Metro inc. — Annual Report 2021

Dec 20, 2021

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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 judgments. 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 and their report indicates the extent of their audit and their opinion on the consolidated financial statements.

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Eric La Flèche President and Chief Executive Officer

François Thibault Executive Vice President, Chief Financial Officer and Treasurer

December 10, 2021

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INDEPENDENT AUDITORS' REPORT

To the shareholders of METRO INC.

Opinion

We have audited the consolidated financial statements of METRO Inc. and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position as at September 25, 2021 and September 26, 2020, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at September 25, 2021 and September 26, 2020, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. For the matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to this matter. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Key Audit Matter

How our audit addressed the key audit matter

Impairment test of the goodwill of the pharmaceutical operating segment

Impairment testing of goodwill is to be done at least annually, or at any time an indicator of impairment exists. As disclosed in note 12, goodwill with a carrying amount of $1,323.3M was attributed to the operating segment related to pharmaceutical operations. For the purpose of the impairment test, the recoverable amount was determined based on its value in use, which was calculated using discounted pre-tax cash flow forecasts from managementapproved budgets.

To test the estimated recoverable amount of the pharmaceutical operating segment, we performed, among others, the following procedures:

• Recalculated the value in use of the pharmaceutical operating segment using the Corporation’s discounted cash flow model.

• Compared Management’s underlying assumptions used in the recoverable amount, such as the revenue growth rates and EBITDA margins to business plans and previous forecasts to actual results.

• Evaluated, with the assistance of our valuation specialists, the Corporation's valuation methodology and significant assumptions such as the discount rate by referencing current industry, economic and comparable company information.

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Auditing management’s annual goodwill impairment test was complex, given the degree of judgment and subjectivity in evaluating management’s estimates and assumptions in determining the recoverable amount of the pharmaceutical operating segment as at September 25, 2021. Significant assumptions included revenue growth rate, earnings before interest, tax, depreciation and amortization (EBITDA) margins, and the discount rate, which are affected by expectations about future market and economic conditions.

• Performed sensitivity analyses of the significant assumptions to evaluate changes in the recoverable amount that would result from changes in the underlying inputs.

• Assessed the adequacy of the disclosures in respect of the significant judgements made by management as described above.

Other Information

Management is responsible for the other information. The other information comprises:

• The information included in the Management’s Discussion and Analysis

• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis and The Annual Report prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, 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.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.

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• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Martine Quintal.

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Montréal, Canada December 10, 2021

1 CPA auditor, CA, public accountancy permit no. A112005

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Annual Consolidated Financial Statements

METRO INC.

September 25, 2021

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Table of contents

	Page
Consolidated statements of income ..............................................................................................................................	43
Consolidated statements of comprehensive income ..................................................................................................	44
Consolidated statements of financial position .............................................................................................................	45
Consolidated statements of changes in equity ............................................................................................................	46
Consolidated statements of cash flows ........................................................................................................................	47
Notes to consolidated financial statements .................................................................................................................	48
1- Description of business ............................................................................................................................................	48
2- Significant accounting policies ................................................................................................................................	48
3- Significant judgments and estimates ......................................................................................................................	54
4- Additional information on the nature of earnings components ...........................................................................	56
5- Income taxes ..............................................................................................................................................................	57
6- Net earnings per share .............................................................................................................................................	58
7- Inventories ..................................................................................................................................................................	59
8- Fixed assets ...............................................................................................................................................................	59
9- Investment properties ...............................................................................................................................................	60
10- Leases ........................................................................................................................................................................	60
11- Intangible assets ........................................................................................................................................................	63
12- Goodwill ......................................................................................................................................................................	64
13- Other assets ...............................................................................................................................................................	65
14- Bank loans ..................................................................................................................................................................	65
15- Offsetting ....................................................................................................................................................................	65
16- Provisions ...................................................................................................................................................................	66
17- Debt .............................................................................................................................................................................	67
18- Capital stock ..............................................................................................................................................................	68
19- Dividends ....................................................................................................................................................................	71
20- Employee benefits ....................................................................................................................................................	71
21- Commitments .............................................................................................................................................................	75
22- Contingencies ............................................................................................................................................................	75
23- Related party transactions .......................................................................................................................................	77
24- Management of capital .............................................................................................................................................	78
25- Financial instruments ................................................................................................................................................	78
26- Event after the reporting period ..............................................................................................................................	80
27- Approval of financial statements .............................................................................................................................	80

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Consolidated statements of income

Years ended September 25, 2021 and September 26, 2020

(Millions of dollars, except for net earnings per share)

	2021	2020
Sales (notes 4 and 23)	18,283.0	17,997.5
Cost of sales and operating expenses_(note 4)_	(16,550.5)	(16,306.4)
Loss on disposal of a subsidiary (notes 4 and 12)	—	(7.5)
Operating income before depreciation and amortization	1,732.5	1,683.6
Depreciation and amortization_(note 4)_	(478.3)	(462.5)
Financial costs,net_(note 4)_	**(133.5) **	(136.8)
Earnings before income taxes	1,120.7	1,084.3
Income taxes_(note 5)_	**(295.0) **	(287.9)
Net earnings	825.7	796.4
Attributable to:
Equity holders of the parent	823.0	795.2
Non-controllinginterests	2.7	1.2
	825.7	796.4
Net earnings per share(Dollars) (notes 6 and 18)
Basic	3.34	3.15
Fullydiluted	3.33	3.14

See accompanying notes

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Consolidated statements of comprehensive income

Years ended September 25, 2021 and September 26, 2020

(Millions of dollars)

	2021	2020
Net earnings	825.7	796.4
Other comprehensive income
Items that will not be reclassified to net earnings
Changes in defined benefit plans
Actuarial gains (losses)(note 20)	214.2	(15.5)
Asset ceiling effect_(note 20)_	(41.5)	(0.3)
Minimum funding requirement_(note 20)_	(21.4)	0.8
Correspondingincome taxes_(note 5)_	**(40.1) **	4.1
	111.2	(10.9)
Comprehensive income	936.9	785.5
Attributable to:
Equity holders of the parent	934.2	784.3
Non-controllinginterests	2.7	1.2
	936.9	785.5

See accompanying notes

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Consolidated statements of financial position As at September 25, 2021 and September 26, 2020

(Millions of dollars)

	2021	2020
ASSETS
Current assets
Cash and cash equivalents	445.8	441.5
Accounts receivable_(notes 13 and 23)_	679.2	641.8
Accounts receivable on subleases_(note 10)_	92.8	88.0
Inventories_(note 7)_	1,169.0	1,268.2
Prepaid expenses	46.6	45.0
Current taxes	33.4	16.0
	2,466.8	2,500.5
Non-current assets
Fixed assets_(note 8)_	3,129.8	2,860.8
Investment properties_(note 9)_	33.4	40.2
Right-of-use assets_(note 10)_	1,064.7	1,150.5
Intangible assets_(note 11)_	2,854.7	2,850.2
Goodwill_(note 12)_	3,301.2	3,300.7
Deferred taxes_(note 5)_	57.1	43.5
Defined benefit assets_(note 20)_	84.8	19.7
Accounts receivable on subleases_(note 10)_	549.6	596.3
Other assets (note 13)	50.0	61.5
	13,592.1	13,423.9
LIABILITIES AND EQUITY
Current liabilities
Bank loans_(note 14)_	0.1	0.4
Accounts payable_(note 15)_	1,546.5	1,458.9
Deferred revenues	35.9	38.0
Current taxes	25.9	81.7
Provisions_(note 16)_	1.6	2.5
Current portion of debt_(note 17)_	318.5	20.6
Currentportion of lease liabilities (note 10)	269.7	258.0
	2,198.2	1,860.1
Non-current liabilities
Debt_(note 17)_	2,318.2	2,612.0
Lease liabilities_(note 10)_	1,657.5	1,811.4
Defined benefit liabilities_(note 20)_	61.5	129.9
Provisions_(note 16)_	13.5	19.2
Deferred taxes_(note 5)_	927.7	833.9
Other liabilities	2.7	2.0
	7,179.3	7,268.5
Equity
Attributable to equity holders of the parent	6,399.9	6,142.2
Attributable to non-controllinginterests	12.9	13.2
	6,412.8	6,155.4
	13,592.1	13,423.9

Commitments and contingencies (notes 21 and 22) Event after the reporting period (note 26)

See accompanying notes

On behalf of the Board

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ERIC LA FLÈCHE Director

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RUSSELL GOODMAN Director

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Consolidated statements of changes in equity Years ended September 25, 2021 and September 26, 2020

(Millions of dollars)

