2014 Annual Report
George Weston Limited
Footnote Legend
(1) See non-GAAP financial measures beginning on page 52.
(2) For financial definitions and ratios refer to the Glossary beginning on page 138.
(3) To be read in conjunction with “Forward-Looking Statements” beginning on page 4.
(4) Certain 2013 figures have been amended. See Section 22, “Non-GAAP Financial Measures” of the Company’s 2014
Management’s Discussion and Analysis and note 2 of the Company’s 2014 audited consolidated financial statements.
Financial Highlights 1 / Report to Shareholders 2 / Management’s Discussion and Analysis 3 / Financial Results 61 /
Three Year Summary 136 / Glossary 138 / Corporate Directory 140 / Shareholder and Corporate Information 141
Financial Highlights(2)
As at or for the years ended December 31
($ millions except where otherwise indicated)
Consolidated Operating Results
Sales
EBITDA(1)
Adjusted EBITDA(1)
Operating income
Adjusted operating income(1)
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(1)
Net earnings
Discontinued operations
Net earnings from continuing operations
Net earnings from continuing operations attributable
to shareholders of the Company
Adjusted net earnings from continuing operations attributable to
shareholders of the Company(1)
Consolidated Financial Position and Cash Flows
Cash and cash equivalents, short term investments and security deposits
Adjusted debt(1)
Free cash flow(1)
Cash flows from operating activities of continuing operations
Fixed asset purchases
Consolidated per Common Share ($)
Basic net earnings
Basic net earnings from discontinued operations
Basic net earnings from continuing operations
Adjusted basic net earnings from continuing operations(1)
Consolidated Financial Measures and Ratios
Sales growth
Adjusted EBITDA margin(1)
Adjusted operating margin(1)
Adjusted debt(1) to adjusted EBITDA(1)
Reportable Operating Segments
Weston Foods
Sales
EBITDA(1)
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Operating income
Adjusted operating income(1)
Adjusted operating margin(1)
Loblaw
Sales
Retail gross profit
EBITDA(1)
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Operating income
Adjusted operating income(1)
Adjusted operating margin(1)
2014
(53 weeks)
2013(4)
(52 weeks)
$
$
$
$
43,918
2,515
3,539
973
2,414
815
566
134
134
126
728
2,497
11,388
1,033
2,851
1,124
$
0.64
$
0.64
5.35
30.8%
8.1%
5.5%
3.2x
1,923
301
311
16.2%
231
241
12.5%
42,611
9,734
2,126
3,228
7.6%
654
2,173
5.1%
$
$
$
$
33,582
2,507
2,420
1,616
1,533
497
403
904
58
846
614
586
6,150
7,483
284
1,738
976
4.93
0.46
4.47
4.25
2.6%
7.2%
4.6%
3.1x
1,812
305
322
17.8%
238
259
14.3%
32,371
6,961
2,127
2,098
6.5%
1,303
1,274
3.9%
George Weston Limited 2014 Annual Report 1
Report to Shareholders(3)
George Weston Limited experienced a year of transformation in 2014. We made significant progress on our
strategic priorities at Loblaw and Weston Foods and increased our confidence that we are well-positioned for
stable, long term growth and profitability.
George Weston Limited has broadened its portfolio, with leading market positions in diverse businesses.
In 2014, Loblaw continued to evolve and strengthen its competitive position to be the best in food experience,
the best in health and beauty, to drive operational excellence and to pursue growth. Loblaw successfully
completed its acquisition of Shoppers Drug Mart, creating a unique retail footprint while providing customers
best-in-class food and health and wellness offerings along with the combined Company’s trusted and most
recognized brands, while focusing on convenience and value.
Loblaw delivered strong financial and operational performance across its portfolio of businesses. The Retail
business performed well with core grocery maintaining positive same-store sales and stable gross margin in an
intensely competitive industry. Three quarters of Shoppers Drug Mart’s results were included in our financials
and reflected the strength of the front of store offer as well as resilience in pharmacy. In 2015, Loblaw will
continue to focus on stable business performance, surfacing efficiencies, realizing synergies and deleveraging the
balance sheet.
Weston Foods delivered higher sales driven by volume growth across all business units. Results were negatively
impacted by higher commodity and other input costs, start-up costs and new plant costs. Weston Foods remains
committed to driving long term financial performance and expects to make significant capital investments in
targeted areas of growth in 2015. These investments reflect a commitment to positioning Weston Foods for long
term growth and profitability.
On behalf of the Board of Directors and shareholders, we thank our loyal customers for their support and our
more than 200,000 employees for their dedication and continued commitment to the Company.
[signed]
W. Galen Weston
Executive Chairman
[signed]
Paviter S. Binning
President
2 George Weston Limited 2014 Annual Report
Management’s Discussion and Analysis
6.
1.
2.
3.
4.
5.
Forward-Looking Statements
Overview
Strategic Framework
Key Financial Performance Indicators
Overall Financial Performance
5.1 Significant Accomplishments in 2014
5.2 Consolidated Results of Operations
5.3 Selected Annual Information
Results of Reportable Operating Segments
6.1 Weston Foods Operating Results
6.2 Loblaw Operating Results
Acquisition of Shoppers Drug Mart Corporation
Other Business Matters
Liquidity and Capital Resources
9.1 Cash Flows
9.2 Liquidity and Capital Structure
9.3 Credit Ratings
9.4 Other Sources of Funding
9.5 Share Capital
9.6 Contractual Obligations
10. Financial Derivative Instruments
11. Off-Balance Sheet Arrangements
12. Quarterly Results of Operations
7.
8.
9.
12.1 Quarterly Financial Information (Unaudited)
12.2 Fourth Quarter Results (Unaudited)
13. Fourth Quarter Results of Reportable Operating Segments
13.1 Weston Foods Fourth Quarter Operating Results (Unaudited)
13.2 Loblaw Fourth Quarter Operating Results (Unaudited)
14. Disclosure Controls and Procedures
15.
16. Enterprise Risks and Risk Management
Internal Control Over Financial Reporting
16.1 Operating Risks and Risk Management
16.2 Financial Risks and Risk Management
17. Related Party Transactions
18. Critical Accounting Estimates and Judgments
19. Accounting Standards Implemented in 2014 and Changes to Significant Accounting Policies
20. Future Accounting Standards
21. Outlook
22. Non-GAAP Financial Measures
23. Additional Information
4
5
6
7
8
8
9
13
15
15
16
17
18
19
19
20
22
23
24
26
27
27
28
28
30
34
34
35
36
37
38
39
45
48
49
50
51
51
52
60
George Weston Limited 2014 Annual Report 3
Management’s Discussion and Analysis
The following Management’s Discussion and Analysis (“MD&A”) for George Weston Limited (“GWL” or the
“Company”) should be read in conjunction with the audited annual consolidated financial statements and the
accompanying notes on pages 61 to 135 of this Annual Report. The Company’s annual audited consolidated
financial statements and the accompanying notes for the year ended December 31, 2014 have been prepared in
accordance with International Financial Reporting Standards (“IFRS” or “GAAP”). The annual audited
consolidated financial statements include the accounts of the Company and other entities that the Company
controls and are reported in Canadian dollars, except where otherwise noted.
The information in this MD&A is current to March 4, 2015, unless otherwise noted. A glossary of terms and
ratios used throughout this Annual Report can be found beginning on page 138.
As a result of the Company’s reporting calendar, the fourth quarter and full year 2014 include an extra week of
operations (“the 53rd week”) compared to 2013.
FORWARD-LOOKING STATEMENTS
1.
This Annual Report for the Company, including this MD&A, contains forward-looking statements about the
Company’s objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows,
performance, prospects and opportunities. Specific forward-looking statements in this Annual Report include,
but are not limited to, statements with respect to the Company’s anticipated future results, events and plans,
synergies and other benefits associated with the acquisition of Shoppers Drug Mart Corporation (“Shoppers Drug
Mart”), future liquidity and debt reduction targets, planned capital investments, and status and impact of the
information technology (“IT”) systems implementation. These specific forward-looking statements are contained
throughout this Annual Report including, without limitation, in Section 3, “Strategic Framework”, Section 9,
“Liquidity and Capital Resources”, Section 21, “Outlook”, and Section 22, “Non-GAAP Financial Measures”.
Forward-looking statements are typically identified by words such as “expect”, “anticipate”, “believe”, “foresee”,
“could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may”, “on-track”, “maintain”, “achieve”,
“grow”, and “should” and similar expressions, as they relate to the Company and its management.
Forward-looking statements reflect the Company’s current estimates, beliefs and assumptions, which are based
on management’s perception of historical trends, current conditions and expected future developments, as well
as other factors it believes are appropriate in the circumstances. The Company’s expectation of operating and
financial performance in 2015 is based on certain assumptions including assumptions about sales and volume
growth, anticipated cost savings, operating efficiencies, and continued growth from current initiatives. The
Company’s estimates, beliefs and assumptions are inherently subject to significant business, economic,
competitive and other uncertainties and contingencies regarding future events and as such, are subject to
change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be
correct.
Numerous risks and uncertainties could cause the Company’s actual results to differ materially from those
expressed, implied or projected in the forward-looking statements, including those described in Section 16,
“Enterprise Risks and Risk Management” of this MD&A and the Company’s Annual Information Form (“AIF”) for
the year ended December 31, 2014. Such risks and uncertainties include:
•
failure by Loblaw Companies Limited (“Loblaw”) to realize the anticipated strategic benefits or operational,
competitive and cost synergies following the acquisition of Shoppers Drug Mart;
failure by Loblaw to reduce indebtedness associated with the acquisition of Shoppers Drug Mart to bring
leverage ratios to a level consistent with investment grade ratings;
failure to realize benefits from investments in the Company’s IT systems, including the Company’s IT systems
implementation, or unanticipated results from these initiatives;
failure to realize anticipated results, including revenue growth, anticipated cost savings or operating
efficiencies from the Company’s major initiatives, including those from restructuring;
the inability of the Company’s IT infrastructure to support the requirements of the Company’s business;
•
•
•
•
4 George Weston Limited 2014 Annual Report
•
•
•
changes in Loblaw’s estimate of inventory cost as a result of its IT system upgrade;
changes to the regulation of generic prescription drug prices and the reduction of reimbursements under
public drug benefit plans and the elimination or reduction of professional allowances paid by drug
manufacturers;
failure to achieve desired results in labour negotiations, including the terms of future collective bargaining
agreements which could lead to work stoppages;
• heightened competition, whether from current competitors or new entrants to the marketplace;
•
changes in economic conditions including the rate of inflation or deflation, changes in interest and currency
exchange rates and derivative and commodity prices;
changes in the Company’s income, capital, commodity, property and other tax and regulatory liabilities
including changes in tax laws, regulations or future assessments;
the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory
and to control shrink;
the risk that the Company would experience a financial loss if its counterparties fail to meet their obligations
in accordance with the terms and conditions of their contracts with the Company; and
the inability of the Company to collect on and fund its credit card receivables.
•
•
•
•
This is not an exhaustive list of the factors that may affect the Company’s forward-looking statements. Other
risks and uncertainties not presently known to the Company or that the Company presently believes are not
material could also cause actual results or events to differ materially from those expressed in its forward-looking
statements. Additional risks and uncertainties are discussed in the Company’s materials filed with the Canadian
securities regulatory authorities from time to time, including without limitation, the section entitled “Operating
and Financial Risks and Risk Management” in the Company’s AIF for the year ended December 31, 2014. Readers
are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company’s
expectations only as of the date of this Annual Report. Except as required by law, the Company does not
undertake to update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.
OVERVIEW
2.
GWL is a Canadian public company, founded in 1882. The Company has two reportable operating segments:
Loblaw and Weston Foods, and holds cash, short term investments and a direct investment in Choice Properties
Real Estate Investment Trust (“Choice Properties”). The Loblaw operating segment, which is operated by Loblaw
Companies Limited and its subsidiaries, includes retail businesses, a bank and a real estate company. Loblaw
provides Canadians with grocery, pharmacy, health and beauty, apparel, general merchandise, and financial
products and services. The Weston Foods operating segment includes a leading fresh bakery business in Canada
and operates North American frozen and artisan bakery and biscuit manufacturing businesses.
George Weston Limited 2014 Annual Report 5
Management’s Discussion and Analysis
STRATEGIC FRAMEWORK
3.
The Company employs various operating and financial strategies, driven by each of its reportable operating
segments.
Weston Foods’ strategy is focused on continuing to drive financial performance within its core business and
positioning the business for sustainable, long term growth and profitability. As part of its strategic framework,
Weston Foods will:
•
• drive growth through innovation and product development, meeting the evolving needs of consumers and
continue to drive operational and service efficiencies and excellence;
customers;
invest in assets and infrastructure to support its core business and pursue growth in targeted areas;
•
• enhance the capabilities and leadership within the organization, driving a high-performance culture; and
•
continue to evaluate the market for new opportunities to increase market penetration and expand presence,
organically, through partnership or acquisition.
Loblaw’s strategic framework is anchored by its vision to help Canadians “Live Life Well” and its commitment to
produce industry leading financial results through operational excellence. At the core of this framework is
Loblaw’s focus on the customer – by providing the best in food experience and the best in health and beauty.
Achieving a “best in food” experience is driven by Loblaw’s desire to lead in fresh selection, drive sustainable and
competitive pricing and provide customized assortments across its banners. Achieving “best in health and
beauty” is driven by Loblaw’s pharmacies putting customers first, its desire to provide high quality health and
wellness products, a diverse and differentiated beauty offering and convenient locations and hours of operations
to meet individuals’ wellness needs.
Loblaw’s operational excellence goals include driving efficiencies and realizing synergies from its business
acquisitions, particularly the acquisition of Shoppers Drug Mart. Loblaw is focused on continued growth from
President’s Choice Financial Services, Choice Properties, product innovation, emerging business, and loyalty
program initiatives.
Weston Foods and Loblaw each have their own risk profiles and operating risk management strategies. The
success of these and other plans and strategies discussed in this MD&A may be affected by risks and
uncertainties, including those described in Section 16, “Enterprise Risks and Risk Management” of this MD&A
and in the Company’s AIF for the year ended December 31, 2014.
6 George Weston Limited 2014 Annual Report
KEY FINANCIAL PERFORMANCE INDICATORS
4.
The Company has identified specific key financial performance indicators to measure the progress of short and
long term objectives. With the completion of Loblaw’s acquisition of Shoppers Drug Mart, the Company’s 2014
results include the results of Shoppers Drug Mart as well as the associated acquisition-related accounting
adjustments. Certain key financial performance indicators are set out below:
Key Financial Performance Indicators(2)
As at or for the years ended December 31
($ millions except where otherwise indicated)
Sales
Loblaw Retail gross profit(i)
EBITDA(1)
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Operating income
Adjusted operating income(1)
Adjusted operating margin(1)
Net earnings from continuing operations attributable to
shareholders of the Company
Adjusted net earnings from continuing operations attributable to
shareholders of the Company(1)
Basic net earnings per common share from continuing operations ($)
Adjusted basic net earnings per common share from
continuing operations(1)
($)
Cash and cash equivalents, short term investments and security deposits
Cash flows from operating activities of continuing operations
Adjusted debt(1)
Adjusted debt(1) to adjusted EBITDA(1)
Free cash flow(1)
2014
(53 weeks)
43,918
$
9,734
$
2,515
$
3,539
$
8.1%
973
2,414
5.5%
$
$
2013(4)
(52 weeks)
33,582
$
6,961
$
2,507
$
2,420
$
7.2%
1,616
1,533
4.6%
$
$
$
$
$
$
$
$
$
$
126
728
0.64
5.35
2,497
2,851
11,388
3.2x
1,033
$
$
$
$
$
$
$
$
614
586
4.47
4.25
6,150
1,738
7,483
3.1x
284
(i)
Loblaw Retail gross profit is impacted by certain items described in Section 6.2, “Loblaw Operating Results” of this MD&A.
Under GAAP, certain expenses and income must be recognized that are not necessarily reflective of the
Company’s underlying operating performance. Non-GAAP financial measures exclude the impact of certain items
and are used internally when analyzing consolidated and segment underlying operating performance. These
non-GAAP financial measures are also helpful in assessing underlying operating performance on a consistent
basis. See Section 22, “Non-GAAP Financial Measures” of this MD&A for more information on the Company’s
non-GAAP financial measures.
George Weston Limited 2014 Annual Report 7
Management’s Discussion and Analysis
5.
OVERALL FINANCIAL PERFORMANCE
5.1
SIGNIFICANT ACCOMPLISHMENTS IN 2014
Acquisition of Shoppers Drug Mart On March 28, 2014, Loblaw acquired all of the outstanding shares of
Shoppers Drug Mart for total consideration of $12.3 billion, comprised of approximately $6.6 billion of cash and
the issuance of approximately 119.5 million Loblaw common shares. The cash portion of the acquisition was
partially funded by the issuance of $5.1 billion of debt.
During 2014, Loblaw realized approximately $101 million of net synergies, generated primarily from improved
costs of goods sold and from purchasing efficiencies in goods not for resale. Loblaw continues to expect to
achieve annualized synergies of $300 million in the third full year following the close of the acquisition of
Shoppers Drug Mart (net of related costs).
As a result of the acquisition, GWL’s ownership interest in Loblaw decreased from approximately 63% to
approximately 46%. The Company remains the controlling shareholder of Loblaw and continues to consolidate
Loblaw.
See Section 7, “Acquisition of Shoppers Drug Mart Corporation” of this MD&A for further details.
Deleveraging On closing of the acquisition of Shoppers Drug Mart, adjusted debt(1) was $12.1 billion. The
Company made significant progress in meeting its debt reduction target and decreased adjusted debt(1) by
approximately $700 million since the closing of the acquisition, resulting in an adjusted debt(1) balance of
$11.4 billion as at December 31, 2014. The reduction in adjusted debt(1) since closing included the repayment
of a $350 million medium term note (“MTN”) at maturity and repayments under the unsecured term loan facility
(net of Choice Properties’ notes issued to third parties), partially offset by the issuance of a $200 million MTN
and other indebtedness.
See Section 9, “Liquidity and Capital Resources” of this MD&A for further details.
Information Technology and Other Systems Implementations As of the end of 2014, Loblaw completed the
conversion of substantially all of its corporate grocery locations and associated distribution centres to the new
IT systems.
8 George Weston Limited 2014 Annual Report
5.2
CONSOLIDATED RESULTS OF OPERATIONS
The Company has two reportable operating segments: Loblaw and Weston Foods. Loblaw has three reportable
operating segments: Retail, Financial Services, which includes President’s Choice Bank (“PC Bank”), a subsidiary
of Loblaw, and Choice Properties.
As at or for the years ended December 31
($ millions except where otherwise indicated)
Sales
Sales excluding Shoppers Drug Mart
EBITDA(1)
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Adjusted EBITDA(1) excluding
Shoppers Drug Mart
Adjusted EBITDA margin(1) excluding
Shoppers Drug Mart
Operating income
Adjusted operating income(1)
Adjusted operating margin(1)
Adjusted operating income(1) excluding
Shoppers Drug Mart
Adjusted operating margin(1) excluding
Shoppers Drug Mart
Net interest expense and other
financing charges
Adjusted net interest expense and other
financing charges(1)
Income taxes
Adjusted income taxes(1)
Adjusted income tax rate(1)
Net earnings(i)
Net earnings from continuing operations
Net earnings from continuing operations
attributable to shareholders
of the Company
Adjusted net earnings from continuing
operations attributable to shareholders
of the Company(1)
Basic net earnings per common share from
continuing operations ($)
Adjusted basic net earnings per common
share from continuing operations(1) ($)
Adjusted debt(1) to adjusted EBITDA(1)
Free cash flow(1)
2014
(53 weeks)
43,918
$
34,868
$
2,515
$
3,539
$
8.1%
2013(4)
(52 weeks)
33,582
$
33,582
$
2,507
$
2,420
$
7.2%
$ Change
10,336
$
1,286
$
$
8
1,119
$
% Change
30.8 %
3.8 %
0.3 %
46.2 %
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,551
$
2,420
$
131
5.4 %
7.3%
973
2,414
5.5%
1,630
4.7%
815
566
24
481
26.0%
134
134
126
728
0.64
5.35
3.2x
1,033
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7.2%
1,616
1,533
4.6%
1,533
4.6%
497
403
273
285
25.2%
904
846
614
586
4.47
4.25
3.1x
284
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(643)
881
(39.8)%
57.5 %
97
6.3 %
318
163
(249)
196
(770)
(712)
64.0 %
40.4 %
(91.2)%
68.8 %
(85.2)%
(84.2)%
(488)
(79.5)%
142
24.2 %
(3.83)
(85.7)%
1.10
749
25.9 %
263.7 %
(i)
In 2013 , net earnings included income related to discontinued operations of $58 million.
George Weston Limited 2014 Annual Report 9
Management’s Discussion and Analysis
Adjusted basic net earnings per common share from continuing operations(1) for 2014 increased to $5.35 from
$4.25 compared to 2013. The improvement of $1.10 was primarily due to an increase in Loblaw earnings net of
the dilution in the Company’s ownership as a result of shares issued by Loblaw to acquire Shoppers Drug Mart.
Loblaw earnings were positively impacted in 2014 by Shoppers Drug Mart results, partially offset by higher
interest expense driven by the financing associated with the acquisition of Shoppers Drug Mart.
Basic net earnings per common share from continuing operations decreased by $3.83 to $0.64 compared to
2013, and was impacted by the following significant items:
•
the negative impact of the recognition of the fair value increment on the acquired Shoppers Drug Mart
inventory sold of $798 million ($2.08 per common share);
the amortization of the acquired Shoppers Drug Mart intangible assets of $417 million ($1.09 per
common share);
the unfavourable year-over-year impact of the fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares of $200 million ($1.18 per common share);
•
•
• a non-cash charge recorded by Loblaw in the second quarter of 2014 relating to inventory measurement
and other conversion differences associated with Loblaw’s upgrade of its IT infrastructure of $190 million
($0.49 per common share); partially offset by
the favourable impact of the restructuring of franchise fees, as described below, of $40 million ($0.11 per
common share).
•
For a complete list of items that impacted basic net earnings per common share from continuing operations but
that are excluded from adjusted basic net earnings per common share from continuing operations(1), see
Section 22, “Non-GAAP Financial Measures” of this MD&A.
In 2014, Loblaw restructured its fee arrangements with the franchisees of certain franchise banners. As a result
of this restructuring, Loblaw re-evaluated the recoverable amount of franchise-related financial instruments and
recorded a reduction in a previously recorded impairment. These revised arrangements are expected to result in
an annual reduction of Loblaw Retail sales of approximately $150 million with a corresponding decrease in
selling, general and administrative expenses.
Sales The Company’s 2014 consolidated sales were $43.9 billion, an increase of $10.3 billion compared to 2013
and included $9.1 billion in sales related to Shoppers Drug Mart. Excluding Shoppers Drug Mart, the Company’s
year-over-year change in consolidated sales was an increase of $1,286 million impacted by each of its reportable
operating segments as follows:
• Positively by 0.3% due to sales growth of 6.1% at Weston Foods. Foreign currency translation and the
53rd week positively impacted sales by approximately 3.5% and 1.6%, respectively. Excluding the impact of
foreign currency translation and the 53rd week, sales increased by 1.0% due to an increase in volumes across
all business units, partially offset by the combined negative impact of pricing and changes in sales mix.
• Positively by 3.5% due to sales growth of 3.7% at Loblaw. The 53rd week positively impacted Loblaw’s sales
by 1.8%. Excluding the 53rd week, Retail segment sales increased by 1.6% and same-store sales growth, for
core grocery on a comparable week basis, was 2.0% (2013 – 1.1%). Loblaw’s average annual internal food
price index was slightly higher than (2013 – lower than) the average annual national food price inflation of
2.5% (2013 – 1.1%) as measured by “The Consumer Price Index for Food Purchased from Stores” (“CPI”). In
2014, corporate and franchise store square footage remained flat (2013 – increase of 0.8%).
10 George Weston Limited 2014 Annual Report
EBITDA(1) The Company’s 2014 EBITDA(1) was $2,515 million, an increase of $8 million compared to 2013. The
increase included the negative impact of certain acquisition-related items of Shoppers Drug Mart, Loblaw’s
change in inventory measurement and other conversion differences associated with the implementation of
a perpetual inventory system and a number of other items. For a complete list of the items that impacted
EBITDA(1) but that are excluded from adjusted EBITDA(1), see Section 22, “Non-GAAP Financial Measures” of
this MD&A.
The Company’s adjusted EBITDA(1) in 2014 increased by $1,119 million to $3,539 million compared to 2013, and
included adjusted EBITDA(1) of $988 million related to Shoppers Drug Mart. Excluding Shoppers Drug Mart, the
Company’s year-over-year change in consolidated adjusted EBITDA(1) was an increase of $131 million, impacted
by each of its reportable operating segments as follows:
• Negatively by 0.5% due to a decrease of 3.4% in adjusted EBITDA(1) at Weston Foods, primarily due to higher
commodity and other input costs, including the negative impact of foreign exchange, start-up costs and new
plant costs. In addition, adjusted EBITDA(1) was negatively impacted by a decline in the performance of the
frozen dough business in the first half of 2014, partially offset by the positive impact of the 53rd week of
$6 million.
• Positively by 5.9% due to an increase of 6.8% in adjusted EBITDA(1) at Loblaw, primarily driven by Retail
including the 53rd week and net synergies. Excluding Shoppers Drug Mart, the 53rd week and net
synergies, the increase in Retail was driven by an increase in gross profit, supply chain efficiencies and
changes in the fair value of Loblaw’s franchise investments. These increases were partially offset by a
$12 million year-over-year increase in charges related to the transition of certain grocery stores to more cost
effective and efficient operating terms under collective agreements, investments in Loblaw’s emerging
business, higher foreign exchange losses, and higher investments in Loblaw’s franchise business.
Operating Income The Company’s 2014 consolidated operating income was $973 million, a decrease of
$643 million compared to 2013. The decrease was negatively impacted by the amortization of intangible assets
acquired with Shoppers Drug Mart and the items described above in EBITDA(1). For a complete list of items
that impacted operating income but that are excluded from adjusted operating income(1), see Section 22,
“Non-GAAP Financial Measures” of this MD&A.
The Company’s consolidated adjusted operating income(1) was $2,414 million in 2014, an increase of $881 million
compared to 2013 and included adjusted operating income(1) of $784 million related to Shoppers Drug Mart.
Excluding Shoppers Drug Mart, the Company’s consolidated adjusted operating income(1) increased by
$97 million, driven by the increase in adjusted EBITDA(1) described above, partially offset by an increase in
depreciation and amortization of $7 million at Weston Foods and $27 million at Loblaw.
Net Interest Expense and Other Financing Charges Net interest expense and other financing charges increased
by $318 million to $815 million compared to 2013 and included the unfavourable year-over-year impact of the
fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares, as well as a
number of other items. For a complete list of the items that impacted net interest expense and other financing
charges but that are excluded from adjusted net interest expense and other financing charges(1), see Section 22,
“Non-GAAP Financial Measures” of this MD&A.
