Alimentation Couche-Tard announces its results for the first quarter of fiscal 2012
- First financial statements established based on International Financial Reporting Standards (IFRS). Comparative financial data has been restated to be in accordance with IFRS.
- Net earnings of $139.5 million, up $12.6 million or 9.9%.
- Diluted earnings per share at $0.75 compared to $0.67 last year, an improvement of 11.9%.
- Same-store merchandise sales up 1.5% in the United States, constantly improving during the quarter, and slightly down 0.2% in Canada. Weather conditions have been an important factor, mainly in Canada, but also in certain regions of the United States.
- Consolidated merchandise and service gross margin at 33.5%, a slight decrease of 0.1%. The margin was 33.2% in the United States, an increase of 0.3% and it was 34.0% in Canada, a decrease of 1.1%.
- Same-store motor fuel volume down 1.6% in the United States and 0.9% in Canada, a performance in line with market data.
- Motor fuel gross margin in the United States at 19.95¢ per gallon, and 5.53¢ per litre in Canada. The gross margin net of electronic payment fees is similar to last year.
- Excluding electronic payment fees, operating expenses represented 27.4% of merchandise and service sales during the first quarter of fiscal 2012 compared to 27.7% during the first quarter of fiscal 2011.
- Following the September 6, 2011 Annual Meeting, 2011, Richard Fortin will step down as Chairman of the Corporation's Board of Director and will be replaced in this role by Réal Plourde. Mr Fortin will continue to sit on the Board of Director and on the Executive Committee.
TSX: ATD.A, ATD.B
LAVAL, QC, Aug. 30, 2011 /PRNewswire/ - For its first quarter, Alimentation Couche-Tard Inc. announces net earnings of $139.5 million, up $12.6 million or 9.9% from the comparable period of last fiscal year. The increase is mainly attributable to the drop in financial expenses, to the strengthening of the Canadian dollar, to Couche-Tard's sound management of its expenses, to the increase in merchandise and service sales contribution as well as to a lower income tax rate. These items that contributed to the growth in net earnings were partly offset by the drop of the motor fuel sales contribution.
"I am pleased to announce that our results are on the rise despite the obstacles we are facing, namely rising motor fuel prices, a still fragile economic environment, adverse weather conditions and a highly competitive environment", declared Alain Bouchard, President and Chief Executive Officer. "In this context, consumers seem to be very price-sensitive and many retailers seem to have understood that. We see more promotions on certain product categories from our competitors and we must adapt, which creates a certain deflation in our sales and puts pressure on our margins. But our decentralized management structure, sound management of expenditures and the excellent performance of some of our new programs, including fresh food, allow us to continue to create value" he concluded.
As for Raymond Paré, Vice-President and Chief Financial Officer, he indicated: "The nice performance and efficiency of our operations along with the contribution of fresh food, our proactive management of our balance sheet and of our debt as well as our share repurchase program continue to create value and to withstand the economic sluggishness. It is a set of elements that contribute to earnings growth, demonstrating Couche-Tard's exceptional strength, even in challenging times". Mr Paré concluded: "We also continue to be active on the acquisition front while maintaining our usual discipline".
Highlights of the First Quarter of Fiscal 2012
Changes in the Store Network
The following table presents certain information regarding changes in Couche-Tard's stores network over the 12-week period ended July 12, 2011:
12-week period ended July 17, 2011 | ||||||
Company-operated stores | Affiliated stores | Total | ||||
Number of stores, beginning of period | 4,401 | 1,394 | 5,795 | |||
Acquisitions | 13 | - | 13 | |||
Openings / constructions / additions | 5 | 11 | 16 | |||
Closures / withdrawals | (25) | (58) | (83) | |||
Number of stores, end of period | 4,394 | 1,347 | 5,741 |
Network growth
Completed transactions
In May 2011, Couche-Tard acquired 11 company-operated stores located in Ontario, Manitoba, Saskatchewan, Alberta and British-Columbia, Canada from Shell Canada Products. Couche-Tard owns the land and buildings for seven sites and leases these same assets for four sites. Two out of the 11 sites have not yet been integrated into the Corporation's network.
In May 2011, Couche-Tard acquired five company-operated stores operating under the Gas City banner of which one is located in Arizona and four in the Chicago area, United States. The four sites in Chicago were acquired through Couche-Tard's RDK joint venture. The Corporation owns the land and buildings for three of these sites and leases the others.
In addition, during the first quarter of fiscal 2012, Couche-Tard acquired one additional company-operated store.
Internal available cash was used for these acquisitions.
Outstanding transactions
In June 2011, Couche-Tard signed an agreement with Exxon Mobil for 322 stores and a motor fuel supply agreement for another 65 stores. All stores are operated in Southern California, United States. Assuming the closing of the transaction, out of the 322 stores, 72 would be operated by the Corporation while 250 would be operated by independent operators. Couche-Tard would own the real estate for up to 202 of the sites while the balance would be leased. The transaction is anticipated to close in stages between the third quarter of calendar year 2011 and the second quarter of calendar year 2012 and is subject to standard regulatory approvals and closing conditions.
In June 2011, Couche-Tard signed an agreement to acquire 26 company-operated stores operating in the mid-Atlantic states of the United States. Assuming the closing of the transaction that is scheduled before the end of the 2011 summer season, the Corporation would own the real estate for 25 sites while it would lease the other one. The transaction is subject to standard regulatory approvals and closing conditions.
In August 2011, Couche-Tard signed an agreement to acquire from ExxonMobil, 33 company-operated stores operating under the "On the Run" banner in Louisiana, United States. Assuming the closing of the transaction which is scheduled for December 2011, the Corporation would own the real estate for 27 sites while it would lease the other sites. The transaction is subject to standard regulatory approvals and closing conditions.
In August 2011, through its RDK joint venture, Couche-Tard signed an agreement for 27 stores operating in the Midwest region of the United States. The agreement also includes the transfer to RDK of two vacant land parcels. Out of the 27 stores, 14 are expected to be company-operated while the other 13 are expected to be operated by independent operators. Assuming the closing of the transaction that is expected in the early fall of 2011, RDK would own the real estate for 24 sites as well as the two land parcels while it would lease the real estate for the other sites. The transaction is subject to standard regulatory approvals and closing conditions.
Internal available cash and our credit facilities should be used for these transactions.
Store construction
Couche-Tard completed the construction of five new stores during the 12-week period ended July 17, 2011.
Board of Directors
After three years as Chairman of Couche-Tard's Board of Directors, Mr. Richard Fortin will hand over this responsibility to Mr. Réal Plourde, effective following the next shareholders' meeting to be held next September 6. Mr. Fortin will continue to play an active role within the Corporation since he will remain a member of the Board of Directors and of the Executive Committee. In addition to his new role, Mr. Plourde will continue to play an active role on the Executive Committee. At its meeting held on August 30th, 2011, the Board of Directors decided to reduce to nine the number of directors to be elected at the upcoming shareholders' meeting considering that Mr. Roger Longpré will not be seeking a reelection due to his health condition.
Share repurchase program
Couche-Tard has not repurchased any shares under its share repurchase program during the 12-week period ended July 17, 2011. Subsequent to the end of the first quarter of fiscal year 2012 and up to August 26, 2011, Couche-Tard repurchased 1,000 Class A multiple voting shares at an average cost of CA$29.50 and 1,493,500 Class B subordinate voting shares at an average cost of CA$28.82. On a cummulative basis since the implementation of the program, Couche-Tard repurchased 13,000 Class A multiple voting shares at an average cost of CA$25.64 and 4,261,800 Class B subordinate voting shares at an average cost of CA$26.39.
Dividends
During its August 30, 2011 meeting, the Corporation's Board of Directors declared a quarterly dividend of CA$0.0625 per share for the first quarter of fiscal 2012 to shareholders on record as at September 9, 2011 and approved its payment for September 19, 2011. This is an eligible dividend within the meaning of the Income Tax Act of Canada.
Exchange Rate Data
The Corporation's US dollar reporting provides more relevant information given the predominance of its operations in the United States and its debt largely dominated in US dollars.
The following table sets forth information about exchange rates based upon the Bank of Canada closing rates expressed as US dollars per CA$1.00:
12-week periods ended | |||
July 17, 2011 | July 18, 2010 | ||
Average for period (1) | 1.0321 | 0.9629 | |
Period end | 1.0479 | 0.9482 | |
(1) Calculated by taking the average of the closing exchange rates of each day in the applicable period.
Considering the Corporation uses the US dollar as its reporting currency, in its consolidated financial statements and in the present document, unless indicated otherwise, results from its Canadian and corporate operations are translated into US dollars using the average rate for the period. Variances and explanations related to variations in the foreign exchange rate and the volatility of the Canadian dollar which are discussed in the present document are therefore related to the translation in US dollars of the Corporation's Canadian and corporate operations results and do not have a true economic impact on its performance since most of the Corporation's consolidated revenues and expenses are received or denominated in the functional currency of the markets in which it does business. Accordingly, the sensitivity of the Corporation's results to variations in foreign exchange rates is economically limited.
