Q2                                                    20.6           9.2
    Q3                                                    27.9          15.5
    Q4                                                       -          18.7
                                                       ----------------------
                                                          67.5          51.3
                                                       ----------------------
                                                       ----------------------


    Cash Position

    OPERATING ACTIVITIES

    Operating activities generated cash flows of $152.5 million in the third
quarter and $318.5 million over the first 40 weeks of 2007, compared to
$191.2 million and $319.5 million respectively in the corresponding periods of
fiscal 2006. The differences in 2007 third quarter and 40-week period cash
flows compared to those for the corresponding periods of fiscal 2006 are
mainly the consequence of changes in non-cash working capital from operating
activities.

    INVESTMENT ACTIVITIES

    Investing activities required $67.3 million in the third quarter of 2007
and $188.3 million in the first 40 weeks versus $48.2 million in the third
quarter of 2006 and $128.7 million in the first 40 weeks of 2006. These
increases are due primarily to the acquisition of additional fixed assets
related to new store construction, expansion, and renovation projects.
    During the first 40 weeks of 2007, the Company and retailers invested
$252.5 million in our retail network for a gross expansion of 723,000 square
feet or 3.9%, and a net expansion of 209,000 square feet. The opening of 14
new stores, major renovations and expansions of 37 stores have been completed.

    FINANCING ACTIVITIES

    Financing activities required outflows of $20.1 million in the third
quarter of 2007 and $48.9 million in the first 40 weeks of 2007 versus 2006
third quarter and 40-week outflows of $102.7 million and $26.2 million
respectively. The main reason for the 2007 third quarter drop in outflows
compared to the same quarter of 2006 is the $80 million by which long-term
debt was paid down in 2006.

    Financial Position

    Our financial position at the end of the third quarter of 2007 was very
solid. We had $247 million in cash and cash equivalents. We have not used our
approved $400 million line of credit. Our long-term debt corresponds to 36.8%
of the combined total of long-term debt and shareholders' equity (long-term
debt/total capital).
    In the third quarter, the main elements of our long-term debt were as
follows:

    -------------------------------------------------------------------------
                             Interest Rate       Balance            Maturity
                                               (Millions
                                                      of
                                                 dollars)
    -------------------------------------------------------------------------
    Credit Facility A     Rates fluctuate with
                          changes in bankers'
                          acceptance rates         469.3     August 15, 2010
    Medium-term
     Series A notes       4.98% fixed rate         200.0    October 15, 2015
    Medium-term
     Series B notes       5.97% fixed rate         400.0    October 15, 2035
    -------------------------------------------------------------------------

    At the end of the third quarter, interest rate swap agreements in the
notional amount of $150 million were outstanding under Credit Facility A.
These agreements provide for the exchange of variable interest payments for
fixed interest payments according to the following terms:


                                         Notional Amount
                                            (Millions of
    Fixed Rate                                   dollars)           Maturity
    -------------------------------------------------------------------------
    4.6480%                                         50.0   November 23, 2008
    4.6820%                                         50.0   December 16, 2009
    4.7425%                                         50.0   December 16, 2010
    -------------------------------------------------------------------------

    Giving effect to these swap agreements, at the end of the quarter, long
term indebtedness comprised $750 million at fixed rates ranging from 4.6480%
to 5.97% and $319.3 million at variable rates which fluctuate with changes in
bankers' acceptance rates.

    FINANCIAL RATIOS

                                                         As at         As at
                                                        July 7, September 30,
                                                          2007          2006
    -------------------------------------------------------------------------
    Financial structure
    Long-term debt (Millions of $)                     1,115.3       1,116.6
    Shareholders' equity (Millions of $)               1,916.7       1,723.8
    Long-term debt/total capital (%)                      36.8          39.3

                                                   Fiscal 2007   Fiscal 2006
                                                     (40 weeks)    (40 weeks)
                                                   --------------------------
    Results
      EBITDA(1)/Interest (Times)                          10.3           8.3
    -------------------------------------------------------------------------


    CAPITAL STOCK, STOCK OPTIONS AND PERFORMANCE SHARE UNITS

                                                         As at         As at
                                                        July 7, September 30,
                                                          2007          2006
    -------------------------------------------------------------------------
    Number of Class A Subordinate Shares
     outstanding (Thousands)                           114,475       113,852
    Number of Class B Shares outstanding
     (Thousands)                                           815           880
    Stock options:
      Number outstanding (Thousands)                     3,701         4,233
      Exercise price                                 $11.80 to      $8.73 to
                                                        $39.17        $33.87
      Weighted average exercise price                $   22.19     $   20.85
    Number of performance share units:
      Number outstanding (Thousands)                       130            48
      Weighted average maturity                      26 months     30 months
    -------------------------------------------------------------------------