	Attributable to the equityholders of theparent Capital stock (note 18) Treasury shares (note 18) Contributed surplus Retained earnings Total Non- controlling interests Total equity
Balance as at September 26, 2020 Net earnings Other comprehensive income(loss)	1,713.8 (25.1) 22.2 4,431.3 6,142.2 13.2 6,155.4 — — — 823.0 823.0 2.7 825.7 — — — 111.2 111.2 — 111.2
Comprehensive income	— — — 934.2 934.2 2.7 936.9
Stock options exercised Shares redeemed (note 18) Share redemption premium_(note 18) Share-based compensation cost Performance share units settlement Dividends(note 19)_ Repurchase of shares injoint ventures	14.2 — (1.6) — 12.6 — 12.6 (53.7) — — — (53.7) — (53.7) — — — (402.6) (402.6) — (402.6) — — 10.6 — 10.6 — 10.6 — 4.6 (7.0) (0.9) (3.3) — (3.3) — — — (240.1) (240.1) (1.9) (242.0) — — — — — (1.1) (1.1)
	(39.5) 4.6 2.0 (643.6) (676.5) (3.0) (679.5)
Balance as at September 25, 2021	1,674.3 (20.5) 24.2 4,721.9 6,399.9 12.9 6,412.8

	Attributable to the equityholders of theparent Capital stock (note 18) Treasury shares (note 18) Contributed surplus Retained earnings Total Non- controlling interests Total equity
Balance as at September 28, 2019 Net earnings Other comprehensive income(loss)	1,732.3 (24.6) 19.2 4,228.3 5,955.2 13.4 5,968.6 — — — 795.2 795.2 1.2 796.4 — — — (10.9) (10.9) — (10.9)
Comprehensive income	— — — 784.3 784.3 1.2 785.5
Stock options exercised Shares redeemed_(note 18) Share redemption premium(note 18) Acquisition of treasury shares Share-based compensation cost Performance share units settlement Dividends(note 19) Adoption of IFRS 16 "_Leases" Change in fair value of non-controlling interests liability (note 25)	8.2 — (1.0) — 7.2 — 7.2 (26.7) — — — (26.7) — (26.7) — — — (190.5) (190.5) — (190.5) — (6.2) — — (6.2) — (6.2) — — 9.5 — 9.5 — 9.5 — 5.7 (5.5) (0.2) — — — — — — (220.7) (220.7) (1.4) (222.1) — — — (169.4) (169.4) — (169.4) — — — (0.5) (0.5) — (0.5)
	(18.5) (0.5) 3.0 (581.3) (597.3) (1.4) (598.7)
Balance as at September 26, 2020	1,713.8 (25.1) 22.2 4,431.3 6,142.2 13.2 6,155.4

See accompanying notes

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Consolidated statements of cash flows

Years ended September 25, 2021 and September 26, 2020

(Millions of dollars)

	2021	2020
Operating activities
Earnings before income taxes	1,120.7	1,084.3
Non-cash items
Gain on disposal of an investment	(0.3)	—
Loss on disposal of a subsidiary_(note 12)_	—	7.5
Depreciation and amortization	478.3	462.5
Gain on disposal and write-offs of fixed and intangible assets and investment
properties	(7.1)	(4.5)
Impairment losses on fixed assets and right-of-use assets	—	3.0
Share-based compensation cost	10.6	9.5
Difference between amounts paid for employee benefits and current year cost	13.5	3.8
Financial costs,net	133.5	136.8
	1,749.2	1,702.9
Net change in non-cash working capital items	162.2	(34.5)
Income taxespaid	**(328.1) **	(194.3)
	1,583.3	1,474.1
Investing activities
Net proceeds on disposal of a subsidiary_(note 12)_	—	3.5
Buyout of a minority interest_(note 25)_	(1.1)	(51.6)
Net change in other assets	1.7	0.8
Additions to fixed assets and investment properties (notes 8 et 9)	(520.0)	(463.3)
Disposals of fixed assets and investment properties_(notes 8 et 9)_	22.4	12.4
Additions to intangible assets_(note 11)_	(79.3)	(47.4)
Payments received from subleases	89.0	85.6
Interests received from subleases	15.7	15.9
	**(471.6) **	(444.1)
Financing activities
Net change in bank loans	(0.3)	0.4
Shares issued_(note 18)_	12.6	7.2
Shares redeemed_(note 18)_	(456.3)	(217.2)
Acquisition of treasury shares_(note 18)_	—	(6.2)
Performance share units settlement	(3.3)	—
Increase in debt	21.9	413.1
Repayment of debt	(24.0)	(428.7)
Interest paid on debt	(109.1)	(107.1)
Payment of lease liabilities (principal)	(260.9)	(252.9)
Payment of lease liabilities (interest)	(48.6)	(51.1)
Net change in other liabilities	0.7	1.3
Dividends_(note 19)_	**(240.1) **	(220.7)
	**(1,107.4) **	(861.9)
Net change in cash and cash equivalents	4.3	168.1
Cash and cash equivalents – beginningofyear	441.5	273.4
Cash and cash equivalents – end ofyear	445.8	441.5

See accompanying notes

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Notes to consolidated financial statements September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

1. DESCRIPTION OF BUSINESS

METRO INC. (the Corporation), is incorporated under the laws of Quebec. The Corporation is one of Canada’s leading food and pharmacy retailers and distributors. It 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 business segments, food operations and pharmaceutical operations, are combined into a single reportable operating segment due to the similar nature of their operations (see note 3).

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements, in Canadian dollars, have been prepared by management in accordance with International Financial Reporting Standards (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 and defined benefit plan assets measured at fair value and defined benefit obligations measured at present 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 structured entities (notes 3 and 23). All intercompany transactions and balances were eliminated on consolidation.

Revenue from contracts with customers

Revenue from contracts with customers are accounted for when control of goods or services is transferred to the customer. Retail sales of corporate stores and stores that qualify as structured entities are recorded at the time of sale to the consumer. Sales to unconsolidated affiliated or franchised stores and other customers are recorded when the goods are delivered to them. Discounts granted by the Corporation are recorded as a reduction in revenue.

Recognition of considerations from vendors

Cash considerations from vendors are considered as an adjustment to the vendor's product pricing and are therefore characterized as a reduction of cost of sales and related inventories when recognized in the consolidated financial statements.

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 as deferred revenue equal to the fair value of the program's issued points. This fair value is determined based on the exchange value of the points awarded and the expected redemption rate which are regularly remeasured. The deferred revenue is 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. 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.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(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 occur. 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 as well as a deferred share unit (DSU) plan offered to directors.

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.

The compensation expense and corresponding liability for the DSU plan are recognized on the grant date and determined based on the grant date market value of the Corporation’s Common Shares. The DSU liability is included in accounts payable and is periodically adjusted to reflect any changes in the stock market valuation of the Corporation’s Common Shares.

Net earnings per share

Basic net earnings per share is 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 Common Shares 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) and outstanding deposits. They are classified as “Financial assets at fair value through net earnings”.

Accounts receivable

Accounts receivable, accounts receivable on subleases 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 using 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.

Investment in a joint venture

The Corporation has an investment in a joint venture, whereby the venturers have a contractual agreement that establishes joint control over the economic activity of the entity. The investment is accounted for using the equity method and is presented in other assets.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

Fixed assets

Fixed assets are initially 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	20	to	50	years
Equipment	3	to	20	years
Leasehold improvements	5	to	20	years

Leases

The Corporation as lessee

The Corporation recognizes right-of-use assets and the corresponding lease liabilities at the lease inception date, the date at which the lessor makes available the leased asset to the Corporation. Rental payments under short-term leases or leases with low-value underlying assets and variable payments that are not based on an index or rate are recorded in operating expenses on a straight line basis over the duration of the lease.

Lease liabilities represent the present value of fixed and variable lease payments that are based on an index or rate, net of lease incentives receivable. Subsequent to the initial measurement, the Corporation measures the lease liabilities at amortized cost using the effective interest method. Lease liabilities are remeasured when a change is made to the lease agreement. Lease payments are discounted at the lessee’s incremental borrowing rate at lease inception. The interest expense is recognized in net financial costs. The lease term includes renewal options that the Corporation is reasonably certain to exercise.

Right-of-use assets are measured at the initial value of the lease liabilities, less lease incentives received and restoration costs. Subsequent to initial measurement, the Corporation applies the cost model to right-of-use assets. Right-of-use assets are measured at cost less accumulated amortization, accumulated impairment losses and any remeasurement of lease liabilities. Assets are depreciated from the lease inception date on a straight-line basis over the shorter of the asset’s useful life and the lease term.

The Corporation as lessor

For subleases, for which the Corporation acts as an intermediate lessor, it evaluates the classification in relation to the right-of-use assets arising from the main lease. The Corporation accounts for the main lease and the sublease as two separate leases. A sublease contract is classified as a finance lease if substantially all risks and rewards incidental to the underlying asset are transferred to the lessee. Otherwise, leases are classified as operating leases and rental income is recognized on a straight-line basis over the lease term.

For subleases that are classified as finance leases, the Corporation derecognizes the corresponding right-of-use assets and records a net investment in the subleases. Interest income is recorded in net financial costs. The net investment is presented in current and non-current accounts receivable on subleases.

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	20 to 40years
Software	3 to 7years
Retail network retentionpremiums	5 to 30years
Customer relationships	10 to 27years

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Notes to consolidated financial statements September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

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, which represents the excess of purchase price over the fair value of the acquired enterprise's identifiable net assets at the date of acquisition, is recognized at cost and is not amortized.

