Alimentation Couche-Tard announces its third quarter results
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- Diluted earnings per share of $0.29 for the third quarter compared to
$0.36 last year and of $1.24 for the first three quarters compared to
$1.09 the comparable period of last fiscal year despite the difficult
economic context, particularly in the United States.
- Increase in net earnings of $18.2 million for the first three
quarters despite a drop of 5.00 cents per gallon in U.S. motor fuel
margins depriving net earnings from $85.0 million.
Third quarter
-------------
- Third quarter's net earnings decreased by only $16.3 million despite a
drop of 5.33 cents per gallon in U.S. motor fuel margins depriving net
earnings of $37.0 million.
- Same-store merchandise sales up 3.0% in the United States and 4.9% in
Canada.
- Stable merchandise and service gross margin on a consolidated basis.
- Same-store motor fuel volume in the United States decreased 0.2% and
were up 1.4% in Canada.
- Operating, selling, administrative and general expenses down 1.2% once
impacts related to exchange rate, acquisitions and expenses related to
electronic payment modes are excluded.
- Quarterly dividend now at Cdn$0.04 per share, an increase of Cdn$0.005
per share.
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LAVAL, QC, March 9 /CNW Telbec/ - For its third quarter, Alimentation Couche-Tard Inc. announces net earnings of $54.8 million, down $16.3 million or 22.9%, mainly the result of a 5.33cents per gallon decrease in motor fuel gross margins in the United States, an estimated impact of more than $37.0 million after income taxes. During the comparable period last fiscal year, motor fuel gross margins in the United-States were relatively high, whereas this year's margins are in the low average of expectations based on historical margins. This decrease attributable to motor fuel gross margins was partially offset by the increase in same-store merchandise sales in Canada and the United States, by the contribution from stores acquired as well as by a lower income tax rate.
"Overall, third quarter's results are satisfying considering the motor fuel gross margin recorded in our U.S. markets. Despite a drop in U.S. motor fuel margins compared to the same period last fiscal year, we considerably improved our performance", declared Alain Bouchard, President and Chief Executive Officer. "On an annual basis, margin is in line with our expectations based on historical margins which average 13 to 15 cents per gallon", he added. "It is therefore important to remember that it is advisable to analyze this component on a longer period. As a matter of fact, since the beginning of fiscal 2010, the average margin in the United States is 14.54 cents per gallon", he concluded.
As for Raymond Paré, Vice-President and Chief Financial Officer, he indicated: "It is even so extraordinary to see that we increased our earnings per share for the first three quarters despite the facts that our results were deprived from a $85,0 million after income taxes because of lower fuel margins. We are evolving in a difficult economic situation but we continued to deliver solid sales and profitability indicators. As a matter of fact, we have decreased operating expenses under our control for a fourth quarter in a row, which is quite satisfying. Must we add the historically, motor fuel margin represents only 20% to 25% of total gross margin. The largest part of our earnings comes from merchandise and service sales, which are less volatile."
Highlights of the Third Quarter of Fiscal 2010
Changes in the Store Network
The following table presents certain information regarding changes in Couche-Tard's stores network over the 16 and 40-week periods ended January 31, 2010:
16-week period ended 40-week period ended
January 31, 2010 January 31, 2010
------------------------------------------------------------
Company- Affi- Company- Affi-
operated liated operated liated
stores stores Total stores stores Total
------------------------------------------------------------
Number of
stores,
beginning
of period 4,405 1,499 5,904 4,395 1,048 5,443
Acquisi-
tions(1) 6 - 6 55 444 499
Openings /
construc-
tions /
additions 9 30 39 15 61 76
Closures /
disposals /
withdrawals (22) (44) (66) (67) (68) (135)
Conversions
to affi-
liated
stores (2) 2 - (2) 2 -
-------------------------------------------------------------------------
Number of
stores, end
of period 4,396 1,487 5,883 4,396 1,487 5,883
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(1) Includes Couche-Tard's share of the company-operated stores operated
by the joint venture created with Shell (50% of the 69 company-
operated stores), but excluding the 32 stores which were already part
of Couche-Tard's network and which are now operated by the joint
venture.
Joint venture
On January 6, 2010, Couche-Tard created along with Shell Oil Products US ("Shell"), a joint venture, RDK Ventures LLC ("RDK"), to operate 100 convenience stores in the greater Chicago metropolitan area of the United States, including 69 company-operated stores and 31 stores operated by third party operators. All of the company-operated stores will be operated by Couche-Tard's Midwest Division under the Circle K banner, while Shell branded products will continue to be marketed and sold. The stores held by Shell were transferred over to the joint venture through a combination of purchased and contributed fee and leased sites. Line items from RDK's statement of earnings and balance sheet are reflected in Couche-Tard's consolidated financial statements using the proportionate consolidation method.
Business acquisitions
During the third quarter of fiscal 2010, Couche-Tard acquired another three stores through three distinct transactions.
In addition, on January 12, 2010, Couche-Tard signed an agreement with Accel Marketing LLC to acquire eight stores in central North Carolina. The transaction is anticipated to close in April 2010 and is subject to standard regulatory approvals and closing conditions.
Dividends
During its March 9, 2010 meeting, considering Couche-Tard's good results and strong balance sheet, the Company's Board of Directors (the "Board") decided it was appropriate to amend the quarterly dividend by increasing it by Cdn$0.005 per share, which thereby corresponds to Cdn$0.04 per share. Additionally, at the same meeting, the Board declared a quarterly dividend of the same amount for the third quarter of fiscal 2010 to shareholders on record as at March 18, 2010, and approved its payment for March 26, 2010. This is an eligible dividend within the meaning of the Income Tax Act of Canada.
Interest rate swap agreement
During the third quarter of fiscal 2010, the interest rate swap agreement Couche-Tard held as at April 26, 2009 was terminated by the counterparty in exchange for the payment of a penalty on their part corresponding to the value of the swap. Following the termination of the agreement, Couche-Tard discontinued hedge accounting for the swap. The fair value of the terminated swap recorded as part of the Subordinated unsecured debt is amortized using the effective rate method over the remaining portion of the initial term of the hedging relationship. Based on current interest rates, Couche-Tard expects that the termination of the swap will increase its financial expenses by approximately $3.0 million on an annual basis.
Subsequent event
On February 16, 2010, Couche-Tard acquired from BP West Coast Products LLC their terminal facilities located in Phoenix, Arizona in the United States. The terminal facilities include 16 storage tanks with a storage capacity of 220,000 barrels. The terminal is approved for 44,000 barrels per day and has access to petroleum products from refineries on the West Coast and in the Gulf Coast region of the United States. Strategically, this acquisition should add efficiencies in Couche-Tard's fuel supply chain servicing its retail network in the region of Phoenix.
Exchange Rate Data
The Company'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 Cdn$1.00:
16-week periods ended 40-week periods ended
------------------------------------------------
January February January February
31, 2010 1st, 2009 31, 2010 1st, 2009
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Average for period(1) 0.9499 0.8156 0.9173 0.9018
Period end 0.9352 0.8153 0.9352 0.8153
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(1) Calculated by taking the average of the closing exchange rates of
each day in the applicable period.