    ISSUER BID PROGRAM

    The Company has decided to renew its issuer bid program in order to have
an additional option to use its excess cash. Thus, we will be able to decide,
in the shareholders' best interest, to reimburse debt or to repurchase shares
of the Company. Subject to regulatory approval, the Board of Directors has
authorized the Company to purchase, in the normal course of its activities,
from September 5, 2007 to September 4, 2008, up to 4 million of its Class A
Subordinate Shares, representing approximately 3.5% of the outstanding public
float of such shares on August 8, 2007 at the close of the Toronto Stock
Exchange. The purchases will be made at market prices through the facilities
of such exchange in accordance with its rules and policies. The Class A
Subordinate Shares thereby purchased will be cancelled. With respect to its
current normal course issuer bid program covering the period from September 5,
2006 to September 4, 2007, the Company has repurchased in the normal course of
its activities, from September 5, 2006 to August 8, 2007, 14,800 of its Class
A Subordinate Shares at an average price of $36.72. Shareholders may obtain
without charge a copy of the documents filed with the regulatory authorities
concerning this program by writing to the legal department of the Company.

    DIVIDENDS

    On August 8, 2007, the Company's Board of Directors declared a quarterly
dividend of $0.115 per Class A Subordinate Share and Class B Share payable
September 5, 2007, an increase of 9.5% over the dividend for the corresponding
quarter last year. On an annualized basis, this dividend represents 21% of
2006 net earnings.

    SHARE TRADING

    The value of METRO shares remained in the range of $33.23 to $41.78 over
the first 40 weeks of fiscal 2007. During this period, a total of 41 million
shares were traded on the Toronto Stock Exchange. The closing price on Friday,
July 27, 2007 was $37.92, compared with $33.60 at the end of fiscal 2006.

    Recently Issued New Accounting Standards

    FINANCIAL INSTRUMENTS AND CAPITAL

    In December 2006, the Canadian Institute of Chartered Accountants (CICA)
issued three new Handbook sections regarding financial instruments and
capital, i.e. sections 1535, 3862 and 3863, which are effective for interim
and annual financial statements relating to fiscal years beginning on or after
October 1, 2007. We intend to apply these new standards in the first quarter
ending December 22, 2007, and do not foresee that these new sections will have
a material effect on our results, financial position and cash flows.
    Section 1535 "Capital Disclosures" establishes standards for disclosing
information about an entity's capital and how it is managed. These standards
require an entity to disclose the following:

    - its objectives, policies and processes for managing capital;
    - summary quantitative data about what it manages as capital;
    - whether during the period it complied with any externally imposed
      capital requirements to which it is subject;
    - when the entity has not complied with such requirements, the
      consequences of such non-compliance.

    Section 3862 "Financial Instruments - Disclosures" modifies the disclosure
requirements for financial instruments and replaces Section 3861 "Financial
Instruments - Disclosure and Presentation". The new standards require entities
to provide disclosures in their financial statements that enable users to
evaluate:

    - the significance of financial instruments for the entity's financial
      position and performance;
    - the nature and extent of risks arising from financial instruments to
      which the entity is exposed during the period and at the balance sheet
      date, and how the entity manages those risks.

    Section 3863 "Financial Instruments - Presentation" carries forward
unchanged the presentation requirements of the old Section 3861 "Financial
Instruments - Disclosure and Presentation".

    INVENTORIES

    In March 2007, the CICA issued the new Section 3031 "Inventories" which
will replace Section 3030 "Inventories". The new Section prescribes
measurement of inventories at the lower of cost and net realizable value. It
provides guidance on the determination of cost, prohibits use in the future of
the last-in, first-out (LIFO) method, and requires reversal of previous
write-downs when there is a subsequent increase in the value of inventories.
It also requires greater disclosure regarding inventories and the cost of
sales. The new standard will be effective for interim and annual financial
statements relating to fiscal years beginning on or after January 1, 2008. We
are currently evaluating their effect on our results, financial position and
cash flows as well as the possibility of early application.

    Subsequent Event

    On August 8, 2007 the company renegotiated conditions of its banking
credit facilities relative to the $400 million revolving line of credit which
is not drawn and the $469.3 million credit A term loan. The expiry terms for
both credits have been extended to August 2012 and the relative interest rates
have been reduced.

    Outlook

    "By the end of the fiscal year, we plan to complete our original
integration and rationalization plan following the acquisition of A&P Canada
and achieve close to $90 million in synergies. We are already preparing the
phase II of our integration plan involving the rationalization of our banners
and private labels to be completed over the next three years, which will allow
us to continue our growth in the Canadian grocery market," stated the
President and Chief Executive Officer, Mr. Pierre H. Lessard.