Impairment of non financial assets

At each reporting date, the Corporation must determine if there is any indication of depreciation of its fixed assets, intangible assets with finite and indefinite useful lives, investment properties, right-of-use assets and goodwill. 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 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. Impairment testing of warehouses is conducted at the level of the different groups of CGUs. Impairment testing of common assets is conducted at the level of the smallest CGU to which assets have been allocated. Impairment testing of goodwill is conducted at the level of the smallest CGU to which the goodwill relates. Impairment testing of investment properties, banners, 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. The recoverable amount is the higher of the value in use and the fair value less costs of disposal. The value in use corresponds generally to the pre-tax cash flow projections from the management-approved budgets for the next fiscal year. 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, banners, private labels and loyalty programs is these assets' fair value less costs of disposal. Fair value represents the price that would be obtained for the sale of an asset in an arm's length transaction. 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 first to goodwill, if applicable then 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 of disposal, their value in use or 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.

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 cannot withdraw the offer of termination.

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 related to 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 salary escalation, retirement age of participants, inflation and expected health care costs.

• 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.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

• Defined benefit plan 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 interest expense on defined benefit obligations, on the asset ceiling and on the minimum funding requirement is net of interest income on plan assets, which is calculated by applying the same rate used to evaluate the obligations, and is recognized as financing costs.

• Actuarial gains or losses on pension plans and ancillary post-employment benefits arise from changes to current year end actuarial assumptions used to determine the defined benefit obligations. They also arise from variances between the experience adjustments of the plans for the current year and the assumptions defined at the end of the previous fiscal year to determine the employee benefit expense for the current fiscal year and the defined benefit obligations at the previous fiscal year end.

• Remeasurements of defined benefit net liabilities include actuarial gains or losses, the yield on plan assets, and asset ceiling and minimum funding requirement changes, excluding the amount already recorded in net interest. Remeasurements are recognized under other comprehensive income during the period in which they occur and reclassified from accumulated other comprehensive income to retained earnings at the end of each period.

• Actuarial gains or losses related to other long-term employee benefits are recognized in full immediately in net earnings.

• Past service amendment costs are recognized immediately in net earnings.

• Defined contribution plan 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 and the Corporation participation is limited to the negotiated contributions. The vast majority of the Corporation's contributions to multi-employer plans are paid into the Canadian Commercial Workers Industry Pension Plan (CCWIPP). The Corporation and its franchisees represent approximately 25% of the Plan’s total number of participants.

Deferred revenues

The portion of revenue that is unearned is recorded in deferred revenues when payments are received. This includes prepayments received by the Corporation for future periods for which revenue is recognized when the goods are delivered or services are rendered. Deferred revenues also include loyalty points issued as part of the Corporation’s loyalty programs and gift cards outstanding as at year end for which revenue is recognized upon redemption.

Provisions

Provisions are recognized when the Corporation has a present obligation (legal or constructive) resulting from a past event, when it will likely have to settle the obligation and 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.

Other financial liabilities

Bank loans, accounts payable, the revolving credit facility, notes and loans payable are classified as “Liabilities measured at amortized cost” and initially measured at fair value less financing costs. They are subsequently measured at amortized cost using the effective interest method.

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.

Non-controlling interests

Non-controlIing interests are recognized in equity.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

Financial instruments

Financial assets and liabilities are recognized when the Corporation becomes a party to the contractual provisions of a financial instrument. Upon initial recognition, financial instruments are measured at fair value adjusted for transaction costs that are directly attributable to the acquisition or issue of financial instruments that are not classified as fair value through profit or loss (FVTPL). Subsequently, financial assets are measured on the basis of their classification, which is included in one of the following categories: at amortized cost, at fair value through other comprehensive income (FVOCI), and at FVTPL.

Financial assets that are not designated as FVTPL upon initial recognition, are classified and measured at amortized cost if they are held within a business model whose objective is to hold assets to collect contractual cash flows, and the contractual terms give rise, on specified dates, to cash flows that correspond only to payments of principal and interest. Otherwise, they are classified and measured at FVOCI, as long as the asset is held within a business model whose objective is achieved by both the collection of contractual cash flows and the sale of financial assets, and the contractual terms, on specified dates, give rise to cash flows that correspond only to payments of principal and interest. Classification and measurement of financial liabilities are based on amortized cost or FVTPL.

In summary, the Corporation's assets and liabilities are classified and measured valued as follows:

• Cash, cash equivalents, accounts receivable, accounts receivable on subleases and loans to certain customers are classified and measured at amortized cost;

• Bank loans, accounts payable, the revolving credit facility, notes and loans are classified and measured at amortized cost;

• Non-controlling interests are classified and measured at FVTPL. Gains and losses from the remeasurement at the end of each period are recorded through retained earnings;

• Derivative financial instruments that are not designated as hedges are classified and measured at FVTPL.

Impairment of financial assets

At the end of each reporting period, the Corporation estimates expected credit losses (ECL) based on lifetime credit losses. ECLs are adjusted for factors specific to receivables, receivables on subleases and loans to certain customers, the general economic condition and an assessment of the current and expected economic conditions at the reporting date, including the time value of the money, if applicable. The measurement is carried out using the simplified method for cash, current assets and long-term accounts receivable on subleases and the general method for loans. The net change in ECLs on receivables, receivables on subleases and loans to certain customers is recorded in net income.

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. Should there be any, 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 a 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.

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Notes to consolidated financial statements September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

The Corporation could use foreign exchange forward contracts, cross currency interest rate swaps and equity forward transaction. Given their short-term maturity, the Corporation elected not to apply hedge accounting. These derivative financial instruments are classified as "Financial assets or liabilities measured at FVTPL" 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 years ended September 25, 2021 and September 26, 2020 included 52 weeks of operations.

3. SIGNIFICANT JUDGMENTS AND ESTIMATES

The preparation of the consolidated financial statements requires management to make judgments, 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.

JUDGMENTS

In applying the Corporation's accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the consolidated financial statements:

Consolidation of structured entities

The Corporation has no voting rights in certain food stores. However, the franchise contract gives it the ability to control these stores' main activities. Its decisions are not limited to protecting its trademarks. The Corporation retains the majority of stores' profits and losses. 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 vesting variability, and ensures that the trust holds a sufficient number of shares to meet its obligations to the beneficiaries. For these reasons, the Corporation consolidates this trust in its financial statements.

The Corporation also has an agreement with a third party that operates a plant exclusively for the needs and according to the specifications of the Corporation, which assumes all costs and control the plant's main activities. For these reasons, the Corporation consolidates it in the Corporation's financial statements.

Determination of the aggregation of operating segments

The Corporation uses judgment in determining the aggregation of business segments. The reportable operating segment comprises the food operations segment and the pharmaceutical operations segment. The Corporation has aggregated these two business segments due to the similar nature of their goods and services and similar economic characteristics: operations are carried on primarily in Québec and Ontario and are therefore subject to the same regulatory environment and competitive and economic market pressures, use the same product distribution methods and serve the same customers.

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 of disposal are estimated using the discounted future cash flows model, the capitalized excess earnings before financial costs and taxes (EBIT) and royalty-free license methods. These methods are based on various assumptions, such as the future cash flows estimate, excess EBIT, royalty rates, discount rate, earnings multiples and growth rates. The key assumptions are disclosed in notes 11 and 12.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

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 salary escalation, retirement age of participants, inflation rate and expected health care costs. The key assumptions are disclosed in note 20.

Leases

The application of IFRS 16 requires the use of estimates that affect the measurement of right-of-use-assets and lease liabilities, including the appropriate discount rate used to measure lease liabilities. The Corporation discounts lease payments at its incremental borrowing rate, which is based on estimates of the risk-free interest rate, credit spreads and lease terms. In addition, it assesses the duration of the lease based on the terms of the contract and the renewal options it has reasonable certainty to exercise. A change in these assumptions could affect the amounts recorded. The key assumptions are disclosed in note 10.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

4. ADDITIONAL INFORMATION ON THE NATURE OF EARNINGS COMPONENTS

	2021	%	2020	%
Sales	18,283.0		17,997.5
Cost of sales	(14,628.2)		(14,415.7)
Gross margin	3,654.8	20.0	3,581.8	19.9
Operating expenses
Wages and fringe benefits	(980.6)		(954.9)
Employee benefits expense_(note 20)_	(106.6)		(96.9)
Rent and occupancy charges_(note 10)_	(302.3)		(296.2)
Loss on disposal of a subsidiary_(note 12)_	—		(7.5)
Other	(532.8)		(542.7)
	(1,922.3)	10.5	(1,898.2)	10.5
Operating income before depreciation and amortization	1,732.5	9.5	1,683.6	9.4
Depreciation and amortization
Fixed assets_(note 8)_	(240.9)		(232.3)
Investment properties_(note 9)_	(0.6)		(0.6)
Right-of-use assets_(note 10)_	(158.6)		(154.2)
Intangible assets_(note 11)_	(78.2)		(75.4)
	(478.3)		(462.5)
Financial costs, net
Current interest	(3.6)		(3.1)
Non-current interest	(105.0)		(103.4)
Net interest on lease liabilities_(note 10)_	(32.9)		(34.9)
Interest on defined benefit obligations net of plan assets_(note 20)_	(4.3)		(4.0)
Amortization of deferred financing costs	(1.7)		(2.4)
Interest income	14.3		11.2
Passage of time	(0.3)		(0.2)
	(133.5)		(136.8)
Earnings before income taxes	1,120.7		1,084.3