Selected Consolidated Financial Information
The following table highlights certain information regarding Couche-Tard's operations for the 12-week periods ended July 17, 2011 and July 18, 2010:
(In millions of US dollars, unless otherwise stated) | 12-week periods ended | |||||
July 17, 2011 | July 18, 2010 | Variation % | ||||
Statement of Operations Data: | ||||||
Merchandise and service revenues (1): | ||||||
United States | 1,013.3 | 992.5 | 2.1 | |||
Canada | 548.6 | 516.6 | 6.2 | |||
Total merchandise and service revenues | 1,561.9 | 1,509.1 | 3.5 | |||
Motor fuel revenues: | ||||||
United States | 2,974.2 | 2,206.5 | 34.8 | |||
Canada | 641.5 | 461.8 | 38.9 | |||
Total motor fuel revenues | 3,615.7 | 2,668.3 | 35.5 | |||
Total revenues | 5,177.6 | 4,177.4 | 23.9 | |||
Merchandise and service gross profit (1): | ||||||
United States | 336.6 | 326.2 | 3.2 | |||
Canada | 186.6 | 181.4 | 2.9 | |||
Total merchandise and service gross profit | 523.2 | 507.6 | 3.1 | |||
Motor fuel gross profit: | ||||||
United States | 160.4 | 149.8 | 7.1 | |||
Canada | 35.5 | 30.3 | 17.2 | |||
Total motor fuel gross profit | 195.9 | 180.1 | 8.8 | |||
Total gross profit | 719.1 | 687.7 | 4.6 | |||
Operating, selling, administrative and general expenses | 487.4 | 467.1 | 4.3 | |||
Depreciation and amortization of property and equipment and other assets | 49.5 | 47.4 | 4.4 | |||
Operating income | 182.2 | 173.2 | 5.2 | |||
Net earnings | 139.5 | 126.9 | 9.9 | |||
Other Operating Data: | ||||||
Merchandise and service gross margin (1): | ||||||
Consolidated | 33.5% | 33.6% | (0.1%) | |||
United States | 33.2% | 32.9% | 0.3% | |||
Canada | 34.0% | 35.1% | (1.1%) | |||
Growth of same-store merchandise revenues (2) (3): | ||||||
United States | 1.5% | 4.4% | ||||
Canada | (0.2%) | 6.6% | ||||
Motor fuel gross margin (3): | ||||||
United States (cents per gallon) | 19.95 | 18.83 | 5.9% | |||
Canada (CA cents per litre) | 5.53 | 5.26 | 5.1% | |||
Volume of motor fuel sold (4): | ||||||
United States (millions of gallons) | 814.1 | 818.3 | (0.5%) | |||
Canada (millions of litres) | 622.9 | 600.8 | 3.7% | |||
Growth of same-store motor fuel volume (3): | ||||||
United States | (1.6%) | 1.1% | ||||
Canada | (0.9%) | 5.4% | ||||
Per Share Data: | ||||||
Basic net earnings per share (dollars per share) | 0.76 | 0.68 | 11.8% | |||
Diluted net earnings per share (dollars per share) | 0.75 | 0.67 | 11.9% | |||
July 17, 2011 | April 24, 2011 | Variation $ | ||||
Balance Sheet Data: | ||||||
Total assets | 4,130.4 | 3,926.0 | 204.4 | |||
Interest-bearing debt | 502.3 | 501.5 | 0.8 | |||
Shareholders' equity | 2,107.5 | 1,980.6 | 126.9 | |||
Indebtedness Ratios: | ||||||
Net interest-bearing debt/total capitalization (5) | 0.01: 1 | 0.09:1 | ||||
Net interest-bearing debt/EBITDA (6) | 0.01: 1 (7) | 0.26:1 | ||||
Adjusted net interest bearing debt/EBITDAR (8) | 1.90: 1 (7) | 2.09:1 | ||||
Returns | ||||||
Return on equity (7) (9) | 19.7% | 21.0% (11) | ||||
Return on capital employed (7) (10) | 17.9% | 18.1% (11) |
(1) | Includes other revenues derived from franchise fees, royalties and rebates on some purchases by franchisees and licensees. |
(2) | Does not include services and other revenues (as described in footnote 1 above). Growth in Canada is calculated based on Canadian dollars. |
(3) | For Corporation-operated stores only. |
(4) | Includes volume of franchisees and dealers. |
(5) | This ratio is presented for information purposes only and represents a measure of financial condition used especially in financial circles. It represents the following calculation: long-term interest-bearing debt, net of cash and cash equivalents and temporary investments, divided by the addition of shareholders' equity and long-term debt, net of cash and cash equivalents and temporary investments. It does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other public corporations. |
(6) | This ratio is presented for information purposes only and represents a measure of financial condition used especially in financial circles. It represents the following calculation: long-term interest-bearing debt, net of cash and cash equivalents and temporary investments, divided by EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization). It does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other public corporations. |
(7) | This ratio was standardized over a period of one year. It includes the results of the first quarter of the fiscal year which will end April 29, 2012 as well as the second, third fourth and quarters of the fiscal year ended April 24, 2011. |
(8) | This ratio is presented for information purposes only and represents a measure of financial condition used especially in financial circles. It represents the following calculation: long-term interest-bearing debt plus the product of eight times rent expense, net of cash and cash equivalents and temporary investments, divided by EBITDAR (Earnings Before Interest, Tax, Depreciation, Amortization and Rent expense). It does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other public corporations. |
(9) | This ratio is presented for information purposes only and represents a measure of performance used especially in financial circles. It represents the following calculation: cumulated net earnings of the last four quarter divided by average equity for the same period. It does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other public corporations. |
(10) | This ratio is presented for information purposes only and represents a measure of performance used especially in financial circles. It represents the following calculation: cumulated earning before income taxes and interests of the last four quarter divided by average capital employed for the same period. Capital employed represents total assets less short-term liabilities. It does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other public corporations. |
(11) | The numerator used to calculate this ratio includes the results of the first quarter of fiscal year ended April 24, 2011 which has been restated to comply with IFRS. It also includes the results of the second, third and fourth quarters of fiscal year ended April 25, 2010 which were established based on Canadian GAAP and which were not restated to comply with IFRS. The denominator has been restated to comply with IFRS based on management's best estimates. |
Operating Results
Couche-Tard's revenues amounted to $5.2 billion in the first quarter of fiscal 2012, up $1.0 billion, an increase or 23.9%, mainly attributable to an increase in motor fuel sales due to higher average retail prices at the pump, to the stronger Canadian dollar, to acquisitions as well as to the growth of same-store merchandise and service sales in the United States. These items contributing to the growth in revenues were partially offset by the decrease in same-store motor fuel volume in the United States and Canada.
More specifically, the growth of merchandise and service revenues for the first quarter of fiscal 2012 was $52.8 million or 3.5%, of which approximately $37.0 million was generated by a stronger Canadian dollar and 7.0 million by acquisitions. As for internal growth, same-store merchandise revenues increased by 1.5% in the United States while they decreased by 0.2% in Canada. For the Canadian and U.S. markets, the variance in same-store merchandise sales is attributable to Couche-Tard's merchandising strategies, to the economic condition in each of its market as well as to the investments the Corporation made to enhance service and the offering of products in its stores. As indicated in the fourth quarter of fiscal 2011, Couche-Tard sees some slowdown on the part of consumers, likely due to rising motor fuel prices, unemployment level remaining high in the United States, pressure on personal disposable income and the level of household indebtedness. This seems to be supported by the University of Michigan Consumer Sentiment Index preliminary report for August 2011 which came in at 54.9, its lowest level since May 1980, and the third lowest in the history of this indicator. In the same way, Canadian consumers who had not suffered as much during the last financial crisis now seem to change their consumption habits as Americans did, by looking for products that will help them save money. In addition, adverse weather conditions in many of Couche-Tard's markets had a negative impact on merchandise and service sales as it did for many other retailers. As for the United States, Philip Morris, a cigarette manufacturer, modified its supply terms and price structure in order to encourage retailers to decrease or maintain low unit prices on certain of its products, which has put a deflationary pressure on Couche-Tard's cigarettes sales. Thus, the Corporation estimates that excluding cigarettes sales, its same-store merchandise sales increased by 3,9 %. Lastly, in Canada, the strength of the Canadian dollar seemed to have played a role in the decrease of same-store merchandise revenues as Americans were less inclined to cross the border for their summer vacations. However, Couche-Tard seems to hold up well in comparison to other retailers and it maintains its attention on balancing in-store traffic and margin level as well as on its market share as always.
Motor fuel revenues increased by $947.4 million or 35.5% in the first quarter of fiscal 2012, of which $25.0 million stems from additional volume due to a growing number of sites offering motor fuel and approximately $33.0 million were generated by the appreciation of the Canadian dollar against its U.S. counterpart. In light of the still fragile economy and higher retail prices at the pump which have put downward pressure on motor fuel consumption, same-store motor fuel volume fell 1.6% in the United States and 0.9% in Canada. This seems to be confirmed by the U.S. Federal Highway Administration May and June 2011 Traffic Volume Trends reports which show that, month over month, travel on U.S. roads and streets declined 1.9% in May and 1,4% in June. The higher average retail price of motor fuel generated an increase in revenues of approximately $900.0 million as shown in the following table, starting with the second quarter of the fiscal year ended April 24, 2011:
Quarter | 2nd | 3rd | 4th | 1st | Weighted average |
|||||
52-week period ended July 17, 2011 | ||||||||||
|
United States (US dollars per gallon) Canada (CA cents per litre) |
2.67 90.47 |
|
2.89 97.76 |
|
3.44 108.53 |
|
3.67 114.08 |
|
3.15 102.30 |
52-week period ended July 18, 2010 | ||||||||||
|
United States (US dollars per gallon) Canada (CA cents per litre) |
2.48 89.24 |
|
2.59 90.00 |
|
2.71 92.36 |
|
2.72 91.46 |
|
2.62 90.70 |
The consolidated merchandise and service gross margin was 33.5% in the first quarter of fiscal 2012, a slight reduction of 0.1% compared with the same quarter of fiscal 2011. In the United States, the gross margin is up 0.3% to 33.2% while in Canada, it fell 1.1% to 34.0%. These performances reflect changes in the product-mix, the improvements Couche-Tard brought to its supply terms as well as its merchandising strategy in tune with market competitiveness and economic conditions within each market. More specifically, in Canada, the margin reduction reflects more aggressive promotions in certain categories to protect store traffic as well as a change in the product-mix created, in part, by the impact that unfavorable weather conditions had on Couche-Tard's clients' consumption habits.
In the first quarter of fiscal 2012, the motor fuel gross margin for Couche-Tard's company-operated stores in the United States increased by 1.12¢ per gallon, from 18.83¢ per gallon last year to 19,95¢ per gallon this year. However, taking into account expenses related to electronic payment modes, net margin per gallon decreased slightly. In Canada, the gross margin increased to CA5.53¢ per litre compared with CA5.26¢ per litre for the first quarter of fiscal 2011. The motor fuel gross margin of Couche-Tard's company-operated stores in the United States as well as the impact of expenses related to electronic payment modes for the last eight quarters, starting with the second quarter of fiscal year ended April 24, 2011, were as follows:
(US cents per gallon) | ||||||||||
Quarter | 2nd | 3rd | 4th | 1st | Weighted average |
|||||
52-week period ended July 17, 2011 | ||||||||||
Before deduction of expenses related to electronic payment modes | 16.84 | 13.12 | 14.06 | 19.95 | 15.80 | |||||
Expenses related to electronic payment modes | 4.16 | 4.36 | 4.93 | 5.29 | 4.66 | |||||
After deduction of expenses related to electronic payment modes | 12.68 | 8.76 | 9.13 | 14.66 | 11.14 | |||||
52-week period ended July 18, 2010 | ||||||||||
Before deduction of expenses related to electronic payment modes | 15.78 | 12.88 | 14.21 | 18.83 | 15.27 | |||||
Expenses related to electronic payment modes | 3.79 | 3.85 | 4.14 | 4.15 | 3.97 | |||||
After deduction of expenses related to electronic payment modes | 11.99 | 9.03 | 10.07 | 14.68 | 11.30 | |||||
For the first quarter of fiscal 2012, operating, selling, administrative and general expenses rose by 4.3% compared with the first quarter of fiscal 2011, but decreased by 0.4% if we exclude certain items, as demonstrated by the following table:
12 week period ended July 17, 2011 | ||
Total variance as reported | 4.3% | |
Subtract: | ||
Increase from higher electronic payment fees | 2.4% | |
Increase from the strengthening of the Canadian dollar | 2.2% | |
Increase from incremental expenses related to stores acquired | 0.6% | |
Acquisition costs recognized to earnings of the first quarter of fiscal 2011 | (0.6%) | |
Acquisition costs recognized to earnings of the first quarter of fiscal 2012 | 0.1% | |
Remaining variance | (0.4%) |
The increase in electronic payment fees stems mainly from the rise in the average retail price of motor fuel.
Moreover, excluding expenses related to electronic payment modes as well as acquisitions costs for both comparable periods, expenses in proportion to merchandise and services sales represented 27.4% of sales during the first quarter of fiscal 2012, compared to 27.7% during the first quarter of fiscal 2011. This indicator has been constantly improving for more than two years now. This performance reflects Couche-Tard's constant efforts to find ways to improve its efficiency while making certain that it maintains the quality of the service it offers to its clients.
During the first quarter of fiscal 2012, EBITDA increased by 5.0% compared to the corresponding period of the previous fiscal year, reaching $237.7 million. Acquisitions contributed $1.2 million to EBITDA while the strengthening of the Canadian dollar contributed for about $4.6 million.
It should be noted that EBITDA is not a performance measure defined by IFRS, but the Corporation, as well as investors and analysts, use this measure to evaluate the Corporation's financial and operating performance. Note that Couche-Tard's definition of this measure may differ from the one used by other public corporations:
(in millions of US dollars) | 12-week periods ended | |||
July 17, 2011 | July 18, 2010 | |||
Net earnings, as reported | 139.5 | 126.9 | ||
Add: | ||||
Income taxes | 46.0 | 44.4 | ||
Financial expenses | 2.7 | 7.6 | ||
Depreciation and amortization of property and equipment and other assets | 49.5 | 47.4 | ||
EBITDA | 237.7 | 226.3 |
For the first quarter of fiscal 2012, the depreciation expense increased due to the investments Couche-Tard made through acquisitions, replacement of equipment, the addition of new stores and the ongoing improvement of its network.
For the first quarter of fiscal 2012, net financial expenses decreased by $4.9 million compared with the first quarter of fiscal 2011, mainly explained by the early redemption of our $350.0 million subordinated unsecured debt during the third quarter of fiscal 2011, which had an effective interest rate higher than Couche-Tard's current borrowings under its credit facilities as well as by the reduction in average borrowings.
The income tax rate for the first quarter of fiscal 2012 is 24.8% compared to a rate of 25.9% for the same quarter of the previous fiscal year.
Couche-Tard closed the first quarter of fiscal 2012 with net earnings of $139.5 million, which equals $0.76 per share (or $0.75 per share on a diluted basis), compared to $126.9 million the previous fiscal year ($0.67 per share on a diluted basis), an increase of $12.6 million or 9.9%.
As for the stronger Canadian dollar, it had a favorable impact of approximately $3.5 million on net earnings.
