METRO's fully diluted net earnings per share increased by 10.9% in the third
quarter of 2010
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2010 THIRD QUARTER HIGHLIGHTS
- Net earnings of $120.0 million, up 6.6%
- Fully diluted net earnings per share of $1.12, up 10.9%
- Sales of $3,561.3 million, up 1.4%
- Declared dividend of $0.17 per share, up 23.6%
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MONTREAL, Aug. 11 /CNW Telbec/ - METRO INC. (TSX: MRU.A) announced its results today for the fiscal 2010 third quarter ended July 3, 2010. METRO realized net earnings of $120.0 million, an increase of 6.6% over the same quarter last year, and fully diluted net earnings per share of $1.12 versus $1.01 last year, an increase of 10.9%.
"We are pleased with our third quarter results as they improved upon last year's excellent third quarter, despite persistent deflation in certain product categories and continuing consumer caution. Following the successful launch of our new Metro & Me loyalty card in Québec City last April, we will roll out this new program throughout the other Québec regions in the fall. Going forward, we are confident that our customer centric strategies combined with disciplined cost control will allow us to sustain(2) our growth," stated Eric R. La Flèche, President and Chief Executive Officer.
SALES
2010 third quarter sales reached $3,561.3 million compared to $3,513.3 million last year, an increase of 1.4%. Sales for the first 40 weeks of 2010 reached $8,783.0 million, up 1.4% compared to sales of $8,663.5 million for the corresponding period of fiscal 2009.
These increases were achieved despite a slight drop in the value of our basket, whereas last year, high food price inflation and the temporary closing of several stores of a competitor due to a labour conflict had a positive impact on our sales for the first three quarters. Same-store sales declined 0.6% in the third quarter due to deflation in certain product categories.
EARNINGS BEFORE FINANCIAL COSTS, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)(1)
Third quarter EBITDA(1) in 2010 was $247.7 million, up 6.3% from $233.0 million for the same quarter last year. Third quarter EBITDA(1) represented 7.0% of sales versus 6.6% last year.
EBITDA(1) for the first 40 weeks of 2010 was $601.4 million or 6.8% of sales compared to $565.8 million or 6.5% of sales for the same period of 2009. Excluding non-recurring costs of $0.9 million and $8.7 million before taxes to convert our Ontario supermarkets to the Metro banner in the first 40 weeks of 2010 and 2009 respectively, adjusted EBITDA(1) represented 6.9% of sales in 2010 and 6.6% in 2009.
These increases are due mainly to an increase in our gross margins driven by our improved store operations.
Our share of earnings from our investment in Alimentation Couche-Tard for the third quarter and the first 40 weeks of 2010 were $8.0 million and $25.3 million respectively, compared to $5.2 million and $25.7 million for the corresponding periods of fiscal 2009. Excluding non-recurring items as well as our share of earnings from our investment in Alimentation Couche-Tard, our adjusted EBITDA(1) for the third quarter and the first 40 weeks of 2010 were $239.7 million and $577.0 million respectively or 6.7% and 6.6% of sales versus $230.7 million or 6.6% of sales for the third quarter of 2009 and $548.8 million or 6.3% of sales for the 40-week period of 2009.
EBITDA(1) Adjustments
(Millions of 16 weeks / Fiscal Year
dollars, 2010 2009
unless ------------------------------------------------------------
otherwise EBITDA Sales EBITDA/ EBITDA Sales EBITDA/
indicated) Sales (%) Sales (%)
-------------------------------------------------------------------------
EBITDA 247.7 3,561.3 7.0 233.0 3,513.3 6.6
Banner
conversion
costs - - 2.9 -
-------------------------------------------------------------------------
Adjusted
EBITDA 247.7 3,561.3 7.0 235.9 3,513.3 6.7
Share of
earnings
from our
investment in
Alimentation
Couche-Tard (8.0) - (5.2) -
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Adjusted EBITDA
excluding share
of earnings 239.7 3,561.3 6.7 230.7 3,513.3 6.6
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-------------------------------------------------------------------------
(Millions of 40 weeks / Fiscal Year
dollars, 2010 2009
unless ------------------------------------------------------------
otherwise EBITDA Sales EBITDA/ EBITDA Sales EBITDA/
indicated) Sales (%) Sales (%)
-------------------------------------------------------------------------
EBITDA 601.4 8,783.0 6.8 565.8 8,663.5 6.5
Banner
conversion
costs 0.9 - 8.7 -
-------------------------------------------------------------------------
Adjusted
EBITDA 602.3 8,783.0 6.9 574.5 8,663.5 6.6
Share of
earnings
from our
investment in
Alimentation
Couche-Tard (25.3) - (25.7) -
-------------------------------------------------------------------------
Adjusted EBITDA
excluding share
of earnings 577.0 8,783.0 6.6 548.8 8,663.5 6.3
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DEPRECIATION AND AMORTIZATION AND FINANCIAL COSTS
Total amortization expenses for the third quarter and the first 40 weeks of fiscal 2010 amounted to $62.2 million and $155.9 million respectively, compared with $58.6 million and $142.8 million for the same periods of 2009. Third quarter financial costs totalled $13.9 million in 2010 versus $14.6 million last year, while 2010 40-week financial costs totalled $35.2 million versus $37.9 million last year. Interest rates for the first 40 weeks of 2010 averaged 3.9% versus 4.6% for the corresponding period last year.
INCOME TAXES
The 2010 third quarter and 40-week period income tax expenses of $51.6 million and $111.9 million represented effective tax rates of 30.1% and 27.3% respectively. In the first quarter of 2010, we benefited from a $10.0 million reduction in our net future income tax liabilities and income tax expenses. Excluding this reduction, our effective tax rate for the first 40 weeks of 2010 was 29.7%. In 2009, the third quarter and 40-week period income tax expenses of $47.2 million and $115.1 million represented effective tax rates of 29.5% and 29.9% respectively. In the third quarter of 2009, the Québec government reduced the tax rate on investment income and this reduction cut our future tax liability by $2.7 million and our tax expenses by the same amount. Excluding this reduction, our effective 2009 third quarter and 40-week tax rates were 31.2% and 30.6% respectively.
NET EARNINGS
The 2010 third quarter net earnings were $120.0 million compared to $112.6 million for the corresponding quarter last year, an increase of 6.6%. Fully diluted net earnings per share rose 10.9% to $1.12 from $1.01 last year. Excluding banner conversion costs of $2.9 million before taxes and the tax expense decrease of $2.7 million recorded in the third quarter of 2009, our 2010 third quarter net earnings and fully diluted net earnings per share were up 7.3% and 10.9% respectively.
Net earnings for the first 40 weeks of 2010 reached $298.4 million versus $270.0 million last year, up 10.5%. Fully diluted net earnings per share were $2.77 compared to $2.42 last year, an increase of 14.5%. Excluding the 2010 first quarter and 2009 third quarter income tax expense decreases of $10.0 million and $2.7 million respectively and pre-tax banner conversion costs of $0.9 million in 2010 and $8.7 million in 2009, adjusted net earnings(1) for the 2010 40-week period were $289.0 million, up 5.8% from the $273.1 million for the corresponding period of 2009. Adjusted fully diluted net earnings per share(1) were $2.68, up 9.4% from $2.45 last year.
