We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.

The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.

These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.

When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?

Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.

Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.

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Tuesday, July 29, 2008

George Weston Limited - Quarterly Report to Shareholders

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TORONTO, Jul 29, 2008 (Canada NewsWire via COMTEX) ----Quarterly Report to Shareholders

George Weston Limited

24 Weeks Ended June 14, 2008

FORWARD-LOOKING STATEMENTS

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

These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These risks and uncertainties include, but are not limited to: changes in economic conditions; changes in consumer spending and preferences; heightened competition, whether from new competitors or current competitors; the availability and cost of raw materials and ingredients, fuels and utilities; changes in the Company's or its competitors' pricing strategies; failure of the Company's franchised stores to perform as expected; risks associated with the terms and conditions of financing programs offered to the Company's independent franchisees; failure to realize sales growth, anticipated cost savings or operating efficiencies from the Company's major initiatives, including investments in the Company's information technology systems, supply chain investments and other cost reduction and simplification initiatives; increased costs relating to utilities, including electricity, and fuel; the inability of the Company's information technology infrastructure to support the requirements of the Company's business; the inability of the Company to manage inventory to minimize the impact of obsolete or excess issues and to control shrink; failure to execute successfully and in a timely manner the Company's major initiatives, including the implementation of strategies and introduction of innovative products; unanticipated costs associated with the Company's strategic initiatives, including those related to compensation costs; the inability of the Company's supply chain to service the needs of the Company's stores; deterioration in the Company's relationship with its employees, particularly through periods of change in the Company's business; failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements; changes to the regulatory environment in which the Company operates; the adoption of new accounting standards and changes in the Company's use of accounting estimates including in relation to inventory valuation; fluctuations in the Company's earnings due to changes in the value of stock-based compensation and equity derivative contracts relating to the Company's and Loblaw Companies Limited's ("Loblaw") common shares; changes in the Company's tax liabilities resulting from changes in tax laws or future assessments; detrimental reliance on the performance of third-party service providers; public health events; the inability of the Company to obtain external financing; the inability of the Company to attract and retain key executives; and supply and quality control issues with vendors. These and other risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Operating Risks and Risk Management and Financial Risks and Risk Management sections of the MD&A included in Weston's 2007 Annual Report. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements.

In addition to these risks and uncertainties, the material assumptions used in making the forward-looking statements contained herein and in particular in the Report to Shareholders and the section entitled "Outlook" include: there is no material change in economic conditions; patterns of consumer spending and preferences remain reasonably consistent with historical trends; there is no significant change in competitive conditions, whether related to new competitors or current competitors; there are no unexpected changes in the Company's or its competitors' current pricing strategies; the Company's franchised stores perform as expected; the Company successfully offers new and innovative products and executes its strategies as planned; anticipated cost savings and operating efficiencies are achieved, including those from the Company's cost reduction and simplification initiatives; there is no unexpected adverse change in the Company's access to liquidity; and there are no significant regulatory, tax or accounting changes or other significant events occurring outside the ordinary course of business.

Readers are cautioned not to place undue reliance on these forward- looking statements, which reflect the Company's expectations only as of the date of this Quarterly Report. The Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Report to Shareholders(2)

 << CONSOLIDATED RESULTS
   OF OPERATIONS (unaudited) ($ millions except 12 Weeks Ended 24 Weeks Ended where --------- --------- otherwise Jun. 14, Jun.
   16, Jun. 14, Jun. 16, indicated) 2008 2007 Change 2008 2007 Change -------------------------------------------------------------------------
   Sales $ 7,847 $ 7,739 1.4% $ 15,184 $ 14,960 1.5% Operating income $ 340 $ 328 3.7% $ 592 $ 537 10.2% Operating margin 4.3%
   4.2% 3.9% 3.6% Interest expense and other financing charges $ 107 $ 102 4.9% $ 129 $ 154 (16.2)% Net earnings $ 118 $ 129
   (8.5)% $ 249 $ 233 6.9% Basic net earnings per common share ($) $ 0.84 $ 0.90 (6.7)% $ 1.75 $ 1.60 9.4% -------------------------------------------------------------------------
   EBITDA(1) $ 502 $ 493 1.8% $ 915 $ 869 5.3% EBITDA margin(1) 6.4% 6.4% 6.0% 5.8% Free cash flow(1) $ 205 $ 402 (49.0)% $ (284)
   $ (5) (5,580.0)% ------------------------------------------------------------------------- --------- --------- >>

Net earnings for the second quarter of 2008 were $118 million, an 8.5% decrease over the same period last year, and basic net earnings per common share of $0.84 compared to $0.90 in the second quarter last year, a decrease of 6.7%.

Sales in the second quarter of 2008 were $7.8 billion compared to $7.7 billion in the same period last year, an increase of 1.4%. The impact of foreign currency translation on the Weston Foods operating segment negatively impacted consolidated sales growth by approximately 0.8% for the second quarter of 2008.

Operating income for the second quarter of 2008 was $340 million compared to $328 million in 2007, an increase of 3.7%. Consolidated operating margin of 4.3% for the second quarter increased compared to 4.2% for the same period in 2007. Year-over-year changes in the following items together with additional factors outlined in the MD&A influenced the Company's operating income in the second quarter of 2008 compared to the same period in 2007:

 << - a charge of $3 million (2007 - $66 million) related to restructuring and other charges for restructuring
   plans undertaken by both Weston Foods and Loblaw. The effect on basic net earnings per common share was a charge of $0.02
   (2007 - $0.19); - income of $13 million (2007 - $17 million) related to the net effect of stock-based compensation and the
   associated equity derivatives of both Weston and Loblaw. The effect on basic net earnings per common share was income of $0.05
   (2007 - $0.07); - a charge of $34 million (2007 - income of $12 million) related to the commodity derivatives fair value adjustment
   at Weston Foods. The effect on basic net earnings per common share was a charge of $0.17 (2007 - $0.06 per common share income);
   and - income of $7 million (2007 - nil) related to the redemption of the remaining outstanding Weston 3% Exchangeable Debentures
   and the sale of the Domtar (Canada) Paper Inc. shares. The effect on basic net earnings per common share was income of $0.04
   (2007 - nil). >>

Excluding the impact of the specific items noted above, performance in the second quarter of 2008 was challenging. Loblaw is behind in its plans for operating as an effective selling organization, as reflected in its second quarter sales performance. However, Loblaw remains on track with its cost reduction efforts, and while Loblaw is satisfied with its margin performance, it is continuing its investments in foundational infrastructure, offer enhancement, and value for its customers. The Weston Foods operating segment continues to experience significant cost pressure in the price of flour, fuel and other input items. However, a combination of pricing actions, changes in sales mix, and cost reduction initiatives resulted in positive operating income growth in the second quarter, after excluding the impact of the specific items noted above, as compared to the second quarter of 2007.

Interest expense and other financing charges for the second quarter of 2008 increased 4.9% to $107 million from $102 million in 2007, primarily due to lower net short term investment income, partially offset by a decreased non-cash charge related to the accounting for Weston's 2001 forward sale agreement of 9.6 million Loblaw common shares of $27 million (2007 - $32 million), which resulted in a basic net earnings per common share non-cash charge of $0.15 (2007 - $0.17).

The effective income tax rate increased to 25.8% in the second quarter of 2008 compared to 23.9% for the same period in 2007, primarily due to an increase in income tax accruals relating to certain income tax matters and a change in the proportion of taxable income earned across different tax jurisdictions, which were partially offset by lower Canadian federal and certain provincial statutory income tax rates relative to the second quarter of 2007.

Free cash flow(1) for the second quarter of 2008 was $205 million compared to $402 million in the second quarter of 2007. On a year-to-date basis, free cash flow(1) was negative $284 million compared to negative $5 million in 2007. The decreases in second quarter and year-to-date free cash flows were due to a decrease in cash flows from operating activities, net of a decrease in capital expenditures, compared to the prior year periods.

On April 11, 2008, Weston entered into a $300 million, 5-year committed credit facility provided by a syndicate of banks, replacing the previous $300 million, 364-day credit facility. On May 30, 2008, Loblaw closed a USD $300 million private placement of unsecured notes, and on June 11, 2008, Loblaw announced a public offering of $225 million of second preferred shares, which closed subsequent to the end of the second quarter of 2008 for net proceeds of $218 million.

OPERATING SEGMENTS

Weston Foods

Weston Foods sales for the second quarter of 2008 of $1.0 billion increased 2.0% compared to the second quarter of 2007. Foreign currency translation negatively impacted reported sales growth by approximately 6.3%. Price increases across key product categories combined with changes in sales mix contributed positively to sales growth by 8.5% for the second quarter of 2008. Overall volume decreased by 0.2% for the second quarter of 2008 when compared to the same period last year.

Weston Foods operating income for the second quarter of 2008 was $79 million compared to $112 million in the same period in 2007, a decrease of 29.5%. Weston Foods operating margin for the second quarter was 7.7% compared to 11.2% in the same period in 2007. Excluding the impact of restructuring and other charges, the net effect of stock-based compensation and the associated equity derivatives, the commodity derivatives fair value adjustment and the redemption of the remaining outstanding Weston 3% Exchangeable Debentures and the sale of the Domtar (Canada) Paper Inc. shares, which are more fully described in the MD&A, Weston Foods operating income growth was strong. Weston Foods experienced significant increases in the price of flour, fuel and other input items, as compared to the second quarter of 2007, but was able to increase prices and manage its sales mix towards higher margin products. In addition, the benefits realized from the continued focus on cost reduction initiatives, including restructuring activities, had a positive impact on operating income.