Liquidity and Capital Resources
Couche-Tard's sources of liquidity remain unchanged compared with the fiscal year ended April 24, 2011. For further information, please refer to its 2011 Annual Report.
With respect to capital expenditures and acquisitions Couche-Tard carried out in the first quarter of fiscal 2012, they were financed using available cash. The Corporation expects that cash generated from operations together with borrowings available under its revolving unsecured credit facilities will be adequate to meet its liquidity needs in the foreseeable future.
Couche-Tard's credit facilities have not changed with respect to their terms of use since April 24, 2011. As at July 17, 2011, $486.0 million of its term revolving unsecured operating credits had been used ($250.0 million for the US dollars portion and $236.0 million for the Canadian dollars portion). As at the same date, the weighted average effective interest rate was 0.74% for the US dollars portion and 0.75% for the Canadian dollars portion. In addition, standby letters of credit in the amount of CA$0.8 million and $29.4 million were outstanding as at July 17, 2011.
As at July 17, 2011, approximately $484.0 million were available under Couche-Tard's credit agreements and the Corporation was in compliance with the restrictive covenants and ratios imposed by the credit agreements at that date. Thus, at the same date, Couche-Tard had access to more than $975.0 million through its available cash and credit agreements.
Selected Consolidated Cash Flow Information
(In millions of US dollars) | 12-week periods ended | |||||
July 17, 2011 | July 18, 2010 | Variation $ | ||||
Operating activities | ||||||
Cash flows (1) | 196.0 | 170.2 | 25.8 | |||
Other | 19.3 | (16.9) | 36.2 | |||
Net cash provided by operating activities | 215.3 | 153.3 | 62.0 | |||
Investing activities | ||||||
Purchase of property and equipment and other assets, net of proceeds from the disposal of property and equipment and other assets | (20.5) | (23.6) | 3.1 | |||
Business acquisitions | (14.4) | (6.9) | (7.5) | |||
Proceeds from sale and leaseback transactions | - | 1.9 | (1.9) | |||
Dividends received from a joint venture | 0.6 | 0.3 | 0.3 | |||
Other | (0.4) | - | (0.4) | |||
Net cash used in investing activities | (34.7) | (28.3) | (6.4) | |||
Financing activities | ||||||
Net decrease in long-term borrowings | (0.9) | (98.5) | 97.6 | |||
Issuance of shares | 1.6 | 4.1 | (2.5) | |||
Net cash from (used in) financing activities | 0.7 | (94.4) | 95.1 | |||
Company credit rating | ||||||
Standard and Poor's | BBB- | BB+ |
1. | These cash flows are presented for information purposes only and represent a performance measure used especially in financial circles. They represent net earnings plus depreciation and amortization, loss on disposal of assets (less gains on disposal of assets) and future income taxes. They do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other public corporations. |
Operating activities
During the first quarter of fiscal 2012, net cash from the operation of Couche-Tard's stores reached $215.3 million, up $62.0 million compared to the first quarter of fiscal year 2011, mainly due to higher net earnings and more favorable changes in working capital.
Investing activities
During the first quarter of fiscal 2012, Couche-Tard's investing activities were primarily for the acquisition of 13 stores for an amount of $14.4 million and for capital expenditures for an amount of $20.5 million. The Corporation's capital investments were primarily for the replacement of equipment in some of its stores to enhance its offering of products and services, the addition of new stores as well as the ongoing improvement of its network.
Financing activities
During the first quarter of fiscal 2012, the decrease in long term debt amounted to $0.9 million while Couche-Tard received $1.6 million upon the exercise of stock options.
Financial Position as at April 24, 2011
As shown by its indebtedness ratios included in the "Selected Consolidated Financial Information" section and its net cash provided by operating activities, Couche-Tard's financial position is excellent.
Its total consolidated assets amounted to $4.1 billion as at July 17, 2011, an increase of $204.4 million over the balance as at April 24, 2011. This increase stems primarily from the following items:
- The increase in cash arising from cash flows provided by operating activities;
- The increase in vendor rebates receivable.
For the 52-week period ended July 17, 2011, Couche-Tard recorded a return on capital employed of 17.9%1.
Shareholders' equity amounted to $2.1 billion as at July 17, 2011, up $126.9 million compared to April 24, 2011, mainly reflecting net earnings of the first quarter of fiscal 2012, partially offset by dividends declared and by the decrease in accumulated other comprehensive income following the weakening of the Canadian dollars as at the balance sheet date. For the 52-week period ended July 17, 2011, Couche-Tard recorded a return on equity of 19.7%2.
________________________
1 | This ratio is presented for information purposes only and represents a measure of performance used especially in financial circles. It represents the following calculation: cumulated earning before income taxes and interests of the last four quarter divided by average capital employed for the same period. Capital employed represents total assets less short-term liabilities. It does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other public corporations. This ratio was standardized over a period of one year. It includes the results of the first quarter of the fiscal year which will end April 29, 2012 as well as the second, third and fourth quarters of the fiscal year ended April 24, 2011. |
2 | This ratio is presented for information purposes only and represents a measure of performance used especially in financial circles. It represents the following calculation: cumulated net earnings of the last four quarter divided by average equity for the same period. It does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other public corporations. This ratio was standardized over a period of one year. It includes the results of the first quarter of the fiscal year which will end April 29, 2012 as well as the second, third and fourth quarters of the fiscal year ended April 24, 2011. |
Selected Quarterly Financial Information (Unaudited)
(In millions of US dollars except for per share data, unaudited) | 12-week period ended July 17, 2011 |
52-week period ended April 24, 2011 | Extract from the 52-week period ended April 25, 2010 (1) |
|||||||||||||
Quarter | 1st | 4th | 3rd | 2nd | 1st | 4th | 3rd | 2nd | ||||||||
Weeks | 12 weeks | 12 weeks | 16 weeks | 12 weeks | 12 weeks | 12 weeks | 16 weeks | 12 weeks | ||||||||
Revenues | 5,177.6 | 4,737.0 | 5,486.9 | 4,149.1 | 4,177.4 | 4,003.5 | 4,935.2 | 3,825.8 | ||||||||
Income before depreciation and amortization of property and equipment and other assets, financial expenses and income taxes |
231.7 | 133.7 | 163.5 | 199.0 | 220.6 | 150.5 | 141.3 | 176.4 | ||||||||
Depreciation and amortization of property and equipment and other assets |
49.5 | 50.9 | 66.1 | 49.3 | 47.4 | 49.4 | 63.2 | 46.9 | ||||||||
Operating income | 182.2 | 82.8 | 97.4 | 149.7 | 173.2 | 101.1 | 78.1 | 129.5 | ||||||||
Share of earnings of a joint venture accounted for using the equity method |
6.0 | 2.6 | 3.8 | 4.8 | 5.7 | - | - | - | ||||||||
Net financial expenses | 2.7 | 2.6 | 11.2 | 8.2 | 7.6 | 7.4 | 8.6 | 7.0 | ||||||||
Net earnings | 139.5 | 64.5 | 69.6 | 108.2 | 126.9 | 68.8 | 54.8 | 88.2 | ||||||||
Net earnings per share | ||||||||||||||||
Basic | $0.76 | $0.35 | $0.38 | $0.58 | $0.68 | $0.37 | $0.30 | $0.48 | ||||||||
Diluted | $0.75 | $0.35 | $0.37 | $0.57 | $0.67 | $0.37 | $0.29 | $0.47 |
(1) Figures presented for this period were not restated following the adoption of IFRS.
Outlook
For the remainder of fiscal year 2012, Couche-Tard expects to pursue its investments with caution in order to, amongst other things, improve its network. Given the economic climate and its attractive access to capital, Couche-Tard believes to be well-positioned to realize acquisitions and create value. However, the Corporation will continue to exercise patience in order to benefit from a fair price in view of current market conditions. Couche-Tard also intends to keep an ongoing focus on supply terms and operating expenses.
Finally, in line with its business model, Couche-Tard intends to continue to focus its resources on the sale of fresh products and on innovation, including the introduction of new products and services, in order to satisfy the needs of its large clientele.
Profile
Alimentation Couche-Tard Inc. is the leader in the Canadian convenience store industry. In North America, Couche-Tard is the largest independent convenience store operator (whether integrated with a petroleum Corporation or not) in terms of number of company-operated stores. As of April 24, 2011, Couche-Tard had a network of 5,741 convenience stores, 4,117 of which include motor fuel dispensing. The network consists of 13 business units, including nine in the United States covering 43 states and the District of Columbia, and four in Canada covering all ten provinces. More than 53,000 people are employed throughout Couche-Tard's retail convenience network and service centers.
The statements set forth in this press release, which describes Couche-Tard's objectives, projections, estimates, expectations or forecasts, may constitute forward-looking statements within the meaning of securities legislation. Positive or negative verbs such as "plan", "evaluate", "estimate", "believe" and other related expressions are used to identify such statements. Couche-Tard would like to point out that, by their very nature, forward-looking statements involve risks and uncertainties such that its results, or the measures it adopts, could differ materially from those indicated or underlying these statements, or could have an impact on the degree of realization of a particular projection. Major factors that may lead to a material difference between Couche-Tard's actual results and the projections or expectations set forth in the forward-looking statements include the effects of the integration of acquired businesses and the ability to achieve projected synergies, fluctuations in margins on motor fuel sales, competition in the convenience store and retail motor fuel industries, exchange rate variations, and such other risks as described in detail from time to time in the reports filed by Couche-Tard with securities authorities in Canada and the United States. Unless otherwise required by applicable securities laws, Couche-Tard disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking information in this release is based on information available as of the date of the release.
Webcast on August 30, 2011 at 3:30 P.M. (EST)
Couche-Tard invites analysts known to the Corporation to send their two questions in advance to its management, before 1:30 P.M. (EST) on August 30, 2011.
Financial analysts and investors who wish to listen to the webcast on Couche-Tard's results which will take place online on August 30, 2011 at 3:30 P.M. (EST) can do so by accessing the Corporation's website at www.couche-tard.com/corporate and by clicking on the corporate presentations link of the investor relations section. For those who will not be able to listen to the live presentation, the recording of the webcast will be available on the Corporation's website for a period of 90 days.