Net Earnings Adjustments
16 weeks / Fiscal Year
2010 2009 Change (%)
------------------------------------------------------------
(Millions Fully (Millions Fully Net Fully
of diluted of diluted earnings diluted
dollars) EPS dollars) EPS EPS
(Dollars) (Dollars)
-------------------------------------------------------------------------
Net earnings 120.0 1.12 112.6 1.01 6.6 10.9
Banner
conversion
costs after
taxes - - 1.9 0.02
Decrease in
tax expense - - (2.7) (0.02)
-------------------------------------------------------------------------
Adjusted net
earnings(1) 120.0 1.12 111.8 1.01 7.3 10.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
40 weeks / Fiscal Year
2010 2009 Change (%)
------------------------------------------------------------
(Millions Fully (Millions Fully Net Fully
of diluted of diluted earnings diluted
dollars) EPS dollars) EPS EPS
(Dollars) (Dollars)
-------------------------------------------------------------------------
Net earnings 298.4 2.77 270.0 2.42 10.5 14.5
Banner
conversion
costs after
taxes 0.6 - 5.8 0.05
Decrease in
tax expense (10.0) (0.09) (2.7) (0.02)
-------------------------------------------------------------------------
Adjusted net
earnings(1) 289.0 2.68 273.1 2.45 5.8 9.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarterly Highlights
(Millions of dollars, unless 2010 2009 2008 Change
otherwise indicated) (%)
-------------------------------------------------------------------------
Sales
Q1 2,645.0 2,600.5 - 1.7
Q2 2,576.7 2,549.7 - 1.1
Q3 3,561.3 3,513.3 - 1.4
Q4 - 2,532.5 2,476.0 2.3
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-------------------------------------------------------------------------
Net earnings
Q1 98.1 81.1 - 21.0
Q2 80.3 76.3 - 5.2
Q3 120.0 112.6 - 6.6
Q4 - 84.4 72.5 16.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Adjusted net earnings(1)
Q1 88.7 84.1 - 5.5
Q2 80.3 77.2 - 4.0
Q3 120.0 111.8 - 7.3
Q4 - 85.9 72.5 18.5
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-------------------------------------------------------------------------
Fully diluted net earnings
per share (Dollars)
Q1 0.91 0.73 - 24.7
Q2 0.74 0.68 - 8.8
Q3 1.12 1.01 - 10.9
Q4 - 0.77 0.65 18.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Adjusted fully diluted net
earnings per share(1) (Dollars)
Q1 0.82 0.76 - 7.9
Q2 0.74 0.68 - 8.8
Q3 1.12 1.01 - 10.9
Q4 - 0.78 0.65 20.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
First, second and third quarter sales for 2010 were up 1.7%, 1.1% and 1.4% respectively over those in fiscal 2009. These increases were achieved despite persistent deflation in certain product categories in 2010, whereas last year, high food price inflation and the temporary closing of several stores of a competitor due to a labour conflict had a positive impact on our sales for the corresponding quarters.
Fourth quarter sales for 2009 were up 2.3% over those for 2008. Effective merchandising programs allowed us to post this increase. Excluding decreased tobacco sales, 2009 fourth quarter sales were up 3.2% over 2008.
First quarter net earnings and fully diluted net earnings per share for 2010 were up 21.0% and 24.7% respectively over those in fiscal 2009. Excluding banner conversion costs of $0.9 million and $4.5 million before taxes recorded respectively in the first quarters of 2010 and 2009, as well as the income tax expense decrease of $10.0 million in the first quarter of 2010 further to future decreases in the Ontario tax rate, adjusted net earnings(1) were up 5.5% and adjusted fully diluted net earnings per share(1) were up 7.9%.
Second quarter net earnings and fully diluted net earnings per share for 2010 were up 5.2% and 8.8% respectively from those in 2009.
Third quarter net earnings and fully diluted net earnings per share in 2010 were up 6.6% and 10.9% respectively from 2009. Excluding non-recurring items recorded in the third quarter of 2009, namely $2.9 million before taxes to convert our Ontario supermarkets to the Metro banner as well as an income tax expense decrease of $2.7 million, net earnings and fully diluted net earnings per share for the third quarter of 2010 were up 7.3% and 10.9%, compared to adjusted net earnings(1) and adjusted fully diluted net earnings per share(1) for the third quarter of 2009.
Fourth quarter net earnings and fully diluted net earnings per share in 2009 were up 16.4% and 18.5% over those for 2008. Excluding 2009 fourth quarter banner conversion costs of $2.3 million before taxes, adjusted net earnings(1) and adjusted fully diluted net earnings per share(1) for the fourth quarter of 2009 were up 18.5% and 20.0% over net earnings and fully diluted net earnings per share for the fourth quarter of 2008. The fourth quarter of 2009 saw an increase in gross margins due to the increase in sales and our ongoing efforts to improve execution in Ontario.
2010 2009 2008
(Millions of -------------------------------------------------------
dollars) Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q4
-------------------------------------------------------------------------
Net earnings 98.1 80.3 120.0 81.1 76.3 112.6 84.4 72.5
Banner conversion
costs after taxes 0.6 - - 3.0 0.9 1.9 1.5 -
Decrease in tax
expense (10.0) - - - - (2.7) - -
-------------------------------------------------------------------------
Adjusted net
earnings(1) 88.7 80.3 120.0 84.1 77.2 111.8 85.9 72.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2010 2009 2008
(Dollars and -------------------------------------------------------
per share) Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q4
-------------------------------------------------------------------------
Fully diluted net
earnings 0.91 0.74 1.12 0.73 0.68 1.01 0.77 0.65
Banner conversion
costs after taxes - - - 0.03 - 0.02 0.01 -
Decrease in tax
expense (0.09) - - - - (0.02) - -
-------------------------------------------------------------------------
Adjusted fully
diluted net
earnings(1) 0.82 0.74 1.12 0.76 0.68 1.01 0.78 0.65
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash position
OPERATING ACTIVITIES
Operating activities generated cash flows of $190.4 million in the third quarter and $368.5 million over the first 40 weeks of 2010, compared to $115.2 million in the third quarter and $289.3 million in the first 40 weeks of 2009. The increases in generated cash are due primarily to increased net earnings and variations in non-cash working capital.
INVESTING ACTIVITIES
Investing activities required outflows of $55.4 million in the third quarter and $309.6 million in the first 40 weeks of 2010 compared to $73.7 million and $164.0 million respectively in the corresponding periods of fiscal 2009. The decrease in third quarter outflows in 2010 compared with 2009 is due primarily to reduced acquisition of fixed assets in 2010, while the increase in 40-week outflows in 2010 compared with 2009 is attributable to the 2010 acquisition of 18 stores for valuable cash consideration of $152.3 million (net of cash acquired totalling $0.3 million).
During the first 40 weeks of 2010, the Company and its retailers invested $231.6 million in our retail network, for a net expansion of 406,200 square feet or 2.1%. Major renovations and expansions of 32 stores were completed, and 13 new stores were opened.
FINANCING ACTIVITIES
Financing activities required outflows of $86.7 million in the third quarter of 2010 compared to $86.0 million in the third quarter of 2009.
Financing activities required outflows of $180.1 million for the 40-week period of 2010 compared to $112.9 million for the corresponding period of 2009. The increase of outflows is attributable to a greater number of Class A Subordinate shares being repurchased, and a decrease in issuance of shares in 2010 compared to 2009.