Loblaw

Loblaw sales for the second quarter of 2008 increased 1.5% or $104 million to $7.0 billion compared to the second quarter of 2007. Same- store sales in the second quarter increased by 0.7% over the second quarter of 2007 during a period of modest internal retail food price deflation. Sales and same-store sales growth in the second quarter of 2008 were negatively impacted by approximately 0.7% as a result of a shift of Easter sales into the first quarter of 2008. Total sales growth in food was positive and drugstore sales were particularly strong, while general merchandise sales declined compared to the second quarter of 2007. In addition, gas bar sales were strong in the second quarter as a result of fuel price inflation and volume growth. Total sales increases in the second quarter of 2008 were achieved by positive growth in both customer and item counts.

Loblaw operating income for the second quarter of 2008 was $261 million compared to $216 million in the same period in 2007, an increase of 20.8%. Loblaw operating margin for the second quarter was 3.7% compared to 3.1% in the same period in 2007. Excluding the impact of restructuring and other costs and the net effect of stock-based compensation and the associated equity forwards, which are more fully described in the MD&A, operating income and operating margin declined in the second quarter of 2008 compared to the second quarter of 2007, as a result of Loblaw's continued investment in lower retail prices which was initiated in the third quarter of 2007.

OUTLOOK(2)

The consolidated results of George Weston Limited for 2008 will continue to reflect the changes undertaken by both the Weston Foods and Loblaw operating businesses in order to position them for strong growth in the future.

For the remainder of the year, Weston Foods expects operating margins to remain under pressure as the costs of key input items continue to rise. Weston Foods will focus on mitigating this cost inflation through cost reduction efforts and by managing product mix.

For the balance of the year, Loblaw will direct its efforts towards building profitable sales momentum while continuing to improve value for customers. Focus on cost and operating efficiencies will continue as margins are expected to remain under pressure.

(signed)

 << W. Galen Weston Toronto, Canada Chairman and President July 28,
   2008 >>

Management's Discussion and Analysis

The following MD&A for George Weston Limited should be read in conjunction with Weston's 2008 unaudited interim period consolidated financial statements and the accompanying notes on pages 22 to 48 of this Quarterly Report and the audited annual consolidated financial statements and the accompanying notes for the year ended December 31, 2007 and the related annual MD&A included in Weston's 2007 Annual Report. Weston's 2008 unaudited interim period consolidated financial statements and the accompanying notes have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and are reported in Canadian dollars. These unaudited interim period consolidated financial statements include the accounts of George Weston Limited and its subsidiaries and variable interest entities ("VIEs") that the Company is required to consolidate in accordance with Accounting Guideline 15, "Consolidation of Variable Interest Entities" ("AcG 15"). A glossary of terms and ratios used throughout this Quarterly Report can be found beginning on page 114 of Weston's 2007 Annual Report. In addition, this Quarterly Report includes the following terms: "rolling year return on average total assets", which is defined as cumulative operating income for the latest four quarters divided by average total assets excluding cash and cash equivalents, short term investments, security deposits which are included in other assets and the Domtar (Canada) Paper Inc. investment; and "rolling year return on average common shareholders' equity", which is defined as cumulative net earnings available to common shareholders for the latest four quarters divided by average total common shareholders' equity.

The information in this MD&A is current to July 28, 2008, unless otherwise noted.

CONSOLIDATED RESULTS OF OPERATIONS

Sales

Sales for the second quarter of 2008 increased 1.4%, or $108 million, to $7.8 billion from $7.7 billion in the second quarter of 2007. On a year-to- date basis, sales increased 1.5% to $15.2 billion. The impact of foreign currency translation on the Weston Foods operating segment negatively impacted consolidated sales growth by approximately 0.8% for the second quarter of 2008 and 1.2% on a year-to-date basis. When compared to the same period last year, the Company's consolidated sales for the second quarter of 2008 were impacted by each of its reportable operating segments as follows:

 << - Positively by 0.3% at Weston Foods as a result of a sales increase of 2.0%, which included
   the negative impact of foreign currency translation on reported sales growth of approximately 6.3%. Price increases across
   key product categories combined with changes in sales mix contributed positively to sales growth by 8.5% for the second quarter
   of 2008. Overall volume decreased 0.2% for the second quarter of 2008 with the positive impact of growth in certain higher
   margin categories being more than offset by declines in other categories. - Positively by 1.3% due to sales growth of 1.5%
   at Loblaw. Same-store sales increased by 0.7% in the second quarter during a period of modest internal retail price deflation.
   The shift of Easter sales into the first quarter of 2008 resulted in approximately 0.7% lower growth in the second quarter
   of 2008. Total sales growth in food was positive and drugstore sales were particularly strong, while general merchandise sales
   declined compared to the second quarter of 2007. In addition, gas bar sales were strong in the second quarter as a result
   of fuel price inflation and volume growth. Total sales increases in the second quarter of 2008 were achieved by positive growth
   in both customer and item counts. Operating Income Operating income for the second quarter of 2008 was $340 million compared
   to $328 million in 2007, an increase of 3.7%. The Company's second quarter 2008 operating margin increased to 4.3% from 4.2%
   in the comparable period of 2007. The year-over-year change in the following items influenced operating income for the second
   quarter of 2008 compared to the second quarter of 2007: - a charge of $3 million (2007 - $66 million) related to restructuring
   and other charges for restructuring plans undertaken by both Weston Foods and Loblaw; - income of $13 million (2007 - $17
   million) related to the net effect of stock-based compensation and the associated equity derivatives at both Weston and Loblaw.
   The amount of net stock-based compensation cost recorded in operating income is mainly dependent upon the number of unexercised,
   vested stock options and restricted share units relative to the number of underlying common shares on the equity derivatives
   and the level of and fluctuations in the market prices of the underlying common shares; - a charge of $34 million (2007 -
   income of $12 million) related to the commodity derivatives fair value adjustment at Weston Foods. This commodity derivatives
   fair value adjustment includes realized and unrealized gains and losses related to future purchases of raw materials; and
   - income of $7 million (2007 - nil) related to the redemption of the remaining outstanding Weston 3% Exchangeable Debentures
   and the sale of the Domtar (Canada) Paper Inc. shares. When compared to the same period last year, the Company's change in
   operating income for the second quarter of 2008 was impacted by each of its reportable operating segments as follows: - Negatively
   by 10.0% due to a decrease of 29.5% in operating income at Weston Foods, with operating margin decreasing to 7.7% compared
   to 11.2% in 2007. Weston Foods operating income and operating margin were negatively impacted by the commodity derivative
   fair value adjustment, higher restructuring costs and a decrease in net stock- based compensation income, net of the gain
   on the redemption of the Weston 3% Exchangeable Debentures and the sale of the Domtar (Canada) Paper Inc. shares. Excluding
   these specific items, operating income was impacted positively by price increases and changes in sales mix and by the benefits
   realized from the continued focus on cost reduction initiatives, including completed restructuring activities. - Positively
   by 13.7% due to an increase of 20.8% in operating income at Loblaw, with operating margin increasing to 3.7% compared to 3.1%
   in 2007. Excluding the impact of restructuring and other costs and the net effect of stock-based compensation and the associated
   equity forwards, operating income and operating margin declined in the second quarter of 2008 compared to the second quarter
   of 2007, as a result of Loblaw's continued targeted investments in lower retail prices to drive sales growth. Loblaw initiated
   significant pricing investments in the third quarter of 2007 and as a result, margins in the second quarter of 2008 were negatively
   impacted when compared to the second quarter of 2007. Year-to-date operating income for 2008 was $592 million compared to
   $537 million in 2007, an increase of 10.2%. Operating margin for 2008 year-to-date was 3.9% compared to 3.6% in 2007.
   The year-over-year change in the following items influenced operating income for the first half of 2008 compared to the first
   half of 2007: - a charge of $8 million (2007 - $155 million) related to restructuring and other charges for restructuring
   plans undertaken by both Weston Foods and Loblaw; - a charge of $25 million (2007 - $2 million) related to the net effect
   of stock-based compensation and the associated equity derivatives of both Weston and Loblaw; - a charge of $10 million (2007
   - income of $12 million) related to the commodity derivatives fair value adjustment at Weston Foods; and - income of $7 million
   (2007 - nil) related to the redemption of the remaining outstanding Weston 3% Exchangeable Debentures and the sale of the
   Domtar (Canada) Paper Inc. shares. >>

EBITDA(1) increased by $9 million or 1.8%, to $502 million in the second quarter of 2008 compared to $493 million in the second quarter of 2007. On a year-to-date basis EBITDA(1) increased by $46 million or 5.3% to $915 million compared to $869 million in 2007. EBITDA margin(1) for the second quarter remained unchanged at 6.4%, impacted by offsetting higher EBITDA margins(1) at Loblaw and lower EBITDA margins(1) at Weston Foods. On a year-to-date basis EBITDA margin(1) increased to 6.0% from 5.8% in 2007, positively impacted by higher EBITDA margins(1) at Loblaw and partially offset by lower EBITDA margins(1) at Weston Foods.

