Alimentation Couche-Tard Inc., Loblaw Companies Limited, and Empire Company Limited

Alimentation Couche-Tard Inc., Loblaw Companies Limited, and Empire Company Limited are three companies in the same industry. Because all three are in the same industry, the expectation is that their operations and financial positions are also similar.

Instructions

Go to SEDAR (www.sedar.com) or the company websites and, using Alimentation Couche-Tard’s financial statements for the year ended April 26, 2009, Loblaw’s financial statements for the year ended January 2, 2010, and Empire’s financial statements for the year ended May 2, 2009, answer the following questions.

(a) Identify what industry all three companies are in.

(b) Identify all the areas where intraperiod tax allocation was used by the three companies. This requires a careful reading of some of the notes to the financial statements as well as the main statements themselves. Prepare a schedule of the total income tax provision (expense) or recovery (benefit) for each company, and identify where the provision or recovery was reported.

(c) Compare the three companies’ future income tax assets and/or future income tax liabilities, and identify, as much as possible, what temporary differences are responsible for these accounts. Would you expect companies in the same industry to have similar types of temporary differences? Do they?

(d) Would you expect the three companies to be subject to similar income tax legislation and tax rates? Are their statutory rates the same? Explain. Compare the companies’ statutory and effective rates and explain why there are differences, if there are any.

(a)    All three companies operate in the retail food industry.  Loblaw and Empire operate grocery stores in Canada and Alimentation operates convenience stores in North America. 

(b)    A schedule of the total income tax provision for each company for 2009 is presented below. 

(2009 in millions of $)	Alimentation	Loblaw	Empire
Total income tax provision	US$114.7	CDN$ 269	CDN$116.1

    

A schedule of the total income tax provision for each company for 2009 is presented below.  All three companies included income tax provisions in current net earnings and other comprehensive income items.  Loblaw also had a prior period adjustment which included an income tax adjustment. 

(For 2009 in millions of $)	Alimentation US$	Loblaw CAD$	Empire CAD$
Total tax provision shown in statement of earnings	114.7	269.0	116.1
Tax provision in other comprehensive income *	40.5	-18.0	-13.2
Prior period adjustment – in retained earnings	_	1.0	_
Total income tax provision	155.2	252.0	102.9

·         Note – this was totaled from each of the OCI items found either in the notes or on the statement of comprehensive income.

(c)    A schedule of the companies’ future income tax assets and liabilities as at the most recent balance sheet date, along with the underlying temporary differences, is presented below.  One would expect companies in the same industry to have similar temporary differences and these three companies do have some temporary differences in common.  Although the companies use different wording to describe the underlying temporary differences and report in varying degrees of detail, there are some similarities especially with property, plant and equipment and goodwill and intangibles.

(For 2009 in millions of $)	Alimentation Couche-Tard US$	Loblaw CAD$	Empire CAD$
Property, plant, and equipment	-110.8	-281	-119.4
Investments			-6.5
Future employee benefits obligations			33.3
Restructuring			7.6
Pension contributions			-14.4
Deferred costs			4.9
Deferred credits	19.1		-37.4
Goodwill and intangibles	-69.5		-34.0
Asset retirement obligation	12.7
Other	12.6	-6	33.7
Accounts payable and accrued liabilities		35
Other liabilities		158
Other assets		-103
Loss carry forwards	16.4	92
Revenues taxable next year	-6.5
Expenses deductible in next year	31.0
Unrealized exchange gain	-0.8
Net future tax asset (liability)	-95.8	-105	-132.2

(d) Yes, one would expect the three companies to be subject to similar income tax legislation and tax rates, particularly with respect to federal legislation and rates, since all three are Canadian companies.  On review of the schedule below, there are very small differences between the companies’ statutory rates and their effective tax rates.

	Alimentation Couche-Tard	Loblaw	Empire
Statutory rate	30.9%	30.7%	29.9%
Effective rate	31.12%	28.7%	29.9%