Financial Position
Despite the difficult economic environment, we do not anticipate(2) any liquidity risk and consider our financial position at the end of the third quarter of fiscal 2010 as very solid. We had an unused authorized revolving line of credit of $400.0 million. Our long-term debt corresponded to 29.5% of the combined total of long-term debt and shareholders' equity (long-term debt/total capital).
At the end of the third quarter of 2010, the main elements of our long-term debt were as follows:
Interest Rate Balance Maturity
(Millions
of dollars)
-------------------------------------------------------------------------
Credit A Facility Rates fluctuate with
changes in bankers'
acceptance rates 369.3 August 15, 2012
Series A Notes 4.98% fixed rate 200.0 October 15, 2015
Series B Notes 5.97% fixed rate 400.0 October 15, 2035
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At the end of the quarter, one interest rate swap agreement in the notional amount of $50.0 million was outstanding under our Credit A Facility. This agreement provides for the exchange of variable interest payment for fixed interest payment according to the following term:
Fixed Rate Notional Amount Maturity
(Millions of dollars)
-------------------------------------------------------------------------
4.0425% 50.0 December 16, 2010
-------------------------------------------------------------------------
Giving effect to this swap agreement, at the end of the quarter, long-term indebtedness comprised $650.0 million at fixed rates ranging from 4.4925% to 5.97% and $319.3 million at variable rates which fluctuate with changes in bankers' acceptance rates.
At the end of the third quarter, we also had foreign exchange forward contracts to hedge against the effect of foreign exchange rate fluctuations on our future U.S. dollar denominated purchases. The fair value of these short-term foreign exchange forward contracts was insignificant.
FINANCIAL RATIOS
As at As at
July 3, September 26,
2010 2009
-------------------------------------------------------------------------
Financial structure
Long-term debt (Millions of dollars) 1,004.9 1,004.3
Shareholders' equity (Millions of dollars) 2,400.5 2,264.1
Long-term debt/total capital (%) 29.5 30.7
Fiscal 2010 Fiscal 2009
(40 weeks) (40 weeks)
----------------------------
Results
EBITDA(1)/Financial costs (Times) 17.1 14.9
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CAPITAL STOCK, STOCK OPTIONS AND PERFORMANCE SHARE UNITS
As at As at
July 3, September 26,
2010 2009
-------------------------------------------------------------------------
Number of Class A Subordinate Shares
outstanding (Thousands) 105,209 107,830
Number of Class B Shares outstanding
(Thousands) 631 718
Stock options:
Number outstanding (Thousands) 1,737 1,864
Exercise prices (Dollars) 20.20 to 17.23 to
44.19 39.17
Weighted average exercise price (Dollars) 31.75 28.53
Performance share units:
Number outstanding (Thousands) 309 268
Weighted average maturity (Months) 19 18
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NORMAL COURSE ISSUER BID PROGRAM
The Company decided to renew the issuer bid program as an additional option for using excess funds. Thus, we will be able to decide, in the shareholders' best interest, to reimburse debt or to repurchase Company shares. Subject to regulatory approval, the Board of Directors authorized the Company to repurchase, in the normal course of business, between September 8, 2010 and September 7, 2011, up to 6,000,000 of its Class A Subordinate Shares representing approximately 5.7% of its issued and outstanding shares at the close of the Toronto Stock Exchange on August 6, 2010. Repurchases will be made through the stock exchange at market price and in accordance with its policies and regulations. The Class A Subordinate Shares so repurchased will be cancelled. Under the existing normal course issuer bid program covering the period from September 8, 2009 to July 30, 2010, the Company repurchased 3,496,300 Class A Subordinate shares at an average price of $39.76 per share for a total of $139.0 million.
DIVIDENDS
On August 10, 2010, the Company's Board of Directors declared a quarterly dividend of $0.17 per Class A Subordinate Share and Class B Share payable September 3, 2010, an increase of 23.6% over last year. On an annualized basis, this dividend represents 20.3% of 2009 net earnings.
SHARE TRADING
The value of METRO shares remained in the $33.02 to $45.56 range over the first three quarters of fiscal 2010. During this period, a total of 58.1 million shares traded on the Toronto Stock Exchange. The closing price on Friday, July 30, 2010 was $43.94, compared with $34.73 at the end of fiscal 2009.
New Accounting Policy Recently Published
International Financial Reporting Standards
On February 13, 2008, the Accounting Standards Board confirmed the date of the changeover from GAAP to International Financial Reporting Standards (IFRS). Canadian enterprises with public disclosure obligations must adopt IFRS for their interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company's IFRS changeover date will be the first day of fiscal 2012, namely September 25, 2011.
We set up a project structure to achieve the changeover of our consolidated financial statements to IFRS. A multidisciplinary working group analyzes, recommends accounting policy choices and implements each IFRS standard. A steering committee made up of senior executives approves accounting policy choices and makes sure that information technology, internal control, contractual and any other adjustments are made. The external auditors are notified of our choices and consulted on them. The Company's Audit Committee ensures that management fulfills its responsibilities and successfully accomplishes the changeover to IFRS.
We developed a work plan whose phases are outlined in the following tables, with actions, timetable and progress.
Phase 1: Preliminary Study and Diagnostic
-------------------------------------------------------------------------
Actions Identification of the IFRS standards that will require
changes with regard to measurement in consolidated
financial statements and disclosure.
-----------------------------------------------------------
Rank of standards based on their anticipated impact on our
consolidated financial statements and the effort their
implementation requires.
-------------------------------------------------------------------------
Timetable End of our 2008 fiscal year.
-------------------------------------------------------------------------
Progress Completed.
-------------------------------------------------------------------------
Phase 2: Standards Analysis
-------------------------------------------------------------------------
Actions Analysis of the differences between GAAP and IFRS.
-----------------------------------------------------------
Selection of the accounting policies that the Company will
apply on an ongoing basis.
-----------------------------------------------------------
Company's selection of IFRS 1 exemptions at the date of
transition.
-----------------------------------------------------------
Calculation of the quantitative impact on the consolidated
financial statements.
-----------------------------------------------------------
Disclosure analysis.
-----------------------------------------------------------
Preparation of draft consolidated financial statements and
notes.
-----------------------------------------------------------
Identification of the collateral impacts in the following
areas:
- information technology (IT)
- internal control over financial reporting (ICFR)
- disclosure controls and procedures (DC&P)
- contracts
- compensation
- taxation
- training
-------------------------------------------------------------------------
Timetable We have prepared a detailed timetable that contemplates the
bulk of the analysis that will be completed by the end of
September 2010. We prioritized standards based on their
ranking in the diagnostic, the time needed to complete the
analysis and implementation as well as working group
members' availability.
-------------------------------------------------------------------------
Progress At the end of the third quarter of fiscal 2010, analysis of
all IFRS standards and interpretations that may have an
impact on our Company was underway or completed.
Given a weighting system based on the individual
standards' complexity and degree of implementation
difficulty, we estimate overall progress at 87%. We are
satisfied with this result, are following our work plan,
and are confident that we shall meet our deadline.
As for ICFR and DC&P, analysis of IFRS standards and
interpretations shows that the impact will not be material.
However, for the year of transition, we will have to
implement further controls regarding comparatives and
additional information that will be disclosed.