    Forward-looking Statements

    Any statement contained in this quarterly Management's Discussion and
Analysis which does not constitute an historic fact, may be considered
forward-looking. Verbs such as "believe", "foresee", "estimate" and other
similar expressions appearing in this discussion and analysis generally
indicate forward-looking statements. These projections do not provide
guarantees as to the future performance of METRO INC. and are subject to
risks, both known and unknown, as well as uncertainties which may cause the
outlook, profitability and actual results of METRO INC. to differ
significantly from the profitability or future results stated or implied in
these forward-looking statements.

    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 Canadian
GAAP and therefore may not be comparable to similar measures presented by
other public companies.

    Adjusted net earnings and adjusted fully diluted net earnings per share

    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.

    Earnings before interest, taxes, depreciation and amortization (EBITDA)

    EBITDA is a measurement of earnings that excludes interest, 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.

    Conference Call

    Financial analysts and investors are invited to participate in a
conference call at 10:00 a.m. EDT on August 9, 2007. To access the conference
call, please dial 416-646-3097 or 514-807-8791. The media and 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 "Non-GAAP Measurements".


    Consolidated Statements of Earnings
    Periods ended July 7, 2007 and July 1st, 2006
    (Unaudited) (Millions of dollars, except for earnings per share)


                                       16 Weeks                40 Weeks
                                      Fiscal Year             Fiscal Year
                               ----------             ----------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Sales                      $ 3,341.0   $ 3,336.7   $ 8,212.2   $ 8,270.5
    Cost of sales and
     operating expenses          3,143.6     3,144.2     7,722.9     7,822.4
    Share of earnings in a
     public company subject
     to significant influence       (3.9)       (3.7)      (17.7)      (17.1)
    Integration and
     rationalization costs
     (note 3)                        5.4         3.9        16.4        24.8
    -------------------------------------------------------------------------
    Earnings before interest,
     taxes, depreciation
     and amortization              195.9       192.3       490.6       440.4
    Depreciation and
     amortization                   51.1        57.3       126.0       135.2
    -------------------------------------------------------------------------
    Operating income               144.8       135.0       364.6       305.2
    Interest, net
      Short term                    (0.7)      (1.3)       (2.0)       (1.2)
      Long term                     19.9       22.5        49.6        54.2
    -------------------------------------------------------------------------
                                    19.2       21.2        47.6        53.0
    -------------------------------------------------------------------------
    Earnings before
     income taxes                  125.6      113.8       317.0       252.2
    Income taxes (note 5)           39.2       26.5        99.1        74.3
    -------------------------------------------------------------------------
    Earnings before
     minority interest              86.4       87.3       217.9       177.9
    Minority interest               (2.9)       2.2        (1.1)        3.8
    -------------------------------------------------------------------------
    Net earnings               $    89.3   $   85.1   $   219.0   $   174.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share
     (note 6)
      Basic                    $    0.77   $   0.74   $    1.90   $    1.52
      Fully diluted            $    0.77   $   0.73   $    1.88   $    1.50
    -------------------------------------------------------------------------
                               ----------             ----------
    See accompanying notes


    Consolidated Balance Sheets
    (Unaudited) (Millions of dollars)
                                                     ----------
                                                         As at         As at
                                                        July 7, September 30,
                                                          2007          2006
    -------------------------------------------------------------------------
    Assets
    Current assets
      Cash and cash equivalents                      $   247.0     $   165.7
      Accounts receivable                                328.7         302.1
      Inventories                                        580.7         565.5
      Prepaid expenses                                    23.4          11.3
      Future income taxes                                 18.5          16.7
    -------------------------------------------------------------------------
                                                       1,198.3       1,061.3
    Investments and other assets                         147.1         117.9
    Fixed assets                                       1,186.4       1,129.9
    Intangible assets                                    336.9         331.7
    Goodwill                                           1,490.1       1,490.1
    Accrued benefit assets                                33.0          33.0
    -------------------------------------------------------------------------
                                                     $ 4,391.8     $ 4,163.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' equity
    Current liabilities
      Bank loans                                     $     0.5     $     0.3
      Accounts payable                                 1,100.7       1,049.5
      Income taxes payable                                21.1          36.8
      Current portion of long-term debt                    4.2           7.3
    -------------------------------------------------------------------------
                                                       1,126.5       1,093.9
    Long-term debt                                     1,115.3       1,116.6
    Accrued benefit obligations                           58.7          60.6
    Future income taxes                                  129.7         115.0
    Other long-term liabilities                           36.4          44.2
    Minority interest                                      8.5           9.8
    -------------------------------------------------------------------------
                                                       2,475.1       2,440.1
    -------------------------------------------------------------------------
    Shareholders' equity
    Capital stock (note 7)                               719.8         709.0
    Contributed surplus                                    1.3           1.6
    Retained earnings                                  1,193.2       1,013.2
    Accumulated other comprehensive income
     (notes 2 and 8)                                       2.4             -
    -------------------------------------------------------------------------
                                                       1,916.7       1,723.8
    -------------------------------------------------------------------------
                                                     $ 4,391.8     $ 4,163.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                     ----------
    See accompanying notes


