2012
Annual Report
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With annual sales of $12 billion and over 65,000 employees, MetRo is a leader in the food and
pharmaceutical sectors in Québec and ontario, where it operates a network of 564 food stores
under several banners including Metro, Metro Plus, Super C, Food Basics and Adonis, as well as
260 drugstores mainly under the Brunet, Pharmacy and Drug Basics banners.
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Rouge: 7621C
199 C
Bleu: 2736C
Jaune: 114C
DRugsTOREs
Retail Network
2012
Highlights
• Adjusted net earnings(1) of
$470.6 million, up 15.6%
• Adjusted fully diluted net
earnings per share(1) of $4.65,
up 18.3%
• Return on equity of 19.8%;
exceeding 14% for the
19th consecutive year
• Dividend per share increase
of 12.0%, the 18th consecutive
year of dividend growth
• Closing share price of $58.40,
QuéBeC
up 30.7%
SuPeRMARketS
218
MetRo
MetRo PluS
ADoNIS
DISCouNt
StoReS
82
SuPeR C
TOTAL
DRugStoReS
300
186
BRuNet
BRuNet PluS
BRuNet ClINIQue
ClINI PluS
Forward-looking information: For any
information on statements in this Annual
Report that are of a forward-looking nature,
please consult the section on “Forward-looking
Information” on page 35 in the Management’s
Discussion and Analysis (MD&A).
oNtARIo
150
114
264
MetRo
FooD BASICS
74
PhARMACy
DRug BASICS
totAl
368
196
564
260
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2012 2011 2010 2009 2008
iFRs
53 wEEks
IFRS
52 WeekS
gAAP
52 WeekS
gAAP
52 WeekS
gAAP
52 WeekS
SAleS
(MIllIoNS oF DollARS)
OpERATiNg REsuLTs
(MIllIoNS oF DollARS)
Sales
eBItDA (1) (2)
operating income
12,010.8
894.3
710.4
11,396.4
766.3
11,342.9
787.0
11,196.0
741.6
10,725.2
638.9
587.0
585.8
552.5
Net earnings
Adjusted net earnings (1)
Cash flows from operating activities
489.3
392.7
391.8
354.4
470.6
407.2
382.4
359.0
546.1
542.4
547.8
520.1
462.6
292.2
280.8
450.2
FiNANCiAL sTRuCTuRE
(MIllIoNS oF DollARS)
total assets
Non-current debt
equity
pER sHARE
(DollARS)
Net earnings
Fully diluted net earnings
Adjusted fully diluted net earnings (1)
Book value
Dividend
FiNANCiAL RATiOs
(%)
eBItDA(1)(2)/Sales
operating income/Sales
Return on equity
Non-current debt/total capital
sHARE pRiCE
(DollARS)
high
low
5,150.4
4,827.1
4,796.9
4,658.1
4,425.6
973.9
656.2
1,004.3
1,004.3
1,005.0
2,545.1
2,399.3
2,442.8
2,264.1
2,068.3
4.87
4.84
4.65
3.81
3.79
3.93
3.67
3.65
3.56
3.21
3.19
3.23
26.19
23.74
23.25
20.85
0.8375
0.7475
0.6475
0.5375
2.60
2.58
2.48
18.64
0.49
7.4
5.9
19.8
27.7
6.7
5.2
16.6
29.9
6.9
5.2
16.6
29.1
6.6
4.9
16.4
30.7
6.0
4.3
14.6
32.7
59.68
49.55
47.01
40.00
43.76
42.11
33.02
27.38
35.85
21.00
31.77
Closing price (At yeAR-eND)
58.40
44.69
45.15
34.73
(1) See section on ‘’IFRS and non-IFRS measurements’’ on page 35 in the MD&A
(2) earnings before financial cost, taxes, depreciation and amortization
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12
11
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09
08
12,010.8
11,396.4
11,342.9
11,196.0
10,725.2
ADjuSteD Net
eARNINgS(1)
(MIllIoNS oF DollARS)
470.6
407.2
382.4
359.0
280.8
ADjuSteD Fully
DIluteD Net
eARNINgS PeR
ShARe(1) (DollARS)
4.65
3.93
3.56
3.23
2.48
metro 2012 annual report 1
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We are pleased to present our achievements and results for the 2012 fiscal year. We
surpassed the objectives that we had set for ourselves and our financial performance
reached new heights.
our sales reached $12,010.8 million, compared to $11,396.4 million in 2011, up 5.4%.
the 2012 fiscal year had 53 weeks and excluding the extra week, sales increased by
3.4%. Adonis stores and distributor Phoenicia contributed $236.6 million, and same store sales were up
1.2% for the year.
Net earnings for fiscal 2012 reached $489.3 million, up 24.6% from $392.7 million last year. Fully diluted
net earnings per share were $4.84 compared to $3.79 last year, an increase of 27.7%. excluding the
non-recurring items recorded in 2012 and in 2011, our adjusted net earnings(1) were $470.6 million
in 2012, compared to $407.2 million in 2011, up 15.6%, and our adjusted fully diluted net earnings
per share(1) were $4.65 compared to $3.93, up 18.3%.
Return on equity was 19.8% in fiscal 2012, exceeding 14% for the 19th consecutive year. the annual
dividend per share increased by 12.0%, the 18th consecutive year of dividend growth. We repurchased
more than 4 million shares in 2012, approximately the same number as in 2011. our share price at the
end of fiscal 2012 was $58.40, compared to $44.69 in 2011, up 30.7%. the MetRo share has increased
over the past 15, 10 and 5 fiscal years by 613.9%, 235.6% and 66.9% respectively, a higher return than
the S&P/tSX Index and the Canadian Food Retail Index. our financial situation is very healthy with a total
non-current debt to capital ratio of 27.7% at the end of fiscal 2012 and a BBB credit rating.
this strong financial performance was achieved in a challenging economic environment. Despite
very little food inflation and intensifying competition in the discount segment, our teams once again
executed very well and delivered another year of solid growth.
(1) See section on “IFRS and non-IFRS Measurements” on page 35 in the MD&A.
piERRE H. LEssARD
executive Chairman of the Board
ERiC R. LA FLèCHE
President and Chief executive officer
2012 ACHiEvEmENTs
Remaining faithful to our mission of satisfying our customers every day to earn their long-term loyalty,
we worked on several projects by putting our customers at the centre of our actions in order to
improve their shopping experience.
We continued our Produce Initiative, launched last year, aimed at improving our fruit and vegetable
offering at store level. We have invested over $40 million in training and new equipment and displays
in more than half of our stores. our customers responded very favourably, which is reflected in our
increased sales in this key department.
We also provided training to our employees throughout the Corporation to achieve our Five Customer
Promises program. the program is a commitment to our customers that they will find great quality
fresh products, professional and welcoming employees, a pleasant and efficient shopping experience,
and the products that they want, all at competitive prices. over 27,000 employees received training in
ontario and 12,500 in Québec. We track our performance on those promises via customer surveys
and the best performing stores are recognized.
thanks to our metro&moi loyalty program in Québec, and the Air Miles® card in ontario, we
distinguish ourselves by rewarding our loyal customers with personalized offers. Sales to our loyal
customers are up and we will continue on this path in the coming year(2).
(2) See section on “Forward-looking Information” on page 35 in the MD&A.
metro 2012 annual report 3
letteR to ouR ShAReholDeRS
We invested $281.8 million with our retailers
in the store network and $25 million in our
distribution centres with the start of construction
of a new 240,000 square foot produce and
dairy warehouse in laval, for which a total of
$50 million(1) will be invested.
on october 23, 2011, we acquired 55% of Adonis
stores and distributor Phoenicia. this strategic
partnership with the founders expands our store
offer with a differentiated format in order to
better meet the changing needs of consumers.
this partnership will help us improve the offer
of ethnic products in our existing stores.
We continued to develop our network of
pharmacies by adding one Brunet Plus pharmacy
and by opening 11 Brunet Clinique pharmacies,
including two in our Super C discount stores, and
by acquiring the prescription files of seven Zellers
pharmacies located in ontario. In just its second
year the popularity of our MaSanté program
continues to grow with our customers.
We also published our first Corporate Responsibility
Report which is available on our website at
www.metro.ca.
ObjECTivEs AND pRiORiTiEs FOR 2013(1)
the new fiscal year presents several challenges.
economic growth in Québec and in ontario
is fragile, food inflation remains minimal and
household debt is high. Consumers will remain
cautious, always searching for the best value.
Competition will be very active as new discount
stores will open in our markets.
We believe that we can continue to grow by
executing our proven strategy based on customer
focus, strong execution, best team, and creating
value for our shareholders.
our teams will work tirelessly to improve the
offer in our Metro supermarkets, particularly
fresh, organic and ready-to-eat products, in
order to provide a unique and pleasant shopping
experience. our loyalty programs will evolve
to provide even more personalized rewards to
our loyal customers, and digital channels and
social media will be an integral part of our
personalization strategy. our discount stores will
continue to offer very competitive prices and
differentiate themselves with a superior fresh
offer while maintaining a low-cost structure.
Finally, as we have consistently done over the
years, we will continue to invest in our retail
network and our distribution centres, and we
plan to open new Adonis stores in Québec and
in ontario in 2013.
ACkNOwLEDgEmENTs
We would like to thank our colleagues for their
contribution and, particularly, for achieving very
strong results. their dedication and superior
ability to execute is a great source of pride for
us. We would also like to thank the members of
the Board of Directors for their sound advice and
support. Finally, we would like to thank you, our
shareholders, for your continued trust.
piERRE H. LEssARD, FCpA, FCA
executive Chairman of the Board
ERiC R. LA FLèCHE
President and Chief executive officer
(1) See section on “Forward-looking Information” on page 35 in the MD&A.
4 metro 2012 annual report
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our goal is to be the best performing
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food retailer in Canada and our
e
mission is to satisfy our customers
R
every day to earn their long-term
loyalty. to achieve that objective, our strategy
is based on four pillars; namely focussing on the
customer, the best execution, the best team and
creating value for our shareholders.
to set ourselves apart and continue to grow
in the current environment, our strategy is to
concentrate on food distribution and:
• operate various types of food stores to better
serve different customer needs, such as Metro
and Metro Plus supermarkets, Super C discount
stores in Québec and Food Basics discount stores
in ontario as well as our new Adonis stores.
• offer superior quality fresh products in all of
our stores.
• Increase the number of loyal customers and
their purchases thanks to our loyalty programs.
pROjECTs AND pRiORiTiEs
In 2012, we worked on the projects and priorities
outlined on the following pages.
metro 2012 annual report 5
ReVIeW oF oPeRAtIoNS
pRODuCE iNiTiATivE
We continued with our Produce Initiative,
launched last year, aimed at improving our fruit
and vegetable offering at store level. All aspects
related to produce were improved, from choosing
suppliers to presentation standards, along with
the supply chain and employee training. thus far
we have invested over $40 million in more than
half of our Metro and Metro Plus supermarkets,
as well as in our Super C and Food Basics discount
stores, to install new counters and displays in
order to increase the variety and freshness of
our produce. over 50 new varieties of fruits and
vegetables have been added and our employees
received training to improve our offer.
We are very pleased with the favourable response
from our customers which is reflected in our
increased sales in this key department. We will
continue to implement the Produce Initiative in
our other stores throughout the coming year.
6 metro 2012 annual report
Every quarter, employees of
the highest performing stores
are recognized
FivE CusTOmER pROmisEs pROgRAm
our Five Customer Promises program is a
commitment to our customers in order to meet
and exceed their expectations. this commitment
is made up of the following five promises.
1
2
3
4
5
gReAt QuAlIty
FReSh PRoDuCtS
the PeoPle
ARe gReAt
It’S eASy
to ShoP
CuStoMeRS get
WhAt they WANt
PRICeS
ARe gooD
to ensure the success of the program and its
uniform application across our entire network of
stores, a vast training program was provided to
our employees. over 27,000 employees received
training in ontario and over 12,500 employees
in Québec have already been trained and the
rest will follow in 2013. In order to measure
the achievement of our objectives, we conduct
surveys asking for our customers’ opinion and,
along with other measures, we compare the
results on a store by store basis and share them
with our employees. every quarter, employees
of the highest performing stores are recognized
and receive rewards. Customer satisfaction has
improved and should grow thanks to all of our
teams rallying around the five promises.
metro 2012 annual report 7
ReVIeW oF oPeRAtIoNS
We expanded our lines of
Irresistibles Life Smart, Irresistibles Organic
and Irresistibles Gluten Free products
our 1,000 Irresistibles products was also updated to
highlight their superior quality. We also expanded
our lines of Irresistibles Life Smart, Irresistibles
Organic and Irresistibles Gluten Free products.
Along with these food products we also offer
close to 300 Selection brand pharmaceutical and
beauty products. In the early fall of 2012, we
launched Hémisphère and Les vins du Marché
exclusive wines, available in Québec in Metro and
Metro Plus supermarkets as well as in Super C
discount stores.
pRivATE LAbELs
the vast majority of Canadian consumers feel
that private label products offer good value and,
in today’s challenging economy, these products
are essential. It was with that in mind that we
reviewed our entire portfolio of private labels
in 2012, consisting of over 4,500 products.
We launched a new image for our Selection
product line in order to improve their at-shelf
visibility and value perception. By the end of
the fiscal year, over 1,200 products had already
changed their packaging and, based on the
favourable response from our customers, in
2013 we plan to complete the transition of the
other 1,600 Selection brand products. We also
developed some 200 Selection Great Savings
products, a low price category clearly identified
with a yellow band. the packaging design of
8 metro 2012 annual report
ACquisiTiON OF ADONis sTOREs AND
OF DisTRibuTOR pHOENiCiA
Conscious of the evolving tastes of consumers,
we are pleased to have partnered with the
founders of the Adonis stores and distributor
Phoenicia by acquiring, on october 23, 2011, a
55% interest in these two businesses. the five
stores, including a 50,000 square foot store that
opened in December 2011 in a Montréal suburb,
are known for their Mediterranean and Middle-
eastern products. their offer of fresh products
and prepared dishes is very popular. the
marinated meats, French and oriental pastries
and pita bread baked on the premises are unique
and clearly differentiated from the competition.
We are counting on this partnership to improve
our offer of ethnic products in our Metro and
Metro Plus supermarkets and in our Super C and
Food Basics discount stores. Private label Cedar
and Phoenicia products are already available in
our stores and in the medium term we plan to
add certain fresh Adonis products. given the
success of these stores, we are confident that
opening new stores will be profitable(1).
A strategic
partnership
(1) See section on “Forward-looking Information” on page 35 in the MD&A.
metro 2012 annual report 9
ReVIeW oF oPeRAtIoNS
In october 2012, the Adonis store in laval was
relocated to a 50,000 square foot building and
customers were delighted. We also announced
the opening in the summer of 2013, of a sixth
Adonis store in downtown Montréal. We are
currently working on opening, in the spring of
2013, the first Adonis store in the toronto area
and we are planning for other stores in ontario
in the coming years.
$50 million worth of rewards on metro&moi and
through Air Miles® points to our customers.
In order to develop an even closer relationship
with our most loyal customers, we send them
additional personalized offers that provide them
even more savings. With over 1,250,000 members
of the metro&moi program in Québec and the
popularity of the Air Miles® card in ontario, we
offers tailored to
my tastes
my
points
pay back!
my reward
reduce my bill!
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It’s the program
that sends a rewards
voucher to my home.
believe that these programs improve the customer
experience in our Metro stores through greater
personalization.
It’s so easy to save:
My accumulated
points are converted into reward dollars.*
I receive my rewards voucher automatically every three months.
Example of rewards chart
625
My points
$5
My rewards
*Receive your reward starting at 500 points.
500
$4
1,250
$10
2,500
$20
6,250
$50
and
so on
12-09-25 09:18
It’s my personalized
rewards program.
Because it knows my tastes:
I receive offers based on
the products I purchase
and like.
Finally a program
that knows me!
MEO_12136_Depliant_Ang.indd 1
Earning my
is easy!
points
LOyALTy pROgRAms
launched at the end of the 2010 fiscal year, we
have now completed two full years with our
metro&moi loyalty card, available in our Metro
and Metro Plus supermarkets in Québec. our
ontario Metro stores are part of the the Air Miles®
coalition loyalty program.
points even faster:
points.
And to earn
I look for bonus
I take advantage of promotions.
I get my family to contribute
with the key tags.
The more
my reward, the more I save.
points I earn, the bigger
thanks to these loyalty cards and with the help of
our partner Dunnhumby Canada, we are able to
analyze the purchasing habits of our customers
and offer them personalized promotions. Along
with rewards that can be exchanged for in-store
purchases of products, every three months our
customers receive personalized offers with bonus
points on their favourite products. over the
course of the year we awarded approximately
10 metro 2012 annual report
LOgisTiCs AND pRODuCTiviTy
We developed a computer application in order
to better manage store replenishment of fresh
products. this initiative produced significant
savings with reduced shrink and improved labour
productivity. the application was implemented
for the main categories of fresh products and
will be extended to other fresh products over the
course of the coming year.
iNvEsTmENTs iN OuR RETAiL NETwORk AND
DisTRibuTiON CENTREs
In 2012, we continued to invest in our retail
network with investments totalling $281.8 million,
for a gross increase of 383,200 square feet and
a net increase of 34,400 square feet or 0.2%.
We opened seven new stores and carried out
major expansion and remodels in 19 stores, and
we closed 11 stores. We invested in our distribution
centres by adding freezer space in our main
toronto centre, and by starting construction of
a new produce and dairy products warehouse
in laval which represents a total investment
of $50 million.
est toujours à l’heure.
is always on time.
Reminder
Take your
medication
today at 6:00 PM
MaSanté est un outil incroyable qui vous permet
de créer un rappel de prise de médicaments
en tout temps, où que vous soyez.
MaSanté is an incredible tool that allows you
to create a medication reminder anytime, from anywhere.
Cet outil unique vous permet :
This unique tool allows you to:
d’accéder à votre dossier personnel
access your personal file
de faire vos renouvellements
refill your prescriptions
de suivre votre santé de près
stay on top of your health
de prendre soin de toute votre famille
take care of your entire family
Adhérez dès maintenant en succursale ou renseignez-vous sur
Register in store today or learn more at
BRU_11135_Affiche_Rappels_Bil_REV.indd 1
REV
dossier : BRU-11135
client : Brunet
date/modif. rédaction
relecture
D.A.
épreuve à
11-12-09 15:43
description : Affiche Rappels - Bil
titre : « Ma Santé est toujours à l’heure »
publication : ---
Novembre
2
09/12/11
format : 23,75” x 31”
infographe : MV corr
sc/client
infographe production couleur(s)
40%
4c
3530, boulevard Saint-Laurent, bureau 400, Montréal (Québec) H2X 2V1 t 514 844-2624 tc 514 844-5041
A new $50 million
produce and dairy
warehouse in Laval
www.mETRO.CA
In 2012 we have undertaken a complete review of
our www.metro.ca. website. Already very popular,
we want to renew our site by making it more
user-friendly. over the coming months, our
customers will be able to receive personalized
offers according to their preferences and plan
their weekly meals and purchases.
DRugsTORE NETwORk
We continued to develop our network of
drugstores by adding one Brunet Plus pharmacy
and by opening 11 Brunet Clinique pharmacies,
including two inside our Super C discount stores,
as well as by acquiring the prescription files of
seven Zellers pharmacies located in ontario.
We are in just the second year of our MaSanté
program and its popularity continues to grow with
more members. Patients can easily access their
personal file online, receive electronic medication
reminders on their smart phones, read helpful tips
concerning medication and check key data with
respect to their health such as weight, blood sugar
and blood pressure.
metro 2012 annual report 11
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As a leader in the area of food and pharmaceutical distribution in Canada, MetRo
wishes to contribute to the implementation of better practices that will pave the way
toward commercial activities that are in harmony with today’s society. that’s why MetRo
decided, in 2010, to increase its efforts with respect to environmental, social and economic
issues. At that time, we adopted a corporate responsibility approach in order to better
structure our programs and our actions and link them to our corporate strategy. that
decision led us to question some of our management, supply and distribution policies in
our administrative offices, as well as in our warehouses and our stores. As a result, we created several
committees (including sustainable fisheries, optimization of packaging, energy, local purchasing) in
charge of finding better ways of going about our business.
Corporate responsibility is the foundation of our business strategy. our approach is built around four
pillars that enable us to properly target our intentions and our actions that affect our relationships
with the environment, our customers, the communities in which we operate and our employees.
In April of 2012, MetRo published its first Corporate Responsibility Report detailing the various
initiatives that were put forth in 2010 and 2011. here are the highlights of the report.
Promoting health
and nutrition
Food quality
and safety
Responsible product
offerings
Sourcing responsibly
Investing in our
communities
Supporting
local suppliers
DELIGHTED
CUSTOMERS
RESPECT FOR THE
ENVIRONMENT
CORPORATE
RESPONSIBILITY
STRENGTHENED
COMMUNITIES
EMPOWERED
EMPLOYEES
Rethinking
packaging
Addressing
climate change
Managing
waste
Creating ethical,
safe and healthy
work environments
Professional
development
and rewarding
performance
employee
engagement and
organizational
effectiveness
12 metro 2012 annual report
ReSPeCt FoR the EnvironmEnt
mETRO places great importance on protecting the environment. we are committed to making responsible choices in order
to minimize our carbon footprint.
• Set a goal to reduce our overall energy consumption by 10% by 2016 using
2010 as our baseline.
• Set a goal to reduce waste destined for landfills by 25% by 2016 using 2010
as our baseline.
• Reduced by 75% the distribution of plastic bags since 2008.
• Implemented initiatives to reduce packaging through which we achieved
the following results.
- 30% reduction in the weight of certain packaging used for our
private brand frozen entrées.
- 25% reduction in the packaging weight of our private brand
meal bars.
• Recycled in 2010 over 70,000 metric tonnes of material involving our
overall operations in Québec and ontario.
LOOkiNg FORwARD
• We will continue our efforts to reduce the distribution of plastic bags.
• We plan to implement our internal packaging policy to respect our
commitments.
• our energy saving initiatives are expected to help us achieve our objective
of reducing our energy consumption.
• our various initiatives will allow the cutting of 250,000 km from the paths
travelled to carry our products through the optimization of our transport
practices.
• the programs in place as well as those to come are expected to help us
achieve our goal of reducing our waste.
• We will complete the inventory of our waste and recyclables to better
measure our waste diversion performance.
14%
2%
35%
19%
30%
sOuRCE OF
CARbON EmissiONs
energy
from buildings
landfill
Refrigeration
transportation
carriers
transportation
(MetRo)
metro 2012 annual report 13
CoRPoRAte ReSPoNSIBIlIty
miCHEL bÉLANgER
oceanographer
14 metro 2012 annual report
DelIghteD CustomErs
Our customer-centric approach is at the very
foundation of our business and the key element
of our corporate responsibility strategy. During
2010 and 2011, we conducted the following
initiatives.
• Introduced more than 20 Irresistibles Gluten
Free products.
• Introduced over 100 reduced sodium content
Selection and Irresistibles products.
• expanded our Life Smart Irresistibles line to
170 healthful products.
• Developed a plan toward sourcing sustainable
palm oil over the next five years.
• Defined responsible procurement principles to
provide guidance to our suppliers with respect
to, among other things, business ethics, human
rights, and the environment.
• Implemented a Sustainable Fisheries Policy and
ceased selling seven threatened fish species.
• Reviewed more than 185 suppliers’ practices
to ensure compliance with the Global Food
Safety Initiative.
LOOkiNg FORwARD
• We will continue to expand our Life Smart
product line, making it even easier for our
customers to make healthier food choices.
• We will further expand our line of Eco-Selection
products, which are eco logo certified, readily
biodegradable, non-toxic and contain no
artificial fragrances.
• We are expanding our Sustainable Fisheries
Policy to include our private label grocery
products.
METRO – SCHOOL PROGRAM – TEST – AUGUST 20/2012
StReNgtheNeD CommunitiEs
strengthening communities by investing in social programs and
supporting local suppliers is an integral part of our business philosophy
aimed at creating shared value.
• Contributed $5.6 million worth of cash, goods and services to the
PROGRAMME
community in 2010-2011.
• Developed a Community Investment Program to which MetRo will donate
annually an amount equal to 1% of our average net earnings over the last
three years.
CROQUE
SANTE
• expanded our efforts to showcase Québec and ontario products in
our stores.
LOOkiNg FORwARD
• thanks to our new community investment program, we will carry out various
initiatives; the Metro Green Apple School program being one of them.
• We will strive to define MetRo’s meaningful commitments to encourage
local sourcing.
E Q U ÉB
E
C
L
O
N
EN M A
N GE
EmpowErEd eMPloyeeS
mETRO employs directly and indirectly in
its network more than 65,000 people across
québec and Ontario. Recruiting, training and
retaining the best team is crucial to our success.
• Implemented our training and mobilization
program with respect to our Five Customer
Promises for all of our Québec and ontario
store employees.
• Reduced our accident frequency rate by 24.5%
since 2009.
• Participation of more than 4,000 employees in
our annual mobilization survey.
LOOkiNg FORwARD
• We will continue to upgrade our activities
and equipment in our stores and in our
establishments, in order to reduce the risk
related to machine safety and to reduce the
number of injuries.
• We will establish competency and proficiency
levels for various job categories.
• As part of our Five Customer Promises program,
store employees will receive additional customer
service training.
• We will continue to carry out our employee
survey to better meet their expectations.
CoRPoRAte ReSPoNSIBIlIty
Reduced our accident
frequency rate by
since
24.5%
2009
16 metro 2012 annual report
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
F
i
d
e
t
a
d
i
l
o
s
n
o
C
d
n
a
A
&
D
M
FOR THE yEAR ENDED
sEpTEmbER 29, 2012
TABLE OF CONTENTS
Overview .......................................................................................................................................................
Goal, mission and strategies .........................................................................................................................
Key performance indicators ...........................................................................................................................
Key achievements in fiscal 2012 ...................................................................................................................
Event after the reporting period .....................................................................................................................
Highlights
......................................................................................................................................................
Outlook ..........................................................................................................................................................
Operating results ...........................................................................................................................................
Quarterly highlights .......................................................................................................................................
Cash position ................................................................................................................................................
Financial position ..........................................................................................................................................
Sources of financing ......................................................................................................................................
Contractual obligations ..................................................................................................................................