-------------------------------------------------------------------------
Phase 3: Implementation
-------------------------------------------------------------------------
Actions Preparation of the opening balance sheet at the date of
transition.
-----------------------------------------------------------
Compilation of the comparative financial data.
-----------------------------------------------------------
Production of the interim consolidated financial statements
and the associated disclosure.
-----------------------------------------------------------
Production of the annual consolidated financial statements
and the associated disclosure.
-----------------------------------------------------------
Implementation of changes regarding collateral impacts.
-------------------------------------------------------------------------
Timetable At the end of fiscal 2011, our opening balance sheet,
comparative financial data under IFRS and changes regarding
collateral impacts will be completed.
-----------------------------------------------------------
In fiscal 2012, we will produce our interim and annual
consolidated financial statements and disclosure in
accordance with IFRS.
-------------------------------------------------------------------------
Progress We have identified and begun implementation of an IT
solution that will allow us to run parallel integrated GAAP
and IFRS systems from the start of fiscal 2011 for the
comparative financial statements.
We have also prepared a preliminary version of our annual
financial statements according to IFRS standards.
-------------------------------------------------------------------------
So far, we have completed analysis of a number of IFRS standards. We have noted the differences in accounting treatment and presentation between some of these standards and our current accounting policies. We have made choices, as warranted, with regard to these standards. The most significant differences and our main choices are set out in the following tables:
Differences in accounting treatment and choices made
-------------------------------------------------------------------------
Standards Comparison between IFRS Preliminary Findings
and GAAP
-------------------------------------------------------------------------
Borrowing costs IFRS: We have to We will not capitalize
capitalize borrowing borrowing costs on
costs on qualifying qualifying assets, as
assets, i.e. assets that they are deemed to be
require an extended immaterial.
period of preparation
before they are usable
or saleable.
GAAP: These borrowing
costs may be capitalized.
-------------------------------------------------------------------------
Fixed and IFRS: After initial We will continue to use
intangible recognition, we can the cost model in order
assets and measure our fixed and to avoid balance sheet
investment intangible assets and variations in the fair
property investment property value of fixed and
using the cost model intangible assets and
or the revaluation model. investment property and
the corresponding impact
GAAP: The revaluation on P&L statements.
model is not allowed.
-------------------------------------------------------------------------
Fixed assets IFRS: We have to amortize The roof and HVAC system
our fixed assets based on will be amortized
their components. separately from the
building.
GAAP: Component
identification rules are The carrying value of
less stringent. these assets and
corresponding depreciation
expense will be different,
but the impact should not
be material.
-------------------------------------------------------------------------
Impairment of IFRS: Impairment testing Our impairment testing will
assets of our assets is conducted be conducted at the level
at the level of the cash of each store (CGU).
generating unit (CGU) or
group of CGUs. A CGU is Impairment testing of
the smallest identifiable warehouses will be done at
group of assets that the level of a group of
generates cash inflows CGUs.
that are largely
independent of the cash Impairment testing of
inflows from other assets corporate assets and
or groups of assets. goodwill will be conducted
at the level of different
GAAP: Impairment testing groups of CGUs.
is conducted at the level
of a group of assets or a Impairment testing results
reporting unit. will be different, but
their impact should not be
material.
-------------------------------------------------------------------------
Share-based IFRS: When stock option The compensation expense
payment awards vest gradually, will have to be recognized
each tranche is to be over the expected term of
considered as a separate each vested tranche. It
award. will be different, but
the impact should not be
GAAP: The gradually material.
vested tranches could be
considered as a single
award.
-------------------------------------------------------------------------
Earnings per IFRS: We have to Diluted earnings per
share independently determine, share will be different,
for the interim period but the impact should
and the year-to-date, not be material.
the number of potentially
dilutive shares to
consider in calculating
diluted earnings per share.
GAAP: The number is
independently determined
for the interim period,
but the year-to-date is a
weighted average of the
periods.
-------------------------------------------------------------------------
Customer IFRS: As we are acting as Sales will be different,
loyalty programs an authorized agent of but the impact should
the Air Miles(TM) reward not be material.
program, we have to record
the cost of points as a There will be no impact
reduction in sales. on net earnings.
GAAP: No standard exists,
but the Canadian practice
is to record the cost of
points in the cost of
sales and operating
expenses.
-------------------------------------------------------------------------
Employee IFRS: We have the choice We will recognize full
Benefits of deferring recognition actuarial gains and losses
of actuarial gains and immediately in
losses using the corridor comprehensive income,
approach or of immediately without impacting P&L.
recognizing actuarial
gains and losses in full
in P&L or in comprehensive
income.
GAAP: We have a similar
choice of accounting
policy without the
possibility of immediate
recognition to
comprehensive income.
-------------------------------------------------------
IFRS: We have to recognize At the date of transition,
past service cost for we will recognize past
vested benefits service cost for vested
immediately in P&L. benefits in retained
earnings. After the
GAAP: Past service cost changeover, past service
has to be amortized in a cost for vested benefits
straight line over the will be recognized in P&L.
average remaining service
period of active
participants until the
full eligibility date,
regardless of vesting.
-------------------------------------------------------
IFRS: Recognition of Valuation of future
defined benefit assets is obligations calculated on
limited to the a going concern and
availability of future solvency basis should
contribution reductions decrease the availability
based on future of future contribution
obligations calculated on reductions and increase
an accounting, going our defined benefit
concern and solvency obligations. We will
basis. recognize differences at
the date of transition
GAAP: Recognition of in retained earnings,
defined benefit assets is and future variations in
limited to the comprehensive income.
availability of future
contribution reductions
based on future
obligations calculated
solely on an accounting
basis.
-------------------------------------------------------
IFRS: A multi-employer Our multi-employer plans
plan with implicit are defined benefit plans,
obligations shall be however they will be
accounted for as a defined accounted for as if they
benefit plan. However, were defined contribution
when sufficient plans since sufficient
information is not information is not
available, it shall be available to accurately
accounted for as if it determine our obligations.
were a defined
contribution plan. Additional information
Additional information regarding this situation
shall be added to the will have to be disclosed.
financial statements.
Furthermore, if there is
a contractual commitment,
it shall be recognized
in P&L.
GAAP: A multi-employer
plan is generally
accounted for as a
defined contribution
plan because information
is usually not available.
However, if sufficient
information is available,
it must be accounted for
as a defined benefit plan.
The employee future
benefits standard doesn't
specifically address the
accounting treatment of a
contractual agreement.
However, other GAAP
standards cover this type
of commitment and the
accounting treatment is
the same as IFRS.
-------------------------------------------------------------------------
Joint ventures IFRS: We may account for We will use the equity
our interests in joint method. There will be no
ventures using material impact on the
proportionate presentation of financial
consolidation or the statements and no impact on
equity method. net earnings.
GAAP: We have to account
for them using
proportionate
consolidation.
-------------------------------------------------------------------------
Provisions IFRS: We have to account The impact on our
for a provision when we provisions should not
have a present obligation be material.
resulting from a past
event, it is more likely Some provisions might be
than not (interpreted as presented separately in the
50% and more) that an statement of financial
outflow of resources will position.
be required to settle the
obligation and its amount
can be reliably estimated.
Moreover, we have to
disclose total provisions
separately in the statement
of financial position
(GAAP: balance sheet).