    Consolidated Statements of Cash Flows
    Periods ended July 7, 2007 and July 1st, 2006
    (Unaudited) (Millions of dollars)

                                       16 Weeks                40 Weeks
                                      Fiscal Year             Fiscal Year
                               ----------              ----------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Operating activities
    Net earnings               $    89.3   $    85.1   $   219.0   $   174.1
    Non-cash items
      Integration and
       rationalization
       costs (note 3)               (1.7)       (0.6)        2.5        18.9
      Share of earnings in
       a public company
       subject to
       significant influence        (3.9)       (3.7)      (17.7)      (17.1)
      Depreciation and
       amortization                 51.1        57.3       126.0       135.2
      Amortization of
       deferred financing
       costs                         0.6         0.7         1.6         1.9
      Loss on disposal and
      write-off of fixed
      and intangible assets          2.5         8.1         2.8         8.5
      Future income taxes            5.2        (6.1)       11.7           -
      Stock-based
       compensation cost             1.6         0.7         2.8         1.2
      Difference between
       amounts paid for
       employee future
       benefits over
       current period cost          (1.5)          -        (1.9)       (9.6)
      Minority interest             (2.9)        2.2        (1.1)        3.8
    -------------------------------------------------------------------------
                                   140.3       143.7       345.7       316.9
    Net change in non-cash
     working capital
     related to operations          12.2        47.5       (27.2)        2.6
    -------------------------------------------------------------------------
                                   152.5       191.2       318.5       319.5
    -------------------------------------------------------------------------
    Investing activities
    Net change in investments
     and other assets                2.7        (2.0)        1.6        (3.6)
    Dividend of a public
     company subject to
     significant influence             -         0.5         1.2         1.0
    Acquisition of fixed assets    (64.3)      (35.2)     (169.4)     (106.9)
    Disposal of fixed assets         6.0         0.7         8.5         7.2
    Acquisition of intangible
     assets                        (11.7)      (12.2)      (30.2)      (26.4)
    -------------------------------------------------------------------------
                                   (67.3)      (48.2)     (188.3)     (128.7)
    -------------------------------------------------------------------------
    Financing activities
    Net change in bank loans         0.1        (3.2)        0.2        (0.2)
    Issuance of shares
     (note 7)                        1.3         4.1        11.0         5.0
    Redemption of shares
     (note 7)                       (0.5)          -        (0.5)          -
    Acquisition of treasury
     shares (note 7)                (0.7)       (1.5)       (3.2)       (1.5)
    Increase of long-term debt       1.0         0.3         2.8       601.5
    Repayment of long-term debt     (3.4)      (83.4)       (8.2)     (588.6)
    Net change in other
     long-term liabilities          (4.4)       (6.9)      (12.2)       (6.9)
    Dividends paid                 (13.3)      (12.1)      (38.6)      (35.5)
    Distribution to minority
     interest                       (0.2)          -        (0.2)          -
    -------------------------------------------------------------------------
                                   (20.1)     (102.7)      (48.9)      (26.2)
    -------------------------------------------------------------------------
    Net change in cash and
     cash equivalents               65.1        40.3        81.3       164.6
    Cash and cash equivalents
     - beginning of period         181.9       218.1       165.7        93.8
    -------------------------------------------------------------------------
    Cash and cash equivalents
     - end of period           $   247.0   $   258.4   $   247.0   $   258.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other information
    Interest paid              $    27.1   $    30.5   $    57.6   $    45.0
    Income taxes paid          $    31.7   $    25.3   $   103.1   $    66.9
    -------------------------------------------------------------------------
                               ----------              ----------
    See accompanying notes


    Consolidated Statements of Retained Earnings
    40-week periods ended July 7, 2007 and July 1st, 2006
    (Unaudited) (Millions of dollars)

                                                              Fiscal Year
                                                     ----------
                                                          2007          2006
    -------------------------------------------------------------------------
    Balance - beginning of period                    $ 1,013.2     $   807.7
    Net earnings                                         219.0         174.1
    Dividends                                            (38.6)        (35.5)
    Share redemption premiums                             (0.4)            -
    -------------------------------------------------------------------------
    Balance - end of period                          $ 1,193.2     $   946.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                     ----------
    See accompanying notes


    Consolidated Statements of Comprehensive Income
    Periods ended July 7, 2007 and July 1st, 2006
    (Unaudited) (Millions of dollars) (notes 2 and 8)