Related party transactions .............................................................................................................................
Fourth quarter
...............................................................................................................................................
Derivative financial instruments .....................................................................................................................
New accounting policies ................................................................................................................................
IFRS and non-IFRS measurements ..............................................................................................................
Forward-looking information ..........................................................................................................................
Controls and procedures ...............................................................................................................................
Significant judgements and estimates ...........................................................................................................
Risk management
.........................................................................................................................................
Management's responsibility for financial reporting .......................................................................................
Independent auditors' report
..........................................................................................................................
Annual consolidated financial statements ......................................................................................................
Page
19
19
20
20
21
21
22
23
25
27
27
30
30
30
30
33
33
35
35
35
36
37
40
41
43
The following Management's Discussion and Analysis sets out the financial position and consolidated results of METRO INC. for the
fiscal year ended September 29, 2012, and should be read in conjunction with the annual consolidated financial statements and the
accompanying notes as at September 29, 2012. This report is based upon information as at November 30, 2012 unless otherwise
indicated. Additional information, including the Annual Information Form and Certification Letters for fiscal 2012, is available on the
SEDAR website at www.sedar.com.
- 18 -
OVERVIEW
The Corporation is a leader in the food and pharmaceutical sectors in Québec and Ontario.
The Corporation, as a retailer and a distributor, operates under different banners in the traditional supermarket and
discount segments. For those consumers wanting service, variety, freshness and quality, we operate 363 supermarkets
under the Metro and Metro Plus banners. The Adonis banner, which currently has five stores, is specialized in fresh
produce and Mediterranean and Middle-Eastern products. The 196 discount stores operating under the Super C and
Food Basics banners offer products at low prices to consumers who are both cost and quality conscious. The majority
of these stores are owned by the Corporation or by special purpose entities and their financial statements are consolidated
with those of the Corporation. Independent owners bound to the Corporation by leases or affiliation agreements operate
a large number of Metro and Metro Plus stores. Supplying these stores contributes to our sales. The Corporation also
acts as a distributor by providing small-surface food stores and convenience stores with banners that reflect their
environment and customer base. Supplying these stores, as well as convenience stores owned by oil companies and
restaurant chains contributes to the Corporation's sales.
The Corporation also acts as franchisor and distributor for 186 franchised Brunet Plus, Brunet, Brunet Clinique, and
Clini Plus drugstores, owned by independent pharmacists. The Corporation also operates 74 drugstores under Pharmacy
and Drug Basics banners. Their sales are included in the Corporation's. Supplying non-franchised drugstores and various
health centres also contributes to our sales.
GOAL, MISSION AND STRATEGIES
The Corporation's goal is to be the best performing food retailer in Canada.
Our mission is to satisfy our customers every day and earn their long-term loyalty.
The four pillars of our business strategy are customer focus, strong execution, best team and shareholder value.
We put the customer at the heart of every decision. In our supermarkets and our discount stores, pricing, promotions,
friendly service, and quality products are our priorities.
Strong execution means operating the best stores, a results-driven corporate culture, engaging all employees and
monitoring performance so as to react swiftly.
The best team consists of leaders who put the Corporation's interests first. Employee growth and leadership development
opportunities and succession planning ensure its continued strength.
The creation of shareholder value includes sustained growth in net earnings per share and significant return on equity.
Our investments and acquisitions are appropriate and beneficial in the long term.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 19 -
KEY PERFORMANCE INDICATORS
We evaluate the Corporation's overall performance using the following principal indicators:
• sales:
sales growth;
dollar value of the average basket (average customer transaction);
average weekly sales per square foot;
percentage of sales represented by customers who are loyalty program members;
market share;
customer satisfaction;
• earnings before financial costs, taxes, depreciation and amortization (EBITDA)(1) as a percentage of sales;
• net earnings as a percentage of sales;
• net earnings per share growth;
•
•
return on equity;
retail network investments:
dollar value and nature of store investments;
number of stores;
average store square footage;
network's total square footage.
KEY ACHIEVEMENTS IN FISCAL 2012
Despite a challenging economic environment, very little food inflation and intensifying competition in the discount
segment, we recorded a 5.4% increase in sales and a 18.3% increase in our adjusted fully diluted net earnings per
share(1) in 2012. The 2012 fiscal year was 53 weeks long, one more than in fiscal 2011. That extra week had an impact
of $228.2 million on our sales and $0.11 on our net earnings per share. These results were achieved thanks to the work
of our teams, carrying out their business plans very well and implementing several projects, including the following main
ones:
• we continued with our Produce Initiative, launched last year, aimed at improving our fruit and vegetable offering at
store level. All aspects related to produce were improved, from choosing suppliers to presentation standards, along
with the supply chain and employee training. Over half of our stores are equipped with new counters and displays
and over 50 new varieties of fruits and vegetables have been added;
• our Five Customer Promises program is a commitment that we make to our customers in order to better meet their
expectations. To ensure the success of the program and its uniform application across our entire network of stores,
a vast training program was provided to our employees. Training has been completed in Ontario where over 27,000
employees received it. In Québec, over 12,500 employees have already received training and the rest will be in 2013;
• over the course of the year, we adopted a new image for our Selection product line in order to improve their at-shelf
visibility and value perception of very good value. By the end of the fiscal year, one-third of the products had already
changed their packaging. We also started selling new product lines, including Selection Great Savings and
Hémisphère and Les vins du Marché exclusive wines. We also reviewed the packaging of our Irresistibles products
in order to highlight their superior quality and expanded our lines of Irresistibles Life Smart, Irresistibles Organic and
Irresistibles Gluten Free products;
• early in the fiscal year, we acquired 55% of the net assets of Adonis stores and distributor Phoenicia. Aware of the
evolving tastes of consumers, we are counting on this acquisition to improve our offer of Mediterranean and Middle-
Eastern products in our supermarkets and discount stores. Private label Cedar and Phoenicia products are already
available in our stores;
•
in order to develop an even closer relationship with our most loyal customers, we are sending them additional
personalized promotions which provide them with additional savings. In 2012, we awarded approximately $50 million
worth of rewards on metro&moi and through Air Miles® points to our customers;
• we developed a computer application in order to better manage store replenishment of fresh products. This initiative
produced significant savings with reduced shrink and improved labor productivity. The application was implemented
for the main categories of fresh products and will be expanded to other fresh products over the course of the coming
year;
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 20 -
• we continued to invest in our store network, along with our retailers, with investments totalling $281.8 million. We
opened seven new stores and carried out major renovations and expansions in 19 stores;
• we continued to develop our drugstore network by adding one Brunet Plus pharmacy and by opening 11 Brunet
Clinique pharmacies, including two inside our Super C discount stores, as well as having acquired the prescription
files of seven Zellers pharmacies located in Ontario;
• we invested in our distribution centres with the expansion of freezer space in our main Toronto centre, for an amount
of $10 million, and the start of construction of a new produce and dairy warehouse in Laval, for a total investment of
$50 million over two years;
• we have undertaken a complete review of our www.metro.ca website in order to make it more user-friendly. Over the
coming months, our customers will be able to receive personalized offers according to their preferences and plan
their weekly meals and purchases;
• we published our first Corporate Responsibility Report which is available on our website: www.metro.ca.
EVENT AFTER THE REPORTING PERIOD
On October 22, 2012, we announced a conditional agreement to dispose of our food service operation, the Distagro
division, which supplies restaurant and gas station chains. The disposal for a consideration of approximately $15 million (2)
excluding working capital and a net gain after taxes of approximately $7 million(2) should take place in the next few
weeks.
The transaction will be recorded in our financial statements as a discontinued operation and the Corporation's
consolidated income statements for current and prior periods will be restated. Related Distagro sales and expenditures
will be recorded as a net loss on a discontinued operation under a separate income statement section.
HIGHLIGHTS
(Millions of dollars, unless otherwise indicated)
Sales
Net earnings
Adjusted net earnings(1)
Fully diluted net earnings per share (Dollars)
Adjusted fully diluted net earnings per share(1) (Dollars)
Return on equity (%)
Dividend per share (Dollars)
Total assets
Non-current financial liability
2012
(53 weeks)
(IFRS)
12,010.8
489.3
470.6
4.84
4.65
19.8
0.8375
5,150.4
986.0
2011 Variation
%
(52 weeks)
(IFRS)
11,396.4
392.7
407.2
3.79
3.93
16.6
0.7475
4,827.1
1,034.3
5.4
24.6
15.6
27.7
18.3
—
12.0
6.7
(4.7)
2010
(52 weeks)
(GAAP)
11,342.9
391.8
382.4
3.65
3.56
16.6
0.6475
4,796.9
1,009.0
Not having the same accounting standards, variations between 2011 and 2010 are not presented.
Corporation sales were $12,010.8 million in 2012, up 5.4% compared to $11,396.4 million in 2011. Fiscal 2010 sales
were $11,342.9 million. Fiscal 2012 was 53 weeks long, one week longer than fiscal 2011. Excluding this extra week,
fiscal 2012 sales were up 3.4%. Adonis stores and distributor Phoenicia's sales contributed $236.6 million to 2012 sales.
Fiscal 2012 sales were affected by modest inflation that was lower than the Consumer Price Index reported by Statistics
Canada. Fiscal 2011 sales were affected by lower drug pricing following the expiry of important drug patents and new
generic drug legislation in Québec and Ontario, food price deflation in the first half of the year owing mainly to a high
penetration of promotional sales, and modest inflation of our food basket in the second half of the year.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 21 -
Net earnings for fiscal 2012 reached $489.3 million, up 24.6% from the previous fiscal year. Net earnings for fiscal 2011
were $392.7 million, and $391.8 million in fiscal 2010 . Fully diluted net earnings per share increased 27.7% to $4.84 in
2012 compared with the previous fiscal year. The impact of fiscal 2012's 53rd week on fully diluted net earnings per share
was $0.11. Fully diluted net earnings per share for 2011 were $3.79 and $3.65 in 2010.
We recorded non-recurring items for all three fiscal years. These items consisted of the Alimentation Couche-Tard dilution
gain of $25.0 million before taxes and a non-recurring income tax expense of $3.0 million in 2012, closure costs of
$20.5 million before taxes in 2011 for the closure of our meat processing plant in Montréal and a grocery warehouse in
Toronto, as well as an income tax expense decrease of $10.0 million and pre-tax banner conversion costs of $0.9 million
in 2010. Excluding all of these items, adjusted net earnings(1) for fiscal 2012 were $470.6 million, $407.2 million in 2011
and $382.4 million in 2010. Adjusted fully diluted net earnings per share(1) for fiscal 2012 were $4.65, up 18.3% from
$3.93 in 2011. Adjusted fully diluted net earnings per share(1) for fiscal 2010 were $3.56.
Excluding the impact of the 53rd week as well as the acquisition of Adonis stores and distributor Phoenicia, the increase
in net earnings for 2012 compared to 2011 is due to our teams' excellent execution, effective cost control, and sustained
investment in our network.
Return on equity totalled 19.8% in 2012, 16.6 % in 2011 and 2010. Dividends per share were $0.8375 in 2012, $0.7475
in 2011 and $0.6475 in 2010 representing $82.9 million, $77.1 million and $69.2 million respectively. Total assets were
$5,150.4 million in 2012, $4,827.1 million in 2011 and $4,796.9 million in 2010. Non-current financial liabilities were
$986.0 million in 2012, $1,034.3 million in 2011 and $1,009.0 million in 2010.
OUTLOOK
While we expect competitive activity will remain strong in 2013, we will continue(2) to bank on our strategy underpinned
by four pillars: customer focus, strong execution, best team and shareholder value creation to maintain our growth.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 22 -
OPERATING RESULTS
SALES
Sales reached $12,010.8 million in 2012, up 5.4% from $11,396.4 million last year. The 2012 fiscal year was 53 weeks
long, one week longer than fiscal 2011. Excluding this extra week, fiscal 2012 sales were up 3.4%. Adonis stores and
distributor Phoenicia contributed $236.6 million to the Corporation's 2012 sales. Same store sales were up 1.2% for
fiscal 2012 compared to 2011. We experienced modest inflation in 2012, but lower than the Consumer Price Index
reported by Statistics Canada.
EARNINGS BEFORE FINANCIAL COSTS, TAXES, DEPRECIATION AND AMORTIZATION(1)
EBITDA adjustments(1)
(Millions of dollars, unless otherwise indicated) EBITDA
Sales
EBITDA
Closure costs
Couche-Tard dilution gain
Adjusted EBITDA
Share of earnings in Couche-Tard
Adjusted EBITDA excluding share
of earnings
Fiscal Year
2012
(53 weeks)
2011
(52 weeks)
EBITDA/
Sales
(%)
7.4
7.2
EBITDA
Sales
20.5
—
766.3 11,396.4
—
—
786.8 11,396.4
—
(42.4)
894.3 12,010.8
—
—
(25.0)
—
869.3 12,010.8
—
(47.6)
Change
%
EBITDA
EBITDA/
Sales
(%)
6.7
16.7
6.9
10.5
821.7 12,010.8
6.8
744.4 11,396.4
6.5
10.4
EBITDA(1) for fiscal 2012 was $894.3 million, up 16.7% from $766.3 million for fiscal 2011.
In fiscal 2012, we recorded a non-recurring gain of $25.0 million before taxes; in fiscal 2011, a non-recurring loss of
$20.5 million before taxes.
In August 2012, Alimentation Couche-Tard issued 7.3 million shares for net proceeds of approximately $330 million to
finance part of its acquisition of Statoil Fuel & Retail ASA. As the Corporation did not participate in this share issue, our
interest in Alimentation Couche-Tard decreased from 11.6% to 11.1%. This dilution and our share in Alimentation Couche-
Tard's increased value as a result of the share issue amount to a deemed disposition and deemed proceeds of disposition
of part of our investment for a net pre-tax gain of $25.0 million.
In the fourth quarter of 2011, we closed our meat processing plant in Montréal and a grocery warehouse in Toronto to
improve operational efficiency. Closure costs were $20.5 million before taxes.
Excluding these non-recurring items, adjusted EBITDA(1) for fiscal 2012 was $869.3 million, up 10.5% from $786.8 million
in 2011.
Our share of earnings in Alimentation Couche-Tard, excluding the dilution gain of $25.0 million before taxes, was
$47.6 million for fiscal 2012, versus $42.4 million for fiscal 2011. In its last two quarterly reports, Alimentation Couche-
Tard stated that non-recurring items were included in those quarters and that excluding them reduced the adjusted net
earnings(1) for its fourth quarter ended April 29, 2012 by $US 15.4 million and increased its adjusted net earnings(1) for
the first quarter ended July 22, 2012 by $US 70.1 million.
Excluding the non-recurring items and our share of earnings in Alimentation Couche-Tard, the adjusted EBITDA(1) for
fiscal 2012 was $821.7 million or 6.8% of sales. Adjusted EBITDA(1) for last year was $744.4 million or 6.5% of sales.
Adjusted EBITDA(1), excluding our share of earnings in Alimentation Couche-Tard, for fiscal 2012 was up 10.4% over
fiscal 2011.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 23 -
The increase in EBITDA(1) for fiscal 2012 compared to 2011 is also attributable to the results for the 53rd week of 2012
when several fixed costs were no longer in effect. The impact of the 53rd week on EBITDA(1) was $16.0 million.
Gross margin for fiscal 2012 was 18.4% compared to 18.1% for fiscal 2011. Our merchandising strategies, reduced in-
store losses, and Adonis stores contributed to this increase.
DEPRECIATION AND AMORTIZATION AND NET FINANCIAL COSTS
Total depreciation and amortization expense for fiscal 2012 amounted to $183.9 million compared to $179.3 million for
last year. Fiscal 2012 net financial costs totalled $46.4 million versus $41.5 million last year. Interest rates averaged
4.2% for fiscal 2012 and 2011.
INCOME TAXES
Fiscal 2012 income tax expense of $174.7 million represented an effective tax rate of 26.3%. Fiscal 2011 income tax
expense of $152.8 million represented an effective tax rate of 28.0%. On June 20, 2012, the Ontario Legislative Assembly
adopted the budget tabled on March 27, 2012, thereby deferring the scheduled reductions in corporate tax rates of 0.5%
on July 1, 2012 and of 1.0% on July 1, 2013 until an expected balanced budget in 2017-2018 is attained. With these
reductions in tax rates being suspended and deferred conditionally, we cancelled in the third quarter of 2012, $3.0 million
of deferred taxes in our statement of financial position for tax savings recorded in prior periods related to these reductions
in tax rates, and recorded an equivalent non-recurring income tax expense. Excluding this non-recurring tax expense,
our effective tax rate for fiscal 2012 was 25.8%.
The tax rates for the 2012 periods were lower than those for the corresponding periods last year due to two federal
corporate tax rate reductions of 1.5% each effective January 1, 2011 and 2012, as well as a 0.5% reduction in Ontario's
effective July 1, 2011.
NET EARNINGS
Net earnings for fiscal 2012 reached $489.3 million, up 24.6% from $392.7 million last year. Fully diluted net earnings
per share were $4.84 compared to $3.79 last year, an increase of 27.7%. Excluding the non-recurring tax expense of
$3.0 million and the Alimentation Couche-Tard dilution gain of $25.0 million before taxes recorded in 2012 as well as
the closure costs of $20.5 million before taxes in 2011, our adjusted net earnings(1) were $470.6 million and our adjusted
fully diluted net earnings per share(1) were $4.65, increases of 15.6% and 18.3% respectively. The impact of the 53rd
week on fully diluted net earnings per share was $0.11.
Net earnings adjustments
Fiscal Year
2012
(53 weeks)
2011
(52 weeks)
Change
(%)
(Millions
of dollars)
Fully diluted
EPS (Dollars)
(Millions
of dollars)
Fully diluted
EPS (Dollars)
Net
earnings
Fully diluted
EPS
Net earnings
Closure costs after taxes
Couche-Tard dilution gain
after taxes
Non-recurring tax expense
Adjusted net earnings(1)
489.3
—
(21.7)
3.0
470.6
4.84
—
(0.22)
0.03
4.65
24.6
27.7
392.7
14.5
—
—
3.79
0.14
—
—
407.2
3.93
15.6
18.3
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 24 -
QUARTERLY HIGHLIGHTS
(Millions of dollars, unless otherwise indicated)
2012
(53 weeks)
2011
(52 weeks)
Change
%
Sales
Q1(3)
Q2(3)
Q3(4)
Q4(5)
Fiscal
Net earnings
Q1(3)
Q2(3)
Q3(4)
Q4(5)
Fiscal
Adjusted net earnings(1)
Q1(3)
Q2(3)
Q3(4)
Q4(5)
Fiscal
Fully diluted net earnings per share (Dollars)
Q1(3)
Q2(3)
Q3(4)
Q4(5)
Fiscal
Adjusted fully diluted net earnings per share(1) (Dollars)
Q1(3)
Q2(3)
Q3(4)
Q4(5)
Fiscal
(3) 12 weeks
(4) 16 weeks
(5) 2012 - 13 weeks, 2011 - 12 weeks
2,711.7
2,651.9
3,703.5
2,943.7
12,010.8
2,622.5
2,557.5
3,566.9
2,649.5
11,396.4
103.7
96.1
144.4
145.1
489.3
103.7
96.1
147.4
123.4
470.6
1.01
0.94
1.43
1.46
4.84
1.01
0.94
1.46
1.24
4.65
95.5
85.7
127.1
84.4
392.7
95.5
85.7
127.1
98.9
407.2
0.91
0.82
1.23
0.83
3.79
0.91
0.82
1.23
0.97
3.93
3.4
3.7
3.8
11.1
5.4
8.6
12.1
13.6
71.9
24.6
8.6
12.1
16.0
24.8
15.6
11.0
14.6
16.3
75.9
27.7
11.0
14.6
18.7
27.8
18.3
First, second and third quarter sales for 2012 reached $2,711.7 million, $2,651.9 million and $3,703.5 million respectively,
up 3.4%, 3.7% and 3.8% from $2,622.5 million, $2,557.5 million and $3,566.9 million for the corresponding periods last
year. Adonis stores and distributor Phoenicia sales contributed $33.0 million to the Corporation's sales for eight weeks
in the first quarter, $59.0 million for the second quarter and $81.3 million for the third quarter of 2012. Same store sales
were up 1.7% over those for 2011 in the first quarter, 1.0% in the second quarter and 1.0% in the third quarter of 2012.
We experienced moderate inflation in our food basket in the first quarter which was, however, lower than in the previous
quarter and lower than levels reported by Statistics Canada. We experienced modest impact from inflation in the second
quarter of 2012 albeit lower than in the previous quarter. During the third quarter of 2012, we experienced very modest
inflation which was lower than in the first two quarters.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 25 -
Fourth quarter sales for 2012 reached $2,943.7 million, up 11.1% from $2,649.5 million last year. Excluding the 53rd week
of fiscal 2012, the sales increase for the fourth quarter was 2.5%. Adonis stores and distributor Phoenicia contributed
$63.3 million to 2012 fourth quarter sales. During the fourth quarter of 2012, we experienced very modest inflation similar
to the previous quarter.
Net earnings for the first and second quarters of 2012 were $103.7 million and $96.1 million compared to $95.5 million
and $85.7 million for the corresponding quarters last year, increases of 8.6% and 12.1%. Fully diluted net earnings per
share rose 11.0% and 14.6% to $1.01 and $0.94 from $0.91 and $0.82 last year.
Net earnings for the third quarter of 2012 were $144.4 million, up 13.6% from $127.1 million for the corresponding quarter
of 2011. Fully diluted net earnings per share for the third quarter of 2012 were $1.43, up 16.3% from $1.23 for the same
quarter of 2011. Excluding the non-recurring tax expense of $3.0 million, our adjusted net earnings(1) were $147.4 million
and our adjusted fully diluted net earnings per share(1) were $1.46, up 16.0% and 18.7% respectively.
Net earnings for the fourth quarter of 2012 were $145.1 million versus $84.4 million for the corresponding quarter of
2011, an increase of 71.9%. Fully diluted net earnings per share were $1.46 versus $0.83 last year, an increase of 75.9%.
Excluding the Alimentation Couche-Tard dilution gain of $25.0 million before taxes recorded in the fourth quarter of 2012
as well as the closure costs of $20.5 million before taxes in the corresponding quarter of 2011, our adjusted net earnings (1)
for the fourth quarter of 2012 were $123.4 million and our adjusted fully diluted net earnings per share(1) were $1.24, for
increases of 24.8% and 27.8% respectively. The significant increase in net earnings for the fourth quarter of 2012 is also
attributable to the results for the 53rd week of 2012 when several fixed costs were no longer in effect. The impact of the
53rd week on fully diluted net earnings per share was $0.11.
2012
2011
(Millions of dollars)
Net earnings
Closure costs after taxes
Couche-Tard dilution gain after
Q1
103.7
—
Q2
Q4
Q3
96.1 144.4 145.1
—
—
—
Fiscal
489.3
—
—
—
—
—
— (21.7)
—
3.0
(21.7)
3.0
Q2
Q3
85.7 127.1
Q4
84.4
— 14.5
Q1
95.5
—
—
—
—
—
—
—
—
—
—
Fiscal
392.7
14.5
—
—
taxes
Non-recurring tax expense
Adjusted net earnings(1)
103.7
96.1 147.4 123.4
470.6
95.5
85.7 127.1
98.9
407.2
(Dollars and per share)
Fully diluted net earnings
Closure costs after taxes
Couche-Tard dilution gain after
taxes
Non-recurring tax expense
Q1
1.01
—
—
—
2012
Q3
1.43
—
Q2
0.94
—
Q4
1.46
—
Fiscal
4.84
—
—
— 0.03
— (0.22)
—
(0.22)
0.03
2011
Q2
0.82
—
—
—
Q3
1.23
Q4
0.83
— 0.14
—
—
—
—
Q1
0.91
—
—
—
Fiscal
3.79
0.14
—
—
Adjusted fully diluted net
earnings(1)
1.01
0.94
1.46
1.24
4.65
0.91
0.82
1.23
0.97
3.93
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 26 -
CASH POSITION
OPERATING ACTIVITIES
Operating activities generated cash flows of $546.1 million in fiscal 2012 compared to $542.4 million in fiscal 2011.
INVESTING ACTIVITIES
Investing activities required outflows of $357.0 million in fiscal 2012 versus $226.7 million in fiscal 2011. The increase
in funds used during fiscal 2012 compared to fiscal 2011 is due primarily to greater business acquisitions in 2012
compared to 2011, attributable to the acquisition of Adonis stores and distributor Phoenicia for a cash consideration of
$146.8 million (net of cash acquired totalling $3.0 million) as well as increased acquisitions of $80.8 million of fixed and
intangible assets.
During fiscal 2012, the Corporation and its retailers invested $281.8 million in our retail network, for a gross expansion
of 383,200 square feet and a net expansion of 34,400 square feet or 0.2%. Major renovations and expansions of 19 stores
were completed, seven new stores were opened and 11 stores were closed.
FINANCING ACTIVITIES
Financing activities required outflows of $371.3 million in fiscal 2012 versus 2011 fiscal year outflows of $274.9 million.
The increase in funds used during fiscal 2012 compared to fiscal 2011 is due primarily to a $26.7 million increase in the
redemption of shares and a $60.1 million increase in net debt repayment.
FINANCIAL POSITION
We do not anticipate(2) any liquidity risk and consider our financial position at the end of fiscal 2012 as very solid. We
had an unused authorized revolving credit facility of $284.6 million.
At the end of fiscal 2012, the main elements of our non-current debt were as follows:
Interest Rate
Balance
(Millions of dollars)
Maturity
Revolving Credit Facility Rates fluctuate with changes in bankers'
acceptance rates
Series A Notes
Series B Notes
4.98% fixed rate
5.97% fixed rate
315.4
200.0
400.0
November 3, 2016
October 15, 2015
October 15, 2035
On October 12, 2012, the revolving credit facility's maturity date was extended to November 3, 2017.
At the end of fiscal 2012, we had foreign exchange forward contracts to hedge against the effect of foreign exchange
rate fluctuations on our future foreign-denominated purchases of goods and services.