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

5. INCOME TAXES

The effective income tax rates were as follows:

The effective income tax rates were as follows:
(Percentage)	2021	2020
Combined statutory income tax rate	26.5	26.5
Changes
Loss on disposal of a subsidiary_(note 12)_	—	(0.3)
Other	**(0.2) **	0.4
	26.3	26.6

The main components of the income tax expense were as follows:

Consolidated income statements

	2021	2020
Current
Current tax expense	254.9	271.1
Deferred
Adjustment related to temporarydifferences	40.1	16.8
	295.0	287.9

Consolidated comprehensive income statements

	2021	2020
Deferred tax related to items reported directly in other
comprehensive income during the year
Changes in defined benefit plans
Actuarial losses	56.8	(4.2)
Asset ceiling effect	(11.0)	(0.1)
Minimum fundingrequirement	**(5.7) **	0.2
	40.1	(4.1)

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(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 financialposition Consolidated statements of income As at September 25, 2021 As at September 26,2020 2021 2020
Accrued expenses, provisions and other reserves that are tax- deductible only at the time of disbursement Lease liabilities Deferred tax losses Inventories Employee benefits Accounts receivable on subleases Investment in a joint venture Difference between net carrying value and tax value Fixed assets Investment properties Right-of-use assets Intangible assets Goodwill	18.4 21.3 (2.9) (1.7) 510.7 546.4 (35.7) (24.5) 5.6 8.8 (3.2) 8.0 (10.2) (11.3) 1.1 0.1 (7.1) 27.5 5.5 2.4 (170.2) (181.3) 11.1 9.5 1.0 1.0 — — (262.2) (219.9) (42.3) (23.7) 0.4 0.3 0.1 0.2 (282.1) (305.0) 22.9 11.1 (618.7) (624.8) 6.1 5.1 (56.2) (53.4) (2.8) (3.3)
	(870.6) (790.4) (40.1) (16.8)
Deferred tax assets Deferred tax liabilities	57.1 43.5 (927.7) (833.9) (870.6) (790.4)

6. 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)	2021	2020
Weighted average number of shares outstanding – Basic	246.2	252.1
Dilutive effect under:
Stock option plan	0.6	0.7
Performance share unitplan	0.5	0.5
Weighted average number of shares outstanding– Fullydiluted	247.3	253.3

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

7. INVENTORIES

	2021	2020
Wholesale inventories	686.6	808.1
Retail inventories	482.4	460.1
	1,169.0	1,268.2

8. FIXED ASSETS

8. FIXED ASSETS
					Buildings
					under
				Leasehold	finance
	Land	Buildings	Equipment	improvements	leases	Total
Cost
Balance as at September 28, 2019	480.4	1,276.6	1,557.4	861.8	55.8	4,232.0
Acquisitions	8.8	171.6	198.4	84.5	—	463.3
Disposals and write-offs	(2.0)	(12.5)	(79.4)	(43.3)	—	(137.2)
Adoption of IFRS16	—	—	—	—	(55.8)	(55.8)
Balance as at September 26, 2020	487.2	1,435.7	1,676.4	903.0	—	4,502.3
Acquisitions	49.9	167.9	226.8	74.5	—	519.1
Disposals and write-offs	(2.4)	(34.9)	(50.7)	(18.2)	—	(106.2)
Balance as at September 25,2021	534.7	1,568.7	1,852.5	959.3	—	4,915.2
Accumulated depreciation and
impairment
Balance as at September 28, 2019	—	(281.8)	(830.4)	(422.8)	(39.2)	(1,574.2)
Depreciation	—	(49.9)	(122.0)	(60.4)	—	(232.3)
Disposals and write-offs	—	10.6	76.6	40.8	—	128.0
Impairment losses	—	—	(1.0)	(1.2)	—	(2.2)
Adoption of IFRS16	—	—	—	—	39.2	39.2
Balance as at September 26, 2020	—	(321.1)	(876.8)	(443.6)	—	(1,641.5)
Depreciation	—	(56.3)	(132.7)	(51.9)	—	(240.9)
Disposals and write-offs	—	30.3	48.5	18.2	—	97.0
Balance as at September 25,2021	—	(347.1)	(961.0)	(477.3)	—	(1,785.4)
Net carrying value
Balance as at September 26, 2020	487.2	1,114.6	799.6	459.4	—	2,860.8
Balance as at September 25,2021	534.7	1,221.6	891.5	482.0	—	3,129.8

Impairment losses were recorded during fiscal 2020 on food store assets where cash flows decreased due to local competition. As food stores' profitability improved, impairment loss reversals can be recognized on previously impaired food store assets.

As at September 25, 2021, work in progress not yet amortized included in buildings, equipment and leasehold improvements totalled $196.4, $77.6 and $1.6, respectively.

As at September 25, 2021, the Corporation had contractual commitments to purchase fixed assets totaling $244.1 in 2022, consisting mainly of buildings and equipment.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

9. INVESTMENT PROPERTIES

9. INVESTMENT PROPERTIES
		Accumulated	Net carrying
	Cost	depreciation	value
Balance as at September 28, 2019	42.9	(1.4)	41.5
Disposals and write-offs	(0.9)	0.2	(0.7)
Depreciation	—	(0.6)	(0.6)
Balance as at September 26, 2020	42.0	(1.8)	40.2
Acquisitions	0.9	—	0.9
Disposals and write-offs	(7.3)	0.2	(7.1)
Depreciation	—	(0.6)	(0.6)
Balance as at September 25,2021	35.6	(2.2)	33.4

The fair value of investment properties was $39.9 as at September 25, 2021 ($45.6 as at September 26, 2020). The Corporation classified the fair value measurement in Level 2, as it is derived from observable market inputs, i.e. recent transactions on these assets or similar assets.

10. LEASES

The Corporation as lessee

The main right-of-use assets held under the Corporation's leases are real estate, vehicles and equipment.

As at September 25, 2021, changes in right-of-use assets were as follows:

		Rolling stock
	Buildings	and other	Total
Balance at September 29, 2019	1,194.4	28.0	1,222.4
New leases	85.2	13.4	98.6
Terminations and adjustments	(15.5)	—	(15.5)
Impairment losses	(0.8)	—	(0.8)
Depreciation	(143.7)	(10.5)	(154.2)
Balance as at September 26, 2020	1,119.6	30.9	1,150.5
New leases	46.9	10.1	57.0
Terminations and adjustments	16.5	(0.7)	15.8
Depreciation	(147.8)	(10.8)	(158.6)
Balance as at September 25,2021	1,035.2	29.5	1,064.7

The Corporation has variable lease payments for property taxes, common operating costs and insurance costs for leased properties. The Corporation also has variable lease payments that vary according to a percentage of retail sales. These expenses are recorded in operating expenses and totalled $122.0 in 2021 ($111.2 in 2020).

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

As at September 25, 2021, changes in lease liabilities were as follows:

Balance as at September 29, 2019	2,199.8
Additions	150.1
Terminations and adjustments	(27.6)
Lease payments	(303.7)
Interest expense on lease liabilities	50.8
Balance as at September 26,2020	2,069.4
Current portion	258.0
Non-currentportion	1,811.4
Balance as at September 26, 2020	2,069.4
Additions	86.4
Terminations and adjustments	32.3
Lease payments	(309.6)
Interest expense on lease liabilities	48.7
Balance as at September 25,2021	1,927.2
Current portion	269.7
Non-currentportion	1,657.5

The weighted average incremental borrowing rate was 2.41% as at September 25, 2021 (2.35% in 2020). The weighted average remaining contractual life as at September 25, 2021 was 6 years (8 years in 2020).

Contractual undiscounted payments under leases defined above will be as follows:

2022		313.5
2023		309.2
2024		287.3
2025		252.0
2026		214.9
2027	and thereafter	795.7
		2,172.6

The Corporation has also entered into short-term leases or leases with underlying low-value asset, specifically for the rental of machinery and equipment, as well as vehicles and trailers. These leases were recorded in operating expenses for a total of $5.8 in 2021 ($5.3 in 2020).

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Notes to consolidated financial statements September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

The Corporation as lessor

The Corporation acted as intermediate lessor for real estate subleases.