                                       16 Weeks                40 Weeks
                                      Fiscal Year             Fiscal Year
                               ----------              ----------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Net earnings               $    89.3   $    85.1   $   219.0   $   174.1
    Other comprehensive
     income
    Change in fair value of
     derivatives designated as
     cash flow hedges (net of
     income taxes of $1.0)           2.1           -         2.0           -
    -------------------------------------------------------------------------
    Comprehensive income       $    91.4   $    85.1   $   221.0   $   174.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------              ----------
    See accompanying notes


    Notes to Interim Consolidated Financial Statements
    Periods ended July 7, 2007 and July 1st, 2006
    (Unaudited) (Millions of dollars, except for earnings per share)

    1. Statement Presentation

    The unaudited interim consolidated financial statements were prepared by
management in accordance with Canadian generally accepted accounting
principles. 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 30, 2006, except for the new accounting policies described in
note 2. 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 2006 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. New Accounting Policies

    ADOPTED IN 2007

    Comprehensive Income, Financial Instruments, and Hedges

    In the first quarter of 2007, the Company adopted the following new
accounting standards issued by the Canadian Institute of Chartered Accountants
(CICA):
    Section 1530, Comprehensive Income, introduces a new financial statement
which shows the change in equity of an enterprise from transactions and other
events and circumstances from non-owner sources.
    Section 3855, Financial Instruments - Recognition and Measurement,
establishes standards for recognizing and measuring financial instruments,
namely financial assets, financial liabilities and derivatives.
    The new standard lays out how financial instruments are to be recognized
depending on their classification. Depending on financial instruments'
classification, changes in subsequent measurements are recognized in net
income or comprehensive income.
    The Company has implemented the following classification:

    - Cash and cash equivalents are classified as "Financial Assets Held for
      Trading". These financial assets are marked-to-market through net
      income at each period end.
    - Accounts receivable and loans to certain customers are classified as
      "Loans and Receivables". After their initial fair value measurement,
      they are measured at amortized cost using the effective interest rate
      method. For the Company, the measured amount generally corresponds to
      cost.
    - Investments in companies are classified as "Available-for-sale
      Securities". These financial assets are marked-to-market through
      comprehensive income at each period end.
    - Bank loans, accounts payable, credit facilities, notes, loans payable,
      and obligations under capital leases are classified as "Other Financial
      Liabilities". After their initial fair value measurement, they are
      measured at amortized cost using the effective interest rate method.
      For the Company, the measured amount generally corresponds to cost.

    Section 3865, Hedges, whose application is optional, establishes how hedge
accounting may be applied. The Company, in keeping with its risk management
strategy, has decided to apply hedge accounting to its interest rate swaps and
treat them as cash flow hedges. These derivatives are marked-to-market at each
period end and resulting gains/losses are recognized in comprehensive income
to the extent the hedging relationship is effective.
    These new standards have to be applied without restatement of prior period
amounts. Upon initial application all adjustments to the carrying amount of
financial assets and liabilities shall be recognized as an adjustment to the
opening balance of retained earnings or accumulated other comprehensive
income, depending on the classification of existing assets or liabilities. The
Company has recognized a $0.4 adjustment to the opening balance of accumulated
other comprehensive income with respect to the interest rate swaps designated
as cash flow hedges.

    ADOPTED IN 2006

    Accounting by a Vendor for Consideration Given to a Customer (including a
Reseller of the Vendor's Products)

    The Company adopted, in the third quarter of fiscal 2006, EIC-156
"Accounting by a Vendor for Consideration Given to a Customer (including a
Reseller of the Vendor's Products)". Under this new standard, certain rebates
granted by the Company to its retailers have to be reclassified as a reduction
in sales rather than as cost of sales. The new standard must be applied
retroactively with restatement of prior interim financial statements.

    RECENTLY ISSUED

    Financial Instruments and Capital

    In December 2006, the CICA issued three new Handbook sections regarding
financial instruments and capital, i.e. sections 1535, 3862 and 3863, which
are effective for interim and annual financial statements relating to fiscal
years beginning on or after October 1, 2007. The Company intends to apply
these new standards in the first quarter ending December 22, 2007, and do not
foresee that these new sections will have a material effect on its results,
financial position and cash flows.
    Section 1535 "Capital Disclosures" establishes standards for disclosing
information about an entity's capital and how it is managed. These standards
require an entity to disclose the following:

    - its objectives, policies and processes for managing capital;
    - summary quantitative data about what it manages as capital;
    - whether during the period it complied with any externally imposed
      capital requirements to which it is subject;
    - when the entity has not complied with such requirements, the
      consequences of such non-compliance.

    Section 3862 "Financial Instruments - Disclosures" modifies the disclosure
requirements for financial instruments and replaces Section 3861 "Financial
Instruments - Disclosure and Presentation". The new standards require entities
to provide disclosures in their financial statements that enable users to
evaluate:

    - the significance of financial instruments for the entity's financial
      position and performance;
    - the nature and extent of risks arising from financial instruments to
      which the entity is exposed during the period and at the balance sheet
      date, and how the entity manages those risks.