GAAP: The criteria are the
same with the exception of
the high probability
(interpreted as
approximately 75% and
more) that an outflow of
resources will be required.
-------------------------------------------------------------------------
Business IFRS: The fair value of There will be no impact on
combinations issued stock is calculated our past business
at the date of acquisition. combinations, since we
chose to take advantage of
GAAP: It's calculated over the exemption from
a reasonable period before retrospective application
and after the date of the (IFRS 1).
transaction's announcement.
---------------------------
IFRS: Acquisition-related
costs are expensed when
incurred.
GAAP: They are considered
in the purchase price
allocation if they
represent incremental
costs.
---------------------------
IFRS: The provision for
restructuring costs,
considered in the
purchase price allocation,
excludes costs for a
restructuring plan
determined and developed
by the acquirer.
GAAP: These restructuring
costs can be included in
the purchase price
allocation if they meet
certain conditions.
-------------------------------------------------------------------------
Investments IFRS: In applying the It will have no impact
in associates equity method, the on our investment in
difference between the Alimentation Couche-Tard,
associate's reporting since the difference
date and the investor's between the two reporting
cannot be greater than dates is always less than
three months. three months.
GAAP: No time limit is
mentioned.
-------------------------------------------------------------------------
Income taxes IFRS: Deferred tax (GAAP: At the date of transition,
future income tax) is we will recognize a
calculated on any deferred tax adjustment
temporary difference. for the assets concerned.
However, there are two The impact at the date of
exemptions where no transition should not be
deferred tax is material.
recognized:
Additional deferred taxes
- initially on goodwill may be recognized for
intangible asset that are
- on an asset acquired deductible from the
outside a business cumulative eligible
combination whose capital acquired in a
carrying amount and tax business combination
base differ. through an assets
acquisition.
GAAP: Future income tax
is calculated on any
temporary difference.
However, no future income
tax is initially
recognized for goodwill
and for intangible asset
acquisition, deductible
from the cumulative
eligible capital amount
at 75% of its book value,
as its tax basis is
adjusted with the result
that it is deemed equal
to the carrying amount.
Moreover, when an asset
is acquired outside a
business combination and
its tax basis differs
from its carrying amount,
future income tax is
recognized on the variance
and the cost of the asset
is adjusted in
consideration.
-------------------------------------------------------
IFRS: Deferred tax assets At the date of transition,
and liabilities are we will examine current
measured using tax rates bills, and adjust, if
that have been enacted or necessary, our deferred
substantively enacted. taxes.
GAAP: A tax rate has
effect or substantive
effect when a majority
government bill is tabled
for first reading or
when a minority government
bill is tabled for third
reading.
-------------------------------------------------------
IFRS: Accounting for The impact of a change in
subsequent changes in rate or regulations will
deferred tax of a have to be recognized
transaction is consistent where the initial
with the accounting for transaction was
the transaction itself, recognized.
i.e. in P&L, equity or
other comprehensive
income.
GAAP: When a subsequent
event affects the amount
of future income tax
initially recognized,
the adjustment of the
amount must be recognized
in P&L.
-------------------------------------------------------
IFRS: Deferred tax should Deferred tax at the rate
be recognized on of the entity acquiring
transactions between the assets will have to
entities of a consolidated be recognized on
group, whose profits are intercompany transactions.
not realized, at the tax The impact should not be
rate of the corporation material.
acquiring the assets.
GAAP: No future income
tax is recognized on
transactions between
entities of a consolidated
group whose profits are
not realized.
-------------------------------------------------------------------------
IFRS 1 provides exemptions from retrospective application of some of the above standards, from which we have made the choices set out in the following table:
-------------------------------------------------------------------------
Optional Preliminary Findings
Exemptions
-------------------------------------------------------------------------
Borrowing This exemption allows us not to capitalize borrowing costs
costs on our qualifying assets before the IFRS transition date.
Given that we will not capitalize these borrowing costs,
we will not use the exemption.
-------------------------------------------------------------------------
Deemed On the IFRS transition date, we can recognize each fixed
cost and intangible asset and investment property at its deemed
cost, which shall be its fair value.
We shall analyze our fixed and intangible assets and
investment property to determine whether or not to use the
exemption.
-------------------------------------------------------------------------
Share-based This exemption would relieve us from applying the standard
payment to equity instruments acquired before the IFRS transition
date.
We have decided not to avail ourselves of this exemption.
-------------------------------------------------------------------------
Employee The exemption allows us to recognize all actuarial gains
benefits or losses at the date of transition to IFRS in retained
earnings, regardless of the subsequent accounting
treatment chosen.
We have chosen to take advantage of this exemption.
-------------------------------------------------------------------------
Business The exemption allows us not to apply the standard to
combinations business combinations occurred before the date of
transition to IFRS.
We have chosen to take advantage of this exemption for
business combinations concluded before September 26, 2010.
-------------------------------------------------------------------------
Differences in presentation and choices made
-------------------------------------------------------------------------
Standards Comparison between IFRS and GAAP/choices made as warranted
-------------------------------------------------------------------------
Statement IFRS: A statement of financial position as at the beginning
of financial of the comparative period has to be presented when:
position - an accounting policy is applied retrospectively;
- items in financial statements are retrospectively
restated or reclassified.
GAAP: This third balance sheet column is not required.
-----------------------------------------------------------
IFRS: Deferred tax assets (liabilities) are classified as
non-current items (GAAP: long-term).
GAAP: The short-term and long-term future income tax assets
(liabilities) are presented separately.
-------------------------------------------------------------------------
Statement IFRS: All items of income and expense recognized in a
of compre- period are to be presented:
hensive - in a single statement of comprehensive income; or
income - in two statements: a separate income statement and a
second statement beginning with profit or loss and
displaying components of other comprehensive income.
GAAP: All comprehensive income items may be presented:
- immediately under total net income; or
- in a separate statement beginning with net income.
Choice: We will continue to present two separate
statements.
-----------------------------------------------------------
IFRS: Expenses are classified based on their nature or
their function.
GAAP: This classification of expenses is not required.
Choice: We will keep the existing income statement and will
disclose, through a note to the financial statements,
expenses by nature or by function.
-------------------------------------------------------------------------
Statement IFRS: A statement of changes in equity must show a
of changes reconciliation between the carrying amount at the beginning
in equity and the end of the period for each component of equity.
GAAP: Only a statement of retained earnings has to be
presented.
-------------------------------------------------------------------------
Statement IFRS: In the statement of cash flows, interest and
of cash dividends may be classified as follows:
flows - interest and dividends paid: operating cash flows or
financing cash flows;
- interest and dividends received: operating cash flows or
investing cash flows.
GAAP: They may be classified as follows
in the cash flow statement:
- interest paid and received: operating cash flows;
- dividends paid: financing cash flows;
- dividends received and included in net income: operating
cash flows.
Choice: We will keep the existing classification of
interest and dividends in the statement of cash flows.
-----------------------------------------------------------
IFRS: Interim reports must present a statement of cash
flows cumulatively for the current financial year-to-date
and for the comparable period of the preceding financial
year.
GAAP: Besides a cash flow statement cumulatively for the
current financial year-to-date and for the comparable
period, interim reports must present a cash flow statement
for the interim period and one for the comparable period.