As the Company 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 Company's Canadian and corporate operations results and do not have a true economic impact on its performance since most of the Company'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 Company'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 16-week and 40-week periods ended January 31, 2010 and February 1st, 2009:
------------------------------------------------------------
(In millions
of US dollars,
unless
otherwise
stated) 16-week periods ended 40-week periods ended
------------------------------------------------------------
January February Varia- January February Varia-
31, 1st, tion 31, 1st, tion
2010 2009 % 2010 2009 %
------------------------------------------------------------
Statement of
Operations
Data:
Merchandise
and service
revenues(1):
United
States 1,161.0 1,104.3 5.1 3,061.3 2,861.7 7.0
Canada 554.7 448.8 23.6 1,461.5 1,338.4 9.2
------------------------------------------------------------
Total
merchan-
dise and
service
revenues 1,715.7 1,553.1 10.5 4,522.8 4,200.1 7.7
------------------------------------------------------------
Motor fuel
revenues:
United
States 2,684.2 1,989.1 34.9 6,591.5 7,360.5 (10.4)
Canada 535.3 369.5 44.9 1,321.8 1,226.5 7.8
------------------------------------------------------------
Total
motor fuel
revenues 3,219.5 2,358.6 36.5 7,913.3 8,587.0 (7.8)
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Total
revenues 4,935.2 3,911.7 26,2 12,436.1 12,787.1 (2.7)
------------------------------------------------------------
------------------------------------------------------------
Merchandise
and service
gross
profit(1):
United
States 381.7 362.0 5.4 1,002.8 930.4 7.8
Canada 183.7 151.2 21.5 495.3 461.6 7.3
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Total
merchan-
dise and
service
gross
profit 565.4 513.2 10.2 1,498.1 1,392.0 7.6
------------------------------------------------------------
Motor fuel
gross
profit:
United
States 130.2 177.5 (26.6) 373.4 459.8 (18.8)
Canada 35.6 24.0 48.3 93.0 67.3 38.2
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Total motor
fuel gross
profit 165.8 201.5 (17.7) 466.4 527.1 (11.5)
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Total gross
profit 731.2 714.7 2.3 1,964.5 1,919.1 2.4
Operating,
selling,
adminis-
trative and
general
expenses 589.9 546.6 7.9 1,468.4 1,436.3 2.2
Depreciation
and amorti-
zation of
property
and equip-
ment and
other assets 63.2 56.4 12.1 155.1 140.4 10.5
------------------------------------------------------------
Operating
income 78.1 111.7 (30.1) 341.0 342.4 (0.4)
------------------------------------------------------------
Net earnings 54.8 71.1 (22.9) 234.1 215.9 8.4
------------------------------------------------------------
------------------------------------------------------------
Other
Operating
Data:
Merchandise
and service
gross
margin(1):
Consoli-
dated 33.0% 33.0% - 33.1% 33.1% -
United
States 32.9% 32.8% 0.1 32.8% 32.5% 0.3
Canada 33.1% 33.7% (0.6) 33.9% 34.5% (0.6)
Growth
(decrease)
of same-
store
merchandise
revenues(2)(3):
United
States 3.0% 0.5% 2.7% (0.1%)
Canada 4.9% 4.7% 4.2% 1.9%
Motor fuel
gross
margin(3):
United
States
(cents per
gallon): 12.88 18.21 (29.3) 14.54 19.54 (25.6)
Canada (Cdn
cents per
litre) 5.16 4.38 17.8 5.44 4.76 14.3
Volume of
motor fuel
sold(4):
United
States
(millions
of
gallons) 1,043.3 1,004.4 3.9 2,656.4 2,433.6 9.2
Canada
(millions
of litres) 724.8 669.9 8.2 1,860.9 1,556.7 19.5
(Decrease)
increase of
same-store
motor fuel
volume(3):
United
States (0.2%) (6.2%) 1.5% (7.1%)
Canada 1.4% 6.5% 2.0% 4.1%
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Per Share
Data:
Basic net
earnings
per share
(dollars
per action) 0.30 0.37 (18.9) 1.27 1.11 14.4
Diluted net
earnings
per share
(dollars
per action) 0.29 0.36 (19.4) 1.24 1.09 13.8
------------------------------------------------------------
January April Varia-
31, 26, tion
2010 2009 $
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Balance Sheet
Data:
Total
assets 3,568.0 3,255.9 312.1
Interest-
bearing
debt 862.2 749.2 113.0
Shareholders'
equity 1,533.6 1,326.0 207.6
Ratios:
Net interest-
bearing
debt/total
capitali-
zation(5) 0.32 : 1 0.30 : 1
Net interest-
bearing
debt/EBITDA(6) 1.20 : 1(7) 0.98 : 1
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(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 company-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
Canadian GAAP and therefore may not be comparable to similar measures
presented by other public companies.
(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 Canadian GAAP and therefore may not be
comparable to similar measures presented by other public companies.
(7) This ratio was standardized over a period of one year. It includes
the results of the first, second and third quarters of the fiscal
year which will end April 25, 2010 as well as of the fourth quarter
of fiscal year ended April 26, 2009.
Operating Results
Revenues amounted to $4.9 billion in the third quarter of fiscal 2010, up $1.0 billion, an increase of 26.2% compared to the third quarter of fiscal 2009. The increase is chiefly the result of a $632.0 million rise in motor fuel revenues resulting from a higher average retail price, the positive impact of $154.0 million from a stronger Canadian dollar, a $112.0 million increase generated by acquisitions as well as the growth of same-store merchandise revenues in the United States and Canada and same-store motor fuel volume in Canada.
As for the first three quarters of fiscal 2010, revenues dropped by $351.0 million, a decrease of 2.7% compared to the first three quarters of fiscal 2009. The decline is mainly the result of a $1.4 billion decrease in motor fuel revenues resulting from a lower average retail price. This factor contributing to the decrease was partially offset by a $734.0 million increase in revenues generated by acquisitions, a $21.0 million positive impact of the stronger Canadian dollar, as well as by the growth of same-store merchandise revenues and motor fuel volume in both the United States and Canada.
More specifically, the growth of merchandise and service revenues for the third quarter of fiscal 2010 was $162.6 million, an increase of 10.5% compared to the same period of the previous fiscal year, of which $33.0 million was generated by acquisitions and $78.0 million by the appreciation of the Canadian dollar against its U.S. counterpart. Regarding internal growth, as measured by same-store merchandise revenues, it rose by 3.0% in the United States, attributable to the increase in tobacco products retail prices following the increases in taxes on these products. As for the Canadian market, the increase in same-store merchandise revenues was 4.9%.
In the first three quarters, merchandise and service revenues rose by $322.7 million, a 7.7% increase compared to the same period last fiscal year for reasons similar to those of the third quarter, including an increase in same-store merchandise revenues of 2.7% in the United States and 4.2% in Canada.
Motor fuel revenues increased by $860.9 million or 36.5% in the third quarter of fiscal 2010. The higher average retail price at the pump in the United Stated and Canada created a rise in revenues of $632.0 million, as shown in the following table, beginning with the fourth quarter of the fiscal year ended April 26, 2009:
Quarter Weighted
4th 1st 2nd 3rd average
-------------------------------------------------------------------------
52-week period
ended January 31,
2010
United States
(US dollars
per gallon) 1.95 2.41 2.48 2.59 2.38
Canada (Cdn
cents per
litre) 78.67 88.80 89.24 90.00 87.13
52-week period
ended February
1st, 2009
United States
(US dollars
per gallon) 3.22 3.91 3.67 2.00 3.08
Canada (Cdn
cents per
litre) 103.69 122.66 114.37 78.05 101.60
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Acquisitions contributed 27.0 million additional gallons in the third quarter of fiscal 2010, or $78.0 million in revenues, in addition to the increase in revenues of $76.0 million generated by the appreciation of the Canadian dollar against its U.S. counterpart. As for the same-store motor fuel volume, it dropped slightly by 0.2% in the United States and increased by 1.4% in Canada.