    Section 3863 "Financial Instruments - Presentation" carries forward
unchanged the presentation requirements of the old Section 3861 "Financial
Instruments - Disclosure and Presentation".

    Inventories

    In March 2007, the CICA issued the new Section 3031 "Inventories" which
will replace Section 3030 "Inventories". The new Section prescribes
measurement of inventories at the lower of cost and net realizable value. It
provides guidance on the determination of cost, prohibits use in the future of
the last-in, first-out (LIFO) method, and requires reversal of previous
write-downs when there is a subsequent increase in the value of inventories.
It also requires greater disclosure regarding inventories and the cost of
sales. The new standard will be effective for interim and annual financial
statements relating to fiscal years beginning on or after January 1, 2008. The
Company is currently evaluating their effect on its results, financial
position and cash flows as well as the possibility of early application.

    3. Integration and Rationalization Costs

    During the period ended July 7, 2007, the Company pursued its plan for the
integration and rationalization of its operations following the acquisition of
A&P Canada. This three-part plan deals with the store network, the integration
of overall operations, and the implementation of information systems at A&P
Canada.
    Over fiscal 2006, integration and rationalization plan costs amounted to
$28.0 and $31.0 is anticipated in 2007. Costs incurred over the 40-week period
amounted to $16.4, which includes $5.4 in the third quarter of 2007.

    By Nature of Project
                                                            Antici-
                                        Incurred             pated     Total
                                   2007           2006
                           (16 weeks)(40 weeks)(53 weeks)
    -------------------------------------------------------------------------
    Stores                   $     -   $   2.2   $  11.9   $   5.1   $  19.2
    Integration of
     operations                  0.5       5.0      13.9       5.2      24.1
    Implementation of
     information systems         4.9       9.2       2.2       4.3      15.7
    -------------------------------------------------------------------------
                             $   5.4   $  16.4   $  28.0   $  14.6   $  59.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    By Nature of Costs for the 16-Week Period

                               Liability                           Liability
                                   as at    Incurred        Paid       as at
                                March 17,       2007        2007      July 7,
                                    2007   (16 weeks)  (16 weeks)       2007
    -------------------------------------------------------------------------
    Retention bonuses,
     termination benefits
     and others                $     4.4   $     0.1   $     1.3   $     3.2
    Training and IT
     implementation                    -         4.9         4.9           -
    Vacant premises                  3.4           -         0.5         2.9
    -------------------------------------------------------------------------
                               $     7.8   $     5.0   $     6.7   $     6.1
    Asset write-offs                             0.4
    -------------------------------------------------------------------------
                                           $     5.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                            Incurred
                                                2006      Antici-
                                           (53 weeks)      pated       Total
    -------------------------------------------------------------------------

    Retention bonuses,
     termination benefits                  $    18.1   $     5.5   $    27.9
     and others
    Training and IT
     implementation                              2.2         4.3        15.7
    Vacant premises                              2.4         0.8         5.5
    -------------------------------------------------------------------------
                                           $    22.7   $    10.6   $    49.1
    Asset write-offs                             5.3         4.0         9.9
    -------------------------------------------------------------------------
                                           $    28.0   $    14.6   $    59.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    By Nature of Costs for the 40-Week Period

                               Liability                           Liability
                                   as at    Incurred        Paid       as at
                                Sept. 30,       2007        2007      July 7,
                                    2006   (40 weeks)  (40 weeks)       2007
    -------------------------------------------------------------------------
    Retention bonuses,
     termination benefits
     and others                $     2.1   $     4.3   $     3.2   $     3.2
    Training and IT
     implementation                    -         9.2         9.2           -
    Vacant premises                  1.5         2.3         0.9         2.9
    -------------------------------------------------------------------------
                               $     3.6   $    15.8   $    13.3   $     6.1
    Asset write-offs                             0.6
    -------------------------------------------------------------------------
                                           $    16.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                            Incurred
                                                2006      Antici-
                                           (53 weeks)      pated       Total
    -------------------------------------------------------------------------

    Retention bonuses,
     termination benefits                  $    18.1   $     5.5   $    27.9
     and others
    Training and IT
     implementation                              2.2         4.3        15.7
    Vacant premises                              2.4         0.8         5.5
    -------------------------------------------------------------------------
                                           $    22.7   $    10.6   $    49.1
    Asset write-offs                             5.3         4.0         9.9
    -------------------------------------------------------------------------
                                           $    28.0   $    14.6   $    59.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As a result of the third quarter decision to further integrate Loeb Canada
operations into A&P Canada's, the Company has revised the initial figure of
$55.0 to $59.0.