Q1 2012
ALIMENTATION COUCHE-TARD INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12-week period ended July 17, 20
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions of US dollars, except per share amounts, unaudited)
For the 12-week periods ended | July 17, | July 18, | ||
2011 | 2010 | |||
$ | $ | |||
Revenues | 5,177.6 | 4,177.4 | ||
Cost of sales | 4,458.5 | 3,489.7 | ||
Gross profit | 719.1 | 687.7 | ||
Operating, selling, administrative and general expenses | 487.4 | 467.1 | ||
Depreciation and amortization of property and equipment and other assets | 49.5 | 47.4 | ||
536.9 | 514.5 | |||
Operating income | 182.2 | 173.2 | ||
Share of earnings of a joint venture accounted for using the equity method | 6.0 | 5.7 | ||
Financial expenses | 2.8 | 8.9 | ||
Financial revenues | (0.1) | (1.3) | ||
Net financial expenses | 2.7 | 7.6 | ||
Earnings before income taxes | 185.5 | 171.3 | ||
Income taxes | 46.0 | 44.4 | ||
Net earnings | 139.5 | 126.9 | ||
Net earnings per share attributable to parent corporation shareholders (Note 5) | ||||
Basic | 0.76 | 0.68 | ||
Diluted | 0.75 | 0.67 | ||
Weighted average number of shares (in thousands) | 183,689 | 185,307 | ||
Weighted average number of shares - diluted (in thousands) | 187,069 | 188,485 | ||
Number of shares outstanding at end of period (in thousands) | 183,727 | 185,418 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions of US dollars, unaudited)
For the 12-week periods ended | |||
July 17, | July 18, | ||
2011 | 2010 | ||
$ | $ | ||
Net earnings | 139.5 | 126.9 | |
Other comprehensive income | |||
Changes in cumulative translation adjustments (1) | (2.3) | (21.8) | |
Change in fair value of a financial instrument designated as a cash flow hedge (2) | 1.4 | 0.4 | |
Gain realized on a financial instrument designated as a cash flow hedge transferred to earnings (3) | (0.8) | (0.1) | |
Gain realized on the disposal of an available-for-sale financial instrument transferred to earnings (4) | (0.6) | - | |
Other comprehensive income | (2.3) | (21.5) | |
Comprehensive income | 137.2 | 105.3 |
(1) | For the 12-week periods ended July 17, 2011, this amount includes a loss of $0.3 (net of income taxes). For the 12-week period ended July 18, 2010, this amount includes a loss of $28.6 (net of income taxes of $4.3). These losses arise from the translation of US dollar denominated long-term debt designated as a foreign exchange hedge of the Corporation's net investment in its U.S. operations. |
(2) | For the 12-week period ended July 17, 2011, this amount is net of income taxes of $0.4. For the 12-week period ended July 18, 2010, this amount is net of income taxes of $0.2. |
(3) | For the 12-week periods ended July 17, 2011, this amount is net of income taxes of $0.3. For the 12-week period ended July 18, 2010, this amount is net of income taxes of 0.1$. |
(4) | For the 12-week periods ended July 17, 2011, this amount is net of income taxes. |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions of US dollars, except per share amounts, unaudited)
For the 12-week period ended | July 17, 2011 | |||||||||
Capital stock |
Contributed surplus |
Retained earnings |
Accumulated other comprehensive income |
Shareholders' equity |
||||||
$ | $ | $ | $ | $ | ||||||
Balance, beginning of period | 323.8 | 19.3 | 1,596.3 | 41.2 | 1,980.6 | |||||
Comprehensive income: | ||||||||||
Net earnings | 139.5 | 139.5 | ||||||||
Change in cumulative translation adjustments | (2.3) | (2.3) | ||||||||
Change in fair value of a financial instrument designated as a cash flow hedge (net of income taxes of $0.4) | 1.4 | 1.4 | ||||||||
Gain realized on a financial instrument designated as a cash flow hedge transferred to earnings (net of income taxes of $0.3) | (0.8) | (0.8) | ||||||||
Gain realized on the disposal of an available-for-sale financial instrument transferred to earnings (net of income taxes) | (0.6) | (0.6) | ||||||||
Total comprehensive income | 137.2 | |||||||||
Dividends | (12.0) | (12.0) | ||||||||
Stock option-based compensation expense | 0.1 | 0.1 | ||||||||
Initial fair value of stock options exercised | 0.7 | (0.7) | - | |||||||
Cash received upon exercise of stock options | 1.6 | 1.6 | ||||||||
Balance, end of period | 326.1 | 18.7 | 1,723.8 | 38.9 | 2,107.5 | |||||
For the 12-week period ended | July 18, 2010 | |||||||||
Capital stock |
Contributed surplus |
Retained earnings |
Accumulated other comprehensive income |
Shareholders' equity |
||||||
$ | $ | $ | $ | $ | ||||||
Balance, beginning of period | 319.5 | 20.4 | 1,319.7 | 0.4 | 1,660.0 | |||||
Comprehensive income: | ||||||||||
Net earnings | 126.9 | 126.9 | ||||||||
Change in cumulative translation adjustments | (21.8) | (21.8) | ||||||||
Change in fair value of a financial instrument designated as a cash flow hedge (net of income taxes of $0.2) | 0.4 | 0.4 | ||||||||
Gain realized on a financial instrument designated as a cash flow hedge transferred to earnings (net of income taxes of $0.1) | (0.1) | (0.1) | ||||||||
Total comprehensive income | 105.4 | |||||||||
Dividends | (7.5) | (7.5) | ||||||||
Stock option-based compensation expense | 0.3 | 0.3 | ||||||||
Cash received upon exercise of stock options | 4.1 | 4.1 | ||||||||
Balance, end of period | 323.6 | 20.7 | 1,439.1 | (21.1) | 1,762.3 |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of US dollars, unaudited)
For the 12-week periods ended | July 17, | July 18, | ||
2011 | 2010 | |||
$ | $ | |||
Operating activities | ||||
Net earnings | 139.5 | 126.9 | ||
Adjustments to reconcile net earnings to net cash provided by operating activities | ||||
Depreciation and amortization of property and equipment and other assets, net of amortization of deferred credits | 43.0 | 40.0 | ||
Deferred income taxes | 11.4 | 1.5 | ||
Loss on disposal of property and equipment and other assets | 2.1 | 1.8 | ||
Deferred credits | 3.9 | 1.4 | ||
Share of earnings of a joint venture accounted for using the equity method | (6.0) | (5.7) | ||
Other | 7.6 | 4.3 | ||
Changes in non-cash working capital | 13.8 | (16.9) | ||
Net cash provided by operating activities | 215.3 | 153.3 | ||
Investing activities | ||||
Purchase of property and equipment and other assets | (23.8) | (26.6) | ||
Business acquisitions (Note 4) | (14.4) | (6.9) | ||
Proceeds from disposal of property and equipment and other assets | 3.3 | 3.0 | ||
Dividends from a joint venture accounted for using the equity method | 0.6 | 0.3 | ||
Other | (0.4) | - | ||
Proceeds from sale and leaseback transactions | - | 1.9 | ||
Net cash used in investing activities | (34.7) | (28.3) | ||
Financing activities | ||||
Issuance of shares | 1.6 | 4.1 | ||
Net decrease in long-term debt | (0.9) | (98.5) | ||
Net cash provided by (used in) financing activities | 0.7 | (94.4) | ||
Effect of exchange rate fluctuations on cash and cash equivalents | 0.6 | (3.5) | ||
Net increase in cash and cash equivalents | 181.9 | 27.1 | ||
Cash and cash equivalents, beginning of period | 309.7 | 215.7 | ||
Cash and cash equivalents, end of period | 491.6 | 242.8 | ||
Supplemental information: | ||||
Interest paid | 1.4 | 14.3 | ||
Interest received | 0.1 | 0.9 | ||
Income taxes paid | 14.3 | 36.4 | ||
Cash and cash equivalents components: | ||||
Cash and demand deposits | 370.1 | 198.0 | ||
Liquid investments | 121.5 | 44.8 | ||
491.6 | 242.8 |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(in millions of US dollars, unaudited)
As at July 17, | As at April 24, | As at April 26, | ||||
2011 | 2011 | 2010 | ||||
$ | $ | $ | ||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | 491.6 | 309.7 | 215.7 | |||
Accounts receivable | 387.5 | 349.1 | 280.8 | |||
Inventories | 536.6 | 526.0 | 469.9 | |||
Prepaid expenses | 23.4 | 21.0 | 20.0 | |||
Income taxes receivable | 19.6 | 36.4 | 17.7 | |||
1,458.7 | 1,242.2 | 1,004.1 | ||||
Property and equipment | 1,911.2 | 1,935.4 | 1,914.9 | |||
Goodwill | 444.6 | 440.9 | 425.3 | |||
Intangible assets | 188.8 | 188.6 | 188.2 | |||
Other assets | 63.1 | 58.0 | 55.8 | |||
Investment in a joint venture | 53.6 | 48.2 | 42.1 | |||
Deferred income taxes | 10.4 | 12.7 | 8.6 | |||
4,130.4 | 3,926.0 | 3,639.0 | ||||
Liabilities | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | 992.5 | 936.5 | 821.7 | |||
Provisions | 36.7 | 36.3 | 31.4 | |||
Current portion of long-term debt | 4.8 | 4.6 | 4.4 | |||
1,034.0 | 977.4 | 857.5 | ||||
Long-term debt | 497.5 | 496.9 | 711.9 | |||
Provisions (Note 8) | 91.2 | 88.7 | 87.7 | |||
Deferred credits and other liabilities | 144.5 | 137.7 | 128.0 | |||
Deferred income taxes | 255.7 | 244.7 | 193.9 | |||
2,022.9 | 1,945.4 | 1,979.0 | ||||
Shareholders' equity | ||||||
Capital stock | 326.1 | 323.8 | 319.5 | |||
Contributed surplus | 18.7 | 19.3 | 20.4 | |||
Retained earnings | 1,723.8 | 1,596.3 | 1 319.7 | |||
Accumulated other comprehensive income | 38.9 | 41.2 | 0.4 | |||
2,107.5 | 1,980.6 | 1,660.0 | ||||
4,130.4 | 3,926.0 | 3,639.0 |
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(in millions of US dollars, except per share and stock option data, unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION
The condensed unaudited interim consolidated financial statements ("the interim financial statements") have been prepared by the Corporation in accordance with Canadian generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants ("CICA Handbook"). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards ("IFRS"), and require publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Therefore, the Corporation has started to present its information in accordance with these accounting standards in these current interim financial statements. In these interim financial statements, the term "Canadian GAAP" refers to Canadian GAAP before the adoption of IFRS.
These interim financial statements were prepared in accordance with applicable IFRS for interim financial statements, including IAS 34 "Interim Financial Reporting" and IFRS 1 "First-time Adoption of International Financial Reporting Standards". In accordance with IFRS, the Corporation has:
- provided comparative financial information;
- applied the same accounting policies throughout all reporting periods presented (except for certain exemptions applicable for first time IFRS adopters applied and disclosed in Note 10); and
- retrospectively applied all IFRS standards issued as of August 30, 2011, the date at which the board of directors approved the interim financial statements, with an effective date before April 29, 2012.
The Corporation's consolidated financial statements were previously prepared in accordance with Canadian GAAP. Canadian GAAP differs from IFRS in some areas. In preparing these interim financial statements in accordance with IFRS, management has amended certain accounting, measurement and consolidation methods previously applied in its financial statements prepared under Canadian GAAP. Note 10 presents line-by-line reconciliations of the balance sheets as at April 24, 2011 and April 26, 2010, a reconciliation of net earnings for the fiscal year ended April 24, 2011, a reconciliation of shareholders' equity and net earnings for the 12-week period ended July 18, 2010, as well as a description of the effect of the transition from Canadian GAAP to IFRS on these items. No reconciliation of comprehensive income is included because the components of this statement are not affected by the transition.
These interim financial statements have not been subject to a review engagement by the Corporation's external auditors. The interim financial statements were prepared in accordance with the same accounting policies and methods as the audited annual consolidated financial statements prepared in accordance with Canadian GAAP for the year ended April 24, 2011, except for those disclosed in Note 2. The interim financial statements do not include all the information required for complete financial statements and should be read in conjunction with the audited annual consolidated financial statements and notes thereto in the Corporation's 2011 Annual Report (the 2011 Annual Report). The results of operations for the interim periods presented do not necessarily reflect results expected for the full fiscal year. The Corporation's business follows a seasonal pattern. The busiest period is the first half-year of each fiscal year, which includes summer's sales.
On August 30, 2011, the Corporation's interim financial statements for the 12-week period ended July 17, 2011 (including comparative statements) were approved by the board of directors who also approved their publication. Future changes to IFRS after that date will be applied to the annual consolidated financial statements for the fiscal year ended on April 29, 2012. Theses changes could result in a restatement of these interim financial statements, including adjustments to the transitory adjustments at the transition date. The vice-president and chief financial officer has the authority to amend these interim financial statements subsequent to their issuance.
2. ACCOUNTING POLICIES AFFECTED BY IFRS TRANSITION AND DIFFERENT FROM THOSE USED IN THE 2011 ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
Principles of consolidation
The interim financial statements include the accounts of the Corporation and its subsidiaries, all of which are wholly owned. They also include the Corporation's portion of the earnings of a joint venture accounted for using the equity method. All intercompany balances and transactions have been eliminated on consolidation.
Subsidiaries are entities over which the Corporation has control, where control is defined as the power to govern financial and operating policies. The Corporation has a shareholding of 100% of the voting rights in its subsidiaries. The effect of potential voting rights that are currently exercisable is considered when assessing whether control exists. These criteria are reassessed regularly and subsidiaries are fully consolidated from the date control is transferred to the Corporation, and are deconsolidated from the date control ceases.
Foreign currency translation
Functional currency
The functional currency of the parent Corporation and its Canadian operations is the Canadian dollar while the US operations' is the US dollar.
Foreign currency transactions
Transactions denominated in foreign currencies are translated into the relevant functional currency as follows: Monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet date and revenues and expenses are translated at the average exchange rate on a 4-week period basis. Non-monetary assets and liabilities are translated at historical rates or at the date they were valued at fair value. Gains and losses arising from such translation, if any, are reflected in the consolidated statement of earnings except when deferred in equity as qualifying net investment hedge.