Adjusted net interest expense and other financing charges(1) were $566 million, an increase of $163 million
compared to 2013, driven by higher interest on long term debt, primarily as a result of debt incurred by Loblaw
to finance the acquisition of Shoppers Drug Mart and distributions paid by Choice Properties on its Trust Units,
partially offset by a decrease in net interest expense on net defined benefit obligations.
George Weston Limited 2014 Annual Report 11
Management’s Discussion and Analysis
Income Taxes Income tax expense for 2014 was $24 million and the effective tax rate was 15.2%. Income tax
expense for 2013 was $273 million and the effective tax rate was 24.4%. This decrease in the effective tax rate
was primarily attributable to an increase in non-taxable foreign currency translation gains. Adjusted income tax
expense(1) for 2014 was $481 million and the adjusted income tax rate(1) was 26.0%. Adjusted income tax
expense(1) for 2013 was $285 million and the adjusted income tax rate(1) was 25.2%. The increase in the adjusted
income tax rate(1) was primarily attributable to a decrease in certain non-taxable amounts.
In 2012, Loblaw received indication from the Canada Revenue Agency (the “CRA”) that the CRA intends to
proceed with reassessments of the tax treatment of Loblaw’s wholly-owned subsidiary, Glenhuron Bank Limited
(“Glenhuron”). The CRA’s position is that certain income earned by Glenhuron in Barbados in respect of the 2000
to 2010 taxation years should be treated, and taxed, as income in Canada.
Based on the proposal letter from the CRA, if the CRA and the relevant provincial tax authorities were to prevail
in all of these reassessments, which Loblaw believes would be unlikely, the estimated total tax and interest for
the 2000 to 2010 taxation years would be approximately $440 million, which would increase as interest accrues.
However, Loblaw is in discussions with the CRA about the amount of taxes in dispute. Loblaw believes it is likely
that the CRA and the relevant provincial tax authorities will issue reassessments for 2011 to 2013 on the same or
similar basis. No amount for any reassessments has been provided for in the Company’s consolidated financial
statements.
Subsequent to the end of 2014, Loblaw received a letter from the CRA stating that the CRA will be proceeding
with the reassessments. Loblaw expects to receive reassessments from the CRA and the relevant provincial tax
authorities sometime in the coming months. Loblaw strongly disagrees with the CRA’s position and intends to
vigorously defend its position including appealing the reassessments when they are received. Loblaw will make
cash payments or provide other forms of security on a portion of the taxes in dispute. If Loblaw is successful in
defending its position, in whole or in part, some or all of the cash payments or security would be returned to
Loblaw.
Net Earnings from Continuing Operations Attributable to Shareholders of the Company In the second quarter
of 2014, GWL’s ownership interest in Loblaw decreased as a result of Loblaw’s issuance of common shares as
partial consideration for its acquisition of Shoppers Drug Mart. In addition, ownership was impacted by other
changes in Loblaw share capital, such as shares issued to settle share-based compensation awards and share
repurchases under Loblaw’s normal course issuer bid (“NCIB”) program. GWL’s ownership of Loblaw was
approximately 46% as at the end of 2014 (2013 – approximately 63%; 2012 – approximately 63%). The Company
remains the controlling shareholder and continues to consolidate Loblaw.
Net earnings from continuing operations attributable to shareholders of the Company for 2014 were
$126 million compared to $614 million in 2013. In addition to the decrease in the Company’s ownership interest
in Loblaw, the decline in net earnings from continuing operations attributable to shareholders of the Company
was a result of the year-over-year changes in operating income, net interest expense and other financing charges
and income taxes described above.
Discontinued Operations In 2013, the Company recorded income related to discontinued operations of
$58 million, which included the settlement of a previously disclosed litigation of $48 million ($40 million, net of
income taxes) and adjustments resulting in income of $18 million associated with the Company’s (excluding
Loblaw) previously owned operations.
12 George Weston Limited 2014 Annual Report
SELECTED ANNUAL INFORMATION
5.3
The selected information presented below has been derived from and should be read in conjunction with the
annual consolidated financial statements of the Company dated December 31, 2014 and 2013. The analysis of
the data contained in the table focuses on the trends and significant events or items affecting the results of
operations and financial condition of the Company over the latest three year period.
For the years ended December 31
($ millions except where otherwise indicated)
Sales
Sales excluding Shoppers Drug Mart
EBITDA(1)
Adjusted EBITDA(1)
Adjusted EBITDA(1) excluding Shoppers Drug Mart
Operating Income
Adjusted Operating Income(1)
Adjusted operating income(1) excluding
Shoppers Drug Mart
Adjusted net interest expense and other financing charges(1)
Adjusted income tax rate(1)
Net earnings(i)
Net earnings from continuing operations
Net earnings from continuing operations attributable to
shareholders of the Company
Net earnings per common share ($) – basic
Continuing operations
Net earnings(i)
Net earnings per common share ($) – diluted
Continuing operations
Net earnings(i)
Adjusted basic net earnings per common share from
continuing operations(1) ($)
Dividends declared per share type ($):
Common shares
Preferred shares – Series I
Preferred shares – Series III
Preferred shares – Series IV
Preferred shares – Series V
$
2014
(53 weeks)
43,918
34,868
2,515
3,539
2,551
973
2,414
$
$
2013(4)
(52 weeks)
33,582
$
33,582
2,507
2,420
2,420
1,616
1,533
$
$
2012(ii)
(52 weeks)
32,742
$
32,742
2,233
2,377
2,377
1,393
1,541
$
$
1,630
566
26.0%
134
134
126
0.64
0.64
0.64
0.64
5.35
1.675
1.45
1.30
1.30
1.19
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,533
403
25.2%
904
846
614
4.47
4.93
4.43
4.89
4.25
1.625
1.45
1.30
1.30
1.19
$
$
$
$
$
$
$
$
$
$
$
$
1,541
406
25.6%
708
708
475
3.36
3.36
3.29
3.29
4.25
1.460
1.45
1.30
1.30
1.19
(i)
In 2013, net earnings and basic and diluted net earnings per common share included income related to discontinued operations of
$58 million and $0.46, respectively. See Section 5.2, “Consolidated Results of Operation” of this MD&A.
(ii) Certain 2012 figures have been amended. See Section 22, “Non-GAAP Financial Measures” of this MD&A.
Consolidated results for the last three years were impacted by the initial public offering (“IPO”) of Choice
Properties in the third quarter of 2013, the acquisition of Shoppers Drug Mart in the second quarter of 2014,
foreign currency exchange rates, and the 53rd week.
George Weston Limited 2014 Annual Report 13
Management’s Discussion and Analysis
Sales Excluding Shoppers Drug Mart and the 53rd week, the Company’s reportable operating segments had the
following sales trends over the last three years:
• Weston Foods sales have been impacted by foreign currency translation, volumes, pricing and changes in
sales mix, and key market trends such as changing consumer eating and buying preferences and the
continuing shift in consumer food shopping patterns toward alternate format retail channels. Sales volumes
increased in 2014, while sales volumes in 2013 were flat compared to 2012. Weston Foods sales and
volumes in 2013 were negatively impacted by the loss of certain frozen distributed products.
•
Loblaw’s Retail segment has driven the growth in Loblaw sales over the last three years under the pressure
of an intensely competitive retail market and uncertain economic environment. In 2014, Retail same-store
sales growth on a comparable week basis, was 2.0% (2013 – 1.1%) and excluding gas bar, was 2.1%
(2013 – 1.0%). In 2013, Retail same-store sales growth was 1.1% (2012 – decline of 0.2%) and excluding
gas bar was 1.0% (2012 – decline of 0.2%).
Adjusted basic net earnings per common share from continuing operations(1) The Company’s adjusted basic
net earnings per common share from continuing operations(1) in 2014 and 2013 excluded a number of items
described in Section 22, “Non-GAAP Financial Measures” of this MD&A. In 2012, adjusted basic net earnings per
common share from continuing operations(1) also excluded items management excludes when assessing
underlying operating performance.
Over the last three years adjusted basic net earnings per common share from continuing operations(1) were
impacted by:
•
improvements in underlying operating performance at Loblaw, driven by Shoppers Drug Mart in 2014 and
improvements in Loblaw’s operating segments excluding Shoppers Drug Mart in both 2014 and 2013;
• a decline in underlying operating performance at Weston Foods in 2014 and 2013. Weston Foods was
negatively impacted by higher commodity and other input costs, including the negative impact of foreign
exchange, the cost of certain investments, including start-up costs and new plant costs, and the performance
of the frozen dough business;
increases in depreciation and amortization in both of the Company’s reportable operating segments in 2014
and 2013;
•
• an increase in adjusted net interest and other financing charges(1) in 2014 primarily as a result of debt
incurred by Loblaw to finance the acquisition of Shoppers Drug Mart and increases in adjusted net interest
and other financing charges(1) in 2014 and 2013 related to distributions paid by Choice Properties on its
Trust Units;
• a lower adjusted income tax rate(1) in 2013; and
• a decrease in GWL’s ownership interest in Loblaw in 2014 as a result of Loblaw’s issuance of common shares
as partial consideration for its acquisition of Shoppers Drug Mart. GWL’s ownership of Loblaw was
approximately 46% as at the end of 2014 (2013 – approximately 63%; 2012 – approximately 63%).
Total Assets and Long Term Financial Liabilities
($ millions)
Total assets
Total long term debt
Capital securities(i)
Trust Unit liability
Total long term financial liabilities
Dec. 31, 2014
37,071
$
12,726
$
494
13,220
$
$
As at
Dec. 31, 2013(4)
$
$
24,604
8,944
224
478
9,646
Dec. 31, 2012
21,804
$
6,933
$
223
$
7,156
(i)
In 2014, capital securities become due within one year and were presented in current liabilities.
14 George Weston Limited 2014 Annual Report
Since 2012, total assets and long term financial liabilities have increased by 70.0% and 84.7%, respectively. The
increases were primarily driven by the Choice Properties and Shoppers Drug Mart transactions, partially offset by
the repayments of debt as described in Section 7, “Acquisition of Shoppers Drug Mart”, and Section 9.2,
“Liquidity and Capital Structure” of this MD&A.
RESULTS OF REPORTABLE OPERATING SEGMENTS
6.
The following discussion provides details of the 2014 results of operations of each of the Company’s reportable
operating segments.
6.1 WESTON FOODS OPERATING RESULTS
For the years ended December 31
($ millions except where otherwise indicated)
Sales
EBITDA(1)
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Operating income
Adjusted operating income(1)
Adjusted operating margin(1)
2014
(53 weeks)
1,923
$
301
$
311
$
16.2%
231
241
12.5%
$
$
2013(4)
(52 weeks)
1,812
$
305
$
322
$
17.8%
238
259
14.3%
$
$
$ Change
111
$
(4)
$
(11)
$
$
$
(7)
(18)
% Change
6.1 %
(1.3)%
(3.4)%
(2.9)%
(6.9)%
Sales Weston Foods sales for 2014 were $1,923 million compared to $1,812 million in 2013, an increase of
$111 million, or 6.1%. Foreign currency translation and the 53rd week positively impacted sales by
approximately 3.5% and 1.6%, respectively. Excluding the impact of foreign currency translation and the
53rd week, sales increased by 1.0% due to an increase in volumes across all business units, partially offset by the
combined negative impact of pricing and changes in sales mix.
EBITDA(1) Weston Foods EBITDA(1) in 2014 was $301 million, a decrease of $4 million compared to 2013,
primarily due to the decline in underlying operating performance described below, partially offset by the
year-over-year favourable impact of the fair value adjustment of commodity derivatives of $14 million, which is
described in Section 22, “Non-GAAP Financial Measures” of this MD&A.
Adjusted EBITDA(1) in 2014 was $311 million, a decrease of $11 million compared to 2013. Adjusted EBITDA
margin(1) for 2014 decreased by 1.6% compared to 2013. The decline in adjusted EBITDA(1) in 2014 was primarily
due to higher commodity and other input costs, including the negative impact of foreign exchange, start-up costs
and new plant costs. In addition, adjusted EBITDA(1) was negatively impacted by a decline in the performance of
the frozen dough business in the first half of 2014, partially offset by the positive impact of the 53rd week of
$6 million.
Operating Income Weston Foods operating income for 2014 was $231 million, a decrease of $7 million
compared to 2013. In 2014, operating income was negatively impacted by a number of items as described above
in EBITDA(1). For a complete list of items that impacted operating income but that are excluded from adjusted
operating income(1), see Section 22, “Non-GAAP Financial Measures” of this MD&A.
Adjusted operating income(1) decreased by $18 million to $241 million in 2014 compared to 2013. The decrease
was driven by the decline in adjusted EBITDA(1) described above and an increase in depreciation and amortization
in 2014 of $7 million due to investments in capital.
George Weston Limited 2014 Annual Report 15
Management’s Discussion and Analysis
6.2
LOBLAW OPERATING RESULTS
For the years ended December 31
($ millions except where otherwise indicated)
Sales
Sales excluding Shoppers Drug Mart
Retail gross profit
EBITDA(1)
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
2014
(53 weeks)
42,611
$
33,561
$
9,734
$
2,126
$
3,228
$
7.6%
2013(4)
(52 weeks)
32,371
$
32,371
$
6,961
$
2,127
$
2,098
$
6.5%
$ Change
10,240
$
$
1,190
2,773
$
$
(1)
1,130
$
% Change
31.6 %
3.7 %
39.8 %
53.9 %
Adjusted EBITDA(1) excluding
Shoppers Drug Mart
Adjusted EBITDA margin(1) excluding
Shoppers Drug Mart
Operating income
Adjusted operating income(1)
Adjusted operating margin(1)
Adjusted operating income(1) excluding
Shoppers Drug Mart
Adjusted operating margin(1) excluding
Shoppers Drug Mart
$
$
$
$
2,240
$
2,098
$
142
6.8 %
6.7%
654
2,173
5.1%
1,389
4.1%
$
$
$
6.5%
1,303
1,274
3.9%
1,274
3.9%
$
$
$
(649)
899
(49.8)%
70.6 %
115
9.0 %
Sales Loblaw sales for 2014 were $42.6 billion, an increase of $10.2 billion compared to 2013 and included
$9.1 billion in sales related to Shoppers Drug Mart. The increase in sales was primarily driven by Retail, as
described below, and the 53rd week. Revenue in the 53rd week was $789 million. Excluding Shoppers Drug Mart,
revenue in the 53rd week was $574 million.
Excluding Shoppers Drug Mart and the 53rd week, Retail sales increased by $507 million or 1.6%, as a result of
the following factors:
•
same-store sales growth, for core grocery and on a comparable week basis, was 2.0% (2013 – 1.1%) and
excluding gas bar, was 2.1% (2013 – 1.0%);
• on a comparable week basis:
sales growth in food was moderate;
sales in drugstore were flat;
sales growth in gas bar was modest;
sales in general merchandise, excluding apparel, were flat; and
sales in retail apparel were modest, while United States (“U.S.”) wholesale apparel sales declined
significantly;
•
Loblaw’s average annual internal food price index was slightly higher than (2013 – lower than) the average
annual national food price inflation of 2.5% (2013 – 1.1%) as measured by CPI. CPI does not necessarily
reflect the effect of inflation on the specific mix of goods sold in Loblaw stores; and
• during 2014, 22 (2013 – 26) corporate and franchise stores were opened and 12 (2013 – 13) corporate and
franchise stores were closed with an additional two franchise grocery stores divested as a result of a Consent
Agreement with the Competition Bureau (“Consent Agreement”) related to the acquisition of Shoppers Drug
Mart, resulting in flat square footage growth.
Since the acquisition date, Shoppers Drug Mart opened 17 new drug stores and closed 24 drug stores, including
13 drug stores divested in accordance with the Consent Agreement. As a result, net square footage increased by
0.1 million square feet, or 0.6%.
16 George Weston Limited 2014 Annual Report
Gross Profit Loblaw’s Retail gross profit increased by $2,773 million to $9,734 million in 2014 from
$6,961 million in 2013. The increase included:
• $3,543 million of gross profit generated by Shoppers Drug Mart; partially offset by
•
the negative impact of the recognition of the fair value increment on the acquired Shoppers Drug Mart
inventory sold of $798 million; and
the charge of $190 million related to the inventory measurement and other conversion differences
associated with the implementation of a perpetual inventory system at Loblaw in the second quarter
of 2014.
•
Excluding the above impacts, Retail gross profit increased by $218 million compared to 2013, driven by higher
sales, including the 53rd week. Retail gross profit percentage remained flat at 22.0% compared to 2013. While
flat, Retail gross profit percentage was positively impacted by synergies related to the acquisition of Shoppers
Drug Mart and reductions in transportation costs, and negatively impacted by increased shrink.
EBITDA(1) In 2014, Loblaw EBITDA(1) decreased by $1 million to $2,126 million compared to 2013. Loblaw
EBITDA(1) was negatively impacted by the adjustments to gross profit above. For a complete list of items that
impacted EBITDA(1) but that are excluded from adjusted EBITDA(1), see Section 22, “Non-GAAP Financial
Measures” of this MD&A.
Loblaw adjusted EBITDA(1) in 2014 was $3,228 million, an increase of $1,130 million compared to the same
period in 2013, and included $988 million of adjusted EBITDA(1) related to Shoppers Drug Mart. Excluding
Shoppers Drug Mart, adjusted EBITDA(1) increased by $142 million compared to 2013, primarily driven by Retail
including the 53rd week and net synergies. Excluding Shoppers Drug Mart, the 53rd week and net synergies, the
increase in Retail was driven by gross profit, as described above, supply chain efficiencies and changes in the fair
value of Loblaw’s franchise investments. These increases were partially offset by a $12 million year-over-year
increase in charges related to the transition of certain grocery stores to more cost effective and efficient
operating terms under collective agreements, investments in Loblaw’s emerging business, higher foreign
exchange losses, and higher investments in Loblaw’s franchise business.
Excluding Shoppers Drug Mart, adjusted EBITDA margin(1) was 6.7% compared to 6.5% in 2013.
Operating Income Loblaw operating income in 2014 decreased by $649 million to $654 million compared to
2013 and was negatively impacted by the items described above in EBITDA(1) and the amortization of intangible
assets acquired with Shoppers Drug Mart. For a complete list of items that impacted operating income but that
are excluded from adjusted operating income(1), see Section 22, “Non-GAAP Financial Measures” of this MD&A.
Loblaw adjusted operating income(1) for 2014 was $2,173 million, an increase of $899 million compared to 2013,
and included $784 million of adjusted operating income(1) related to Shoppers Drug Mart. Excluding Shoppers
Drug Mart, adjusted operating income(1) increased by $115 million and was positively impacted by the increase
in Retail adjusted EBITDA(1) described above, partially offset by an increase in depreciation and amortization of
$27 million.
ACQUISITION OF SHOPPERS DRUG MART CORPORATION
7.
On March 28, 2014, Loblaw acquired all of the outstanding shares of Shoppers Drug Mart for total consideration
of $12.3 billion, comprised of approximately $6.6 billion of cash and the issuance of approximately 119.5 million
Loblaw common shares.
The cash portion of the acquisition of Shoppers Drug Mart was financed by Loblaw as follows:
• $3.5 billion was obtained through an unsecured term loan facility bearing interest at a rate equal to the
Bankers’ Acceptance rate plus 1.75% and maturing March 28, 2019 (the term loan facility was re-priced to
Bankers’ Acceptance rate plus 1.45% on July 23, 2014);
• $1.6 billion of proceeds from the issuance of unsecured notes in 2013;
• $500 million was received in consideration of the issuance of 10.5 million Loblaw common shares to GWL;
and
• approximately $1.0 billion was used from cash on hand.
George Weston Limited 2014 Annual Report 17
Management’s Discussion and Analysis
Based on a preliminary assessment, Loblaw recognized the following amounts of net tangible assets, goodwill
and intangible assets in 2014:
($ millions)
Fair value of net tangible assets acquired
Goodwill
Prescription files
Brands
Optimum loyalty program
Other
Intangible assets
Total net assets acquired
Estimated
Useful Life
11 years
indefinite
18 years
5 to 10 years
$
$
$
$
$
548
2,285
5,005
3,390
490
555
9,440
12,273
As at year end 2014, Loblaw had not yet finalized the above purchase price allocation. In the fourth quarter of
2014, Loblaw revised its fair value estimate of intangible assets and updated the purchase price equation. The
result was to decrease intangible assets by $35 million to $9,440 million, decrease deferred income tax liabilities
by $9 million to $2,252 million and increase goodwill by $26 million to $2,285 million. Loblaw has one year from
the date of acquisition to finalize the fair value of net tangible assets, goodwill and intangible assets and any
further changes to the amounts presented above will be reflected in the first half of 2015.
Pursuant to the Consent Agreement, Loblaw was required to divest 16 Shoppers Drug Mart stores, two franchise
grocery stores, and nine in-store pharmacies.
In the fourth quarter of 2014, 11 Shoppers Drug Mart stores were sold which resulted in a divestiture loss
of $14 million. On a year-to-date basis, two franchise grocery stores and 13 Shoppers Drug Mart stores were
sold, and nine in-store pharmacies were licensed to unrelated parties which resulted in a net divestiture loss of
$12 million to Loblaw recorded in operating income. The final three Shoppers Drug Mart stores were approved
for sale by the Competition Bureau and were sold subsequent to the end of 2014 for estimated proceeds of
$9 million.
During 2014, Loblaw incurred costs of $75 million (2013 – $31 million) related to the acquisition of Shoppers
Drug Mart, of which $60 million (2013 – $16 million) was recorded in selling, general and administrative
expenses and $15 million (2013 – $15 million) was recorded in net interest expense and other financing charges.
Upon closing of the acquisition, all amounts owing on Shoppers Drug Mart’s revolving bank credit facility were
repaid and the facility was cancelled. In addition, upon closing, Loblaw guaranteed the outstanding principal
amount of Shoppers Drug Mart’s MTN of $500 million, along with accrued interest. Loblaw also provided
guarantees to various Canadian banks in support of the financing obtained by Shoppers Drug Mart’s licensees
(“Associates”). An Associate is a pharmacist-owner of a corporation that is licensed to operate a retail drug store
at a specific location using Shoppers Drug Mart’s trademarks.
8.
OTHER BUSINESS MATTERS
Inventory Valuation Prior to the second quarter of 2014, Loblaw valued its merchandise inventories at the lower
of cost and net realizable value and used the retail method to measure the cost of the majority of its retail store
inventories. The implementation of a perpetual inventory system, combined with visibility to integrated costing
information provided by the new IT systems, enables Loblaw to estimate the cost of inventory using a more
precise system-generated average cost.
18 George Weston Limited 2014 Annual Report
As of the end of 2014, Loblaw completed the conversion of substantially all of its corporate grocery locations
and associated distribution centres to the new IT systems. As a result of the conversion, Loblaw recognized a
$190 million charge to cost of inventories sold and a corresponding reduction in inventory, representing the
estimate of the difference between the measurement of the cost of corporate grocery store inventory using a
system-generated weighted average cost compared to the retail inventory method and other conversion
differences associated with the implementation of a perpetual inventory system.
9.
LIQUIDITY AND CAPITAL RESOURCES
9.1
CASH FLOWS
For the years ended December 31
($ millions)
Cash flows from (used in) continuing operations:
Operating activities
Investing activities
Financing activities
Cash flows from discontinued operations
Cash Flows from (used in) Continuing Operations
2014
(53 weeks)
2013
(52 weeks)
$
$
$
2,851
(5,584)
1,172
$
$
$
$
$
1,738
(1,675) $
$
1,142
$
48
Change
1,113
(3,909)
30
(48)
Cash flows from operating activities The year-over-year increase in cash inflows in 2014 was $1,113 million,
primarily due to higher cash earnings driven by Shoppers Drug Mart and higher credit card receivables, partially
offset by the year-over-year increase in non-cash working capital and the net proceeds from settlement of
derivative contracts in 2013.
Cash flows used in investing activities The year-over-year increase in cash outflows in 2014 was $3,909 million,
primarily due to the acquisition of Shoppers Drug Mart and an increase in capital investments, partially offset by
the reduction in security deposits, including the proceeds of $1.6 billion from the issuance of senior unsecured
notes, which were released from escrow to partially fund the acquisition of Shoppers Drug Mart.
The following table summarizes the Company’s capital investment by reportable operating segment:
For the years ended December 31
($ millions)
Weston Foods
Loblaw
Total capital investment
2014
(53 weeks)
128
1,086
1,214
$
$
$
2013
(52 weeks)
111
877
988
$
$
$
Loblaw’s fixed asset purchases in 2014 were $996 million (2013 – $865 million). Approximately 22% (2013 – 14%)
of Loblaw’s fixed asset purchases were for new store developments, expansions and land, approximately 45%
(2013 – 45%) were for store conversions and renovations, and approximately 33% (2013 – 41%) were for
infrastructure investments. Loblaw’s intangible asset additions in 2014 were $90 million (2013 – $12 million) and
primarily related to the acquisition and development of software and the acquisition of prescription files.
Loblaw expects to invest approximately $1.2 billion in capital investments in 2015. Approximately 22% of these
funds are expected to be dedicated to investing in IT and supply chain projects, 57% will be spent on retail
operations, 14% on Choice Properties’ development projects and 7% on other infrastructure projects.
Weston Foods expects to make capital investments in targeted areas of growth of approximately $300 million
in 2015.
George Weston Limited 2014 Annual Report 19
Management’s Discussion and Analysis
Cash flows from financing activities The year-over-year increase in cash inflows in 2014 was $30 million,
primarily due to net issuances of long term debt, as described below, and the repayment of short term debt in
2013, partially offset by the issuance of Choice Properties’ Trust Units in 2013, and higher dividend and interest
payments in 2014. The increase in dividend payments was due to timing and the inclusion of one quarter of
Shoppers Drug Mart dividends that were declared prior to closing of the acquisition and paid during the year.
In 2014, significant net issuances of long term debt included the following:
•
•
•
•
Loblaw repaid a $100 million 6.00% MTN upon maturity;
Loblaw repaid a $350 million 4.85% MTN upon maturity;
Loblaw’s full drawings on its term loan facility of $3.5 billion;
Loblaw replaced and subsequently sold $1.5 billion of Choice Properties transferor notes to third parties.
These proceeds contributed to the repayment of $2.3 billion of its $3.5 billion term loan;
Loblaw repaid the outstanding $478 million balance of the Shoppers Drug Mart revolving bank credit facility;
•
• Choice Properties issued $450 million aggregate principal amount of senior unsecured debentures;
• Choice Properties borrowed $122 million from its $500 million senior unsecured committed credit facility;
• GWL repaid a $200 million 5.05% MTN upon maturity;
• GWL issued a $200 million 4.12% MTN; and
• PC Bank issued $261 million of Guaranteed Investment Certificates (“GICs”) and repaid $57 million in GICs.