Our main financial ratios were as follows:
As at
September 29,
2012
As at
September 24,
2011
973.9
2,545.1
27.7
Fiscal Year
2012
19.3
656.2
2,399.3
29.9
2011
18.5
Financial structure
Non-current debt (Millions of dollars)
Equity (Millions of dollars)
Non-current debt/total capital (%)
Results
EBITDA(1)/Financial costs (Times)
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 27 -
For the purposes of calculating the percentage of non-current debt/total capital as at September 24, 2011, we have to
add to the non-current debt the Credit A facility of $369.3 million which was reclassified as current in the statement of
financial position since it was maturing on August 15, 2012. This Credit facility is considered as non-current debt since
it was reimbursed, at its maturity, by an equivalent sum from the revolving credit facility of $600.0 million which matures
in 2017.
CAPITAL STOCK
Following the Annual General Meeting of Shareholders held on January 31, 2012, our share capital has been changed
as follows:
• each issued and outstanding Class B Share carrying 16 votes per share has been converted into one single vote
Class A Subordinate Share;
•
•
the Class B Shares, along with the rights, privileges, restrictions and conditions attached thereto, have been
eliminated;
the Class A Subordinate Shares have been redesignated as “Common Shares” and shall constitute the Corporation's
sole class of equity shares carrying one vote per share;
• First Preferred Shares have been redesignated as “Preferred Shares”.
For ease of reading, we have restated all prior periods disclosed to reflect the share capital reorganization of
January 31, 2012 as if it had always existed. Therefore, only the Common Shares are disclosed. This restatement is
possible since Class B Shares and Class A Subordinate Shares were participating shares. The differences between
these classes of shares were primarily voting rights, the exclusivity of Class B Shares held by Metro Merchants, and
that Class B Shares were not listed on the Toronto Stock Exchange.
(Thousands)
Balance – beginning of year
Share issue
Share redemption
Acquisition of treasury shares
Released treasury shares
Stock options exercised
Balance – end of year
Balance as at November 30, 2012 and December 2, 2011
Common Shares
2012
101,084
2
(4,213)
(50)
92
271
97,186
96,195
2011
105,069
1
(4,147)
(190)
94
257
101,084
100,732
STOCK OPTIONS PLAN
Stock options (Thousands)
Exercise prices (Dollars)
As at November 30,
2012
As at September 29,
2012
As at September 24,
2011
1,645
1,683
1,776
24.73 to 58.41
24.73 to 58.41
20.20 to 47.14
Weighted average exercise price (Dollars)
39.55
39.27
35.38
PERFORMANCE SHARE UNIT PLAN
Performance share units (Thousands)
Weighted average maturity (Months)
284
14
284
16
310
17
As at November 30,
2012
As at September 29,
2012
As at September 24,
2011
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 28 -
NORMAL COURSE ISSUER BID PROGRAM
The Corporation 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 Corporation shares. The Board
of Directors authorized the Corporation to repurchase, in the normal course of business, between September 10, 2012
and September 9, 2013, up to 6,000,000 of its Common Shares representing approximately 6.2% of its issued and
outstanding shares at the close of the Toronto Stock Exchange on August 31, 2012. Repurchases are made through
the stock exchange at market price and in accordance with its policies and regulations, and in any other manner allowed
by the stock exchange and by any other securities regulatory agency, including private transactions. Common Shares
so repurchased will be cancelled. Under the normal course issuer bid program covering the period from September 8,
2011 to September 7, 2012, the Corporation repurchased 4,239,800 Common Shares at an average price of $50.99 for
a total of $216.2 million. Under the program covering the period from September 10, 2012 to September 9, 2013, the
Corporation has repurchased, as of November 30, 2012, 1,003,800 Common Shares at an average price of $58.56 for
a total of $58.8 million.
DIVIDEND POLICY
The Corporation's dividend policy is to pay an annual dividend representing approximately 20% of net earnings of the
preceding fiscal year before extraordinary items. For the eighteenth consecutive year, the Corporation paid quarterly
dividends to its shareholders. The annual dividend increased by 12.0%, to $0.8375 per share compared to $0.7475 in
2011, for total dividends of $82.9 million in 2012 compared to $77.1 million in 2011, an increase of 12.0%. Dividends
paid in 2012 represented 21.1% of net earnings of the preceding fiscal year compared to 19.7% in 2011.
SHARE TRADING
The value of METRO shares remained in the $43.76 to $59.68 range throughout fiscal 2012 ($42.11 to $49.55 in 2011).
A total of 70.0 million shares traded on the TSX during this fiscal year (73.3 million in 2011). The closing price on Friday,
September 28, 2012 was $58.40, compared to $44.69 at the end of fiscal 2011. Since fiscal year-end, the value of
METRO shares has remained in the $56.52 to $61.49 range. The closing price on November 30, 2012 was $61.16.
METRO shares have maintained sustained growth over the last 10 years, reflecting a performance superior to that of
the S&P/TSX index and the Canadian Food Industry sector index.
COMPARATIVE SHARE PERFORMANCE (10 YEARS)*
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 29 -
SOURCES OF FINANCING
Our operating activities generated cash flows in the amount of $546.1 million in 2012. These cash flows were sufficient
to finance our investing activities, including the acquisition of $248.8 million in fixed and intangible assets and the
acquisition of Adonis and Phoenicia for valuable cash consideration of $146.8 million.
At 2012 fiscal year-end, our financial position mainly consisted of cash and cash equivalents in the amount of
$73.3 million, Series A Notes in the amount of $200.0 million maturing in 2015, a revolving credit facility of $600.0 million
maturing in 2017, of which an amount of $284.6 million is unused, and Series B Notes in the amount of $400.0 million
maturing in 2035.
We believe that cash flows from next year's operating activities should be sufficient to finance the Corporation's investing
and financing activities, including investment of approximately $285.0 million(2) in fixed and intangible assets.
CONTRACTUAL OBLIGATIONS
Payment commitments by fiscal year (capital and interest)
(Millions of dollars)
2013
2014
2015
2016
2017
2018 and
thereafter
Facility
and loans
18.2
12.6
11.2
10.9
329.2
Finance
lease
commitments
7.5
6.3
6.2
6.0
5.8
Service
contract
commitments
67.2
67.0
67.6
54.7
54.6
Operating
lease
commitments
175.4
162.0
145.3
131.1
116.6
Lease and
sublease
commitments(6)
40.4
37.7
34.6
33.1
31.0
Notes
33.8
33.8
33.8
223.9
24.0
Total
342.5
319.4
298.7
459.7
561.2
20.2
829.9
402.3
1,179.2
35.5
67.3
131.2
442.3
633.7
1,364.1
233.2
1,883.7
410.0
3,865.2
(6) The Corporation has lease commitments with varying terms through 2035, to lease premises which it sublets to clients, generally under the same
conditions.
RELATED PARTY TRANSACTIONS
During fiscal 2012, we supplied supermarkets held by a member of the Board of Directors and paid fees to Dunnhumby
Canada, a jointly controlled entity, for analysis of our customer sales data. These transactions were carried out in the
normal course of business and recorded at exchange value. They are itemized in note 28 to the consolidated financial
statements.
FOURTH QUARTER
(Millions of dollars, except for net earnings per share/EPS)
Sales
EBITDA(1)
Adjusted EBITDA(1) excluding share of earnings from our
investment in Couche-Tard
Net earnings
Adjusted net earnings(1)
Fully diluted EPS
Adjusted fully diluted EPS(1)
Cash flows from:
Operating activities
Investing activities
Financing activities
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 30 -
2012
(13 weeks)
2,943.7
246.3
209.2
145.1
123.4
1.46
1.24
126.8
(69.2)
(82.7)
2011
(12 weeks)
2,649.5
166.8
172.0
84.4
98.9
0.83
0.97
183.3
(53.0)
(75.3)
Variation
%
11.1
47.7
21.6
71.9
24.8
75.9
27.8
—
—
—
SALES
Sales in the fourth quarter of fiscal 2012 reached $2,943.7 million, up 11.1% compared to sales of $2,649.5 million for
last year. The 2012 fourth quarter was 13 weeks long, with one more week than last year. Excluding this extra week,
fourth quarter sales were up 2.5%. Adonis stores and distributor Phoenicia contributed $63.3 million to the Corporation's
fourth quarter sales. Same store sales were up 1.1% for the fourth quarter of 2012 compared to the corresponding period
in 2011. We experienced very modest inflation in the fourth quarter of 2012, but lower than the Consumer Price Index
reported by Statistics Canada.
EARNINGS BEFORE FINANCIAL COSTS, TAXES, DEPRECIATION AND AMORTIZATION(1)
EBITDA adjustments(1)
(Millions of dollars, unless otherwise indicated) EBITDA
Sales
EBITDA
Closure costs
Couche-Tard dilution gain
Adjusted EBITDA
Share of earnings in Couche-Tard
Adjusted EBITDA excluding share
of earnings
Fiscal Year
2012
(13 weeks)
2011
(12 weeks)
EBITDA/
Sales
(%)
8.4
7.5
EBITDA
Sales
166.8
20.5
—
187.3
(15.3)
2,649.5
—
—
2,649.5
—
246.3
—
(25.0)
221.3
(12.1)
2,943.7
—
—
2,943.7
—
Change
%
EBITDA
EBITDA/
Sales
(%)
6.3
47.7
7.1
18.2
209.2
2,943.7
7.1
172.0
2,649.5
6.5
21.6
EBITDA(1) for the fourth quarter of 2012 was $246.3 million, up 47.7% from $166.8 million for the same quarter last year.
In the fourth quarter of 2012, we recorded a non-recurring gain of $25.0 million before taxes; in the fourth quarter of
2011, a non-recurring loss of $20.5 million before taxes.
In August 2012, Alimentation Couche-Tard issued 7.3 million shares for net proceeds of approximately $330 million to
finance part of its acquisition of Statoil Fuel & Retail ASA. As the Corporation did not participate in this share issue, our
interest in Alimentation Couche-Tard decreased from 11.6% to 11.1%. This dilution and our share in Alimentation Couche-
Tard's increased value as a result of the share issue amount to a deemed disposition and deemed proceeds of disposition
of part of our investment for a net pre-tax gain of $25.0 million.
In the fourth quarter of 2011, we closed our meat processing plant in Montréal and a grocery warehouse in Toronto to
improve operational efficiency. Closure costs were $20.5 million before taxes.
Excluding these non-recurring items, adjusted EBITDA(1) for the fourth quarter of 2012 was $221.3 million, up 18.2%
compared to $187.3 million for the corresponding period of 2011.
Our share of earnings in Alimentation Couche-Tard, excluding the dilution gain of $25.0 million before taxes, was
$12.1 million for the fourth quarter of fiscal 2012, versus $15.3 million for the same period of fiscal 2011. In its last
quarterly report, Alimentation Couche-Tard stated that non-recurring items were included in that quarter and that excluding
them had increased the adjusted net earnings(1) for its first quarter ended July 22, 2012 by $US 70.1 million.
Excluding the non-recurring items and our share of earnings in Alimentation Couche-Tard, our adjusted EBITDA(1) for
the fourth quarter of fiscal 2012 was $209.2 million, or 7.1% of sales versus $172.0 million or 6.5% of sales for the fourth
quarter of fiscal 2011. Adjusted EBITDA(1), excluding our share of earnings in Alimentation Couche-Tard, for the fourth
quarter of fiscal 2012 was up 21.6% over that for 2011.
The significant increase in EBITDA(1) for the fourth quarter of 2012 compared to the same quarter of 2011 is also
attributable to the results for the 53rd week of 2012 when several fixed costs were no longer in effect. The impact of the
53rd week on EBITDA(1) was $16.0 million.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 31 -
Gross margin for the fourth quarter of fiscal 2012 was 18.5%, up from 17.7% for the corresponding period of 2011. Our
merchandising strategies, reduced in-store losses, and Adonis stores contributed to this increase. As well, in the fourth
quarter of 2011, approximately $10 million in salaries recorded as an expense in the first three quarters were reclassified
as a cost of goods sold. Excluding this reclassification, gross margin in the fourth quarter of 2011 was 18.1%.
DEPRECIATION AND AMORTIZATION AND NET FINANCIAL COSTS
Depreciation and amortization expense for the fourth quarter of 2012 amounted to $41.8 million compared to $41.5 million
for the corresponding period last year. Fourth quarter net financial costs totalled $11.7 million in 2012 versus $9.4 million
last year.
INCOME TAXES
The 2012 fourth quarter income tax expense of $47.7 million represented an effective tax rate of 24.7%. The 2011 fourth
quarter income tax expense of $31.5 million represented an effective tax rate of 27.2%.
The tax rate for the fourth quarter of 2012 was lower that for the corresponding period of 2011 due to two federal corporate
tax rate reductions of 1.5% each, effective January 1, 2011 and 2012, as well as a 0.5% reduction in Ontario's, effective
July 1, 2011.
NET EARNINGS
Net earnings for the fourth quarter of 2012 were $145.1 million, an increase of 71.9% over net earnings of $84.4 million
for the same quarter of 2011. Fully diluted net earnings per share rose 75.9% to $1.46 from $0.83 last year. Excluding
the Alimentation Couche-Tard dilution gain of $25.0 million before taxes recorded in the fourth quarter of 2012 as well
as the closure costs of $20.5 million before taxes in the corresponding quarter of 2011, our adjusted net earnings(1) for
the fourth quarter of 2012 were $123.4 million and our adjusted fully diluted net earnings per share(1) were $1.24, for
increases of 24.8% and 27.8% respectively.
The significant increase in net earnings and fully diluted net earnings per share for the fourth quarter of 2012 over the
same quarter of 2011 is also attributable to the results for the 53rd week of 2012 when several fixed costs were no longer
in effect. The impact of the 53rd week on the fully diluted net earnings per share was $0.11.
Net earnings adjustments
Net earnings
Closure costs after taxes
Couche-Tard dilution gain
after taxes
Non-recurring tax expense
Adjusted net earnings(1)
CASH POSITION
Operating activities
Fiscal Year
2012
(13 weeks)
2011
(12 weeks)
(Millions
of dollars)
Fully diluted
EPS (Dollars)
(Millions
of dollars)
Fully diluted
EPS (Dollars)
145.1
—
(21.7)
—
123.4
1.46
—
(0.22)
—
1.24
84.4
14.5
—
—
98.9
0.83
0.14
—
—
0.97
Change
(%)
Fully diluted
EPS
Net
earnings
71.9
75.9
24.8
27.8
Operating activities generated cash flows of $126.8 million in the fourth quarter of 2012 compared to $183.3 million in
the corresponding period of fiscal 2011. This decrease is due primarily to net changes in non-cash working capital items
that required greater outflows in the fourth quarter of 2012 than in the same period last year.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 32 -
Investing activities
Investing activities required outflows of $69.2 million in the fourth quarter of 2012 versus $53.0 million in the corresponding
period of 2011. The increase in funds used in the fourth quarter of 2012 compared to that of 2011 is mainly due primarily
to greater fixed asset acquisitions and disposals of net $19.3 million in 2012 and greater business acquisitions of
$5.8 million in 2011.
Financing activities
Financing activities required outflows of $82.7 million in the fourth quarter of 2012 versus 2011 fourth quarter outflows
of $75.3 million. The increase in funds used in the fourth quarter of 2012 over that of 2011 is due to a $57.5 million
increase in net debt repayment and a $40.1 million decrease in the redemption of shares.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation adopted a risk management policy, approved by the Board of Directors in December 2005, setting forth
guidelines relating to its use of derivative financial instruments. These guidelines prohibit the use of derivatives for
speculative purposes. During fiscal 2012, the Corporation used derivative financial instruments as described in notes 3
and 30 to the consolidated financial statements.
NEW ACCOUNTING POLICIES
RECENTLY ISSUED
Classification and measurement of financial assets and financial liabilities
In November 2009, the International Accounting Standards Board (IASB) published IFRS 9 “Financial Instruments”. This
new standard simplifies the classification and measurement of financial assets set out in IAS 39 “Financial Instruments:
Recognition and Measurement”. Financial assets are to be measured at amortized cost or fair value. They are to be
measured at amortized cost if the two following conditions are met:
a)
b)
the assets are held within a business model whose objective is to collect contractual cash flows; and
the contractual cash flows are solely payments of principal and interest on the outstanding principal.
All other financial assets are to be measured at fair value through net earnings. The entity may, if certain conditions are
met, elect to use the fair value option instead of measurement at amortized cost. As well, the entity may choose upon
initial recognition to measure non-trading equity investments at fair value through comprehensive income. Such a choice
is irrevocable.
In October 2010, the IASB issued revisions to IFRS 9, adding the requirements for classification and measurement of
financial liabilities contained in IAS 39 and further points. For financial liabilities measured at fair value through net
earnings using the fair value option, the amount of change in a liability’s fair value attributable to changes in its credit
risk is recognized directly in other comprehensive income.
In December 2011, the IASB deferred the mandatory effective date of IFRS 9 to fiscal years beginning on or after
January 1, 2015. Early adoption is permitted under certain conditions. An entity is not required to restate comparative
financial periods for its first-time application of IFRS 9, but must comply with the new disclosure requirements.
Offsetting financial assets and financial liabilities
In December 2011, the IASB issued amendments to IAS 32 “Financial Instruments: Presentation” clarifying the
requirements for offsetting financial assets and financial liabilities. These amendments shall be applied to annual periods
beginning on or after January 1, 2014.
The IASB also issued amendments to IFRS 7 “Financial Instruments: Disclosures” improving disclosure on offsetting of
financial assets and financial liabilities. These amendments shall be applied to annual and interim periods beginning on
or after January 1, 2013.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 33 -
Consolidated Financial Statements
In May 2011, the IASB published IFRS 10 “Consolidated Financial Statements” which is a replacement of SIC-12
“Consolidation – Special Purpose Entities”, and certain parts of IAS 27 “Consolidated and Separate Financial
Statements”. IFRS 10 uses control as the single basis for consolidation, irrespective of the nature of the investee,
employing the following factors to identify control:
a)
b)
c)
power over the investee;
exposure or rights to variable returns from involvement with the investee;
the ability to use power over the investee to affect the amount of the investor’s returns.
IFRS 10 shall be applied to fiscal years beginning on or after January 1, 2013. Early adoption is permitted under certain
conditions.
Joint Arrangements
In May 2011, the IASB published IFRS 11 “Joint Arrangements” which supersedes IAS 31 “Interests in Joint Ventures”
and SIC-13 “Jointly Controlled Entities – Non-Monetary Contributions by Venturers”. IFRS 11 requires that joint ventures
be accounted for using the equity method of accounting and eliminates the need for proportionate consolidation. This
new standard shall be applied to fiscal years beginning on or after January 1, 2013. Early adoption is permitted under
certain conditions.
Disclosure of Interests in Other Entities
In May 2011, the IASB published IFRS 12 “Disclosure of Interests in Other Entities” which requires that an entity disclose
information on the nature of and risks associated with its interests in other entities (i.e. subsidiaries, joint arrangements,
associates or unconsolidated structured entities) and the effects of those interests on its financial statements. IFRS 12
shall be applied to fiscal years beginning on or after January 1, 2013. Early adoption is permitted under certain conditions.
Entities may, without early adoption of IFRS 12, choose to incorporate only some of the required disclosures in their
financial statements.
Fair Value Measurement
In May 2011, the IASB published IFRS 13 “Fair Value Measurement” to establish a single framework for fair value
measurement of financial and non-financial items. IFRS 13 defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It
also requires disclosure of certain information on fair value measurements. IFRS 13 shall be applied to fiscal years
beginning on or after January 1, 2013. Early adoption is permitted.
Employee Benefits
In June 2011, the IASB issued amendments to IAS 19 “Employee Benefits”. Changes in defined benefit obligations and
plan assets are to be recognized in comprehensive income when they occur, thus eliminating the corridor approach and
accelerating recognition of past service cost. Net interest is to be recognized in net earnings and calculated using the
discount rate by reference to market yields at the end of the reporting period on high quality corporate bonds. The actual
return on plan assets minus net interest is to be recognized in other comprehensive income. These amendments shall
be applied to fiscal years beginning on or after January 1, 2013. Early adoption is permitted.
Presentation of Financial Statements
In June 2011, the IASB issued amendments to IAS 1 “Presentation of Financial Statements”. Items of other
comprehensive income and the corresponding tax expense are required to be grouped into those that will and will not
subsequently be reclassified through net earnings. These amendments shall be applied to fiscal years beginning on or
after July 1, 2012. Early adoption is permitted.
At present, the Corporation is assessing the impact of the above-mentioned amendments on its earnings, financial
position and cash flows.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 34 -
IFRS AND NON-IFRS MEASUREMENTS
In addition to the IFRS earnings measurements provided, we have included certain IFRS and non-IFRS earnings
measurements. These measurements are presented for information purposes only. They do not have a standardized
meaning prescribed by IFRS 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. It is an
additional IFRS measurement and it is presented separately in the consolidated statements of income. 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. They are non-IFRS measurements. 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 Corporation's performance and judge its future outlook.
FORWARD-LOOKING INFORMATION
We have used, throughout this annual 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 in this report that does not constitute a historical fact may be deemed a forward-looking statement. Expressions
such as “continue”, “anticipate”, “expect”, “estimate” and other similar expressions are generally indicative of forward-
looking statements. The forward-looking statements contained in this report are based upon certain assumptions
regarding the Canadian food industry, the general economy, our annual budget, as well as our 2013 action plan.
These forward-looking statements do not provide any guarantees as to the future performance of the Corporation 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 this annual report that could have an impact on these statements. We believe these
statements to be reasonable and relevant as at the date of publication of this report and represent our expectations.
The Corporation does not intend to update any forward-looking statement contained herein, except as required by
applicable law.
CONTROLS AND PROCEDURES
The President and Chief Executive Officer, and the Senior Vice-President, Chief Financial Officer and Treasurer of the
Corporation, are responsible for the implementation and maintenance of disclosure controls and procedures (DC&P),
and of the internal control over financial reporting (ICFR), as provided for in National Instrument 52-109 regarding the
Certification of Disclosure in Issuers' Annual and Interim Filings. They are assisted in this task by the Disclosure
Committee, which is comprised of members of the Corporation's senior management.
An evaluation was completed under their supervision in order to measure the effectiveness of DC&P and ICFR. Based
on this evaluation, the President and Chief Executive Officer and the Senior Vice-President, Chief Financial Officer and
Treasurer of the Corporation concluded that the DC&P and the ICFR were effective as at the end of the fiscal year ended
September 29, 2012.
Therefore, the design of the DC&P provides reasonable assurance that material information relating to the Corporation
is made known to it by others, particularly during the period in which the annual filings are being prepared, and that the
information required to be disclosed by the Corporation in its annual filings, interim filings and other reports filed or
submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods
specified in securities legislation.
Furthermore, the design of the ICFR provides reasonable assurance regarding the reliability of the Corporation's financial
reporting and the preparation of its financial statements for external purposes in accordance with IFRS.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 35 -
SIGNIFICANT JUDGEMENTS AND ESTIMATES
Our Management's Discussion and Analysis is based upon our consolidated financial statements, prepared in accordance
with IFRS, and it is presented in Canadian dollars, our unit of measure. The preparation of the consolidated financial
statements and other financial information contained in this Management's Discussion and Analysis requires
management to make judgements, estimates and assumptions that affect the recognition and valuation of assets,
liabilities, sales, other income and expenses. These estimates and assumptions are based on historical experience and
other factors deemed relevant and reasonable and are reviewed at every closing date. The use of different estimates
could produce different amounts in the consolidated financial statements. Actual results may differ from these estimates.
JUDGEMENTS
In applying the Corporation's accounting policies, management has made the following judgements, which have the
most significant effect on the amounts recognized in the consolidated financial statements:
Leases
In determining if leases are to be accounted for as operating leases or finance leases, management must judge whether
or not substantially all risks and rewards incidental to ownership have been transferred, based on its analysis of the
terms and conditions of each lease and evaluation of various criteria, such as the option to purchase the asset at a
preferential price, the lease term as compared to the economic life of the asset, and the present value of the minimum
lease payments as compared to the fair value of the leased asset.
Consolidation of special purpose entities
The Corporation has no voting rights in certain food stores. However, it assumes the majority of their risks and benefits
from the majority of their advantages. For these reasons, the Corporation consolidates these food stores in its financial
statements.
The Corporation has no voting rights in the trust created for PSU plan participants. However, under the trust agreement,
it instructs the trustee as to the sale and purchase of Corporation shares and payments to beneficiaries, gives the trustee
money to buy Corporation shares, assumes the majority of the risks, benefits from the majority of the advantages, and
ensures that the trust holds a sufficient number of shares to meet its obligations to the beneficiaries. Management,
having concluded that the Corporation controls the trust, consolidates the entity in its financial statements.
The Corporation also has an agreement with a distributor, whose majority of risks it assumes and whose majority of
advantages it benefits from. For these reasons, the Corporation consolidates this distributor in its financial statements.
ESTIMATES
The assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have
a significant risk of causing a material adjustment to the value of assets and liabilities within the next period, are discussed
below:
Impairment of assets
In testing for impairment of intangible assets with indefinite useful lives and goodwill, value in use and fair value less
costs to sell are estimated using the discounted future cash flows model, and the capitalized excess earnings before
financial costs and taxes (EBIT) and royalty-free licence methods. These methods are based on various assumptions,
such as the future cash flows estimate, excess EBIT, royalty rate, discount rate, earnings multiple and growth rate. The
key assumptions are disclosed in notes 16 and 17 to the consolidated financial statements.
Share-based payment
A compensation expense, corresponding to the fair value of the stock options at their grant date, is recognized in net
earnings for all stock option awards. The fair value is calculated using the Black-Scholes model. The key assumptions
are disclosed in note 22 to the consolidated financial statements.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 36 -
Deferred taxes
Deferred tax assets are recognized for tax loss carry forwards to the extent that it is probable that future taxable profits
will be available against which the losses can be utilized. Management uses its judgement in determining these deferred
assets, considering assumptions, i.e. the utilization period for losses carried forward and the level of future taxable profits
in accordance with tax planning strategies. Non-discounted estimates of future taxable profits are made in establishing
budgets and strategic plans for each tax jurisdiction and reviewed each quarter.
Pension plans and other plans
Defined pension plans, ancillary retirements and other long-term benefits obligations and costs associated to these
obligations are determined from actuarial calculations according to the projected credit unit method. These calculations
are based on management's best assumptions relating to expected long-term return on plan assets, salary escalation,
retirement age of participants and expected health care costs. The key assumptions are disclosed in note 25 to the
consolidated financial statements.