    4. Employee Future Benefits

    The Company offers several defined benefit and defined contribution plans
that provide most participants with pension, other retirement and other
post-employment benefits. The Company's defined benefit and defined
contribution plan expenses were as follows:

                                                   16 Weeks
                                                  Fiscal Year
                               ----------------------
                                         2007                    2006
    -------------------------------------------------------------------------
                                 Pension       Other     Pension       Other
                                   plans       plans       plans       plans
    -------------------------------------------------------------------------
    Defined contribution
     plans                     $     8.4   $     0.1   $     6.9   $     0.1
    -------------------------------------------------------------------------
    Defined benefit plans
    Current service cost       $     7.4   $     0.4   $     6.6   $     0.3
    Interest cost                    8.5         0.4         7.3         0.6
    Projected return on
     plan assets                   (11.6)          -       (10.5)          -
    Amortization of
     actuarial losses and
     past service cost               0.7           -         0.2           -
    -------------------------------------------------------------------------
                                     5.0         0.8         3.6         0.9
    -------------------------------------------------------------------------
                               $    13.4   $     0.9   $    10.5   $     1.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------------------


                                                   40 Weeks
                                                  Fiscal Year
                               ----------------------
                                         2007                    2006
                                 Pension       Other     Pension       Other
                                   plans       plans       plans       plans
    -------------------------------------------------------------------------
    Defined contribution
     plans                     $    20.0   $     0.2   $    17.0   $     0.3
    -------------------------------------------------------------------------
    Defined benefit plans
    Current service cost       $    18.8   $     0.9   $    16.2   $     0.8
    Interest cost                   21.1         1.0        18.5         1.6
    Projected return on
     plan assets                   (29.2)          -       (25.9)          -
    Amortization of
     actuarial losses and
     past service cost               1.3           -         0.6           -
    -------------------------------------------------------------------------
                                    12.0         1.9         9.4         2.4
    -------------------------------------------------------------------------
                               $    32.0   $     2.1   $    26.4   $     2.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------------------


    5. Income Taxes

    The effective income tax rates were as follows:

                                       16 Weeks                40 Weeks
                                      Fiscal Year             Fiscal Year
                               ----------              ----------
                                    2007        2006        2007        2006
                                       %           %           %           %
    -------------------------------------------------------------------------
    Combined statutory
     income tax rate                32.8        31.8        32.4        31.8
    Changes
      Impact of federal tax
       rate decrease of 0.5%
       (3.12% in 2006) on
       future taxes ($1.8 in
       2007 and $9.4 in 2006)       (1.5)       (8.2)       (0.6)       (3.7)
      Impact of Québec tax
       rate increase of 3%
       on future taxes
       ($5.3 in 2006)                  -           -           -         2.1
      Share of earnings of
       a public company
       subject to
       significant influence        (0.5)       (0.4)       (0.8)       (0.9)
      Other                          0.4         0.1         0.3         0.2
    -------------------------------------------------------------------------
                                    31.2        23.3        31.3        29.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------              ----------

    6. Earnings per Share

    Basic 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)                      2007        2006        2007        2006
    -------------------------------------------------------------------------
    Weighted average number
     of shares outstanding -
     Basic                         115.3       114.7       115.1       114.5
    Dilutive effect of stock
     option plan and
     performance share units         1.5         1.3         1.6         1.4
    -------------------------------------------------------------------------
    Weighted average number
     of shares outstanding -
     Diluted                       116.8       116.0       116.7       115.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------              ----------


    7. Capital Stock

    Issued and Outstanding

                                  Class A              Class B
                            Subordinate Shares         Shares          Total
                          --------------------     ---------------   --------
                              Number              Number
                          (Thousands)         (Thousands)
    -------------------------------------------------------------------------
    Balance as at
     September 30, 2006      113,852   $ 707.3       880   $   1.7   $ 709.0
    Share issue                  655      11.0         -         -      11.0
    Transfer from
     contributed surplus -
     options exercised             -       0.4         -         -       0.4
    Shares redeemed for
     cash, excluding
     premium of $0.4             (15)     (0.1)        -         -      (0.1)
    Conversion of shares          65       0.1       (65)     (0.1)        -
    Acquisition of
     treasury shares,
     excluding premium
     of $2.7                     (82)     (0.5)        -         -      (0.5)
    -------------------------------------------------------------------------
    Balance as at
     July 7, 2007            114,475   $ 718.2       815   $   1.6   $ 719.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Stock Option Plan

    As at July 7, 2007, 3,700,880 stock options had been granted to certain
employees at exercise prices varying from $11.80 to $39.17, with expiry dates
up to 2014. Of these stock options, 2,607,900 could be exercised for an
average weighted exercise price of $20.29.