Interest Expense and Other Financing Charges

Interest expense and other financing charges for the second quarter of 2008 increased $5 million, or 4.9%, to $107 million from $102 million in the second quarter of 2007. The change was mainly the result of:

 << - net short term interest income
   of $1 million compared to $7 million in 2007, primarily due to lower interest rates on United States dollar denominated cash,
   cash equivalents and short term investments; and - dividends on capital securities of $5 million compared to nil in 2007.
   During the second quarter of 2008, the 10.6 million outstanding Preferred Shares, Series II, which were previously presented
   as share capital on the consolidated balance sheet were reclassified to capital securities and are included in liabilities,
   to conform with the Canadian Institute of Chartered Accountants ("CICA") Section 3863, "Financial Instruments - Presentation".
   Dividends on these preferred shares are presented in interest expense and other financing charges in the consolidated statement
   of earnings in the second quarter of 2008 and onwards. partially offset by: - a non-cash charge of $27 million compared to
   $32 million in 2007 which was recorded in other financing charges, representing the fair value adjustment of Weston's forward
   sale agreement for 9.6 million Loblaw common shares. The fair value adjustment of the forward contract is a non-cash item
   resulting from fluctuations in the market price of the underlying Loblaw common shares that Weston owns. Weston does not record
   any change in the market price associated with the Loblaw common shares it owns. Any cash paid under the forward contract
   could be offset by the sale of the Loblaw common shares; and - interest income from financial derivative instruments of $1
   million compared to an expense of $4 million in 2007 which includes the effect of the Company's interest rate swaps, cross
   currency basis swaps, fixed cross currency swaps and equity derivatives. >>

Year-to-date interest expense and other financing charges decreased by $25 million to $129 million from $154 million in 2007. This decrease was primarily due to the non-cash income of $24 million (2007 - non-cash charge of $13 million) related to the fair value adjustment of Weston's forward sale agreement for 9.6 million Loblaw common shares and by the impact of lower interest expense on financial derivatives in 2008 compared to 2007, partially offset by the negative impact of lower net short term interest income and the dividends on capital securities.

Income Taxes

The effective income tax rate increased to 25.8% in the second quarter of 2008 compared to 23.9% in the second quarter of 2007 and on a year-to-date basis increased to 29.4% from 23.2%. The increases were primarily due to an increase in income tax accruals relating to certain income tax matters and a change in the proportions of taxable income earned across different tax jurisdictions, which were partially offset by lower Canadian federal and certain provincial statutory income tax rates relative to the prior year periods.

Net Earnings

Net earnings for the second quarter of 2008 decreased $11 million, or 8.5%, to $118 million from $129 million in 2007 and on a year- to-date basis increased $16 million, or 6.9%, to $249 million from $233 million in 2007. Basic net earnings per common share for the second quarter of 2008 decreased $0.06, or 6.7%, to $0.84 from $0.90 in 2007 and year-to-date increased $0.15, or 9.4%, to $1.75 from $1.60 in 2007.

Basic net earnings per common share were affected in the second quarter of 2008 compared to the second quarter of 2007 by the following factors:

 << - a $0.02 per common share charge (2007
   - $0.19) related to restructuring and other charges for restructuring plans undertaken by both Weston Foods and Loblaw; -
   $0.05 per common share income (2007 - $0.07) related to the net effect of stock-based compensation and the associated equity
   derivatives of both Weston and Loblaw; - a $0.17 per common share charge (2007 - $0.06 per common share income) related to
   the commodity derivatives fair value adjustment at Weston Foods; - a $0.15 per common share non-cash charge (2007 - $0.17)
   related to the accounting for Weston's 2001 forward sale agreement of Loblaw common shares; - $0.02 per common share income
   (2007 - nil) related to the income tax effect of the fair value adjustment of the Domtar (Canada) Paper Inc. shares, net of
   the re-measurement of the Weston 3% Exchangeable Debentures; and - $0.04 per common share income (2007 - nil) related to the
   redemption of the remaining outstanding Weston 3% Exchangeable Debentures and the sale of the Domtar (Canada) Paper Inc. shares.
   The 2008 year-to-date basic net earnings per common share were affected by the following factors compared to 2007: - a $0.04
   per common share charge (2007 - $0.47) related to restructuring and other charges for restructuring plans undertaken by both
   Weston Foods and Loblaw; - a $0.16 per common share charge (2007 - $0.04) related to the net effect of stock-based compensation
   and the associated equity derivatives of both Weston and Loblaw; - a $0.05 per common share charge (2007 - $0.06 per common
   share income) related to the commodity derivatives fair value adjustment at Weston Foods; - $0.14 per common share non-cash
   income (2007 - $0.07 per common share non-cash charge) related to the accounting for Weston's 2001 forward sale agreement
   of Loblaw common shares; - a $0.03 per common share charge (2007 - $0.02 per common share income) related to the income tax
   effect of the fair value adjustment of the Domtar (Canada) Paper Inc. shares, net of the re-measurement of the Weston 3% Exchangeable
   Debentures; and - $0.04 per common share income (2007 - nil) related to the redemption of the remaining outstanding Weston
   3% Exchangeable Debentures and the sale of the Domtar (Canada) Paper Inc. shares. >>

REPORTABLE OPERATING SEGMENTS

Weston Foods

Sales

Weston Foods sales for the second quarter of 2008 of $1.0 billion increased 2.0% compared to the same period in 2007. Foreign currency translation negatively impacted reported sales growth by approximately 6.3%. Price increases across key product categories combined with changes in sales mix contributed positively to sales growth by 8.5% for the second quarter of 2008. Overall volume decreased 0.2% for the second quarter of 2008 with the positive impact of growth in certain higher margin categories being more than offset by declines in other categories.

On a year-to-date basis, sales of $2.0 billion decreased 1.4% compared to the same period in 2007. Foreign currency translation negatively impacted reported sales growth by approximately 8.6%. Price increases across key product categories combined with changes in sales mix contributed positively to sales growth by 7.2% for year-to-date 2008. Overall volume was flat on a year-to-date basis and was positively impacted by growth in certain higher margin categories being offset by declines in other categories.

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

Fresh bakery sales increased approximately 11.5% in the second quarter of 2008 and 10.0% year-to-date compared to the same periods in 2007, driven by price increases in key product categories combined with changes in sales mix. For the second quarter of 2008 and on a year-to-date basis, branded volume increases in the Thomas' and Arnold brands in the United States and D'Italiano brand in Canada were offset by volume declines in other categories, particularly in private label products. Sales growth in whole grain and whole wheat products exceeded the sales growth of white flour based products. The introduction of new and expanded products, such as Thomas' Mini Bagels, Thomas' 100 Calorie Bagel, Thomas' 100 Calorie English Muffin, Arnold Double Breads, Gadoua Vitalit�, Wonder+ Headstart and products under the Weight Watchers(R) licensed brand, contributed positively to branded sales growth during the second quarter of 2008 and year-to-date.

Fresh-baked sweet goods sales, primarily sold under the Entenmann's brand, increased approximately 3.1% in the second quarter of 2008 and 0.6% year-to-date compared to the same periods in 2007 mainly due to price increases and focused promotional activity. Volume growth for the second quarter of 2008 was positive, but volumes on a year-to-date basis remained lower than 2007 due to softness in certain full-size categories, including the impact of item rationalization, partially offset by growth in hand-held categories, including Entenmann's Little Bites.

Frozen bakery sales increased approximately 8.6% in the second quarter of 2008 and 8.1% year-to-date compared to the same periods in 2007, driven mainly by price increases combined with changes in sales mix, offset by lower volumes. Volumes for the second quarter of 2008 were negatively impacted by the timing of customer orders related to the Easter holiday, which fell in the first quarter of 2008.

Dairy and bottled beverage sales increased approximately 2.4% in the second quarter of 2008 and 3.4% year-to-date compared to the same periods in 2007 due to price increases and improvements in the sales mix as growth continued to be experienced in a number of key categories, particularly value- added and flavored milk products. Although volumes declined slightly in the second quarter of 2008 when compared to the second quarter of 2007, volume growth remained positive on a year-to-date basis.

Biscuit sales, principally wafers, ice-cream cones, cookies and crackers, increased approximately 5.4% in the second quarter of 2008 and 5.6% year-to- date compared to the same periods in 2007, primarily due to higher volume of Girl Scout cookie sales.

Operating Income

Weston Foods operating income decreased 29.5% to $79 million in the second quarter of 2008 from $112 million in the same period in 2007. Operating margin was 7.7% for the second quarter of 2008 compared to 11.2% in 2007.

The year-over-year change in the following items influenced operating income for the second quarter of 2008 compared to the second quarter of 2007:

 << - a charge of $2
   million (2007 - income of $7 million) related to restructuring and other charges; - income of $3 million (2007 - $6 million)
   related to the net effect of stock-based compensation and the associated equity derivatives; - a charge of $34 million (2007
   - income of $12 million) related to the commodity derivatives fair value adjustment; and - income of $7 million (2007 - nil)
   related to the redemption of the remaining outstanding Weston 3% Exchangeable Debentures and the sale of the Domtar (Canada)
   Paper Inc. shares. In addition, foreign currency translation negatively impacted second quarter 2008 operating income growth
   by approximately 1.8 percentage points. On a year-to-date basis, Weston Foods operating income decreased 5.8% to $178 million
   from $189 million in 2007. Operating margin for 2008 was 8.7% compared to 9.2% in 2007. The year-over-year change in the following
   items influenced operating income for the first half of 2008 compared to the first half of 2007: - a charge of $4 million
   (2007 - income of $7 million) related to restructuring and other charges; - a charge of $10 million (2007 - $1 million) related
   to the net effect of stock-based compensation and the associated equity derivatives; - a charge of $10 million (2007 - income
   of $12 million) related to the commodity derivatives fair value adjustment; and - income of $7 million (2007 - nil) related
   to the redemption of the remaining outstanding Weston 3% Exchangeable Debentures and the sale of the Domtar (Canada) Paper
   Inc. shares. >>

In addition, foreign currency translation negatively impacted year-to- date 2008 operating income growth by approximately 6.9 percentage points.