Motor fuel revenues decreased by $673.7 million or 7.8% for the first three quarters of fiscal 2010. Lower average retail prices led to a $1.4 billion drop in motor fuel revenues, while acquisitions contributed 205.0 million additional gallons, or $546.0 million in revenues, in addition to the $14.0 million increase in revenues from the appreciation of the Canadian dollar against its U.S. counterpart. As for the growth in same-store motor fuel volume, it was 1.5% in the United States and 2.0% in Canada.
For the third quarter of fiscal 2010, the consolidated merchandise and service gross margin remained stable at 33.0%. In the United States, the gross margin was 32.9%, slightly higher than the 32.8% recorded in the previous fiscal year. As for Canada, the margin fell to 33.1%, a 0.6% decrease due to a less profitable product mix, which put downward pressure on the percent margin while remaining positive in absolute amount given the increase in terms of units sold. In both the United States and Canada, revenues and gross margin reflect Couche-Tard's merchandising strategy in tune with market competitiveness and economic conditions within each market, improved supply terms as well as its revenue mix.
As for the first three quarters of fiscal 2010, the consolidated merchandise and service gross margin was 33.1%. More specifically, it was 32.8% in the United States, an increase of 0.3%, and 33.9% in Canada, a decrease of 0.6%. In Canada, as indicated by Couche-Tard's in its first quarterly report, the gross margin this fiscal year compares to a margin that benefited from non-recurring amounts in the first quarter of fiscal 2009 related to obligations towards dealers in the Western Canada division as well as from retroactive adjustments to certain suppliers rebates.
During the third quarter of fiscal 2010, the motor fuel gross margin for Couche-Tard's company-operated stores in the United States decreased significantly by 5.33 cents per gallon, from 18.21 cents per gallon last year to 12.88 cents per gallon this quarter. It should be noted that last year's gross margin was rather high. In Canada, the margin rose, reaching Cdn5.16 cents per litre compared to Cdn4.38 cents per litre in the third quarter of fiscal 2009. 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, beginning with the fourth quarter of the fiscal year ended April 26, 2009 were as follows:
(US cents per gallon)
Weighted
Quarter 4th 1st 2nd 3rd average
-------------------------------------------------------------------------
52-week period
ended January 31,
2010
Before deduction
of expenses
related to
electronic
payment modes 11.38 15.43 15.78 12.88 13.82
Expenses
related to
electronic
payment modes 3.10 3.56 3.79 3.85 3.60
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After
deduction of
expenses
related to
electronic
payment modes 8.28 11.87 11.99 9.03 10.22
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52-week period
ended February
1st, 2009
Before
deduction of
expenses
related to
electronic
payment modes 10.02 15.55 24.88 18.21 17.42
Expenses
related to
electronic
payment modes 4.02 5.07 4.94 3.15 4.19
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After
deduction of
expenses
related to
electronic
payment modes 6.00 10.48 19.94 15.06 13.23
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-------------------------------------------------------------------------
As for the 40-week period ended January 31, 2010, the motor fuel gross margin for Couche-Tard's company-operated stores in the United States decreased by 5.00 cents per gallon, from 19.54 cents per gallon last fiscal year to 14.54 cents per gallon this fiscal year, a drop of 25.6%. In Canada, the margin rose, reaching Cdn 5.44 cents per litre compared with Cdn4.76 cents per litre for the comparable period of fiscal 2009. The average motor fuel margin since the beginning of fiscal 2010 is in line with Couche-Tard's expectations based on historical margins. As mentioned in the past, it is advisable to analyse this indicator over longer periods rather than on a quarterly basis because motor fuel margins are subject to fluctuations over short periods, but stabilize on a longer term.
For the third quarter of fiscal 2010, operating, selling, administrative and general expenses increased by 7.9% compared with last fiscal year. These expenses increased by 2.8% due to acquisitions while they increased by 4.5% and 1.8%, respectively because of the appreciation of the Canadian dollar and the increase in electronic payment modes expenses. Excluding these items, expenses decreased by 1.2%. Moreover, excluding expenses related to electronic payment modes for both comparable periods, expenses in proportion of merchandise and service sales represented 31.3% of sales this fiscal year compared to 32.6% last fiscal year.
With respect to the first three quarters of 2010, operating, selling, administrative and general expenses increased by 2.2% compared with the comparable period of the previous fiscal year. These expenses increased by 5.6% due to acquisitions and 0.3% due to the appreciation of the Canadian dollar, while they decreased by 0.9% due to the drop in electronic payment modes expenses. Excluding these items, expenses therefore decreased by 2.8%. Moreover, excluding expenses related to electronic payment modes for both comparable periods, expenses in proportion of merchandise and service sales represented 29.6% of sales during the first three quarters of fiscal 2010 compared to 31.0% during the comparable period of the previous fiscal year.
Couche-Tard's prudent management of controllable expenses as well as sustainable cost reduction measures it has put in place are the main reasons for these decreases. This performance is quite satisfactory, especially considering that expenses, excluding the impact of acquisitions, exchange rate and electronic payment mode expenses, have decreased for a fourth consecutive quarter, without affecting the service we offer our clients.
Earnings before interests, taxes, depreciation and amortization (EBITDA) were $141.3 million for the third quarter of fiscal 2010, down 15.9% compared to the comparable period of the previous fiscal year, and was $496.1 million for the first three quarters of fiscal 2010, up 2.8%. Acquisitions contributed to EBITDA for an amount of $5.8 million during the third quarter and $24.6 million during the first three quarters. The decrease in the third quarter is chiefly due to the drop of 5,33 cents per gallon in the motor fuel margin in the United States, which corresponds to a decrease of approximately $52.0 million in EBITDA.
It should be noted that EBITDA is not a performance measure defined by Canadian GAAP, but Couche-Tard's management, investors and analysts use this measure to evaluate the Company's financial and operating performance. Note that Couche-Tard's definition of this measure may differ from the one used by other public companies:
(in millions of 16-week periods ended 40-week periods ended
US dollars) January February January February
31, 2010 1st, 2009 31, 2010 1st, 2009
-------------------------------------------------------------------------
Net earnings, as reported 54.8 71.1 234.1 215.9
-------------------------------------------------------------------------
Add :
Income taxes 14.7 30.3 84.4 97.1
Financial expenses 8.6 10.3 22.5 29.4
Depreciation and
amortization of
property and
equipment and other
assets 63.2 56.4 155.1 140.4
-------------------------------------------------------------------------
EBITDA 141.3 168.1 496.1 482.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the third quarter and the first three quarters of fiscal 2010, the depreciation expense increased due to the investments made through acquisitions, replacement of equipment and the ongoing improvement of Couche-Tard's network.
For the third quarter and the first three quarters of fiscal 2010, financial expenses decreased by $1.7 million and $6.9 million, respectively, compared with last fiscal year. These decreases are chiefly the result of the reduction in Couche-Tard's average interest rates.