-------------------------------------------------------------------------
Notes to IFRS: Reconciliations of the carrying amount at the
financial beginning and end of the period for several components of
statements the statement of financial position are presented in the
notes to financial statements.
GAAP: Reconciliations are limited to certain balance sheet
components.
-----------------------------------------------------------
IFRS: The total amount of key management personnel
compensation must be disclosed, by large categories, in the
notes to financial statements.
GAAP: This information is not required in financial
statements.
However, the Regulation 51-102 of the Canadian Securities
Administrators demands disclosure of similar information in
the proxy circular.
-------------------------------------------------------------------------
Other key analyses are in progress. Consequently, preliminary findings on them do not appear in the above tables. Any choices made or variances identified will be communicated once the analyses have been completed. Furthermore, the release of International Accounting Standards Board discussion papers, exposure drafts and new standards could change our preliminary findings.
Press Release
The following press release sets out the financial position and consolidated results of METRO INC. on July 3, 2010. It should be read in conjunction with the unaudited interim consolidated financial statements and accompanying notes in this interim report with the consolidated financial statements for the fiscal year ended September 26, 2009 and related notes and MD&A presented in the Company's 2009 Annual Report. This press release is based upon information as at July 30, 2010 unless otherwise stated. Additional information, including the Certification of Interim Filings letters for the quarter ended July 3, 2010 signed by the President and Chief Executive Officer and the Senior Vice-President, Chief Financial Officer and Treasurer, is also available on the SEDAR website at: www.sedar.com.
Non-GAAP Measurements
In addition to the Canadian Generally Accepted Accounting Principles (GAAP) earnings measurements provided, we have included certain non-GAAP earnings measurements. These measurements are presented for information purposes only. They do not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similar measurements presented by other public companies.
Earnings before financial costs, taxes, depreciation and amortization (EBITDA)
EBITDA is a measurement of earnings that excludes financial costs, taxes, depreciation and amortization. We believe that EBITDA is a measurement commonly used by readers of financial statements to evaluate a company's operational cash-generating capacity and ability to discharge its financial expenses.
Adjusted EBITDA, adjusted net earnings and adjusted fully diluted net earnings per share
Adjusted EBITDA, adjusted net earnings and adjusted fully diluted net earnings per share are earnings measurements that exclude non-recurring items. We believe that presenting earnings without non-recurring items leaves readers of financial statements better informed as to the current period and corresponding period's earnings, thus enabling them to better evaluate the Company's performance and judge its future outlook.
Forward-looking Information
We have used, throughout this interim report, different statements that could, within the context of regulations issued by the Canadian Securities Administrators, be construed as being forward-looking information. In general, any statement contained herein, which does not constitute a historical fact, may be deemed a forward-looking statement. Expressions such as "sustain", "anticipate" and other similar expressions are generally indicative of forward-looking statements. The forward-looking statements contained herein are based upon certain assumptions regarding the Canadian food industry, the general economy, our annual budget, as well as our 2010 action plan.
These forward-looking statements do not provide any guarantees as to the future performance of the Company and are subject to potential risks, known and unknown, as well as uncertainties that could cause the outcome to differ significantly. An economic slowdown or recession, or the arrival of a new competitor, are examples described under the "Risk Management" section of the 2009 Annual Report which could have an impact on these statements. We believe these statements to be reasonable and pertinent as at the date of publication of this interim report and represent our expectations. The Company does not intend to update any forward-looking statement contained herein, except as required by applicable law.
Conference Call
Financial analysts and institutional investors are invited to participate in a conference call on the 2010 third quarter results at 10:00 a.m. (EDT) on Wednesday, August 11, 2010. To access the conference call, please dial (514) 807-9895 or (647) 427-7450 or (888) 231-8191. The media and investing public are invited to listen to the call in real time or delayed time on the METRO INC. Web site at www.metro.ca.
(1) See section on "Non-GAAP measurements"
(2) See section on "Forward-looking information"
Consolidated Statements of Earnings
Periods ended July 3, 2010 and July 4, 2009
(Unaudited) (Millions of dollars, except for net earnings per share)
16 weeks 40 weeks
Fiscal Year Fiscal Year
---------- ----------
2010 2009 2010 2009
-------------------------------------------------------------------------
Sales $ 3,561.3 $ 3,513.3 $ 8,783.0 $ 8,663.5
Cost of sales and operating
expenses (note 8) (3,321.6) (3,282.6) (8,206.0) (8,114.7)
Share of earnings in a
public company subject to
significant influence 8.0 5.2 25.3 25.7
Banner conversion
costs (note 3) - (2.9) (0.9) (8.7)
-------------------------------------------------------------------------
Earnings before financial
costs, taxes, depreciation
and amortization 247.7 233.0 601.4 565.8
Depreciation and
amortization (62.2) (58.6) (155.9) (142.8)
-------------------------------------------------------------------------
Operating income 185.5 174.4 445.5 423.0
Financial costs, net (note 5) (13.9) (14.6) (35.2) (37.9)
-------------------------------------------------------------------------
Earnings before income taxes 171.6 159.8 410.3 385.1
Income taxes (note 6) (51.6) (47.2) (111.9) (115.1)
-------------------------------------------------------------------------
Net earnings $ 120.0 $ 112.6 $ 298.4 $ 270.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings per share
(Dollars) (note 7)
Basic 1.12 1.02 2.78 2.44
Fully diluted 1.12 1.01 2.77 2.42
-------------------------------------------------------------------------
---------- ----------
See accompanying notes
Consolidated Balance Sheets
(Unaudited) (Millions of dollars)
----------
As at As at
July 3, September 26,
2010 2009
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 120.2 $ 241.4
Accounts receivable 341.7 315.8
Inventories (note 8) 682.2 681.3
Prepaid expenses 20.5 8.3
Income taxes receivable 8.0 6.6
Future income taxes 11.0 29.8
-------------------------------------------------------------------------
1,183.6 1,283.2
Investments and other assets 231.8 204.0
Fixed assets 1,323.5 1,305.8
Intangible assets 315.3 325.4
Goodwill 1,603.7 1,478.6
Future income taxes 3.7 3.6
Accrued benefit asset 69.2 65.6
-------------------------------------------------------------------------
$ 4,730.8 $ 4,666.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans $ 0.8 $ 0.8
Accounts payable 1,043.7 1,111.2
Income taxes payable 48.6 24.8
Future income taxes 10.3 9.2
Current portion of long-term debt 3.3 6.4