Consolidation and foreign operations
The interim financial statements are consolidated in Canadian dollars using the following procedure: Assets and liabilities of the US operations are translated into Canadian dollars using the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate on a 4-week period basis. Gains and losses arising from such translation are included in Accumulated other comprehensive income account in Shareholders' equity.
Reporting currency
The Corporation has adopted the US dollar as its reporting currency. The Canadian dollar consolidated interim financial statements are translated into the reporting currency using the procedure described above. Capital stock, Contributed surplus and Retained earnings are translated using historical rates. Non-monetary assets at fair value are translated at the rate of the date at which their fair value was determined. Gains and losses arising from translation are included in Other comprehensive income in Shareholders' equity.
Net earnings per share
Basic net earnings per share is calculated by dividing the net earnings available to Class A and Class B shareholders by the weighted average number of Class A and Class B shares outstanding during the year. Diluted net earnings per share is calculated using the average weighted number of shares outstanding plus the weighted average number of shares that would be issued upon the conversion of all potential dilutive stock-options into common shares
Income taxes
The income tax expense recorded to earnings is the sum of the deferred income tax and current income taxes that are not recognized in Other comprehensive income or directly to Shareholders' equity.
Income tax expense is recognized based on management's best estimate of the weighted average annual income tax rate expected for the fiscal year. The estimated average annual tax rate used for the fiscal year ending on April 29, 2012 is 24.8% (25.9% for the 12-week period ended July 18, 2010).
The Corporation uses the balance sheet liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the carrying amounts and tax bases of assets and liabilities using enacted or substantively enacted tax rates and laws, as appropriate, at the date of the interim financial statements for the years in which the temporary differences are expected to reverse. A valuation allowance is recognized to the extent that it is more likely than not that all of the deferred income tax assets will not be realized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, and interests in joint ventures, except where the Corporation is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Corporation intends to settle its current tax assets and liabilities on a net basis.
Property and equipment, depreciation and amortization and impairment
Property and equipment are stated at cost less accumulated depreciation and are depreciated over their estimated useful lives using the straight-line method based on the following periods:
Buildings and building components Equipment Buildings under finance leases Equipment under finance leases |
|
3 to 40 years 3 to 40 years Lease term Lease term |
Building components include air conditioning and heating systems, plumbing and electrical fixtures. Equipment includes signage, fuel equipment and in-store equipment.
Leasehold improvements and property and equipment on leased properties are amortized and depreciated over the lesser of their useful lives and the term of the lease.
Property and equipment are tested for impairment should events or circumstances indicate that their book value may not be recoverable, as measured by comparing their net book value to their recoverable amount which corresponds to the higher of fair value less costs to sell and value in use of the asset or cash-generating unit. Should the carrying amount of property and equipment exceed their recoverable amount, an impairment loss in the amount of the excess would be recognized.
The Corporation performs an annual evaluation of residual values, estimated useful lives and depreciation methods used for property and equipment and any change resulting from this evaluation is applied prospectively by the Corporation.
Goodwill
Goodwill is the excess of the cost of an acquired business over the fair value of underlying net assets acquired from the business at the time of acquisition. Goodwill is not amortized. Rather it is tested for impairment annually during the first quarter, or more frequently should events or changes in circumstances indicate that it might be impaired. Should the carrying amount of a cash-generating unit's goodwill exceed its recoverable amount, an impairment loss would be recognized. When the initial evaluation of the net fair value of the acquired assets of an acquired business exceeds the cost of the business combination, the excess is immediately recognized to earnings.
Intangible assets
Intangible assets are mainly comprised of trademarks and licenses. Trademarks and licenses have indefinite lives since they do not expire, are recorded at cost, are not amortized and are tested for impairment annually during the first quarter, or more frequently should events or changes in circumstances indicate that they might be impaired. Other intangible assets are amortized using the straight-line method over a period of five to ten years.
Rent expense
The Corporation accounts for finance leases in instances where it has acquired substantially all the benefits and risks incidental to ownership of the leased property. In some cases, the lease transaction is not always conclusive, and management uses judgment in determining whether the lease is a finance lease arrangement that transfers substantially all the risks and benefits incidental to ownership. The cost of assets under finance leases represents the present value of minimum lease payments or the fair value of the leased property, whichever is lower, and is amortized on a straight-line basis over the term of the lease or useful life of the asset, whichever is shorter. Assets under finance leases are presented under Property and equipment in the consolidated balance sheet.
Leases that do not transfer substantially all the benefits and risks incidental to ownership of the property are accounted for as operating leases. When a lease contains a predetermined fixed escalation of the minimum rent, the Corporation recognizes the related rent expense on a straight-line basis over the term of the lease and, consequently, records the difference between the recognized rental expense and the amounts payable under the lease as deferred rent expense.
The Corporation also receives tenant allowances, which are amortized on a straight-line basis over the term of the lease or useful life of the asset, whichever is shorter.
Gains and losses resulting from sale and leaseback transactions are recorded in the consolidated statements of earnings at the transaction date except if:
- the sale price is below fair value and the loss is compensated for by future lease payments below market price, in which case it shall be deferred and amortized in proportion to the lease payments over the period during which the asset is expected to be used;
- the sale price is above fair value, in which case the excess shall be deferred and amortized over the period during which the asset is expected to be used.
Stock-based compensation and other stock-based payments
Stock-based compensation costs are measured at the grant date of the award based on the fair value method for all transactions entered into starting in fiscal year 2003.
The fair value of stock options is recognized over the vesting period of each respective vesting portion as compensation expense with a corresponding increase in contributed surplus. When stock options are exercised, the corresponding contributed surplus is transferred to capital stock.
The Phantom Stock Units compensation cost and the related liability are recorded on a straight-line basis over the corresponding vesting period based on the fair market value of Class B shares and the best estimate of the number of Phantom Stock Units that will ultimately be paid. The recorded liability is adjusted periodically to reflect any variation in the fair market value of the Class B shares.
Employee future benefits
The Corporation accrues its obligations under employee pension plans and the related costs, net of plan assets. The Corporation has adopted the following accounting policies with respect to the defined benefit plans:
- the accrued benefit obligations and the cost of pension benefits earned by active employees are actuarially determined using the projected unit credit method pro-rated on service and pension expense is recorded in earnings as the services are rendered by active employees. The calculations reflect management's best estimate of expected plan investment performance, salary escalation and retirement ages of employees;
- for the purpose of calculating the expected return on plan assets, those assets are valued at fair value;
- actuarial gains (losses) arise from the difference between the actual long-term rate of return on plan assets for a period and the expected long-term rate of return on plan assets for that period or from changes in actuarial assumptions used to determine the accrued benefit obligation. The excess of the net actuarial gain (loss) over 10% of the greater of the present value of the benefit obligation and the fair value of plan assets, established at the beginning of the year, is amortized over the expected average remaining active life of participating employees. The expected average remaining active life of employees covered by the pension plans is nine years;
- past service costs are amortized on a straight-line basis over the average period until the benefits become vested.
The pension cost recorded in net earnings for the defined contribution plan is equivalent to the contribution which the Corporation is required to pay in exchange for services provided by the employees.
Provisions
Provisions are recognized when the Corporation has a present obligation (legal or constructive) as a result of a past event, it is probable that the Corporation will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
Onerous contracts
Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous contract is considered to exist where the Corporation has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. In order to determine the initial recorded liability, the present value of estimated future cash flows is calculated using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Environmental costs
The Corporation provides for estimated future site remediation costs to meet government standards for known site contaminations when such costs can be reasonably estimated. Estimates of the anticipated future costs for remediation activities at such sites are based on the Corporation's prior experience with remediation sites and consideration of other factors such as the condition of the site contamination, location of sites and experience with contractors that perform the environmental assessments and remediation work. In order to determine the initial recorded liability, the present value of estimated future cash flows was calculated using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Asset retirement obligations
Asset retirement obligations relate to estimated future costs to remove underground motor fuel storage tanks and are based on the Corporation's prior experience in removing these tanks, estimated tank useful life, lease terms for those tanks installed on leased properties, external estimates and governmental regulatory requirements. A discounted liability is recorded for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long-lived asset at the time an underground storage tank is installed. To determine the initial recorded liability, the future estimated cash flows are discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The amount added to property and equipment is amortized and an accretion expense is recognized in connection with the discounted liability over the remaining life of the tank or lease term for leased properties.
Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased to reflect the passage of time and then adjusted for variations in the current market-based discount rate or the scheduled underlying cash flows required to settle the liability.
Obligations related to general liability and workers' compensation
In the United States, the Corporation is self-insured for certain losses related to general liability and workers' compensation. The expected ultimate cost for claims incurred as of the balance sheet date is discounted and is recognized as a liability. This cost is estimated based on analysis of the Corporation's historical data and actuarial estimates. In order to determine the initial recorded liability, the present value of estimated future cash flows is calculated using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Financial instruments recognition and measurement
The Corporation has made the following classifications for its financial assets and liabilities:
Financial assets and liabilities | Classification | Subsequent measurement (1) |
Classification of gains and losses |
|||
Cash and cash equivalents | Loans and receivables | Amortized cost | Net earnings | |||
Accounts receivable | Loans and receivables | Amortized cost | Net earnings | |||
Investments in publicly-traded securities | Available for sale | Fair value | Other comprehensive income | |||
Bank indebtedness and long-term debt | Other financial liabilities | Amortized cost | Net earnings | |||
Accounts payable and accrued liabilities | Other financial liabilities | Amortized cost | Net earnings |
(1) Initial measurement of all financial assets and liabilities is at fair value. |
Business combinations
Business combinations are accounted for using the purchase method. The cost of a business combination is measured as the aggregate of the fair values (at the date of acquisition) of assets given, liabilities incurred or assumed, and equity instruments issued by the Corporation in exchange for control of the acquiree. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 "Business Combinations" are recognized at their fair values at the acquisition date. Direct acquisition costs are recorded to earnings when incurred.
Goodwill arising from business combinations is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Corporation's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. If, after reassessment, the Corporation's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately to earnings.
Earnings from the businesses acquired are included in the consolidated statements of earnings from their respective dates of acquisition.
3. RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET IMPLEMENTED
Revised Standards
Financial Statement Presentation
In June 2011, the IASB issued amendments to IAS 1, "Presentation of Financial Statements". The amendments govern the presentation of Other Comprehensive Income ("OCI") in the financial statements, primarily by requiring OCI items that may be reclassified to the statement of earnings to be presented separately from those that remain in equity.
These changes are applicable for fiscal years beginning on or after July 1st, 2012. The Corporation will apply these changes for its first quarter of fiscal year 2013 and is still evaluating their impact but does not expect a significant impact on its consolidated financial statements.
Employee Benefits
In June 2011, the IASB issued a revised version of IAS 19 "Employee Benefits" to modify accounting rules for defined benefits pension plans. The revised version of the standard contains multiple modifications, including the elimination of the corridor approach, which allowed deferring part of actuarial gains and losses, as well as enhanced guidance on measurement of plan assets and defined benefit obligations, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans and the introduction of enhanced disclosures for defined benefit plans.
These changes are applicable to fiscal years beginning on or after January 1st,, 2013. The Corporation will apply this new standard for its first quarter of fiscal year 2014 and is still evaluating its impact on its consolidated financial statements.
New standards
Financial Instruments
In November 2009, the IASB issued a new standard, IFRS 9 "Financial Instruments" which is the first phase of the IASB's three-phase project to replace IAS 39 "Financial Instruments: Recognition and Measurement". The standard provides guidance on the classification and measurement of financial liabilities and requirements for the derecognition of financial assets and financial liabilities.
Consolidated financial statements
In May 2011, the IASB issued a new standard, IFRS 10 "Consolidated Financial Statements" which requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12 "Consolidation—Special Purpose Entities" and parts of IAS 27 "Consolidated and Separate Financial Statements".
Joint Arrangements
In May 2011, the IASB issued a new standard, IFRS 11 "Joint Arrangements" which requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 "Interests in Joint Ventures", and SIC-13 "Jointly Controlled Entities—Non-monetary Contributions by Venturers".