Finance leases

Finance income for the year ended in 2021 was $15.7 ($15.9 in 2020). Future minimum lease payments receivable by the Corporation relating to subleased properties to third parties will be as follows:

2022	105.9
2023	105.3
2024	98.9
2025	89.3
2026	72.1
2027 and thereafter	233.0
Total undiscounted leasepayments receivable	704.5
Unearned finance income	(62.1)
Accounts receivable on subleases	642.4
Current portion	92.8
Non-currentportion	549.6

Operating leases

The Corporation leases buildings under operating leases. The Corporation recorded rental income of $51.0 in 2021 ($51.2 in 2020).

The lease payments expected to be received over the next five fiscal years for owned properties will be as follows:

2022		45.7
2023		34.4
2024		23.4
2025		14.9
2026		10.5
2027	and thereafter	62.2
		191.1

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Notes to consolidated financial statements September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

11. INTANGIBLE ASSETS

Intangible assets with finite useful lives were as follows:

			Retail network
	Leasehold		retention	Customer
	rights	Software	premiums	relationships	Total
Cost
Balance as at September 28, 2019	57.4	246.3	262.6	1,067.4	1,633.7
Acquisitions	—	37.9	14.5	—	52.4
Disposals and write-offs	—	(2.2)	(13.6)	—	(15.8)
Adoption of IFRS16	(57.4)	—	—	—	(57.4)
Balance as at September 26, 2020	—	282.0	263.5	1,067.4	1,612.9
Acquisitions	—	65.5	17.8	—	83.3
Disposals and write-offs	—	(0.3)	(10.7)	—	(11.0)
Balance as at September 25,2021	—	347.2	270.6	1,067.4	1,685.2
Accumulated amortization
and impairment
Balance as at September 28, 2019	(43.9)	(183.5)	(121.7)	(73.9)	(423.0)
Amortization	—	(16.1)	(18.5)	(40.8)	(75.4)
Disposals and write-offs	—	0.3	13.2	—	13.5
Adoption of IFRS16_)_	43.9	—	—	—	43.9
Balance as at September 26, 2020	—	(199.3)	(127.0)	(114.7)	(441.0)
Amortization	—	(19.4)	(18.0)	(40.8)	(78.2)
Disposals and write-offs	—	0.2	10.2	—	10.4
Balance as at September 25,2021	—	(218.5)	(134.8)	(155.5)	(508.8)
Net carrying value
Balance as at September 26, 2020	—	82.7	136.5	952.7	1,171.9
Balance as at September 25,2021	—	128.7	135.8	911.9	1,176.4

Net additions of intangible assets excluded from the consolidated statement of cash flows amounted to $4.5 in 2021 ($5.6 in 2020).

As at September 25, 2021, work in progress for software not yet amortized totalled $51.5.

Intangible assets with indefinite useful lives were as follows:

	Banners	Private labels	Loyalty programs	Total
Balances as at September 26, 2020 and
September 25,2021	1,473.3	121.5	83.5	1,678.3

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

Impairment testing of loyalty programs and exclusive private labels was conducted at the individual asset level. The recoverable amount was determined based on its fair value less costs of disposal, which was calculated using the capitalized excess EBIT method. The estimated EBIT directly allocated to the programs and private labels, after deduction of the return on contributory assets, was based on historical data reflecting past experience. For loyalty programs, the earnings multiples used were 21.1 and 17.8 (22.9 and 15.9 in 2020) considering a growth rate of 2.0% (2.0% in 2020) corresponding to the consumer price index. For the private labels, the earnings multiples used were 18.2 and 21.1 (19.5 and 25.0 in 2020) considering a growth rate of 2.0% (2.0% in 2020) corresponding to the consumer price index. The Corporation classified the fair value measurement in Level 3, as it is derived from unobservable market inputs.

Impairment testing of banners and other private labels were conducted at the level of the asset itself. The recoverable amount was determined based on its fair value calculated using the royalty-free license method. The estimated royalty rate was based on information from external sources and historical data reflecting past experience. For the banners and these private labels, the royalty rate used was 1.0% to 3.0% (1.0% to 3.0% in 2020) and the multiples used were between 18.2 and 21.1 (21.6 and 25.0 in 2020) considering growth rate of 2.0% (2.0% in 2020) corresponding to the consumer price index. The Corporation classified the fair value measurement in Level 3, as it is derived from unobservable market inputs.

No reasonably possible change in any of these assumptions would result in a carrying amount higher than the recoverable amount. 12. GOODWILL

12. GOODWILL
	2021	2020
Balance – beginning of year	3,300.7	3,306.5
Acquisitions through business combinations	0.5	0.6
Disposals	—	(6.4)
Balance – end ofyear	3,301.2	3,300.7

The Corporation disposed of the assets of subsidiary MissFresh on December 9, 2019 for a cash consideration of $3.5 and recorded a loss on disposal of $7.5 mainly related to tangible and intangible assets. The Corporation also recognized a deferred tax asset of $3.3 related to this subsidiary’s fiscal attributes.

For impairment testing, goodwill with a carrying amount of $1,977.9 ($1,977.4 as at September 26, 2020) was allocated to the operating segment related to food operations. 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 for the next fiscal year. The forecasts reflected past experience. A pre-tax discount rate of 8.1% (8.2% in 2020) was used. No reasonably possible change in any of these assumptions would result in a carrying amount higher than the recoverable amount.

For impairment testing, goodwill with a carrying amount of $1,323.3 ($1,323.3 as at September 26, 2020) was allocated to the operating segment related to pharmaceutical operations. 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 for the next fiscal year. Cash flows for subsequent years are based on forecasts reflecting past experience and 2% growth in line with the consumer price index. A pre-tax discount rate of 8.3% (8.8% in 2020) was used. No reasonably possible change in any of these assumptions would result in a carrying amount higher than the recoverable amount.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

13. OTHER ASSETS

13. OTHER ASSETS
	2021	2020
Loans to certain customers, bearing interest at floating rates, weighted average rate
of 3.88% in 2021 repayable in monthly installments, maturing through 2031	50.3	59.8
Investment in a joint venture	10.3	8.4
Other assets	2.4	3.4
	63.0	71.6
Currentportion included in accounts receivable	13.0	10.1
	50.0	61.5

14. BANK LOANS

As at September 25, 2021 and September 26, 2020, the Corporation's bank loans were the credit margins of structured entities. The consolidated structured entities have credit margins totaling $8.7 ($8.4 as at September 26, 2020), bearing interest at prime plus 0.5%, unsecured and maturing on various dates through 2022. As at September 25, 2021, $0.1 had been drawn down under credit margins (0.4 as at September 26, 2020) at an interest rate of 3.0% (3.0% as at September 26, 2020).

15. OFFSETTING

	2021	2020
Accounts payable (gross)	1,593.1	1,521.0
Vendor rebate receivables	**(46.6) **	(62.1)
Accountspayable(net)	1,546.5	1,458.9

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

16. PROVISIONS

16. PROVISIONS
		Pharmacy	Distribution
	Retail	network	network
	network	closure and	modernization		Other
	restructuring	restructuring	project		onerous
	expenses	expenses	expenses		leases		Total
Balance as at September 28, 2019	14.8	11.6	12.0		2.7		41.1
Amounts used	(6.8)	(2.5)	—		—		(9.3)
Adoption of IFRS16	(5.6)	(2.1)	—		(2.7)		(10.4)
Passage of time	—	—	0.3		—		0.3
Balance as at September 26,2020	2.4	7.0	12.3		—		21.7
Current provisions	1.5	1.0	—		—		2.5
Non-currentprovisions	0.9	6.0	12.3		—		19.2
Balance as at September 26,2020	2.4	7.0	12.3		—		21.7
Balance as at September 26, 2020	2.4	7.0	12.3		—		21.7
Amounts used	(1.4)	(5.5)	(0.1)		—		(7.0)
Passage of time	—	—	0.4		—		0.4
Balance as at September 25,2021	1.0	1.5	12.6		—		15.1
Current provisions	0.4	1.2	—		—		1.6
Non-currentprovisions	0.6	0.3	12.6		—		13.5
Balance as at September 25,2021	1.0	1.5	12.6		—		15.1

The Corporation announced in October 2017, a projected $400.0 investment over six years in its Ontario distribution network. The Corporation will modernize its Toronto operations between 2018 and 2024, building a new fresh distribution centre and a new frozen distribution centre. During the first quarter of 2018, the Corporation recorded an $11.4 before taxes provision related to termination and retirement benefits in connection with the modernization of the Ontario distribution network.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

17. DEBT

17. DEBT
	2021	2020
Series C Notes, bearing interest at a fixed nominal rate of 3.20%, maturing on
December 1, 2021	300.0	300.0
Series F Notes, bearing interest at a fixed nominal rate of 2.68%, maturing on
December 5, 2022	300.0	300.0
Series G Notes bearing interest at a fixed nominal rate of 3.39%, maturing on
December 6, 2027	450.0	450.0
Series B Notes, bearing interest at a fixed nominal rate of 5.97%, maturing on
October 15, 2035	400.0	400.0
Series D Notes, bearing interest at a fixed nominal rate of 5.03%, maturing on
December 1, 2044	300.0	300.0
Series H Notes, bearing interest at a fixed nominal rate of 4.27%, maturing on
December 4, 2047	450.0	450.0
Series I Notes, bearing interest at a fixed nominal rate of 3.41%, maturing on
February 28, 2050	400.0	400.0
Loans, maturing on various dates through 2060, bearing interest at an average
rate of 2.17% (2.11% in 2020)	49.7	47.2
Deferred financingcosts	**(13.0) **	(14.6)
	2,636.7	2,632.6
Currentportion	318.5	20.6
	2,318.2	2,612.0

On February 26, 2020, the Corporation issued through a private placement Series I unsecured senior notes in the aggregate principal amount of $400.0, bearing interest at a fixed nominal rate of 3.41%, maturing on February 28, 2050. On February 27, 2020, the Corporation redeemed all of the Series E notes in the amount of $400.0 that matured on the same day.