•
In 2013, significant net issuances of long term debt included the following:
•
Loblaw repaid its U.S. $300 million private placement (“USPP”) notes, of which $150 million was paid in
advance of the original May 29, 2015 maturity date;
Loblaw issued $1.6 billion aggregate principal amount of senior unsecured notes to partially fund the
acquisition of Shoppers Drug Mart;
Loblaw repaid a $200 million 5.40% MTN upon maturity;
•
• Choice Properties issued $600 million aggregate principal amount of debentures in its IPO;
• Eagle Credit Card Trust® (“Eagle”) issued $400 million of senior and subordinated term notes and repaid
$250 million of senior and subordinated term notes upon maturity; and
• PC Bank issued $167 million of GICs and repaid $40 million of GICs.
Cash Flows from Discontinued Operations In 2013, the Company settled a previously disclosed litigation
associated with the Company’s (excluding Loblaw) previously owned operations. The Company received net
proceeds of $48 million.
Free Cash Flow(1)
For the years ended December 31
($ millions)
Free cash flow(1)
2014
(53 weeks)
1,033
$
2013
(52 weeks)
284
$
Change
749
$
The year-over-year increase in free cash flow(1) in 2014 was $749 million. The increase was primarily due to
higher cash earnings, driven by Shoppers Drug Mart, partially offset by higher capital investments as well as
higher interest payments.
LIQUIDITY AND CAPITAL STRUCTURE
9.2
The Company (excluding Loblaw) expects that cash and cash equivalents, short term investments and future
operating cash flows will enable it to finance its capital investments program and fund its ongoing business
requirements, including working capital, pension plan funding requirements and financial obligations over the
next 12 months. The Company (excluding Loblaw) does not foresee any impediments in obtaining financing to
satisfy its long term obligations.
20 George Weston Limited 2014 Annual Report
Loblaw expects that cash and cash equivalents, short term investments, future operating cash flows and the
amounts available to be drawn against its committed credit facilities will enable it to finance its capital
investments program and fund its ongoing business requirements, including working capital, pension plan
funding requirements, financial obligations and debt reduction commitments over the next 12 months. Choice
Properties expects to obtain its long term financing, for the acquisition of accretive properties, primarily through
the issuance of equity and unsecured debentures.
For details on the Company’s cash flows see Section 9.1, “Cash Flows” of this MD&A.
Adjusted Debt(1) On closing of the acquisition of Shoppers Drug Mart, adjusted debt(1) was $12.1 billion. The
Company made significant progress in meeting its debt reduction target and decreased adjusted debt(1) by
approximately $700 million since the closing of the acquisition, resulting in an adjusted debt(1) balance of
$11.4 billion as at December 31, 2014. The reduction in adjusted debt(1) since closing included the repayment
of a $350 million MTN at maturity and repayments under the unsecured term loan facility (net of Choice
Properties’ notes issued to third parties), partially offset by the issuance of a $200 million MTN and other
indebtedness.
Under the terms of the unsecured term loan facility, the proceeds from the store divestitures required pursuant
to the Consent Agreement must be used to repay the facility. Of the total amount repaid under the facility in
2014, $57 million related to these proceeds.
Adjusted Debt(1) to Adjusted EBITDA(1)
Adjusted debt(1) to Adjusted EBITDA(1)
As at
Dec. 31, 2014
3.2x
Dec. 31, 2013
3.1x
The Company monitors its adjusted debt(1) to adjusted EBITDA(1) ratio as a measure to ensure it is operating
under an efficient capital structure. The ratio increased at the end of 2014 compared to the end of 2013 as a
result of the $3.5 billion unsecured term loan facility used to partially fund the cash portion of the Shoppers Drug
Mart acquisition and the assumption of Shoppers Drug Mart outstanding debt, partially offset by the debt
reduction progress since the acquisition and the increase in adjusted EBITDA(1) due to Shoppers Drug Mart. The
Company will continue to target leverage ratios consistent with those of investment grade ratings.
Unsecured Term Loan Facility In connection with the financing of the acquisition of Shoppers Drug Mart,
$3.5 billion was obtained through an unsecured term loan facility bearing interest at a rate equal to the Bankers’
Acceptance rate plus 1.75% maturing March 28, 2019. In 2014, Loblaw used the proceeds from the sale of
$1.5 billion of transferor notes to third parties, described below, to partially repay the $3.5 billion unsecured
term loan facility. The overall consolidated impact was neutral to adjusted debt(1). However, this repayment
combined with the $771 million in term loan repayments during the year reduced the unsecured term loan
facility balance to approximately $1.2 billion as at December 31, 2014.
In 2014, Loblaw reached an agreement to re-price the interest rate on the unsecured term loan facility to reduce
the rate from Bankers’ Acceptance rate plus 1.75% to Bankers’ Acceptance rate plus 1.45%.
Choice Properties During 2014, Choice Properties Limited Partnership entered into a Master Trust Indenture
agreement with Computershare Trust Company of Canada to create supplemental indentures in order to
facilitate the replacement of all tranches of transferor notes held by Loblaw, with Series 5 to Series 10 notes
containing the same principal amounts, interest rates and maturity dates. These replacement notes bear fixed
interest rates between 3.00% and 3.60% and mature during 2016 through 2022. The remaining terms and
conditions are substantially similar to the original notes. Loblaw subsequently sold the replacement notes to
unrelated parties and received net proceeds of $1.5 billion.
During 2014, Choice Properties issued $250 million principal amount of Series C senior unsecured debentures
with a 7-year term and a coupon rate of 3.50% per annum and $200 million principal amount of Series D senior
George Weston Limited 2014 Annual Report 21
Management’s Discussion and Analysis
unsecured debentures with a 10-year term and a coupon rate of 4.29% per annum, under its Short Form Base
Shelf Prospectus. The majority of the proceeds were used to repay $440 million of transferor notes held by
Loblaw.
Subsequent to the end of the year, Choice Properties issued $250 million aggregate principal amount of Series E
senior unsecured debentures bearing interest at a rate of 2.30% per annum and maturing in 2020. The net
proceeds from the issuance were used by Choice Properties to repay existing indebtedness and for general
business purposes.
Committed Facilities Effective on the closing of the acquisition of Shoppers Drug Mart in 2014, Loblaw’s
$800 million committed credit facility was increased to $1.0 billion and the term was extended to
December 31, 2018, with all other terms and conditions remaining substantially the same. The credit facility
contains certain financial covenants with which Loblaw was in compliance throughout the year and as at year
end 2014. As at year end 2014 and 2013, there were no amounts drawn under the credit facility.
In 2013, Choice Properties entered into a $500 million, 5-year senior unsecured committed credit facility,
provided by a syndicate of lenders. In 2014, Choice Properties extended the maturity date of the credit facility
to July 5, 2019. The facility contains certain financial covenants with which Choice Properties was in compliance
throughout the year and as at year end 2014. As at year end 2014, Choice Properties had drawn $122 million
(2013 – nil) on the credit facility.
Medium Term Notes In 2014, GWL issued $200 million principal amount of senior unsecured notes bearing
interest at a fixed rate of 4.12% and maturing on June 17, 2024.
During 2014, the following MTNs matured and were repaid:
• GWL’s $200 million 5.05% MTN due March 10, 2014;
•
•
Loblaw’s $100 million 6.00% MTN due March 3, 2014; and
Loblaw’s $350 million 4.85% MTN due May 8, 2014.
In 2013, Loblaw repaid a $200 million 5.40% MTN, upon maturity.
Prospectus Subsequent to the end of 2014, Loblaw received approval from its Board of Directors (“Board”) to
file a Short Form Base Shelf Prospectus which allows for the issuance of up to $1.5 billion of unsecured
debentures and/or preference shares subject to the availability of funding in capital markets.
CREDIT RATINGS
9.3
The following table sets out the current credit ratings of GWL:
Credit Ratings (Canadian Standards)
Issuer rating
Medium term notes
Other notes and debentures
Preferred shares
Dominion Bond Rating Service
Credit Rating
BBB
BBB
BBB
Pfd-3
Trend
Stable
Stable
Stable
Stable
Standard & Poor’s
Credit Rating
BBB
BBB
BBB
P-3 (high)
Outlook
Stable
n/a
n/a
n/a
In 2014, both Dominion Bond Rating Service and Standard & Poor’s re-confirmed GWL’s credit ratings.
The following table sets out the current credit ratings of Loblaw:
Credit Ratings (Canadian Standards)
Issuer rating
Medium term notes
Other notes and debentures
Preferred shares
Dominion Bond Rating Service
Credit Rating
BBB
BBB
BBB
Pfd-3
Trend
Stable
Stable
Stable
Stable
Standard & Poor’s
Credit Rating
BBB
BBB
BBB
P-3 (high)
Outlook
Stable
n/a
n/a
n/a
22 George Weston Limited 2014 Annual Report
Loblaw guaranteed the outstanding MTNs of Shoppers Drug Mart. As a result, Standard & Poor’s changed its
credit rating of the outstanding Shoppers Drug Mart MTNs to BBB with “Stable” outlook and Dominion Bond
Rating Service changed its rating to BBB with a “Stable” trend, in each case consistent with the credit ratings of
Loblaw. In 2014, Dominion Bond Rating Service re-confirmed Loblaw’s credit ratings and trends.
The following table sets out the current credit ratings of Choice Properties:
Credit Ratings (Canadian Standards)
Issuer rating
Senior unsecured debentures
9.4
OTHER SOURCES OF FUNDING
Dominion Bond Rating Service
Credit Rating
BBB
BBB
Trend
Stable
Stable
Standard & Poor’s
Credit Rating
BBB
BBB
Outlook
Stable
n/a
Independent Securitization Trusts Loblaw, through PC Bank, participates in various securitization programs that
provide the primary source of funds for the operation of its credit card business. PC Bank sells and repurchases
credit card receivables with Independent Securitization Trusts, including Eagle and Other Independent
Securitization Trusts, from time to time depending on PC Bank’s financing requirements. As at year end 2014, the
amount of credit card receivables securitized to Eagle was $750 million (2013 – $750 million) and $605 million
(2013 – $605 million) were securitized to Other Independent Securitization Trusts.
Letters of credit for the benefit of independent securitization trusts with respect to the securitization programs
of PC Bank have been issued by major financial institutions. These standby letters of credit can be drawn upon in
the event of a major decline in the income flow from or in the value of the securitized credit card receivables.
Loblaw has agreed to reimburse the issuing banks for any amount drawn on the standby letters of credit.
As at year end 2014, the aggregate gross potential liability under these arrangements for the Other Independent
Securitization Trusts was $61 million (2013 – $54 million), which represented 10% (2013 – 9%) of the securitized
credit card receivables amount. As at year end 2014, the aggregate gross potential liability under these
arrangements for Eagle was $68 million (2013 – nil), which represented 9% (2013 – nil) of the Eagle notes
outstanding.
In 2014, PC Bank extended the maturity date for one of its Other Independent Securitization Trust agreements
from the third quarter of 2015 to the third quarter of 2016, with all other terms and conditions remaining
substantially the same. In addition, PC Bank extended the maturity date for two of its Other Independent
Securitization Trust agreements from the second quarter of 2015 to the second quarter of 2016, with all other
terms and conditions remaining substantially the same.
Subsequent to the end of 2014, Loblaw, through PC Bank, extended the maturity date for certain Other
Independent Securitization Trust agreements from the second quarter of 2016 to the second quarter of 2017,
with all other terms and conditions remaining substantially the same.
The undrawn commitments on facilities available from the Other Independent Securitization Trusts as at year
end 2014 were $120 million (2013 – $120 million).
Independent Funding Trusts Loblaw has a revolving committed credit facility that is the source of funding to
the independent funding trusts. As at year end 2014, the independent funding trusts had drawn $498 million
(2013 – $475 million).
In 2014, Loblaw renewed the revolving committed credit facility and extended the maturity date to May 6, 2017,
with terms and conditions remaining substantially the same.
Loblaw provides credit enhancement in the form of a standby letter of credit for the benefit of the independent
funding trusts representing not less than 10% of the principal amount of the loans outstanding. As at year end
2014, Loblaw had provided a letter of credit in the amount of $50 million (2013 – $48 million). This credit
enhancement allows the independent funding trusts to provide financing to Loblaw’s independent franchisees.
As well, each independent franchisee provides security to the independent funding trusts for its obligations by
George Weston Limited 2014 Annual Report 23
Management’s Discussion and Analysis
way of a general security agreement. In the event that an independent franchisee defaults on its loan and
Loblaw has not, within a specified time period, assumed the loan, or the default is not otherwise remedied, the
independent funding trusts would assign the loan to Loblaw and draw upon this standby letter of credit. This
standby letter of credit has never been drawn upon. Loblaw has agreed to reimburse the issuing bank for any
amount drawn on the standby letter of credit.
Associate Guarantee Loblaw has arranged for its Shoppers Drug Mart Associates to obtain financing to facilitate
their inventory purchases and fund their working capital requirements by providing guarantees to various
Canadian chartered banks that support Associate loans. As at year end 2014, Loblaw’s maximum obligation in
respect of such guarantees was $570 million, with an aggregate amount of $476 million in available lines of
credit allocated to the Associates by the various banks. As at year end 2014, Associates had drawn an aggregate
amount of $162 million against these available lines of credit. Any amounts drawn by the Associates are included
in bank indebtedness on the Company’s consolidated balance sheet. As recourse in the event that any payments
are made under the guarantees, Loblaw holds a first-ranking security interest on all assets of Associates, subject
to certain prior-ranking statutory claims.
9.5
SHARE CAPITAL
Outstanding Share Capital and Capital Securities GWL’s outstanding share capital is comprised of common
shares and preferred shares. The following table details the authorized and outstanding common shares and
preferred shares as at December 31, 2014:
(number of common shares)
Common shares
Preferred shares – Series I
– Series II
– Series III
– Series IV
– Series V
Authorized
Unlimited
10,000,000
10,600,000
10,000,000
8,000,000
8,000,000
Outstanding
127,901,231
9,400,000
8,000,000
8,000,000
8,000,000
Common Share Capital Common shares issued are fully paid and have no par value. The following table
summarizes the activity in the Company’s common shares issued and outstanding for the years ended
December 31, 2014 and December 31, 2013:
(number of common shares)
Issued and outstanding, beginning of year
Issued for settlement of stock options
Purchased for cancellation
Issued and outstanding, end of year
Shares held in trust, beginning of year
Purchased for future settlement of RSUs and PSUs
Released for settlement of RSUs and PSUs
Shares held in trust, end of year
Issued and outstanding net of shares held in trust, end of year
2014
127,899,410
312,583
(310,762)
127,901,231
(218,726)
(127,000)
54,422
(291,304)
127,609,927
2013
128,221,841
257,569
(580,000)
127,899,410
(220,000)
1,274
(218,726)
127,680,684
As at year end 2014, a total of 1,438,145 GWL stock options were outstanding. The number of stock options
outstanding was within the Company’s guidelines as GWL may grant options for up to 6,453,726 of its common
shares. Each stock option is exercisable into one common share of GWL at the price specified in the terms of the
option agreement.
24 George Weston Limited 2014 Annual Report
Preferred Share Capital GWL may, at its option, redeem for cash, in whole or in part, the preferred shares
Series I, Series III, Series IV and Series V outstanding on or after the redemption dates specified by the terms of
each series of preferred shares. GWL may at any time after issuance give the holders of these preferred shares
the right, at the option of the holder, to convert the holder’s preferred shares into preferred shares of a further
series designated by GWL on a share-for-share basis on a date specified by GWL.
Twelve million non-voting Loblaw Second Preferred Shares, Series A, are authorized and 9.0 million were
outstanding at year end 2014. These preferred shares are presented as capital securities and are included in
current liabilities (2013 – non-current liabilities) on the consolidated balance sheets. Dividends on capital
securities are presented in net interest expense and other financing charges in the consolidated statements of
earnings.
Dividends The declaration and payment of dividends on the Company’s common shares and the amount thereof
are at the discretion of the Company’s Board which takes into account the Company’s financial results, capital
requirements, available cash flow, future prospects of the Company’s business and other factors considered
relevant from time to time. Over time, it is the Company’s intention to increase the amount of the dividend while
retaining appropriate free cash flow to reduce debt and finance future growth. In the second quarter of 2014,
the Board raised the quarterly common share dividend by $0.005 to $0.42 per share. The Board declared
dividends as follows:
($)
Dividends declared per share(i) – Common share
– Preferred share:
Series I
Series III
Series IV
Series V
2014
1.675
1.45
1.30
1.30
1.19
$
$
$
$
$
2013
1.625
1.45
1.30
1.30
1.19
$
$
$
$
$
(i) Dividends declared on common shares and Preferred Shares, Series III, Series IV and Series V were paid on January 1, 2015.
Dividends declared on Preferred Shares, Series I were paid on December 15, 2014.
The following table summarizes the Company’s cash dividends declared subsequent to year end 2014:
($)
Dividends declared per share(i) – Common share
– Preferred share:
Series I
Series III
Series IV
Series V
$
$
$
$
$
0.42
0.36
0.32
0.32
0.30
(i) Dividends declared on common shares and Preferred Shares, Series III, Series IV and Series V are payable on April 1, 2015.
Dividends declared on Preferred Shares, Series I are payable on March 15, 2015.
At the time such dividends are declared, GWL identifies on its website (www.weston.ca) the designation of
eligible and ineligible dividends in accordance with the administrative position of the CRA.
George Weston Limited 2014 Annual Report 25
Management’s Discussion and Analysis
Normal Course Issuer Bid Program The following table summarizes the Company’s activity under its NCIB
program:
($ millions except where otherwise indicated)
Purchased for cancellation (number of shares)
Purchased for future settlement of RSUs and PSUs (number of shares)
Cash consideration paid
Retired
Purchased and held in trust
Premium charged to retained earnings
Reduction in share capital
2014
(53 weeks)
310,762
127,000
2013
(52 weeks)
580,000
220,000
$
$
$
$
29
11
40
$
$
$
$
42
15
56
1
In 2014, GWL renewed its NCIB program to purchase on the Toronto Stock Exchange (“TSX”) or enter into equity
derivative contracts to purchase up to 6,395,629 of its common shares, representing approximately 5% of the
common shares outstanding. In accordance with the rules and regulations of the TSX, any purchases must be at
the then market price of such shares.
CONTRACTUAL OBLIGATIONS
9.6
The following table summarizes certain of the Company’s significant contractual obligations and other
obligations as at year end 2014:
Summary of Contractual Obligations
($ millions)
2015
2016
2017
2018
2019
Thereafter
Total
Payments due by year
Long term debt including
interest payments(i)
Operating leases(ii)
Contracts for purchases of real
property and capital
investment projects(iii)
Purchase obligations(iv)
Total contractual obligations
$
$
950 $
685
1,834 $
665
1,304 $
630
1,793 $
581
2,946 $
536
9,439 $ 18,266
5,926
2,829
260
232
2,127 $
1
69
2,569 $
36
1,970 $
23
2,397 $
261
366
3,483 $ 12,273 $ 24,819
5
1
(i)
Fixed interest payments are based on the maturing face values and annual interest for each instrument, including GICs, long term
independent securitization trusts and an independent funding trust, as well as annual payment obligations for consolidated
structured entities, mortgages and finance lease obligations. Variable interest payments are based on the forward rates as at year
end 2014.
(ii) Represents the minimum or base rents payable. Amounts are not offset by any expected sub-lease income.
(iii) Includes agreements for the purchase of real property and capital commitments for construction, expansion and renovation of
buildings. These agreements may contain conditions that may or may not be satisfied. If the conditions are not satisfied, it is possible
the Company will no longer have the obligation to proceed with the underlying transactions.
(iv) Includes contractual obligations of a material amount to purchase goods or services where the contract prescribes fixed or minimum
volumes to be purchased or payments to be made within a fixed period of time for a set or variable price. These are only estimates of
anticipated financial commitments under these arrangements and the amount of actual payments will vary. The purchase obligations
do not include purchase orders issued or agreements made in the ordinary course of business which are solely for goods that are
meant for resale, nor do they include any contracts which may be terminated on relatively short notice or with insignificant cost or
liability to the Company. Also excluded are purchase obligations related to commodities or commodity-like goods for which a market
for resale exists.
26 George Weston Limited 2014 Annual Report
As at year end 2014, the Company had additional long term liabilities which included post-employment and
other long term employee benefit plan liabilities, deferred vendor allowances, deferred income tax liabilities,
Trust Unit liability, and provisions, including insurance liabilities. These long term liabilities have not been
included in the table above as the timing and amount of future payments are uncertain.
10.
FINANCIAL DERIVATIVE INSTRUMENTS
Cross Currency Swaps In 2013, Glenhuron unwound its cross currency swaps and received a net cash settlement
of $76 million, representing the cumulative fair value gain on these swaps. The cross currency swaps were offset
by the effect of translation (gains) losses related to U.S. dollar cash and cash equivalents, short term investments
and security deposits.
In 2013, Loblaw settled its U.S. $300 million USPP cross currency swaps in conjunction with the settlement of the
underlying U.S. $300 million USPP notes.
The following table summarizes the changes in fair value of the cross currency swaps and the underlying
exposures:
2013
(52 weeks)
Glenhuron
USPP
($ millions)
Fair value loss (gain) related to swaps recorded in operating income(i)
Translation (gain) loss related to the underlying exposures
Cross Currency Swaps Cross Currency Swaps
(11)
$
14
$
37
$
(33) $
(i) The impact to USPP cross currency swaps excludes the gain of $7 million on derecognized derivative instruments, before income
taxes, reclassified from accumulated other comprehensive income.
Interest Rate Swaps In 2013, Loblaw settled its notional $150 million in interest rate swaps and a fair value gain
of $5 million was recognized in operating income related to these swaps.
Equity Derivative Contracts In 2001, Weston Holdings Limited (“WHL”), a subsidiary of GWL, entered into an
equity forward sale agreement based on 9.6 million Loblaw common shares at an original forward price of
$48.50 per Loblaw common share. As at year end 2014, the forward price had increased to $100.80
(2013 – $96.46) per Loblaw common share under the terms of the agreement and the fair value of this forward
sale agreement of $367 million (2013 – $524 million) was recorded in other assets. In 2014, a fair value loss of
$199 million (2013 – gain of $1 million) was recorded in net interest expense and other financing charges related
to this agreement.
The nature of the risks that the Company may be subject to related to the above financial derivative instruments
are described in Section 16.2, “Financial Risks and Risk Management” of this MD&A.
OFF-BALANCE SHEET ARRANGEMENTS
11.
In the normal course of business, the Company enters into off-balance sheet arrangements including:
Letters of Credit Standby and documentary letters of credit are used in connection with certain obligations
mainly related to real estate transactions, benefit programs, purchase orders and performance guarantees,
securitization of PC Bank’s credit card receivables and third-party financing made available to Loblaw’s
independent franchisees. The aggregate gross potential liability related to the Company’s letters of credit is
approximately $677 million (2013 – $564 million).
GWL and Loblaw had agreements to cash collateralize certain of these letters of credit up to amounts of
$45 million (2013 – $45 million) and $141 million (2013 – $136 million), respectively. As at year end 2014, GWL
and Loblaw had $45 million (2013 – $45 million) and $7 million (2013 – $102 million) deposited with major
financial institutions, respectively, and classified as security deposits on the consolidated balance sheets.
George Weston Limited 2014 Annual Report 27
Management’s Discussion and Analysis
Guarantees In addition to the letters of credit mentioned above, the Company has entered into various
guarantee arrangements including obligations to indemnify third parties in connection with leases, business
dispositions and other transactions in the normal course of the Company’s business. Additionally, Loblaw has
provided a guarantee on behalf of PC Bank to MasterCard® International Incorporated (“MasterCard®”) for
accepting PC Bank as a card member and licensee of MasterCard®. As at year end 2014, the guarantee on behalf
of PC Bank to MasterCard® was U.S. $170 million (2013 – U.S. $170 million).
12.
QUARTERLY RESULTS OF OPERATIONS
12.1 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The Company’s year end is December 31. Activities are reported on a fiscal year ending on the Saturday closest
to December 31. As a result, the Company’s fiscal year is usually 52 weeks in duration but includes a 53rd week
every five to six years. The years ended December 31, 2014 and December 31, 2013 contained 53 weeks and
52 weeks, respectively. The 52-week reporting cycle is divided into four quarters of 12 weeks each except for the
third quarter, which is 16 weeks in duration. When a fiscal year such as 2014 contains 53 weeks, the fourth
quarter is 13 weeks in duration.
The following is a summary of selected consolidated information derived from the Company’s unaudited interim
period condensed consolidated financial statements for each of the eight recently completed quarters.
Selected Quarterly Information (unaudited)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2014
Total
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2013(4)
Total
(12 weeks)
(12 weeks)
(16 weeks)
(13 weeks)
(audited)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(audited)
$ 7,612
$ 10,598
$ 13,974
$ 11,734
$ 43,918
$ 7,494
$ 7,792
$ 10,377
$ 7,919
$ 33,582
$ 7,612
$ 7,989
$ 10,587
$ 8,680
$ 34,868
$ 7,494
$ 7,792
$ 10,377
$ 7,919
$ 33,582
$
$
$
$
$
$
589
552
378
341
164
164
$
$
$
$
$
$
(42) $
864
(442) $
$
589
(456) $
936
$ 1,101
415
748
130
$ 1,032
$ 1,022
622
$
736
$
296
$
$ 2,515
$ 3,539
$
973
$ 2,414
134
$
(456) $
130
$
296
$
134
$
$
$
$
$
$
600
530
402
333
240
240
$
$
$
$
$
$
584
595
377
389
163
163
$
$
$
$
$
$
735
741
461
468
282
224
$
$
$
$
$
$
588
554
376
343
219
$ 2,507
$ 2,420
$ 1,616
$ 1,533
904
$
219
$
846
$
120
$
(208) $
53
$
161
$
126
$
172
$
97
$
168
$
177
$
614
($ millions except where
otherwise indicated)
Sales
Sales excluding
Shoppers Drug Mart
EBITDA(1)
Adjusted EBITDA(1)
Operating income (loss)
Adjusted operating income(1)
Net earnings (loss)(i)
Net earnings (loss) from
continuing operations
Net earnings (loss) from
continuing operations
attributable to shareholders
of the Company
Net earnings (loss) per common
share ($) - basic
Net earnings (loss)(i)
Continuing operations
Net earnings (loss) per common
$
$
0.86
0.86
$
$
$
$
(1.71) $
(1.71) $
0.30
0.30
(1.71) $
(1.71) $
0.30
0.30
$
$
$
$
1.18
1.18
1.17
1.17
$
$
$
$
0.64
0.64
0.64
0.64
$
$
$
$
1.27
1.27
1.25
1.25
$
$
$
$
0.68
0.68
0.67
0.67
$
$
$
$
1.67
1.21
1.66
1.20
$
$
$
$
1.31
1.31
1.30
1.30
$
$
$
$
4.93
4.47
4.89
4.43
share ($) - diluted
Net earnings (loss)(i)
Continuing operations
0.85
0.85
Adjusted basic net earnings per
$
$
common share from
continuing operations(1) ($)
Average national food price
inflation (as measured by CPI)
Loblaw’s retail same-store sales
growth (decline)
$
0.91
$
1.26
$
1.59
$
1.58
$
5.35
$
0.91
$
1.08
$
1.28
$
0.98
$
4.25
1.2%
2.5%
2.8%
3.5%
2.5%
1.4%
1.5%
0.9%
0.9%
1.1%
0.9%
1.8%
2.6%
2.4%
2.0%
2.8%
1.1%
0.4%
0.6%
1.1%
(i)
In the third quarter of 2013 and year-to-date, net earnings and basic and diluted net earnings per common share included income
related to discontinued operations of $58 million and $0.46, respectively.