Disclosure of Interest in Other Entities
In May 2011, the IASB issued a new standard, IFRS 12 "Disclosure of Interest in Other Entities". IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard includes existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity's interests in other entities.
Fair Value Measurement
In May 2011, the IASB issued a new standard, IFRS 13 "Fair value measurement". IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.
IFRS 9, 10, 11, 12 and 13 are all applicable for fiscal years beginning on or after January 1st, 2013. The Corporation will apply these new standards for its first quarter of fiscal year 2014 and is still evaluating their impact on its consolidated financial statements.
4. BUSINESS ACQUISITIONS
- In May 2011, the Corporation purchased 11 company-operated stores located in Ontario, Manitoba, Saskatchewan, Alberta and British-Columbia from Shell Canada Products. The Corporation leases the land and buildings for four sites and owns both these assets for the other sites. Two out of the 11 sites have not yet been integrated into the Corporation's network.
- On May 11, 2011, the Corporation purchased five company-operated stores of which one is located in Arizona and four in the Chicago area, United States, from Gas City, Ltd. The four sites in Chicago were acquired through the RDK joint venture. The Corporation leases the land and buildings for one site and owns both these assets for the other sites.
- During the 12-week period ended July 17, 2011, the Corporation also acquired one other store. The Corporation owns the land and building for this site.
Acquisition costs in connection with these acquisitions are included in Operating, selling, administrative and general expenses. These acquisitions were settled for a total cash consideration of $14.4. Purchase price allocations based on the estimated fair value on the dates of acquisition are as follows:
$ | ||
Tangible assets acquired | ||
Inventories | 0.3 | |
Property and equipment | 10.4 | |
Total tangible assets | 10.7 | |
Liabilities assumed | ||
Accounts payable and accrued liabilities | 0.1 | |
Total liabilities | 0.1 | |
Net tangible assets acquired | 10.6 | |
Goodwill | 3.8 | |
Total consideration paid | 14.4 |
The Corporation expects that approximately $1.3 of the goodwill related to these transactions will be deductible for tax purposes.
These acquisitions were concluded in order to expand the Corporation's market share and to increase its economies of scale. These acquisitions generated goodwill in the amount of $3.8 mainly due to the location of stores which is favorable to the Corporation's operations: accessible location, limited competition, proximity to target clientele. Since the date of acquisition, revenues and net earnings from these stores amounted to $4.7 and $0.2, respectively.
5. NET EARNINGS PER SHARE
12-week period ended July 17, 2011 |
12-week period ended July 18, 2010 |
||||||||||
Net earnings |
Weighted average number of shares (in thousands) |
Net earnings per share |
Net earnings |
Weighted average number of shares (in thousands) |
Net earnings per share |
||||||
$ | $ | $ | $ | ||||||||
Basic net earnings attributable to Class A and B shareholders | 139.5 | 183,689 | 0.76 | 126.9 | 185,307 | 0.68 | |||||
Dilutive effect of stock options | 3,380 | 0.01 | 3,178 | 0.01 | |||||||
Diluted net earnings available for Class A and B shareholders | 139.5 | 187,069 | 0.75 | 126.9 | 188,485 | 0.67 |
When they have an anti-dilutive effect, stock options must be excluded from the calculation of the diluted net earnings per share. No stock options were excluded for the 12-week period ended July 17, 2011. There are 967,175 stocks options excluded from the calculation for the corresponding 12-week period ended July 18, 2010.
6. CAPITAL STOCK
As at July 17, 2011, the Corporation has 53,690,112 (53,706,712 as at July 18, 2010) issued and outstanding Class A multiple voting shares each comprising ten votes per share and 130,036,946 (131,711,661 as at July 18, 2010) outstanding Class B subordinate voting shares each comprising one vote per share.
On October 25, 2010, the Corporation implemented a share repurchase program. This program allows the Corporation to repurchase up to 2,685,335 of the 53,706,712 Class A multiple voting shares and up to 11,621,801 of the 116,218,014 Class B subordinate voting shares issued and outstanding as at October 20, 2010 (representing 5.0% of the Class A multiple voting shares issued and outstanding and 10.0% of the Class B subordinate voting shares of the public float, as at that date, respectively, as defined by applicable rules). In accordance with Toronto Stock Exchange requirements, the Corporation can repurchase a daily maximum of 1,000 Class A multiple voting shares and of 83,622 Class B subordinate voting shares. When making such repurchases, the number of Class A multiple voting shares and of Class B subordinate voting shares in circulation is reduced and the proportionate interest of all remaining shareholders in the Corporation's share capital is increased on a pro rata basis. All shares repurchased under the share repurchase program are cancelled upon repurchase. The share repurchase period will end no later than October 24, 2011.
For the 12-week period ended July 17, 2011, no share were repurchased pursuant this program. On a cumulative basis since the implementation of the program, the Corporation has repurchased a total of 12,000 Class A multiple voting shares at an average cost of CA$25.32 and 2,768,300 Class B subordinate voting shares at an average cost of CA$25.08.
For the 12-week period ended July 17, 2011, a total of 133,301 Class B subordinate voting shares were issued following the exercise of stock options (1,768,848 for the 12-week period ended July 18, 2010).
7. SEGMENTED INFORMATION
The Corporation operates convenience stores in the United States and in Canada. It essentially operates in one reportable segment, the sale of goods for immediate consumption and motor fuel through corporate stores or franchise operations. It operates a convenience store chain under several banners, including Couche-Tard, Mac's and Circle K. Revenues from outside sources mainly fall into two categories: merchandise and services and motor fuel.
The following table provides the information on the principal revenue classes as well as geographic information:
12-week period ended July 17, 2011 |
12-week period ended July 18, 2010 |
||||||||||
United States | Canada | Total | United States | Canada | Total | ||||||
$ | $ | $ | $ | $ | $ | ||||||
External customer revenues (a) | |||||||||||
Merchandise and services | 1,013.3 | 548.6 | 1,561.9 | 992.5 | 516.6 | 1,509.1 | |||||
Motor fuel | 2,974.2 | 641.5 | 3,615.7 | 2,206.5 | 461.8 | 2,668.3 | |||||
3,987.5 | 1,190.1 | 5,177.6 | 3,199.0 | 978.4 | 4,177.4 | ||||||
Gross Profit | |||||||||||
Merchandise and services | 336.6 | 186.6 | 523,2 | 326.2 | 181.4 | 507.6 | |||||
Motor fuel | 160.4 | 35.5 | 195.9 | 149.8 | 30.3 | 180.1 | |||||
497.0 | 222.1 | 719.1 | 476.0 | 211.7 | 687.7 | ||||||
Total non-current assets (b) | 2,051.1 | 594.6 | 2,645.7 | 2,067.6 | 508.6 | 2,576.2 |
|
(a) | Geographic areas are determined according to where the Corporation generates operating income (where the sale takes place) and according to the location of the property and equipment and goodwill. |
(b) | Excluding financial instruments, deferred tax assets and post-employment benefit assets. |
8. PROVISIONS
The reconciliation of the Corporation's main provisions is as follows:
Asset retirement obligation |
Provision for site restoration costs |
Provision for workers' compensation |
Provision for general liability |
Other provisions |
Total | |||||||
$ | $ | $ | $ | $ | $ | |||||||
12-week period ended July 17, 2011 |
||||||||||||
Balance, beginning of period | 60.8 | 25.5 | 25.0 | 13.7 | - | 125.0 | ||||||
Liabilities incurred | 0.3 | 1.2 | 3.5 | 2.2 | - | 7.2 | ||||||
Liabilities settled | (0.3) | (1.2) | (3.0) | (1.1) | - | (5.6) | ||||||
Accretion expense | 1.0 | - | 0.1 | - | - | 1.1 | ||||||
Change in estimates | - | 0.1 | 0.1 | - | - | 0.2 | ||||||
Balance, end of period | 61.8 | 25.6 | 25.7 | 14.8 | - | 127.9 | ||||||
Current portion of provisions | 36.7 | |||||||||||
Long term portion of provisions | 91.2 | |||||||||||
52-week period ended April 24, 2011 |
||||||||||||
Balance, beginning of period | 56.4 | 26.6 | 23.3 | 12.0 | 0.8 | 119.1 | ||||||
Liabilities incurred | 0.5 | 8.3 | 15.7 | 9.0 | - | 33.5 | ||||||
Liabilities settled | (1.6) | (6.2) | (14.4) | (7.4) | (0.8) | (30.4) | ||||||
Accretion expense | 4.5 | 0.3 | 0.5 | 0.1 | - | 5.4 | ||||||
Reversal of provision | - | (3.8) | (0.1) | (0.1) | - | (4.0) | ||||||
Business acquisitions | 0.4 | - | - | - | - | 0.4 | ||||||
Change in estimates | - | - | - | 0.1 | - | 0.1 | ||||||
Effect of exchange rate variations | 0.6 | 0.3 | - | - | - | 0.9 | ||||||
Balance, end of period | 60.8 | 25.5 | 25.0 | 13.7 | - | 125.0 | ||||||
Current portion of provisions | 36.3 | |||||||||||
Long term portion of provisions | 88.7 |
9. SUBSEQUENT EVENTS
In August 2011, the Corporation signed an agreement to acquire from ExxonMobil, 33 company-operated stores operating under the "On the Run" banner in Louisiana, United States. Assuming the closing of the transaction which is scheduled for December 2011, the Corporation would own the real estate for 27 sites while it would lease the other sites. The transaction is subject to standard regulatory approvals and closing conditions.
In August 2011, through its RDK joint venture, the Corporation signed an agreement for 27 stores operating in the Chicago area, Illinois, United States. The agreement also includes the transfer to RDK of two vacant land parcels. Out of the 27 stores, 14 are expected to be company-operated while the other 13 are expected to be operated by independent operators. Assuming the closing of the transaction that is expected in the early fall of 2011, RDK would own the real estate for 24 sites as well as the two land parcels while it would lease the real estate for the other sites. The transaction is subject to standard regulatory approvals and closing conditions.
10. FIRST-TIME ADOPTION OF IFRS
The consolidated financial statements for the fiscal year ended April 29, 2012 will be the first annual consolidated financial statements of the Corporation prepared in accordance with IFRS. These interim financial statements have been prepared in accordance with applicable standards for interim financial reporting, as issued by the IASB. The date of the Corporation's transition to IFRS is April 26, 2010.
The Corporation's IFRS accounting policies presented in Note 2 have been applied in preparing the interim financial statements for the 12-week period ended July 17, 2011, for the comparative information and for the opening consolidated balance sheet at the date of transition.
The Corporation has applied IAS 34, "Interim Financial Reporting" and IFRS 1 "First-time Adoption of International Financial Reporting Standards" in preparing its first IFRS interim financial statements. The effects of the transition to IFRS on the consolidated statements of earnings, consolidated balance sheets, consolidated shareholders' equity and consolidated cash flows are presented in this section and are further explained in the explanatory notes that accompany the tables.
First-time adoption exemptions
Upon transition, IFRS 1 imposes certain mandatory exceptions and permits certain exemptions from full retrospective application. The Corporation has applied the mandatory exceptions and the following optional exemptions:
Mandatory exceptions applied by the Corporation:
- Financial assets and liabilities that had been de-recognized before April 26, 2010 under Canadian GAAP have not been recognized under IFRS.
- The Corporation has only applied hedge accounting in the opening statement of financial position where all the requirements in IAS 39 were met at the date of transition.
- The estimates previously established under Canadian GAAP have not been revised following the adoption of IFRS, unless it was necessary to take into account differences in accounting policies.
Other optional exemptions adopted by the Corporation:
- The Corporation has elected not to apply IFRS 3 "Business Combinations" retrospectively to business combinations that occurred before the date of transition (April 26, 2010), including business acquisitions done by the joint venture. See note g to obtain an explanation of the effect of this exemption.
- For all its employee future benefits plans, the Corporation has elected to recognize all cumulative actuarial gains and losses existing at the transition date to retained earning. See note d to obtain an explanation of the effect of this exemption.
- The Corporation has elected not to retrospectively recognize the effect on the assets of the variances related to its existing asset retirement obligation and similar liabilities, which may have occurred before the transition date.