Non-controlling interests
The non-controlling interest-related liability is calculated in relation to the buyout price which is mainly based on the
future earnings of Adonis and Phoenicia beginning at a predetermined date. Given the uncertainty associated with the
estimation of these future earnings, the Corporation used, at the end of the current fiscal year, its most probable estimate.
RISK MANAGEMENT
The Board of Directors, Audit Committee and Steering Committee monitor business risks closely. Internal Audit has the
mandate to audit all business risks triennially. Hence, each segment is audited every three years to ensure that controls
have been implemented to deal with the business risks related to its business area.
In the normal course of business, we are exposed to various risks, which are described below, that could have a material
impact on our earnings, financial position and cash flows. In order to counteract the principal risk factors, we have
implemented strategies specifically adapted to them.
MARKET AND COMPETITION
Intensifying competition, the possible arrival of new competitors and changing consumer needs are constant concerns
for us.
To cope with competition and maintain our leadership position in the Québec and Ontario markets, we are on the alert
for new ways of doing things and new sites. We have an ongoing investment program for all our stores to ensure that
our retail network remains one of the most modern in Canada.
We have also developed a successful market segmentation strategy. Our grocery banners: the conventional Metro
supermarkets, Super C and Food Basics discount banners, and Adonis ethnic food stores, target three different market
segments. In the pharmaceutical market, we have large, medium, and small pharmacies under the Brunet Plus, Brunet,
Brunet Clinique, Clini Plus, Pharmacy, and Drug Basics banners.
On October 23, 2011, we acquired 55% of the net assets of Adonis and Phoenicia. Well aware of the evolving tastes of
consumers, we trust that this acquisition will improve the Mediterranean and Middle-Eastern product offering in our
supermarkets and discount stores.
With the metro&moi loyalty program in our Metro and Metro Plus supermarkets and our partner Dunnhumby Canada,
we are able to know the buying habits of loyal customers, offer them personalized promotions and increase their purchases
at our stores.
We are also carrying on with our Produce Initiative to offer customers a wide variety of premium quality fresh fruits and
vegetables.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 37 -
ECONOMIC CONDITIONS
An economic slowdown or recession could affect our supermarkets and discount stores, however, they can adapt to
such conditions with appropriate merchandising strategies. Since food is a basic need, the food industry is less affected
by an economic slowdown or recession.
FOOD SAFETY
We are exposed to potential liability and costs regarding defective products, food safety, product contamination and
handling. Such liability may arise from product manufacturing, packaging and labelling, design, preparation, warehousing,
distribution and presentation. Food products represent the greater part of our sales and we could be at risk in the event
of a major outbreak of food-borne illness or an increase in public health concerns regarding certain food products.
To counter these risks, we apply very strict food safety procedures and controls throughout the whole distribution chain.
Employees receive continuous training in this area from Metro's L'École des professionnels. Our main meat distribution
facilities are Hazard Analysis and Critical Control Point (HACCP) accredited, the industry's highest international standard.
Our systems also enable us to trace every meat product distributed from any of our main distribution centres to its
consumer point of sale.
CORPORATE RESPONSIBILITY
If our actions do not respect our environmental, social and economic responsibilities, we are exposed to criticism, claims,
boycotts and even lawsuits, should we fail to adhere to our legal obligations.
We are aware that our business operations affect society and have increased our efforts regarding corporate responsibility.
In 2010, we published our Corporate Responsibility Roadmap that defines our commitments to and intentions around
the environmental, social and economic sustainability of our business operations. In 2012, we published our first Corporate
Responsibility Report which was developed based on a prioritization process that considered both internal and external
issues and trends impacting our sector and business. The report's development was guided by the requirements set
out in the Global Reporting Initiative (GRI) G3.1 Guidelines. Our Corporate Responsibility Roadmap and Report are
available on our web site www.metro.ca.
REGULATIONS
Changes are regularly brought about to accounting policies, laws, regulations, rules and policies impacting our operations.
We monitor these changes closely.
PRICE OF FUEL, ENERGY AND UTILITIES
We are a big consumer of utilities, electricity, natural gas and fuel. Increases in the price of these items may affect us.
LABOUR RELATIONS
The majority of our store and distribution centre employees are unionized. Collective bargaining may give rise to work
stoppages or slowdowns that could hurt us. We negotiate agreements with different maturity dates, conditions that ensure
our competitiveness and terms that promote a positive work environment in all our business segments. We have
experienced some minor labour conflicts over the last few years but expect(2) to maintain good labour relations in the
future.
CRISIS MANAGEMENT
Events outside our control that could seriously affect our operations may arise. We have set up business recovery plans
for all our operations. These plans provide for several disaster recovery sites, generators in case of power outages and
back-up computers as powerful as the Corporation's existing computers. A steering committee oversees and regularly
reviews all our recovery plans. We have also developed a contingency plan in the event of a pandemic to minimize its
impact.
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 38 -
FINANCIAL INSTRUMENTS
We are subject to the risk of interest rate fluctuations mainly because we contract loans with variable interest rates. As
well, we make some foreign-denominated purchases, exposing ourselves to exchange rate risks. According to our risk
management policy, we may use derivative financial instruments, such as interest rate swaps and foreign exchange
forward contracts. The policy's guidelines prohibit us from using derivative financial instruments for speculative purposes,
but they do not guarantee that we will not sustain losses as a result of our derivative financial instruments.
We hold receivables generated mainly from sales to affiliate customers. To guard against credit losses, we have adopted
a credit policy that defines mandatory credit requirements to be maintained and guarantees to be provided. Affiliate
customer assets guarantee the majority of our receivables.
We are also exposed to liquidity risk mainly through our non-current debt and creditors. We evaluate our cash position
regularly and estimate(2) that cash flows generated by our operating activities are sufficient to provide for all outflows
required by our financing activities. Our Series A Notes, our revolving credit facility and our Series B Notes mature only
in 2015, 2017 and 2035, respectively. We also have an unused authorized balance of $284.6 million on our revolving
credit facility.
CLAIMS
In the normal course of business, we are exposed to various claims and proceedings. We limit our exposure by maintaining
insurance to cover the risk of claims related to our operations.
SUPPLIERS
Negative events could affect a supplier and lead to service breakdowns and store delivery delays. As a remedy for this
situation, we deal with several suppliers. In the event of a supplier's service breakdown, we can turn to another supplier
reasonably quickly.
FRANCHISEES AND AFFILIATES
Some of our franchisees and affiliates might breach prescribed clauses of franchise or affiliation contracts, such as
purchasing policies and marketing plans. Non-compliance with such clauses may have an impact on us. A team of retail
operations advisers ensures our operating standards' consistent application in all of these stores.
Montréal, Canada, November 30, 2012
(1) See section on "IFRS and Non-IFRS Measurements"
(2) See section on "Forward-looking Information"
- 39 -
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The preparation and presentation of the consolidated financial statements of METRO INC. and the other financial
information contained in this Annual Report are the responsibility of management. This responsibility is based on a
judicious choice of appropriate accounting principles and policies, the application of which requires making estimates
and informed judgements. It also includes ensuring that the financial information in the Annual Report is consistent with
the consolidated financial statements. The consolidated financial statements were prepared in accordance with
International Financial Reporting Standards and were approved by the Board of Directors.
METRO INC. maintains accounting systems and internal controls over the financial reporting process which, in the
opinion of management, provide reasonable assurance regarding the accuracy, relevance and reliability of financial
information and the well-ordered, efficient management of the Corporation's affairs.
The Board of Directors fulfills its duty to oversee management in the performance of its financial reporting responsibilities
and to review the consolidated financial statements and Annual Report, principally through its Audit Committee. This
Committee is comprised solely of directors who are independent of the Corporation and is also responsible for making
recommendations for the nomination of external auditors. Also, it holds periodic meetings with members of management
as well as internal and external auditors to discuss internal controls, auditing matters and financial reporting issues. The
external and internal auditors have access to the Committee without management. The Audit Committee has reviewed
the consolidated financial statements and Annual Report of METRO INC. and recommended their approval to the Board
of Directors.
The enclosed consolidated financial statements were audited by Ernst & Young LLP, Chartered Professional
Accountants, and their report indicates the extent of their audit and their opinion on the consolidated financial statements.
Eric R. La Flèche
President and Chief Executive Officer
November 13, 2012
François Thibault
Senior Vice-President,
Chief Financial Officer and Treasurer
- 40 -
INDEPENDENT AUDITORS' REPORT
To the shareholders of METRO INC.
We have audited the accompanying consolidated financial statements of METRO INC., which comprise the consolidated
statements of financial position as at September 29, 2012, September 24, 2011 and September 26, 2010, and the
consolidated statements of comprehensive income, changes in equity and cash flows for the years ended
September 29, 2012 and September 24, 2011, and a summary of significant accounting policies and other explanatory
information.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors' responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
METRO INC. as at September 29, 2012, September 24, 2011 and September 26, 2010 and its financial performance
and its cash flows for the years ended September 29, 2012 and September 24, 2011 in accordance with International
Financial Reporting Standards.
Montréal, Canada
November 13, 2012
Chartered Professional Accountants
1 CPA auditor, CA, public accountancy permit no. A120803
- 41 -
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- 42 -
Annual Consolidated Financial Statements
METRO INC.
September 29, 2012
- 43 -
Table of contents
Consolidated statements of income ...............................................................................................................
Consolidated statements of comprehensive income ......................................................................................
Consolidated statements of financial position ................................................................................................
Consolidated statements of changes in equity ...............................................................................................
Consolidated statements of cash flows ..........................................................................................................
Notes to consolidated financial statements ....................................................................................................
1- Description of business ...........................................................................................................................
2- Explanations on the transition to IFRS .....................................................................................................
3- Significant accounting policies .................................................................................................................
4- New accounting policies ..........................................................................................................................
5- Significant judgements and estimates .....................................................................................................
6- Business acquisitions ..............................................................................................................................
7- Additional information on the nature of earnings components ..................................................................
8- Income taxes ...........................................................................................................................................
9- Net earnings per share ............................................................................................................................
10- Inventories
..............................................................................................................................................
11- Assets held for sale .................................................................................................................................
12- Investment in an associate ......................................................................................................................
13- Other financial assets ..............................................................................................................................
14- Fixed assets ............................................................................................................................................
15- Investment properties ..............................................................................................................................
16- Intangible assets .....................................................................................................................................
17- Goodwill
..................................................................................................................................................
18- Bank loans ..............................................................................................................................................
19- Provisions
...............................................................................................................................................
20- Debt
........................................................................................................................................................
21- Other liabilities .........................................................................................................................................
22- Capital stock
...........................................................................................................................................
23- Accumulated other comprehensive income .............................................................................................
24- Dividends ................................................................................................................................................
25- Employee benefits ...................................................................................................................................
26- Commitments ..........................................................................................................................................
27- Contingencies .........................................................................................................................................
28- Related party transactions .......................................................................................................................
29- Management of capital
............................................................................................................................
30- Financial instruments ..............................................................................................................................
31- Event after the reporting period ...............................................................................................................
32- Comparative figures ................................................................................................................................
33- Approval of financial statements ..............................................................................................................
- 44 -
Page
45
46
47
48
49
50
50
50
68
73
75
76
78
79
80
81
81
81
82
82
83
84
86
86
86
87
88
88
91
92
92
95
96
96
97
97
100
101
101
Consolidated statements of income
Years ended September 29, 2012 and September 24, 2011
(Millions of dollars, except for net earnings per share)
Sales (note 28)
Cost of sales and operating expenses (note 7)
Share of an associate's earnings (notes 7 and 12)
Closure expenses (note 7)
Earnings before financial costs, taxes, depreciation and amortization
Depreciation and amortization (note 7)
Operating income
Financial costs, net (note 7)
Earnings before income taxes
Income taxes (note 8)
Net earnings
Attributable to:
Equity holders of the parent
Non-controlling interests
Net earnings per share (Dollars) (note 9)
Basic
Fully diluted
See accompanying notes
2012
2011
(53 weeks)
(52 weeks)
12,010.8
(11,189.1)
72.6
—
894.3
(183.9)
710.4
(46.4)
664.0
(174.7)
489.3
481.8
7.5
489.3
4.87
4.84
11,396.4
(10,652.0)
42.4
(20.5)
766.3
(179.3)
587.0
(41.5)
545.5
(152.8)
392.7
392.7
—
392.7
3.81
3.79
- 45 -
Consolidated statements of comprehensive income
Years ended September 29, 2012 and September 24, 2011
(Millions of dollars)
Net earnings
Other comprehensive income (note 23)
Change in the fair value of a derivative designated as cash flow hedge
Changes in defined benefit plans
Actuarial losses
Asset ceiling effect
Minimum funding requirement
Share of an associate's other comprehensive income
Corresponding income taxes
Comprehensive income
Attributable to:
Equity holders of the parent
Non-controlling interests
See accompanying notes
2012
(53 weeks)
2011
(52 weeks)
489.3
392.7
—
0.4
(65.6)
(2.7)
0.1
(0.6)
19.0
439.5
432.0
7.5
439.5
(66.8)
0.5
(2.5)
0.1
17.4
341.8
341.8
—
341.8
- 46 -
Consolidated statements of financial position
As at September 29, 2012, September 24, 2011 and September 26, 2010
(Millions of dollars)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable (notes 13 and 28)
Inventories (note 10)
Prepaid expenses
Current taxes
Assets held for sale (note 11)
Non-current assets
Investment in an associate (note 12)
Other financial assets (note 13)
Fixed assets (note 14)
Investment properties (note 15)
Intangible assets (note 16)
Goodwill (note 17)
Deferred taxes (note 8)
Defined benefit assets (note 25)
LIABILITIES AND EQUITY
Current liabilities
Bank loans (note 18)
Accounts payable
Current taxes
Provisions (note 19)
Current portion of debt (note 20)
Non-current liabilities
Debt (note 20)
Defined benefit liabilities (note 25)
Provisions (note 19)
Deferred taxes (note 8)
Other liabilities (note 21)
Non-controlling interest (note 30)
Equity
Capital stock (note 22)
Contributed surplus
Retained earnings
Accumulated other comprehensive income (note 23)
Equity attributable to equity holders of the parent
Non-controlling interests
Commitments and contingencies (notes 26 and 27)
See accompanying notes
On behalf of the Board:
2012
2011
2010
73.3
332.8
784.4
6.6
13.9
1,211.0
0.6
1,211.6
324.5
21.6
1,280.3
22.1
373.1
1,859.5
56.3
1.4
5,150.4
0.3
1,086.4
60.5
11.2
12.1
1,170.5
973.9
156.9
3.1
147.7
13.9
139.3
2,605.3
255.5
300.3
728.3
11.7
2.2
1,298.0
6.6
1,304.6
258.7
17.0
1,226.1
27.0
297.2
1,649.1
45.8
1.6
4,827.1
0.3
1,061.1
46.2
17.3
378.1
1,503.0
656.2
132.2
4.0
119.0
13.4
—
2,427.8
214.7
311.3
699.3
9.7
1.7
1,236.7
—
1,236.7
220.9
15.8
1,217.2
27.8
304.0
1,603.7
48.8
20.3
4,695.2
1.0
1,064.1
50.8
9.2
4.7
1,129.8
1,004.3
97.0
4.8
124.5
15.9
—
2,376.3
664.6
4.6
1,976.1
(101.0)
2,544.3
0.8
2,545.1
5,150.4
682.6
3.8
1,763.6
(51.2)
2,398.8
0.5
2,399.3
4,827.1
702.1
8.2
1,608.4
(0.3)
2,318.4
0.5
2,318.9
4,695.2
ERIC R. LA FLÈCHE
Director
MICHEL LABONTÉ
Director
- 47 -
Consolidated statements of changes in equity
Years ended September 29, 2012 and September 24, 2011
(Millions of dollars)
(53 weeks)
Capital
stock
(note 22)
Attribuable to the equity holders of the parent
Accumulated
other
comprehensive
income
(note 23)
Contributed
surplus
Retained
earnings
Non-
controlling
interests
Total
Balance as at September 24, 2011
682.6
3.8
1,763.6
(51.2)
2,398.8
481.8
—
481.8
(49.8)
(49.8)
Net earnings
Other comprehensive income
Comprehensive income
Shares issued for cash
Stock options exercised
Shares redeemed
Share redemption premium
Acquisition of treasury shares
Treasury share acquisition
premium
Released treasury shares
Share-based compensation cost
Performance share units cash
settlement
Dividends (note 24)
Share conversion fees
Reclassification of non-controlling
interest liability
—
0.1
10.3
(28.7)
(0.3)
0.6
(18.0)
Balance as at September 29, 2012
664.6
(2.3)
(2.3)
(0.6)
6.1
(0.1)
(186.3)
(82.9)
(0.1)
0.8
4.6
(269.3)
1,976.1
Total
equity
2,399.3
489.3
(49.8)
439.5
0.1
8.0
(28.7)
(186.3)
(0.3)
(2.3)
—
6.1
(0.1)
(82.9)
(0.1)
(7.2)
(293.7)
0.5
7.5
7.5
(7.2)
(7.2)
481.8
(49.8)
432.0
0.1
8.0
(28.7)
(186.3)
(0.3)
(2.3)
—
6.1
(0.1)
(82.9)
(0.1)
—
—
(286.5)
(101.0)
2,544.3
0.8
2,545.1
(52 weeks)
Attributable to the equity holders of the parent
Accumulated
other
comprehensive
income
(note 23)
Contributed
surplus
Retained
earnings
Capital
stock
(note 22)
Non-
controlling
interests
Total
Total
equity
Balance as at September 26, 2010
702.1
8.2
1,608.4
(0.3)
2,318.4
0.5
2,318.9
Net earnings
Other comprehensive income
Comprehensive income
Stock options exercised
Shares redeemed
Share redemption premium
Acquisition of treasury shares
Treasury share acquisition
premium
Released treasury shares
Share-based compensation cost
Performance share units cash
settlement
Dividends (note 24)
—
9.1
(27.9)
(1.3)
0.6
(19.5)
—
(2.1)
(7.6)
(0.6)
6.3
(0.4)
(4.4)
392.7
392.7
(160.4)
(50.9)
(50.9)
392.7
(50.9)
341.8
7.0
(27.9)
(160.4)
(1.3)
(7.6)
—
6.3
(0.4)
—
392.7
(50.9)
341.8
7.0
(27.9)
(160.4)
(1.3)
(7.6)
—
6.3
(0.4)
(77.1)
(237.5)
(77.1)
(261.4)
—
(77.1)
(261.4)
—
Balance as at September 24, 2011
682.6
3.8
1,763.6
(51.2)
2,398.8
0.5
2,399.3
See accompanying notes
- 48 -
Consolidated statements of cash flows
Years ended September 29, 2012 and September 24, 2011
(Millions of dollars)
Operating activities
Earnings before income taxes
Non-cash items
Share of an associate's earnings
Closure expenses
Depreciation and amortization
Amortization of deferred financing costs
Loss (gain) on disposal and write-offs of fixed and intangible assets and
investment properties
Impairment losses on fixed and intangible assets and investment properties
Impairment loss reversals on fixed and intangible assets
Share-based compensation cost
Difference between amounts paid for employee benefits and current period cost
Financial costs, net
Net change in non-cash working capital items
Interest paid
Income taxes paid
Investing activities
Business acquisitions, net of cash acquired totalling $3.0 in 2012 (note 6)
Proceeds on disposal of assets held for sale
Net change in other financial assets
Dividends from an associate
Additions to fixed assets
Proceeds on disposal of fixed assets
Proceeds on disposal of investment properties
Additions to intangible assets and goodwill
Financing activities
Net change in bank loans
Shares issued (note 22)
Shares redeemed (note 22)
Acquisition of treasury shares (note 22)
Performance share units cash settlement
Increase in debt
Repayment of debt
Use of non-current provisions
Net change in other liabilities
Dividends (note 24)
Net change in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
See accompanying notes
- 49 -
2012
(53 weeks)
2011
(52 weeks)
664.0
545.5
(72.6)
—
183.9
0.3
(5.4)
10.3
(10.0)
6.1
(43.3)
46.4
779.7
(44.4)
(48.0)
(141.2)
546.1
(146.8)
6.6
(4.6)
6.2
(210.5)
26.9
3.5
(38.3)
(357.0)
(15.5)
8.1
(215.0)
(2.6)
(0.1)
391.1
(454.9)
—
0.5
(82.9)
(371.3)
(182.2)
255.5
73.3
(42.4)
8.9
179.3
0.4
10.0
14.8
(5.5)
6.3
(14.9)
41.5
743.9
(7.1)
(45.1)
(149.3)
542.4
(74.2)
—
5.4
4.7
(148.1)
2.6
2.8
(19.9)
(226.7)
(0.7)
7.0
(188.3)
(8.9)
(0.4)
8.4
(12.1)
(0.3)
(2.5)
(77.1)
(274.9)
40.8
214.7
255.5
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
1. DESCRIPTION OF BUSINESS
METRO INC. (the Corporation) is a company incorporated under the laws of Québec. The Corporation is one of Canada’s
leading food retailers and distributors and operates a network of supermarkets, discount stores and drugstores. Its head
office is located at 11011 Maurice-Duplessis Blvd., Montréal, Québec, Canada, H1C 1V6. Its various components
constitute a single operating segment.
2.
EXPLANATIONS ON THE TRANSITION TO IFRS
As of September 25, 2011, the Corporation has prepared its financial statements according to International Financial
Reporting Standards (IFRS). This note explains the principal adjustments made in converting the consolidated financial
statements from Canadian Generally Accepted Accounting Principles (GAAP) to IFRS, specifically the consolidated
statements of financial position as at September 26, 2010 and September 24, 2011, as well as the consolidated statements
of income, consolidated statements of comprehensive income and consolidated statements of cash flows for the fiscal
year ended September 24, 2011.
To facilitate comprehension, the adjustments are presented in two different ways. In the first, the adjustments are
itemized according to IFRS standards and the three following categories: 1) optional exemptions under IFRS 1 “First-
time Adoption of International Financial Reporting Standards” that apply only once at the time of changeover to IFRS, 2)
recurring differences in accounting treatment between GAAP and IFRS, 3) reclassifications for presentation purposes
that have no impact on net earnings (see page 56). In the second, the adjustments are itemized according to financial
statement items (see page 63).
TERMINOLOGY
There are differences between IFRS and GAAP terminology. The following table lists the main differences:
GAAP terminology
IFRS terminology
Statement of earnings
Balance sheet
Long-term
Investment in a company subject to significant influence
Future income taxes
Accrued benefit assets or liabilities
Shareholders’ equity
Statement of income
Statement of financial position
Non-current
Investment in an associate
Deferred taxes
Defined benefit assets or liabilities
Equity
Notes to financial statements
Reportable segment
Variable interest entities
Assets or liabilities held for trading
Notes to financial statements
Operating segment
Special purpose entities
Financial assets or liabilities at fair value through
net earnings
Definite/indefinite useful lives
Capital leases
Employee future benefits
Projected benefit method prorated on services/Accumulated
benefit method
Finite/indefinite useful lives
Finance leases
Employee benefits
Projected unit credit method
Accrued benefit obligations
Stock-based compensation and other stock-based payments
Defined benefit obligations
Share-based payment transactions
FIRST-TIME ADOPTION OF IFRS
At the date of transition, IFRS 1 authorizes certain exemptions from retrospective application. The following optional
exemptions were used:
Employee benefits
All actuarial gains and losses on the date of transition were recognized in retained earnings.
Business combinations
The IFRS 3 “Business Combinations” was not applied to business combinations that occurred before the transition date.