28 George Weston Limited 2014 Annual Report
Impact of Trends and Seasonality on Quarterly Results Consolidated quarterly results for the last eight quarters
were impacted by the following significant items: the IPO of Choice Properties in the third quarter of 2013, the
acquisition of Shoppers Drug Mart in the second quarter of 2014, foreign currency exchange rates, seasonality
and the timing of holidays, and the 53rd week. The impact of Weston Foods seasonality is greatest in the third
and fourth quarters and least in the first quarter. The impact of Loblaw seasonality is greatest in the fourth
quarter and least in the first quarter.
Sales Over the last eight quarters, consolidated sales have been impacted by each of the Company’s reportable
operating segments as follows:
• Weston Foods 2014 quarterly sales were positively impacted by foreign currency translation when compared
to the same periods in 2013. Excluding the impact of foreign currency translation, quarterly sales were
positively impacted by higher sales volumes in all four quarters partially offset by the combined negative
impact of pricing and changes in sales mix in the third and fourth quarters.
• With the exception of the first and fourth quarter of 2014, Loblaw’s average quarterly internal retail food
price index in 2014 and 2013 remained lower than or in line with the average quarterly national retail food
price inflation as measured by CPI. Over the past eight quarters, Loblaw’s net retail square footage increased
by 0.4 million square feet to 51.9 million square feet, excluding Shoppers Drug Mart.
In addition, the fourth quarter of 2014 was positively impacted by the 53rd week.
Adjusted basic net earnings per common share from continuing operations(1) Consolidated quarterly adjusted
basic net earnings per common share from continuing operations(1) for the last eight quarters excluded a number
of items as described in Section 22,“Non-GAAP Financial Measures”, of this MD&A and by each of the Company’s
reportable operating segments as follows:
• At Weston Foods, quarterly operating income during 2014 was negatively impacted by higher commodity
and other input costs, including the negative impact of foreign exchange and the costs of continued
investments, including plant start-up costs in the first, second and third quarters. In addition, operating
income was negatively impacted by a decline in the performance of the frozen dough business in the first
quarter and lower fresh bakery sales volumes in the second quarter.
• At Loblaw, fluctuations in quarterly operating income during 2014 reflect the acquisition of Shoppers Drug
Mart in the second quarter of 2014, the underlying operations of Loblaw and the impact of seasonality and
the timing of holidays mentioned above.
In addition to the items described above, consolidated quarterly adjusted basic net earnings per common share
from continuing operations(1) were impacted by:
• an increase in quarterly adjusted net interest and other financing charges(1) in 2014 primarily as a result of
debt incurred by Loblaw to finance the acquisition of Shoppers Drug Mart and an increase in quarterly
adjusted net interest and other financing charges(1) beginning in the third quarter of 2013 related to
distributions paid by Choice Properties on its Trust Units;
• a lower adjusted income tax rate(1) in the fourth quarter of 2013; and
• a decrease GWL’s ownership interest in Loblaw beginning in the second quarter in 2014 as a result of
Loblaw’s issuance of common shares as partial consideration for its acquisition of Shoppers Drug Mart.
George Weston Limited 2014 Annual Report 29
Management’s Discussion and Analysis
FOURTH QUARTER RESULTS (UNAUDITED)
12.2
The following is a summary of selected unaudited consolidated financial information for the fourth quarter. The
analysis of the data contained in the table focuses on the results of operations and changes in the financial
condition and cash flows in the fourth quarter.
Quarters Ended
Dec. 31, 2014
(13 weeks)
11,734
$
8,680
$
1,032
$
1,022
$
8.7%
Dec. 31, 2013(4)
(12 weeks)
7,919
$
7,919
$
588
$
554
$
7.0%
$ Change
3,815
$
761
$
444
$
468
$
% Change
48.2 %
9.6 %
75.5 %
84.5 %
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
670
$
554
$
116
20.9 %
246
393
65.4 %
114.6 %
103
30.0 %
125
51
44
110
77
(16)
77
(0.13)
0.60
117.9 %
50.0 %
86.3 %
244.4 %
35.2 %
(9.0)%
57.0 %
(9.9)%
61.2 %
7.7%
622
736
6.3%
446
5.1%
231
153
95
155
26.6%
296
161
212
1.18
1.58
0.42
0.36
0.33
0.33
0.30
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7.0%
376
343
4.3%
343
4.3%
106
102
51
45
18.7%
219
177
135
1.31
0.98
0.415
0.36
0.33
0.33
0.30
Selected Consolidated Information
(unaudited)
($ millions except where otherwise indicated)
Sales
Sales excluding Shoppers Drug Mart
EBITDA(1)
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Adjusted EBITDA(1) excluding
Shoppers Drug Mart
Adjusted EBITDA margin(1) excluding
Shoppers Drug Mart
Operating income
Adjusted operating income(1)
Adjusted operating margin(1)
Adjusted operating income(1) excluding
Shoppers Drug Mart
Adjusted operating margin(1) excluding
Shoppers Drug Mart
Net interest expense and other
financing charges
Adjusted interest expense and other
financing charges(1)
Income taxes
Adjusted income taxes(1)
Adjusted income tax rate(1)
Net earnings
Net earnings attributable to shareholders
of the Company
Adjusted net earnings attributable to
shareholders of the Company(1)
Basic net earnings per common share ($)
Adjusted basic net earnings per
($)
common share(1)
Dividends declared per share ($):
Common shares
Preferred shares – Series I
Preferred shares – Series III
Preferred shares – Series IV
Preferred shares – Series V
30 George Weston Limited 2014 Annual Report
Adjusted basic net earnings per common share(1) in the fourth quarter of 2014 increased to $1.58 from $0.98 in
the same period in 2013. The improvement of $0.60 was primarily due to an increase in Loblaw earnings net of
the dilution in the Company’s ownership as a result of shares issued by Loblaw to acquire Shoppers Drug Mart.
Loblaw earnings were positively impacted in the fourth quarter of 2014 by Shoppers Drug Mart results, partially
offset by higher interest expense driven by the financing associated with the acquisition of Shoppers Drug Mart
and a higher adjusted income tax rate(1).
Basic net earnings per common share decreased by $0.13 to $1.18 compared to the same period in 2013, and
were impacted by the following significant items:
•
the unfavourable year-over-year impact of the fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares of $93 million ($0.56 per common share);
the amortization of the acquired Shoppers Drug Mart intangible assets of $124 million ($0.33 per
common share);
the negative impact of the recognition of the fair value increment on the acquired Shoppers Drug Mart
inventory sold of $69 million ($0.17 per common share); partially offset by
the favourable impact of the restructuring of franchise fees of $40 million ($0.11 per common share).
•
•
•
For a complete list of items which impacted basic net earnings per common share but that are excluded from
adjusted basic net earnings per common share(1), see Section 22, “Non-GAAP Financial Measures” of this MD&A.
Sales Consolidated sales for the fourth quarter of 2014 were $11.7 billion, an increase of $3.8 billion compared
to the same period in 2013. The increase included the impact of the 53rd week and $3.1 billion in sales related
to Shoppers Drug Mart. Excluding Shoppers Drug Mart, the Company’s fourth quarter consolidated sales
increased year-over-year by $761 million to $8.7 billion and were impacted by each of its reportable operating
segments as follows:
• Positively by 0.7% due to sales growth of 13.6% at Weston Foods. Foreign currency translation and the 53rd
week positively impacted sales by approximately 4.1% and 7.3%, respectively. Excluding the impact of
foreign currency translation and the 53rd week, sales increased by 2.2% due to an increase in volumes across
all business units, partially offset by the combined negative impact of pricing and changes in sales mix.
• Positively by 9.1% due to sales growth of 9.4% at Loblaw. The impact of the extra week in 2014 increased
Loblaw’s sales by 7.5%. Excluding the impact of the 53rd week, Retail segment sales increased by 1.6% and
same-store sales growth, on a comparable week basis, was 2.4% (2013 – 0.6%). Loblaw’s average quarterly
internal food price index was slightly higher than (2013 – lower than) the average quarterly national food
price inflation of 3.5% (2013 – 0.9%) as measured by CPI. In the last 12 months, corporate and franchise
store square footage remained flat (2013 – increase of 0.8%).
EBITDA(1) The Company’s consolidated EBITDA(1) in the fourth quarter of 2014 was $1,032 million, an increase of
$444 million compared to the same period in 2013. The increase included the favourable impact of the
restructuring of franchise fees and the unfavourable impact of certain acquisition-related items of Shoppers Drug
Mart as well as a number of other items. For a complete list of the items that impacted EBITDA(1) but that are
excluded from adjusted EBITDA(1), see Section 22, “Non-GAAP Financial Measures” of this MD&A.
Adjusted EBITDA(1) in the fourth quarter of 2014 was $1,022 million, an increase of $468 million compared to the
same period in 2013, and included adjusted EBITDA(1) of $352 million related to Shoppers Drug Mart. Excluding
Shoppers Drug Mart, the Company’s fourth quarter consolidated adjusted EBITDA(1) increased by $116 million
year-over-year, and was impacted by each of its reportable operating segments as follows:
• Positively by 1.3% due to an increase of 10.4% in adjusted EBITDA(1) at Weston Foods, primarily due to the
positive impact of the 53rd week of $6 million.
George Weston Limited 2014 Annual Report 31
Management’s Discussion and Analysis
• Positively by 19.7% due to an increase of 22.4% in adjusted EBITDA(1) at Loblaw, primarily due to the increase
in Loblaw’s Retail segment including the 53rd week and net synergies. Excluding the 53rd week and net
synergies, the increase in Retail adjusted EBITDA(1) was driven by an increase in gross profit, supply chain
efficiencies, changes in the fair value of Loblaw’s franchise investments and lower administrative and other
operating costs, partially offset by higher foreign exchange losses and higher investments in Loblaw’s
franchise business.
Operating Income Consolidated operating income in the fourth quarter of 2014 was $622 million, an increase of
$246 million when compared to the same period in 2013. The year-over-year increase was impacted by the items
described above in EBITDA(1) and the amortization of intangible assets acquired with Shoppers Drug Mart. For a
complete list of items that impacted operating income but that are excluded from adjusted operating income(1),
see Section 22, “Non-GAAP Financial Measures” of this MD&A.
Consolidated adjusted operating income(1) in the fourth quarter of 2014 increased by $393 million to
$736 million compared to the same period in 2013, and included adjusted operating income(1) of $290 million
related to Shoppers Drug Mart. Excluding Shoppers Drug Mart, the year-over-year increase was $103 million,
driven by the increase in adjusted EBITDA(1), as described above, partially offset by an increase in depreciation
and amortization of $2 million at Weston Foods and $11 million at Loblaw.
Net Interest Expense and Other Financing Charges In the fourth quarter of 2014, net interest expense and
other financing charges increased by $125 million to $231 million compared to the same period in 2013, and
included the unfavourable year-over-year impact of the fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares, as well as a number of other items. For a complete list of the items
that impacted net interest expense and other financing charges but that are excluded from adjusted net interest
expense and other financing charges(1), see Section 22, “Non-GAAP Financial Measures” of this MD&A.
Adjusted net interest expense and other financing charges(1) in the fourth quarter of 2014 increased by
$51 million, driven by higher interest on long term debt, primarily as a result of debt incurred by Loblaw to
finance its acquisition of Shoppers Drug Mart.
Income Taxes Income tax expense for the fourth quarter of 2014 was $95 million and the effective income tax
rate was 24.3%. Income tax expense for the fourth quarter of 2013 was $51 million and the effective income tax
rate was 18.9%, which reflects an increase in certain non-taxable amounts. The adjusted income tax expense(1)
for the fourth quarter of 2014 was $155 million and the adjusted tax rate(1) was 26.6%. The adjusted income tax
expense(1) for the fourth quarter of 2013 was $45 million and the adjusted tax rate(1) was 18.7%, which reflects
an increase in certain non-taxable amounts.
Net Earnings Attributable to Shareholders of the Company Net earnings attributable to shareholders of the
Company for the fourth quarter of 2014 were $161 million compared to $177 million in the same period in 2013.
In the second quarter of 2014 the Company’s ownership interest in Loblaw decreased as a result of Loblaw’s
issuance of common shares as partial consideration for its acquisition of Shoppers Drug Mart. In addition to the
decrease in the Company’s ownership interest in Loblaw, the decline in net earnings attributable to shareholders
of the Company was a result of the year-over-year changes in operating income, net interest expense and other
financing charges and income taxes described above.
Cash Flows
(unaudited)
($ millions)
Cash flows from operating activities
Cash flows (used in) from investing activities
Cash flows used in financing activities
32 George Weston Limited 2014 Annual Report
Quarters Ended
Dec. 31, 2014
(13 weeks)
1,090
$
(450)
$
(622)
$
Dec. 31, 2013
(12 weeks)
$
813
605
$
(398) $
$
$
$
Change
277
(1,055)
(224)
Cash flows from operating activities The year-over-year increase in cash inflows in the fourth quarter of 2014
was $277 million, primarily due to higher cash earnings driven by Shoppers Drug Mart, partially offset by the
year-over-year change in non-cash working capital and the proceeds from the settlement of cross currency
swaps included in the fourth quarter of 2013. The change in non-cash working capital was primarily driven by the
increase in accounts payable in 2013.
Cash flows (used in) from investing activities The year-over-year increase in cash outflows in the fourth quarter
of 2014 was $1,055 million, which was primarily due to a reduction in short term investments and the release of
funds from security deposits in the fourth quarter of 2013 for the repayment of Eagle notes.
Cash flows used in financing activities The year-over-year increase in cash outflows in the fourth quarter of
2014 was $224 million, primarily driven by the net repayment of long term debt, as described below, bank
indebtedness acquired with the Shoppers Drug Mart acquisition, higher dividend payments due to the timing of
payments, partially offset by repayment of short term debt in 2013.
Loblaw repaid $321 million of its $3.5 billion term loan;
In the fourth quarter of 2014, significant net repayments of long term debt included the following:
•
• Choice Properties borrowed $45 million from its $500 million senior unsecured committed credit facility; and
• PC Bank issued $76 million of GICs and repaid $5 million in GICs.
In the fourth quarter of 2013, significant net issuances of long term debt included the following:
•
• Eagle issued $400 million of senior and subordinated term notes and repaid $250 million of senior and
Loblaw repaid a $200 million 5.40% MTN upon maturity;
subordinated term notes; and
• PC Bank issued $69 million of GICs and repaid $4 million in GICs.
Free Cash Flow(1)
($ millions)
Free cash flow(1)
Quarters Ended
Dec. 31, 2014
Dec. 31, 2013
(13 weeks)
504
$
(12 weeks)
355
$
$
Change
149
The Company’s free cash flow(1) increased by $149 million compared to the same period in 2013. The year-over-
year increase in the fourth quarter of 2014 was primarily due to higher cash earnings driven by Shoppers Drug
Mart, partially offset by increased capital investments as well as higher interest payments.
George Weston Limited 2014 Annual Report 33
Management’s Discussion and Analysis
FOURTH QUARTER RESULTS OF REPORTABLE OPERATING SEGMENTS
13.
The following discussion provides details of the 2014 fourth quarter results of operations of each of the
Company’s reportable operating segments.
13.1 WESTON FOODS FOURTH QUARTER OPERATING RESULTS (UNAUDITED)
WESTON FOODS
(unaudited)
($ millions except where otherwise indicated)
Sales
EBITDA(1)
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Operating income
Adjusted operating income(1)
Adjusted operating margin(1)
Quarters Ended
Dec. 31, 2014
(13 weeks)
469
$
91
$
74
$
15.8%
74
57
12.2%
$
$
Dec. 31, 2013(4)
(12 weeks)
413
$
56
$
67
$
16.2%
40
52
12.6%
$
$
$ Change
56
$
35
$
7
$
$
$
34
5
% Change
13.6%
62.5%
10.4%
85.0%
9.6%
Sales Weston Foods sales for the fourth quarter of 2014 were $469 million, an increase of $56 million or 13.6%
compared to the same period in 2013. Foreign currency translation and the 53rd week positively impacted sales
by approximately 4.1% and 7.3%, respectively. Excluding the impact of foreign currency translation and the
53rd week, sales increased by 2.2% due to an increase in volumes across all business units, partially offset by the
combined negative impact of pricing and changes in sales mix.
EBITDA(1) Weston Foods EBITDA(1) in the fourth quarter of 2014 increased by $35 million to $91 million
compared to the same period in 2013. The increase was primarily driven by insurance proceeds relating to a
prior quarter inventory loss in the net amount of $12 million and the year-over-year favourable impact of
the fair value adjustment of commodity derivatives of $11 million, each of which are described in Section 22,
“Non-GAAP Financial Measures”, of this MD&A. In addition, the increase was due to an improvement in
underlying operating performance described below.
Adjusted EBITDA(1) in the fourth quarter of 2014 was $74 million, an increase of $7 million compared to the same
period in 2013. Adjusted EBITDA margin(1) for 2014 decreased by 0.4% compared to the same period in 2013.
The increase in adjusted EBITDA(1) in the fourth quarter of 2014 was primarily due to the positive impact of the
53rd week of $6 million. Excluding the 53rd week, adjusted EBITDA(1) was relatively flat as higher volumes were
offset by new plant costs.
Operating Income Weston Foods operating income for the fourth quarter of 2014 was $74 million, an increase
of $34 million compared to the same period in 2013 and was positively impacted by the items described above
in EBITDA(1).
Adjusted operating income(1) was $57 million in the fourth quarter of 2014, an increase of $5 million compared
to the same period in 2013, driven by the increase in adjusted EBITDA(1) described above, partially offset by the
increase in depreciation and amortization in the fourth quarter of 2014 of $2 million due to the investments in
capital.
34 George Weston Limited 2014 Annual Report
13.2
LOBLAW FOURTH QUARTER OPERATING RESULTS (UNAUDITED)
LOBLAW
(unaudited)
($ millions except where otherwise indicated)
Sales
Sales excluding Shoppers Drug Mart
Retail gross profit
EBITDA(1)
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Quarters Ended
Dec. 31, 2014
(13 weeks)
11,413
$
8,359
$
2,925
$
898
$
948
$
8.3%
Dec. 31, 2013(4)
(12 weeks)
7,640
$
7,640
$
1,625
$
490
$
487
$
6.4%
Adjusted EBITDA(1) excluding
Shoppers Drug Mart
$
Adjusted EBITDA margin(1) excluding
Shoppers Drug Mart
Operating income
Adjusted operating income(1)
Adjusted operating margin(1)
Adjusted operating income(1) excluding
Shoppers Drug Mart
Adjusted operating margin(1) excluding
Shoppers Drug Mart
$
$
$
596
$
487
7.1%
505
679
5.9%
389
4.7%
$
$
$
6.4%
294
291
3.8%
291
3.8%
$ Change
3,773
719
1,300
408
461
% Change
49.4%
9.4 %
80.0%
83.3%
94.7%
109
22.4 %
211
388
71.8%
133.3%
98
33.7 %
$
$
$
$
$
$
$
$
$
Sales Loblaw sales in the fourth quarter of 2014 were $11.4 billion, an increase of $3.8 billion compared to the
same period in 2013 and included $3.1 billion in sales related to Shoppers Drug Mart. The increase in sales was
primarily related to Retail as described below and the 53rd week. The impact of the 53rd positively impacted
sales by $789 million. Excluding Shoppers Drug Mart, the 53rd week impacted sales by $574 million.
Excluding Shoppers Drug Mart and the 53rd week, Retail sales increased by $117 million, or 1.6% to $7.5 billion as
a result of the following factors:
•
same-store sales growth, for core grocery, was 3.3% for the quarter, excluding gas bar (0.5%) and the negative
impact of a change in distribution model by a tobacco supplier (0.4%). On a comparable week basis, same-
store sales growth was 2.4% (2013 – 0.6%);
• on a comparable week basis:
sales growth in food was strong, primarily driven by inflation;
sales in drugstore were flat, with increases in health and beauty, offset by declines in pharmacy;
sales in gas bar declined, primarily driven by a decline in gas prices;
sales in general merchandise, excluding apparel were flat; and
sales in retail apparel were flat, while U.S. wholesale apparel sales declined significantly;
•
Loblaw’s average quarterly internal food price index was slightly higher than (2013 – lower than) the average
quarterly national food price inflation of 3.5% (2013 – 0.9%) as measured by CPI; and
• 22 corporate and franchise stores were opened and 12 corporate and franchise stores were closed in the last
12 months, with an additional two franchise grocery stores divested as a result of the Consent Agreement,
resulting in flat square footage growth.
Gross Profit Loblaw’s Retail gross profit increased by $1,300 million to $2,925 million in the fourth quarter of
2014 from $1,625 million in the same period in 2013. The increase included:
• $1,221 million of gross profit generated by Shoppers Drug Mart; partially offset by
•
the negative impact of the recognition of the fair value increment on the acquired Shoppers Drug Mart
inventory sold of $69 million.
George Weston Limited 2014 Annual Report 35
Management’s Discussion and Analysis
Excluding the above impacts, Retail gross profit increased by $148 million to $1,773 million in the fourth quarter
of 2014 compared to the same period in 2013, driven by higher sales, including the 53rd week. Retail gross profit
percentage remained flat at 21.9% compared to 2013, and was positively impacted by synergies related to the
acquisition of Shoppers Drug Mart and reductions in transportation costs and was negatively impacted by
increased shrink.
EBITDA(1) Loblaw EBITDA(1) was $898 million in the fourth quarter of 2014, an increase of $408 million compared
to the same period of 2013 and was negatively impacted by a number of items, including certain items relating to
the acquisition of Shoppers Drug Mart, partially offset by the restructuring of franchise fees of $40 million. For a
complete list of items that impacted EBITDA(1) but that are excluded from adjusted EBITDA(1), see Section 22,
“Non-GAAP Financial Measures” of this MD&A.
Loblaw adjusted EBITDA(1) was $948 million in the fourth quarter of 2014, an increase of $461 million compared
to the same period in 2013, and included $352 million of adjusted EBITDA(1) related to Shoppers Drug Mart.
Excluding Shoppers Drug Mart, adjusted EBITDA(1) increased by $109 million, primarily driven by Retail including
the 53rd week and net synergies. Excluding Shoppers Drug Mart, the 53rd week and net synergies, the
improvement in Retail adjusted EBITDA(1) was driven by the increase in gross profit described above, supply chain
efficiencies, changes in the fair value of Loblaw’s franchise investments and lower administrative and other
operating costs, partially offset by higher foreign exchange losses and higher investments in Loblaw’s franchise
business. Excluding Shoppers Drug Mart, adjusted EBITDA margin(1) was 7.1% compared to 6.4% in the same
period in 2013.
Operating Income Loblaw operating income increased by $211 million to $505 million compared to the fourth
quarter of 2013, and was negatively impacted by the items described above in EBITDA(1) and the amortization of
intangible assets acquired with Shoppers Drug Mart. For a complete list of items which impacted operating
income but that are excluded from adjusted operating income(1), see Section 22, “Non-GAAP Financial Measures”
of this MD&A.
Adjusted operating income(1) was $679 million in the fourth quarter of 2014, an increase of $388 million
compared to the same period in 2013, and included $290 million of adjusted operating income(1) related to
Shoppers Drug Mart. Excluding Shoppers Drug Mart, adjusted operating income(1) increased by $98 million and
was positively impacted by the improvement in adjusted EBITDA(1) as described above, partially offset by an
increase in depreciation and amortization of $11 million.
Adjusted operating margin(1) was 5.9% compared to 3.8% in the same period in 2013, primarily driven by the
inclusion of Shoppers Drug Mart. Excluding the impact of Shoppers Drug Mart, adjusted operating margin(1) was
4.7% compared to 3.8% in 2013.
DISCLOSURE CONTROLS AND PROCEDURES
14.
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to
provide reasonable assurance that all material information relating to the Company and its subsidiaries is
gathered and reported to senior management on a timely basis so that appropriate decisions can be made
regarding public disclosure.
As required by National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim
Filings” (“NI 52-109”) the Executive Chairman, as Chief Executive Officer, and Chief Financial Officer have caused
the effectiveness of the disclosure controls and procedures to be evaluated. Based on that evaluation, they have
concluded that the design and operation of the system of disclosure controls and procedures were effective as at
December 31, 2014.
36 George Weston Limited 2014 Annual Report
INTERNAL CONTROL OVER FINANCIAL REPORTING
15.
Management is also responsible for establishing and maintaining adequate internal controls over financial
reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with IFRS.
As required by NI 52-109, the Executive Chairman, as Chief Executive Officer, and the Chief Financial Officer have
caused the effectiveness of the internal controls over financial reporting to be evaluated using the framework
established in ‘Internal Control - Integrated Framework (COSO Framework)’ published by The Committee of
Sponsoring Organizations of the Treadway Commission (COSO), 2013. Based on that evaluation, they have
concluded that the design and operation of the Company’s internal controls over financial reporting were
effective as at December 31, 2014.
In designing such controls, it should be recognized that due to inherent limitations, any controls, no matter how
well designed and operated, can provide only reasonable assurance of achieving the desired control objectives
and may not prevent or detect misstatements. Projections of any evaluations of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. Additionally, management is required to
use judgment in evaluating controls and procedures.
Changes in Internal Control over Financial Reporting There were no changes in the Company’s internal controls
over financial reporting in the fourth quarter of 2014 that materially affected, or are reasonably likely to
materially affect the Company’s internal control over financial reporting, except as noted below:
In accordance with the provisions of NI 52-109, management, including the Executive Chairman, as Chief
Executive Officer, and the Chief Financial Officer, have limited the scope of their design of the Company’s
disclosure controls and procedures and internal control over financial reporting to exclude controls, policies and
procedures of Shoppers Drug Mart. Loblaw acquired the net assets of Shoppers Drug Mart and its subsidiaries on
March 28, 2014.
Shoppers Drug Mart’s contribution to the Company’s consolidated financial statements for the year ended
December 31, 2014 was approximately 20% of consolidated revenue and approximately 30% of consolidated
adjusted operating income(1). Additionally, Shoppers Drug Mart’s current assets and current liabilities were
approximately 25% and 20% of consolidated current assets and current liabilities, respectively, and its long term
assets and long term liabilities were approximately 50% and 15% of consolidated long term assets and long term
liabilities, respectively.
The scope limitation is primarily based on the time required to assess Shoppers Drug Mart’s disclosure controls
and procedures and internal controls over financial reporting in a manner consistent with the Company’s other
operations. The assessment on the design effectiveness of disclosure controls and procedures and internal
controls over financial reporting is on track for completion by the second quarter of 2015 and the assessment of
operating effectiveness will be completed by the fourth quarter of 2015.