- The Corporation elected to use facts and circumstances existing as at April 26, 2010 to determine whether an arrangement signed before April 26, 2004 contains a lease. The arrangements signed after that date were evaluated under Canadian GAAP and were not analyzed in detail since this analysis would have given similar conclusions as per IAS 17 and IFRIC 4.
- The Corporation elected to avail itself of the exemption provided under IFRS 1 and applied IFRS 2 for all equity instruments granted after April 29, 2002.
- The Corporation elected to reset all cumulative translation adjustments to zero in opening retained earnings at its Transition Date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of US dollars, except per share and stock option data, unaudited)
Reconciliation of consolidated balance sheets and Shareholders' equity as at April 26, 2010
Reconciling items with IFRS | |||||||||||||||||||||
Balance sheet under Canadian GAAP |
Sale and leaseback transactions |
Discounting of provisions |
Onerous contracts |
Employee future benefits |
Stock options |
Joint venture |
Presentation differences |
Cumulative translation adjustment reversal |
Balance sheet under IFRS |
||||||||||||
Explanatory notes | a) | b) | c) | d) | e) | f) | h) | i) | |||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||
Assets | |||||||||||||||||||||
Current assets | |||||||||||||||||||||
Cash and cash equivalents | 220.9 | (5.2) | 215.7 | ||||||||||||||||||
Accounts receivable | 286.2 | (5.4) | 280.8 | ||||||||||||||||||
Inventories | 474.1 | (4.2) | 469.9 | ||||||||||||||||||
Prepaid expenses | 20.2 | (0.2) | 20.0 | ||||||||||||||||||
Income taxes receivable | 4.7 | 13.0 | 17.7 | ||||||||||||||||||
Deferred income taxes | 24.9 | (24.9) | - | ||||||||||||||||||
1,031.0 | - | - | - | - | - | (15.0) | (11.9) | - | 1,004.1 | ||||||||||||
Property and equipment | 1,980.5 | (65.6) | 1,914.9 | ||||||||||||||||||
Goodwill | 426.5 | (1.2) | 425.3 | ||||||||||||||||||
Intangible assets | 188.2 | 188.2 | |||||||||||||||||||
Investment in a joint venture | - | 42.1 | 42.1 | ||||||||||||||||||
Other assets | 65.2 | (1.1) | (8.3) | 55.8 | |||||||||||||||||
Deferred income taxes | 5.3 | 0.2 | 3.0 | 0.1 | 8.6 | ||||||||||||||||
3,696.7 | - | (1.1) | 0.2 | (5.3) | - | (39.7) | (11.8) | - | 3,639.0 | ||||||||||||
Liabilities | |||||||||||||||||||||
Current liabilities | |||||||||||||||||||||
Accounts payable and accrued liabilities | 872.9 | (0.1) | (14.2) | (36.9) | 821.7 | ||||||||||||||||
Provisions | - | 31.4 | 31.4 | ||||||||||||||||||
Current portion of long-term debt | 4.4 | 4.4 | |||||||||||||||||||
Deferred income taxes | 5.6 | 0.2 | (3.0) | (2.8) | - | ||||||||||||||||
882.9 | (0.1) | 0.2 | - | (3.0) | - | (14.2) | (8.3) | - | 857.5 | ||||||||||||
Long-term debt | 736.8 | (24.9) | 711.9 | ||||||||||||||||||
Provisions | - | (3.4) | 0.8 | 90.3 | 87.7 | ||||||||||||||||
Deferred credits and other liabilities | 285.8 | (98.6) | 13.2 | (0.6) | (71.8) | 128.0 | |||||||||||||||
Deferred income taxes | 176.9 | 38.4 | 0.6 | (22.0) | 193.9 | ||||||||||||||||
2,082.4 | (60.3) | (2.6) | 0.8 | 10.2 | - | (39.7) | (11.8) | - | 1,979.0 | ||||||||||||
Shareholders' equity | |||||||||||||||||||||
Capital stock | 319.5 | 319.5 | |||||||||||||||||||
Contributed surplus | 18.8 | 1.6 | 20.4 | ||||||||||||||||||
Retained earnings | 1,167.0 | 60.3 | 1.5 | (0.6) | (15.5) | (1.6) | 108.6 | 1,319.7 | |||||||||||||
Accumulated other comprehensive income | 109.0 | (108.6) | 0.4 | ||||||||||||||||||
1,614.3 | 60.3 | 1.5 | (0.6) | (15.5) | - | - | - | - | 1,660.0 | ||||||||||||
3,696.7 | - | (1.1) | 0.2 | (5.3) | - | (39.7) | (11.8) | - | 3,639.0 |
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(in millions of US dollars, except per share and stock option data, unaudited)
Reconciliation of consolidated balance sheets and Shareholders' equity as at April 24, 2011
Reconciling items with IFRS | |||||||||||||||||||||
Balance sheet under Canadian GAAP |
Sale and leaseback transactions |
Discounting of provisions |
Employee future benefits |
Stock option |
Joint venture |
Business combinations - acquisition costs |
Presentation differences |
Cumulative translation adjustment reversal |
Balance sheet under IFRS |
||||||||||||
Explanatory notes | a) | b) | d) | e) | f) | g) | h) | i) | |||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||
Assets | |||||||||||||||||||||
Current assets | |||||||||||||||||||||
Cash and cash equivalents | 320.4 | (10.7) | 309.7 | ||||||||||||||||||
Accounts receivable | 356.1 | (6.9) | (0.1) | 349.1 | |||||||||||||||||
Inventories | 530.7 | (4.7) | 526.0 | ||||||||||||||||||
Prepaid expenses | 21.3 | (0.3) | 21.0 | ||||||||||||||||||
Income taxes receivable | 26.6 | 9.8 | 36.4 | ||||||||||||||||||
Deferred income taxes | 33.9 | (0.2) | 2.8 | (36.5) | - | ||||||||||||||||
1,289.0 | - | (0.2) | 2.8 | - | (22.6) | (0.1) | (26.7) | - | 1,242.2 | ||||||||||||
Property and equipment | 2,002.8 | (67.2) | (0.2) | 1,935.4 | |||||||||||||||||
Goodwill | 442.5 | (1.1) | (0.5) | 440.9 | |||||||||||||||||
Intangible assets | 188.6 | 188.6 | |||||||||||||||||||
Investment in a joint venture | - | 48.2 | 48.2 | ||||||||||||||||||
Other assets | 66.9 | (0.8) | (7.9) | (0.2) | 58.0 | ||||||||||||||||
Deferred income taxes | 9.8 | 2.9 | 12.7 | ||||||||||||||||||
3,999.6 | - | (1.0) | (2.2) | - | (42.9) | (0.8) | (26.7) | - | 3,926.0 | ||||||||||||
Liabilities | |||||||||||||||||||||
Current liabilities | |||||||||||||||||||||
Accounts payable and accrued liabilities | 994.5 | (0.2) | (17.5) | (40.3) | 936.5 | ||||||||||||||||
Provisions | - | 36.3 | 36.3 | ||||||||||||||||||
Current portion of long-term debt | 4.6 | 4.6 | |||||||||||||||||||
Deferred income taxes | 21.2 | (21.2) | - | ||||||||||||||||||
1,020.3 | (0.2) | - | - | - | (17.5) | - | (25.2) | - | 977.4 | ||||||||||||
Long-term debt | 521.8 | (24.9) | 496.9 | ||||||||||||||||||
Provisions | - | (3.3) | 92.0 | 88.7 | |||||||||||||||||
Deferred credits and other liabilities | 299.0 | (95.6) | 13.0 | (0.5) | (78.2) | 137.7 | |||||||||||||||
Deferred income taxes | 222.4 | 37.2 | 0.7 | (0.3) | (15.3) | 244.7 | |||||||||||||||
2,063.5 | (58.6) | (2.6) | 13.0 | - | (42.9) | (0.3) | (26.7) | - | 1,945.4 | ||||||||||||
Shareholders' equity | |||||||||||||||||||||
Capital stock | 323.8 | 323.8 | |||||||||||||||||||
Contributed surplus | 18.1 | 1.2 | 19.3 | ||||||||||||||||||
Retained earnings | 1,444.5 | 58.5 | 1.6 | (15.2) | (1.2) | (0.5) | 108.6 | 1,596.3 | |||||||||||||
Accumulated other comprehensive income | 149.7 | 0.1 | (108.6) | 41.2 | |||||||||||||||||
1,936.1 | 58.6 | 1.6 | (15.2) | - | - | (0.5) | - | - | 1,980.6 | ||||||||||||
3,999.6 | - | (1.0) | (2.2) | - | (42.9) | (0.8) | (26.7) | - | 3,926.0 |
Reconciliation of consolidated statement of earnings for the year ended April 24, 2011
Reconciling items with IFRS | |||||||||||||||||||
Statement of earnings under Canadian GAAP |
Sale and leaseback transactions |
Discounting of provisions |
Onerous contracts |
Employee future benefits |
Stock option |
Joint venture |
Business combinations - acquisition costs |
Presentation differences |
Statement of earnings under IFRS |
||||||||||
Explanatory notes | a) | b) | c) | d) | e) | f) | g) | h) | |||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||
Revenues | 18,965.9 | (415.5) | 18,550.4 | ||||||||||||||||
Cost of sales | 16,180.7 | (376.0) | 15,804.7 | ||||||||||||||||
Gross profit | 2,785.2 | - | - | - | - | - | (39.5) | - | - | 2,745.7 | |||||||||
Operating, selling, administrative and general expenses | 2,050.4 | 3.0 | (0.9) | (0.8) | (0.6) | (0.4) | (18.1) | 0.8 | (4.5) | 2,028.9 | |||||||||
Depreciation and amortization of property and equipment and other assets | 216.3 | (2.6) | 213.7 | ||||||||||||||||
Operating income | 518.5 | (3.0) | 0.9 | 0.8 | 0.6 | 0.4 | (18.8) | (0.8) | 4.5 | 503.1 | |||||||||
Share of earnings of a joint venture accounted for using the equity method | - | 16.9 | 16.9 | ||||||||||||||||
Financial expenses | 37.6 | 0.7 | (1.9) | 4.5 | 40.9 | ||||||||||||||
Financial revenues | (11.3) | (11.3) | |||||||||||||||||
Net financial expenses | 26.3 | - | 0.7 | - | - | - | (1.9) | - | 4.5 | 29.6 | |||||||||
Earnings before income taxes | 492.2 | (3.0) | 0.2 | 0.8 | 0.6 | 0.4 | - | (0.8) | - | 490.4 | |||||||||
Income taxes | 122.1 | (1.2) | 0.1 | 0.2 | 0.3 | (0.3) | 121.2 | ||||||||||||
Net earnings attributable to parent Corporation shareholders | 370.1 | (1.8) | 0.1 | 0.6 | 0.3 | 0.4 | - | (0.5) | - | 369.2 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of US dollars, except per share and stock option data, unaudited)
Reconciliation of consolidated Shareholders' equity as at July 18, 2010
Reconciling items with IFRS | |||||||||||||||||
Shareholders' equity under Canadian GAAP |
Sale and leaseback transactions |
Discounting of provisions |
Onerous contracts |
Employee future benefits |
Stock option |
Business combinations acquisition cost |
Cumulative translation adjustment reversal |
Shareholders' equity under IFRS |
|||||||||
Explanatory notes | a) | b) | c) | d) | e) | g) | i) | ||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||
Shareholders' equity | |||||||||||||||||
Capital stock | 323.6 | 323.6 | |||||||||||||||
Contributed surplus | 19.2 | 1.5 | 20.7 | ||||||||||||||
Retained earnings | 1,289.0 | 59.7 | 1.5 | (0.5) | (15.7) | (1.5) | (2.0) | 108.6 | 1,439.1 | ||||||||
Accumulated other comprehensive income | 87.5 | (108.6) | (21.1) | ||||||||||||||
1,719.3 | 59.7 | 1.5 | (0.5) | (15.7) | - | (2.0) | - | 1,762.3 |
Reconciliation of consolidated statement of earnings for the 12-week period ended July 18, 2010
Reconciling items with IFRS | ||||||||||||||||||||
Statement of earnings under Canadian GAAP |
Sale and leaseback transactions |
Discounting of provisions |
Onerous contracts |
Employee future benefits |
Stock option |
Joint venture |
Business combinations - acquisition costs |
Presentation differences |
Statement of earnings under IFRS |
|||||||||||
Explanatory notes | a) | b) | c) | d) | e) | f) | g) | h) | ||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||
Revenues | 4,272.9 | (95.5) | 4,177.4 | |||||||||||||||||
Cost of sales | 3,574.1 | (84.4) | 3,489.7 | |||||||||||||||||
Gross profit | 698.8 | - | - | - | - | - | (11.1) | - | - | 687.7 | ||||||||||
Operating, selling, administrative and general expenses | 469.1 | 0.9 | (0.1) | (0.1) | (0.1) | (4.4) | 2.7 | (0.9) | 467.1 | |||||||||||
Depreciation and amortization of property and equipment and other assets | 48.0 | (0.6) | 47.4 | |||||||||||||||||
Operating income | 181.7 | (0.9) | 0.1 | 0.1 | - | 0.1 | (6.1) | (2.7) | 0.9 | 173.2 | ||||||||||
Share of earnings of a joint venture accounted for using the equity method | - | 5.7 | 5.7 | |||||||||||||||||
Financial expenses | 8.2 | 0.2 | (0.4) | 0.9 | 8.9 | |||||||||||||||
Financial revenues | (1.3) | (1.3) | ||||||||||||||||||
Net financial expenses | 6.9 | - | 0.2 | - | - | - | (0.4) | - | 0.9 | 7.6 | ||||||||||
Earnings before income taxes | 174.8 | (0.9) | (0.1) | 0.1 | - | 0.1 | - | (2.7) | - | 171.3 | ||||||||||
Income taxes | 45.3 | (0.3) | 0.2 | (0.8) | 44.4 | |||||||||||||||
Net earnings attributable to parent Corporation shareholders | 129.5 | (0.6) | (0.1) | 0.1 | (0.2) | 0.1 | - | (1.9) | - | 126.9 |
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(in millions of US dollars, except per share and stock option data, unaudited)
Explanatory notes related to the reconciliations
a) Deferred gains on sale and leaseback recognition
Under Canadian GAAP: CICA Handbook Section 3065 "Leases" required that any profit or loss arising from a sale and leaseback transaction be deferred and amortized over the lease term. A loss was recognized to earnings immediately when, at the time of the transaction, the fair value of the property was less than its carrying value.