-------------------------------------------------------------------------
1,106.7 1,152.4
Long-term debt 1,004.9 1,004.3
Accrued benefit liability 48.5 49.0
Future income taxes 147.5 165.0
Other long-term liabilities 22.7 31.4
-------------------------------------------------------------------------
2,330.3 2,402.1
-------------------------------------------------------------------------
Shareholders' equity
Capital stock (note 9) 706.5 716.7
Contributed surplus (note 10) 5.0 3.7
Retained earnings 1,689.6 1,545.7
Accumulated other comprehensive income
(note 11) (0.6) (2.0)
-------------------------------------------------------------------------
2,400.5 2,264.1
-------------------------------------------------------------------------
$ 4,730.8 $ 4,666.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
----------
See accompanying notes
Consolidated Statements of Cash Flows
Periods ended July 3, 2010 and July 4, 2009
(Unaudited) (Millions of dollars)
16 weeks 40 weeks
Fiscal Year Fiscal Year
---------- ----------
2010 2009 2010 2009
-------------------------------------------------------------------------
Operating activities
Net earnings $ 120.0 $ 112.6 $ 298.4 $ 270.0
Non-cash items
Share of earnings in a
public company subject to
significant influence (8.0) (5.2) (25.3) (25.7)
Depreciation and
amortization 62.2 58.6 155.9 142.8
Amortization of deferred
financing costs 0.7 0.6 1.6 1.6
Loss on disposal and
write-off of fixed and
intangible assets 1.1 0.9 1.3 0.3
Gain on disposal of
investments - (0.1) - (0.1)
Interest income on
investments (0.1) - (0.1) (0.2)
Future income taxes 5.7 11.6 6.7 23.2
Stock-based compensation
cost 1.9 1.7 4.4 3.8
Difference between amounts
paid for employee future
benefits and current
period cost (3.1) (0.8) (4.1) (9.5)
-------------------------------------------------------------------------
180.4 179.9 438.8 406.2
Net change in non-cash
working capital items
related to operations 10.0 (64.7) (70.3) (116.9)
-------------------------------------------------------------------------
190.4 115.2 368.5 289.3
-------------------------------------------------------------------------
Investing activities
Business acquisition, net of
cash acquired totalling
$0.3 (note 2) (0.1) - (152.3) -
Net change in investments
and other assets (2.1) 3.5 (6.5) 0.8
Dividends from public
company subject to
significant influence 0.8 0.7 2.4 2.2
Additions to fixed assets (44.9) (63.8) (133.2) (152.9)
Proceeds on disposal of
fixed assets 0.1 0.9 4.4 12.7
Additions to intangible
assets (9.2) (15.0) (24.4) (26.8)
-------------------------------------------------------------------------
(55.4) (73.7) (309.6) (164.0)
-------------------------------------------------------------------------
Financing activities
Net change in bank loans 0.1 0.3 - 0.5
Issuance of shares (note 9) 3.7 7.3 7.9 43.5
Redemption of shares (note 9) (68.1) (76.1) (124.0) (99.2)
Acquisition of treasury
shares (note 9) - - - (4.3)
Performance share units cash
settlement (note 10) - (0.5) (0.5) (0.5)
Increase in long-term debt 0.7 0.6 2.8 4.4
Repayment of long-term debt (2.8) (2.6) (8.4) (8.3)
Net change in other
long-term liabilities (2.2) 0.2 (6.7) (4.7)
Dividends paid (18.1) (15.2) (51.2) (44.3)
-------------------------------------------------------------------------
(86.7) (86.0) (180.1) (112.9)
-------------------------------------------------------------------------
Net change in cash and cash
equivalents 48.3 (44.5) (121.2) 12.4
Cash and cash equivalents -
beginning of period 71.9 208.6 241.4 151.7
-------------------------------------------------------------------------
Cash and cash equivalents -
end of period $ 120.2 $ 164.1 $ 120.2 $ 164.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information
Interest paid 20.5 21.5 42.4 44.8
Income taxes paid 32.6 33.9 83.9 86.8
-------------------------------------------------------------------------
---------- ----------
See accompanying notes
Consolidated Statements of Retained Earnings
40-week periods ended July 3, 2010 and July 4, 2009
(Unaudited) (Millions of dollars)
Fiscal Year
----------
2010 2009
-------------------------------------------------------------------------
Balance - beginning of period $ 1,545.7 $ 1,366.8
Net earnings 298.4 270.0
Dividends (51.2) (44.3)
Share redemption premium (note 9) (103.3) (81.0)
-------------------------------------------------------------------------
Balance - end of period $ 1,689.6 $ 1,511.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
----------
See accompanying notes
Consolidated Statements of Comprehensive Income
Periods ended July 3, 2010 and July 4, 2009
(Unaudited) (Millions of dollars)
16 weeks 40 weeks
Fiscal Year Fiscal Year
---------- ----------
2010 2009 2010 2009
-------------------------------------------------------------------------
Net earnings $ 120.0 $ 112.6 $ 298.4 $ 270.0
Other comprehensive
income (note 11)
Change in fair value of
derivative designated as
cash flow hedge 0.5 0.9 2.0 (2.2)
Corresponding income taxes (0.1) (0.3) (0.6) 0.6
-------------------------------------------------------------------------
Comprehensive income $ 120.4 $ 113.2 $ 299.8 $ 268.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
---------- ----------
See accompanying notes
Notes to Interim Consolidated Statements
Periods ended July 3, 2010 and July 4, 2009
(Unaudited)(Millions of dollars, unless otherwise indicated)
1. Statement Presentation
The unaudited interim consolidated financial statements were prepared by management in accordance with Canadian generally accepted accounting principles (GAAP). The accounting policies and procedures used in preparing these interim consolidated financial statements are the same as those used in preparing the audited annual consolidated financial statements for the year ended September 26, 2009. The unaudited interim consolidated financial statements should be read along with the audited annual consolidated financial statements and notes to the statements in the Company's 2009 Annual Report. The operating results for the interim period covered do not necessarily reflect overall results for the fiscal year. Certain comparative figures have been reclassified to conform to the presentation being used in the current fiscal year.
2. Business Acquisition
In the first quarter of 2010, the Company acquired 18 affiliated stores which it already supplied. The total purchase price was $152.2 in cash.
The acquisition was accounted for using the purchase method. The stores' results have been consolidated as of their respective acquisition dates. The final total purchase price allocation was as follows:
Cash $ 0.3
Inventories 14.9
Other current assets 0.3
Fixed assets 12.1
Trade name 1.3
Goodwill 122.3
Future income tax assets 6.3
Short-term liabilities assumed (3.6)
Integration and rationalization plan-related liabilities (1.3)
-------------------------------------------------------------------------
Total net assets acquired $ 152.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash consideration $ 152.2
Acquisition costs 0.4
-------------------------------------------------------------------------
Consideration and acquisition costs $ 152.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The tax treatment of the goodwill is considered eligible capital property with the related tax deductions.
3. Banner Conversion Costs
In the first quarter of 2010, the Company completed the conversion of its 159 stores of its five Ontario banners to the Metro banner begun in the summer of 2008. Therefore, no conversion cost was recorded in the third quarter of 2010 (2009 - $2.9). For the first 40-week period of 2010, conversion costs totalled $0.9 (2009 - $8.7).