- 50 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
RECONCILIATION OF CONSOLIDATED FINANCIAL POSITION AND EQUITY
Notes
GAAP
IFRS 1
treatment Presentation
As at September 24, 2011
Adjustments
Accounting
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses
Income taxes receivable
Deferred taxes
Assets held for sale
Non-current assets
Investment in an associate
Other financial assets
Fixed assets
Investment properties
Intangible assets
Goodwill
Deferred taxes
Defined benefit assets
LIABILITIES AND EQUITY
Current liabilities
Bank loans
Accounts payable
Income taxes payable
Provisions
Deferred taxes
Current portion of debt
Non-current liabilities
Debt
Defined benefit liabilities
Provisions
Deferred taxes
Other liabilities
Equity
Capital stock
Contributed surplus
Retained earnings
Accumulated other comprehensive
income
Equity attributable to the equity
holders of the parent
Non-controlling interests
i
n
i
r
s
t
u
d
e
q
v
l
l
n
m
m
v
l
q
e, l
h
w
x
e
(6.6)
(19.2)
(25.8)
6.6
(19.2)
257.4
(257.4)
(31.5)
31.5
19.2
—
(17.3)
17.3
(11.2)
369.3
358.1
(369.3)
4.0
11.2
(4.5)
(0.5)
—
0.5
0.5
—
—
—
11.2
(47.3)
(36.1)
—
—
1.3
(0.3)
(63.7)
(4.5)
(11.3)
(0.8)
14.2
(30.5)
(95.6)
—
—
38.1
50.1
(10.9)
(39.8)
27.2
10.3
(63.3)
2.1
(56.8)
(51.2)
(63.3)
(105.9)
(63.3)
(36.1)
(105.9)
(95.6)
255.5
306.9
728.3
11.7
2.2
19.2
1,323.8
—
1,323.8
—
274.7
1,321.3
—
308.5
1,649.9
1.2
79.4
4,958.8
0.3
1,078.4
46.2
—
11.2
8.8
1,144.9
1,025.5
44.0
—
158.5
17.9
2,390.8
682.6
1.7
1,883.7
—
2,568.0
—
2,568.0
4,958.8
- 51 -
IFRS
255.5
300.3
728.3
11.7
2.2
—
1,298.0
6.6
1,304.6
258.7
17.0
1,226.1
27.0
297.2
1,649.1
45.8
1.6
4,827.1
0.3
1,061.1
46.2
17.3
—
378.1
1,503.0
656.2
132.2
4.0
119.0
13.4
2,427.8
682.6
3.8
1,763.6
(51.2)
2,398.8
0.5
2,399.3
4,827.1
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
RECONCILIATION OF CONSOLIDATED FINANCIAL POSITION AND EQUITY
Notes
GAAP
IFRS 1
treatment Presentation
As at September 26, 2010
Adjustments
Accounting
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses
Income taxes receivable
Deferred taxes
Non-current assets
Investment in an associate
Other financial assets
Fixed assets
Investment properties
Intangible assets
Goodwill
Deferred taxes
Defined benefit assets
LIABILITIES AND EQUITY
Current liabilities
Bank loans
Accounts payable
Income taxes payable
Provisions
Deferred taxes
Current portion of debt
Non-current liabilities
Debt
Defined benefit liabilities
Provisions
Deferred taxes
Other liabilities
Equity
Capital stock
Contributed surplus
Retained earnings
Accumulated other comprehensive
income
Equity attributable to the equity
holders of the parent
Non-controlling interests
n
r
s
t
u
d
q
v
l
l
n
v
l
q
e, l
h
w
e
214.7
311.3
699.3
9.7
1.7
12.3
1,249.0
—
235.3
1,319.1
—
315.7
1,603.7
1.3
72.8
4,796.9
1.0
1,073.3
50.8
—
12.8
4.7
1,142.6
1,004.3
48.5
—
137.5
21.2
2,354.1
702.1
6.1
1,734.9
(0.3)
2,442.8
—
2,442.8
4,796.9
- 52 -
(12.3)
(12.3)
219.5
(219.5)
(32.2)
32.2
12.3
—
(9.2)
9.2
(12.8)
(12.8)
4.8
12.8
(5.3)
(0.5)
—
11.2
(47.3)
(36.1)
—
1.4
(69.7)
(4.4)
(11.7)
24.0
(5.2)
(65.6)
—
—
38.1
10.4
(10.9)
(14.9)
27.2
(4.5)
(63.3)
2.1
(63.2)
(63.3)
(61.1)
(63.3)
(36.1)
(61.1)
(65.6)
—
0.5
0.5
—
IFRS
214.7
311.3
699.3
9.7
1.7
—
1,236.7
220.9
15.8
1,217.2
27.8
304.0
1,603.7
48.8
20.3
4,695.2
1.0
1,064.1
50.8
9.2
—
4.7
1,129.8
1,004.3
97.0
4.8
124.5
15.9
2,376.3
702.1
8.2
1,608.4
(0.3)
2,318.4
0.5
2,318.9
4,695.2
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
RECONCILIATION OF CONSOLIDATED STATEMENTS OF INCOME
Fiscal year ended September 24, 2011
Adjustments
Notes
GAAP
Accounting
treatment
Presentation
IFRS
o
y
b
c
z
aa
Sales
Cost of sales and operating expenses
Share of an associate’s earnings
Closure expenses
Earnings before financial costs,
taxes, depreciation and
amortization
Depreciation and amortization
Operating income
Financial costs, net
Earnings before income taxes
Income taxes
Net earnings
Net earnings per share (Dollars)
Basic
Fully diluted
11,430.6
(10,679.6)
42.6
(20.2)
773.4
(195.2)
578.2
(41.5)
536.7
(150.4)
386.3
3.75
3.73
(6.6)
(0.2)
(0.3)
(7.1)
15.9
8.8
8.8
(2.4)
6.4
(34.2)
34.2
11,396.4
(10,652.0)
42.4
(20.5)
—
—
—
—
766.3
(179.3)
587.0
(41.5)
545.5
(152.8)
392.7
3.81
3.79
- 53 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
RECONCILIATION OF CONSOLIDATED COMPREHENSIVE INCOME
Net earnings
Other comprehensive income
Change in the fair value of a derivative
designated as cash flow hedge
Changes in defined benefit plans
Actuarial losses
Asset ceiling effect
Minimum funding requirement
Share of an associate's other comprehensive
income
Corresponding income taxes
Comprehensive income
Notes
f
f
f
b
f
Fiscal year ended September 24, 2011
Adjustments
GAAP
386.3
0.4
—
—
—
—
(0.1)
386.6
Accounting
treatment
6.4
(66.8)
0.5
(2.5)
0.1
17.5
(44.8)
IFRS
392.7
0.4
(66.8)
0.5
(2.5)
0.1
17.4
341.8
- 54 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
RECONCILIATION OF CONSOLIDATED CASH FLOWS
Fiscal year ended September 24, 2011
Adjustments
Notes
GAAP
Accounting
treatment
Presentation
IFRS
Operating activities
Net earnings
Income taxes
Earnings before income taxes
Non-cash items
Share in an associate's earnings
Closure expenses
Depreciation and amortization
Amortization of deferred financing costs
Loss on disposal and write-offs of fixed and intangible
assets and investment properties
Interest income from investments
Deferred taxes
Impairment losses of fixed and intangible assets and
investment properties
Impairment loss reversals of fixed and intangible assets
Share-based compensation cost
Difference between amounts paid for employee benefits
and current period cost
Financial costs, net
aa, p
b
z
c
p
p
d
d
f
p
Net change in non-cash working capital items
e, l, p
Interest paid
Income taxes paid
Investing activities
Business acquisitions
Net change in other financial assets
Dividends from an associate
Additions to fixed assets
Proceeds on disposal of fixed assets
Proceeds on disposal of investment properties
Additions to intangible assets
Financing activities
Net change in bank loans
Shares issued
Shares redeemed
Acquisition of treasury shares
Performance share units cash settlement
Increase in debt
Repayment of debt
Use of non-current provisions
Net change in other liabilities
Dividends
Net change in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
p
p
e
k
k
l
l
- 55 -
386.3
—
386.3
(42.6)
8.9
195.2
0.4
9.7
(0.1)
14.6
—
—
6.3
(11.1)
—
567.6
(24.4)
—
—
543.2
(74.5)
5.4
4.7
(148.1)
5.4
—
(19.9)
(227.0)
(0.7)
7.0
(188.3)
(8.9)
(0.4)
8.4
(12.1)
—
(3.3)
(77.1)
(275.4)
40.8
214.7
255.5
6.4
2.4
8.8
0.2
(15.9)
0.3
14.8
(5.5)
(3.8)
(1.1)
0.8
(0.3)
0.3
0.3
—
—
—
150.4
150.4
0.1
(14.6)
41.5
177.4
16.5
(45.1)
(149.3)
(0.5)
(2.8)
2.8
—
(0.3)
0.8
0.5
—
—
392.7
152.8
545.5
(42.4)
8.9
179.3
0.4
10.0
—
—
14.8
(5.5)
6.3
(14.9)
41.5
743.9
(7.1)
(45.1)
(149.3)
542.4
(74.2)
5.4
4.7
(148.1)
2.6
2.8
(19.9)
(226.7)
(0.7)
7.0
(188.3)
(8.9)
(0.4)
8.4
(12.1)
(0.3)
(2.5)
(77.1)
(274.9)
40.8
214.7
255.5
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
NOTES TO RECONCILIATIONS BY STANDARD
IFRS 1
a) Employee benefits
At the date of transition to IFRS, use of the exemption from retrospective application, allowing all actuarial gains and
losses to be recognized in retained earnings, entailed the following adjustments:
Increase / (decrease)
Notes
September 24, 2011
September 26, 2010
Financial position:
Deferred tax assets
Defined benefit assets
Defined benefit liabilities
Deferred tax liabilities
Retained earnings
ACCOUNTING TREATMENT
b)
Investment in an associate
q
v
v
q
w
11.2
(47.3)
38.1
(10.9)
(63.3)
11.2
(47.3)
38.1
(10.9)
(63.3)
Starting with the first quarter of its 2012 fiscal year, the publicly traded associate in which the Corporation has an interest
issued its first IFRS consolidated financial statements. The Corporation's share of the adjustments related to the
conversion of the associate's consolidated financial statements from GAAP to IFRS was made up of the following items:
Increase / (decrease)
Financial position:
Notes
September 24, 2011
September 26, 2010
Investment in an associate
Deferred tax liabilities
Retained earnings
Accumulated other comprehensive income
Net earnings:
Share in an associate's earnings
Comprehensive income:
Share in an associate's comprehensive income
r
q
w
x
1.3
0.1
1.1
0.1
(0.2)
0.1
1.4
0.1
1.3
—
—
—
- 56 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
c)
Fixed assets
Under IFRS, the roof and HVAC are separate building components whose useful life is less than the building's. The roof
and HVAC are depreciated over 20 years and the rest of the building over 50 years. Under GAAP, all of the building was
depreciated over 40 years. This adjustment had the following impacts:
Increase / (decrease)
Notes
September 24, 2011
September 26, 2010
Financial position:
Fixed assets
Deferred tax assets
Deferred tax liabilities
Retained earnings
Net earnings:
Depreciation and amortization
Closure expenses
Income taxes
Cash flows:
Loss on disposal and write-offs of fixed and
intangible assets and investment properties
d)
Impairment of assets
t
q
q
w
z
aa
16.8
(1.0)
3.4
12.4
1.1
(0.3)
(0.2)
0.3
16.0
(1.0)
3.2
11.8
—
—
—
—
Under IFRS, impairment testing is conducted at the level of the asset itself, a cash generating unit (CGU) or group of
CGUs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of
the cash inflows from other assets or groups of assets. Each store is a separate CGU, and impairment testing is performed
at the store level. Impairment testing of warehouses is conducted at the level of the different groups of CGUs. As for
goodwill, certain private labels and support assets that cannot be allocated wholly to a single CGU, impairment testing
is conducted at the level of the unique operating segment. Impairment testing of investment properties, investment in
an associate, banners, certain private labels and loyalty programs is conducted at the level of the asset itself. Under
GAAP, impairment testing was done at the level of the asset itself, a group of assets or a reporting unit. These adjustments
had the following impacts:
Increase / (decrease)
Notes
September 24, 2011
September 26, 2010
Financial position:
Fixed assets
Investment properties
Intangible assets
Deferred tax assets
Deferred tax liabilities
Retained earnings
Net earnings:
Impairment losses
Impairment loss reversals
Depreciation and amortization
Income taxes
(80.5)
(4.5)
(11.3)
15.5
(9.0)
(71.8)
(14.8)
5.5
14.8
(1.4)
(85.7)
(4.4)
(11.7)
24.2
(1.7)
(75.9)
—
—
—
—
t
u
q
q
w
y
y
z
aa
- 57 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
At the date of transition to IFRS and in subsequent periods, impairment testing, conducted at the level of stores and
warehouses, consisted in a comparison of the carrying value and recoverable value of asset, CGU or group of CGUs.
The recoverable value is the higher of the value in use and the fair value less costs to sell. The recoverable value of
each store and warehouse was determined based on its value in use which was calculated using pre-tax cash flow
forecasts from management-approved budgets discounted to present value using the pre-tax discount rate of 14.4 %.
The resulting impairment losses as at September 26, 2010 were allocated as follows between the different categories
of fixed and intangible assets:
Fixed assets:
Buildings
Land
Equipment
Leasehold improvements
Buildings under finance leases
Intangible assets:
Leasehold rights
Software
Improvements and development of retail network loyalty
Prescription files
September 26, 2010
8.3
1.9
44.7
29.3
1.5
85.7
September 26, 2010
3.3
5.9
1.7
0.8
11.7
At the date of transition to IFRS and in subsequent periods, impairment testing was also done at the level of investment
properties. Their recoverable value was determined based on their fair value less costs to sell, based on recent
transactions on the market.
Further information on impairment losses as at September 24, 2011 is provided in notes 14, 15 and 16.
e) Business combinations
Under IFRS, business combination-related costs are expensed when incurred. Only restructuring costs for the acquired
business that would have been incurred even if there had been no business combination may be included in the purchase
price allocation. Non-controlling interests are presented in equity. Under GAAP, business combination-related costs were
considered in purchase price allocation. Restructuring costs for the acquired business could be included in the purchase
price allocation. Non-controlling interests were presented in other liabilities. These adjustments had the following impacts:
Increase / (decrease)
Notes
September 24, 2011
September 26, 2010
Financial position:
Goodwill
Other financial assets
Deferred tax liabilities
Other liabilities
Retained earnings
Non-controlling interests
Net earnings:
Operating expenses
Income taxes
Cash flows:
Business acquisitions
Net change in non-cash working capital items
s
q
w
y
aa
- 58 -
(0.8)
(0.3)
(0.3)
(0.5)
(0.8)
0.5
(1.1)
0.3
0.3
0.8
—
—
—
(0.5)
—
0.5
—
—
—
—
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
f)
Employee benefits
Actuarial gains or losses
Under IFRS, actuarial gains or losses are recognized in comprehensive income. Under GAAP, they were deferred and
amortized using the corridor method and recognized in net earnings. This adjustment had the following impacts:
Increase / (decrease)
Financial position:
Deferred tax assets
Defined benefit assets
Defined benefit liabilities
Deferred tax liabilities
Retained earnings
Accumulated other comprehensive income
Net earnings:
Employee benefit expense
Income taxes
Comprehensive income:
Actuarial gains (losses)
Corresponding income taxes
Past service cost
Notes
September 24, 2011
September 26, 2010
q
v
v
q
w
x
y
aa
(1.1)
(23.2)
39.5
(17.0)
3.0
(49.8)
4.1
(1.1)
(66.8)
17.0
(0.2)
12.2
(18.2)
7.6
0.6
22.0
0.8
(0.2)
29.6
(7.6)
Under IFRS, past service cost for vested benefits is recognized immediately in net earnings. Under GAAP, past service
cost was amortized on a straight-line basis over the average remaining service period of active participants, regardless
of vesting. This adjustment had the following impacts:
Increase / (decrease)
Notes
September 24, 2011
September 26, 2010
Financial position:
Deferred tax assets
Defined benefit liabilities
Deferred tax liabilities
Retained earnings
Net earnings:
Employee benefit expense
q
v
q
w
y
1.7
10.6
(0.9)
(8.0)
(0.2)
1.7
10.4
(0.9)
(7.8)
—
Asset ceiling and minimum funding requirement
Under IFRS, in the case of a surplus funded plan, defined benefit assets are limited to the availability of future contribution
reductions calculated on a going concern and solvency basis. Furthermore, an additional liability could be recorded
when minimum funding requirements exceed economic benefits available. Ceiling and minimum funding requirement
effects are recognized for each period and recorded in comprehensive income. Under GAAP, in the case of a surplus
funded plan, accrued benefit assets were limited to the availability of future contribution reductions calculated on a going
concern basis. Any variances regarding the ceiling were recorded in net earnings. These adjustments had the following
impacts:
- 59 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Increase / (decrease)
Financial position:
Defined benefit assets
Deferred tax liabilities
Retained earnings
Accumulated other comprehensive income
Net earnings:
Employee benefit expense
Comprehensive income:
Asset ceiling effect
Minimum funding requirement
Corresponding income taxes
Post-employment benefits
Notes
September 24, 2011
September 26, 2010
v
q
w
x
y
(11.1)
(3.0)
(6.6)
(1.5)
(0.1)
0.5
(2.5)
0.5
(9.0)
(2.5)
(6.5)
—
—
—
—
—
Post-employment benefits plans consist of pension benefits, post-employment life insurance, and post-employment
health care. Certain plans provide post-employment life insurance and health care benefits only to employees with a
minimum of 20 years of service and aged 65 at retirement. Under IFRS, vested rights to these plans are recognized
only when employees turn 45, if hired before then. Under GAAP, recognition was from an employee's hiring date for
employees hired before they were 45 years old. As the recognition date is later under IFRS than under GAAP, recognized
obligations are less under IFRS. This adjustment had the following impacts:
Increase / (decrease)
Notes
September 24, 2011
September 26, 2010
Financial position:
Defined benefit assets
Deferred tax assets
Retained earnings
g)
Income taxes
v
q
w
3.8
(0.9)
2.9
3.8
(0.9)
2.9
Under IFRS, differences between the carrying amount and tax base of intangible assets with indefinite useful lives have
to be recognized as deferred tax assets or liabilities based on applicable tax rates when the asset is to be realized. Since
these intangible assets are not amortized, they are deemed to be realized upon their disposal and therefore the capital
gains tax rate was used. Under GAAP, the common practice was to use the corporate tax rate in accounting for deferred
taxes. This adjustment had the following impacts:
Increase / (decrease)
Notes
September 24, 2011
September 26, 2010
Financial position:
Deferred tax liabilities
Retained earnings
q
w
(13.1)
13.1
(13.1)
13.1
- 60 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
h) Share-based payment
Under IFRS, when stock option awards vest gradually, each tranche is considered as a separate award with recognition
of the compensation expense over the vesting term of each tranche. Under GAAP, all tranches were considered as a
single award with straight-line recognition of the compensation expense over the total vesting term of all tranches. This
adjustment had the following impacts:
Increase / (decrease)
Financial position:
Contributed surplus
Retained earnings
PRESENTATION
i)
Assets held for sale
Notes
September 24, 2011
September 26, 2010
w
2.1
(2.1)
2.1
(2.1)
Under IFRS, assets held for sale are presented separately in the consolidated statement of financial position. Under
GAAP, they were included in accounts receivable. The impact of this reclassification as at September 24, 2011 was $6.6.
j)
Investment in an associate
Under IFRS, investments accounted for using the equity method are presented separately in the consolidated statement
of financial position. Under GAAP, they were included in investments and other assets. The impacts of this reclassification
as at September 26, 2010 and September 24, 2011 were $219.5 and $257.4 respectively (notes r and s).
k)
Investment properties
Under IFRS, investment properties are held for capital appreciation and to earn rentals. They are not occupied by the
owner for its ordinary activities. They are presented separately in the consolidated statement of financial position. Under
GAAP, the concept of investment properties did not exist and such land and buildings were included in fixed assets.
This reclassification had the following impacts:
Increase / (decrease)
Notes
September 24, 2011
September 26, 2010
Financial position:
Fixed assets
Investment properties
Cash flows:
Proceeds on disposal of fixed assets
Proceeds on disposal of investment properties
l)
Provisions
t
u
(31.5)
31.5
(2.8)
2.8
(32.2)
32.2
—
—
Under IFRS, current and non-current provisions are presented separately in the consolidated statement of financial
position. Under GAAP, they were included in accounts payable and other long-term liabilities. This reclassification had
the following impacts:
Increase / (decrease)
Financial position:
Current provisions
Accounts payable
Non-current provisions
Other liabilities
Cash flows:
Net change in non-cash working capital items
Non-current provisions used
Net change in other liabilities
September 24, 2011
September 26, 2010
17.3
(17.3)
4.0
(4.0)
(0.5)
(0.3)
0.8
9.2
(9.2)
4.8
(4.8)
—
—
—
- 61 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
m) Debt
Under IFRS, financial liabilities at the closing date will mature within the next 12 months are presented in current items
in the consolidated statement of financial position, even if a refinancing agreement is entered into after the closing date
and before the financial statements are authorized for issue. Under GAAP, they were presented with the non-current
items. The impact of this reclassification as at September 24, 2011 was $369.3 for the Credit A Facility.
n) Deferred taxes
Under IFRS, deferred tax assets and liabilities are classified as non-current items in the consolidated statement of
financial position. Under GAAP, the current and non-current portions of deferred tax assets and liabilities were presented
separately. The impacts of this reclassification of current deferred tax assets and liabilities as at September 26, 2010
were $12.3 and $12.8 and the impacts as at September 24, 2011 were $19.2 and $11.2 (note q).
o) Loyalty programs
Under IFRS, the cost of loyalty program points is recorded as a reduction in sales. Under GAAP, it was recorded in the
cost of sales and operating expenses. The impact of this reclassification for the year ended September 24, 2011 was
$34.2 (note y).
p)
Interest and income taxes paid
Under IFRS, interest and income taxes paid are incorporated in the consolidated statement of cash flows. Under GAAP,
interest and income taxes paid were presented as supplementary information. This reclassification had the following
impacts:
Increase / (decrease)
Cash flows:
Financial costs, net
Interest paid
Interest income from investments
Income taxes
Income taxes paid
Deferred taxes
Net change in non-cash working capital items
September 24, 2011
41.5
(45.1)
0.1
150.4
(149.3)
(14.6)
17.0
- 62 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
SUMMARY OF FINANCIAL STATEMENT ADJUSTMENTS
FINANCIAL POSITION
q) Deferred tax assets and liabilities
Deferred tax assets
Increase / (decrease)
Exemption from retrospective application
Fixed assets
Impairment of assets
Employee benefits
Actuarial gains or losses
Past service cost
Post-employment benefits
Reclassification of current portion
Increase / (decrease)
Exemption from retrospective application
Fixed assets
Impairment of assets
Employee benefits
Past service cost
Post-employment benefits
Reclassification of current portion
Deferred tax liabilities
Increase / (decrease)
Exemption from retrospective application
Investment in an associate
Fixed assets
Impairment of assets
Business combinations
Employee benefits
Actuarial gains or losses
Past service cost
Asset ceiling and minimum funding requirement
Income taxes
Reclassification of current portion
September 24, 2011
Notes
IFRS 1
Accounting
treatment
Presentation
a
c
d
f
f
f
n
11.2
11.2
(1.0)
15.5
(1.1)
1.7
(0.9)
14.2
19.2
19.2
September 26, 2010
Notes
IFRS 1
Accounting
treatment
Presentation
a
c
d
f
f
n
11.2
11.2
(1.0)
24.2
1.7
(0.9)
24.0
12.3
12.3
September 24, 2011
Notes
IFRS 1
Accounting
treatment
Presentation
(10.9)
(10.9)
0.1
3.4
(9.0)
(0.3)
(17.0)
(0.9)
(3.0)
(13.1)
(39.8)
11.2
11.2
a
b
c
d
e
f
f
f
g
n
- 63 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Increase / (decrease)
Exemption from retrospective application
Investment in an associate
Fixed assets
Impairment of assets
Employee benefits
Past service cost
Asset ceiling and minimum funding requirement
Income taxes
Reclassification of current portion
r)
Investment in an associate
Increase / (decrease)
Notes
Share of an associate's IFRS
conversion
Reclassification of other financial
assets
b
j
s) Other financial assets
Increase / (decrease)
Business combinations
Reclassification of investment in an
associate
Notes
e
j
t)
Fixed assets
Increase / (decrease)
Notes
Components
Impairment of assets
Reclassification of investment
properties
c
d
k
September 26, 2010
Notes
IFRS 1
Accounting
treatment
Presentation
a
b
c
d
f
f
g
n
(10.9)
(10.9)
0.1
3.2
(1.7)
(0.9)
(2.5)
(13.1)
(14.9)
12.8
12.8
September 24, 2011
September 26, 2010
Accounting
treatment
Presentation
Accounting
treatment
Presentation
1.3
1.3
257.4
257.4
1.4
1.4
219.5
219.5
September 24, 2011
September 26, 2010
Accounting
treatment
Presentation
Presentation
(0.3)
(0.3)
(257.4)
(257.4)
(219.5)
(219.5)
September 24, 2011
September 26, 2010
Accounting
treatment
Presentation
Accounting
treatment
Presentation
16.8
(80.5)
(63.7)
16.0
(85.7)
(69.7)
(32.2)
(32.2)
(31.5)
(31.5)
- 64 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
u)
Investment properties
Increase / (decrease)
Impairment of assets
Reclassification of fixed assets
Notes
d
k
v) Defined benefit assets and liabilities
Defined benefit assets
September 24, 2011
September 26, 2010
Accounting
treatment
Presentation
Accounting
treatment
Presentation
(4.5)
(4.5)
31.5
31.5
(4.4)
(4.4)
32.2
32.2
Increase / (decrease)
Notes
IFRS 1
Accounting
treatment
IFRS 1
Accounting
treatment
September 24, 2011
September 26, 2010
Exemption from retrospective
application
Employee benefits
Actuarial losses
Asset ceiling and minimum funding
requirement
Post-employment benefits
a
f
f
f
Defined benefit liabilities
(47.3)
(47.3)
(23.2)
(11.1)
3.8
(30.5)
(47.3)
(9.0)
3.8
(5.2)
(47.3)
Increase / (decrease)
Notes
IFRS 1
Accounting
treatment
IFRS 1
Accounting
treatment
September 24, 2011
September 26, 2010
Exemption from retrospective
application
Employee benefits
Actuarial losses
Past service cost
a
f
f
38.1
38.1
39.5
10.6
50.1
38.1
38.1
10.4
10.4
- 65 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
w) Retained earnings
Increase / (decrease)
Notes
IFRS 1
Accounting
treatment
IFRS 1
Accounting
treatment
September 24, 2011
September 26, 2010
Exemption from retrospective
application
Investment in an associate
Fixed assets
Impairment of assets
Business combinations
Employee benefits
Actuarial gains or losses
Past service cost
Asset ceiling and minimum funding
requirement
Post-employment benefits
Income taxes
Share-based payment
a
b
c
d
e
f
f
f
f
g
h
x) Accumulated other comprehensive income
Increase / (decrease)
Notes
Investment in an associate
Employee benefits
Actuarial losses
Asset ceiling and minimum funding
requirement
b
f
f
NET EARNINGS
y) Cost of sales and operating expenses
(63.3)
(63.3)
1.1
12.4
(71.8)
(0.8)
3.0
(8.0)
(6.6)
2.9
13.1
(2.1)
(56.8)
(63.3)
(63.3)
1.3
11.8
(75.9)
(7.8)
(6.5)
2.9
13.1
(2.1)
(63.2)
September 24, 2011
Accounting treatment
0.1
(49.8)
(1.5)
(51.2)
Decrease / (increase)
Notes
Accounting treatment
Presentation
September 24, 2011
Impairment of assets
Impairment losses
Impairment loss reversals
Business combinations
Employee benefits
Actuarial gains or losses
Past service cost
Asset ceiling and minimum funding
requirement
Loyalty programs
d
d
e
f
f
f
o
(14.8)
5.5
(1.1)
4.1
(0.2)
(0.1)
(6.6)
34.2
34.2
- 66 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
z) Depreciation and amortization
Decrease / (increase)
Fixed assets
Impairment of assets
aa)
Income taxes
Notes
c
d
Decrease / (increase)
Notes
Fixed assets
Imipairment of assets
Business combinations
Employee benefits
Actuarial gains or losses
c
d
e
f
September 24, 2011
Accounting treatment
1.1
14.8
15.9
September 24, 2011
Accounting treatment
(0.2)
(1.4)
0.3
(1.1)
(2.4)
- 67 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
3.
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements, in Canadian dollars, have been prepared by management in accordance with
IFRS as issued by the International Accounting Standards Board (IASB). The consolidated financial statements have
been prepared within the reasonable limits of materiality, on a historical cost basis, except for certain financial instruments
measured at fair value. The significant accounting policies are summarized below:
Consolidation
The consolidated financial statements include the accounts of the Corporation and its subsidiaries, as well as those of
special purpose entities. All intercompany transactions and balances were eliminated on consolidation.