Under IFRS: IAS 17 "Leases" requires the immediate recognition of all profits or losses arising from a sale and leaseback transaction except if:
- the sale price is below fair value and the loss is compensated for by future lease payments below market price, in which case it shall be deferred and amortized in proportion to the lease payments over the period during which the asset is expected to be used;
- the sale price is above fair value, in which case the excess shall be deferred and amortized over the period during which the asset is expected to be used.
Considering this difference, the Corporation analyzed all deferred gains existing at the transition date. When the transactions were concluded at fair value, the deferred gains in the balance sheet at the transition date were reversed and recognized to retained earnings. The amortization of the deferred gains recognized in 2011 was reversed and all deferred gains from sale and leaseback transactions realized in 2011 were reclassified and recognized directly to earnings.
b) Discounting of provisions
Under Canadian GAAP: The only provision that needed to be discounted was the asset retirement obligation provision and changes in the discount rate were not applied retroactively.
Under IFRS: IAS 37 "Provisions, contingent liabilities and contingent assets" states that where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation.
Considering this difference, the Corporation reviewed all provisions recorded in its balance sheet at the transition date and discounted those for which the time value of money had a significant impact. This resulted in the reduction of the provision balances in the balance sheet at the transition date. For fiscal 2011, new expenses recognized to earnings related to these provisions have been reduced to reflect their discounting and an accretion expense has been recorded in earnings.
c) Onerous contracts
Under Canadian GAAP: Provisions were not recognized for onerous contracts.
Under IFRS: As per IAS 37 "Provisions, contingent liabilities and contingent assets", if an entity has a contract that is onerous, the present obligation under the contract shall be recognized and measured as a provision. An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it.
Considering this difference, the Corporation has reviewed its existing contracts at the transition date to identify onerous contracts. This resulted in the recognition of a provision for onerous contracts as at April 26, 2010. This provision is recognized to earnings and reversed as the contracts progress. This has led to a decrease in Operating, selling, administrative and general expenses of fiscal 2011 following the amortization of the provision.
d) Employee future benefits
i) Actuarial gains and losses
Under Canadian GAAP: Under CICA Handbook Section 3461 "Employee future benefits", for a defined benefit plan, an entity had to use the "corridor" approach and recognize amortization of actuarial gains and losses in a period in which, as of the beginning of the period, the unamortized net actuarial gain or loss exceeded 10% of the greater of:
a) | the accrued benefit obligation at the beginning of the year; and | |
b) | the fair value, or market-related value, of plan assets at the beginning of the year. |
Under IFRS: As per IAS 19 "Employee benefits", an entity may choose to use the corridor approach involving the non-recognition of a portion of the actuarial gains or losses, or elect to recognize actuarial gains or losses directly to equity.
The Corporation has decided to retain its current accounting method, the corridor approach. This decision has no impact on the opening balances of the balance sheet at the transition date. However, using IFRS 1, a first-time adopter may elect to recognize all cumulative actuarial gains and losses at the date of transition to IFRS, even if the corridor approach is used for later actuarial gains and losses. Therefore, the Corporation elected to reverse unamortized actuarial gains and losses to retained earnings on April 26, 2010. The amortization amount of the actuarial losses for fiscal 2011 was calculated considering the IFRS adjusted balances and the amortization amount recognized to earnings under Canadian GAAP was reversed.
ii) Past service costs
Under Canadian GAAP: Under CICA Handbook Section 3461 "Employee future benefits", an entity amortized past service costs arising from a plan initiation or amendment by assigning an equal amount to each remaining service period up to the full eligibility date of each employee active at the date of the plan initiation or amendment who was not yet fully eligible for benefits at that date.
Under IFRS: As per IAS 19 "Employee benefits", an entity shall recognise past service costs as an expense on a straight-line basis over the average period until the benefits become vested.
Considering this difference, the Corporation reversed fully vested unamortized past service costs to retained earnings on April 26, 2010. The amortization amount of the past service costs for fiscal 2011 was calculated considering the IFRS adjusted balances and the amortization amount recognized to earnings under Canadian GAAP was reversed.
e) Stock-based compensation
Under Canadian GAAP: CICA Handbook Section 3870 "Stock-based compensation and other stock-based payments" stated that, when stock-based awards granted vest gradually, it was possible to recognize the compensation cost using the straight-line method when a method different than the gradual vesting method was used in calculating the fair value. As the Corporation was not anticipating any significant difference between the expected lives of each group of options, the straight-line method was previously used.
Under IFRS: IFRS 2 "Share-based payment", does not provide such an exception. Thus, when options granted vest gradually, an entity must consider each portion as a distinct grant and amortize the corresponding expense distinctly for each portion.
Considering this difference, the Corporation modified its expense amortization model related to stock option vesting to consider the different dates of rights acquisition and stopped using the straight-line method. The total cumulative additional expense that should have been recorded from the inception of the plans as at April 26, 2010 based on IFRS was recorded to retained earnings. The expense recognized to earnings in 2011 under Canadian GAAP has been adjusted to reflect the difference between the two amortization methods.
f) Joint Venture
Under Canadian GAAP: CICA Handbook Section 3055 "Interests in Joint Ventures" required the proportionate consolidation method. It did not allow the use of the equity method to account for investments in joint ventures.
Under IFRS: IAS 31 "Interests in Joint Ventures" offers the possibility of applying either the equity method or the proportionate consolidation method to investments in joint ventures.
Considering this difference, the Corporation opted to record its investment in RDK using the equity method at the IFRS transition date. Since the Corporation was using the proportionate consolidation method under Canadian GAAP to recognize its RDK investment, 50.01% of the values of all of the joint venture's accounts were included in the consolidated balance sheet and consolidated statement of earnings. These amounts have been removed through the reconciliation with IFRS. The value of the investment in the joint venture was recorded on the balance sheet under the item Investment in a joint venture and the Corporation's proportionate interest of RDK's income for fiscal 2011 was presented in the consolidated statement of earnings under Share of earnings of a joint venture accounted for using the equity method.
g) Business combinations - Direct acquisition costs
Under Canadian GAAP: As per previous CICA Handbook Section 1581 "Business Combinations" (section applicable before the IFRS transition), direct acquisition costs were part of the acquisition cost.
Under IFRS: As per IFRS 3 "Business Combinations", direct acquisition costs are recognized to earnings when they are incurred.
Since the Corporation has decided to use the exemption in IFRS 1 which allows not restating all business combinations prior to the transition date, no restatement occurred on April 26, 2010. Business combinations that occurred during fiscal 2011 were restated to reflect this difference. As a result, direct acquisition costs that occurred during fiscal 2011 were recognized to earnings on the financial statement adjusted for IFRS.
h) Presentation differences
Some amounts have been reclassified to reflect the following classification differences:
Deferred income taxes:
Under Canadian GAAP: As per CICA Handbook Section 3465 "Income taxes", current income tax liabilities and current income tax assets had to be presented separately from non-current portions.
Under IFRS: As per IAS 12 "Income taxes", income tax liabilities and income tax assets should all be presented under long-term assets and liabilities.
Considering IAS 12, all deferred income taxes were reclassified to long-term on the Corporation's balance sheet.
Current definition
Under Canadian GAAP: As per CICA Handbook Section 1510 "Current assets and current liabilities", current assets and liabilities included those items ordinarily realizable or payable within one year from the date of the balance sheet or within the normal operating cycle, when that was longer than a year.
Under IFRS: As per IAS 1 "Presentation of financial statements", an entity shall disclose the amount expected to be recovered or settled after more than twelve months for each asset and liability line item that combines amounts expected to be recovered or settled:
a) | no more than twelve months after the reporting period, and | |
b) | more than twelve months after the reporting period. |
The definition under IFRS being more directive, this resulted in a reclassification of some long-term amounts previously presented as current on the Corporation's consolidated balance sheet.
Provision presentation
Under Canadian GAAP: There was no specific indication about presentation of provisions.
Under IFRS: IAS 1 "Presentation of financial statements" states in paragraph 54 l) that, as a minimum, the balance sheet shall include some items, including provisions.
Considering this difference, the current portion of provisions has been removed from Accounts payable and accrued liabilities, and the long-term portion has been removed from Deferred credits and other liabilities on the consolidated balance sheet to be presented distinctively under Provisions.
Accretion expense
Under Canadian GAAP: CICA Handbook Section 3110 "Asset retirement obligations" stated that the expense related to the passage of time had to be classified as an operating item in the income statement, not as interest expense.
Under IFRS: As per IFRIC 1 "Changes in existing decommissioning, restoration and similar liabilities", the periodic unwinding of the discount shall be recognized in earnings as a finance cost as it occurs. Also, as per IAS 37 "provisions, contingent liabilities and contingent assets", where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognized as finance cost.
Considering this difference, accretion expense has been reclassified under Financial expenses on the Corporation's consolidated statement of earnings for fiscal 2011.
i) Reversal of the cumulative translation adjustments
Retrospective application of IFRS would require the Corporation to determine cumulative currency translation differences in accordance with IAS 21, ''The Effects of Changes in Foreign Exchange Rates'', from the date a subsidiary or equity method investee was formed or acquired. IFRS 1 permits cumulative translation gains and losses to be reset to zero at the transition date. The Corporation elected to reset all cumulative translation gains and losses to zero in opening retained earnings at its transition date.
Cash flow statement
The only significant adjustment to the statement of cash flows is the change of accounting method for the joint venture, from the proportionate consolidation under Canadian GAAP to the equity method under IFRS. The total cash flow amounts for each category that was previously consolidated in the cash flows statement for the joint venture and that are now excluded from the cash flows statement under IFRS for the 12-week period ended July 18, 2010 and the 52-week period ended April 24, 2011 are as follow:
12-week period ended July 18, 2010 |
52-week period ended April 24, 2011 |
|||
Cash flows | ||||
Operating activities | 8.0 | 20.6 | ||
Investing activities | (0.1) | (4.4) | ||
Financing activities | (0.3) | (10.7) |
SOURCE ALIMENTATION COUCHE-TARD INC.
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