4. Employee Future Benefits
The Company maintains several defined benefit and defined contribution plans which provide most participants with pension and other retirement benefits and other post-employment benefits. The Company's defined contribution plan and defined benefit plan expense was as follows:
16 weeks
Fiscal Year
---------------------
2010 2009
-------------------------------------------------------------------------
Pension Other Pension Other
plans plans plans plans
-------------------------------------------------------------------------
Defined contribution plans $ 8.7 $ 0.1 $ 8.7 $ 0.2
-------------------------------------------------------------------------
Defined benefit plans
Current service costs 7.1 0.5 6.4 0.4
Interest cost 10.7 0.6 10.3 0.6
Projected return on plan
assets (12.9) - (12.1) -
Amortization of actuarial
losses (gains) and past
service costs 0.5 - 0.5 -
Plan amendments - (0.1) - -
-------------------------------------------------------------------------
5.4 1.0 5.1 1.0
-------------------------------------------------------------------------
$ 14.1 $ 1.1 $ 13.8 $ 1.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
---------------------
40 weeks
Fiscal Year
---------------------
2010 2009
-------------------------------------------------------------------------
Pension Other Pension Other
plans plans plans plans
-------------------------------------------------------------------------
Defined contribution plans $ 21.2 $ 0.4 $ 21.5 $ 0.5
-------------------------------------------------------------------------
Defined benefit plans
Current service costs 18.0 1.2 16.0 1.0
Interest cost 26.9 1.5 25.8 1.5
Projected return on plan
assets (32.2) - (30.4) -
Amortization of actuarial
losses (gains) and past
service costs 1.2 - 1.2 (0.1)
Plan amendments - (0.2) - -
-------------------------------------------------------------------------
13.9 2.5 12.6 2.4
-------------------------------------------------------------------------
$ 35.1 $ 2.9 $ 34.1 $ 2.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
---------------------
5. Financial Costs, Net
16 weeks 40 weeks
Fiscal Year Fiscal Year
---------- ----------
2010 2009 2010 2009
-------------------------------------------------------------------------
Short-term interest $ 0.3 $ 0.7 $ 1.2 $ 1.6
Long-term interest 13.4 13.5 33.6 36.3
Amortization of deferred
financing costs 0.7 0.6 1.6 1.6
Interest income (0.5) (0.2) (1.2) (1.6)
-------------------------------------------------------------------------
$ 13.9 $ 14.6 $ 35.2 $ 37.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
---------- ----------
6. Income Taxes
The effective income tax rates were as follows:
16 weeks 40 weeks
Fiscal Year Fiscal Year
---------- ----------
(Percentage) 2010 2009 2010 2009
-------------------------------------------------------------------------
Combined statutory income
tax rate 30.4 31.5 30.4 31.4
Changes
Impact on future taxes of
4.0% total future
decreases in Ontario tax
rate - - (2.4) -
Impact of provincial tax
rate decrease of 2.2% on
future taxes related to
capital gains - (1.7) - (0.7)
Share of earnings in a
public company subject to
significant influence (0.8) (0.6) (1.0) (1.1)
Others 0.5 0.3 0.3 0.3
-------------------------------------------------------------------------
30.1 29.5 27.3 29.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
---------- ----------
7. Net Earnings per Share
Basic net earnings per share and fully diluted net earnings per share were calculated based on the following number of shares:
16 weeks 40 weeks
Fiscal Year Fiscal Year
---------- ----------
(Millions) 2010 2009 2010 2009
-------------------------------------------------------------------------
Weighted average number of
shares outstanding - Basic 106.6 110.7 107.3 110.8
Dilutive effect under stock
option and performance
share units plans 0.5 0.6 0.5 0.8
-------------------------------------------------------------------------
Weighted average number of
shares outstanding -
Diluted 107.1 111.3 107.8 111.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
---------- ----------
8. Inventories
Inventories were detailed as follows:
----------
As at As at
July 3, September 26,
2010 2009
-------------------------------------------------------------------------
Warehouse inventories $ 282.5 $ 304.0
Retail inventories 399.7 377.3
-------------------------------------------------------------------------
$ 682.2 $ 681.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
----------
The cost of inventories expensed for the 16-week period ended July 3, 2010 totalled $2,914.7 (2009 - $2,892.3) and $7,180.5 for the 40-week period of 2010 (2009 - $7,134.1).
9. Capital Stock
Outstanding
Class A Class B Total
Subordinate Shares Shares
--------------------- ---------------------
Number Number
(Thousands) (Thousands)
-------------------------------------------------------------------------
Balance as at
September 26,
2009 107,830 $ 715.3 718 $ 1.4 $ 716.7
Shares issued
for cash 351 7.9 - - 7.9
Shares redeemed
for cash,
excluding
premium of
$103.3 (3,113) (20.7) - - (20.7)
Released treasury
shares 54 0.3 - - 0.3
Stock options
exercised - 2.3 - - 2.3
Conversion of
Class B Shares
into Class A
Subordinate
Shares 87 0.1 (87) (0.1) -
-------------------------------------------------------------------------
Balance as at
July 3, 2010 105,209 $ 705.2 631 $ 1.3 $ 706.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Stock Option Plan
The outstanding options and the changes during the 40-week period ended July 3, 2010 were summarized as follows:
Weighted
average
exercise
Number price
(Thousands) (Dollars)
-------------------------------------------------------------------------
Balance as at September 26, 2009 1,864 28.53
Granted 217 44.19
Exercised (342) 22.11
Cancelled (2) 31.78
-------------------------------------------------------------------------
Balance as at July 3, 2010 1,737 31.75
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The exercise prices of the outstanding options ranged from $20.20 to $44.19 as at July 3, 2010 with expiration dates up to 2017. 440,860 of those options could be exercised at a weighted average exercise price of $27.72.
Compensation expense for these options amounted to $0.8 for the 16-week period ended July 3, 2010 (2009 -$0.8) and to $1.9 for the 40-week period of 2010 (2009 - $1.8).
Performance Share Unit Plan
Performance share units (PSUs) outstanding and changes during the 40-week period ended July 3, 2010 were summarized as follows:
Number
(Units)
-------------------------------------------------------------------------
Balance as at September 26, 2009 267,570
Granted 107,583
Settled (65,860)
Cancelled (389)
-------------------------------------------------------------------------
Balance as at July 3, 2010 308,904
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Class A Subordinate Shares of the Company are held in trust for participants until the PSUs vest or are cancelled. The trust, considered a variable interest entity, is consolidated in the Company's financial statements with the cost of the acquired shares recorded as treasury shares in reduction of capital stock.
As at July 3, 2010, 203,548 shares were held in trust for participants until the PSUs shall have vested or been cancelled (as at September 26, 2009 - 257,255 shares).
The compensation expense comprising all of these PSUs amounted to $1.1 for the 16-week period ended July 3, 2010 (2009 - $0.9) and to $2.5 for the 40-week period of fiscal 2010 (2009 - $2.0).
10. Contributed Surplus
-------------------------------------------------------------------------
Balance as at September 26, 2009 $ 3.7
Stock-based compensation cost 4.4
Stock options exercised (2.3)
Released treasury shares (0.3)
PSUs cash settlement (0.5)
-------------------------------------------------------------------------
Balance as at July 3, 2010 $ 5.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Accumulated Other Comprehensive Income
Derivative designated as cash flow hedge constitutes the sole component of Accumulated Other Comprehensive Income. The changes during the 40-week periods ended July 3, 2010 and July 4, 2009 were as follows:
Fiscal Year
----------
2010 2009
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Balance - beginning of period $ (2.0) $ (1.0)
Change in fair value of designated
derivative net of income taxes of
$0.6 (2009 - $0.6) 1.4 (1.6)
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Balance - end of period $ (0.6) $ (2.6)
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%SEDAR: 00001783EF
For further information: Richard Dufresne, Senior Vice-President, Chief Financial Officer and Treasurer, Tel.: (514) 643-1003; Investor Relations Department: Tel.: (514) 643-1055, E-mail: [email protected]; Source: METRO INC.; METRO INC.'s corporate information and press releases are available on the Internet at: www.metro.ca
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