The Notes of the Corporation are redeemable at the issuer's option prior to maturity at the prices, terms and conditions specified for each series.

The Corporation has access to an unsecured revolving credit facility with a maximum of $600.0 bearing interest at rates that fluctuate with changes in bankers' acceptance rates. As at September 25, 2021 and September 26, 2020, the authorized revolving credit facility was unused. Given that the Corporation frequently increases and decreases this credit facility 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 annual changes.

The debt related to the acquisition of intangible assets, excluded from debt changes presented at the consolidated statements of cash flows, totaled $4.5 in 2021 ($5.6 in 2020).

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

Repayments of debt in the upcoming fiscal years will be as follows:

		Loans	Notes	Total
2022		18.5	300.0	318.5
2023		4.2	300.0	304.2
2024		1.4	—	1.4
2025		1.0	—	1.0
2026		0.8	—	0.8
2027	and thereafter	23.8	2,000.0	2,023.8
		49.7	2,600.0	2,649.7

18. CAPITAL STOCK

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.

Common Shares issued

The Common Shares issued and the changes during the year were summarized as follows:

	Number
	(Thousands)
Balance as at September 28, 2019	254,440	1,732.3
Shares redeemed for cash, excluding premium of $190.5	(3,910)	(26.7)
Stock options exercised	265	8.2
Balance as at September 26, 2020	250,795	1,713.8
Shares redeemed for cash, excluding premium of $402.6	(7,850)	(53.7)
Stock options exercised	446	14.2
Balance as at September 25,2021	243,391	1,674.3

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

Treasury shares

The treasury shares changes during the year are summarized as follows:

	Number
	(Thousands)
Balance as at September 28, 2019	577	(24.6)
Acquisitions	112	(6.2)
Released	(137)	5.7
Balance as at September 26, 2020	552	(25.1)
Released	(110)	4.6
Balance as at September 25,2021	442	(20.5)

Treasury shares are held in trust for the PSU plan. They will be released into circulation when the PSUs settle. The trust, considered a structured entity, is consolidated in the Corporation's financial statements.

Stock option plan

The Corporation has a stock option plan for certain Corporation employees providing for the grant of options to purchase up to 30,000,000 Common Shares. As at September 25, 2021, a balance of 3,478,496 shares could be issued following the exercise of stock options (3,923,996 as at September 26, 2020). 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 the 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, in general 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:

		Weighted
		average
		exercise
	Number	price
	(Thousands)	(Dollars)
Balance as at September 28, 2019	2,281	37.30
Granted	355	56.92
Exercised	(265)	27.35
Cancelled	(49)	45.08
Balance as at September 26, 2020	2,322	41.27
Granted	488	55.95
Exercised	(446)	28.07
Cancelled	(46)	51.88
Balance as at September 25,2021	2,318	46.69

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

The information regarding the stock options outstanding and exercisable as at September 25, 2021 is summarized below:

Range of exercise prices (Dollars)	Outstandingoptions Exercisable options Number (Thousands) Weighted average remaining period (Months) Weighted average exercise price (Dollars) Number (Thousands) Weighted average exercise price (Dollars)
35.42 to 40.31 41.16 to 57.81	808 18.2 38.93 613 38.50 1,510 59.1 50.84 205 43.52
	2,318 44.9 46.69 818 39.76

The weighted average fair value of $6.18 per option ($8.10 in 2020) for stock options granted during fiscal 2021 was determined at the time of grant using the Black-Scholes model and the following weighted average assumptions: riskfree interest rate of 0.4% (1.7% in 2020), expected life of 5.5 years (5.5 years in 2020), expected volatility of 16.2% (16.0% in 2020) and expected dividend yield of 1.8% (1.4% in 2020). 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 2021 ($2.3 in 2020).

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. The PSUs entitle the participant to Common Shares of the Corporation, or at the latter's discretion, the cash equivalent, if the Corporation meets certain financial performance indicators. PSUs vest at the end of a period of three years.

PSUs outstanding and changes during the year are summarized as follows:

	Number
	(Thousands)
Balance as at September 28, 2019	605
Granted	205
Settled	(137)
Cancelled	(55)
Balance as at September 26, 2020	618
Granted	231
Settled	(171)
Cancelled	(63)
Balance as at September 25,2021	615

The weighted average fair value of $55.95 per PSU ($54.11 in 2020) for PSUs granted during fiscal 2021 was the stock market valuation of a Common Share of the Corporation at grant date.

The compensation expense comprising all PSUs amounted to $8.3 for fiscal 2021 ($7.2 in 2020).

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

Deferred Share Unit Plan

The Corporation has a DSU plan designed to encourage stock ownership by directors who are not Corporation officers. Under this program, directors may choose to receive all or part of their compensation in DSUs. DSUs vest when granted. On leaving, a director receives a lump-sum cash payout from the Corporation.

The DSU expense totalled $1.2 for fiscal 2021 ($2.9 in 2020).

As at September 25, 2021, the DSU liability amounted to $15.9 ($17.5 as at September 26, 2020).

19. DIVIDENDS

In fiscal 2021, the Corporation paid $240.1 in dividends to holders of Common Shares ($220.7 in 2020), or $0.9750 per share ($0.8750 in 2020). On September 27, 2021, the Corporation's Board of Directors declared a quarterly dividend of $0.25 per Common Share payable on November 9, 2021.

20. 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 long-term benefits. Ancillary retirement benefits plans and other long-term employee benefits are not funded and are presented in other plans. Pension committees made up of employer and employee representatives are responsible for all administrative decisions concerning certain plans.

Defined benefit pension plans and ancillary retirement benefit plans expose the Corporation to actuarial risks such as interest rate risk, longevity risk, investment risk and inflation risk. Consequently, the Corporation’s investment policy provides for a diversified portfolio whose bond component matches the expected timing and payments of benefits.

The changes in present value of the defined benefit obligation were as follows:

	2021 2020 Pension plans Other plans Pension plans Other plans
Balance – beginning of year Participant contributions Benefits paid Items in net earnings Current service cost Past service cost Interest cost Actuarialgains	1,644.6 33.5 1,512.0 34.9 10.1 — 9.6 — (60.2) (3.3) (55.2) (3.5) 64.9 2.4 56.2 2.5 2.2 — — — 46.5 0.9 46.9 1.1 — (0.4) — (1.4)
	113.6 2.9 103.1 2.2
Items in comprehensive income Actuarial gains from demographic assumptions Actuarial losses (gains) from financial assumptions Adjustments due to experience	(4.7) (0.8) — (2.2) (150.3) (1.4) 74.9 0.7 0.6 — 0.2 1.4
	(154.4) (2.2) 75.1 (0.1)
Balance – end ofyear	1,553.7 30.9 1,644.6 33.5

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

The present value of the defined benefit obligation may be reflected as follows:

(Percentage)	2021 2020 Pension plans Other plans Pension plans Other plans
Active plan participants Deferred plan participants Retirees	58 71 59 70 5 — 5 — 37 29 36 30

The changes in the fair value of plan assets were as follows:

	2021 2020 Pension plans Other plans Pension plans Other plans
Fair value – beginning of year Employer contributions Participant contributions Benefits paid Items in net earnings Interest income Administration costs	1,584.0 — 1,475.6 — 54.6 3.3 52.0 3.5 10.1 — 9.6 — (60.2) (3.3) (55.2) (3.5) 43.5 — 44.5 — (2.3) — (2.0) —
	41.2 — 42.5 —
Items in comprehensive income Return on plan assets, excluding the amounts included in interest income	57.6 — 59.5 —
Fair value – end ofyear	1,687.3 — 1,584.0 —

The changes in the asset ceiling and the minimum funding requirement for pension plans were as follows:

	2021 2020 Asset ceiling Minimum funding requirement Asset ceiling Minimum funding requirement
Balance - beginning of year Interest Change in defined benefit assets Change in defined benefit liabilities	(16.1) — (15.3) (0.8) (0.4) — (0.5) — (41.5) — (0.3) — — (21.4) — 0.8
Balance - end ofyear	(58.0) (21.4) (16.1) —

The value of the economic benefit that determined the asset ceiling represents the present value of future contribution holidays, and the minimum funding requirement represents the present value of required contributions under the law, which do not result, once made, in an economic benefit for the Corporation.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