The income tax rate for the third quarter of fiscal 2010 is 21.1% compared to a rate of 29.9% for the same quarter last fiscal year. As for the first three quarters of fiscal 2010, the rate is 26.5% compared to a rate of 31.0% for the comparable period last fiscal year. Decrease in the rate reflects the corporate reorganization put in place during last fiscal year as well as rate adjustments from the comparison of estimated income tax expense to the actual income tax expense following preparation of income tax returns. The average rate recorded since the beginning of the fiscal year should reflect that of the fiscal year in general.
Couche-Tard closed the third quarter of fiscal 2010 with net earnings of $54.8 million, which equals $0.30 per share (or $0.29 per share on a diluted basis), compared to $71.1 million last fiscal year ($0.37 per share or $0.36 per share on a diluted basis), a decrease of $16.3 million or 22.9%. This is a very good performance given the relatively high motor fuel gross margin in the United States posted during the third quarter of 2009. The impact of the 5.33 cents per gallon decrease in the motor fuel gross margin in the United States corresponds to a drop of over $37.0 million in net earnings during the third quarter.
As for the first three quarters of fiscal 2010, net earnings were $234.1 million ($1.27 per share or $1.24 per share on a diluted basis), compared to $215.9 million the previous fiscal year ($1.11 per share or $1.09 per share on a diluted basis), an increase of $18.2 million or 8.4%, despite a motor fuel gross margin in the United States inferior to last fiscal year by 5,00 cents per gallon, which represents a decrease of approximately $85.0 million in net earnings. It has to be noted that the motor fuel margin in the United States for the first three quarters of fiscal year 2009 was particularly high while fuel margin of the ongoing fiscal year is in line with Couche-Tard's expectations considering historical margins.
Liquidity and Capital Resources
Couche-Tard's sources of liquidity remain unchanged compared with the fiscal year ended April 26, 2009. For further information, please refer to the Company's 2009 Annual Report.
With respect to Couche-Tard's capital expenditures, acquisitions and share repurchases carried out in the first three quarters of fiscal 2010, they were financed using available cash flow and credit facilities. Couche-Tard expects that its cash available from operations together with borrowings available under its revolving unsecured credit facilities, as well as potential sale and leaseback transactions, will meet its liquidity needs in the foreseeable future.
Couche-Tard's credit facilities, totalling $1 billion, have not changed with respect to their terms of use since April 26, 2009 and they will only mature in September 2012. As at January 31, 2010, $471.0 million of its term revolving unsecured operating credits had been used ($385.0 million for the US dollar portion and $86.0 million for the Canadian dollar portion). At such date, the weighted average effective interest rate was 0.75% for the US dollar portion and 0.90% for the Canadian dollar portion. In addition, standby letters of credit in the amount of Cdn$1.0 million and $26.6 million were outstanding as at January 31, 2010. Couche-Tard also has a $351.8 million subordinated unsecured debt (nominal value amounting to $350.0 million, net of attributable financing costs of $9.1 million, adjusted of amounts received for the early termination of interest rate swap agreements which are amortized on the remaining term of the debt using the effective rate method), bearing interest at an effective rate of 7.35%. It should be noted that amounts received for the early termination of interest rate swaps agreements represented swap's fair value as of the date of the termination.
Selected Consolidated Cash Flow Information
(In millions
of US dollars) 16-week periods ended 40-week periods ended
------------------------------------------------------------
January February Varia- January February Varia-
31, 1st, tion 31, 1st, tion
2010 2009 $ 2010 2009 $
------------------------------------------------------------
Operating
activities
Cash
flows(1) 117.1 132.4 (15.3) 394.3 374.4 19.9
Other (142.7) (44.5) (98.2) (179.6) (79.5) (100.1)
------------------------------------------------------------
Net cash
(used in)
from
operating
activities (25.6) 87.9 (113.5) 214.7 294.9 (80.2)
------------------------------------------------------------
Investing
activities
Purchase
of property
and equip-
ment, net
of proceeds
from the
disposal of
property
and equip-
ment (92.8) (50.3) (42.5) (160.8) (133.5) (27.3)
Business
acquisi-
tions (44.3) (0.8) (43.5) (111.9) (67.0) (44.9)
Proceeds
from sale
and lease-
back
transactions 1.0 9.3 (8.3) 10.6 11.9 (1.3)
Other (1.8) (0.9) (0.9) (6.4) (6.6) 0.2
------------------------------------------------------------
Net cash used
in investing
activities (137.9) (42.7) (95.2) (268.5) (195.2) (73.3)
------------------------------------------------------------
Financing
activities
Increase
(decrease)
in long-
term
borrowings 110.2 (117.1) 227.3 80.2 (134.7) 214.9
Dividends (6.1) (5.5) (0.6) (18.0) (18.8) 0.8
Amount
received
following
early
termination
of an
interest
rate swap
agreement 2.5 - 2.5 2.5 - 2.5
Issuance of
shares 0.3 0.6 (0.3) 2.3 0.6 1.7
Share
repurchase - (2.4) 2.4 (56.4) (46.2) (10.2)
------------------------------------------------------------
Net cash from
(used in)
financing
activities 106.9 (124.4) 231.3 10.6 (199.1) 209.7
------------------------------------------------------------
------------------------------------------------------------
Corporate
credit
rating
Standard
and Poor's BB+ BB+ BB+ BB+
Moody's(2) Ba1 Ba1 Ba1 Ba1
-------------------------------------------------------------------------
(1) These cash flows are presented for information purposes only and
represent a performance measure used especially in financial circles.
They represent cash flows from net earnings, plus depreciation and
amortization, loss on disposal of assets and future income taxes.
They do not have a standardized meaning prescribed by Canadian GAAP
and therefore may not be comparable to similar measures presented by
other public companies.
(2) Represents the last published corporate credit rating as attributed
to Couche-Tard by Moody's. During the third quarter of fiscal 2010,
Moody's indicated that it would not attribute corporate credit
ratings to Couche-Tard anymore given the fact it does not consider
the Company as a speculative grade issuer anymore.
Operating activities
During the third quarter of fiscal 2010, $25.6 million were used to fund operating activities, chiefly due to changes in working capital, including the decrease in income tax and accounts payable as well as the increase in accounts receivables and prepaid expenses. During the first three quarters of 2010, net cash from operating activities reached $214.7 million, down $80.2 million from the comparable period of fiscal 2009, chiefly due to changes in working capital.
Investing activities
During the third quarter of fiscal 2010, Couche-Tard's investing activities were primarily for the acquisition of company-operated stores, including investments in stores operated by the joint venture with Shell, and for capital expenditures. Capital expenditures were primarily for the replacement of equipment in some of Couche-Tard's company-operated stores to enhance its offering of products and services and to comply with regulations, the addition of new stores as well as the ongoing improvement of its network.
Financing activities
During the third quarter of fiscal 2010, Couche-Tard recorded a $110.2 million increase in long-term borrowings. In addition, Couche-Tard paid $6.1 million in dividends and cashed an amount of $2.5 million following the early termination, by the counterparty, of the Company's interest rate swap agreement.
Financial Position as at January 31, 2009
As shown by Couche-Tard's indebtedness ratios included in the "Selected Consolidated Financial Information" section and its net cash provided by operating activities, the Company's financial position is excellent.