Further details related to the acquisition of Shoppers Drug Mart are disclosed in Section 7, “Acquisition of
Shoppers Drug Mart Corporation” of this MD&A and note 5 to the Company’s 2014 annual audited consolidated
financial statements.
George Weston Limited 2014 Annual Report 37
Management’s Discussion and Analysis
ENTERPRISE RISKS AND RISK MANAGEMENT
16.
The Company is committed to maintaining a framework that ensures risk management is an integral part of
its activities. To ensure the continued growth and success of the Company, risks are identified and managed
through GWL’s and Loblaw’s Enterprise Risk Management (“ERM”) programs. The GWL and Loblaw Boards,
respectively, have approved an ERM policy and a risk appetite statement and oversee the ERM programs through
approval of the Company’s risks and risk prioritization. The ERM programs assist all areas of the business in
managing appropriate levels of risk tolerance by bringing a systematic approach, methodology and tools for
evaluating, measuring and monitoring key risks. The results of the ERM programs and other business planning
processes are used to identify emerging risks to the Company, prioritize risk management activities and develop
a risk-based internal audit plan.
Risks are not eliminated through the ERM program. Risks are identified and managed within understood risk
tolerances. The ERM program is designed to:
• promote a culture of awareness of risk management and compliance within the Company;
•
facilitate corporate governance by providing a consolidated view of risks across the Company and insight into
the methodologies for identification, assessment, measurement and monitoring of the risks;
• assist in developing consistent risk management methodologies and tools across the organization; and
• enable the Company to focus on its key risks in the business planning process and reduce harm to financial
performance through responsible risk management.
Risk identification and assessments are important elements of the Company’s ERM framework. An annual ERM
assessment is completed to assist in the update and identification of internal and external risks, which may be
both strategic and operational in nature. Key risks affecting the Company are prioritized under six categories:
strategic; financial; operational (including safety); regulatory; human capital; and reputational risks. The annual
ERM assessment is carried out through interviews, surveys and facilitated workshops with management and the
GWL or Loblaw Boards. Risks are assessed and evaluated based on the Company’s vulnerability to the risk and
the potential impact that the underlying risks would have on the Company’s ability to execute its strategies and
achieve its objectives. Risk owners are assigned relevant risks and key risk indicators are developed. At least
semi-annually, management provides an update to a Committee of the GWL or Loblaw Boards on the status of
the key risks based on significant changes from the prior update, anticipated impacts in future quarters and
significant changes in key risk indicators. In addition, the long term (three to five year) risk level is assessed to
monitor potential long term risk impacts, which may assist in risk mitigation planning activities.
Accountability for oversight of the management of each risk is allocated by the GWL or Loblaw Boards either to
the full Boards or to Committees of the Boards.
Operating and financial risks which are reasonably likely to affect the Company’s future performance are
discussed below. Any of these risks has the potential to negatively affect the Company and its financial
performance. The Company has risk management strategies, including insurance programs, controls and
contractual arrangements. However, there can be no assurance that the associated risks will be mitigated or will
not materialize or that events or circumstances will not occur that could adversely affect the reputation,
operations or financial condition or performance of the Company. The risks included below should be read in
conjunction with the risks included in the Company’s AIF for the year ended December 31, 2014, which is hereby
incorporated by reference.
38 George Weston Limited 2014 Annual Report
16.1 OPERATING RISKS AND RISK MANAGEMENT
Operating Risks The Company is exposed to a number of operational, regulatory, human capital and
reputational risks in the normal course of its business that have the potential to adversely affect the reputation,
operations and financial performance of the Company.
The following is a summary of the Company’s key operational, regulatory, human capital and reputational risks
which are discussed in detail below:
Acquisition of Shoppers Drug Mart Corporation
IT Systems Implementations
Pharmacy Industry Regulation
Inventory Management
Information Integrity and Reliability
Availability, Access and Security of
Information Technology
Food Safety and Public Health
Labour Relations
Competitive Environment
Talent Management and Succession Planning
Consumer and Retail Customer Trends
Regulatory and Tax
Legal Proceedings
Vendor Management and Third-Party Service Providers
Commodity Prices
Franchisee Independence and Relationships
Associate-owned Drug Store Network and
Relationships with Associates
Alternative Arrangements for Sourcing Generic
Drug Products
Multi-Employer Pension Plans
Execution of Weston Foods’ Strategic Initiatives
Acquisition of Shoppers Drug Mart Corporation On March 28, 2014, Loblaw acquired all of the outstanding
shares of Shoppers Drug Mart. The realization of the anticipated strategic benefits associated with this
acquisition will depend on several factors, and will require significant effort on the part of management of the
Company. Failure to realize the anticipated strategic benefits or operational, competitive and cost synergies
associated with this acquisition could adversely affect the reputation, operations or financial performance of the
Company.
IT Systems Implementations Loblaw continues to undertake a major upgrade of its IT infrastructure. Completing
the IT systems deployment will require continued focus and investment. Failure to successfully migrate from
legacy systems to the new IT systems or a significant disruption in Loblaw’s current IT systems during the
implementation of the new IT systems could result in a lack of accurate data to enable management to
effectively manage day-to-day operations of the business or achieve its operational objectives, causing significant
disruptions to the business and potential financial losses. Failure to successfully adopt the new IT systems or to
implement appropriate processes to support them could result in inefficiencies and duplication in processes,
which could in turn adversely affect the reputation, operations and financial performance of the Company.
Failure to realize the anticipated strategic benefits including revenue growth, anticipated cost savings or
operating efficiencies associated with the new IT systems could adversely affect the reputation, operations or
financial performance of the Company.
Pharmacy Industry Regulation With the acquisition of Shoppers Drug Mart, Loblaw is reliant on prescription
drug sales for a more significant portion of its sales and profits. Prescription drugs and their sales are subject to
numerous federal, provincial, territorial and local laws and regulations. Changes to these laws and regulations, or
non-compliance with these laws and regulations, could adversely affect the reputation, operations or financial
performance of the Company.
Federal and provincial laws and regulations that establish public drug plans typically regulate prescription drug
coverage, patient eligibility, pharmacy reimbursement, drug product eligibility, and drug pricing and may also
regulate manufacturer allowance funding that is provided to or received by pharmacy or pharmacy suppliers.
With respect to pharmacy reimbursement, such laws and regulations typically regulate the allowable drug cost
of a prescription drug product, the permitted mark-up on a prescription drug product and the professional or
dispensing fees that may be charged on prescription drug sales to patients eligible under the public drug plan.
George Weston Limited 2014 Annual Report 39
Management’s Discussion and Analysis
With respect to drug product eligibility, such laws and regulations typically regulate the requirements for listing
the manufacturer’s products as a benefit or partial benefit under the applicable governmental drug plan, drug
pricing and, in the case of generic prescription drug products, the requirements for designating the product as
interchangeable with a branded prescription drug product. In addition, other federal, provincial, territorial and
local laws and regulations govern the approval, packaging, labeling, sale, marketing, advertising, handling,
storage, distribution, dispensing and disposal of prescription drugs.
Sales of prescription drugs, pharmacy reimbursement and drug prices may be affected by changes to the health
care industry, including legislative or other changes that impact patient eligibility, drug product eligibility, the
allowable cost of a prescription drug product, the mark-up permitted on a prescription drug product, the amount
of professional or dispensing fees paid by third-party payers or the provision or receipt of manufacturer
allowances by pharmacy and pharmacy suppliers.
The majority of prescription drug sales are reimbursed or paid by third-party payers, such as governments,
insurers or employers. These third-party payers have pursued and continue to pursue measures to manage the
costs of their drug plans. Each provincial jurisdiction has implemented legislative and/or other measures directed
towards managing pharmacy service costs and controlling increasing drug costs incurred by public drug plans
and private payers which impact pharmacy reimbursement levels and the availability of manufacturer
allowances. Legislative measures to control drug costs include lowering of generic drug pricing, restricting or
prohibiting the provision of manufacturer allowances and placing limitations on private label prescription drug
products. Other measures that have been implemented by certain government payers include restricting the
number of interchangeable prescription drug products which are eligible for reimbursement under provincial
drug plans. Additionally, the Council of the Federation, an institution created by the provincial Premiers in 2003
to collaborate on intergovernmental relations, continues its work regarding cost reduction initiatives for
pharmaceutical products and services.
Legislation in certain provincial jurisdictions establish listing requirements that ensure that the selling price for a
prescription drug product will not be higher than any selling price established by the manufacturer for the same
prescription drug product under other provincial drug insurance programs. In some provinces, elements of the
laws and regulations that impact pharmacy reimbursement and manufacturer allowances for sales to the public
drug plans are extended by legislation to sales in the private sector. Also, private third-party payers (such as
corporate employers and their insurers) are looking or may look to benefit from any measures implemented by
government payers to reduce prescription drug costs for public plans by attempting to extend these measures to
prescription drug plans they own or manage. Accordingly, changes to pharmacy reimbursement and
manufacturer allowances for a public drug plan could also impact pharmacy reimbursement and manufacturer
allowances for private sector sales. In addition, private third-party payers could reduce pharmacy reimbursement
for prescription drugs provided to their members or could elect to reimburse members only for products
included on closed formularies or available from preferred providers.
Ongoing changes impacting pharmacy reimbursement programs, prescription drug pricing and manufacturer
allowance funding, legislative or otherwise, are expected to continue to put downward pressure on prescription
drug sales. These changes may have a material adverse impact on Loblaw’s business, sales and profitability. In
addition, Loblaw could incur significant costs in the course of complying with any changes in the regulatory
regime affecting prescription drugs. Non-compliance with any such existing or proposed laws or regulations,
particularly those that provide for the licensing and conduct of wholesalers, the licensing and conduct of
pharmacists, the regulation and ownership of pharmacies, the advertising of pharmacies and prescription
services, the provision of information concerning prescription drug products, the pricing of prescription drugs
and restrictions on manufacturer allowance funding, could result in audits, civil or regulatory proceedings, fines,
penalties, injunctions, recalls or seizures, any of which could adversely affect the reputation, operations and
financial performance of the Company.
Inventory Management Loblaw is subject to risks associated with managing its inventory. Failure to successfully
manage such risks could result in shortages of inventory, or excess or obsolete inventory which cannot be sold
40 George Weston Limited 2014 Annual Report
profitably or increases in levels of inventory shrink. Any of these outcomes could negatively affect the financial
results of the Company. Loblaw is continuing to convert its grocery stores to a new IT system, and in doing so is
gaining increased visibility to integrated costing and sales information at store level. With this increased visibility,
Loblaw will have more precise information to better identify and assess risks relating to inventory, however this
will not eliminate such risks.
Information Integrity and Reliability Management depends on relevant and reliable information for decision
making purposes, including key performance indicators and financial reporting. A lack of relevant and reliable
information necessary to manage the business could preclude the Company from optimizing its overall
performance. Any significant loss of data or failure to maintain reliable data could adversely affect the
reputation, operations or financial performance of the Company.
Availability, Access and Security of Information Technology The Company is reliant on the continuous and
uninterrupted operations of its IT systems. Point of sale availability, 24/7 user access and security of all IT
systems, including distribution of prescription drugs and reimbursement by third-party payors, are critical
elements to the operations of the Company. Protection against cyber security incidents and cloud security, and
security of all of the Company’s IT systems are critical to the operations of the Company. Any IT failure pertaining
to availability, access or system security could result in disruption for the customer and could adversely affect the
reputation, operations or financial performance of the Company.
Food Safety and Public Health The Company is subject to risks associated with food safety and defects,
including the Company’s control brand, baked goods and manufactured products, including contract
manufactured products. The Company could be adversely affected in the event of a significant outbreak of
food-borne illness or other public health concerns related to food, health and wellness, including
pharmaceuticals, or general merchandise products (including baked goods and manufactured products). The
occurrence of such events or incidents could result in harm to customers, negative publicity or damage to the
Company’s brands and could lead to unforeseen liabilities from legal claims or otherwise. Failure to trace or
locate any contaminated or defective products and ingredients could affect the Company’s ability to be effective
in a recall situation. Any of these events, as well as the failure to maintain the cleanliness and health standards at
Loblaw’s store level or the Company’s manufacturing facilities, could adversely affect the reputation, operations
or financial performance of the Company.
Labour Relations The Company’s workforce is comprised of both unionized and non-unionized colleagues. With
respect to those colleagues that are covered by collective agreements, there can be no assurance as to the
outcome of any labour negotiations or the timing of their completion. Failure to renegotiate collective
agreements could result in strikes, work stoppages or business interruptions, and if any of these events were
to occur, they could adversely affect the reputation, operations or financial performance of the Company. If
non-unionized colleagues become unionized, the terms of the resulting collective agreements would have
implications for the affected operations and those implications could be material.
Competitive Environment Weston Foods’ competitors include multi-national food processing companies, as
well as national and smaller-scale bakery operations in Canada and the U.S.
Loblaw’s competitors include supermarket and retail drug store operators, as well as mass merchandisers,
warehouse clubs, on-line retailers, mail order prescription drug distributors, limited assortment stores, discount
stores, convenience stores and specialty stores. Many of these competitors now offer a selection of food, drug
store and general merchandise. Others remain focused on supermarket-type merchandise. Loblaw is subject to
competitive pressures from new entrants into the marketplace and from the expansion or renovation of existing
competitors, particularly those expanding into the grocery market.
The Company’s inability to effectively predict market activity or compete effectively with its current or future
competitors could result in, among other things, reduced market share and lower pricing in response to its
competitors’ pricing activities. Failure by Weston Foods or Loblaw to sustain their competitive position could
adversely affect the financial performance of the Company.
George Weston Limited 2014 Annual Report 41
Management’s Discussion and Analysis
Talent Management and Succession Planning Effective succession planning for senior management and the
ability to attract and retain key personnel are essential to sustaining the growth and success of the Company. In
addition, failure to retain senior management can be a significant risk to the Company’s business strategy. If the
Company is not effective in establishing appropriate succession planning processes and retention strategies, it
could lead to a lack of requisite knowledge, skills and experience on the part of management. This, in turn, could
adversely affect the Company’s ability to execute its strategies, and could adversely affect its reputation,
operations or financial performance.
Consumer and Retail Customer Trends The baking industry continues to experience a decline in the
consumption of certain traditional products, as consumer eating and buying preferences continue to trend to
healthier, more nutritious, value-added and convenience offerings. As a result of evolving retail customer trends,
the Company must deliver products that satisfy changing consumer preferences in a highly competitive
environment. Failure of Weston Foods to anticipate and react to shifting consumer and retail customer trends
and preferences through successful innovation and enhanced manufacturing capability could adversely affect the
financial performance of the Company.
Regulatory and Tax Changes to any of the laws, rules, regulations or policies (collectively, “laws”) applicable to
the Company’s business, including laws affecting all types of taxes, and laws affecting the production, processing,
preparation, distribution, packaging and labelling of products, could have an adverse impact on the financial or
operational performance of the Company. In the course of complying with such changes, the Company could
incur significant costs. Changing laws or interpretations of such laws or enhanced enforcement of existing laws
could restrict the Company’s operations or profitability and thereby threaten the Company’s competitive
position and ability to efficiently conduct business. Failure by the Company to comply with applicable laws and
orders could subject the Company to civil or regulatory actions, investigations or proceedings, including fines,
assessments, injunctions, recalls or seizures, which in turn could adversely affect the reputation, operations or
financial performance of the Company.
The Company is subject to tax audits from various government and regulatory agencies on an ongoing basis. As a
result, from time to time, taxing authorities may disagree with the positions and conclusions taken by the
Company in its tax filings or legislation could be amended or interpretations of current legislation could change,
any of which events could lead to reassessments. These reassessments could have a material impact on the
Company.
In 2012, Loblaw received indication from the CRA that the CRA intends to proceed with reassessments of the tax
treatment of Loblaw’s wholly-owned subsidiary, Glenhuron. The CRA’s position is that certain income earned by
Glenhuron in Barbados in respect of the 2000 to 2010 taxation years should be treated, and taxed, as income in
Canada.
Based on the proposal letter from the CRA, if the CRA and the relevant provincial tax authorities were to prevail
in all of these reassessments, which Loblaw believes would be unlikely, the estimated total tax and interest for
the 2000 to 2010 taxation years would be approximately $440 million, which would increase as interest accrues.
However, Loblaw is in discussions with the CRA about the amount of taxes in dispute. Loblaw believes it is likely
that the CRA and the relevant provincial tax authorities will issue reassessments for 2011 to 2013 on the same or
similar basis. No amount for any reassessments has been provided for in the Company’s consolidated financial
statements.
Subsequent to the end of 2014, Loblaw received a letter from the CRA stating that the CRA will be proceeding
with the reassessments. Loblaw expects to receive reassessments from the CRA and the relevant provincial tax
authorities sometime in the coming months. Loblaw strongly disagrees with the CRA’s position and intends to
vigorously defend its position including appealing the reassessments when they are received. Loblaw will make
cash payments or provide other forms of security on a portion of the taxes in dispute. If Loblaw is successful in
defending its position, in whole or in part, some or all of the cash payments or security would be returned to
Loblaw. If the CRA were to ultimately prevail with respect to the proposed reassessment or if the CRA were to
42 George Weston Limited 2014 Annual Report
successfully pursue other reassessments, the outcome could have a negative material impact on the Company’s
reputation, results of operations and financial position of the Company in the year(s) of resolution.
As part of the review undertaken by the Competition Bureau of the acquisition by Loblaw of Shoppers Drug
Mart, it expressed concerns about practices that Loblaw has in place with certain suppliers. In connection with
this review, the Competition Bureau issued requests for documents from 12 suppliers of Loblaw. Loblaw has and
will continue to cooperate with the Competition Bureau in its review of these practices. At this stage of the
review, it is not possible to predict when the review will be completed or the outcome of such review. If the
Competition Bureau is not satisfied that Loblaw’s practices satisfy the Competition Bureau’s objectives of
maintaining competitive markets, then the Competition Bureau may pursue remedies that could have a negative
material impact on the Company’s reputation, results of operations and financial position of the Company.
PC Bank operates in a highly regulated environment and a failure by it to comply, understand, acknowledge and
effectively respond to applicable regulators could result in monetary penalties, regulatory intervention and
reputational damage.
Choice Properties is currently classified as a “unit trust” and a “mutual fund trust” under the Income Tax Act
(Canada). It also qualifies for the Real Estate Investment Trust Exception under the Income Tax Act (Canada) and
as such is not subject to specified investment flow-through rules. If Choice Properties ceases to qualify for these
and other classifications and exceptions, the taxation of Choice Properties and unitholders, including Loblaw,
could be materially adversely different in certain respects, which in turn could be materially adversely affect the
trading price of the Trust Units.
Legal Proceedings As part of its normal course of operations, the Company is involved in and potentially subject
to a variety of legal claims and proceedings. With the acquisition of Shoppers Drug Mart, Loblaw is the subject of
a class action brought by two licensed Associate-owners. The claim seeks damages in the amount of $500 million
based on alleged breaches of the Associate Agreement with Shoppers Drug Mart. At this stage of the
proceedings any potential liability and the quantum of any loss cannot be determined. Since litigation is
inherently uncertain, the outcome of this class action, and all other litigation proceedings and claims remains
uncertain. However, based on information currently available, these matters, individually and in the aggregate,
are not expected to have a material impact on the Company. In the event that management’s assessment of
materiality of current claims and proceedings proves inaccurate or litigation that is material arises in the future,
there may be a material adverse effect on the Company’s operations or financial performance.
Vendor Management and Third-Party Service Providers The Company relies on vendors, including offshore
vendors in both mature and developing markets, to provide the Company with goods and services. Offshore
sourcing increases certain risks to the Company, including risks associated with food safety and general
merchandise product defects, non-compliance with ethical and safe business practices and inadequate supply of
products. The Company has no direct influence over how vendors are managed. Negative events affecting
vendors or inefficient, ineffective or incomplete vendor management strategies, policies and/or procedures
could adversely impact the Company’s reputation and impair the Company’s ability to meet customer needs or
control costs and quality, which could adversely affect the reputation, operations and financial performance of
the Company.
The Company also uses third-party suppliers, carriers, logistic service providers and operators of warehouses and
distribution facilities, including for product development, design and sourcing of Loblaw’s control brand apparel
products and Weston Foods’ baked goods products. Ineffective selection, contract terms or relationship
management could impact the Company’s ability to source Weston Food’s third-party manufactured products or
Loblaw’s control brand products, to have products available for customers, to market to customers or to operate
efficiently and effectively. Disruption in services from third-party suppliers could interrupt the delivery of
merchandise to stores, thereby adversely affecting the operations or financial performance of the Company.
President’s Choice Financial banking services are provided by a major Canadian chartered bank. PC Bank uses
third-party service providers to process credit card transactions, operate call centres and operationalize certain
risk management strategies for the President’s Choice Financial MasterCard®. A significant disruption in the
George Weston Limited 2014 Annual Report 43
Management’s Discussion and Analysis
services provided by the chartered bank or by third-party service providers would adversely affect the financial
performance of PC Bank and the Company.
The Company relies on third parties for investment management, custody and other services for its cash
equivalents, short term investments, security deposits and pension assets. Any disruption in the services
provided by these suppliers could adversely affect the return on these assets or the liquidity of the Company.
Commodity Prices Weston Foods costs are directly impacted by fluctuations in the prices of commodity linked
raw materials such as wheat flours, sugars, vegetable oils, cocoa powders and chocolate. Loblaw is also exposed
to fluctuations in the commodity prices as a result of the indirect effect of changing commodity prices on the
price of consumer products. In addition, both Weston Foods and Loblaw are exposed to increases in the prices of
energy in operating, in the case of Weston Foods, its bakeries and distribution networks, and, in the case of
Loblaw, its stores and distribution networks. Both Weston Foods and Loblaw use purchase commitments and
derivative instruments in the form of futures contracts, option contracts and forward contracts to manage their
current and anticipated exposure to fluctuations in commodity prices. Despite these strategies, fluctuations in
commodity prices could negatively affect the financial performance of the Company.
Franchisee Independence and Relationships A substantial portion of Loblaw’s revenues and earnings comes
from amounts paid by franchisees of its grocery store operations. Franchisees and independent operators are
independent businesses and, as a result, their operations may be negatively affected by factors beyond Loblaw’s
control, which in turn could negatively affect the Company’s reputation, operations and financial performance.
Revenues and earnings could also be negatively affected, and the Company’s reputation could be harmed, if a
significant number of franchisees were to experience operational failures, health and safety exposures or were
unable to pay Loblaw for products, rent or fees. Loblaw’s franchise system is also subject to franchise legislation
enacted by a number of provinces. Any new legislation or failure to comply with existing legislation could
negatively affect operations and could add administrative costs and burdens, any of which could affect Loblaw’s
relationship with its franchisees. Relationships with franchisees could pose significant risks if they are disrupted,
which could negatively affect the reputation, operations and financial performance of the Company. Supply chain
or system changes by Loblaw could cause or be perceived to cause disruptions to franchise operations and could
result in negative effects on franchisee financial performance. Reputational damage or adverse consequences for
the Company, including litigation and disruption to revenue from franchise stores could result.
Associate-owned Drug Store Network and Relationships with Associates The success of Loblaw and the
reputation of its brands are closely tied to the performance of the Shoppers Drug Mart Associate-owned drug
stores. Accordingly, Loblaw relies on Associates to successfully operate, manage and execute retail programs
and strategies at their respective drug store locations. Associates are independent business operators and the
success of the operations and financial performance of their respective drug stores may be beyond Loblaw’s
control. In addition, Associates operate in the same regulatory framework as described above under
“Franchisee Independence and Relationships”. Disruptions to Loblaw’s relationships with Shoppers Drug Mart
Associate-owned drug stores or changes in legislation could negatively affect revenue from Associates, which in
turn, could adversely affect the reputation, operations or financial performance of the Company.
Alternative Arrangements for Sourcing Generic Drug Products As the utilization rate of generic prescription
drugs increases, Loblaw is pursuing alternative sourcing and procurement models for generic prescription drug
products. As part of this alternative sourcing and procurement initiative, Loblaw has entered into contracts for
the fabrication of private label generic prescription drug products. These alternative sourcing and procurement
models contain certain additional risks beyond those associated with Loblaw’s conventional procurement
strategy. The most significant of these additional risks are product liability and intellectual property infringement.
Product liability claims may arise in the event that the use of Loblaw’s products cause, or are alleged to have
caused, any injury to consumers. Intellectual property infringement claims may arise in the event that Loblaw’s
products infringe or violate, or are alleged to infringe or violate, the patents or other intellectual property rights
of any third parties, including the brand manufacturer. Both product liability and intellectual property
infringement claims could be costly to defend and could result in significant liabilities and monetary damages.
44 George Weston Limited 2014 Annual Report
Failure to successfully implement these alternative sourcing and procurement models could adversely affect the
reputation, operations or financial performance of the Company.
In addition, the market for generic prescription drug products and eligibility for reimbursement from
governmental and other third-party payers will depend on the extent to which the products are designated as
interchangeable with the branded products and are included as a benefit on the public drug plans in Canada.
These interchangeability designations and benefit listings are highly regulated and will be dependent on the
products and the procurement model meeting the regulatory requirements. If the demand for generic products
is negatively affected by fewer designations, it could adversely affect the reputation, operations or financial
performance of the Company.
Multi-Employer Pension Plans In addition to the Company-sponsored pension plans, the Company participates
in various multi-employer pension plans (“MEPP”), providing pension benefits to union employees pursuant to
provisions of collective bargaining agreements. Approximately 26% (2013 – 37%) of employees of the Company,
and of its franchisees and Associates, participate in these plans. These plans are administered by independent
boards of trustees generally consisting of an equal number of union and employer representatives. In some
circumstances, the Company has a representative on the board of trustees of these plans. The Company’s
responsibility to make contributions to these plans is limited by the amounts established pursuant to its
collective agreements; however, poor performance of these plans could have an adverse impact on the
Company’s employees and former employees who are members of these plans or could result in changes to
the terms and conditions of participation in these plans, which in turn could adversely affect the financial
performance of the Company.
Loblaw, together with its franchisees, is the largest participating employer in the Canadian Commercial Workers
Industry Pension Plan (“CCWIPP”), with approximately 52,000 (2013 – 53,000) employees as members. In 2014,
Loblaw contributed approximately $54 million (2013 – $54 million) to CCWIPP. The recent actuarial reports filed
for CCWIPP indicate that the plan is underfunded with the accrued benefit obligations exceeding the value of
CCWIPP assets. Any benefit reductions would negatively affect the retirement benefits of Loblaw’s employees,
which in turn could negatively affect their morale and productivity and, in turn, could adversely affect the
reputation of the Company.
Execution of Weston Foods’ Strategic Initiatives Weston Foods has developed a strategic plan which includes
significant capital investment to position it for long term growth. Execution of the strategic plan requires prudent
operational planning, availability and attention of key personnel, timely implementation and effective change
management. Failure to execute the strategic plan as desired could negatively affect the financial performance of
the Company.