Weston Foods is exposed to price fluctuations primarily as a result of anticipated purchases of certain raw materials, fuels and utilities. In accordance with the Company's risk management strategy, Weston Foods enters into commodity derivatives to reduce the impact of price fluctuations in a specified percentage of forecasted raw material purchases over a specified period of time. These commodity derivatives are not acquired for trading or speculative purposes. Certain of these derivatives are not designated as cash flow hedges of anticipated future raw material purchases, therefore hedge accounting does not apply. Accordingly, the changes in fair value of these derivatives, which include realized and unrealized gains and losses related to future purchases of raw materials, are recorded in operating income. During the second quarter of 2008, Weston Foods recorded in operating income a non- cash charge of $34 million (2007 - non-cash income of $12 million) related to the fair value adjustment of exchange traded commodity derivatives that were not designated within a hedging relationship. Regardless of designation for accounting, these commodity derivatives have the economic impact of largely mitigating the associated risks arising from price fluctuations in the underlying commodities.

Weston Foods operating income and operating margin for the second quarter of 2008 and year-to-date were impacted negatively by the specific items described above, in particular the change in the commodity derivatives fair value adjustment, when compared to the prior year periods. Excluding these specific items, operating income and operating margin were positively impacted by sales growth primarily due to price increases combined with changes in sales mix, and the benefits realized from the continued focus on cost reduction initiatives, restructuring activities and reduced product returns. Pricing and other actions mitigated the impact of higher fuel costs and the inflationary cost pressures related to certain ingredients, primarily flour, oils and sugar. Gross margin decreased in the second quarter of 2008 and year- to-date mainly as a result of the commodity derivatives fair value adjustment.

Weston Foods continuously evaluates strategic and cost reduction initiatives related to its manufacturing assets, distribution networks and administrative infrastructure with the objective of ensuring a low cost operating structure. The following items related to those initiatives were recorded in 2008:

 << - During the second
   quarter of 2008, Weston Foods approved a plan to close a fresh bakery manufacturing facility in Ontario. This restructuring
   is expected to be completed in the fourth quarter of 2008. As a result of this restructuring plan, Weston Foods recognized
   $1 million of accelerated depreciation and $1 million of employee termination benefits in the second quarter of 2008. - During
   2006, Weston Foods approved a restructuring plan to downsize its fresh-baked goods facility in Bay Shore, New York. The plan,
   which is now complete, involved the transfer of full-size dessert cake and cookie production to other existing Weston Foods
   facilities. The Bay Shore location is now a more focused facility producing primarily danish and pie products. As a result
   of this restructuring plan, Weston Foods recognized an additional fixed asset impairment charge of $1 million (2007 - nil)
   and $2 million (2007 - nil) of additional employee termination benefits in the first quarter of 2008. - During the third quarter
   of 2007, Weston Foods approved a plan to exit and transfer certain distribution and transportation activities in the mid-Western
   United States to third-party logistic providers. This plan has been completed. Weston Foods recognized income of $1 million
   (2007 - nil) as a result of the reversal of exit related accruals net of additional exit costs in the first quarter of 2008.
   >>

During the second quarter of 2008, Weston purchased a frozen bakery manufacturing facility in Ontario, Canada for cash consideration of $10 million. The acquisition was accounted for using the purchase method of accounting. The impact of the acquisition on Weston Foods' operating results was not significant. The fair value of the net assets acquired has been estimated to consist of $1 million of inventories and $10 million of fixed assets, net of current liabilities of $1 million. The purchase price allocation will be finalized by the end of the third quarter of 2008.

EBITDA(1) decreased by $33 million, or 23.7%, to $106 million in the second quarter of 2008 compared to $139 million in 2007. On a year-to-date basis EBITDA(1) decreased by $17 million, or 6.9%, to $230 million compared to $247 million in 2007. EBITDA margin(1) decreased in the second quarter of 2008 to 10.4% from 13.8% in 2007 and on a year-to-date basis to 11.3% from 12.0% in 2007.

Loblaw

Sales

Sales for the second quarter increased by 1.5% to $7.0 billion compared to $6.9 billion in the second quarter of 2007. Total sales growth in food was positive and drugstore sales were particularly strong, while general merchandise sales declined compared to the second quarter of 2007. Same-store sales increased by 0.7% in the second quarter during a period of modest internal retail food price deflation.

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

 << - same-store sales growth of
   0.7%; - a shift in Easter sales into the first quarter of 2008 resulted in lower sales and same-store sales growth of approximately
   0.7% during the second quarter of 2008; - Loblaw experienced positive volume growth based on retail units sold; - strong gas
   bar sales resulting from both fuel price inflation and volume growth; - Loblaw experienced modest internal retail food price
   deflation for the second quarter of 2008 although national food price inflation as measured by "The Consumer Price Index for
   Food Purchased from Stores" was 1.9% for the second quarter of 2008 compared to 4.0% in the same period of 2007; and - during
   the second quarter of 2008, 6 new corporate and franchised stores were opened and 6 were closed, resulting in a net increase
   of 0.1 million square feet or 0.1%. During the latest four quarters, net retail square footage increased by 0.5 million square
   feet, or 0.9%, due to the opening of 30 new corporate and franchised stores, inclusive of stores that underwent conversions
   and major expansions, and the closure of 29 stores. On a year-to-date basis, sales increased by 2.1%, to $13.6 billion. The
   following factors in addition to the quarterly factors mentioned above further explained the change in year-to-date sales
   over the same period in the prior year: - same-store sales growth of 1.6%; and - an increase in net retail square footage
   during the latest four quarters as noted above. In the first two quarters, 12 new corporate and franchised stores were opened,
   including stores which underwent conversions and major expansions, and 11 stores closed, resulting in a net increase of 0.2
   million square feet or 0.3% from year end 2007. Operating Income Operating income of $261 million for the second quarter of
   2008 compared to $216 million in the same period of 2007, an increase of 20.8%. Operating margin was 3.7% for the second quarter
   of 2008 compared to 3.1% in 2007. The year-over-year change in the following items influenced operating income for the second
   quarter of 2008 compared to the second quarter of 2007: - a charge of $1 million (2007 - $73 million) related to restructuring
   and other charges; and - income of $10 million (2007 - $11 million) related to the net effect of stock-based compensation
   and the associated equity forwards. >>

Loblaw operating income for the second quarter of 2008 as compared to the second quarter of 2007, was positively impacted by lower restructuring costs, partially offset by the decrease in net stock-based compensation income, as described in the specific items noted above. Excluding these specific items, operating margin and EBITDA margin(1) declined in the second quarter of 2008 as a result of Loblaw's continued targeted investments in lower retail prices to drive sales growth. Loblaw initiated significant pricing investments in the third quarter of 2007 and as a result, margins in the second quarter of 2008 were negatively impacted compared to the second quarter of 2007. Loblaw continues to focus on shrink and achieved improvements in shrink expense in the second quarter of 2008 compared to the second quarter of 2007. Sales increases in the second quarter were insufficient to offset margin declines and cost increases.

Loblaw experienced higher store labour costs in the second quarter of 2008 as a result of increased wage rates compared to the second quarter of 2007. Labour productivity remained consistent in the second quarter of 2008 compared to the same period last year but has improved on a year-to-date basis.

A $14 million gain (2007 - nil) from the sale of financial investments by President's Choice Bank ("PC Bank"), a wholly owned subsidiary of Loblaw, was reported in operating income during the second quarter of 2008.

Year-to-date operating income of $414 million compared to $348 million in the same period of 2007, an increase of 19.0%. Year-to-date operating margin was 3.1% compared to 2.6% in 2007.

The year-over-year change in the following items influenced operating income for the first half of 2008 compared to the first half of 2007:

 <<
   - charge of $4 million (2007 - $162 million) related to restructuring and other charges; and - charge of $15 million (2007
   - $1 million) related to the net effect of stock-based compensation and the associated equity forwards. >>

Also influencing year-to-date operating income for the first half of 2008 was the $14 million gain (2007 - nil) from the sale of financial investments by PC Bank.

EBITDA(1) increased by $42 million, or 11.9%, to $396 million in the second quarter of 2008 compared to $354 million in the second quarter of 2007. Year-to-date EBITDA(1) increased by $63 million, or 10.1%, to $685 million compared to $622 million in 2007. EBITDA margin(1) increased in the second quarter of 2008 to 5.6% from 5.1% in the comparable period of 2007. Year-to- date EBITDA margin(1) increased to 5.1% from 4.7% in the comparable period of 2007.

CONSOLIDATED FINANCIAL CONDITION

Financial Ratios

The Company's net debt (excluding Exchangeable Debentures)(1) to equity ratio at the end of the second quarter of 2008 was 0.96:1 compared to 1.03:1 at the end of the same period in 2007 and to 0.96:1 at year end 2007. Equity for the purpose of calculating the net debt (excluding Exchangeable Debentures)(1) to equity ratio is defined by the Company as shareholders' equity and capital securities. The improvement in this ratio at the end of the second quarter of 2008 compared to the end of the second quarter in 2007 was mainly due to an increase in short term investments, partially offset by a net increase in short term bank loans and commercial paper.

The interest coverage ratio in the second quarter of 2008 remained unchanged at 3.1 times as compared to the second quarter of 2007. On a year-to-date basis the interest coverage ratio increased to 4.3 times in 2008 compared to 3.3 times in 2007 primarily due to higher operating income and lower interest expense and other financing charges, resulting mainly from the fair value adjustment of Weston's forward sale agreement for 9.6 million Loblaw common shares, which positively impacted the change in the year-to-date 2008 interest coverage ratio by approximately 0.9 times when compared to 2007.