Its total consolidated assets amounted to $3.6 billion as at January 31, 2010 compared to $3.3 billion as at April 26, 2009. This increase is chiefly the result of five factors:
1. The increase in property and equipment mainly resulting from the
acquisition of stores;
2. The increase of in-store merchandise inventory due to a greater number
of stores;
3. The increase in motor fuel inventory due to a higher product cost
compared to the fourth quarter of fiscal 2009 and a greater number of
stores selling motor fuel;
4. The increase in credit and debit cards receivables driven by higher
motor fuel retail price compared to the fourth quarter of fiscal 2009
as well as the increase in supplier rebates receivable following the
increase in merchandise inventories; and
5. An overall increase in Canadian and corporate operations assets once
translated in U.S. dollars due to a stronger Canadian dollar as at the
balance sheet date.
Shareholders' equity amounted to $1.5 billion as at January 31, 2010, up $207.6 million compared to April 26, 2009, reflecting net earnings generated during the current fiscal year and the increase in accumulated other comprehensive income due to the strengthening of the Canadian dollar, partially offset by the share repurchases made during the first three quarters of 2010.
Selected Quarterly Financial Information (Unaudited)
(In millions of
US dollars
except for per
share data, 40-week period ended
unaudited) January 31, 2010
-------------------------------------------------------------------------
Quarter 3rd 2nd 1st
Weeks 16 weeks 12 weeks 12 weeks
-----------------------------------
Revenues 4,935.2 3,825.8 3,675.1
-----------------------------------
Income before
depreciation
and amorti-
zation of
property and
equipment and
other assets,
financial
expenses and
income taxes 141.3 176.4 178.4
Depreciation
and amortiza-
tion of
property and
equipment and
other assets 63.2 46.9 45.0
-----------------------------------
Operating
income 78.1 129.5 133.4
-----------------------------------
Financial
expenses 8.6 7.0 6.9
-----------------------------------
Net earnings 54.8 88.2 91.1
-----------------------------------
-----------------------------------
Net earnings
per share
Basic $0.30 $0.48 $0.49
Diluted $0.29 $0.47 $0.48
-------------------------------------------------------------------------
Extract
from the
(In millions of 52-week
US dollars period
except for per ended
share data, 52-week period ended April 27,
unaudited) April 26, 2009 2008
-------------------------------------------------------------------------
Quarter 4th 3rd 2nd 1st 4th
Weeks 12 weeks 16 weeks 12 weeks 12 weeks 13 weeks
-----------------------------------------------------------
Revenues 2,994.0 3,911.7 4,556.4 4,319.0 3,705.8
-----------------------------------------------------------
Income before
depreciation
and amorti-
zation of
property and
equipment and
other assets,
financial
expenses and
income taxes 105.0 168.1 179.7 135.0 63.7
Depreciation
and amortiza-
tion of
property and
equipment and
other assets 42.6 56.4 41.1 42.9 39.9
-----------------------------------------------------------
Operating
income 62.4 111.7 138.6 92.1 23.8
-----------------------------------------------------------
Financial
expenses 6.8 10.3 9.3 9.8 9.1
-----------------------------------------------------------
Net earnings 38.0 71.1 97.6 47.2 15.5
-----------------------------------------------------------
-----------------------------------------------------------
Net earnings
per share
Basic $0.20 $0.37 $0.50 $0.24 $0.08
Diluted $0.20 $0.36 $0.49 $0.24 $0.08
-------------------------------------------------------------------------
Outlook
In the course of the last quarter of its fiscal year 2010, 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, Couche-Tard will continue to exercise patience in order to benefit from a fair price in view of current market conditions. The Company also intends to keep an ongoing focus on its 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 company or not) in terms of number of company-operated stores. Couche-Tard currently operates a network of 5,883 convenience stores, 4,142 of which include motor fuel dispensing, located in 11 large geographic markets, including eight in the United States covering 43 states and the District of Columbia, and three 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 March 9, 2010 at 3:30 P.M. (EST)
-------------------------------------------------------------------------
Couche-Tard invites analysts known to the Company to send their two questions in advance to its management, before 1:30 P.M. (EST) on March 9, 2010.
Financial analysts and investors who wish to listen to the webcast on Couche-Tard's results which will take place online on March 9, 2010 at 3:30 P.M. (EST) can do so by accessing the Company's website at www.couche-tard.com 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 Company's website for a period of 90 days.
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions of US dollars, except per share amounts, unaudited)
16 weeks 40 weeks
For the periods ended January February January February
31, 2010 1st, 2009 31, 2010 1st, 2009
-------------------------------------------------------------------------
$ $ $ $
Revenues 4,935.2 3,911.7 12 436.1 12,787.1
Cost of sales (excluding
depreciation and
amortization of property
and equipment and other
assets as shown separately
below) 4,204.0 3,197.0 10,471.6 10,868.0
-------------------------------------------------------------------------
Gross profit 731.2 714.7 1,964.5 1,919.1
-------------------------------------------------------------------------
Operating, selling,
administrative and general
expenses 589.9 546.6 1,468.4 1,436.3
Depreciation and
amortization of property
and equipment and other
assets 63.2 56.4 155.1 140.4
-------------------------------------------------------------------------
653.1 603.0 1,623.5 1,576.7
-------------------------------------------------------------------------
Operating income 78.1 111.7 341.0 342.4
Financial expenses 8.6 10.3 22.5 29.4
-------------------------------------------------------------------------
Earnings before income
taxes 69.5 101.4 318.5 313.0
Income taxes 14.7 30.3 84.4 97.1
-------------------------------------------------------------------------
Net earnings 54.8 71.1 234.1 215.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings per share
(Note 5)
Basic 0.30 0.37 1.27 1.11
Diluted 0.29 0.36 1.24 1.09
Weighted average number of
shares (in thousands) 183,594 192,919 184,413 194,545
Weighted average number of
shares - diluted (in
thousands) 188,458 196,979 188,870 198,476
Number of shares
outstanding at end of
period (in thousands) 183,611 192,778 183,611 192,778
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions of US dollars, unaudited)
For the periods ended 16 weeks 40 weeks
January February January February
31, 2010 1st, 2009 31, 2010 1st, 2009
-------------------------------------------------------------------------
$ $ $ $
Net earnings 54.8 71.1 234.1 215.9
Other comprehensive income
Changes in cumulative
translation adjustments(1) (3.1) (21.3) 43.6 (89.0)
Change in fair value of a
financial instrument
designated as a cash flow
hedge(2) 0.1 - 0.8 -
Gain realized on a financial
instrument designated as a
cash flow hedge transferred
to earnings(3) (0.1) - (0.2) -
-------------------------------------------------------------------------
Other comprehensive income (3.1) (21.3) 44.2 (89.0)
-------------------------------------------------------------------------
Comprehensive income 51.7 49.8 278.3 126.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For the 16 and 40-week periods ended January 31, 2010, these amounts
include a loss of $5.3 and a gain of $65.9, respectively (net of
income taxes of $3.9 and $23.8, respectively). For the 16 and 40-week
periods ended February 1st, 2009 these amounts include a loss of
$29.4 and $140.3, respectively (net of income taxes of $12.5 and
$63.1, respectively). These gains and losses arise from the
translation of US dollar denominated long-term debt designated as a
foreign exchange hedge of the Company's net investment in its foreign
self-sustaining operations.
(2) For the 16 and 40-week periods ended January 31, 2010, these amounts
are net of income taxes of $0.1 and $0.3, respectively.
(3) For the 16 and 40-week periods ended January 31, 2010, these amounts
are net of income taxes of $0.1 each.