Sales recognition
Sales come essentially from the sale of goods. Retail sales made by corporate stores and stores that are special purpose
entities are recognized at the time of sale to the customer, and sales to affiliated stores and other customers when the
goods are delivered. The rebates granted by the Corporation to its retailers are recorded as a reduction in sales.
Recognition of consideration received from vendors
In some cases, a cash consideration received from vendors is considered as an adjustment to the vendor's product
pricing and is therefore characterized as a reduction of cost of sales and related inventories when recognized in the
consolidated financial statements. Certain exceptions apply if the cash consideration constitutes the reimbursement of
incremental costs incurred by the Corporation to promote the vendor's products or a payment for assets or services
delivered to vendors. This other consideration received from vendors is accounted for, according to its nature, under
sales or as a reduction of the cost of sales and operating expenses when receipt is considered likely and can be reasonably
estimated.
Loyalty programs
The Corporation has two loyalty programs.
The first program, for which the Corporation acts as an agent, belongs to a third party and its cost is recorded as a
reduction in sales at the time of sale to the customer.
The second program belongs to the Corporation. At the time of a sale to the customer, part of it is recorded in accounts
payable as deferred revenue equal to the fair value of the program's issued points, as determined based on the exchange
value of the points awarded and the expected redemption rate which are regularly remeasured, and recognized as sales
when the points are redeemed.
Foreign currency translation
The consolidated financial statements are presented in Canadian dollars, the Corporation's functional currency.
Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the
transaction. At each closing, monetary items denominated in foreign currency are translated using the exchange rate
at the closing date. Non-monetary items that are measured at historical cost in foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in foreign currency
are translated using the exchange rate at the date when the fair value was determined. Gains or losses resulting from
currency translations are recognized in net earnings.
Income taxes
Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and tax laws used to determine these amounts are those that are
enacted or substantively enacted by tax authorities by the closing date.
- 68 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
The Corporation follows the liability method of accounting for income taxes. Under this method, deferred tax assets and
liabilities are accounted for based on estimated taxes recoverable or payable that would result from the recovery or
settlement of the carrying amount of assets and liabilities. Deferred tax assets and liabilities are measured using
substantively enacted tax rates expected to be in effect when the temporary differences are expected to reverse. Changes
in these amounts are included in current net earnings in the period in which they occurs. The carrying amount of deferred
tax assets is reviewed at every closing date and reduced to the extent that it is no longer probable that sufficient earnings
will be available to allow all or part of the deferred tax assets to be utilized.
Income tax relating to items recognized directly in equity is recognized in equity.
Share-based payment
A share-based compensation expense is recognized for the stock option and performance share unit (PSU) plans offered
to certain employees.
Stock option awards vest gradually over the vesting term and each tranche is considered as a separate award. The
value of the remuneration expense is calculated based on the fair value of the stock options at the option grant date and
using the Black-Scholes valuation model. The compensation expense is recognized over the vesting term of each
tranche.
The compensation expense for the PSU plan is determined based on the market value of the Corporation's Common
Shares at grant date. Compensation expense is recognized on a straight-line basis over the vesting period. The impact
of any changes in the number of PSUs is recorded in the period where the estimate is revised. The grant qualifies as
an equity instrument.
Net earnings per share
Basic net earnings per share are calculated by dividing the net earnings attributable to equity holders of the parent by
the weighted average number of Common Shares outstanding during the year. For the fully diluted net earnings per
share, the net earnings attributable to equity holders of the parent and the weighted average number of outstanding are
adjusted to reflect all potential dilutive shares.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank balances, highly liquid investments (with an initial term of
three months or less), outstanding deposits and cheques in transit. They are classified as “Financial assets at fair value
through net earnings” and measured at fair value, with revaluation at the end of each period. Resulting gains or losses
are recorded in net earnings.
Accounts receivable
Accounts receivable and loans to certain customers are classified as “Loans and receivables”. After their initial fair value
measurement, they are measured at amortized cost using the effective interest method. For the Corporation, the
measured amount generally corresponds to cost.
Inventories
Inventories are valued at the lower of cost and net realizable value. Warehouse inventories cost is determined by the
average cost method net of certain considerations received from vendors. Retail inventories cost is valued at the retail
price less the gross margin and certain considerations received from vendors. All costs incurred in bringing the inventories
to their present location and condition are included in the cost of warehouse and retail inventories.
Assets held for sale
Non-current assets are classified as assets held for sale if their carrying amount will be recovered principally through a
sale transaction rather than through continuing use. For this to be the case, the sale must be highly probable, assets
must be available for immediate sale in their present condition, and management must be committed to a plan to sell
assets that should be expected to close within one year from the date of classification. Assets held for sale are recognized
at the lower of their carrying amount and fair value less costs to sell. They are not depreciated.
- 69 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Investment in an associate
The Corporation's investment in its associate is accounted for using the equity method. An associate is an entity in which
the Corporation has significant influence.
Investment in a joint venture
The Corporation has an interest in a joint venture, whereby the venturers have a contractual agreement that establishes
joint control over the economic activities of the entity. This investment is accounted for using the equity method. The
Corporation's share in the joint venture's earnings is recorded in the cost of sales and operating expenses.
Fixed assets
Fixed assets are recorded at cost. Principal components of a fixed asset with different useful lives are depreciated
separately. Buildings and equipment are depreciated on a straight-line basis over their useful lives. Leasehold
improvements are depreciated on a straight-line basis over the shorter of their estimated useful lives or the remaining
lease term. The depreciation method and estimate of useful lives are reviewed annually.
Buildings
Equipment
Leasehold improvements
Leases
20 to 50 years
3 to 20 years
5 to 20 years
Leases are classified as finance leases if substantially all risks and rewards incidental to ownership are transferred to
the lessee. At the moment of initial recognition, the lessee records the leased item as an asset at the lower of the fair
value of the asset and the present value of the minimum lease payments. A corresponding liability to the lessor is recorded
in the consolidated statement of financial position as a finance lease obligation. In subsequent periods, the asset is
depreciated on a straight-line basis over the term of the lease and interest on the obligation is expensed through net
earnings.
Leases are classified as operating leases if substantially all risks and rewards incidental to ownership are not transferred
to the lessee. The lease payments are recognized as an expense on a straight-line basis over the lease term.
Investment properties
Investment properties are held for capital appreciation and to earn rentals. They are not occupied by the owner for its
ordinary activities. They are recognized at cost. Principal components, except for land which is not depreciated, are
depreciated on a straight-line basis over their respective useful lives which vary from 20 to 50 years. The depreciation
method and estimates of useful lives are reviewed annually.
Intangible assets
Intangible assets with finite useful lives are recorded at cost and amortized on a straight-line basis over their useful lives.
The amortization method and estimates of useful lives are reviewed annually.
Leasehold rights
Software
Improvements and development of retail network loyalty
Prescription files
20 to 40 years
3 to 10 years
5 to 30 years
10 years
The banners that the Corporation intends to keep and operate, the private labels for which it continues to develop new
products and the loyalty programs it intends to maintain qualify as intangible assets with indefinite useful lives. They are
recorded at cost and not amortized.
Goodwill
Goodwill is recognized at cost measured as the excess of purchase price over the fair value of the acquired enterprise's
identifiable net assets at the date of acquisition. Goodwill is not amortized.
- 70 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Impairment of assets
At each reporting date, the Corporation must determine if there is any indication of depreciation of its fixed assets,
intangible assets with finite useful lives, investment properties and investment in an associate. If any indication exists,
the Corporation has to test the assets for impairment. Impairment testing of intangible assets with indefinite useful lives
and goodwill is to be done at least annually, regardless of any indication of depreciation.
Impairment testing is conducted at the level of the asset itself, a CGU or group of CGUs. A CGU is the smallest identifiable
group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups
of assets. Each store is a separate CGU. Impairment testing of warehouses is conducted at the level of the different
groups of CGUs. As for goodwill, certain private labels and support assets that cannot be allocated wholly to a single
CGU, impairment testing is conducted at the level of the unique operating segment. Impairment testing of investment
properties, investment in an associate, banners, certain private labels and loyalty programs is conducted at the level of
the asset itself.
To test for impairment, the carrying amount of an asset, CGU or group of CGUs is compared with its recoverable amount.
Generally, the recoverable amount is the higher of the value in use and the fair value less costs to sell. The value in use
corresponds to the pre-tax cash flow projections from the management-approved budgets. These projections reflect
past experience and are discounted at a pre-tax rate corresponding to the expected market rate for this type of investment.
The recoverable amount of investment properties, investment in an associate, banners, certain private labels and loyalty
programs is these assets' fair value less costs to sell. If the carrying amount exceeds the recoverable amount, an
impairment loss in the amount of the excess is recognized in net earnings. CGU or group of CGUs' impairment losses
are allocated pro rata to the assets of the CGU or group of CGUs, without however reducing the carrying amount of the
assets below the highest of their fair value less costs to sell, their value in use, and zero.
Except for goodwill, any reversal of an impairment loss is recognized immediately in net earnings. A reversal of an
impairment loss for a CGU or group of CGUs is allocated pro rata to the assets of the CGU or group of CGUs. The
recoverable amount of an asset increased by a reversal of an impairment loss may not exceed the carrying amount that
would have been determined, net of depreciation and amortization, if no impairment loss had been recognized for the
asset in prior years.
Deferred financing costs
Financing costs related to debt are deferred and amortized using the effective interest method over the term of the
corresponding loans. When one of these loans is repaid, the corresponding financing costs are charged to net earnings.
Employee benefits
Employee benefits include short-term employee benefits which correspond to wages and fringe benefits and are
recognized immediately in net earnings as are termination benefits which are also recorded as a liability when the
Corporation is demonstrably committed to terminating the employment.
Employee benefits also include post-employment benefits which comprise pension benefits (both defined benefit and
defined contribution plans) and ancillary benefits such as post-employment life and medical insurance. Employee benefits
also comprise other long-term benefits, namely long-term disability benefits not covered by insurance plans and ancillary
benefits provided to employees on long-term disability. Assets and obligations and related costs of employee defined
benefit plans, ancillary retirement benefits and other long-term benefits plan are accounted for using the following
accounting policies:
• Defined benefit obligations and the cost of pension, ancillary retirement benefits and other long-term benefits earned
by participants are determined from actuarial calculations according to the projected credit unit method. The
calculations are based on management's best assumptions relating to expected long-term return on plan assets,
salary escalation, retirement age of participants and expected health care costs.
•
For the purpose of calculating the estimated rate of return on plan assets, assets are measured at fair value.
• Defined benefit obligations are discounted using high-quality corporate bond yield rates with cash flows that match
the timing and amount of expected benefit payments.
- 71 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
•
•
Actuarial gains or losses arise from the difference between the effective yield of plan assets for a period and the
expected yield on plan assets for that period, from changes in actuarial assumptions used to determine defined
benefit obligations and from emerging experience that differs from the selected assumptions. Actuarial gains or
losses relating to pension plans and ancillary retirement benefit plans are recognized under other comprehensive
income in the period in which they occur. Actuarial gains or losses relating to other long-term employee benefits
are recognized in full immediately in net earnings.
Past service cost for vested benefits is recognized immediately in net earnings. For non-vested benefits, past service
cost is amortized on a straight-line basis over the average remaining vesting period.
• Defined benefit plans assets or liabilities recognized in the consolidated statement of financial position correspond
to the difference between the present value of defined benefit obligations and the fair value of plan assets. In the
case of a surplus funded plan, these assets are limited at the lesser of the actuarial value determined for accounting
purposes or the value of the future economic benefit by way of surplus refunds or contribution holidays. Furthermore,
an additional liability could be recorded when minimum funding requirements for past services exceed economic
benefits available. The asset ceiling effect and minimum funding requirement are recognized under other
comprehensive income in the period in which they occur.
Defined contribution plans costs, including those of multi-employer plans, are recorded when the contributions are due.
As sufficient information to reliably determine multi-employer defined benefit plan obligations and assets is not available
and as there is no actuarial valuation according to IFRS, these plans are accounted for as defined contribution plans.
Provisions
Provisions are recognized when the Corporation has a present obligation (legal or constructive) resulting from a past
event and will likely have to settle the obligation, the amount of which can be reliably estimated. The amount recognized
as provision is the best estimate of the expense required to settle the present obligation at the closing date. When a
provision is measured based on estimated cash flows required to settle the present obligation, its carrying amount is
the discounted value of these cash flows.
Present obligations resulting from onerous contracts are accounted for and measured as provisions. A contract is said
to be onerous when the costs involved in fulfilling the terms and conditions of the contract are higher than the contract's
expected economic benefits.
Other financial liabilities
Bank loans, accounts payable, credit facilities, notes, loans payable, and obligations under finance leases are classified
as “Other financial liabilities”. After their initial fair value measurement, they are measured at amortized cost using the
effective interest method. For the Corporation, the measured amount generally corresponds to cost.
Non-controlling interests
The non-controlling interest in Adonis and Phoenicia should be recognized in equity. However, the Corporation has the
option of buying out the minority shareholder in Adonis and Phoenicia and the minority shareholder has the option of
having the Corporation buy out its interest in the two entities under certain conditions at a predetermined date. Given
these options, the non-controlling interest is a financial liability. It is classified as "Financial liabilities held for trading"
and measured at fair value with gains or losses resulting from the revaluation at the end of each period recorded in net
earnings or in retained earnings. The Corporation elected to record them in retained earnings.
Derivative financial instruments
In accordance with its risk management strategy, the Corporation uses derivative financial instruments for hedging
purposes. On inception of a hedging relationship, the Corporation indicates whether or not it will apply hedge accounting
to the relationship. The Corporation formally documents several factors, such as the election to apply hedge accounting,
the hedged item, the hedging item, the risks being hedged and the term over which the relationship is expected to be
effective, as well as risk management objectives and strategy.
The effectiveness of the hedging relationship is measured at its inception to determine whether it will be highly effective
over the term of the relationship and assessed periodically to ensure that hedge accounting is still appropriate. The
results of these assessments are formally documented.
- 72 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
The derivative financial instruments used by the Corporation consist primarily of interest rate swaps under which the
Corporation substitutes variable rate interest payments with fixed rate interest payments. The Corporation elected to
apply hedge accounting to its interest rate swaps and treat them as cash flow hedges. These swaps are marked-to-
market with resulting gains or losses recognized through comprehensive income at each period end, provided that the
hedge is deemed effective.
The Corporation also uses foreign exchange forward contracts to hedge against foreign exchange rate fluctuations in
respect of future foreign-denominated purchases of goods and services. Given their short-term maturity, the Corporation
elected not to apply hedge accounting to its foreign exchange forward contracts. These derivative financial instruments
are classified as "Financial assets or liabilities at fair value through net earnings" and measured at fair value with
revaluation at the end of each period. Resulting gains or losses are recorded in net earnings.
Fiscal year
The Corporation's fiscal year ends on the last Saturday of September. The fiscal year ended September 29, 2012 included
53 weeks of operations and the fiscal year ended September 24, 2011 included 52 weeks of operations.
4. NEW ACCOUNTING POLICIES
RECENTLY ISSUED
Classification and measurement of financial assets and financial liabilities
In November 2009, the IASB published IFRS 9 “Financial Instruments”. This new standard simplifies the classification
and measurement of financial assets set out in IAS 39 “Financial Instruments: Recognition and Measurement”. Financial
assets are to be measured at amortized cost or fair value. They are to be measured at amortized cost if the two following
conditions are met:
a)
b)
the assets are held within a business model whose objective is to collect contractual cash flows; and
the contractual cash flows are solely payments of principal and interest on the outstanding principal.
All other financial assets are to be measured at fair value through net earnings. The entity may, if certain conditions are
met, elect to use the fair value option instead of measurement at amortized cost. As well, the entity may choose upon
initial recognition to measure non-trading equity investments at fair value through comprehensive income. Such a choice
is irrevocable.
In October 2010, the IASB issued revisions to IFRS 9, adding the requirements for classification and measurement of
financial liabilities contained in IAS 39 and further points. For financial liabilities measured at fair value through net
earnings using the fair value option, the amount of change in a liability’s fair value attributable to changes in its credit
risk is recognized directly in other comprehensive income.
In December 2011, the IASB deferred the mandatory effective date of IFRS 9 to fiscal years beginning on or after
January 1, 2015. Early adoption is permitted under certain conditions. An entity is not required to restate comparative
financial periods for its first-time application of IFRS 9, but must comply with the new disclosure requirements.
Offsetting financial assets and financial liabilities
In December 2011, the IASB issued amendments to IAS 32 “Financial Instruments: Presentation” clarifying the
requirements for offsetting financial assets and financial liabilities. These amendments shall be applied to annual periods
beginning on or after January 1, 2014.
The IASB also issued amendments to IFRS 7 “Financial Instruments: Disclosures” improving disclosure on offsetting of
financial assets and financial liabilities. These amendments shall be applied to annual and interim periods beginning on
or after January 1, 2013.
- 73 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Consolidated Financial Statements
In May 2011, the IASB published IFRS 10 “Consolidated Financial Statements” which is a replacement of SIC-12
“Consolidation – Special Purpose Entities”, and certain parts of IAS 27 “Consolidated and Separate Financial
Statements”. IFRS 10 uses control as the single basis for consolidation, irrespective of the nature of the investee,
employing the following factors to identify control:
a)
b)
c)
power over the investee;
exposure or rights to variable returns from involvement with the investee;
the ability to use power over the investee to affect the amount of the investor’s returns.
IFRS 10 shall be applied to fiscal years beginning on or after January 1, 2013. Early adoption is permitted under certain
conditions.
Joint Arrangements
In May 2011, the IASB published IFRS 11 “Joint Arrangements” which supersedes IAS 31 “Interests in Joint Ventures”
and SIC-13 “Jointly Controlled Entities – Non-Monetary Contributions by Venturers”. IFRS 11 requires that joint ventures
be accounted for using the equity method of accounting and eliminates the need for proportionate consolidation. This
new standard shall be applied to fiscal years beginning on or after January 1, 2013. Early adoption is permitted under
certain conditions.
Disclosure of Interests in Other Entities
In May 2011, the IASB published IFRS 12 “Disclosure of Interests in Other Entities” which requires that an entity disclose
information on the nature of and risks associated with its interests in other entities (i.e. subsidiaries, joint arrangements,
associates or unconsolidated structured entities) and the effects of those interests on its financial statements. IFRS 12
shall be applied to fiscal years beginning on or after January 1, 2013. Early adoption is permitted under certain conditions.
Entities may, without early adoption of IFRS 12, choose to incorporate only some of the required disclosures in their
financial statements.
Fair Value Measurement
In May 2011, the IASB published IFRS 13 “Fair Value Measurement” to establish a single framework for fair value
measurement of financial and non-financial items. IFRS 13 defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It
also requires disclosure of certain information on fair value measurements. IFRS 13 shall be applied to fiscal years
beginning on or after January 1, 2013. Early adoption is permitted.
Employee Benefits
In June 2011, the IASB issued amendments to IAS 19 “Employee Benefits”. Changes in defined benefit obligations and
plan assets are to be recognized in comprehensive income when they occur, thus eliminating the corridor approach and
accelerating recognition of past service cost. Net interest is to be recognized in net earnings and calculated using the
discount rate by reference to market yields at the end of the reporting period on high quality corporate bonds. The actual
return on plan assets minus net interest is to be recognized in other comprehensive income. These amendments shall
be applied to fiscal years beginning on or after January 1, 2013. Early adoption is permitted.
Presentation of Financial Statements
In June 2011, the IASB issued amendments to IAS 1 “Presentation of Financial Statements”. Items of other
comprehensive income and the corresponding tax expense are required to be grouped into those that will and will not
subsequently be reclassified through net earnings. These amendments shall be applied to fiscal years beginning on or
after July 1, 2012. Early adoption is permitted.
At present, the Corporation is assessing the impact of the above-mentioned amendments on its earnings, financial
position and cash flows.
- 74 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
5.
SIGNIFICANT JUDGEMENTS AND ESTIMATES
The preparation of the consolidated financial statements requires management to make judgements, estimates and
assumptions that affect the recognition and valuation of assets, liabilities, sales, other income and expenses. These
estimates and assumptions are based on historical experience and other factors deemed relevant and reasonable and
are reviewed at every closing date. The use of different estimates could produce different amounts in the consolidated
financial statements. Actual results may differ from these estimates.
JUDGEMENTS
In applying the Corporation's accounting policies, management has made the following judgements, which have the
most significant effect on the amounts recognized in the consolidated financial statements:
Leases
In determining if leases are to be accounted for as operating leases or finance leases, management must judge whether
or not substantially all risks and rewards incidental to ownership have been transferred, based on its analysis of the
terms and conditions of each lease and evaluation of various criteria, such as the option to purchase the asset at a
preferential price, the lease term as compared to the economic life of the asset, and the present value of the minimum
lease payments as compared to the fair value of the leased asset.
Consolidation of special purpose entities
The Corporation has no voting rights in certain food stores. However, it assumes the majority of their risks and benefits
from the majority of their advantages. For these reasons, the Corporation consolidates these food stores in its financial
statements.
The Corporation has no voting rights in the trust created for PSU plan participants. However, under the trust agreement,
it instructs the trustee as to the sale and purchase of Corporation shares and payments to beneficiaries, gives the trustee
money to buy Corporation shares, assumes the majority of the risks, benefits from the majority of the advantages, and
ensures that the trust holds a sufficient number of shares to meet its obligations to the beneficiaries. Management,
having concluded that the Corporation controls the trust, consolidates the entity in its financial statements.
The Corporation also has an agreement with a distributor, whose majority of risks it assumes and whose majority of
advantages it benefits from. For these reasons, the Corporation consolidates this distributor in its financial statements.
ESTIMATES
The assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have
a significant risk of causing a material adjustment to the value of assets and liabilities within the next period, are discussed
below:
Impairment of assets
In testing for impairment of intangible assets with indefinite useful lives and goodwill, value in use and fair value less
costs to sell are estimated using the discounted future cash flows model, and the capitalized excess earnings before
financial costs and taxes (EBIT) and royalty-free licence methods. These methods are based on various assumptions,
such as the future cash flows estimate, excess EBIT, royalty rate, discount rate, earnings multiple and growth rate. The
key assumptions are disclosed in notes 16 and 17.
Share-based payment
A compensation expense, corresponding to the fair value of the stock options at their grant date, is recognized in net
earnings for all stock option awards. The fair value is calculated using the Black-Scholes model. The key assumptions
are disclosed in note 22.
- 75 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Deferred taxes
Deferred tax assets are recognized for tax loss carry forwards to the extent that it is probable that future taxable profits
will be available against which the losses can be utilized. Management uses its judgement in determining these deferred
assets, considering assumptions, i.e. the utilization period for losses carried forward and the level of future taxable profits
in accordance with tax planning strategies. Non-discounted estimates of future taxable profits are made in establishing
budgets and strategic plans for each tax jurisdiction and reviewed each quarter.
Pension plans and other plans
Defined pension plans, ancillary retirements and other long-term benefits obligations and costs associated to these
obligations are determined from actuarial calculations according to the projected credit unit method. These calculations
are based on management's best assumptions relating to expected long-term return on plan assets, salary escalation,
retirement age of participants and expected health care costs. The key assumptions are disclosed in note 25.
Non-controlling interest
The non-controlling interest-related liability is calculated in relation to the buyout price which is mainly based on the
future earnings of Adonis and Phoenicia beginning at a predetermined date. Given the uncertainty associated with the
estimation of these future earnings, the Corporation used, at the end of the current fiscal year, its most probable estimate.
6. BUSINESS ACQUISITIONS
Adonis and Phoenicia
On October 23, 2011, the Corporation acquired 55% of the net assets of Adonis, a Montréal-area retailer with four existing
stores and a fifth one under construction that was opened in December 2011, as well as Phoenicia, an importer and
wholesaler with a distribution centre in Montréal and another in the Greater Toronto Area. These businesses specialize
in perishable and ethnic food products. The final purchase price paid by the Corporation for the 55% interest was $161.4
with a remaining balance of $11.6 to be paid. The acquisition was accounted for using the purchase method. The
Corporation controls the acquired businesses and consolidated their earnings as of the date of acquisition. The final
total purchase price allocation was as follows:
Net assets acquired at their fair value
Cash
Accounts receivable
Inventories
Prepaid expenses
Fixed assets
Intangible assets
Finite useful life
Indefinite useful life
Goodwill
Bank loans
Accounts payable
Debt
Deferred tax liabilities
Cash consideration
Balance due
Total consideration for the Corporation’s interest (55%)
Non-controlling interest (45%) (note 30)
The non-controlling interest was measured at 45% of the fair value of the acquired companies' net assets.
- 76 -
3.0
10.6
24.3
0.5
11.9
10.7
63.4
206.8
(15.5)
(5.4)
(10.4)
(6.4)
293.5
149.8
11.6
161.4
132.1
293.5
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
The goodwill from the acquisition corresponds to the growth potential of Adonis stores and the broadening of the
Corporation’s customer base through improvement of the ethnic food offering in all its stores. In the goodwill’s tax
treatment, 53% of the goodwill will be treated as an eligible capital property with related tax deductions and 47% as non-
deductible.
Since their acquisition, the acquired businesses have increased Corporation sales and net earnings by $236.6 and $16.0
respectively. If the acquisition had taken place at the beginning of fiscal 2012, the acquired businesses would have
increased Corporation sales and net earnings by an additional amount of $16.5 and $1.1 respectively.
Acquisition-related costs of $1.1 were recorded in cost of sales and operating expenses.
Affiliated stores
During fiscal 2011, the Corporation acquired 11 affiliated stores which it already supplied. The total purchase price was
$74.2 in cash. The acquisition of these stores was accounted for using the purchase method. The stores’ results have
been consolidated as of their respective acquisition dates. The final purchase price allocation was summarized as follows:
Net assets acquired at their fair value
Inventories
Fixed assets
Deferred tax assets
Goodwill
Cash consideration
10.2
12.7
2.4
48.9
74.2
The goodwill resulting from the acquisition corresponds to the additional contribution expected from these stores. The
tax treatment of the goodwill was an eligible capital property with the related tax deductions.
Acquisition-related costs of $0.3 were recorded in cost of sales and operating expenses.