For further details on the net debt (excluding Exchangeable Debentures)(1) to equity ratio and interest coverage ratio, see note 16 to the unaudited interim period consolidated financial statements.

The Company's rolling year return on average total assets(1) at the end of the second quarter of 2008 was 7.1% compared to 2.2% in the comparable period of 2007 and 6.7% at year end 2007. The Company's rolling year return on average common shareholders' equity was 13.1% at the end of the second quarter of 2008 compared to (0.6)% at the end of the second quarter of 2007 and 12.7% for the year end 2007 return. The ratios in the second quarter of 2007 were negatively impacted by the decline in cumulative operating income for the latest four quarters including the negative impact of the $800 million non- cash Loblaw goodwill impairment charge recorded in the fourth quarter of 2006.

Outstanding Share Capital

Weston's outstanding share capital is comprised of common shares and preferred shares. An unlimited number of common shares is authorized and 129.1 million common shares were outstanding at the end of the second quarter of 2008. An unlimited number of preferred shares Series I, Series III, Series IV and Series V is authorized and 9.4 million preferred shares Series I, 8.0 million preferred shares Series III, 8.0 million preferred shares Series IV and 8.0 million preferred shares Series V were outstanding at the end of the second quarter of 2008.

In addition, 10.6 million Preferred Shares, Series II, are authorized and were outstanding at the end of the second quarter of 2008. During the second quarter of 2008, these Preferred Shares, Series II, which were previously presented as share capital on the consolidated balance sheet, were reclassified to capital securities and are included in liabilities to conform with Section 3863, "Financial Instruments - Presentation".

During the second quarter of 2008, Weston renewed its Normal Course Issuer Bid to purchase on the Toronto Stock Exchange or enter into equity derivatives to purchase up to 5% of its common shares outstanding. In accordance with the rules and by-laws of the Toronto Stock Exchange, Weston may purchase its shares at the then market price of such shares. Weston did not purchase any shares under its Normal Course Issuer Bid in the first half of 2008 or in 2007.

Further information on the Company's outstanding share capital and capital securities is provided in note 16 to the unaudited interim period consolidated financial statements.

Dividends

On July 1, 2008, common share dividends of $0.36 per share and preferred share dividends of $0.32 per share for the Series II, Series III and Series IV preferred shares and dividends of $0.30 per share for the Series V preferred shares were paid as declared by Weston's Board of Directors. On June 15, 2008, preferred share dividends of $0.36 per share for the Series I preferred shares were paid as declared by the Board. The common share dividend for the second quarter of 2008 was maintained at the 2007 quarterly dividend rate.

Dividends on the preferred shares Series II are presented in interest expense and other financing charges in the consolidated statement of earnings in the second quarter of 2008.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows from Operating Activities of Continuing Operations

Second quarter 2008 cash flows from operating activities of continuing operations were $388 million compared to $638 million in the comparable period in 2007. On a year-to-date basis cash flows from operating activities of continuing operations were $108 million compared to $430 million in 2007. The decreases in cash flows from operating activities of continuing operations for the second quarter and year-to-date were mainly due to a decrease in operating income, excluding the impact of restructuring costs, in addition to the changes in non-cash working capital. The change in cash flows used in non-cash working capital for the second quarter was primarily driven by changes in inventories, and year-to-date was mainly due to changes in inventories and accounts receivable, partially offset by changes in accounts payable and accrued liabilities.

Cash Flows used in Investing Activities of Continuing Operations

Second quarter 2008 cash flows used in investing activities of continuing operations were $374 million compared to cash flows used in investing activities of continuing operations of $31 million in 2007. On a year-to-date basis, cash flows used in investing activities of continuing operations were $281 million compared to $253 million in 2007. The primary reason for these changes was an increase in cash flows used in short term investments partially offset by a decrease in capital expenditures and the cash flows from the sale of the Domtar (Canada) Paper Inc. investment, which funded the retirement of the Weston 3% Exchangeable Debentures, which is included in cash flows used in financing activities. Capital investment for the second quarter amounted to $106 million (2007 - $152 million) and year-to-date 2008 amounted to $233 million (2007 - $269 million).

During the second quarter of 2008, nil (2007 - $85 million) credit card receivables were securitized and nil (2007 - $125 million) year-to-date by PC Bank through the sale of a portion of the total interest in these receivables to an independent trust. The securitization yielded a nominal net loss in 2007 based on the assumptions disclosed in note 12 to the consolidated financial statements for the year ended December 31, 2007 included in Weston's 2007 Annual Report. The independent trusts' recourse to PC Bank's assets is limited to PC Bank's retained interests and is further supported by Loblaw through a standby letter of credit for $89 million (2007 - $80 million) on a portion of the securitized amount.

Cash Flows (used in) from Financing Activities of Continuing Operations

Second quarter 2008 cash flows used in financing activities of continuing operations were $276 million compared to cash flows used in financing activities of continuing operations of $317 million in 2007. This decrease was primarily due to changes in commercial paper and short term bank loans, partially offset by a net decrease in long term debt. On a year-to-date basis, cash flows from financing activities of continuing operations were $81 million compared to cash flows used in financing activities of continuing operations of $143 million in 2007. The year-to-date change in cash flows from (used in) financing activities of continuing operations was primarily due to an increase in short term bank loans partially offset by a decline in commercial paper levels and a net decrease in long term debt. The net decrease in long term debt in the second quarter and year-to-date 2008 included cash flows used in the retirement of the Weston 3% Exchangeable Debentures.

In the first quarter of 2008, Loblaw entered into an $800 million, 5-year committed credit facility, provided by a syndicate of banks, which contains certain financial covenants. This facility is the primary source of Loblaw's short term funding requirements and permits borrowings having up to a 180-day term that accrue interest based on short term floating interest rates. This facility replaced a $500 million, 364-day committed credit facility which had no financial covenants and permitted borrowings having up to a 180-day term that accrued interest based on short term floating interest rates. As at June 14, 2008, $798 million was drawn on the new 5-year committed credit facility.

During the second quarter of 2008, Loblaw issued USD $300 million of fixed-rate unsecured notes in a private placement debt financing which contains certain financial covenants. The notes were issued in two equal tranches of USD $150 million with 5 and 7 year maturities at interest rates of 6.48% and 6.86% respectively. Loblaw entered into two fixed cross currency swaps to manage the foreign exchange and US interest rate risk. These cross currency swaps were designated as cash flow hedges as presented in note 15 to the unaudited interim period consolidated financial statements. The net proceeds from the issue of the notes were used to repay maturing debt obligations, including a portion of the $390 million of 6.00% Medium Term Notes ("MTN") which matured in June 2008.

During the second quarter of 2008, Loblaw filed a Short Form Base Shelf Prospectus allowing for the issue of up to $1 billion of unsecured debentures and/or preferred shares. During the second quarter, Loblaw offered by way of prospectus supplement under the 2008 Short Form Base Shelf Prospectus, a Canadian public offering of 9.0 million cumulative redeemable convertible Second Preferred Shares, Series A, at a price of $25.00 per share, to yield 5.95% per annum, for an aggregate gross amount of $225 million. Subsequent to the end of the second quarter, the offering closed and the net proceeds of $218 million were added to the general funds of Loblaw. The preferred shares have been listed and posted to trade on the Toronto Stock Exchange ("TSX") under the symbol "L.PR.A". Dominion Bond Rating Service ("DBRS") assigned a rating of Pfd-3 with a Negative trend and Standard & Poor's ("S&P") assigned a rating of P-3 (high) to Loblaw's preferred shares. Loblaw has traditionally obtained its long term financing primarily through a MTN program. Loblaw may refinance maturing long term debt, including $125 million of 5.75% MTN maturing in 2009, with MTN if market conditions are appropriate or it may consider other alternatives.

During the first quarter of 2008, Loblaw's MTN, other notes and debentures and commercial paper ratings were downgraded by DBRS and S&P. DBRS downgraded Loblaw's long term credit rating to "BBB (high)" from "A (low)" and also lowered Loblaw's short term credit rating to "R-2 (high)" from "R-1 (low)". In addition S&P downgraded Loblaw's commercial paper rating to "A-2" from "A-1 (low)".

During the second quarter of 2008, DBRS downgraded Loblaw's long term ratings to "BBB" from "BBB (high)", maintaining the Negative trend. At the same time, DBRS downgraded Loblaw's short term rating to "R-2 (middle)" from "R-2 (high)" and changed the trend to Negative from Stable.

As a result of the DBRS downgrades of the short term credit rating, Loblaw has limited access to commercial paper. However, Loblaw has secured short term funding from other sources, primarily the $800 million, 5-year committed credit facility.

During the second quarter of 2008, Weston entered into a $300 million, 5- year committed credit facility, provided by a syndicate of banks, which contains certain financial covenants. This facility is the primary source of Weston's short term funding requirements and permits borrowings having up to a 180-day term that accrue interest based on short term floating interest rates. This facility replaced $300 million, 364-day revolving committed credit facility which had no financial covenants and permitted borrowings having up to a 180-day term that accrued based on short term floating interest rates. As at June 14, 2008, $257 million was drawn on the new 5-year committed credit facility.