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions of US dollars, unaudited)
For the 40-week period ended January 31, 2010
-------------------------------------------------------------------------
Accumu-
lated
other
Contri- compre- Share-
Capital buted Retained hensive holders'
stock surplus earnings income equity
-------------------------------------------------------------------------
$ $ $ $ $
Balance,
beginning of
period 329.1 17.7 932.6 46.6 1,326.0
Comprehensive
income:
Net earnings 234.1 234.1
Change in
cumulative
translation
adjustments 43.6 43.6
Change in
fair value
of a
financial
instrument
designated
as a cash
flow hedge
(net of
income taxes
of $0.3) 0.8 0.8
Gain realized
on a financial
instrument
designated as
a cash flow
hedge
transferred
to earnings
(net of income
taxes of $0.1) (0.2) (0.2)
-----------
Comprehensive
income 278.3
-----------
Dividends (18.0) (18.0)
Stock-based
compensation
expense (note 7) 1.4 1.4
Fair value of
stock options
exercised 0.9 (0.9) -
Cash received
upon exercise
of stock
options 2.3 2.3
Repurchase and
cancellation
of shares (13.0) (13.0)
Excess of
acquisition
cost over book
value of Class
A multiple
voting shares
and Class B
subordinate
voting shares
repurchased and
cancelled (43.4) (43.4)
-------------------------------------------------------------------------
Balance, end of
period 319.3 18.2 1,105.3 90.8 1,533.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the 40-week period ended February 1st, 2009
-------------------------------------------------------------------------
Accumu-
lated
other
Contri- compre- Share-
Capital buted Retained hensive holders'
stock surplus earnings income equity
-------------------------------------------------------------------------
$ $ $ $ $
Balance,
beginning of
period 348.8 15.6 775.0 114.3 1,253.7
Comprehensive
income:
Net earnings 215.9 215.9
Change in
cumulative
translation
adjustments (89.0) (89.0)
-----------
Comprehensive
income 126.9
-----------
Dividends (18.8) (18.8)
Stock-based
compensation
expense (note 7) 2.3 2.3
Fair value of
stock options
exercised 0.3 (0.3) -
Cash received
upon exercise
of stock
options 0.6 0.6
Repurchase and
cancellation
of shares (9.6) (9.6)
Excess of
acquisition
cost over book
value of Class
A multiple
voting shares
and Class B
subordinate
voting shares
repurchased and
cancelled (30.0) (30.0)
-------------------------------------------------------------------------
Balance, end of
period 340.1 17.6 942.1 25.3 1,325.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of US dollars, unaudited)
16 weeks 40 weeks
For the periods ended January February January February
31, 2010 1st, 2009 31, 2010 1st, 2009
-------------------------------------------------------------------------
$ $ $ $
Operating activities
Net earnings 54.8 71.1 234.1 215.9
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 55.3 48.2 134.8 122.7
Future income taxes 5.8 14.3 26.1 33.5
Loss (gain) on disposal
of property and equipment
and other assets 1.2 (1.2) (0.7) 2.3
Deferred credits 3.5 4.9 12.3 9.0
Other 5.9 6.4 14.8 13.6
Changes in non-cash
working capital (152.1) (55.8) (206.7) (102.1)
-------------------------------------------------------------------------
Net cash (used in) provided
by operating activities (25.6) 87.9 214.7 294.9
-------------------------------------------------------------------------
Investing activities
Purchase of property and
equipment (107.9) (56.5) (182.4) (144.6)
Business acquisitions
(Note 4) (44.3) (0.8) (111.9) (67.0)
Proceeds from disposal of
property and equipment
and other assets 15.1 6.2 21.6 11.1
Increase in other assets (1.8) (0.9) (6.4) (6.6)
Proceeds from sale and
leaseback transactions 1.0 9.3 10.6 11.9
-------------------------------------------------------------------------
Net cash used in investing
activities (137.9) (42.7) (268.5) (195.2)
-------------------------------------------------------------------------
Financing activities
Net increase (decrease) in
long-term debt 110.2 (117.1) 80.2 (134.7)
Dividends (6.1) (5.5) (18.0) (18.8)
Interest rate swap early
termination fee received 2.5 - 2.5 -
Issuance of shares 0.3 0.6 2.3 0.6
Repurchase of shares - (2.4) (56.4) (46.2)
-------------------------------------------------------------------------
Net cash provided by (used
in) financing activities 106.9 (124.4) 10.6 (199.1)
-------------------------------------------------------------------------
Effect of exchange rate
fluctuations on cash and
cash equivalents (0.8) (4.5) 8.2 (12.4)
-------------------------------------------------------------------------
Net decrease in cash and
cash equivalents (57.4) (83.7) (35.0) (111.8)
Cash and cash equivalents,
beginning of period 195.7 187.9 173.3 216.0
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 138.3 104.2 138.3 104.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental information:
Interest paid 12.6 14.7 27.5 33.9
Income taxes paid 55.5 6.5 97.5 53.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
(in millions of US dollars)
As at As at
January April
31, 2010 26, 2009
(unaudited)
-------------------------------------------------------------------------
$ $
Assets
Current assets
Cash and cash equivalents 138.3 173.3
Accounts receivable 291.1 225.4
Income taxes receivable 8.6 -
Inventories 461.3 400.3
Prepaid expenses 29.5 8.5
Future income taxes 35.3 37.0
-------------------------------------------------------------------------
964.1 844.5
Property and equipment 1,949.3 1,789.4
Goodwill 410.4 384.8
Trademarks and licenses 174.2 172.0
Deferred charges 9.8 10.9
Other assets 53.9 49.8
Future income taxes 6.3 4.5
-------------------------------------------------------------------------
3,568.0 3,255.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 718.8 758.1
Income taxes payable - 26.3
Future income taxes 0.2 0.7
Current portion of long-term debt 3.8 3.9
-------------------------------------------------------------------------
722.8 789.0
Long-term debt 858.4 745.3
Deferred credits and other liabilities 282.2 259.0
Future income taxes 171.0 136.6
-------------------------------------------------------------------------
2,034.4 1,929.9
-------------------------------------------------------------------------
Shareholders' equity
Capital stock 319.3 329.1
Contributed surplus 18.2 17.7
Retained earnings 1,105.3 932.6
Accumulated other comprehensive income 90.8 46.6
-------------------------------------------------------------------------
1,533.6 1,326.0
-------------------------------------------------------------------------
3,568.0 3,255.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of US dollars, except per share and stock option data, unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION
The unaudited interim consolidated financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles (Canadian GAAP) and have not been subject to a review engagement by the Company's external auditors. These consolidated financial statements were prepared in accordance with the same accounting policies and methods as the audited annual consolidated financial statements for the fiscal year ended April 26, 2009, with the exception of the accounting changes described in Note 2 below. The unaudited interim consolidated financial statements do not include all the information for complete financial statements and should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in the Company's 2009 Annual Report (the 2009 Annual Report). The results of operations for the interim periods presented do not necessarily reflect results expected for the full year. The Company's business follows a seasonal pattern. The busiest period is the first half of each fiscal year, which includes summer's sales.
2. ACCOUNTING CHANGES
Goodwill and Intangible Assets
On April 27, 2009, the Company adopted Canadian Institute of Chartered Accountants (CICA) Handbook Section 3064 "Goodwill and Intangible Assets", replacing Section 3062 "Goodwill and Other Intangible Assets" and Section 3450 "Research and Development Costs". The new Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards relating to goodwill are unchanged from the standards included in the previous Section 3062. The adoption of this new Section had no impact on the Company's consolidated financial statements.