The changes in the defined benefit plans' funding status were as follows:

	2021 2020 Pension plans Other plans Pension plans Other plans
Balance of defined benefit obligation – end of year Fair value ofplan assets – end ofyear	(1,553.7) (30.9) (1,644.6) (33.5) 1,687.3 — 1,584.0 —
Funded status Asset ceiling effect Minimum fundingrequirement	133.6 (30.9) (60.6) (33.5) (58.0) — (16.1) — (21.4) — — —
	54.2 (30.9) (76.7) (33.5)
Defined benefit assets Defined benefit liabilities	84.8 — 19.7 — (30.6) (30.9) (96.4) (33.5)
	54.2 (30.9) (76.7) (33.5)

The defined contribution and defined benefit plans expense recorded in net earnings was as follows:

	2021 2020 Pension plans Other plans Pension plans Other plans
Defined contribution plans,including multi-employer plans Defined benefit plans Current service cost Past service cost Actuarial gains Administration costs	35.2 — 37.6 — 64.9 2.4 56.2 2.5 2.2 — — — — (0.4) — (1.4) 2.3 — 2.0 —
	69.4 2.0 58.2 1.1
Employee benefits expense	104.6 2.0 95.8 1.1
Interest on obligations, asset ceiling effect and minimum funding requirement net of plans assets, presented in financial costs	3.4 0.9 2.9 1.1
Net total expense	108.0 2.9 98.7 2.2

The remeasurements recognized as other comprehensive income were as follows:

	2021 2020 Pension plans Other plans Pension plans Other plans
Actuarial losses (gains) on accrued obligation Return on plan assets Change in the effect of the asset ceiling Change in the minimum fundingrequirement	(154.4) (2.2) 75.1 (0.1) (57.6) — (59.5) — 41.5 — 0.3 — 21.4 — (0.8) —
	(149.1) (2.2) 15.1 (0.1)

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 $57.9 in 2021 ($55.5 in 2020). The Corporation plans to contribute $57.3 to the defined benefit plans and $28.3 to multi-employer plans during the next fiscal year.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

Weighted average duration of defined benefit obligations was 15 years as at September 25, 2021 and was 16 years as at September 26, 2020.

The most recent actuarial valuations for funding purposes in respect of the Corporation's pension plans were performed on various dates between December 2018 and December 2020. The next valuations will be performed in December 2021.

Plan assets, evaluated at level 1 as it is based on quoted market prices in an active market for the shares and at Level 2 for bonds and other as it is derived from observable market inputs, held in trust and their weighted average allocation as at the measurement dates were as follows:

Asset categories (Percentage)	2021	2020
Shares in Canadian corporations	21	19
Shares in foreign corporations	25	25
Government and corporation bonds	48	49
Other	6	7

Pension plan assets included shares issued by the Corporation with a fair value of $4.7 as at September 25, 2021 ($6.3 as at September 26, 2020).

The principal actuarial assumptions used in determining the defined benefit obligation and service costs were as follows:

(Percentage)	2021 2020 Pensionplans Otherplans Pensionplans Otherplans
Discount rate on defined benefit obligation Discount rate on service costs Rate of compensation increase Mortalitytable	3.33 3.33 2.74 2.74 2.88 2.88 3.30 3.30 3.00 3.00 3.00 3.00 CPM2014Priv CPM2014Priv CPM2014Priv CPM2014Priv

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.

A 1% change in the discount rate, taking into consideration any modifications to other assumptions, would have the following effects:

	Pensionplans Otherplans 1% increase 1% decrease 1% increase 1% decrease
Effect on defined benefit obligation	(214.2) 274.8 (2.6) 3.2

The assumed annual health care cost trend rate per participant was set at 5.5% (5.5% in 2019). Under the assumption used, this rate should gradually decline to 4.0% in 2040 and remain at that level thereafter. A 1% change in this rate would have the following effects:

	1% increase	1% decrease
Effect on defined benefit obligation	(1.2)	1.4

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Notes to consolidated financial statements September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

21. COMMITMENTS

Service contracts

The Corporation has service contract commitments essentially for transportation and IT, with varying terms through 2030 and no renewal option. Future minimum payments under these service contracts will be as follows:

	2021	2020
Under 1 year	149.0	100.2
Between 1 and 5 years	221.7	178.6
Over 5years	3.9	0.2
	374.6	279.0

22. CONTINGENCIES

Guarantees

The Corporation has guaranteed loans granted to certain customers by financial institutions, with varying terms through 2026. The balance of these loans amounted to $22.2 as at September 25, 2021 ($23.5 as at September 26, 2020). No liability has been recorded in respect of these guarantees for the years ended September 25, 2021 and September 26, 2020.

Buyback agreements

Under inventory repurchase agreements, the Corporation has undertaken with respect to financial institutions to repurchase at cost the inventories of certain customers, when they are in default, up to the amount drawn on lines of credit granted to these same customers by the financial institutions. As at September 25, 2021, inventory financing amounted to $146.3 ($159.3 as at September 26, 2020). However, under these agreements, the Corporation has not undertaken to make up for any deficit created if the value of inventories falls below the amount of the advances.

Under buyback agreements, the Corporation is committed to financial institutions to purchase equipment held by customers and financed by finance leases not exceeding five years and loans not exceeding eight years. For finance leases, the buyback value is linked to the net balance of the lease at the date of the buyback. For equipment financed by bank loans, the minimum buyback value is either set by contract with financial institutions or linked to the loan balance at the buyback date. As at September 25, 2021, financing related to the equipment amounted to $26.6 ($36.2 as at September 26, 2020).

No liability has been recorded in respect of these guarantees for the years ended September 25, 2021 and September 26, 2020 and historically, the Corporation has not made any indemnification payments under such agreements.

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 at this stage, the Corporation does not believe that these matters will have a material effect on the Corporation's financial position or on consolidated earnings. However, since any litigation involves uncertainty, it is not possible to predict the outcome of these litigations or the amount of potential losses. No accruals or provisions for contingent losses have been recognized in the Corporation’s annual consolidated financial statements.

In May 2019, two proposed class actions relating to opioids were filed in Ontario and in Québec by opioid end users against a large group of defendants including, in Québec, a subsidiary of the Corporation, Pro Doc Ltée and, in Ontario, Pro Doc Ltée and The Jean Coutu Group (PJC) Inc. In February 2020, a proposed class action relating to opioids was filed in British Columbia by opioid end users against a large group of defendants including subsidiaries of the Corporation, Pro Doc Ltée. and The Jean Coutu Group (PJC) Inc. In April 2021, multiple defendants, including Pro Doc Ltée and The Jean Coutu Group (PJC) Inc., were served with a proposed class action relating to opioids and filed by the City of Grande Prairie, in Alberta. In September 2021, multiple defendants, including Pro Doc Ltée and The Jean Coutu Group (PJC) Inc., were served with a proposed class action relating to opioids and filed by the Peter

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Notes to consolidated financial statements September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

Ballantyne Cree Nation and the Lac La Ronge Indian Band, in Saskatchewan. The allegations in these proposed class actions are similar to the allegations contained in the proposed class action filed by the Province of British Columbia in August 2018 against numerous manufacturers and distributors of opioids, including subsidiaries of the Corporation, Pro Doc Ltée and The Jean Coutu Group (PJC) Inc. All these proposed class actions contain allegations of breach of the Competition Act , of fraudulent misrepresentation and deceit, and negligence. The Province of British Columbia seeks damages (unquantified) on behalf of all federal, provincial and territorial governments and agencies for expenses allegedly incurred in paying for opioid prescriptions and other healthcare costs that would be related to opioid addiction and abuse while the Ontario, Québec and British Columbia proposed claims filed by opioid end users seek recovery of damages on behalf of opioid end users in general. The City of Grande Prairie, on its behalf and on behalf of all Canadian municipalities and local governments, seeks damages which are unquantified in relation to public safety, social service, and criminal justice costs allegedly incurred due to the opioid crisis. The Peter Ballantyne Cree Nation and the Lac La Ronge Indian Band are attempting a similar recourse, claiming unquantified damages from multiple defendants on their own behalf and on behalf of all Indigenous, Metis, First Nations and Inuit communities and governments in Canada. The Corporation believes these proceedings are without merits and that, in certain cases, there is no jurisdiction. No provision for contingent losses has been recognized in the Corporation’s annual consolidated financial statements.

In October 2017, the Canadian Competition Bureau began an investigation into the supply and sale of commercial bread which involves certain Canadian suppliers and retailers, including the Corporation. Based on the information available to date, the Corporation does not believe that it or any of its employees have violated the Competition Act . Proposed class-action lawsuits have also been filed against the Corporation, suppliers and other retailers. On December 19, 2019, the Québec Superior Court granted the application for authorization to institute one of these class actions, the authorization process being merely a procedural step and the judgment in no way decides the case on the merits. The Corporation is contesting all these actions at the certification stage and on the merits. No provision for contingent losses has been recognized in the Corporation’s annual consolidated financial statements.