16.2
FINANCIAL RISKS AND RISK MANAGEMENT
Financial Risks The Company is exposed to a number of financial risks, including those associated with financial
instruments, which have the potential to affect its operating and financial performance. The Company uses
over-the-counter derivative instruments to offset certain of these risks. Policies and guidelines prohibit the use
of any derivative instrument for trading or speculative purposes. The fair value of derivative instruments is
subject to changing market conditions which could adversely affect the financial performance of the Company.
The following is a summary of the Company’s financial risks which are discussed in detail below:
Level of Indebtedness
Liquidity
Choice Properties’ Capital Availability
Foreign Currency Exchange Rates
Interest Rates
Credit
Common Share and Trust Unit Prices
Level of Indebtedness To fund the cash portion of the acquisition of Shoppers Drug Mart, Loblaw utilized excess
cash and significantly increased its indebtedness. Although Loblaw has made progress in reducing its level of
George Weston Limited 2014 Annual Report 45
Management’s Discussion and Analysis
indebtedness subsequent to the acquisition of Shoppers Drug Mart, there can be no assurance that Loblaw will
generate sufficient free cash flow to significantly further reduce indebtedness and maintain adequate cash
reserves. A failure to achieve these objectives could adversely affect the Company’s credit ratings and its cost of
funding.
If GWL, Loblaw, PC Bank or Choice Properties’ financial performance and condition deteriorate or downgrades in
GWL’s, Loblaw’s or Choice Properties’ current credit ratings occur, their ability to obtain funding from external
sources could be restricted, which could adversely affect the financial performance of the Company.
Liquidity Liquidity risk is the risk that the Company is unable to generate or obtain sufficient cash or its
equivalents in a cost effective manner to fund its obligations as they come due. The Company is exposed to
liquidity risk through, among other areas, PC Bank and its credit card business, which requires a reliable source
of funding for its credit card business. PC Bank relies on its securitization programs and the acceptance of GIC
deposits to fund the receivables of its credit cards. The Company would experience liquidity risks if it fails to
maintain appropriate levels of cash and short term investments, it is unable to access sources of funding or it
fails to appropriately diversify sources of funding. If any of these events were to occur, they would adversely
affect the financial performance of the Company.
Liquidity risk is mitigated by maintaining appropriate levels of cash and cash equivalents and short term
investments, actively monitoring market conditions, and by diversifying sources of funding, including the
Company’s committed credit facilities, and maintaining a well diversified maturity profile of debt and capital
obligations.
Choice Properties’ Capital Availability The real estate industry is highly capital intensive. Choice Properties
requires access to capital to maintain its properties, refinance its indebtedness as well as to fund its growth
strategy and certain capital expenditures from time to time. Although Choice Properties expects to have access
to its credit facility, there can be no assurance that it will otherwise have sufficient capital or access to capital on
acceptable terms for future property acquisitions, refinancing indebtedness, financing or refinancing properties,
funding operating expenses or for other purposes. Further, in certain circumstances, Choice Properties may not
be able to borrow funds due to certain limitations. Failure by Choice Properties to access required capital could
have a material adverse effect on the Company’s ability to pay its financial or other obligations. An inability to
access capital could also impact Choice Properties’ ability to make distributions which could have a material
adverse effect on the trading price of Trust Units which would adversely affect the financial performance of the
Company.
Foreign Currency Exchange Rates The Company’s consolidated financial statements are expressed in Canadian
dollars, however a portion of the Company’s net assets are denominated in U.S. dollars through both its net
investment in foreign operations in the U.S. and its foreign subsidiaries held by Dunedin and certain of its
affiliates with a functional currency that is the same as that of the Company. The U.S. dollar denominated net
assets are translated into Canadian dollars at the foreign currency exchange rate in effect at the balance sheet
date. As a result, the Company is exposed to foreign currency translation gains and losses. Those gains and losses
arising from the translation of the U.S. dollar denominated assets of foreign subsidiaries with a functional
currency that is the same as that of the Company are included in operating income, while translation gains and
losses on the net investment in foreign operations in the U.S. are recorded in accumulated other comprehensive
income (loss).
Revenues and expenses of all foreign operations are translated into Canadian dollars at the foreign currency
exchange rates that approximate the rates in effect at the dates when such items are recognized. An appreciating
U.S. dollar relative to the Canadian dollar will positively impact operating income and net earnings, while a
depreciating U.S. dollar relative to the Canadian dollar will have the opposite impact.
Weston Foods and Loblaw are also exposed to fluctuations in the prices of U.S. dollar denominated purchases as
a result of changes in U.S. dollar exchange rates. A depreciating Canadian dollar relative to the U.S. dollar will
negatively impact operating income and net earnings, while an appreciating Canadian dollar relative to the U.S.
dollar will have the opposite impact. During 2014, Weston Foods and Loblaw entered into derivative instruments
46 George Weston Limited 2014 Annual Report
in the form of futures contracts and forward contracts to manage their current and anticipated exposure to
fluctuations in U.S. dollar exchange rates.
Interest Rates The Company is exposed to interest rate risk from fluctuations in interest rates on its floating rate
debt and financial instruments, net of cash and cash equivalents, short term investments and security deposits.
An increase in interest rates could adversely affect the financial performance of the Company. GWL and Loblaw
manage interest rate risk by monitoring their respective mix of fixed and floating rate debt, net of cash and cash
equivalents, short term investments and security deposits, and by taking action as necessary to maintain an
appropriate balance considering current market conditions.
Credit The Company is exposed to credit risk resulting from the possibility that counterparties could default on
their financial obligations to the Company. Exposure to credit risk relates to derivative instruments, cash and
cash equivalents, short term investments, security deposits, PC Bank’s credit card receivables, Loblaw’s franchise
loans receivable, pension assets held in the Company’s defined benefit plans, Loblaw’s accounts receivable
including amounts due from independent franchisees, government, prescription sales and third-party drug plans,
independent accounts and amounts owed from vendors, and other receivables from Weston Foods’ customers
and suppliers. Failure to manage credit risk could adversely affect the financial performance of the Company.
The risk related to derivative instruments, cash and cash equivalents, short term investments and security
deposits is reduced by policies and guidelines that require that the Company enters into transactions only with
counterparties or issuers that have a minimum long term “A-” credit rating from a recognized credit rating
agency and place minimum and maximum limits for exposures to specific counterparties and instruments.
Choice Properties mitigates the risk of credit loss relating to rent receivables by evaluating the creditworthiness
of new tenants, obtaining security deposits wherever permitted by legislation, ensuring its tenant mix is
diversified and by limiting its exposure to any one tenant except Loblaw. Choice Properties establishes an
allowance for doubtful accounts that represents the estimated losses with respect to rents receivable. The
allowance is determined on a tenant-by-tenant basis based on the specific factors related to the tenant.
PC Bank manages its credit card receivable risk by employing stringent credit scoring techniques, actively
monitoring the credit card portfolio and reviewing techniques and technology that can improve the effectiveness
of the collection process. In addition, these receivables are dispersed among a large, diversified group of credit
card customers.
Loblaw’s franchise loans receivable and Loblaw’s accounts receivable including amounts due from independent
franchisees, governments, prescription sales covered by third-party drug plans, independent accounts and
amounts owed from vendors, and other receivables from Weston Foods’ customers and suppliers are actively
monitored on an ongoing basis and settled on a frequent basis in accordance with the terms specified in the
applicable agreements.
Despite the mitigation strategies described above, it is possible that the Company’s financial performance could
be negatively impacted by the failure of a counterparty to fulfill its obligations.
Common Share and Trust Unit Prices Changes in the Loblaw common share price impact the Company’s net
interest expense and other financing charges. In 2001, WHL entered into an equity forward sale agreement
based on 9.6 million Loblaw common shares at an original forward price of $48.50 per Loblaw common share
which, under the terms of the agreement, had increased to a forward price of $100.80 (2013 – $96.46) per
Loblaw common share as at year end 2014. The forward matures in 2031 and will be settled in cash as follows:
WHL will receive the forward price and will pay the market value of the underlying Loblaw common shares at
maturity. The obligation of WHL under this forward is secured by the underlying Loblaw common shares. WHL
recognizes a non-cash charge or income, which is included in consolidated net interest expense and other
financing charges, representing the fair value adjustment of WHL’s forward sale agreement for 9.6 million shares.
The fair value adjustment in the forward contract is a non-cash item resulting from fluctuations in the market
price of the underlying Loblaw shares that WHL owns. WHL does not record any change in the market price
associated with the Loblaw common shares it owns. At maturity, if the forward price is greater (less) than the
George Weston Limited 2014 Annual Report 47
Management’s Discussion and Analysis
market price, WHL will receive (pay) cash equal to the difference between the notional value and the market
value of the forward contract. Any cash paid under the forward contract could be offset by the sale of Loblaw
common shares.
The Company is exposed to market price risk from Choice Properties’ Trust Units that are held by unitholders
other than the Company. These Trust Units are presented as a liability on the Company’s consolidated balance
sheets as they are redeemable for cash at the option of the holders. The liability is recorded at fair value at each
reporting period based on the market price of Trust Units. The change in the fair value of the liability negatively
impacts net earnings when the Trust Unit price increases and positively impacts net earnings when the Trust Unit
price declines.
RELATED PARTY TRANSACTIONS
17.
The Company’s majority shareholder is Mr. W. Galen Weston, who beneficially owns, directly and indirectly
through private companies which he controls, including Wittington Investments, Limited (“Wittington”), a total
of 80,746,099 of GWL’s common shares, representing approximately 63% (2013 – 63%) of GWL’s outstanding
common shares. The Company’s policy is to conduct all transactions and settle all balances with related parties
on market terms and conditions.
Transactions between the Company and its consolidated entities have been eliminated on consolidation and are
not disclosed below.
In 2014, the Company made rental payments to Wittington in the amount of $4 million (2013 – $4 million). As at
December 31, 2014 and 2013, there were no rental payments outstanding.
In 2014, inventory purchases from Associated British Foods plc, a related party by virtue of Mr. W. Galen Weston
being a director of such entity’s parent company, amounted to $35 million (2013 – $31 million). As at
December 31, 2014, $3 million (2013 – $4 million) was included in trade payables and other liabilities relating to
these inventory purchases.
Joint Venture In 2014, a joint venture, formed between Choice Properties and Wittington, completed the
acquisition of property from Loblaw. The joint venture intends to develop the acquired site into a mixed-used
property, anchored by a Loblaw food store. As at December 31, 2014, the joint venture did not have any
operating activity. Choice Properties uses the equity method of accounting to record its 40% interest in the joint
venture, which is included in other assets.
Post-Employment Benefit Plans The Company sponsors a number of post-employment plans, which are related
parties.
Income Tax Matters From time to time, the Company and Wittington may enter into agreements to make
elections that are permitted or required under applicable income tax legislation with respect to affiliated
corporations. In 2014, these elections and accompanying agreements did not have a material impact on
the Company.
Compensation of Key Management Personnel The Company’s key management personnel is comprised of
certain members of the executive team of GWL, Loblaw, Weston Foods and Wittington, as well as members of
the Boards of GWL, Loblaw and Wittington to the extent that they have the authority and responsibility for
planning, directing and controlling the day-to-day activities of the Company.
Annual compensation of key management personnel that is directly attributable to the Company was as follows:
($ millions)
Salaries, director fees and other short term employee benefits
Share-based compensation
Total compensation
2014
(53 weeks)
17
9
26
$
$
2013
(52 weeks)
19
12
31
$
$
48 George Weston Limited 2014 Annual Report
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
18.
The preparation of the consolidated financial statements requires management to make estimates and
judgments in applying the Company’s accounting policies that affect the reported amounts and disclosures made
in the consolidated financial statements and accompanying notes.
Within the context of this MD&A, a judgment is a decision made by management in respect of the application of
an accounting policy, a recognized or unrecognized financial statement amount and/or note disclosure, following
an analysis of relevant information that may include estimates and assumptions. Estimates and assumptions are
used mainly in determining the measurement of balances recognized or disclosed in the consolidated financial
statements and are based on a set of underlying data that may include management’s historical experience,
knowledge of current events and conditions and other factors that are believed to be reasonable under the
circumstances. Management continually evaluates the estimates and judgments it uses.
The following are the accounting policies subject to judgments and key sources of estimation uncertainty that
the Company believes could have the most significant impact on the amounts recognized in the consolidated
financial statements.
Basis of Consolidation
Judgments Made in Relation to Accounting Policies Applied The Company uses judgment in determining the
entities that it controls and therefore consolidates. The Company controls an entity when the Company has the
existing rights that give it the current ability to direct the activities that significantly affect the entities’ returns.
The Company consolidates all of its wholly-owned subsidiaries. Judgment is applied in determining whether the
Company controls the entities in which it does not have ownership rights or does not have full ownership rights.
Most often, judgment involves reviewing contractual rights to determine if rights are participating (giving power
over the entity) or protective rights (protecting the Company’s interest without giving it power).
Inventories
Key sources of estimation Inventories are carried at the lower of cost and net realizable value which requires the
Company to utilize estimates related to fluctuations in shrink, future retail prices, the impact of vendor rebates
on cost, seasonality and costs necessary to sell the inventory.
Impairment of non-financial assets (goodwill, intangible assets, fixed assets and investment properties)
Judgments made in relation to accounting policies applied Management is required to use judgment in
determining the grouping of assets to identify their cash generating units (“CGU”) for the purposes of testing
fixed assets for impairment. Judgment is further required to determine appropriate groupings of CGUs for the
level at which goodwill and intangible assets are tested for impairment. Loblaw has determined that each
location is a separate CGU for purposes of fixed asset impairment testing. For the purpose of goodwill and
intangible assets impairment testing, CGUs are grouped at the lowest level at which goodwill and intangible
assets are monitored for internal management purposes. In addition, judgment is used to determine whether a
triggering event has occurred requiring an impairment test to be completed.
Key sources of estimation In determining the recoverable amount of a CGU or a group of CGUs, various
estimates are employed. The Company determines fair value less costs to sell using such estimates as market
rental rates for comparable properties, recoverable operating costs for leases with tenants, non-recoverable
operating costs, discount rates, capitalization rates and terminal capitalization rates. The Company determines
value in use by using estimates including projected future revenues, earnings and capital investment consistent
with strategic plans presented to GWL’s and Loblaw’s Boards. Discount rates are consistent with external industry
information reflecting the risk associated with the specific cash flows.
Franchise loans receivable and certain other financial assets
Judgments made in relation to accounting policies applied Management reviews franchise loans receivable,
trade receivables and certain other financial assets relating to Loblaw’s franchise business at each balance sheet
date utilizing judgment to determine whether a triggering event has occurred requiring an impairment test to
be completed.
George Weston Limited 2014 Annual Report 49
Management’s Discussion and Analysis
Key sources of estimation Management determines the initial fair value of Loblaw’s franchise loans and certain
other financial assets using discounted cash flow models. The process of determining these fair values requires
management to make estimates of a long term nature regarding discount rates, projected revenues and margins,
as applicable, derived from past experience, actual operating results, budgets and Loblaw’s five year forecast.
Loyalty Programs
Key Sources of Estimation Loblaw defers revenue equal to the fair value of the award points earned by loyalty
program members at the time of award. Loblaw determines fair value using estimates such as breakage (the
amount of points that will never be redeemed) and the estimated retail value per point on redemption. The
trends in breakage are reviewed on an ongoing basis and the estimated retail value per point is adjusted based
on expected future activity.
Income and other taxes
Judgments made in relation to accounting policies applied The calculation of current and deferred income taxes
requires management to make certain judgments regarding the tax rules in jurisdictions where the Company
performs activities. Application of judgments is required regarding the classification of transactions and in
assessing probable outcomes of claimed deductions including expectations about future operating results, the
timing and reversal of temporary differences and possible audits of income tax and other tax filings by the tax
authorities.
19.
ACCOUNTING STANDARDS IMPLEMENTED IN 2014 AND CHANGES TO SIGNIFICANT ACCOUNTING
POLICIES
The Company implemented the amendments to International Accounting Standards (“IAS”) 32, “Financial
Instruments: Presentation” and International Financial Reporting Interpretations Committee 21, “Levies”
retrospectively in 2014. There was no significant impacts on the Company’s consolidated financial statements as
a result of the implementation of these standards.
Vendor Allowances The timing of recognition of vendor allowances requires judgment to determine the point
at which Loblaw has earned the allowance. In conjunction with the acquisition of Shoppers Drug Mart,
management reviewed the timing of recognition of certain vendor allowances and has determined that it would
be appropriate to align the policies of both Loblaw and Shoppers Drug Mart. The Company implemented the
change retrospectively in 2014 with the following effect to the periods ended as indicated:
Consolidated Statement of Earnings
Increase (decrease)
($ millions except where otherwise indicated)
Operating income
Income taxes
Net earnings from continuing operations
Net earnings from continuing operations per common share ($)
Basic
Diluted
Consolidated Statement of Comprehensive Income
Increase (decrease)
($ millions)
Net earnings
Comprehensive income
12 Weeks Ended
Dec. 31, 2013
(18)
(5)
(13)
$
$
$
52 Weeks Ended
Dec. 31, 2013
(5)
(2)
(3)
$
$
$
$
$
(0.06)
(0.07)
$
$
(0.01)
(0.02)
12 Weeks Ended
Dec. 31, 2013
(13)
(13)
$
$
52 Weeks Ended
Dec. 31, 2013
(3)
(3)
$
$
50 George Weston Limited 2014 Annual Report
Consolidated Balance Sheets
Increase (decrease)
($ millions)
Accounts receivable
Inventories
Deferred income tax asset
Equity
As at
Dec. 31, 2013
(39)
13
8
(18)
$
$
$
$
$
$
$
$
Jan. 1, 2013
(32)
11
6
(15)
FUTURE ACCOUNTING STANDARDS
20.
In 2014, the International Accounting Standards Board (“IASB”) issued IFRS 15, “Revenue from Contracts with
Customers” (“IFRS 15”). The new standard provides a comprehensive framework for the recognition,
measurement and disclosure of revenue from contracts with customers, excluding contracts within the scope of
the accounting standards on leases, insurance contracts and financial instruments. IFRS 15 becomes effective for
annual periods beginning on or after January 1, 2017, and is to be applied retrospectively. Early adoption is
permitted. The Company is currently assessing the impact of the new standard on its consolidated financial
statements.
In 2014, the IASB issued IFRS 9, “Financial Instruments”, replacing IAS 39, “Financial Instruments: Recognition
and Measurement.” The standard had three main phases: classification and measurement, impairment, and
general hedging. The standard becomes effective for annual periods beginning on or after January 1, 2018 and is
to be applied retrospectively with the exception of the general hedging phase which is applied prospectively.
Early adoption is permitted. The Company is currently assessing the impact of the new standard on its
consolidated financial statements.
In 2014, the IASB issued amendments to IAS 1, “Presentation of Financial Statements” (“IAS 1 amendments”).
The IAS 1 amendments provide guidance on the application of judgment in the preparation of financial
statements and disclosures. The IAS 1 amendments are effective for annual periods beginning on or after
January 1, 2016. Early adoption is permitted. The Company is currently assessing the impact of the IAS 1
amendments on its consolidated financial statements.
OUTLOOK(3)
21.
This outlook reflects the underlying operating performance of the Company’s reportable operating segments as
discussed below.
Weston Foods expects a decline in adjusted operating income(1) in 2015 that is greater than that experienced in
2014 on an equivalent 52-week basis. Management remains committed to continuing to drive long term
financial performance in Weston Foods and expects to make capital investments of approximately $300 million
in targeted areas of growth as well as incremental investments in innovation and capabilities. The costs
associated with this level of capital and other investments as well as higher input costs will be partially offset by
pricing, volume growth and productivity. The decline in adjusted operating income(1) is expected to be greater in
the first half of the year.
Loblaw’s strategic framework is focused on delivering the best in food, best in health and beauty, operational
excellence and growth. This strategic framework is supported by a financial strategy of maintaining a stable
trading environment which targets positive same-store sales and stable gross margin; surfacing efficiencies;
delivering synergies as a result of its acquisition of Shoppers Drug Mart; and deleveraging the balance sheet.
On a full year comparative basis, reflecting 2014 financial results for Loblaw and Shoppers Drug Mart, in 2015
Loblaw expects to:
• maintain positive same-store sales and stable gross margin (excluding synergies) in its Retail segment;
• achieve net synergies as result of the acquisition of Shoppers Drug Mart approaching $200 million;
•
continue to drive net efficiencies across the core grocery business by achieving reductions in supply chain,
administrative functions and IT, while still investing in key areas, like eCommerce;
• grow adjusted operating income(1) in its core grocery business, excluding synergies;
George Weston Limited 2014 Annual Report 51
Management’s Discussion and Analysis
• experience a decline in adjusted operating income(1) in its core pharmacy business, excluding synergies, as a
result of investments in key projects and other factors;
• grow consolidated adjusted net earnings(1) (including synergies) relative to 2014, with adjusted basic net
earnings per common share(1) being moderated due to a significantly increased weighted average share
count;
target a capital expenditure program of approximately $1.2 billion; and
remain on track with its deleveraging targets, expecting to meet its target in the first quarter of 2016.
•
•
Loblaw’s expectations for 2015 also include the following:
•
competitive intensity expected to remain high, but relatively stable as industry square footage growth in
supermarket-type merchandise moderates; and
continued pressure in its pharmacy business from the ongoing impact of healthcare reform.
•
NON-GAAP FINANCIAL MEASURES
22.
The Company uses the following non-GAAP financial measures: EBITDA, adjusted EBITDA and adjusted EBITDA
margin, adjusted operating income and adjusted operating margin, adjusted basic net earnings per common
share from continuing operations, adjusted debt, adjusted debt to adjusted EBITDA and free cash flow. In
addition to these items, the Company has now detailed the following measures used by management in
calculating adjusted basic net earnings per common share from continuing operations: adjusted net interest
expense and other financing charges, adjusted income taxes, adjusted income tax rate and adjusted net earnings
available to common shareholders of the Company. The Company believes these non-GAAP financial measures
provide useful information to both management and investors in measuring the financial performance and
financial condition of the Company for the reasons outlined below.
Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and
income that must be recognized under GAAP when analyzing consolidated and segment underlying operating
performance. The excluded items are not necessarily reflective of the Company’s underlying operating
performance and make comparisons of underlying financial performance between periods difficult. From time to
time, the Company may exclude additional items if it believes doing so would result in a more effective analysis
of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.
During 2014, management made the following changes to the calculation of certain non-GAAP financial
measures when analyzing consolidated and segment underlying operating performance:
• equity-settled share-based compensation is no longer excluded as an adjusted item. As a result, prior year
non-GAAP financial measures including these items were restated to conform with the current year’s
presentation;
• net interest expense incurred in connection with the financing related to the acquisition of Shoppers Drug
Mart is no longer excluded as an adjusted item. These amounts were excluded in periods prior to the closing
of the acquisition of Shoppers Drug Mart; and
• Choice Properties’ general and administrative costs are no longer excluded in periods where these costs
were incurred in the comparative period. These costs continue to be excluded in periods where they were
not incurred in the comparative period in order to make comparisons of underlying financial information
more useful.
These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be
comparable to similarly titled measures presented by other publicly traded companies, and they should not be
construed as an alternative to other financial measures determined in accordance with GAAP.
52 George Weston Limited 2014 Annual Report
EBITDA, Adjusted EBITDA and Adjusted Operating Income The Company believes adjusted EBITDA is useful in
assessing the underlying operating performance of the Company’s ongoing operations and in assessing the
Company’s ability to generate cash flows to fund its cash requirements, including its capital investments program
and debt reduction objectives. The Company believes adjusted operating income is also useful in assessing the
Company’s underlying operating performance and in making decisions regarding the ongoing operations of its
business.
The following table reconciles EBITDA, adjusted EBITDA and adjusted operating income to operating income,
which is reconciled to GAAP net earnings from continuing operations attributable to shareholders of the
Company reported for the periods ended as indicated.
(unaudited)
($ millions)
Weston
Foods
Net earnings attributable to shareholders
of the Company
Add impact of the following:
Non-controlling interests
Income taxes
Net interest expense and other financing charges
$
$
$
Operating income
Depreciation and amortization
EBITDA
Operating income
Add (deduct) impact of the following:
Recognition of fair value increment on
inventory sold
Amortization of intangible assets acquired
with Shoppers Drug Mart
Shoppers Drug Mart acquisition costs and net
divestitures loss
Restructuring and other charges
Restructuring of franchise fees
Fixed asset and other related impairments
(recoveries)
Fair value adjustment of Shoppers Drug Mart’s
share-based compensation liability
Fair value adjustment of derivatives
MEPP withdrawal liability
Net insurance proceeds
Foreign currency translation gain
69
124
14
(40)
1
2
4
2
(7)
(12)
Quarters Ended
Dec. 31, 2014
(13 weeks)
Dec. 31, 2013(i)
(12 weeks)
Loblaw Other(ii) Consolidated
Weston
Foods
Loblaw Other(ii)
Consolidated
$
161
$
74 $ 505 $
17
91 $ 898 $
393
43 $
43 $
74 $ 505 $
43 $
622
$
$
$
40 $
16
56 $
294 $
196
490 $
42 $
42 $
40 $
294 $
42 $
135
95
231
622
410
1,032
69
124
14
2
(40)
1
2
(3)
(12)
(43)
736
286
7
32
(42)
3
4
5
$
52 $
291
177
42
51
106
376
212
588
376
7
35
(42)
4
5
(42)
343
211
554
Adjusted operating income
Depreciation and amortization excluding the
impact of the above adjustments(iii)
Adjusted EBITDA
$
57 $ 679
17
269
$
74 $ 948
(43)
$
$
1,022
$
67 $
15
196
487
(42)
$
$
(i) Certain 2013 figures have been amended. See Section 19, “Accounting Standards Implemented in 2014 and Changes to Significant
Accounting Policies” of this MD&A.
(ii) Represents the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and short term investments
held by foreign operations.
(iii) Depreciation and amortization for the calculation of adjusted EBITDA excludes $124 million (2013 – nil) of amortization of intangible
assets acquired with Shoppers Drug Mart at Loblaw, and in the fourth quarter of 2013, $1 million of accelerated depreciation
recorded as restructuring and other charges at Weston Foods.