Accounting Changes
In June 2009, CICA amended Section 1506 "Accounting Changes", to exclude from the scope of this Section, changes in accounting policies upon the complete replacement of an entity's primary basis of accounting. This amendment is effective for fiscal years beginning after July 1st, 2009. Early adoption is permitted. On October 12, 2009, the Company early adopted this standard. The adoption of this new Section had no impact on the Company's consolidated financial statements.
Financial Instruments - Disclosures
In June 2009, CICA amended Section 3862 "Financial Instruments - Disclosures" to enhance disclosure requirements about liquidity risk of financial instruments. The amendment also includes new disclosure requirements about fair value measurement of financial instruments. This amendment is effective for fiscal years ending after September 30, 2009. The required disclosure will be included in the Company's fiscal year 2010 annual consolidated financial statements.
3. INTEREST IN A JOINT VENTURE
On January 6, 2010, the Company created along with Shell Oil Products ("Shell"), a joint venture, RDK Ventures LLC ("RDK"), to operate 100 convenience stores located in the greater Chicago metropolitan area of the United States, 69 of which are company-operated and the 31 remaining stores are operated by third party operators. The sites held by Shell were transferred to RDK by a combination of purchased, contributed fee and lease sites. Line items from RDK's statement of earnings and balance sheet are reflected in the Company's consolidated financial statements using the proportionate consolidation method since Shell and the Company have joint control over the joint venture.
The Company owns a 50.01% interest in RDK and the major components of the interest included in the consolidated financial statements are as follows:
$
-------------------------------------------------------------------------
Balance sheet (as of January 31, 2010)
Current assets 18.1
Long-term assets 64.4
Current liabilities 17.5
Long-term liabilities 25.1
Statement of earnings (for the 16 and 40 weeks periods ended
January 31, 2010)
Revenues 21.5
Expenses 21.6
Net earnings (0.1)
Cash flows (for the 16 and 40 weeks periods ended January
31, 2010)
Operating activities 11.5
Investing activities (22.9)
Financing activities 20.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance sheet items and transactions between the Company and the joint venture were eliminated upon proportionate consolidation of the joint venture.
4. BUSINESS ACQUISITIONS
On May 28, 2009, the Company purchased 43 company-operated stores in the Phoenix, Arizona region, United-States from ExxonMobil Corporation. The Company leases the lands and buildings related to nine sites, it owns the building and leases the land for one site, while it owns both these assets for the other sites. Under the same transaction, ExxonMobil also transferred to the Company the "On the Run" trademark rights in the United States as well as 444 franchised stores operating under this trademark in the United States.
On January 6, 2010, through RDK (note 3), the Company participated in the acquisition of 100 stores owned by Shell of which 69 are company-operated and the remaining 31 stores are operated by third party operators. As the Company's interest in RDK is 50.01%, the transaction added 35 company-operated stores to the Company's network, 32 of which were already operated (but not owned) by the latter. RDK leases the land and buildings related to 55 sites, it owns the buildings and leases the land for five sites and it owns both these assets for the other sites.
Since the beginning of the fiscal year, the Company also acquired nine stores through five distinct transactions. The Company owns the land and buildings for five sites while it leases both these assets for the other four sites.
These acquisitions were settled for a total cash consideration of $111.9, including direct acquisition costs. The preliminary allocations of the purchase price of the acquisitions were established based on available information and on the basis of preliminary evaluations and assumptions management believes to be reasonable. Since the Company has not completed its fair value assessment of the net assets acquired for all transactions, the preliminary allocations of certain acquisitions are subject to adjustments to the fair value of the assets and liabilities until the process is completed. The allocations are based on the estimated fair values on the dates of acquisition:
$
Tangible assets acquired
Inventories 8.2
Property and equipment 101.2
Other assets 0.3
-------------------------------------------------------------------------
Total tangible assets 109.7
-------------------------------------------------------------------------
Liabilities assumed
Accounts payable and accrued liabilities 2.0
Deferred credits and other liabilities 1.6
-------------------------------------------------------------------------
Total liabilities 3.6
-------------------------------------------------------------------------
Net tangible assets acquired 106.1
-------------------------------------------------------------------------
Intangibles 1.3
Goodwill 4.5
-------------------------------------------------------------------------
Total consideration paid, including direct acquisition costs 111.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Company expects that approximately $1.0 of the goodwill related to these transactions will be deductible for tax purposes.
5. NET EARNINGS PER SHARE
16-week period 16-week period
ended January 31, 2010 ended February 1st, 2009
------------------------------------------------------------
Weighted Weighted
average average
number number
of Net of Net
shares earnings shares earnings
Net (in thou- per Net (in thou- per
earnings sands) share earnings sands) share
------------------------------------------------------------
$ $ $ $
Basic net
earnings
attributable
to Class A
and B share-
holders 54.8 183,594 0.30 71.1 192,919 0.37
Dilutive
effect of
stock
options 4,864 (0.01) 4,060 (0.01)
------------------------------------------------------------
Diluted net
earnings
available
for Class A
and B share-
holders 54.8 188,458 0.29 71.1 196,979 0.36
------------------------------------------------------------
------------------------------------------------------------
40-week period 40-week period
ended January 31, 2010 ended February 1st, 2009
------------------------------------------------------------
Weighted Weighted
average average
number number
of Net of Net
shares earnings shares earnings
Net (in thou- per Net (in thou- per
earnings sands) share earnings sands) share
------------------------------------------------------------
$ $ $ $
Basic net
earnings
attributable
to Class A
and B share-
holders 234.1 184,413 1.27 215.9 194,545 1.11
Dilutive
effect of
stock
options 4,457 (0.03) 3,931 (0.02)
------------------------------------------------------------
Diluted net
earnings
available
for Class A
and B share-
holders 234.1 188,870 1.24 215.9 198,476 1.09
------------------------------------------------------------
------------------------------------------------------------
A total of 794,875 stock options are excluded from the calculation of the diluted net earnings per share due to their antidilutive effect for the 16-week period ended January 31, 2010 (1,093,105 stock options for the 40-week period ended January 31, 2010). There are 1,702,675 stocks options excluded from the calculation for the 16-week period ended February 1st, 2009 (1,665,860 stocks options for the 40-week period ended February 1st, 2009).
6. CAPITAL STOCK
As at January 31, 2010, the Company has 53,706,712 (53,722,712 as at February 1st, 2009) issued and outstanding Class A multiple voting shares each comprising ten votes per share and 129,903,847 (139,055,608 as at February 1st, 2009) outstanding Class B subordinate voting shares each comprising one vote per share.
On August 10, 2009, the Company implemented a share repurchase program which allows to repurchase up to 2,685,370 Class A multiple voting shares (representing 5.0% of the 53,707,412 Class A multiple voting shares issued and outstanding as at July 24, 2009) and up to 12,857,284 Class B subordinate voting shares (representing 10.0% of the 128,572,846 Class B subordinate voting shares of the public float, as defined by applicable rules, as at July 24, 2009). When making such repurchases, the number of issued and outstanding Class A multiple voting shares and Class B subordinate voting shares is reduced and the proportionate interest of the shareholders in the share capital of the Company is increased on a pro rata basis. As at January 31, 2010, no shares had been repurchased under this program.
Since the beginning of fiscal 2010, pursuant to the previous share repurchase program described in Note 18 of the consolidated financial statements presented in the 2009 Annual report and which expired on August 7, 2009, the Company repurchased 3,700 Class A multiple voting shares at an average cost of Cdn$14.49 and 4,296,000 Class B subordinate voting shares at an average cost of Cdn$14.63.