During the first quarter of 2008, DBRS downgraded Weston's MTN and debentures to "BBB" from "BBB (high)", the short term credit rating to "R-2 (high)" from "R-1 (low)", Exchangeable Debentures to "BBB (low)" from "BBB" and the preferred shares to "Pfd-3" from "Pfd-3 (high)", all with a Stable trend. During the second quarter of 2008, Weston's long term corporate credit, commercial paper and preferred share ratings were affirmed by S&P at "BBB", "A -2" and "P-3 (high)", respectively. Weston was removed from CreditWatch with Negative Implications and the ratings outlook was changed to Negative. As a result of the DBRS downgrade of Weston's short term credit rating, Weston has limited access to commercial paper. However, Weston has secured short term financing from other sources, primarily the $300 million, 5-year committed credit facility.

Weston has traditionally obtained its long term financing primarily through a MTN program. Weston may refinance maturing long term debt, including $250 million of 5.90% MTN maturing in 2009, with MTN if market conditions are appropriate or it may consider other alternatives.

The Company's ability to obtain funding from external sources may be restricted by further downgrades in the Company's credit ratings, should the Company's financial performance and condition deteriorate.

In addition, credit and capital markets are subject to inherent global risks that may negatively affect the Company's access and ability to fund its short term and long term debt requirements. The Company mitigates these risks by maintaining appropriate levels of cash and cash equivalents, short term investments and security deposits, actively monitoring market conditions and diversifying its sources of funding and maturity profile.

During the second quarter of 2008, the Company exercised its right to redeem all of the remaining outstanding Weston 3% Exchangeable Debentures pursuant to the trust indenture dated June 29, 1998 by paying cash of $633.08 per each one thousand dollar principal amount of Exchangeable Debentures for $137 million plus accrued but unpaid interest of approximately $3 million, for an aggregate amount of approximately $140 million. Weston also sold its investment in Domtar (Canada) Paper Inc. for $144 million, and used these proceeds to settle its obligation under the Exchangeable Debentures. The Company recorded a gain of $7 million in operating income in the second quarter of 2008.

Free Cash Flow(1)

Independent Funding Trusts

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

During the first quarter of 2008, Loblaw was notified that an Event of Termination of the independent funding trust agreement for Loblaw's franchisees had occurred as a result of the credit rating downgrade by DBRS of Loblaw's long term credit rating to "BBB (high)" from "A (low)". As a result of the Event of Termination, during the second quarter of 2008, Loblaw finalized an alternative financing arrangement for the independent funding trust in the form of a $475 million, 364-day revolving committed credit facility provided by a syndicate of banks.

The gross principal amount of loans issued to Loblaw's independent franchisees outstanding at the end of the second quarter of 2008 was $383 million (2007 - $417 million) including $159 million (2007 - $154 million) of loans payable by VIEs consolidated by Loblaw. Based on a formula, Loblaw has agreed to provide credit enhancement in the form of a standby letter of credit for the benefit of the independent funding trust equal to approximately 15% (2007 - 10%) of the principal amount of the loans outstanding at any point in time, $66 million (2007 - $44 million) as of the end of the second quarter of 2008. The standby letter of credit has not been drawn upon. This credit enhancement allows the independent funding trust to provide favourable financing terms to Loblaw's independent franchisees. As well, each independent franchisee provides security to the independent funding trust for its obligations by way of a general security agreement. In the event that an independent franchisee defaults on its loan and Loblaw has not, within a specified time period, assumed the loan, or the default is not otherwise remedied, the independent funding trust would assign the loan to Loblaw and draw upon this standby letter of credit. Loblaw has agreed to reimburse the issuing bank for any amount drawn on the standby letter of credit. This new alternative financing will result in a higher financing cost to the franchisees, which in turn could adversely affect operating results. The new financing structure has been reviewed and Loblaw determined there were no material implications with respect to the consolidation of VIEs.

QUARTERLY RESULTS OF OPERATIONS

The following is a summary of selected consolidated financial information derived from the Company's unaudited interim period consolidated financial statements for each of the eight most recently completed quarters. This information was prepared in accordance with Canadian GAAP and is reported in Canadian dollars. Each of the quarters presented is 12 weeks in duration except for the third quarter, which is 16 weeks in duration.

 << Quarterly Financial Information (unaudited) Second Quarter First Quarter ($ millions except where
   otherwise indicated) 2008 2007 2008 2007 ------------------------------------------------------------------------- Sales $
   7,847 $ 7,739 $ 7,337 $ 7,221 Net earnings (loss) from continuing operations $ 118 $ 129 $ 131 $ 104 Net earnings (loss) $
   118 $ 129 $ 131 $ 104 ------------------------------------------------------------------------- Net earnings (loss) per common
   share from continuing operations ($) Basic and diluted $ 0.84 $ 0.90 $ 0.91 $ 0.70 -------------------------------------------------------------------------
   Net earnings (loss) per common share ($) Basic and diluted $ 0.84 $ 0.90 $ 0.91 $ 0.70 -------------------------------------------------------------------------
   Fourth Quarter Third Quarter ($ millions except where otherwise indicated) 2007 2006 2007 2006 -------------------------------------------------------------------------
   Sales $ 7,692 $ 7,578 $10,163 $10,085 Net earnings (loss) from continuing operations $ 151 $ (428) $ 179 $ 226 Net earnings
   (loss) $ 151 $ (417) $ 179 $ 226 ------------------------------------------------------------------------- Net earnings (loss)
   per common share from continuing operations ($) Basic and diluted $ 1.07 $ (3.42) $ 1.25 $ 1.62 -------------------------------------------------------------------------
   Net earnings (loss) per common share ($) Basic and diluted $ 1.07 $ (3.33) $ 1.25 $ 1.62 -------------------------------------------------------------------------
   >>

Consolidated sales growth continued in the second quarter of 2008 compared to the second quarter of 2007. At Loblaw, same-store sales growth during the current quarter increased 0.7%. Sales and same-store sales growth in the second quarter of 2008 were negatively impacted by the timing of Easter, which occurred two weeks earlier in 2008, resulting in a shift in holiday sales into the first quarter of 2008 compared to the second quarter of 2007. At Weston Foods, quarterly sales growth was positively impacted by increases in pricing combined with changes in sales mix. Weston Foods quarterly sales growth was also negatively impacted by foreign currency translation. Weston Foods sales growth during the third quarter of 2007 was also negatively impacted by the exit from the United States frozen foodservice bagel business during the third quarter of 2006 and the discontinuance of contract manufacturing of biscuits for certain customers during 2006.

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

 << - restructuring
   and other charges incurred by Weston Foods and Loblaw; - fluctuations in stock-based compensation net of the impact of the
   associated equity derivatives, as a result of changes in the market prices of Weston's and Loblaw's common shares; - commodity
   derivatives fair value adjustment at Weston Foods; - the income tax effect of the fair value adjustment of Domtar (Canada)
   Paper Inc. shares, net of the re-measurement of the Weston 3% Exchangeable Debentures; - the gain on the redemption of the
   remaining outstanding Weston 3% Exchangeable Debentures and the sale of the Domtar (Canada) Paper Inc. shares; - accounting
   for Weston's 2001 forward sale agreement of 9.6 million Loblaw common shares; - the curtailment of a post-retirement plan
   at Weston Foods; - Loblaw's charges related to inventory liquidation; and - the non-cash Loblaw goodwill impairment charge
   in the fourth quarter of 2006. >>

INTERNAL CONTROL OVER FINANCIAL REPORTING

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

There was no change in the Company's internal controls over financial reporting that occurred during the twelve weeks ended June 14, 2008 that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

LEGAL PROCEEDINGS

During the first quarter of 2007, the Company and Loblaw were two of 17 defendants served with an action brought in the Superior Court of Ontario by certain beneficiaries of a multi-employer pension plan in which employees of Loblaw and those of its independent franchisees participate. In their claim against the employers and the trustees of the multi-employer pension plan, the plaintiffs claim that assets of the multi-employer pension plan have been mismanaged and are seeking, among other demands, damages of $1 billion. The action is framed as a representative action on behalf of all the beneficiaries of the multi-employer pension plan. During the second quarter of 2008, the Company received confirmation that the action against the Company and Loblaw has been dismissed, but the action against the trustees is ongoing. One of the trustees, an officer of Loblaw, may be entitled to indemnification from Loblaw.

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

ACCOUNTING STANDARDS IMPLEMENTED IN 2008

Capital Disclosures and Financial Instruments - Disclosure and

Presentation

In December 2006, the CICA issued three new accounting standards: Section 1535, "Capital Disclosures" ("Section 1535"), Section 3862, "Financial Instruments - Disclosures" ("Section 3862") and Section 3863, "Financial Instruments - Presentation" ("Section 3863").

Section 1535 establishes guidelines for the disclosure of information regarding a company's capital and how it is managed. Enhanced disclosures with respect to the entity's objectives, policies and processes for managing capital and quantitative disclosure about what the entity regards as capital are required. For new disclosures, refer to note 16 to the unaudited interim period consolidated financial statements. The adoption of Section 1535 did not have an impact on the Company's results of operations or financial condition.

Section 3862 and Section 3863 replaced Section 3861, "Financial Instruments - Disclosure and Presentation". Section 3862 requires increased disclosures regarding the risks associated with financial instruments and how these risks are managed. Section 3863 carries forward standards for presentation of financial instruments and non-financial derivative instruments and provides additional guidance for the classification of financial instruments, from the perspective of the issuer, between liabilities and equity. For new disclosures, refer to notes 18 and 20 to the unaudited interim period consolidated financial statements. Comparative information about the nature and extent of risks arising from financial instruments is not required in the year Section 3862 is adopted. The adoption of Section 3862 and Section 3863 did not have an impact on the Company's results of operations or financial condition.