George Weston Limited 2014 Annual Report 53
Management’s Discussion and Analysis
(unaudited)
($ millions)
Weston
Foods
Loblaw Other(ii) Consolidated
Weston
Foods
Loblaw Other(ii) Consolidated
Years Ended
Dec. 31, 2014
(53 weeks)
Dec. 31, 2013(i)
(52 weeks)
Net earnings from continuing operations
attributable to shareholders of the Company
Add impact of the following:
Non-controlling interests
Income taxes
Net interest expense and other financing charges
Operating income
Depreciation and amortization
EBITDA
$ 231 $
70
654 $
88 $
1,472
$ 301 $ 2,126 $
88 $
$
126
$
614
8
24
815
973
1,542
2,515
$ 238 $ 1,303 $
75 $
67
824
$ 305 $ 2,127 $
75 $
232
273
497
1,616
891
2,507
Operating income
$ 231 $
654 $
88 $
973
$ 238 $ 1,303 $
75 $
1,616
Add (deduct) impact of the following:
Recognition of fair value increment on
inventory sold
Amortization of intangible assets acquired
with Shoppers Drug Mart
Charge related to inventory measurement and
other conversion differences
Shoppers Drug Mart acquisition costs and net
divestitures loss
Restructuring and other charges
Restructuring of franchise fees
Fixed asset and other related impairments
(recoveries)
Choice Properties general and
administrative costs
Fair value adjustment of Shoppers Drug Mart’s
share-based compensation liability
Choice Properties start-up costs
Defined benefit plan amendments
Fair value adjustment of derivatives
MEPP settlement payment
MEPP withdrawal liability
Net insurance proceeds
Foreign currency translation gain
798
417
190
72
46
(40)
16
9
7
4
7
(4)
8
(1)
Adjusted operating income
Depreciation and amortization excluding the
impact of the above adjustments(iii)
Adjusted EBITDA
$ 241 $ 2,173
70
1,055
$ 311 $ 3,228
798
417
190
72
53
(40)
16
9
7
8
16
35
(32)
3
(51)
6
10
5
16
41
(32)
3
(51)
10
5
(88)
$
$
(1)
(88)
2,414
1,125
3,539
$ 259 $ 1,274
63
824
$ 322 $ 2,098
(75)
$
$
(75)
1,533
887
2,420
(i) Certain 2013 figures have been amended. See Section 19, “Accounting Standards Implemented in 2014 and Changes to Significant
Accounting Policies” of this MD&A.
(ii) Represents the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and short term investments
held by foreign operations.
(iii) Year-to-date depreciation and amortization for the calculation of adjusted EBITDA at Loblaw excludes $417 million (2013 – nil) of
amortization of intangible assets acquired with Shoppers Drug Mart, and in 2013, $4 million of accelerated depreciation recorded as
restructuring and other charges at Weston Foods.
54 George Weston Limited 2014 Annual Report
The following items impacted operating income in the fourth quarters of 2014 and 2013, and on a year-to-date
basis:
Recognition of the fair value increment on inventory sold In connection with the acquisition of Shoppers Drug
Mart, acquired assets and liabilities were recorded on the Company’s consolidated balance sheet at their fair
value. This resulted in a fair value adjustment to Shoppers Drug Mart inventory on the date of acquisition
representing the difference between inventory cost and its fair value. In the fourth quarter of 2014 and
year-to-date, $69 million (2013 – nil) and $798 million (2013 – nil), respectively, was recognized in gross profit
and operating income, representing the full amount of the fair value adjustment.
Amortization of intangible assets acquired with Shoppers Drug Mart The acquisition of Shoppers Drug Mart in
the second quarter of 2014 included approximately $6 billion of definite life intangible assets, which are being
amortized over their estimated useful lives. In the fourth quarter of 2014 and year-to-date, $124 million and
$417 million, respectively, of amortization was recognized in operating income. Loblaw expects to recognize
annual amortization of approximately $550 million associated with the acquired intangible assets over the next
ten years and decreasing thereafter.
Charge related to inventory measurement and other conversion differences for Loblaw’s corporate grocery
stores As of the end of 2014, Loblaw had completed the conversion of substantially all of its corporate grocery
locations and associated distribution centres to the new IT systems. The implementation of a perpetual inventory
system, combined with visibility to integrated costing information provided by the new IT systems, enabled
Loblaw to estimate the cost of inventory using a more precise system-generated average cost. This impact was
estimated to be a decrease of $190 million (2013 – nil) in the value of the inventory, which was recognized in
gross profit and operating income in 2014. Loblaw is undertaking the conversion of its remaining grocery
locations during 2015 and additional impacts may result.
Shoppers Drug Mart acquisition costs and net divestitures loss In the fourth quarter of 2014 and year-to-date,
Loblaw recognized a net loss of $14 million and $12 million, respectively, related to store divestitures required by
the Competition Bureau as a result of Loblaw’s acquisition of Shoppers Drug Mart. Further adjustments for
divestiture gains or losses will be made when the remaining three Shoppers Drug Mart stores are sold in the first
quarter of 2015. In connection with the acquisition of Shoppers Drug Mart, in the fourth quarter of 2014 and
year-to-date, Loblaw recorded nil (2013 – $7 million) and $60 million (2013 – $16 million), respectively, of
acquisition costs.
Restructuring and other charges The Company continuously evaluates strategic and cost reduction initiatives
related to its store infrastructure, manufacturing assets, distribution networks and administrative infrastructure
with the objective of ensuring a low cost operating structure. Restructuring activities related to these initiatives
are ongoing.
Restructuring of franchise fees In the fourth quarter of 2014 and year-to-date, Loblaw restructured its fee
arrangements with franchisees of certain franchise banners. As a result of this restructuring, Loblaw re-evaluated
the recoverable amount of franchise related financial instruments and recorded a reversal of previously recorded
impairment of $40 million (2013 – nil).
Fixed asset and other related impairments (recoveries) At each balance sheet date, the Company assesses and,
when required, records impairments and reversals of previous impairments related to the carrying value of its
fixed assets, investment properties and intangible assets. In the fourth quarter of 2014 and year-to-date, Loblaw
recorded a net charge of $1 million (2013 – net recoveries of $42 million) and $16 million (2013 – net recoveries
of $32 million), respectively, related to fixed assets and other related impairments.
Choice Properties general and administrative costs In 2014, Loblaw recorded incremental general and
administrative costs relating to Choice Properties of $9 million.
George Weston Limited 2014 Annual Report 55
Management’s Discussion and Analysis
Fair value adjustment of Shoppers Drug Mart’s share-based compensation liability In the second quarter of
2014, in conjunction with Loblaw’s acquisition of Shoppers Drug Mart, Loblaw converted certain Shoppers Drug
Mart cash-settled share-based compensation awards to cash-settled awards based on Loblaw’s common shares.
Loblaw is exposed to market price fluctuations in its common share price as these awards are settled in cash and
the associated liability is recorded at fair value each reporting date based on the market price of Loblaw’s
common shares. In the fourth quarter of 2014 and year-to-date, Loblaw recorded a loss of $2 million (2013 – nil)
and $7 million (2013 – nil), respectively. On November 10, 2014, Loblaw amended these awards so they are
settled in shares and accordingly exposure to market price fluctuations has been eliminated.
Choice Properties start-up costs In connection with the IPO of Choice Properties in the third quarter of 2013,
Loblaw incurred certain costs to facilitate the start-up of the new Trust. During 2013, Loblaw recorded $3 million
of Choice Properties start-up costs.
Fair value adjustment of derivatives The Company is exposed to commodity price and U.S. dollar exchange rate
fluctuations primarily as a result of purchases of certain raw materials, fuel and utilities. In accordance with the
Company’s commodity risk management policy, the Company enters into commodity and foreign currency
derivatives to reduce the impact of price fluctuations in forecasted raw material and fuel purchases over a
specified period of time. These derivatives are not acquired for trading or speculative purposes. Pursuant to the
Company’s derivative instruments accounting policy, certain changes in fair value, which include realized and
unrealized gains and losses related to future purchases of raw materials and fuel, are recorded in operating
income. In the fourth quarter of 2014 and year-to-date, Weston Foods recorded income of $7 million
(2013 – charge of $4 million) and $4 million (2013 – charge of $10 million), respectively, and Loblaw recorded
a charge of $4 million (2013 – nil), related to the fair value adjustment of commodity and foreign currency
derivatives. Despite the impact of accounting for these commodity and foreign currency derivatives on the
Company’s reported results, the derivatives have the economic impact of largely mitigating the associated risks
arising from price and exchange rate fluctuations in the underlying commodities.
Multi-employer pension plan settlement payment Weston Foods participates in a U.S. MEPP, providing pension
benefits to union employees pursuant to the provisions of one of its collective bargaining agreements. During
2014, Weston Foods made a settlement payment of $8 million (U.S. $7 million), which was recorded in selling,
general and administrative expenses in the Company’s consolidated statement of earnings. Weston Foods will
participate in the MEPP as a new employer as defined by the plan pursuant to its collective bargaining
agreement.
Multi-employer pension plan withdrawal liability In 2012, Weston Foods withdrew from one of the U.S. MEPPs
in which it participated. The Company recorded $5 million (U.S. $5 million) in the fourth quarter of 2013 in
selling, general and administrative expenses associated with its withdrawal liability.
Net insurance proceeds On August 31, 2014, a weather event in the U.S. caused significant damage to Weston
Foods inventories stored at a third-party warehouse. During the fourth quarter of 2014 and year-to-date, net
proceeds of $12 million (U.S. $11 million) and $1 million (U.S. $1 million), respectively, were received and
recorded in selling, general and administrative expenses. Additional losses or charges associated with this
inventory will be recorded as incurred and any additional proceeds will be recorded as they are received.
Defined benefit plan amendments In the first quarter of 2013, the Company announced amendments to certain
of its defined benefit plans impacting certain employees retiring after January 1, 2015. As a result, the Company
recorded a gain of $51 million related to these defined benefit plan amendments.
56 George Weston Limited 2014 Annual Report
Foreign currency translation gains and losses The Company’s consolidated financial statements are expressed
in Canadian dollars. A portion of the Company’s (excluding Loblaw’s) net assets are denominated in U.S. dollars
and as a result, the Company is exposed to foreign currency translation gains and losses. The impact of foreign
currency translation on a portion of the U.S. dollar denominated net assets, primarily cash and short term
investments held by foreign operations, is recorded in operating income. In the fourth quarter of 2014, a foreign
currency translation gain of $43 million (2013 – $42 million) was recorded in operating income as a result of the
appreciation of the U.S. dollar relative to the Canadian dollar. Year-to-date, a foreign currency translation gain of
$88 million (2013 – $75 million) was recorded in operating income as a result of the appreciation of the
U.S. dollar relative to the Canadian dollar.
Adjusted Net Interest Expense and Other Financing Charges The Company believes adjusted net interest
expense and other financing charges is useful in assessing the ongoing net financing costs of the Company.
The following table reconciles adjusted net interest expense and other financing charges to GAAP net interest
expense and other financing charges reported for the periods ended as indicated.
(unaudited)
($ millions)
Net interest expense and other financing charges
Less: Fair value adjustment of the forward sale
agreement for 9.6 million Loblaw
common shares
Accelerated amortization of deferred
financing costs
Shoppers Drug Mart net financing charges
Fair value adjustment of Trust Unit liability
Choice Properties IPO transaction costs
Early debt settlement costs
Adjusted net interest expense and other
financing charges
Quarters Ended
Years Ended
Dec. 31, 2014
(13 weeks)
Dec. 31, 2013
(12 weeks)
Dec. 31, 2014
(53 weeks)
Dec. 31, 2013
(52 weeks)
$
231
$
106
$
815
$
497
59
5
14
(34)
14
23
1
199
23
15
12
(1)
15
18
44
18
$
153
$
102
$
566
$
403
In addition to certain items described in the “EBITDA, Adjusted EBITDA and Adjusted Operating Income” section
above, the following items impacted net interest expense and other financing charges in the fourth quarters of
2014 and 2013, and on a year-to-date basis:
Fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares The fair value
adjustment of the forward sale agreement for 9.6 million Loblaw common shares is non-cash and is included in
net interest expense and other financing charges. The adjustment is determined by changes in the value of the
underlying Loblaw common shares. In the fourth quarter of 2014 and year-to-date, charges of $59 million
(2013 – income of $34 million) and $199 million (2013 – income of $1 million), respectively, were recorded in net
interest expense and other financing charges as a result of the changes in the market price of Loblaw common
shares. An increase (decrease) in the market price of Loblaw common shares results in a charge (income) to net
interest expense and other financing charges.
Accelerated amortization of deferred financing costs In the fourth quarter of 2014 and year-to-date, Loblaw
recorded a charge of $5 million and $23 million, respectively, related to the accelerated amortization of deferred
financing costs due to the repayment of $321 million and $2.3 billion year-to-date of Loblaw’s term loan facility.
Shoppers Drug Mart net financing charges In addition to the acquisition costs as described in the EBITDA,
Adjusted EBITDA and Adjusted Operating Income section above, during the fourth quarter of 2014 and
year-to-date, net charges of nil (2013 – $14 million) and $15 million (2013 – $15 million), respectively, were
incurred in connection with financing related to the acquisition of Shoppers Drug Mart.
George Weston Limited 2014 Annual Report 57
Management’s Discussion and Analysis
Fair value adjustment of Trust Unit liability The Company is exposed to market price fluctuations as a result
of the Choice Properties Trust Units held by unitholders other than the Company. These Trust Units are
presented as a liability on the Company’s consolidated balance sheets as they are redeemable for cash at the
option of the holder, subject to certain restrictions. This liability is recorded at fair value at each reporting
period based on the market price of Trust Units at the end of each period. In the fourth quarter of 2014
and year-to-date, the Company recorded a loss of $14 million (2013 – $23 million) and $12 million
(2013 – $18 million), respectively, in net interest expense and other financing charges related to the fair
value adjustment of the Trust Unit liability as a result of an increase in the market price of Trust Units. An
increase (decrease) in the market price of Trust Units results in a charge (income) to net interest expense and
other financing charges.
Choice Properties IPO transaction costs In addition to the start-up costs noted above, during the fourth quarter
of 2013 and year-to-date, transaction costs of $1 million and $44 million, respectively, were incurred related
directly to the IPO.
Early debt settlement costs During 2013, Loblaw settled its remaining U.S. $150 million USPP note and related
cross currency swap in advance of their May 29, 2015 maturity date. Loblaw incurred early-settlement costs
related to the prepayment of $18 million which were recorded in net interest expense and other financing
charges.
Adjusted Income Taxes and Adjusted Income Tax Rate The Company believes the adjusted income tax rate
applicable to adjusted earnings before taxes is useful in assessing the underlying operating performance of its
business.
The following table reconciles the effective income tax rate applicable to adjusted earnings before taxes to the
GAAP effective income tax rate applicable to earnings before taxes as reported for the periods ended as
indicated.
(unaudited)
($ million except where otherwise indicated)
Adjusted operating income(ii)
Adjusted net interest expense and other financing
charges(ii)
Adjusted earnings before taxes
Income taxes
Less: Tax impact of items excluded from adjusted
earnings before taxes(iii)
Adjusted income taxes
Effective income tax rate applicable to earnings
before taxes
Adjusted income tax rate applicable to adjusted
earnings before taxes
Quarters Ended
Years Ended
Dec. 31, 2014
(13 weeks)
Dec. 31, 2013(i)
(12 weeks)
Dec. 31, 2014
(53 weeks)
Dec. 31, 2013(i)
(52 weeks)
$
$
$
$
736
153
583
95
(60)
155
$
$
$
$
24.3%
26.6%
$
$
$
$
343
102
241
51
6
45
18.9%
18.7%
$
$
$
$
2,414
566
1,848
24
(457)
481
15.2%
26.0%
1,533
403
1,130
273
(12)
285
24.4%
25.2%
(i) Certain 2013 figures have been amended. See Section 19, “Accounting Standards Implemented in 2014 and Changes to Significant
Accounting Policies” of this MD&A.
(ii) See reconciliations of adjusted operating income and adjusted net interest expense and other financing charges above.
(iii) See the EBITDA, adjusted EBITDA and adjusted operating income table and the adjusted net interest expense and other financing
charges table above for a complete list of items excluded from adjusted earnings before taxes.
58 George Weston Limited 2014 Annual Report
Adjusted Basic Net Earnings per Common Share from Continuing Operations and Adjusted Net Earnings from
Continuing Operations The Company believes adjusted basic net earnings per common share from continuing
operations and adjusted net earnings from continuing operations are useful in assessing the Company’s
underlying operating performance and in making decisions regarding the ongoing operations of its business.
The following table reconciles adjusted basic net earnings per common share from continuing operations and
adjusted net earnings from continuing operations to GAAP basic net earnings per common share from continuing
operations reported for the periods ended as indicated.
Quarters Ended
Years Ended
Dec. 31, 2014
(13 weeks)
Dec. 31, 2013(i)
(12 weeks)
Dec. 31, 2014
(53 weeks)
Dec. 31, 2013(i)
(52 weeks)
$
1.18
$
1.31
$
0.64
$
4.47
(unaudited)
($)
Basic net earnings per common share from
continuing operations
Add (deduct) impact of the following(ii):
Fair value adjustment of the forward sale agreement
for 9.6 million Loblaw common shares
Recognition of fair value increment on inventory sold
Amortization of intangible assets acquired
with Shoppers Drug Mart
Charge related to inventory measurement and other
conversion differences
Shoppers Drug Mart acquisition costs and
net financing charges
Restructuring and other charges
Restructuring of franchise fees
Fixed asset and other related impairments
(recoveries)
Choice Properties general and administrative costs
Fair value adjustment of Shoppers Drug Mart’s
share-based compensation liability
Choice Properties start-up and IPO transaction costs
Defined benefit plan amendments
Fair value adjustment of derivatives
MEPP settlement payment
MEPP withdrawal liability
Net insurance proceeds
Fair value adjustment of Trust Unit liability
Accelerated amortization of deferred financing costs
Early debt settlement costs
Foreign currency translation gain
Adjusted basic net earnings per common share
from continuing operations
Weighted average common shares outstanding (millions)
Adjusted net earnings from continuing operations
attributable to shareholders of the Company
(millions of Canadian dollars)
Prescribed dividends on preferred shares in share
capital (millions of Canadian dollars)
Adjusted net earnings from continuing operations
available to common shareholders of the Company
(millions of Canadian dollars)
$
$
$
0.35
0.17
0.33
0.04
0.01
(0.11)
(0.03)
(0.06)
0.03
0.01
(0.34)
$
1.58
127.7
(0.21)
0.08
0.14
(0.14)
0.03
0.02
0.08
(0.33)
0.98
127.7
1.17
2.08
1.09
0.49
0.29
0.17
(0.11)
0.05
0.03
0.02
(0.01)
0.04
(0.01)
0.04
0.06
(0.69)
$
$
5.35
127.8
212
$
135
$
728
$
10
10
44
(0.01)
0.13
0.17
(0.11)
0.17
(0.18)
0.06
0.02
0.06
0.06
(0.59)
4.25
127.6
586
44
202
$
125
$
684
$
542
(i) Certain 2013 figures have been amended. See Section 19, “Accounting Standards Implemented in 2014 and Changes to Significant
Accounting Policies” of this MD&A.
(ii) Net of income taxes and non-controlling interests, as applicable.
George Weston Limited 2014 Annual Report 59
Management’s Discussion and Analysis
Adjusted Debt The Company believes adjusted debt is useful in assessing the amount of financial leverage
employed. The Company changed its definition of adjusted debt in the second quarter of 2014 to include capital
securities to better align with management’s definition for deleveraging purposes. In the table below, the
Company has presented adjusted debt as at March 28, 2014, the date of acquisition of Shoppers Drug Mart, as
this is the baseline for the Company’s debt reduction targets.
The following table reconciles adjusted debt, used in the adjusted debt to adjusted EBITDA ratio, to GAAP
measures reported as at the periods ended as indicated.
(unaudited)
($ millions)
Bank indebtedness
Short term debt
Long term debt due within one year
Long term debt
Trust Unit liability
Capital securities
Certain other liabilities
Fair value of financial derivatives related to the above debt
Total debt
Less: Independent securitization trusts in short term debt
Independent securitization trusts in long term debt
Trust Unit liability
Independent funding trusts
Guaranteed Investment Certificates
Adjusted debt
Dec. 31, 2014
162
1,101
420
12,306
494
225
28
(367)
14,369
605
750
494
498
634
11,388
$
$
$
As at
Mar. 28, 2014
295
1,070
902
12,327
487
224
39
(484)
14,860
605
750
487
469
443
12,106
$
$
$
$
$
$
Dec. 31, 2013
1,060
1,208
7,736
478
224
39
(524)
10,221
605
750
478
475
430
7,483
Free Cash Flow The Company believes free cash flow is useful in assessing the Company’s cash available for
additional financing and investing activities. The Company changed its definition of free cash flow in the fourth
quarter of 2014 to better align with management’s definition.
The following table reconciles free cash flow to GAAP measures reported for the periods ended as indicated.
(unaudited)
($ millions)
Cash flows from operating activities of
continuing operations
Less: Interest paid
Fixed asset purchases
Intangible asset additions
Free cash flow
$
$
Quarters Ended
Years Ended
Dec. 31, 2014
(13 weeks)
Dec. 31, 2013
(12 weeks)
Dec. 31, 2014
(53 weeks)
Dec. 31, 2013
(52 weeks)
1,090
$
139
405
42
504
$
813
117
341
$
355
$
2,851
604
1,124
90
1,033
$
$
1,738
466
976
12
284
ADDITIONAL INFORMATION
23.
Additional information about the Company, including its 2014 AIF and other disclosure documents, has been
filed electronically with the Canadian securities regulatory authorities in Canada through the System for
Electronic Document Analysis and Retrieval (SEDAR) and is available online at www.sedar.com.
This Annual Report includes selected information on Loblaw Companies Limited, a 46%-owned public reporting
company with shares trading on the TSX. For information regarding Loblaw, readers should also refer to the
materials filed by Loblaw with SEDAR from time to time. These filings are also available on Loblaw’s corporate
website at www.loblaw.ca.
Toronto, Canada
March 4, 2015
60 George Weston Limited 2014 Annual Report
Financial Results
Management’s Statement of Responsibility for Financial Reporting
Independent Auditors’ Report
Consolidated Financial Statements
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Nature and Description of the Reporting Entity
Significant Accounting Policies
Critical Accounting Estimates and Judgments
Future Accounting Standards
Acquisition of Shoppers Drug Mart Corporation
Net Interest Expense and Other Financing Charges
Income Taxes
Discontinued Operations
Basic and Diluted Net Earnings per Common Share from Continuing Operations
Cash and Cash Equivalents, Short Term Investments and Security Deposits
Credit Card Receivables
Inventories
Fixed Assets
Investment Properties
Intangible Assets
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Note 10.
Note 11. Accounts Receivable
Note 12.
Note 13.
Note 14. Assets Held for Sale
Note 15.
Note 16.
Note 17.
Note 18. Goodwill
Note 19.
Note 20. Other Assets
Provisions
Note 21.
Short Term Debt
Note 22.
Note 23.
Long Term Debt
Note 24. Other Liabilities
Note 25.
Note 26.
Note 27.
Note 28.
Note 29.
Note 30.
Note 31.
Note 32.
Note 33.
Note 34.
Note 35.
Note 36.
Note 37.
Note 38.
Interests in Other Entities
Three Year Summary
Glossary
Capital Securities
Share Capital
Loblaw Capital Transactions
Capital Management
Post-Employment and Other Long Term Employee Benefits
Share-Based Compensation
Employee Costs
Leases
Financial Instruments
Financial Risk Management
Contingent Liabilities
Financial Guarantees
Related Party Transactions
Segment Information
62
63
64
64
64
65
66
67
68
68
68
80
82
83
85
86
87
88
88
89
89
90
91
92
94
96
98
99
100
100
101
102
105
105
106
108
109
110
116
120
121
123
126
129
130
131
133
136
138
George Weston Limited 2014 Annual Report 61
Management’s Statement of Responsibility for Financial Reporting
The management of George Weston Limited is responsible for the preparation, presentation and integrity of the
accompanying consolidated financial statements, Management’s Discussion and Analysis and all other
information in the Annual Report. This responsibility includes the selection and consistent application of
appropriate accounting principles and methods in addition to making the judgments and estimates necessary to
prepare the consolidated financial statements in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board. It also includes ensuring that the financial information
presented elsewhere in the Annual Report is consistent with that in the consolidated financial statements.
Management is also responsible for providing reasonable assurance that assets are safeguarded and that
relevant and reliable financial information is produced. Management is required to design a system of internal
controls and is required to certify as to the design and operating effectiveness of internal controls over financial
reporting. Internal auditors, who are employees of the Company, review and evaluate internal controls on
management’s behalf. KPMG LLP, whose report follows, were appointed as independent auditors by a vote of the
Company’s shareholders to audit the consolidated financial statements.
The Board of Directors, acting through an Audit Committee comprised solely of directors who are independent,
is responsible for determining that management fulfills its responsibilities in the preparation of the consolidated
financial statements and the financial control of operations. The Audit Committee recommends the independent
auditors for appointment by the shareholders. The Audit Committee meets regularly with senior and financial
management, internal auditors and the independent auditors to discuss internal controls, auditing activities and
financial reporting matters. The independent auditors and internal auditors have unrestricted access to the Audit
Committee. These consolidated financial statements and Management’s Discussion and Analysis have been
approved by the Board of Directors for inclusion in the Annual Report based on the review and recommendation
of the Audit Committee.
[signed]
W. Galen Weston
Executive Chairman
March 4, 2015
Toronto, Canada
[signed]
Paviter S. Binning
President
[signed]
Richard Dufresne
Executive Vice President,
Chief Financial Officer
62 George Weston Limited 2014 Annual Report
Independent Auditors’ Report
To the Shareholders of George Weston Limited:
We have audited the accompanying consolidated financial statements of George Weston Limited, which
comprise the consolidated balance sheets as at December 31, 2014 and December 31, 2013, the consolidated
statements of earnings, comprehensive income, changes in equity and cash flows for the years then ended and
notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgment, including the assessment
of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of George Weston Limited as at December 31, 2014 and December 31, 2013, and its
consolidated financial performance and its consolidated cash flows for the years then ended in accordance with
International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
March 4, 2015
Toronto, Canada
George Weston Limited 2014 Annual Report 63
Consolidated Statements of Earnings
For the years ended December 31
(millions of Canadian dollars except where otherwise indicated)
Revenue
Operating Expenses
Cost of inventories sold (note 13)
Selling, general and administrative expenses
Operating Income
Net Interest Expense and Other Financing Charges (note 6)
Earnings Before Income Taxes
Income Taxes (note 7)
Net Earnings from Continuing Operations
Attributable to:
Shareholders of the Company
Non-Controlling Interests
Net Earnings from Continuing Operations
Discontinued Operations (note 8)
Net Earnings
Net Earnings per Common Share ($) - Basic
Continuing Operations (note 9)
Discontinued Operations
Net Earnings
Net Earnings per Common Share ($) - Diluted
Continuing Operations (note 9)
Discontinued Operations
Net Earnings
(1) Certain 2013 figures have been amended (see note 2).
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Comprehensive Income
For the years ended December 31
(millions of Canadian dollars)
Net earnings
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation adjustment (note 33)
Reclassification of gain on derecognized derivative instruments (note 33)
Items that will not be reclassified to profit or loss:
Net defined benefit plan actuarial (losses) gains (note 29)
Other comprehensive income
Comprehensive Income
Attributable to:
Shareholders of the Company
Non-Controlling Interests
Comprehensive Income
(1) Certain 2013 figures have been amended (see note 2).
See accompanying notes to the consolidated financial statements.