All shares repurchased under the share repurchase programs are cancelled upon repurchase.
7. STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS
Stock Options
As at January 31, 2010, 8,613,428 stock options for the purchase of Class B subordinate voting shares are outstanding (8,995,603 as at February 1st, 2009). These stock options can be gradually exercised at various dates until September 12, 2019, at an exercise price varying from Cdn$2.38 to Cdn$25.71. Three series of stock options totaling 105,000 stock options at an exercise price ranging from Cdn$13.15 to Cdn$19.85 were granted since the beginning of the fiscal year.
For the 16 and 40-week periods ended January 31, 2010, the stock-based compensation costs amount to $0.5 and $1.4, respectively. For the 16 and 40-week periods ended February 1st, 2009, the stock-based compensation costs amount to $0.8 and $2.3, respectively.
The fair value of stock options granted is estimated at the grant date using the Black & Scholes option pricing model on the basis of the following assumptions for the stock options granted since the beginning of the fiscal year:
- risk-free interest rate of 3.03%;
- expected life of 8 years;
- expected volatility of 33%;
- expected quarterly dividend of Cdn$0.035 per share.
The weighted average fair value of stock options granted since the beginning of the fiscal year is Cdn$6.49 (Cdn$5.34 as at February 1st, 2009). A description of the Company's stock option plan is included in Note 19 of the consolidated financial statements presented in the 2009 Annual Report.
Phantom Stock Units
On May 1st, 2009, the Company implemented a Phantom Stock Unit ("PSU") Plan allowing the Board of Directors, through its Human Resources and Corporate Governance Committee, to grant PSUs, to the officers and selected key employees of the Company (the "Participants"). A PSU is a notional unit, which value is based on the weighted average reported closing price for a board lot of the Company's Class B subordinated voting share (the "Class B share") on the Toronto Stock Exchange for the five trading days immediately preceding the grant date. The PSU provides the Participant with the opportunity to earn a cash award equal to the fair market value of the Company's Class B shares on the open market of the Toronto Stock Exchange upon vesting of the PSU. Each PSU initially granted vest no later than one day prior to the third anniversary of the grant date subject namely to the achievement of performance objectives of the Company, based on external and internal benchmarks, over a three-year performance period. PSUs are not dilutive since they are solely payable in cash.
The PSU 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 PSUs that will ultimately be paid. The liability is adjusted periodically to reflect any variation in the fair market value of the Class B shares. The Company granted 1,221 PSUs for the 16-week period ended January 31, 2010. For the 40-week period ended January 31, 2010, the Company granted a total of 194,277 PSUs while it cancelled 5,323 PSUs and the compensation costs for the 16 and 40-week periods ended January 31, 2010 amount to $0.2 and $0.6, respectively. As at January 31, 2010, 188,954 PSUs were outstanding. On the consolidated balance sheet, the obligation related to the PSU Plan is recorded in deferred credit and other liabilities.
To manage current and forecasted risks related to changes in the fair market value of the PSUs granted by the Company, the latter has entered into a financial arrangement with an investment grade financial institution. The financial arrangement includes a total return swap with an underlying representing 189,072 Class B shares (the "Instrument"). The Instrument is recorded at fair market value on the consolidated balance sheet under other assets. The financial arrangement will be adjusted as needed to reflect new awards, adjustments and/or settlements of PSUs.
The Company has documented and identified the Instrument as a cash flow hedge of the anticipated cash settlement transaction related to the granted PSUs. The Company has determined that the instrument is an effective hedge at the time of the establishment of the hedge and for the duration of the Instrument. The changes in the fair value of the instrument are initially recorded in consolidated other comprehensive income and subsequently reclassified to consolidated net earnings in the same period the recording of the change in the fair value of the PSUs affects consolidated net earnings. Should it become probable that the hedge transaction will not occur, any gains, losses, revenues or expenses associated with the hedging item that had previously been recognized in other comprehensive income as a result of applying hedge accounting will be recognized in the reporting period's net income. As at January 31, 2010, the fair value of the Instrument was $1.2.
8. EMPLOYEE FUTURE BENEFITS
For the 16 and 40-week periods ended January 31, 2010, the Company's total net pension expense included in its consolidated statement of earnings amounts to $1.8 and $5.6, respectively. For the corresponding 16 and 40-week periods ended February 1st, 2009, the expense is $1.4 and $4.3, respectively. The Company's pension plans are described in Note 20 of the consolidated financial statements presented in the 2009 Annual Report.
9. SEGMENTED INFORMATION
The Company operates convenience stores in the United States and in Canada. It essentially operates in one reportable segment, the sale of goods for immediate consumption and motor fuel through corporate stores or franchise operations. It operates a convenience store chain under several banners, including Couche-Tard, Mac's and Circle K. Revenues from outside sources mainly fall into two categories: merchandise and services and motor fuel.
The following table provides the information on the principal revenue classes as well as geographic information:
16-week period 16-week period
ended January 31, 2010 ended February 1st, 2009
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United United
States Canada Total States Canada Total
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$ $ $ $ $ $
External
customer
revenues(a)
Merchandise
and
services 1,161.0 554.7 1,715.7 1,104.3 448.8 1,553.1
Motor fuel 2,684.2 535.3 3,219.5 1,989.1 369.5 2,358.6
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3,845.2 1,090.0 4,935.2 3,093.4 818.3 3,911.7
------------------------------------------------------------
------------------------------------------------------------
Gross Profit
Merchandise
and
services 381.7 183.7 565.4 362.0 151.2 513.2
Motor fuel 130.2 35.6 165.8 177.5 24.0 201.5
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511.9 219.3 731.2 539.5 175.2 714.7
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Property and
equipment
and
goodwill(a) 1,820.5 486.2 2,306.7 1,693.2 424.9 2,118.1
------------------------------------------------------------
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40-week period 40-week period
ended January 31, 2010 ended February 1st, 2009
------------------------------------------------------------
United United
States Canada Total States Canada Total
------------------------------------------------------------
$ $ $ $ $ $
External
customer
revenues(a)
Merchandise
and
services 3,061.3 1,461.5 4,522.8 2,861.7 1,338.4 4,200.1
Motor fuel 6,591.5 1,321.8 7,913.3 7,360.5 1,226.5 8,587.0
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9,652.8 2,783.3 12,436.1 10,222.2 2,564.9 12,787.1
------------------------------------------------------------
------------------------------------------------------------
Gross Profit
Merchandise
and
services 1,002.8 495.3 1,498.1 930.4 461.6 1,392.0
Motor fuel 373.4 93.0 466.4 459.8 67.3 527.1
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1,376.2 588.3 1,964.5 1,390.2 528.9 1,919.1
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(a) Geographic areas are determined according to where the Company
generates operating income (where the sale takes place) and according
to the location of the property and equipment and goodwill.
10. SUBSEQUENT EVENT
On February 16, 2010, the Company acquired fuel terminal facilities in Phoenix, Arizona in the United States from BP West Coast Products LLC. The terminal facilities include 16 storage tanks with a storage capacity of 220,000 barrels. The terminal is approved for 44,000 barrels per day and has access to petroleum products from refineries on the West Coast and in the Gulf Coast region of the United States.
For further information: Raymond Paré, Vice-President and Chief Financial Officer, (450) 662-6632 ext. 4607, [email protected]
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