During the 2016 fiscal year, an application for authorization to institute a class action was served on The Jean Coutu Group (PJC) Inc. by Sopropharm, an association incorporated under the Professional Syndicates Act of which certain franchised drugstore owners of the Jean Coutu Group are members. The application seeks to have the class action authorized in the form of a declaratory action seeking amongst others (i) to set aside certain contractual provisions of the Jean Coutu Group’s standard franchise agreements, including the clause providing for the payment of royalties on sales of medication by franchised establishments; (ii) to restore certain benefits; and (iii) to reduce certain contractual obligations. On November 1, 2018, the Court granted the application for authorization to institute a class action, the authorization process being merely a procedural step and the judgment in no way decides the case on the merits. The Corporation contests this action on the merits. No provision for contingent losses has been recognized in the Corporation's annual consolidated financial statements.

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Notes to consolidated financial statements September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

23. RELATED PARTY TRANSACTIONS

The Corporation has significant interest in the following subsidiaries and joint venture:

	Country of	Percentage of	Percentage of
Names	incorporation	interest in the capital	votingrights
Subsidiaries
Metro Richelieu Inc.	Canada	100.0	100.0
Metro Ontario Inc.	Canada	100.0	100.0
The Jean Coutu Group (PJC) Inc.	Canada	100.0	100.0
McMahon Distributeur pharmaceutique Inc.	Canada	100.0	100.0
Pro Doc Ltée	Canada	100.0	100.0
RX Information Centre Ltd.	Canada	100.0	100.0
Metro Québec Immobilier Inc.	Canada	100.0	100.0
Metro Ontario Real Estate Limited	Canada	100.0	100.0
Metro Ontario Pharmacies Limited	Canada	100.0	100.0
Groupe Adonis Inc.	Canada	100.0	100.0
Groupe Phoenicia Inc.	Canada	100.0	100.0
Groupe Première Moisson Inc.	Canada	100.0	100.0
Cuisine centrale Prêt-à-Manger Inc.	Canada	100.0	100.0
Joint venture
Medicus GroupInc.	Canada	46.5	46.5

In the normal course of business, the following transactions have been entered into with related parties:

	2021 2020 Sales Accounts receivable Sales Accounts receivable
Companies controlled by a member of the Board of Directors	18.5 1.3 32.8 2.1
	18.5 1.3 32.8 2.1

Compensation for the principal officers and directors was as follows:

	2021	2020
Compensation and current benefits	6.7	6.1
Post-employment benefits	1.3	1.3
Share-basedpayment	6.9	5.8
	14.9	13.2

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Notes to consolidated financial statements September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

24. 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 and lease liabilities to total combined non-current debt, lease liabilities and equity (non-current debt and lease liabilities/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 a target range of 30% to 40% of the prior fiscal year's net earnings, excluding non-recurring 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 2021 annual results regarding its capital management objectives were as follows:

• non-current debt and lease liabilities/total capital ratio of 40.0% (41.8% as at September 26, 2020);

• a BBB credit rating confirmed by S&P and BBB/Stable by DBRS (same rating in 2020);

• a dividend representing 29.0% of the previous year net earnings, excluding non-recurring items (30.2% in 2020).

25. FINANCIAL INSTRUMENTS

FAIR VALUE

The non-current financial instruments' book and fair values were as follows:

	2021 2020 Book value Fair value Book value Fair value
Other assets Assets measured at amortized cost Loans to certain customers_(note 13)_	50.3 50.3 59.8 59.8
Debt(note 17) Liabilities measured at amortized cost Series C Notes Series F Notes Series G Notes Series B Notes Series D Notes Series H Notes Series I Notes Loans	300.0 303.8 300.0 307.9 300.0 308.9 300.0 311.0 450.0 488.1 450.0 503.6 400.0 519.9 400.0 542.8 300.0 363.4 300.0 391.0 450.0 494.7 450.0 536.6 400.0 377.3 400.0 416.5 49.7 49.7 47.2 47.2
	2,649.7 2,905.8 2,647.2 3,056.6

Fair value measurements hierarchy

Fair value measurements of those assets and liabilities recognized at fair value in the consolidated statements of financial position or whose fair value is presented in the notes to the consolidated financial statements are classified in accordance with the following hierarchy:

• 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); and

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Notes to consolidated financial statements September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value of loans to certain customers and loans payable is equivalent to their carrying value since their interest rates are comparable to market rates. The Corporation classified the fair value measurement in Level 2, as it is derived from observable market inputs.

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 Corporation classified the fair value measurement in Level 2, as it is derived from observable market inputs.

The changes of the current non-controlling interest-related liability were as follows:

	2021	2020
Balance – beginning of year	—	51.1
Buyout of minority interests	—	(51.6)
Change in fair value	—	0.5
Balance – end ofyear	—	—

Under the shareholder agreement, the Corporation acquired the minority interest in Première Moisson during the first quarter of fiscal 2020 for a cash consideration of $51.6, which represents the price payable based on Première Moisson’s fiscal 2019 results.

INTEREST RATE RISK

In the normal course of business, the Corporation is exposed primarily to interest rate risk as a result of loans and receivables that it grants, as well as the revolving credit facility and loans payable that it contracts at variable interest rates.

The Corporation keeps a close watch on interest rate fluctuations and, if warranted, uses derivative financial instruments such as interest rate swap contracts. As at September 25, 2021 and September 26, 2020, there were no outstanding interest rate swap contracts.

CREDIT RISK

Loans and receivables / Guarantees

The Corporation sells products to consumers and retailers in Canada. When it sells products, it gives retailers credit. In addition, to help certain retailers 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 terms to be met and the required guarantees. As at September 25, 2021 and September 26, 2020, no customer accounted for over 10% of total loans and receivables.

To cover its credit risk, the Corporation holds guarantees over 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 recognized any material losses related to credit risk.

As at September 25, 2021, the maximum potential liability under guarantees provided amounted to $22.2 ($23.5 as at September 26, 2020) and no liability had been recognized as at that date.

Financial assets at fair value through profit and loss

With regard to its financial assets at fair value through profit and loss, consisting of foreign exchange forward contracts, the Corporation is subject to credit risk when these contracts result in receivables from financial institutions.

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Notes to consolidated financial statements

September 25, 2021 and September 26, 2020

(Millions of dollars, unless otherwise indicated)

In accordance with its financial risk management policy, the Corporation entered into these agreements with major Canadian financial institutions to reduce its credit risk.

As at September 25, 2021, the maximum exposure to credit risk for the foreign exchange forward contracts was equal to their carrying amount. As at September 26, 2020, the Corporation was not exposed to credit risk in respect of its foreign exchange forward contracts, as they resulted in amounts payable.

LIQUIDITY RISK

The Corporation is exposed to liquidity risk primarily as a result of its debt, lease liabilities 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 revolving credit facility and its Series C, F, G, B, D, H and I Notes mature only in 2021, 2022, 2027, 2035, 2044, 2047 and 2050, respectively. The Corporation also has an unused authorized balance of $600.0 on its revolving credit facility.

	Undiscounted cash flows(capital and interest)
	Accounts payable Loans Notes Lease liabilities Total
Maturing under 1 year Maturing in 1 to 10 years Maturing in 11 to 20 years Maturingover 20years	1,546.5 20.4 396.7 313.5 2,277.1 — 7.9 1,476.7 1,653.1 3,137.7 — 5.1 976.1 199.8 1,181.0 — 24.1 1,431.1 6.2 1,461.4
	1,546.5 57.5 4,280.6 2,172.6 8,057.2

FOREIGN EXCHANGE RISK

Given that some of its purchases are denominated in foreign currencies and that it has, depending on market conditions, US borrowings on its revolving credit facility, the Corporation is exposed to foreign exchange risk.

In accordance with its financial risk management policy, the Corporation could use derivative financial instruments, consisting of foreign exchange forward contracts and cross currency interest rate swaps, to hedge against the effect of foreign exchange rate fluctuations on its future foreign-denominated purchases of goods and services and on its US borrowings. As at September 25, 2021 and September 26, 2020, the fair value of foreign exchange forward contracts was insignificant and there were no cross-currency interest rate swaps outstanding.

26. EVENT AFTER THE REPORTING PERIOD

On November 30, 2021, the Corporation issued through a private placement Series J unsecured senior notes in the aggregate principal amount of $300.0, bearing interest at a fixed nominal rate of 1.92%, maturing on December 2, 2024, and redeemable at fair value at the issuer’s option at any time prior to maturity. On December 1, 2021, the Corporation redeemed all of the Series C notes in the amount of $300.0 that matured on the same day. In conjunction with this offering, Metro entered into a $300.0 interest rate swap effectively locking in a floating rate of interest of 11 basis points (0.11%) over the 3-month bankers' acceptance rate (CDOR) over the life of the Series J Notes.

27. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements for the fiscal year ended September 25, 2021 (including comparative figures) were approved for issue by the Board of Directors on December 10, 2021.

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