- 77 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
7. ADDITIONAL INFORMATION ON THE NATURE OF EARNINGS COMPONENTS
Sales
Cost of sales and operating expenses
Cost of sales
Wages and fringe benefits
Employee benefit expense (note 25)
Rents, taxes and common costs
Electricity and natural gas
Impairment losses on fixed and intangible assets and investment properties
Impairment loss reversals on fixed and intangible assets
Other expenses
Share of an associate's earnings (note 12)
Share of earnings
Dilution gain
Closure expenses
Depreciation and amortization
Fixed assets (note 14)
Investment properties (note 15)
Intangible assets (note 16)
Financing costs, net
Current interest
Non-current interest
Amortization of deferred financing costs
Interest income
Passage of time
Earnings before income taxes
2012
(53 weeks)
2011
(52 weeks)
12,010.8
11,396.4
(9,800.3)
(662.1)
(49.1)
(262.1)
(114.0)
(10.3)
10.0
(301.2)
(11,189.1)
(9,333.6)
(620.9)
(45.7)
(253.8)
(111.0)
(14.8)
5.5
(277.7)
(10,652.0)
47.6
25.0
72.6
—
(150.5)
(0.1)
(33.3)
(183.9)
(2.9)
(45.1)
(0.3)
2.2
(0.3)
(46.4)
664.0
42.4
—
42.4
(20.5)
(146.1)
(0.1)
(33.1)
(179.3)
(1.1)
(43.3)
(0.4)
3.5
(0.2)
(41.5)
545.5
Impairment losses and impairment loss reversals recorded during the fiscal years were particularly on food stores where
cash flows decreased or increased due to local competition.
During fiscal 2011, non-recurring closure expenses of $20.5 before taxes, consisted of dismantling expenses, write-off
of assets and others, were incurred for the closure of a meat processing plant in Montréal and a grocery warehouse in
Toronto.
- 78 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
8.
INCOME TAXES
The effective income tax rates were as follows:
(Percentage)
Combined statutory income tax rate
Changes
Impact on deferred taxes due to postponement of 1.5% future reductions of
Ontario tax rate
Share of an associate's earnings
Others
The main components of the income tax expense were as follows:
Consolidated income statements
Current
Current tax expense
Adjustment of taxes payable for prior years
Deferred
Adjustement related to temporary differences
Impact on deferred taxes due to postponement of 1.5% future reductions of
Ontario tax rate
Consolidated comprehensive income statements
Deferred tax related to items reported directly in other comprehensive income during
the year
Change in the fair value of a derivative designated as cash flow hedge
Share of an associate's other comprehensive income
Changes in defined benefit plans
Actuarial losses
Asset ceiling effect
Minimum funding requirement
Impact on deferred taxes due to postponement of 1.5% future reductions of
Ontario tax rate
2012
(53 weeks)
2011
(52 weeks)
27.2
28.8
0.5
(1.8)
0.4
26.3
—
(1.3)
0.5
28.0
2012
(53 weeks)
2011
(52 weeks)
150.8
(6.9)
27.8
3.0
174.7
133.2
2.6
17.0
—
152.8
2012
(53 weeks)
2011
(52 weeks)
—
(0.1)
(17.2)
(0.7)
—
(1.0)
(19.0)
0.1
—
(17.0)
0.1
(0.6)
—
(17.4)
- 79 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Deferred income taxes reflect the net tax impact of temporary differences between the value of assets and liabilities for
accounting and tax purposes. The main components of the deferred tax expense and deferred tax assets and liabilities
were as follows:
Consolidated statements
of financial position
As at
September 24
2011
As at
September 29
2012
As at
September 26
2010
Consolidated statements
of income
2012
2011
(53 weeks)
(52 weeks)
Accrued expenses,
provisions and other
reserves that are tax-
deductible only at the
time of disbursement
Deferred tax losses
Inventories
Excess of tax value over
net carrying value of
assets under finance
leases
Interest rate swaps
Employee benefits
Share of an associate's
accumulated earnings
Excess of net carrying
value over tax value
Fixed assets
Investment properties
Intangible assets
Goodwill
Deferred tax assets
Deferred tax liabilities
(2.4)
1.6
(9.4)
5.2
—
41.9
(39.7)
(9.6)
0.8
(56.0)
(23.8)
(91.4)
56.3
(147.7)
(91.4)
(3.6)
1.5
(6.3)
5.5
—
32.0
(30.9)
(11.9)
1.1
(41.8)
(18.8)
(73.2)
45.8
(119.0)
(73.2)
(4.5)
11.6
(7.7)
5.8
0.1
18.7
(27.6)
(14.6)
0.9
(42.4)
(16.0)
(75.7)
48.8
(124.5)
(75.7)
1.2
0.1
(2.9)
(0.3)
—
(9.1)
(8.8)
2.8
(0.3)
(8.5)
(5.0)
(30.8)
1.3
(10.1)
1.4
(0.3)
—
(4.2)
(3.3)
2.7
0.2
0.6
(5.3)
(17.0)
9. NET EARNINGS PER SHARE
Basic net earnings per share and fully diluted net earnings per share were calculated using the following number of
shares:
(Millions)
Weighted average number of shares outstanding – Basic
Dilutive effect under:
Stock option plan
PSU plan
Weighted average number of shares outstanding – Fully diluted
2012
(53 weeks)
2011
(52 weeks)
98.9
0.4
0.3
99.6
103.1
0.4
0.1
103.6
- 80 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
10.
INVENTORIES
Inventories were detailed as follows:
Wholesale inventories
Retail inventories
2012
335.3
449.1
784.4
2011
299.6
428.7
728.3
2010
296.3
403.0
699.3
11. ASSETS HELD FOR SALE
At the end of fiscal 2012 and 2011, the Corporation was committed to an asset sale plan. These assets were reclassified
in the assets held for sale in the consolidated statement of financial position and they were measured at the lower of
carrying amount and fair value less costs to sell. No gain or loss was recorded in 2012 for these assets and a loss of
$6.3 was recorded in cost of sales and operating expenses and also closure expenses in 2011.
12.
INVESTMENT IN AN ASSOCIATE
The Corporation has a 11.1% interest in a publicly traded associate, which is Alimentation Couche-Tard. The associate's
quoted market value was $937.7 as at September 29, 2012 ($598.7 as at September 24, 2011 and $491.5 as at
September 26, 2010).
The associate's reporting date is the last Sunday of April of every year. The Corporation applied the equity method, using
the associate's first quarter financial statements as at July 22, 2012 (July 17, 2011 and July 18, 2010).
The associate's financial information was as follows:
Share of the associate's statement of financial position:
Assets
Liabilities
Carrying amount of the investment
2012
2011
2010 *
1,134.5
883.6
324.5
489.1
239.5
258.7
407.2
221.4
220.9
* Given that assets and liabilities under IFRS (comparative balances) were not disclosed in the associate's first quarter financial
statements, the Corporation presented its share of the assets and liabilities as at April 26, 2010.
Share of the associate's earnings:
Sales
Net earnings
Change in equity
2012
2011
2,662.7
47.6
25.0
2,123.7
42.4
—
In August 2012, Alimentation Couche-Tard issued 7.3 million shares for net proceeds of approximately $330 to finance
part of its acquisition of Statoil Fuel & Retail ASA. As the Corporation did not invest in this share issue, its interest in
Alimentation Couche-Tard decreased from 11.6% to 11.1%. This dilution and the Corporation's share in Alimentation
Couche-Tard's increased value as a result of the share issue amount to a deemed disposition and deemed proceeds of
disposition of part of its investment for a net pre-tax gain of $25.0.
- 81 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
13. OTHER FINANCIAL ASSETS
Loans to certain customers, bearing interest at floating rates,
repayable in monthly instalments, maturing through 2030
Other assets
Current portion included in accounts receivable
2012
2011
2010
19.3
3.7
23.0
1.4
21.6
16.5
3.9
20.4
3.4
17.0
24.7
0.5
25.2
9.4
15.8
14. FIXED ASSETS
Cost
Balance as at September 26, 2010
Acquisitions
Acquisitions through business
combinations (note 6)
Transfers
Disposals and write-offs
Balance as at September 24, 2011
Acquisitions
Acquisitions through business
combinations (note 6)
Disposals and write-offs
Land
Buildings
Equipment
Leasehold
improvements
Buildings
under
finance
leases
Total
143.1
24.9
0.7
(2.2)
(0.8)
165.7
28.1
422.0
28.2
3.2
(3.0)
(7.2)
443.2
52.5
(2.1)
(18.2)
1,102.4
58.6
8.8
(0.7)
(40.8)
1,128.3
82.0
8.4
(33.5)
562.6
36.5
35.5
22.1
2,265.6
170.3
(0.4)
(1.8)
596.9
47.9
3.5
(14.7)
(2.0)
55.6
12.7
(6.3)
(52.6)
2,389.7
210.5
11.9
(68.5)
Balance as at September 29, 2012
191.7
477.5
1,185.2
633.6
55.6
2,543.6
Accumulated depreciation and
impairment
Balance as at September 26, 2010
Depreciation
Disposals and write-offs
Impairment losses
Impairment loss reversals
Balance as at September 24, 2011
Depreciation
Disposals and write-offs
Impairment losses
Impairment loss reversals
(1.9)
(1.9)
0.3
0.4
(111.1)
(11.7)
4.6
(118.2)
(12.7)
5.6
0.9
Balance as at September 29, 2012
(1.2)
(124.4)
Net carrying value
Balance as at September 26, 2010
Balance as at September 24, 2011
Balance as at September 29, 2012
141.2
163.8
190.5
310.9
325.0
353.1
(649.9)
(84.3)
31.2
(6.2)
2.5
(706.7)
(85.9)
33.4
(4.6)
4.4
(759.4)
452.5
421.6
425.8
(265.8)
(47.5)
(5.4)
2.2
(316.5)
(48.3)
11.1
(4.2)
3.5
(19.7)
(2.6)
2.0
(20.3)
(3.6)
(1,048.4)
(146.1)
37.8
(11.6)
4.7
(1,163.6)
(150.5)
50.4
(8.8)
9.2
(354.4)
(23.9)
(1,263.3)
296.8
280.4
279.2
15.8
35.3
31.7
1,217.2
1,226.1
1,280.3
No net addition of fixed assets was excluded from the consolidated statement of cash flows in 2012 ($22.2 in 2011).
- 82 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
15.
INVESTMENT PROPERTIES
Balance as at September 26, 2010
Transfers
Disposals and write-offs
Depreciation
Impairment losses
Balance as at September 24, 2011
Transfers
Disposals and write-offs
Depreciation
Balance as at September 29, 2012
Accumulated
depreciation and
impairment
Net carrying
value
(12.3)
(0.1)
(0.2)
(12.6)
0.9
(0.1)
(11.8)
27.8
1.4
(1.9)
(0.1)
(0.2)
27.0
(0.6)
(4.2)
(0.1)
22.1
Cost
40.1
1.4
(1.9)
39.6
(0.6)
(5.1)
33.9
The fair value of investment properties was $28.3 as at September 29, 2012 ($34.1 as at September 24, 2011 and $33.5
as at September 26, 2010). The fair value was determined based on recent transactions observable in the market rather
than an independent expert's valuation.
- 83 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
16.
INTANGIBLE ASSETS
Intangible assets with finite useful lives were as follows:
Leasehold
rights
Software
Improvements and
development of retail
network loyalty
Prescription
files
Total
Cost
Balance as at September 26, 2010
Acquisitions
Disposals and write-offs
Transfers
Balance as at September 24, 2011
Acquisitions
Acquisitions through business
combinations (note 6)
Disposals and write-offs
Transfers
74.9
74.9
1.5
164.0
7.1
(0.3)
170.8
3.9
0.1
(0.2)
Balance as at September 29, 2012
76.4
174.6
Accumulated amortization and
impairment
Balance as at September 26, 2010
Amortization
Disposals and write-offs
Impairment losses
Impairment loss reversals
Balance as at September 24, 2011
Amortization
Disposals and write-offs
Impairment losses
Impairment loss reversals
(39.1)
(2.4)
(1.4)
0.8
(42.1)
(2.6)
(1.5)
(0.6)
0.4
(123.0)
(12.0)
0.3
(1.3)
(136.0)
(11.7)
0.2
(0.8)
0.1
231.6
23.8
(40.1)
(1.4)
213.9
37.6
10.6
(12.9)
(2.0)
247.2
(116.1)
(18.0)
37.7
(0.3)
(96.7)
(18.4)
7.3
7.4
7.4
1.9
(0.4)
477.9
30.9
(40.4)
(1.4)
467.0
43.4
10.7
(12.0)
(2.0)
8.9
507.1
(4.2)
(0.7)
(4.9)
(0.6)
0.4
(0.1)
0.3
(282.4)
(33.1)
38.0
(3.0)
0.8
(279.7)
(33.3)
6.4
(1.5)
0.8
Balance as at September 29, 2012
(46.4)
(148.2)
(107.8)
(4.9)
(307.3)
Net carrying value
Balance as at September 26, 2010
Balance as at September 24, 2011
Balance as at September 29, 2012
35.8
32.8
30.0
41.0
34.8
26.4
115.5
117.2
139.4
3.2
2.5
4.0
195.5
187.3
199.8
- 84 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Intangible assets with indefinite useful lives were as follows:
Balance as at September 26, 2010
Transfers
Balance as at September 24, 2011
Acquisitions through business
combinations (note 6)
Balance as at September 29, 2012
Banners
Private labels
Loyalty programs
Total
53.3
53.3
57.0
110.3
33.1
33.1
6.4
39.5
22.1
1.4
23.5
108.5
1.4
109.9
63.4
23.5
173.3
Net additions of intangible assets excluded from the consolidated statement of cash flows amounted to $6.5 in 2012
($11.0 in 2011).
For impairment testing, the carrying amount of certain private labels was allocated to the unique operating segment.
The recoverable amount was determined based on its value in use which was calculated using pre-tax cash flow forecasts
from the management-approved budgets. The forecasts reflected past experience. A pre-tax discount rate of 14.4% was
used without considering a growth rate.
Impairment testing of loyalty programs was conducted at the level of the asset itself. The recoverable amount was
determined based on its fair value less costs to sell, which was calculated using the capitalized excess EBIT method.
The estimated EBIT directly allocated to the programs, after deduction of the return on contributory assets, was based
on historical data reflecting past experience. The earnings multiple used was 6.9 considering a growth rate of 2.0%
corresponding to the consumer price index.
Impairment testing of banners and certain private labels were conducted at the level of the asset itself. The recoverable
amount was determined based on its fair value less costs to sell, which was calculated using the royalty-free licence
method. The estimated royalty rate was based on information from external sources and historical data reflecting past
experience. For the banners, the earnings multiples used were 7.5 et 10.0 considering growth rates of 2.0% and 3.0%
corresponding to the consumer price index and banners' growth. For certain private labels, the earnings multiple used
was 11.1 considering a growth rate of 3.0% corresponding to the consumer price index and the growth of these private
labels.
No reasonably possible change of any of the previously mentioned key assumptions would result in a carrying amount
higher than the recoverable amount.
- 85 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
17. GOODWILL
Balance – beginning of year
Acquisitions
Acquisitions through business combinations (note 6)
Disposals
Balance – end of year
2012
2011
1,649.1
7.3
206.8
(3.7)
1,603.7
—
48.9
(3.5)
1,859.5
1,649.1
For impairment testing, the carrying amount of goodwill was allocated to the unique operating segment. The recoverable
amount was determined based on its value in use which was calculated using pre-tax cash flow forecasts from the
management-approved budgets. The forecasts reflected past experience. A pre-tax discount rate of 14.4% was used
without consideration of the growth rate. No reasonably possible change of any of these key assumptions would result
in a carrying amount higher than the recoverable amount.
18. BANK LOANS
As at September 29, 2012, the Corporation did not have other bank loans except for the credit margins of special purpose
entities. The consolidated special purpose entities have credit margins totalling $6.5 ($6.3 as at September 24, 2011
and $6.6 as at September 26, 2010), bearing interest at prime, unsecured and maturing on various dates through 2013.
As at September 29, 2012, $0.3 ($0.3 as at September 24, 2011 and $1.0 as at September 26, 2010) had been drawn
down under credit margins at an interest rate of 3.0% (3.0% as at September 24, 2011 and 2.9% as at September 26,
2010).
19. PROVISIONS
Current provisions
Non-current provisions
Balance as at September 26, 2010
Balance as at September 26, 2010
Additional provisions
Amounts used
Balance as at September 24, 2011
Current provisions
Non-current provisions
Balance as at September 24, 2011
Balance as at September 24, 2011
Additional provisions
Amounts used
Balance as at September 29, 2012
Current provisions
Non-current provisions
Balance as at September 29, 2012
Onerous leases
Plant closures
Other
Total
1.7
4.8
6.5
6.5
0.2
(1.3)
5.4
1.4
4.0
5.4
5.4
0.8
(1.8)
4.4
1.3
3.1
4.4
7.5
7.5
7.5
10.8
(11.3)
7.0
7.0
7.0
7.0
11.0
(8.1)
9.9
9.9
9.9
—
—
8.9
8.9
8.9
8.9
8.9
(8.9)
—
—
9.2
4.8
14.0
14.0
19.9
(12.6)
21.3
17.3
4.0
21.3
21.3
11.8
(18.8)
14.3
11.2
3.1
14.3
- 86 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
The provision for onerous leases corresponds to the discounted present value of the future lease payments the
Corporation has to make under non-cancellable onerous operating leases, less the income that should be made from
these leases, including estimated future sublease income, if any. The estimate may vary in response to changes in use
of leased premises and subleases, if any. The remaining terms of these leases are from one to 12 years.
The provision for plant closures corresponds to the closure costs for the Montréal meat processing plant and a grocery
warehouse in Toronto.
Other provisions include notably amounts with respect to provincial worker's compensation insurance.
20. DEBT
Revolving Credit Facility, bearing interest at a weighted average rate
of 2.48%, repayable on November 3, 2016 or earlier
315.4
—
—
2012
2011
2010
Credit A Facility, bearing interest at a weighted average rate of
1.82% (1.79% in 2011 and 1.04% in 2010)
Series A Notes, bearing interest at a fixed nominal rate of 4.98%,
maturing on October 15, 2015 and redeemable at the issuer's
option at fair value at any time prior to maturity
Series B Notes, bearing interest at a fixed nominal rate of 5.97%,
maturing on October 15, 2035 and redeemable at the issuer's
option at fair value at any time prior to maturity
Loans, maturing on various dates through 2031, bearing interest at
an average rate of 3.06% (3.71% as at September 24, 2011 and
3.38% as at September 26, 2010)
Obligations under finance leases, bearing interest at an effective
rate of 8.6% (8.6% in 2011 and 11.2% in 2010)
Deferred financing costs
Current portion
—
369.3
369.3
200.0
200.0
200.0
400.0
400.0
400.0
32.6
43.2
(5.2)
986.0
12.1
973.9
21.7
15.8
47.1
(3.8)
1,034.3
378.1
656.2
28.1
(4.2)
1,009.0
4.7
1,004.3
As at September 24, 2011, the Corporation had a Credit A Facility of $369.3, which was presented as long-term as at
September 26, 2010 but was reclassified as short-term since it was maturing on August 15, 2012. This credit facility was
repaid at its maturity by a new revolving credit facility of $600.0 obtained on November 4, 2011. In addition, for the fiscal
years ending September 24, 2011 and September 26, 2010, the Corporation had a revolving line of credit of $400.0
which was unused. This line of credit was canceled when the new revolving credit facility was obtained.
The revolving credit facility with a maximum of $600.0 bears interest at rates that fluctuate with changes in bankers'
acceptance rates and is unsecured. As at September 29, 2012, the unused authorized revolving credit facility was $284.6.
Given that the Corporation frequently increases and decreases this loan through bankers' acceptances with a minimum
of 30 days and to simplify its presentation, the Corporation found that it is preferable for the understanding of its financing
activities to present the consolidated statement of cash flows solely with net changes.
- 87 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Minimum required payments on debt in the upcoming fiscal years will be as follows:
2013
2014
2015
2016
2017
2018 and thereafter
Facility
and loans
8.0
2.4
1.2
0.8
320.0
15.6
348.0
Notes
—
—
—
200.0
—
400.0
600.0
Obligations under
finance leases
7.5
6.3
6.2
6.0
5.8
35.5
67.3
Total
15.5
8.7
7.4
206.8
325.8
451.1
1,015.3
The minimum payments in respect of the obligations under finance leases included interest amounting to $24.1 on these
obligations in 2012 ($27.6 in 2011).
On October 12, 2012, the maturity of the revolving credit facility was extended to November 3, 2017 and this change is
not taken into consideration in the present note tables.
21. OTHER LIABILITIES
Lease liabilities
Other liabilities
22. CAPITAL STOCK
Authorized
2012
12.1
1.8
13.9
2011
13.1
0.3
13.4
2010
14.5
1.4
15.9
Following the Annual General Meeting of Shareholders held on January 31, 2012, the Corporation's share capital has
been changed. The issued and outstanding Class B Shares carrying 16 votes per share have been converted into one
single vote Class A Subordinate Share. The Class B Shares, along with the rights, privileges, restrictions and conditions
attached thereto, have been eliminated. The Class A Subordinate Shares have been redesignated as "Common Shares".
The first Preferred Shares have been redesignated as "Preferred Shares".
As at September 29, 2012, the authorized capital stock of the Corporation was summarized as follows:
• unlimited number of Common Shares, bearing one voting right per share, participating, without par value;
• unlimited number of Preferred Shares, non-voting, without par value, issuable in series.
Outstanding
For ease of reading, the Corporation has restated all prior periods disclosed to reflect the share capital reorganization
of January 31, 2012 as if it had always existed. Therefore, only the Common Shares are disclosed in this note. This
restatement is possible since Class B Shares and Class A Subordinate Shares were participating shares. The differences
between these classes of shares were primarily voting rights, the exclusivity of Class B Shares held by Metro Merchants,
and that Class B Shares were not listed on the Toronto Stock Exchange.
- 88 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
The outstanding Common Shares and the changes during the year were summarized as follows:
Balance as at September 26, 2010
Shares issued for cash
Shares redeemed for cash, excluding premium of $160.4
Acquisition of treasury shares, excluding premium of $7.6
Released treasury shares
Stock options exercised
Balance as at September 24, 2011
Shares issued for cash
Shares redeemed for cash, excluding premium of $186.3
Acquisition of treasury shares, excluding premium of $2.3
Released treasury shares
Stock options exercised
Balance as at September 29, 2012
Stock option plan
Common Shares
Number
(Thousands)
105,069
1
(4,147)
(190)
94
257
101,084
2
(4,213)
(50)
92
271
97,186
702.1
—
(27.9)
(1.3)
0.6
9.1
682.6
0.1
(28.7)
(0.3)
0.6
10.3
664.6
The Corporation has a stock option plan for certain Corporation employees providing for the grant of options to purchase
up to 10,000,000 Common Shares. As at September 29, 2012, a balance of 3,259,356 shares that could be issued
following the exercise of stock options (3,530,552 as at September 24, 2011 and 3,787,752 as at September 26, 2010).
The subscription price of each Common Share under an option granted pursuant to the plan is equal to the market price
of the shares on the day prior to option grant date and must be paid in full at the time the option is exercised. While the
Board of Directors determines other terms and conditions for the exercise of options, no options may have a term of
more than five years from the date the option may initially be exercised, in whole or in part, and the total term may in no
circumstances exceed ten years from the option grant date. Options may generally be exercised two years after their
grant date and vest at the rate of 20% per year.
The outstanding options and the changes during the year were summarized as follows:
Number
(Thousands)
Weighted average
exercise price
(Dollars)
1,777
290
(257)
(34)
1,776
293
(271)
(115)
1,683
32.29
47.06
27.30
34.67
35.38
53.76
29.77
38.44
39.27
Balance as at September 26, 2010
Granted
Exercised
Cancelled
Balance as at September 24, 2011
Granted
Exercised
Cancelled
Balance as at September 29, 2012
- 89 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
The table below summarizes information regarding the stock options outstanding and exercisable as at September
29, 2012:
Outstanding options
Exercisable options
Range of exercise prices
(Dollars)
Number
(Thousands)
Weighted
average
remaining
period
(Months)
Weighted
average
exercise
price
(Dollars)
Number
(Thousands)
24.73 to 30.16
33.86 to 37.77
39.17 to 47.14
53.15 to 58.41
520
359
517
287
1,683
27.4
36.8
60.9
79.0
48.5
26.47
37.11
45.61
53.77
39.27
319
157
45
—
521
Weighted
average
exercise
price
(Dollars)
26.87
37.23
44.07
—
31.47
The weighted average fair value of $10.50 per option ($9.58 in 2011 and $10.39 in 2010) for stock options granted during
fiscal 2012 was determined at the time of grant using the Black-Scholes model and the following weighted average
assumptions: risk-free interest rate of 1.7% (2.7% in 2011 and 3.0% in 2010), expected life of 5.8 years (5.4 years in
2011 and 6.0 years in 2010), expected volatility of 22.4% (21.6% in 2011 and 23.0% in 2010) and expected dividend
yield of 1.6% (1.6% in 2011 and 1.5% in 2010). The expected volatility is based on the historic share price volatility over
a period similar to the life of the options.
Compensation expense for these options amounted to $2.3 for fiscal 2012 ($2.5 in 2011).
Performance share unit plan
The Corporation has a PSU plan. Under this program, senior executives and other key employees (participants)
periodically receive a given number of PSUs which may increase if the Corporation meets certain financial performance
indicators. The PSUs entitle the participant to Common Shares of the Corporation, or at the latter's discretion, the cash
equivalent. PSUs vest at the end of a period of three years.
PSUs outstanding and changes during the year were summarized as follows:
Balance as at September 26, 2010
Granted
Settled
Cancelled
Balance as at September 24, 2011
Granted
Settled
Cancelled
Balance as at September 29, 2012
Number
(Units)
308,904
110,756
(104,153)
(5,778)
309,729
97,043
(94,499)
(28,096)
284,177
Common Shares of the Corporation are held in trust for participants until the PSUs vest or are cancelled. The trust,
considered a special purpose entity, is consolidated in the Corporation's financial statements with the cost of the acquired
shares recorded as treasury shares as a reduction of capital stock.