Inventories

During the first quarter of 2008, the Company also implemented Section 3031, "Inventories" ("Section 3031"), which replaced Section 3030 of the same title. Section 3031 provides guidance with respect to the determination of cost and requires inventories to be measured at the lower of cost and net realizable value. Costs such as storage costs and administrative overhead that do not contribute to bringing inventories to their present location and condition are specifically excluded from the cost of inventories and expensed in the period incurred. Reversal of previous write-downs to net realizable value when there is a subsequent increase in the value of inventories is now required. The cost of the inventories should be based on a first-in, first-out or a weighted average cost formula. Techniques used for the measurement of cost of inventories, such as the retail method may be used if the results approximate cost. The new standard also requires additional disclosures including the accounting policies used in measuring inventories, the carrying amount of the inventories, amounts recognized as an expense during the period, write-downs and the amount of any reversal of any write-downs recognized as a reduction in expenses.

Upon implementation of Section 3031, a decrease in opening inventories of $67 million and a corresponding decrease of $27 million to opening retained earnings net of income taxes of $25 million and minority interest of $15 million were recorded on the consolidated balance sheet resulting mainly from the application by Loblaw of a consistent cost formula for all inventories having a similar nature and use. For further details of the specific accounting changes and related impacts, see notes 2 and 11 to the unaudited interim period consolidated financial statements.

FUTURE ACCOUNTING STANDARDS

Goodwill and Intangible Assets

In November 2007, the CICA issued amendments to Section 1000, "Financial Statement Concepts", and Accounting Guideline 11, "Enterprises in the Development Stage", issued a new Section 3064, "Goodwill and Intangible Assets" ("Section 3064") to replace Section 3062, "Goodwill and Other Intangible Assets", withdrew Section 3450, "Research and Development Costs" and amended Emerging Issues Committee Abstract 27, "Revenues and Expenditures During the Pre-operating Period" to not apply to entities that have adopted Section 3064. These amendments provide guidance for the recognition of internally developed intangible assets, including assets developed from research and development activities, ensuring consistent treatment of all intangible assets, whether separately acquired or internally developed. The amendments are effective for annual and interim financial statements relating to fiscal years beginning on or after October 1, 2008 and therefore the Company will implement them in the first quarter of 2009, retroactively with restatement of the comparative periods for the current and prior years. The impact of implementing these amendments on the Company's financial statements is currently being assessed.

International Financial Reporting Standards ("IFRS")

The Canadian Accounting Standards Board will require all public companies to adopt IFRS for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Companies will be required to provide IFRS comparative information for the previous fiscal year. The transition from Canadian GAAP to IFRS will be applicable for the Company for the first quarter of 2011 when the Company will prepare both the current and comparative financial information using IFRS. The Company expects the transition to IFRS to impact financial reporting, business processes and information systems. The Company has completed a diagnostic impact assessment and has substantially completed planning activities for the initial assessment phase of the implementation project. The Company will continue to invest in training and resources throughout the transition period to facilitate a timely conversion.

OUTLOOK(2)

ADDITIONAL INFORMATION

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

This Quarterly Report includes selected information on Loblaw Companies Limited, a 62%-owned public reporting company with shares trading on the Toronto Stock Exchange. For information regarding Loblaw, readers should also refer to the materials filed by Loblaw with the Canadian securities regulatory authorities from time to time.

--------------------------

(1) See Non-GAAP Financial Measures.

(2) To be read in conjunction with "Forward-Looking Statements".

NON-GAAP FINANCIAL MEASURES

The Company reports its financial results in accordance with Canadian GAAP. It has historically also included in its Quarterly and Annual Reports certain Non-GAAP financial measures and ratios. Over the past year, the Company has reviewed its practices with respect to the disclosure of Non-GAAP financial measures. The Company considered the separate presentation of Non- GAAP financial measures taking into account the discussion in the MD&A of the results of operations and the impact of specific events on these results of operations, the disclosure practices of its industry peers and best practices.

Based on this review, the Company decided that effective the first quarter of 2008 it would discontinue its use of the following Non-GAAP financial measures: sales and sales growth excluding the impact of tobacco sales and VIEs, adjusted operating income and adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin, and adjusted basic net earnings per common share from continuing operations. The Company will continue to discuss the impact of individual specific items that are important in understanding the ongoing operations including those that relate to sales, operating income and basic net earnings per common share.

The Company will continue to use the following Non-GAAP financial measures: EBITDA and EBITDA margin, net debt, return on average total assets and free cash flow. The Company believes these Non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by Canadian GAAP and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with Canadian GAAP.

EBITDA and EBITDA Margin

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

 << EBITDA margin is calculated as EBITDA divided by sales. ----------------------- 12 Weeks Ended
   12 Weeks Ended Jun. 14, 2008 Jun. 16, 2007 Weston Consoli- Weston Consoli- ($ millions) Foods Loblaw dated Foods Loblaw dated
   ------------------------------------------------------------------------- Net earnings $ 118 $ 129 Add impact of the following:
   Minority interest 55 43 Income taxes 60 54 Interest expense and other financing charges 107 102 -------------------------------------------------------------------------
   Operating income $ 79 $ 261 $ 340 $ 112 $ 216 $ 328 Depreciation and amortization 26 135 161 27 138 165 Accelerated depreciation(1)
   1 1 ------------------------------------------------------------------------- EBITDA $ 106 $ 396 $ 502 $ 139 $ 354 $ 493 -------------------------------------------------------------------------
   ----------------------- ----------------------- 24 Weeks Ended 24 Weeks Ended Jun. 14, 2008 Jun. 16, 2007 Weston Consoli-
   Weston Consoli- ($ millions) Foods Loblaw dated Foods Loblaw dated -------------------------------------------------------------------------
   Net earnings $ 249 $ 233 Add impact of the following: Minority interest 78 61 Income taxes 136 89 Interest expense and other
   financing charges 129 154 ------------------------------------------------------------------------- Operating income $ 178
   $ 414 $ 592 $ 189 $ 348 $ 537 Depreciation and amortization 51 271 322 54 274 328 Accelerated depreciation(1) 1 1 4 4 -------------------------------------------------------------------------
   EBITDA $ 230 $ 685 $ 915 $ 247 $ 622 $ 869 ------------------------------------------------------------------------- -----------------------
   (1) Accelerated depreciation is included in restructuring and other charges in the consolidated statements of earnings as
   discussed in note 3 to the unaudited interim period consolidated financial statements. >>

Net Debt

The following table reconciles net debt excluding Exchangeable Debentures to Canadian GAAP measures reported in the unaudited interim period consolidated balance sheets as indicated. The Company calculates net debt as the sum of long term debt and short term debt less cash and cash equivalents, short term investments and security deposits which are included in other assets and believes this measure is useful in evaluating the amount of leverage employed. The Company calculates net debt excluding Exchangeable Debentures as net debt (as calculated above) less Exchangeable Debentures and believes this measure is also useful in evaluating the amount of leverage employed by the Company as the Exchangeable Debentures can be settled by using the Company's investment in Domtar (Canada) Paper Inc.

 << --------------- ($ millions) Jun. 14, 2008 Jun. 16, 2007 -------------------------------------------------------------------------
   Bank indebtedness $ 136 $ 189 Commercial paper 744 Short term bank loans 1,297 198 Long term debt due within one year 415
   434 Long term debt 5,270 5,593 Less: Cash and cash equivalents 1,029 1,034 Short term investments 658 326 Security deposits
   included in other assets 454 422 ------------------------------------------------------------------------- Net debt 4,977
   5,376 Less: Exchangeable Debentures 247 ------------------------------------------------------------------------- Net debt
   (excluding Exchangeable Debentures) $ 4,977 $ 5,129 -------------------------------------------------------------------------
   --------------- >>

Free Cash Flow

The following table reconciles free cash flow to Canadian GAAP cash flows used in operating activities from continuing operations reported in the unaudited interim period consolidated cash flow statements for the twelve and twenty-four week periods ended as indicated. The Company calculates free cash flow as cash flows from operating activities of continuing operations less fixed asset purchases and dividends. The Company believes free cash flow is a useful measure of the change in the Company's cash available for additional funding requirements.

 <<
   12 Weeks Ended 24 Weeks Ended -------- -------- Jun. 14, Jun. 16, Jun. 14, Jun. 16, ($ millions) 2008 2007 2008 2007 -------------------------------------------------------------------------
   Cash flows from operating activities of continuing operations $ 388 $ 638 $ 108 $ 430 Less: Fixed asset purchases 106 152
   233 269 Dividends on share capital 77 84 159 166 -------------------------------------------------------------------------
   Free cash flow $ 205 $ 402 $(284) $ (5) ------------------------------------------------------------------------- --------
   -------- >>

Total Assets

The following table reconciles total assets used in the return on average total assets to Canadian GAAP total assets reported in the unaudited interim period consolidated balance sheets as indicated. The Company believes the rolling year return on average total assets is useful in assessing the performance of its operating assets and therefore excludes cash and cash equivalents, short term investments, security deposits which are included in other assets and the Domtar (Canada) Paper Inc. investment from the total assets used in this measure.