                                       16 Weeks                40 Weeks
                                      Fiscal Year             Fiscal Year
                               ----------              ----------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Granted stock options
     during the period           131,100     135,100     135,600     180,100
    Weighted average
     exercise price            $   37.81   $   30.16   $   37.74   $   30.57
    Weighted average fair
     value                     $   10.46   $    9.57   $   10.48   $    9.65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------              ----------


    During the 40-week period of 2007, the weighted average fair value of
stock options was established at the time of grant using the Black & Scholes
model and based on the following weighted average assumptions: risk-free
interest rate of 4.2% (2006 - 4.2%), expected six-year term (2006 - six-year
term), anticipated volatility of 25.2% (2006 - 30%) and an anticipated 1.5%
dividend yield (2006 - 1.5%).
    The compensation expense for these stock options amounted to $1.0 for the
third quarter of 2007 (2006 - $0.5) and to $1.7 for the 40-week period of 2007
(2006 - $1.0).

    Performance Share Unit Plan

    As of July 7, 2007, a total of 129,659 performance share units (PSUs) had
been granted to certain employees including 1,377 in the third quarter.
    At the end of the third quarter, 154,000 shares were held in trust for
participants until the PSUs shall have vested or been cancelled. 18,500 of
these shares have been acquired during the third quarter.
    A compensation expense of $1.1 pertaining to PSUs was recorded in the
40-week period of 2007 (2006 - $0.2), $0.6 of which was recorded in the third
quarter (2006 - $0.2).

    8. Accumulated Other Comprehensive Income

    Derivatives designated as cash flow hedges constitute the sole item in
Accumulated Other Comprehensive Income. The changes that occurred during the
40-week period were as follows:
                                                              Fiscal Year
                                                     ----------
                                                          2007          2006
    -------------------------------------------------------------------------
    Adjusted opening balance due to the new
     accounting policies adopted regarding
     financial instruments
     (net of income taxes of $0.2) (note 2)          $     0.4     $       -
    Change in fair value during the period
     (net of income taxes of $1.0)                         2.0             -
    -------------------------------------------------------------------------
    Balance - end of period                          $     2.4     $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9. Contingency

    In January 2007, the Company was named in a suit brought by beneficiaries
of a multiemployer pension plan. They claim that plan assets were mismanaged
and are seeking, among others, damages of $1 billion from the trustees and the
employers. The Company is one of the 443 employers affected by the suit and
did not participate in managing the plan. The Company forcefully contests the
suit's merits and considers that it will have no future financial obligation
relating to this recourse.

    10. Financial Instruments

    The financial instruments' book values and fair values were as follows:

                               ----------------------
                                      As at July 7,       As at September 30,
                                          2007                    2006
    -------------------------------------------------------------------------
                                    Book        Fair        Book        Fair
                                   value       value       value       value
    -------------------------------------------------------------------------
    Investments and other
     assets
      Available-for-sale
       financial assets
        Investments in
         companies             $     0.1   $     0.1   $     0.1   $     0.1
      Loans and receivables
        Loans to certain
         customers             $     9.5   $     9.5   $     8.6   $     8.6
      Derivatives designated
       as cash flow hedges
        Interest rate swaps    $     3.6   $     3.6   $       -   $     0.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Long-term debt
      Other financial
       liabilities
        Credit facility A      $   469.3   $   469.3   $   469.3   $   469.3
        Series A notes             200.0       186.6       200.0       199.8
        Series B notes             400.0       366.0       400.0       410.3
        Loans                       10.3        10.3        10.4        10.4
        Obligations under
         capital leases             39.9        47.5        44.2        53.7
    -------------------------------------------------------------------------
                               $ 1,119.5   $ 1,079.7   $ 1,123.9   $ 1,143.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------------------

    The fair value of cash and cash equivalents, accounts receivable, bank
loans and accounts payable approximates their carrying value because of the
short-term maturity of these instruments.
    The fair value of investments in companies, public companies for the most
part, is evaluated based on stock market prices at the balance sheet date.
    The fair value of loans to certain customers, credit facilities and loans
payable is equivalent to their carrying value since their interest rates are
comparable to market rates.
    The fair value of the derivative financial instruments generally reflects
the estimates of the amounts the Company would receive by way of settlement of
favourable contracts or that it would pay to terminate unfavourable contracts
at the balance sheet date. The fair values of the interest rate swaps are
calculated using the prices obtained from major financial institutions.
    The fair value of notes represents the obligations that the Company would
have to face in the event of the negotiation of similar notes under current
market conditions.
    The fair value of the obligations under capital leases represents the
obligations that the Company would have to face in the event of the
negotiation of similar leases under current market conditions.

    11. Subsequent Event

    On August 8, 2007 the company renegotiated conditions of its banking
credit facilities relative to the $400 million revolving line of credit which
is not drawn and the $469.3 million credit A term loan. The expiry terms for
both credits have been extended to August 2012 and the relative interest rates
have been reduced.
    
    %SEDAR: 00001783EF




For further information:

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


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