- 90 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
The number of treasury shares and changes during the year were summarized as follows:
Balance as at September 26, 2010
Acquisition of treasury shares
Released treasury shares
Balance as at September 24, 2011
Acquisition of treasury shares
Released treasury shares
Balance as at September 29, 2012
Number
(Units)
203,548
190,000
(93,608)
299,940
50,000
(91,907)
258,033
The weighted average fair value of $53.24 per PSU ($42.88 in 2011 and $39.90 in 2010) for PSUs granted during the
year was the stock market valuation of a Common Share of the Corporation at grant date.
The compensation expense comprising all of these PSUs amounted to $3.8 for fiscal 2012 ($3.8 in 2011).
23. ACCUMULATED OTHER COMPREHENSIVE INCOME
Cash flow
hedge
Defined benefit
plans
Share of an
associate
Balance as at September 26, 2010
Change in the fair value of a derivative
designated as cash flow hedge
Changes in defined benefit plans
Actuarial losses
Asset ceiling effect
Minimum funding requirement
Share of an associate's other comprehensive
income
Corresponding income taxes
Balance as at September 24, 2011
Changes in defined benefit plans
Actuarial losses
Asset ceiling effect
Minimum funding requirement
Share of an associate's other comprehensive
income
Corresponding income taxes
(0.3)
0.4
(0.1)
—
Balance as at September 29, 2012
—
—
—
(66.8)
0.5
(2.5)
17.5
(51.3)
(65.6)
(2.7)
0.1
18.9
(100.6)
0.1
0.1
(0.6)
0.1
(0.4)
Total
(0.3)
0.4
(66.8)
0.5
(2.5)
0.1
17.4
(51.2)
(65.6)
(2.7)
0.1
(0.6)
19.0
(101.0)
- 91 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
24. DIVIDENDS
In fiscal 2012, the Corporation paid $82.9 in dividends to holders of Common Shares ($77.1 in 2011), or $0.8375 per
share ($0.7475 in 2011). On September 25, 2012, the Corporation's Board of Directors declared a quarterly dividend of
$0.215 per Common Share payable November 21, 2012.
25. EMPLOYEE BENEFITS
The Corporation maintains several defined benefit and defined contribution plans for eligible employees, which provide
most participants with pension, ancillary retirement benefits, and other long-term employee benefits which in certain
cases are based on the number of years of service or final average salary. The defined benefit plans are funded by the
Corporation's contributions, with some plans also funded by participants' contributions. The Corporation also provides
eligible employees and retirees with health care, life insurance and other benefits. Ancillary retirement benefits plans
and other long-term employee benefits are not funded and are presented in other plans.
The changes in present value of the defined benefit obligation were as follows:
Balance – beginning of year
Current service cost
Interest cost
Participant contributions
Plan amendments
Benefits paid
Actuarial losses (gains)
Balance – end of year
2012
2011
Pension plans Other plans Pension plans
Other plans
717.7
29.1
36.7
3.9
—
(32.1)
85.8
841.1
33.6
1.6
1.5
—
—
(3.4)
(2.3)
31.0
657.0
27.0
35.2
4.0
1.2
(27.6)
20.9
717.7
37.3
2.0
2.0
—
—
(2.4)
(5.3)
33.6
The changes in the fair value of plan assets were as follows:
Fair value – beginning of year
Expected return on plan assets
Actuarial gains (losses)
Employer contributions
Participant contributions
Benefits paid
Fair value – end of year
2012
2011
Pension plans Other plans Pension plans
Other plans
631.8
45.5
17.8
63.4
3.9
(32.1)
730.3
—
—
—
3.4
—
(3.4)
—
626.7
44.8
(49.6)
33.5
4.0
(27.6)
631.8
—
—
—
2.4
—
(2.4)
—
- 92 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
The changes in the defined benefit plans' funding status were as follows:
2012
2011
2010
Pension
plans
Other
plans
Pension
plans
Other
plans
Pension
plans
Other
plans
Balance of defined benefit obligation –
end of year
Fair value – end of year
Funding position
Asset ceiling effect
Minimum funding requirement
Defined benefit assets
Defined benefit liabilities
(841.1)
730.3
(110.8)
(8.4)
(5.3)
(124.5)
1.4
(125.9)
(124.5)
(31.0)
—
(31.0)
—
—
(31.0)
—
(31.0)
(31.0)
(717.7)
631.8
(85.9)
(5.7)
(5.4)
(97.0)
1.6
(98.6)
(97.0)
(33.6)
—
(33.6)
—
—
(33.6)
—
(33.6)
(33.6)
The defined contribution and defined benefit plans expense was as follows:
2012
(53 weeks)
(37.3)
—
(37.3)
—
—
(37.3)
—
(37.3)
(37.3)
(657.0)
626.7
(30.3)
(6.2)
(2.9)
(39.4)
20.3
(59.7)
(39.4)
2011
(52 weeks)
Defined contribution plans
Defined benefit plans
Current service cost
Past service cost
Interest cost
Actuarial gains (losses)
Expected return on plan assets
Pension plans Other plans Pension plans
Other plans
25.1
29.1
—
36.7
—
(45.5)
20.3
45.4
0.5
1.6
—
1.5
0.1
—
3.2
3.7
24.2
0.5
27.0
1.2
35.2
—
(44.8)
18.6
42.8
2.0
—
2.0
(1.6)
—
2.4
2.9
The actuarial gains or losses recognized in accumulated other comprehensive income were as follows:
2012
2011
Pension plans Other plans Pension plans
Other plans
Balance – beginning of the year
Actuarial losses (gains) incurred
Balance – end of year
70.5
68.0
138.5
(3.7)
(2.4)
(6.1)
—
70.5
70.5
—
(3.7)
(3.7)
Total cash payments for employee benefits, consisting of cash contributed by the Corporation to its funded pension plans
and cash payments directly to beneficiaries for its unfunded other benefit plans, amounted to $66.8 in 2012 ($35.9 in
2011). The Corporation plans to contribute $39.1 to the defined benefit plans during the next fiscal year.
The most recent actuarial valuations for funding purposes in respect of the Corporation's pension plans were performed
on various dates between December 2010 and May 2012. The next valuations will be performed between December 2012
and June 2014.
- 93 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Plan assets held in trust and their weighted average allocation as at the measurement dates were as follows:
Asset categories (Percentage)
Shares
Bonds
Others
2012
55
40
5
2011
54
42
4
2010
56
39
5
The actual return on plan assets was $63.3 in 2012 ($(4.8) in 2011).
Pension plan assets include shares issued by the Corporation with a fair value of $5.8 as at September 29, 2012 ($5.1
as at September 24, 2011 and $4.3 as at September 26, 2010).
The principal actuarial assumptions used in determining the defined benefit obligation were the following:
(Percentage)
2012
2011
2010
Pension
plans
Other
plans
Pension
plans
Other
plans
Pension
plans
Other
plans
Discount rate
Projected long-term return on plan
assets
Rate of compensation increase
4.25
7.25
3.0
4.25
—
3.0
5.0
7.25
3.0
5.0
—
3.0
5.25
7.25
3.0
5.25
—
3.0
To determine the most suitable discount rate, management considers the interest rates for high-quality bonds issued by
entities operating in Canada with cash flows that match the timing and amount of expected benefit payments. The
mortality rate is based on available mortality tables. Projected inflation rates are taken into account in establishing future
wage and pension increases.
The overall expected return corresponds to the weighted average projected return on the various asset categories held
by the plans. The rate is determined based on the overall portfolio rather than the total of the individual asset categories.
The managements' measurement of expected return is based on historical market return and analysts' long-term
projections of different categories of assets return.
The assumed annual health care cost trend rate per participant was set at 7.7%. Under the assumption used, this rate
should gradually decline to 4.5% in 2019 and remain at that level thereafter. A 1% change in this rate would have the
following effects:
(Millions of dollars)
Effect on current service cost and interest cost
Effect on defined benefit obligation
1% increase
1% decrease
0.2
1.4
(0.2)
(1.2)
The history of experience adjustments for the defined benefit pension plans or other plans was as follows:
Experience adjustments of liabilities - (gains)
Experience adjustments of assets - gains (losses)
Fair value of total plan assets
Present value of defined benefit obligation
Funded (underfunded) plans status
2012
(5.7)
17.8
730.3
(872.1)
(141.8)
2011
(2.0)
(49.6)
631.8
(751.3)
(119.5)
2010
s.o.
s.o.
626.7
(694.3)
(67.6)
- 94 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
26. COMMITMENTS
Operating leases
The Corporation has operating lease commitments, with varying terms through 2037 and one to 14 five-year renewal
options, to lease premises and equipment used for business purposes. The Corporation does not have an option to
purchase the leased assets when the leases expire, but it has the right of first refusal in certain cases. Future minimum
lease payments under these operating leases will be as follows:
Under 1 year
Between 1 and 5 years
Over 5 years
2012
2011
2010
175.4
555.0
633.7
1,364.1
168.4
535.3
695.5
1,399.2
163.8
523.8
652.6
1,340.2
In addition, the Corporation has committed to leases for premises, with varying terms through 2035 and one to 15
lease renewal options, which it sublets to clients generally under the same terms and conditions. Future
minimum lease payments under these operating leases will be as follows:
Under 1 year
Between 1 and 5 years
Over 5 years
Finance leases
2012
40.4
136.4
233.2
410.0
2011
36.8
120.0
190.5
347.3
2010
40.3
137.1
239.9
417.3
The Corporation has finance lease commitments, with varying terms through 2036 and three to seven five-year renewal
options, to lease premises used for business purposes. The Corporation does not have an option to purchase the leased
assets when the leases expire. Future minimum lease payments under these finance leases and the present value of
net minimum lease payments will be as follows:
Minimum lease payments
2012
2011
7.5
24.3
35.5
67.3
(24.1)
43.2
7.4
26.0
41.3
74.7
(27.6)
47.1
2010
5.1
19.4
19.4
43.9
(15.8)
28.1
Present value of
minimum lease payments
2012
2011
4.1
13.8
25.3
43.2
—
43.2
3.9
14.3
28.9
47.1
—
47.1
2010
2.4
10.9
14.8
28.1
—
28.1
Under 1 year
Between 1 and 5 years
Over 5 years
Minimum lease payments
Future finance costs
Present value of minimum
lease payments
Service contracts
The Corporation has service contract commitments essentially for transportation and IT, with varying terms through 2020
and no renewal option. Future minimum payments under these service contracts will be as follows:
Under 1 year
Between 1 and 5 years
Over 5 years
2012
67.2
243.9
131.2
442.3
2011
62.7
234.8
166.7
464.2
2010
66.8
186.7
256.5
510.0
- 95 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
27. CONTINGENCIES
Guarantees
For certain customers with established business relationships, the Corporation is contingently liable as guarantor in
connection with lease agreements with varying terms through 2020 for which the average annual minimum lease
payments for the next five years will be $0.4 ($0.4 in 2011). The maximum contingent liability under these guarantees
as at September 29, 2012 was $2.7 ($3.0 as at September 24, 2011 and $3.4 as at September 26, 2010). In addition,
the Corporation has guaranteed loans granted to certain customers by financial institutions, with varying terms through
2025. The balance of these loans amounted to $22.9 as at September 29, 2012 ($17.9 as at September 24, 2011 and
$12.9 as at September 26, 2010). No liability has been recorded in respect of these guarantees for the years ended
September 29, 2012, September 24, 2011 and September 26, 2010.
Claims
In the normal course of business, various proceedings and claims are instituted against the Corporation. The Corporation
contests the validity of these claims and proceedings and management believes that any forthcoming settlement in
respect of these claims will not have a material effect on the Corporation's financial position or on consolidated earnings.
28. RELATED PARTY TRANSACTIONS
The Corporation has significant interest in the following subsidiaries, jointly controlled entity and associate:
Names
Subsidiaries
Metro Richelieu Inc.
McMahon Distributeur pharmaceutique Inc.
Metro Ontario Inc.
Groupe Adonis Inc.
Groupe Phoenicia Inc.
Jointly controlled entity
Dunnhumby Canada Limitée
Associate
Alimentation Couche-Tard Inc.
Country of
incorporation
Percentage of
interest in the capital
Percentage of
voting rights
Canada
Canada
Canada
Canada
Canada
Canada
Canada
100.0
100.0
100.0
55.0
55.0
50.0
11.1
100.0
100.0
100.0
55.0
55.0
50.0
23.3
In the normal course of business, the following transactions have been entered into with related parties:
Jointly controlled entity
Companies controlled by a
member of the Board of
Directors
Jointly controlled entity
Companies controlled by a
member of the Board of
Directors
2012
(53 weeks)
2011
(52 weeks)
Sales
Services
received
Interests
received
Sales
Services
received
Interests
received
—
10.6
28.3
28.3
—
10.6
—
—
—
—
11.2
27.4
27.4
—
11.2
0.1
—
0.1
Accounts receivable
Loans receivable
2012
2011
2010
2012
2011
2010
—
0.9
0.9
—
0.8
0.8
- 96 -
—
0.9
0.9
—
—
—
—
—
—
1.5
—
1.5
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Compensation for the principal officers was as follows:
Compensation and current employee benefits
Post-employment benefits
Other long-term benefits
Share-based payment
2012
(53 weeks)
2011
(52 weeks)
2.4
0.5
2.0
3.1
8.0
2.4
0.6
1.7
3.1
7.8
29. MANAGEMENT OF CAPITAL
The Corporation aims to maintain a capital level that enables it to meet several objectives, namely:
• Striving for a percentage of non-current debt to total combined non-current debt and equity (non-current debt/total
capital ratio) of less than 50%.
• Maintaining an adequate credit rating to obtain an investment grade rating for its term notes.
• Paying total annual dividends representing approximately 20% of net earnings for the previous fiscal year before
extraordinary items.
In its capital structure, the Corporation considers its stock option and PSU plans for key employees and officers. In
addition, the Corporation's stock redemption plan is one of the tools it uses to achieve its objectives.
The Corporation is not subject to any capital requirements imposed by a regulator.
The Corporation's fiscal 2012 annual results regarding its capital management objectives were as follows:
•
a non-current debt/total capital ratio of 27.7% (29.9% as at September 24, 2011 and 30.2 % as at September 26,
2010);
a BBB credit rating confirmed by S&P and DBRS (same rating in 2011);
a dividend representing 21.1% of net earnings for the previous fiscal year (19.7% in 2011).
•
•
The capital management objectives remain the same as for the previous fiscal year.
30. FINANCIAL INSTRUMENTS
FAIR VALUE
The fair value of cash and cash equivalents, accounts receivable, bank loans and accounts payable approximates their
carrying value because of the short-term maturity of these instruments.
The fair value of loans to certain customers, credit facilities and loans payable is equivalent to their carrying value since
their interest rates are comparable to market rates.
The fair value of interest rate swaps is measured using a generally accepted valuation technique, that is, the discounted
value of the difference between the value of the swap based on variable interest rates (estimated using the yield curve
for anticipated interest rates) and the value of the swap based on the swap's fixed interest rate. The Corporation's credit
risk is also taken into consideration in determining fair value.
The fair value of foreign exchange forward contracts is measured using a generally accepted valuation technique, that
is, the discounted value of the difference between the contract's value at maturity based on the foreign exchange rate
set out in the contract and the contract's value at maturity based on the foreign exchange rate that the financial institution
would use if it were to renegotiate the same contract at today's date under the same conditions. The financial institution's
credit risk is also taken into consideration in determining fair value.
- 97 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
The fair value of notes represents the obligations that the Corporation would have to meet in the event of the negotiation
of similar notes under current market conditions.
The fair value of the obligations under finance leases represents the obligations that the Corporation would have to face
in the event of the negotiation of similar leases under current market conditions.
The fair value of the non-controlling interest-related liability is equivalent to the buyout price which is mainly based on
the future earnings of Adonis and Phoenicia beginning at a predetermined date.
The financial instruments' book and fair values were as follows:
2012
2011
2010
Book
value
Fair
value
Book
value
Fair
value
Book
value
Fair
value
Other financial assets
Loans and receivables
Loans to certain customers (note 13)
19.4
19.4
16.5
16.5
24.7
24.7
Accounts payable
Derivative designated as cash flow hedge
Interest rate swap
Non-controlling interest
Financial liability held for trading
Debt (note 20)
Other financial liabilities
Revolving Credit Facility
Credit A facility
Series A Notes
Series B Notes
Loans
Obligations under finance leases
—
—
139.3
139.3
—
—
—
—
0.4
0.4
—
—
315.4
—
200.0
400.0
32.6
43.2
991.2
315.4
—
217.2
457.7
32.6
53.1
1,076.0
—
369.3
200.0
400.0
21.7
47.1
1,038.1
—
369.3
218.0
419.3
21.7
56.3
1,084.6
—
369.3
200.0
400.0
15.8
28.1
1,013.2
—
369.3
218.2
412.7
15.8
35.7
1,051.7
The foreign exchange forward contracts, classified as “Financial assets or liabilities at fair value through net earnings”,
are not shown in the above table, as they are insignificant in value.
FAIR VALUE MEASUREMENTS HIERARCHY
Fair value measurements recognized in the statement of financial position must be categorized in accordance with the
following levels:
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
(i.e., as prices) or indirectly (i.e., derived from prices);
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
•
For the interest rate swap and foreign exchange forward contracts, the Corporation categorized the fair value
measurements in Level 2, as they are primarily derived from observable market inputs, that is, interest rates and foreign
exchange rates.
For the non-controlling interest-related liability, the Corporation categorized the fair value measurements in Level 3, as
they are derived from data that is not observable.
- 98 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
The changes of the non-controlling interest-related liability were as follows:
Balance – beginning of year
Issuance through business combinations (note 6)
Share of earnings
Balance – end of year
2012
—
132.1
7.2
139.3
No reasonably possible change of future earnings would result in a significant variation of the non-controlling interest-
related liability fair value.
INTEREST RATE RISK
In the normal course of business, the Corporation is exposed primarily to interest rate fluctuations risk as a result of
loans and receivables that it grants, as well as loans payable that it contracts at variable interest rates.
In accordance with its risk management policy, the Corporation uses derivative financial instruments, consisting of interest
rate swaps, to lock in a portion of its borrowing cost and reduce its interest rate risk, swapping its Credit A Facility variable
interest rate payments for fixed interest rate payments. The Corporation has decided to designate its interest rate swaps
as a cash flow hedge. Policy guidelines prohibit the Corporation from entering into derivative financial instruments for
speculative purposes.
At the end of every quarter, the Corporation provides the Audit Committee with a detailed report on all of its derivative
financial instruments along with their respective fair value. As at September 29, 2012 and September 24, 2011, there
were no outstanding interest rate swap contracts. As at September 26, 2010, an interest rate swap contract of $50.0
that matured on December 16, 2010 was outstanding. A 0.5% increase in interest rates would have reduced net earnings
by $1.1 while a 0.5% decrease would have raised it by $1.1.
CREDIT RISK
Loans and receivables / Guarantees
The Corporation sells products to consumers and merchants in Canada. When it sells products, it gives merchants
credit. In addition, to help certain merchants finance business acquisitions, the Corporation grants them long-term loans
or guarantees loans obtained by them from financial institutions. Hence, the Corporation is subject to credit risk.
To mitigate such risk, the Corporation performs ongoing credit evaluations of its customers and has adopted a credit
policy that defines the credit conditions to be met and the required guarantees. As at September 29, 2012, September
24, 2011 and September 26, 2010, no customer accounted for over 10% of total loans and receivables.
To cover its credit risk, the Corporation holds guarantees from its clients' assets in the form of deposits, movable hypothecs
on the Corporation stock and/or second hypothecs on their inventories, movable property, intangible assets and
receivables.
In recent years, the Corporation has not suffered any material losses related to credit risk.
As at September 29, 2012, the maximum potential liability under guarantees provided amounted to $22.9 ($17.9 as at
September 24, 2011 and $12.9 as at September 26, 2010) and no liability had been recognized as at that date.
- 99 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
Financial assets at fair value through net earnings
With regard to its financial assets at fair value through net earnings, consisting of foreign exchange forward contracts,
the Corporation is subject to credit risk when these contracts result in receivables from financial institutions. In accordance
with its risk management policy, the Corporation entered into these agreements with major Canadian financial institutions
to reduce its credit risk.
As at September 29, 2012 and September 26, 2010, the Corporation was not exposed to credit risk in respect of its
foreign exchange forward contracts, as they resulted in amounts payable. As at September 24, 2011, the maximum
exposure to credit risk for the foreign exchange forward contracts was equal to their carrying amount.
LIQUIDITY RISK
The Corporation is exposed to liquidity risk primarily as a result of its debt and trade accounts payable.
The Corporation regularly assesses its cash position and feels that its cash flows from operating activities are sufficient
to fully cover its cash requirements as regards its financing activities. Its Series A Notes, its revolving credit facility and
its Series B Notes mature only in 2015, 2016 and 2035, respectively. The Corporation also has an unused authorized
balance of $284.6 on its revolving credit facility.
Undiscounted cash flows (capital and interest)
Accounts
payable
Facility and
loans
Notes
Finance lease
commitments
Maturing under 1 year
Maturing in 1 to 10 years
Maturing in 11 to 20 years
Maturing over 20 years
1,086.4
—
—
—
1,086.4
18.2
366.8
3.2
14.1
402.3
33.8
434.8
238.8
471.8
1,179.2
7.5
41.7
15.1
3.0
67.3
Non-
controlling
interest
—
139.3
—
—
139.3
Total
1,145.9
982.6
257.1
488.9
2,874.5
FOREIGN EXCHANGE RISK
Given that some of its purchases are denominated in foreign currencies, the Corporation is exposed to foreign exchange
risk.
In accordance with its risk management policy, the Corporation uses derivative financial instruments, consisting of foreign
exchange forward contracts, to hedge against the effect of foreign exchange rate fluctuations on its future foreign-
denominated purchases of goods and services.
As at September 29, 2012, September 24, 2011 and September 26, 2010, the fair value of foreign exchange forward
contracts was insignificant.
31. EVENT AFTER THE REPORTING PERIOD
On October 22, 2012, the Corporation announced a conditional agreement to dispose of its food service operation, the
Distagro division, which supplies restaurant and gas station chains. The disposal for a consideration of approximately
$15 excluding working capital and a net gain after taxes of approximately $7 should take place in the next few weeks.
The transaction will be recorded in the financial statements as a discontinued operation and the Corporation's
consolidated income statements for current and prior periods restated. Related Distagro sales and expenditures will be
recorded as a net loss on a discontinued operation under a separate income statement section.
- 100 -
Notes to consolidated financial statements
September 29, 2012 and September 24, 2011
(Millions of dollars, unless otherwise indicated)
32. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the presentation adopted in the current year.
33. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statements of fiscal year ended September 29, 2012 (including comparative figures) were
approved for issue by the Board of Directors on November 13, 2012.
- 101 -
Directors and officers
bOARD OF DiRECTORs
mANAgEmENT OF mETRO iNC.
quÉbEC DivisiON
eric R. la Flèche
President and Chief executive officer
Christian Bourbonnière
Senior Vice-President
luc Martinovitch
Vice-President and general Manager
McMahon Distributeur
pharmaceutique inc.
ginette Richard
Vice-President and general Manager
Food Services
ONTARiO DivisiON
johanne Choinière
Senior Vice-President
Richard Beaubien
Senior Vice-President
Store operations
joe Fusco
Senior Vice-President
Merchandising
(1) Member of the Audit Committee
(2) Member of the human Resources Committee
(3) Member of the Corporate governance and
Nominating Committee
Robert Sawyer
executive Vice-President and
Chief operating officer
François thibault
Senior Vice-President
Chief Financial officer and treasurer
Serge Boulanger
Senior Vice-President
National Procurement and
Corporate Brands
Martin Allaire
Vice-President
Real estate & engineering
jacques Couture
Vice-President, Information Systems
Paul Dénommée
Vice-President, Corporate Controller
Marc giroux
Vice-President and Chief Marketing
and Communications officer
Alain Picard
Vice-President, human Resources
Simon Rivet
Vice-President
general Counsel and
Corporate Secretary
Marc DeSerres (1) (3)
Montréal, Québec
Claude Dussault (2) (3)
Québec City, Québec
Serge Ferland
Québec City, Québec
Paule gauthier (2) (3)
Québec City, Québec
Paul gobeil (3)
ottawa, ontario
Vice-Chairman of the Board
Russel goodman (1)
Mont-tremblant, Québec
Christian W.e. haub (2)
greenwich, Connecticut
Michel labonté (1)
Montréal, Québec
eric R. la Flèche
town of Mount Royal, Québec
President and Chief executive officer
Pierre h. lessard
Westmount, Québec
executive Chairman of the Board
Marie-josé Nadeau (1) (2)
Montréal, Québec
Réal Raymond (2)
Montréal, Québec
lead Director
Michael t. Rosicki (3)
orillia, ontario
john h. tory (1)
toronto, ontario
shareholder information
Transfer agent and registrar
Computershare
Investor Services
stock listing
toronto Stock exchange
ticker Symbol: MRu
Auditors
ernst & young llP
Chartered Professional Accountants
Head Office
11011 Maurice-Duplessis Blvd.
Montréal, Québec h1C 1V6
the Annual Information Form
may be obtained from the
Investor Relations Department:
tel.: (514) 643-1055
e-mail: finance@metro.ca
Vous pouvez vous procurer la
version française de ce rapport
auprès du service des relations
avec les investisseurs.
MetRo INC.’s corporate
information and press releases
are available on the Internet
at the following address:
www.metro.ca
Dividends* 2013 fiscal year
Annual meeting
the Annual general Meeting
of Shareholders will be held
on january 29, 2013 at 11:00 a.m.
at:
Centre Mont-Royal
2200 Mansfield Street
Montréal, Québec h3A 3R8
Declaration Date
• january 28, 2013
• April 23, 2013
• August 13, 2013
• September 24, 2013
* Subject to approval by the Board of Directors
Record Date
• February 19, 2013
• May 23, 2013
• September 3, 2013
• November 9, 2013
payment Date
• March 15, 2013
• june 14, 2013
• September 20, 2013
• November 27, 2013
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metro.ca
MetRo is committed to respecting the principles of corporate responsibility notably in terms of the environment. the Company is
therefore proud to present this annual report, printed using recycled paper that includes post-consumer fibres and is certified FSC.
the FSC® (Forest Stewardship Council®) is an international certification and labeling system that guarantees that the forest products
you purchase, from the forest to the shelf, come from responsibly managed sources.