 << ---------------
   ($ millions) Jun. 14, 2008 Jun. 16, 2007 ------------------------------------------------------------------------- Canadian
   GAAP total assets $ 18,571 $ 18,111 Less: Cash and cash equivalents 1,029 1,034 Short term investments 658 326 Security deposits
   included in other assets 454 422 Domtar (Canada) Paper Inc. investment 247 -------------------------------------------------------------------------
   Total assets $ 16,430 $ 16,082 ------------------------------------------------------------------------- --------------- Consolidated
   Statements of Earnings (unaudited) 12 Weeks Ended 24 Weeks Ended -------- -------- ($ millions except where Jun. 14, Jun.
   16, Jun. 14, Jun. 16, otherwise indicated) 2008 2007 2008 2007 -------------------------------------------------------------------------
   Sales $ 7,847 $ 7,739 $ 15,184 $ 14,960 Operating Expenses Cost of sales, selling and administrative expenses 7,343 7,180
   14,262 13,940 Depreciation and amortization 161 165 322 328 Restructuring and other charges (note 3) 3 66 8 155 -------------------------------------------------------------------------
   7,507 7,411 14,592 14,423 ------------------------------------------------------------------------- Operating Income 340 328
   592 537 Interest Expense and Other Financing Charges (note 4) 107 102 129 154 -------------------------------------------------------------------------
   Earnings Before the Following: 233 226 463 383 Income Taxes (note 6) 60 54 136 89 -------------------------------------------------------------------------
   173 172 327 294 Minority Interest 55 43 78 61 ------------------------------------------------------------------------- Net
   Earnings $ 118 $ 129 $ 249 $ 233 ------------------------------------------------------------------------- Net Earnings per
   Common Share ($) - Basic and Diluted (note 7) $ 0.84 $ 0.90 $ 1.75 $ 1.60 -------------------------------------------------------------------------
   -------- -------- See accompanying notes to the unaudited interim period consolidated financial statements. Consolidated Statements
   of Changes in Shareholders' Equity (unaudited) 24 Weeks Ended --------- Jun. 14, Jun. 16, ($ millions except where otherwise
   indicated) 2008 2007 ------------------------------------------------------------------------- Share Capital Preferred Shares
   $ 817 $ 817 Common Shares 133 133 ------------------------------------------------------------------------- Total Share Capital,
   Beginning and End of Period $ 950 $ 950 ------------------------------------------------------------------------- Retained
   Earnings, Beginning of Period $ 4,726 $ 4,506 Cumulative impact of implementing new accounting standards (note 2) (27) (100)
   Net earnings 249 233 Dividends declared Per common share ($) - $0.72 (2007 - $0.72) (93) (93) Per preferred share ($) - Series
   I - $0.73 (2007 - $0.73) (7) (7) - Series II - $0.64 (2007 - $0.64) (notes 4 & 16) (3) (7) - Series III - $0.65 (2007
   - $0.65) (5) (5) - Series IV - $0.65 (2007 - $0.65) (5) (5) - Series V - $0.60 (2007 - $0.60) (5) (5) -------------------------------------------------------------------------
   Retained Earnings, End of Period $ 4,830 $ 4,517 -------------------------------------------------------------------------
   Accumulated Other Comprehensive Loss, Beginning of Period $ (999) $ (503) Cumulative impact of implementing new accounting
   standards (note 2) 9 Other comprehensive income (loss) 135 (269) -------------------------------------------------------------------------
   Accumulated Other Comprehensive Loss, End of Period (note 17) $ (864) $ (763) -------------------------------------------------------------------------
   Total Shareholders' Equity $ 4,916 $ 4,704 ------------------------------------------------------------------------- ---------
   See accompanying notes to the unaudited interim period consolidated financial statements. Consolidated Statements of Comprehensive
   Income (unaudited) 12 Weeks Ended 24 Weeks Ended -------- -------- Jun. 14, Jun. 16, Jun. 14, Jun. 16, ($ millions) 2008 2007
   2008 2007 ------------------------------------------------------------------------- Net earnings $ 118 $ 129 $ 249 $ 233 Other
   comprehensive income (loss), net of income taxes and minority interest Foreign currency translation adjustment 18 (253) 140
   (267) ------------------------------------------------------------------------- Net unrealized gain (loss) on available-for-sale
   financial assets 8 (16) 14 (18) Reclassification of (gain) loss on available-for-sale financial assets to net earnings (8)
   (1) (1) (8) ------------------------------------------------------------------------- (17) 13 (26) -------------------------------------------------------------------------
   Net (loss) gain on derivatives designated as cash flow hedges (1) 13 (6) 16 Reclassification of (gain) loss on derivatives
   designated as cash flow hedges to net earnings (4) 1 (12) 8 -------------------------------------------------------------------------
   (5) 14 (18) 24 ------------------------------------------------------------------------- Other comprehensive income (loss)
   13 (256) 135 (269) ------------------------------------------------------------------------- Total Comprehensive Income (Loss)
   $ 131 $ (127) $ 384 $ (36) ------------------------------------------------------------------------- -------- -------- See
   accompanying notes to the unaudited interim period consolidated financial statements. Consolidated Balance Sheets --------------
   As at Jun. 14, 2008 Jun. 16, 2007 Dec. 31, 2007 ($ millions) (unaudited) (unaudited) -------------------------------------------------------------------------
   ASSETS Current Assets Cash and cash equivalents (note 8) $ 1,029 $ 1,034 $ 1,076 Short term investments 658 326 461 Accounts
   receivable (notes 9 & 10) 1,228 939 1,141 Inventories (note 11) 2,140 1,982 2,172 Income taxes 95 129 91 Future income
   taxes 108 161 121 Prepaid expenses and other assets 89 97 49 -------------------------------------------------------------------------
   Total Current Assets 5,347 4,668 5,111 Fixed Assets 8,931 9,129 8,960 Goodwill and Intangible Assets (note 12) 2,299 2,417
   2,240 Future Income Taxes 106 51 91 Other Assets 1,888 1,846 1,986 -------------------------------------------------------------------------
   Total Assets $ 18,571 $ 18,111 $ 18,388 ------------------------------------------------------------------------- LIABILITIES
   Current Liabilities Bank indebtedness $ 136 $ 189 $ 85 Commercial paper 744 609 Accounts payable and accrued liabilities 2,967
   2,839 3,322 Short term bank loans (note 14) 1,297 198 250 Long term debt due within one year 415 434 432 Current liabilities
   of discontinued operations 3 3 3 ------------------------------------------------------------------------- Total Current Liabilities
   4,818 4,407 4,701 Long Term Debt (note 15) 5,270 5,593 5,494 Future Income Taxes 290 313 293 Other Liabilities 872 728 831
   Capital securities (note 16) 261 260 260 Minority Interest 2,144 2,106 2,132 -------------------------------------------------------------------------
   Total Liabilities 13,655 13,407 13,711 ------------------------------------------------------------------------- SHAREHOLDERS'
   EQUITY Share Capital (note 16) 950 950 950 Retained Earnings 4,830 4,517 4,726 Accumulated Other Comprehensive Loss (note
   17) (864) (763) (999) ------------------------------------------------------------------------- Total Shareholders' Equity
   4,916 4,704 4,677 ------------------------------------------------------------------------- Total Liabilities and Shareholders'
   Equity $ 18,571 $ 18,111 $ 18,388 ------------------------------------------------------------------------- -------- Contingencies,
   commitments and guarantees (note 21). See accompanying notes to the unaudited interim period consolidated financial statements.
   Consolidated Cash Flow Statements (unaudited) 12 Weeks Ended 24 Weeks Ended -------- -------- Jun. 14, Jun. 16, Jun. 14, Jun.
   16, ($ millions) 2008 2007 2008 2007 ------------------------------------------------------------------------- Operating Activities
   Net earnings before minority interest $ 173 $ 172 $ 327 $ 294 Depreciation and amortization 161 165 322 328 Restructuring
   and other charges (note 3) 3 66 8 155 Future income taxes 1 (2) 4 (16) Fair value adjustment of Weston's forward sale agreement
   (note 4) 27 32 (24) 13 Change in non-cash working capital 19 203 (590) (386) Other 4 2 61 42 -------------------------------------------------------------------------
   Cash Flows from Operating Activities of Continuing Operations 388 638 108 430 -------------------------------------------------------------------------
   Investing Activities Fixed asset purchases (106) (152) (233) (269) Short term investments (365) 183 (172) (38) Proceeds from
   fixed asset sales 4 25 14 34 Business acquisition (note 5) (10) (10) Domtar investment (note 15) 144 144 Credit card receivables,
   after securitization (note 9) (42) (52) 32 92 Franchise investments and other receivables (2) 6 (20) (1) Other 3 (41) (36)
   (71) ------------------------------------------------------------------------- Cash Flows used in Investing Activities of
   Continuing Operations (374) (31) (281) (253) ------------------------------------------------------------------------- Financing
   Activities Bank indebtedness (27) 7 49 94 Commercial paper (18) (257) (609) (94) Short term bank loans (note 14) 85 10 1,047
   20 Long term debt - Issued 296 16 301 23 - Retired (note 15) (535) (9) (548) (20) Dividends - To common shareholders (47)
   (47) (93) (93) - To preferred shareholders (8) (15) (22) (29) - To minority shareholders (22) (22) (44) (44) -------------------------------------------------------------------------
   Cash Flows (used in) from Financing Activities of Continuing Operations (276) (317) 81 (143) -------------------------------------------------------------------------
   Effect of Foreign Currency Exchange Rate Changes on Cash and Cash Equivalents (1) (88) 45 (89) -------------------------------------------------------------------------
   Cash Flows (used in) from Continuing Operations (263) 202 (47) (55) Cash Flows used in Discontinued Operations (1) -------------------------------------------------------------------------
   Change

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Tuesday, July 29, 2008

George Weston Limited - Quarterly Report to Shareholders

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