64 George Weston Limited 2014 Annual Report
2014
(53 weeks)
43,918
$
2013(1)
(52 weeks)
33,582
$
32,727
10,218
42,945
973
815
158
24
134
126
8
134
134
0.64
0.64
0.64
0.64
$
$
$
$
$
$
$
25,291
6,675
31,966
1,616
497
1,119
273
846
614
232
846
58
904
4.47
0.46
4.93
4.43
0.46
4.89
$
$
$
$
$
2014
(53 weeks)
134
$
2013(1)
(52 weeks)
904
$
75
(59)
16
150
151
(1)
150
$
44
(5)
254
293
1,197
880
317
1,197
$
Consolidated Balance Sheets
As at December 31
(millions of Canadian dollars)
ASSETS
Current Assets
Cash and cash equivalents (note 10)
Short term investments (note 10)
Accounts receivable (note 11)
Credit card receivables (note 12)
Inventories (note 13)
Income taxes recoverable
Prepaid expenses and other assets
Assets held for sale (note 14)
Total Current Assets
Fixed Assets (note 15)
Investment Properties (note 16)
Intangible Assets (note 17)
Goodwill (note 18)
Deferred Income Taxes (note 7)
Security Deposits (note 10)
Franchise Loans Receivable (note 33)
Other Assets (note 20)
Total Assets
LIABILITIES
Current Liabilities
Bank indebtedness (note 36)
Trade payables and other liabilities
Provisions (note 21)
Income taxes payable
Short term debt (note 22)
Long term debt due within one year (note 23)
Associate interest
Capital securities (note 25)
Total Current Liabilities
Provisions (note 21)
Long Term Debt (note 23)
Trust Unit Liability (note 33)
Deferred Income Taxes (note 7)
Other Liabilities (note 24)
Capital Securities (note 25)
Total Liabilities
EQUITY
Share Capital (note 26)
Contributed Surplus (notes 27 & 30)
Retained Earnings
Accumulated Other Comprehensive Income
Total Equity Attributable to Shareholders of the Company
Non-Controlling Interests
Total Equity
Total Liabilities and Equity
(1) Certain 2013 figures have been amended (see note 2).
Leases (note 32). Contingent liabilities (note 35). Financial guarantees (note 36).
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board
[signed]
W. Galen Weston
Director & Executive Chairman
2014
2013(1)
$
$
$
$
1,333
1,072
1,318
2,630
4,463
30
223
23
11,092
11,436
185
9,288
3,681
215
92
399
683
37,071
162
4,832
130
1,101
420
193
225
7,063
103
12,306
494
2,007
849
22,822
997
80
6,125
87
7,289
6,960
14,249
37,071
$
$
$
$
2,869
1,490
697
2,538
2,244
84
22
9,944
9,655
99
215
1,365
307
1,791
375
853
24,604
3,989
120
2
1,060
1,208
6,379
81
7,736
478
187
618
224
15,703
972
65
5,260
16
6,313
2,588
8,901
24,604
[signed]
Barbara G. Stymiest
Director
George Weston Limited 2014 Annual Report 65
Balance as at Dec. 31, 2013
Net earnings
Other comprehensive
(loss) income(2)(3)
Comprehensive income (loss)
Effect of share-based
compensation (notes 26 & 30)
Shares purchased for
cancellation (note 26)
Net effect of shares
held in trust (notes 26 & 30)
Loblaw capital transactions
(notes 27 & 30)
Dividends declared
Per common share ($)
– $1.675
Per preferred share ($)
– Series I – $1.45
– Series III – $1.30
– Series IV – $1.30
– Series V – $1.19
Balance as at Dec. 31, 2012
Net earnings
Other comprehensive
income (loss)(2)(3)
Comprehensive income (loss)
Effect of share-based
compensation (notes 26 & 30)
Shares purchased for
cancellation (note 26)
Net effect of shares held
in trust (notes 26 & 30)
Loblaw capital transactions
(notes 27 & 30)
Dividends declared
Per common share ($)
– $1.625
Per preferred share ($)
– Series I – $1.45
– Series III – $1.30
– Series IV – $1.30
– Series V – $1.19
Consolidated Statements of Changes in Equity
(millions of Canadian dollars except
where otherwise indicated)
Common
Shares
Preferred
Shares
Total
Share
Capital
Contributed
Surplus
Retained
Earnings(1)
Foreign
Currency
Translation
Adjustment
Total
Accumulated
Other
Comprehensive
Income
Non-
Controlling
Interests(1)
Total
Equity(1)
$ 155 $
817 $
972 $
65 $ 5,260 $
16
$
25
25
21
126
(46)
80
(29)
(7)
16 $ 2,588 $ 8,901
134
8
71
71
71
71
(9)
(1)
9
16
150
55
(29)
(7)
(6)
1,078
(214)
(13)
(10)
(10)
(10)
785
15
80 $ 6,125 $
87
$
4,554
5,626
(190)
(404)
(13)
(10)
(10)
(10)
5,198
4,373
87 $ 6,960 $14,249
Balance as at Dec. 31, 2014
25
$ 180 $
25
997 $
817 $
(1) Certain 2013 figures have been amended (see note 2).
(2) Other comprehensive income includes actuarial losses of $59 million, $46 million of which is presented above in retained earnings and $13 million in
non-controlling interests.
(3) Other comprehensive income includes foreign currency translation adjustment of $75 million, $71 million of which is presented above in accumulated
other comprehensive income and $4 million in non-controlling interests.
(millions of Canadian dollars except
where otherwise indicated)
Common
Shares
Preferred
Shares
Total
Share
Capital
Contributed
Surplus
Retained
Earnings(1)
Foreign
Currency
Translation
Adjustment
Cash
Flow
Hedges
Total
Accumulated
Other
Comprehensive
(Loss) Income
Non-
Controlling
Interests(1)
Total
Equity(1)
$ 136 $
817 $
953 $
28 $ 4,726 $
(28) $
4 $
20
(1)
20
(1)
672
168
840
(41)
(15)
(207)
48
(11)
(24) $ 2,374 $ 8,057
904
232
44
44
(4)
(4)
40
40
85
317
12
(17)
293
1,197
80
(42)
(15)
(28)
(13)
(10)
(10)
(10)
(306)
37
65 $ 5,260 $
16
$
(98)
(305)
(13)
(10)
(10)
(10)
(353)
(103)
16 $ 2,588 $ 8,901
Balance as at Dec. 31, 2013
19
$ 155 $
19
972 $
817 $
(1) Certain 2013 figures have been amended (see note 2).
(2) Other comprehensive income includes actuarial gains of $254 million, $168 million of which is presented above in retained earnings and $86 million
in non-controlling interests.
(3) Other comprehensive income includes reclassification of gain on derecognized derivative instruments of $5 million, $4 million of which is presented
above in accumulated other comprehensive income and $1 million non-controlling interests.
See accompanying notes to the consolidated financial statements.
66 George Weston Limited 2014 Annual Report
Consolidated Statements of Cash Flows
For the years ended December 31
(millions of Canadian dollars)
Operating Activities
Net earnings from continuing operations
Income taxes (note 7)
Net interest expense and other financing charges (note 6)
Depreciation and amortization
Recognition of fair value increment on inventory sold (note 13)
Charge related to inventory measurement and other
conversion differences (note 13)
Foreign currency translation gain (note 33)
Gain on defined benefit plan amendments (note 29)
Settlement of derivatives (note 33)
Change in credit card receivables (note 12)
Change in non-cash working capital
Income taxes paid
Interest received
Other
Cash Flows from Operating Activities of Continuing Operations
Investing Activities
Fixed asset purchases (note 15)
Change in short term investments
Acquisition of Shoppers Drug Mart Corporation, net of cash acquired (note 5)
Change in franchise investments and other receivables
Change in security deposits
Intangible asset additions (note 17)
Investment in a joint venture
Other
Cash Flows used in Investing Activities of Continuing Operations
Financing Activities
Change in bank indebtedness
Change in Associate interest
Change in short term debt (note 22)
Long term debt – Issued, net of financing charges (note 23)
– Retired (note 23)
Trust Units – Issued, net of financing charges (note 33)
Share capital – Issued (notes 26 & 30)
– Purchased and held in trust (note 26)
– Retired (note 26)
Loblaw share capital – Issued (notes 27 & 30)
– Purchased and held in trust (note 27)
– Retired (note 27)
Interest paid
Dividends – To common shareholders
– To preferred shareholders
– To minority shareholders
Contribution from non-controlling interests
Cash Flows from Financing Activities of Continuing Operations
Effect of foreign currency exchange rate changes on cash and cash equivalents
Cash Flows (used in) from Continuing Operations
Cash Flows from Discontinued Operations (note 8)
Change in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
$
(1) Certain 2013 figures have been amended (see note 2).
See accompanying notes to the consolidated financial statements.
2014
(53 weeks)
2013(1)
(52 weeks)
$
134
24
815
1,542
798
190
(88)
(92)
(319)
(317)
35
129
2,851
(1,124)
502
(6,619)
(25)
1,704
(90)
(6)
74
(5,584)
(133)
19
41
6,036
(3,536)
1
21
(11)
(29)
129
(178)
(604)
(267)
(52)
(273)
8
1,172
25
(1,536)
(1,536)
2,869
1,333
$
846
273
497
891
(75)
(51)
59
(233)
(245)
(271)
59
(12)
1,738
(976)
730
5
(1,435)
(12)
13
(1,675)
(259)
2,749
(871)
416
17
(15)
(42)
75
(46)
(73)
(466)
(203)
(44)
(96)
1,142
27
1,232
48
1,280
1,589
2,869
$
George Weston Limited 2014 Annual Report 67
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(millions of Canadian dollars except where otherwise indicated)
Note 1. Nature and Description of the Reporting Entity
George Weston Limited (“GWL” or the “Company”) is a Canadian public company incorporated in 1928, with its
registered office located at 22 St. Clair Avenue East, Toronto, Canada M4T 2S7. The Company’s parent is
Wittington Investments, Limited (“Wittington”).
The Company has two reportable operating segments, Loblaw Companies Limited (“Loblaw”) and Weston Foods,
and holds cash, short term investments and a direct investment in Choice Properties Real Estate Investment Trust
(“Choice Properties”). The Loblaw operating segment includes retail businesses, a bank and a real estate
company. Loblaw provides Canadians with grocery, pharmacy, health and beauty, apparel, general merchandise,
and financial products and services. The Weston Foods operating segment includes a leading fresh bakery
business in Canada and operates North American frozen and artisan bakery and biscuit manufacturing
businesses.
As at year end 2014, GWL and Loblaw held effective interests in Choice Properties of 5.4% (2013 – 5.4%) and
82.9% (2013 – 82.2%), respectively.
During 2014, Loblaw completed the acquisition of Shoppers Drug Mart Corporation (“Shoppers Drug Mart”)
(see note 5) and as a result GWL’s ownership interest in Loblaw decreased from approximately 63% to
approximately 46%. The Company continues to have the ability to direct the activities of Loblaw after the
Shoppers Drug Mart acquisition and consequently continues to consolidate Loblaw.
Note 2. Significant Accounting Policies
Statement of Compliance The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS” or “GAAP”) as issued by the International Accounting
Standards Board (“IASB”) and using the accounting policies described herein.
These consolidated financial statements were authorized for issuance by the Company’s Board of Directors
(“Board”) on March 4, 2015.
Basis of Preparation The consolidated financial statements were prepared on a historical cost basis except for
the following items that were measured at fair value:
• amounts recognized for equity-settled and cash-settled share-based compensation arrangements as
described in note 30;
• defined benefit plan assets with the obligations related to these pension plans measured at their discounted
present value as described in note 29; and
certain financial instruments as described in note 33.
•
The significant accounting policies set out below have been applied consistently in the preparation of the
consolidated financial statements for all periods presented.
The consolidated financial statements are presented in Canadian dollars.
Fiscal Year The Company’s year end is December 31. Activities are reported on a fiscal year ending on the
Saturday closest to December 31.
As a result, the Company’s fiscal year is usually 52 weeks in duration but includes a 53rd week every five to six
years. The years ended December 31, 2014 and December 31, 2013 contained 53 weeks and 52 weeks,
respectively.
68 George Weston Limited 2014 Annual Report
Basis of Consolidation The consolidated financial statements include the accounts of GWL and other entities
that the Company controls. Control exists when the Company has the existing rights that give it the current
ability to direct the activities that significantly affect the entities’ returns. The Company assesses control on an
ongoing basis. The Company’s interest in the voting share capital of its subsidiaries is 100% except for Loblaw,
which is approximately 46% (December 31, 2013 – 63%). GWL’s ownership in Loblaw is impacted by changes in
Loblaw’s common share equity.
Structured entities are entities controlled by the Company which were designed so that voting or similar rights
are not the dominant factor in deciding who controls the entity. Structured entities are consolidated if, based on
an evaluation of the substance of its relationship with the Company, the Company concludes that it controls the
structured entity. Structured entities controlled by the Company were established under terms that impose strict
limitations on the decision-making powers of the structured entities’ management and that results in the
Company receiving the majority of the benefits related to the structured entities’ operations and net assets,
being exposed to the majority of risks incident to the structured entities’ activities, and retaining the majority of
the residual or ownership risks related to the structured entities or their assets.
Transactions and balances between the Company and its consolidated entities have been eliminated on
consolidation.
Non-controlling interests are recorded in the consolidated financial statements and represent the
non-controlling shareholders’ portion of the net assets and net earnings of Loblaw. Transactions with
non-controlling interests are treated as transactions with equity owners of the Company. Changes in GWL’s
ownership interest in its subsidiaries are accounted for as equity transactions.
Choice Properties’ Trust Units held by unitholders other than the Company are presented as a liability as the
Trust Units are redeemable for cash at the option of the holder, subject to certain restrictions.
Loblaw consolidates the Shoppers Drug Mart licensees (“Associates”). An Associate is a pharmacist-owner of a
corporation that is licensed to operate a retail drug store at a specific location using Shoppers Drug Mart’s
trademarks. The consolidation of the Associates is based on the concept of control, for accounting purposes,
which was determined to exist primarily through Shoppers Drug Mart’s agreements that govern the relationship
between Shoppers Drug Mart and the Associates (“Associate Agreements”). Loblaw does not have any direct or
indirect shareholdings in the corporations that operate the Associates. Associate interest reflects the investment
the Associates have in the net assets of their businesses. Under the terms of the Associate Agreements,
Shoppers Drug Mart agrees to purchase the assets that the Associates use in store operations, primarily at the
carrying value to the Associate, when Associate Agreements are terminated by either party.
Business Combinations Business combinations are accounted for using the acquisition method as of the date
when control is transferred to the Company. The Company measures goodwill as the excess of the sum of the fair
value of the consideration transferred over the net identifiable assets acquired and liabilities assumed, all
measured as at the acquisition date. Transaction costs that the Company incurs in connection with a business
combination, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Net Earnings per Common Share (“EPS”) Basic EPS is calculated by dividing the net earnings available to
common shareholders by the weighted average number of common shares outstanding during the period.
Diluted EPS is calculated by adjusting the net earnings available to common shareholders and the weighted
average number of common shares outstanding for the effects of all potential dilutive instruments.
Revenue Recognition The Company recognizes revenue when the amount can be reliably measured, when it is
probable that future economic benefits will flow to the Company and when specific criteria have been met as
described below.
Weston Foods recognizes sales upon delivery of its products to customers and acceptance of its products by
customers net of provisions for returns, discounts and allowances.
George Weston Limited 2014 Annual Report 69
Notes to the Consolidated Financial Statements
Loblaw Retail revenue includes sale of goods and services to customers through corporate stores and
Associates, and sales to franchised stores, and independent account customers. Revenue is measured at the fair
value of the consideration received or receivable, net of estimated returns and sales incentives. Loblaw
recognizes revenue at the time the sale is made or service is delivered to its customers and at the time of
delivery of inventory to its franchised stores. Revenue also includes service fees from franchised stores, and
independent account customers, which are recognized when services are rendered.
Customer Loyalty Awards Loblaw customer loyalty awards are accounted for as a separate component of the
sales transaction in which they are granted. A portion of the consideration received in a transaction that includes
the issuance of an award is deferred until the awards are ultimately redeemed. The allocation of the
consideration to the award is based on an evaluation of the award’s estimated fair value at the date of the
transaction using the residual fair value method.
On the initial sale of franchising arrangements, Loblaw offers products and services as part of a multiple
deliverable arrangement, which is recorded using a relative fair value approach.
Financial Services revenue includes interest income on credit card loans, service fees and other revenue related
to financial services. Interest income is recognized using the effective interest method. Service fees are
recognized when services are rendered. Other revenue is recognized periodically or according to contractual
provisions.
Choice Properties revenue includes rental revenue on base rents earned from tenants under lease agreements,
realty tax and operating cost recoveries and other incidental income, including intersegment revenue earned
from Loblaw’s Retail segment. The rental revenue is recognized on a straight-line basis over the terms of the
respective leases. Property tax and operating cost recoveries are recognized in the period that recoverable costs
are chargeable to tenants. Percentage participation rents are recognized when tenants’ specified sales targets
have been met as set out in the lease agreements.
Income Taxes Current and deferred taxes are recognized in the consolidated statements of earnings, except
when it relates to a business combination, or items recognized in equity or in other comprehensive income
(loss).
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is recognized using the asset and liability method of accounting on temporary differences arising
between the financial statement carrying values of existing assets and liabilities and their respective income tax
bases. Deferred tax is measured using enacted or substantively enacted income tax rates expected to apply in
the years in which those temporary differences are expected to be recovered or settled. A deferred tax asset is
recognized for unused tax losses and credits to the extent that it is probable that future taxable profits will be
available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets and they relate to income taxes levied by the same taxation authority on the same taxable entity, or
on different taxable entities where the Company intends to settle its current tax assets and liabilities on a net
basis.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the
timing of the reversal of the temporary difference is controlled by the Company and it is probable that the
temporary difference will not reverse in the foreseeable future.
70 George Weston Limited 2014 Annual Report
Choice Properties qualifies as a “mutual fund trust” under the Income Tax Act (Canada). The Trustees intend to
distribute all taxable income directly earned by Choice Properties to unitholders and to deduct such distributions
for income tax purposes. Legislation relating to the federal income taxation of Specified Investment Flow
Through trusts or partnerships (“SIFT”) provide that certain distributions from a SIFT will not be deductible in
computing the SIFT’s taxable income and that the SIFT will be subject to tax on such distributions at a rate that is
substantially equivalent to the general tax rate applicable to Canadian corporations. However, distributions paid
by a SIFT as return of capital should generally not be subject to tax.
Under the SIFT rules, the taxation regime will not apply to a real estate investment trust (“REIT”) that meets
prescribed conditions relating to the nature of its assets and revenue (the “REIT Conditions”). Choice Properties
has reviewed the SIFT rules and has assessed its interpretation and application to the REIT’s assets and revenue.
While there are uncertainties in the interpretation and application of the SIFT rules, Choice Properties has
determined that it meets the REIT Conditions.
Cash Equivalents Cash equivalents consist of highly liquid marketable investments with an original maturity date
of 90 days or less from the date of acquisition.
Short Term Investments Short term investments consist of marketable investments with an original maturity
date greater than 90 days and less than 365 days from the date of acquisition.
Security Deposits Security deposits consist of cash and cash equivalents and short term investments. Security
deposits also include amounts which are required to be placed with counterparties as collateral to enter into and
maintain certain outstanding letters of credit and certain financial derivative contracts.
Accounts Receivable Accounts receivable consist mainly of receivables from Loblaw’s vendors, independent
franchisees, government, prescription sales and third-party drug plans, independent accounts and receivables
from Weston Foods customers and suppliers, and are recorded net of allowances.
Credit Card Receivables Loblaw, through President’s Choice Bank (“PC Bank”), a wholly-owned subsidiary of
Loblaw, has credit card receivables that are stated net of an allowance. Interest income is recorded in revenue
and interest expense is recorded in net interest expense and other financing charges using the effective interest
method. The effective interest rate is the rate that discounts the estimated future cash receipts through the
expected life of the credit card receivable (or, where appropriate, a shorter period) to the carrying amount.
When calculating the effective interest rate, Loblaw estimates future cash flows considering all contractual terms
of the financial instrument, but not future credit losses.
Periodically, PC Bank transfers credit card receivables by selling them to and repurchasing them from
independent securitization trusts. PC Bank is required to absorb a portion of the related credit losses. As a result,
Loblaw has not transferred all of the risks and rewards related to these assets and continues to recognize these
assets in credit card receivables. The transferred receivables are accounted for as financing transactions. The
Company consolidates Eagle Credit Card Trust ® (“Eagle”), one of the independent securitization trusts, as a
structured entity. The associated liabilities secured by these assets are included in either short term debt or long
term debt based on their characteristics and are carried at amortized cost.
Credit card receivables are considered past due when a cardholder has not made a payment by the contractual
due date, taking into account a grace period. The amount of credit card receivables that fall within the grace
period is considered current. Credit card receivables past due but not impaired are those receivables that are
either less than 90 days past due or whose past due status is reasonably expected to be remedied. Any credit
card receivables with a payment that is contractually 180 days in arrears, or where the likelihood of collection is
considered remote, is written off.
George Weston Limited 2014 Annual Report 71
Notes to the Consolidated Financial Statements
Franchise Loans Receivable Franchise loans receivable are comprised of amounts due from independent
franchisees for loans issued through a consolidated independent funding trust. Each independent franchisee
provides security to the independent funding trust for its obligations by way of a general security agreement. In
the event that an independent franchisee defaults on its loan and Loblaw has not, within a specified time period,
assumed the loan or the default is not otherwise remedied, the independent funding trust would assign the loan
to Loblaw and draw upon a standby letter of credit. Loblaw has agreed to reimburse the issuing bank for any
amount drawn on the standby letter of credit. The carrying amount of franchise loan receivables approximates
fair value.
Inventories The Company values inventories at the lower of cost and net realizable value. Cost includes the costs
of purchases net of vendor allowances plus other costs, such as transportation, that are directly incurred to bring
inventories to their present location and condition. Loblaw’s retail store inventories, Loblaw’s inventories at
distribution centres and Weston Foods inventories are measured at weighted average cost. Shoppers Drug
Mart’s inventories are measured on a first-in first-out basis.
Loblaw estimates net realizable value as the amount that inventories are expected to be sold taking into
consideration fluctuations in retail prices due to seasonality less estimated costs necessary to make the sale.
Inventories are written down to net realizable value when the cost of inventories is estimated to be
unrecoverable due to obsolescence, damage or declining selling prices. When circumstances that previously
caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase
in selling prices, the amount of the write-down previously recorded is reversed. Storage costs, indirect
administrative overhead and certain selling costs related to inventories are expensed in the period that these
costs are incurred.
Vendor Allowances The Company receives allowances from certain of its vendors whose products it purchases.
These allowances are received for a variety of buying and/or merchandising activities, including vendor programs
such as volume purchase allowances, purchase discounts, listing fees and exclusivity allowances. Allowances
received from a vendor are reduced in the cost of the vendor’s products or services and are recognized as a
reduction in the cost of inventories sold and the related inventory in the consolidated statements of earnings
and the consolidated balance sheets, respectively, when it is probable that they will be received and the amount
of the allowance can be reliably estimated. Amounts received but not yet earned are presented in other
liabilities as deferred vendor allowances. Certain exceptions apply if the consideration is a payment for assets or
services delivered to the vendor or for reimbursement of selling costs incurred to promote the vendor’s
products. The consideration is then recognized as a reduction of the cost incurred in the consolidated statements
of earnings.
Fixed Assets Fixed assets are recognized and subsequently measured at cost less accumulated depreciation and
any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition
of the asset, including costs incurred to prepare the asset for its intended use and capitalized borrowing costs.
The commencement date for capitalization of costs occurs when the Company first incurs expenditures for the
qualifying assets and undertakes the required activities to prepare the assets for their intended use.
Borrowing costs directly attributable to the acquisition, construction or production of fixed assets, that
necessarily take a substantial period of time to prepare for their intended use and a proportionate share of
general borrowings, are capitalized to the cost of those fixed assets, based on a quarterly weighted average cost
of borrowing. All other borrowing costs are expensed as incurred and recognized in net interest expense and
other financing charges.
The cost of replacing a fixed asset component is recognized in the carrying amount if it is probable that the
future economic benefits embodied within the component will flow to the Company and the cost can be
measured reliably. The carrying amount of the replaced component is derecognized. The cost of repairs and
maintenance of fixed assets are expensed as incurred and recognized in operating income.
Gains and losses on disposal of fixed assets are determined by comparing the fair value of proceeds from
disposal with the net book value of the assets and are recognized net in operating income.
72 George Weston Limited 2014 Annual Report
Fixed assets are depreciated on a straight-line basis over their estimated useful lives to their estimated residual
value when the assets are available for use. When significant parts of a fixed asset have different useful lives,
they are accounted for as separate components and depreciated separately. Depreciation methods, useful lives
and residual values are reviewed at each year end and are adjusted for prospectively, if appropriate. Estimated
useful lives are as follows:
Buildings
Equipment and fixtures
Building improvements
Leasehold improvements
Assets held under financing leases
10 to 40 years
2 to 20 years
up to 10 years
Lesser of term of the lease and useful life up to 25 years
Lesser of term of the lease(1) and useful life(2)
(1)
If it is reasonably certain that the Company will obtain ownership by the end of the lease term, assets under finance leases would be
depreciated over the life of the asset.
(2) Same basis as owned assets.
Non-current assets are classified as assets held for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. To qualify as assets held for sale, the sale must be
highly probable, assets must be available for immediate sale in their present condition and management must be
committed to a plan to sell assets that should be expected to close within one year from the date of
classification. Assets held for sale are recognized at the lower of their carrying amount and fair value less costs to
sell and are not depreciated.
Fixed assets are reviewed at each balance sheet date to determine whether there is any indication of
impairment. Refer to the Impairment of Non-Financial Assets policy.
Investment Properties Investment properties are properties owned by Loblaw that are held to either earn rental
income, for capital appreciation, or both. Loblaw’s investment properties include single tenant properties held to
earn rental income and certain multiple tenant properties. Land and buildings leased to franchisees are not
accounted for as investment properties as these properties are related to Loblaw’s operating activities.
Investment property assets are recognized at cost less accumulated depreciation and any accumulated
impairment losses. The depreciation policies for investment properties are consistent with those described in the
significant accounting policy for fixed assets.
Investment properties are reviewed at each balance sheet date to determine whether there is any indication of
impairment. Refer to the Impairment of Non-Financial Assets policy.
Joint Ventures A joint venture is a joint arrangement whereby the parties to the arrangement have rights to the
net assets of the joint arrangement. Investments in joint ventures are accounted for using the equity method,
where the investment is initially recognized in the consolidated balance sheet at cost and adjusted thereafter to
recognize the Company’s share of the profit or loss and other comprehensive income of the joint venture.
Goodwill Goodwill arising in a business combination is recognized as an asset at the date that control is
acquired. Goodwill is subsequently measured at cost less accumulated impairment losses. Goodwill is not
amortized but is tested for impairment on an annual basis or more frequently if there are indicators that
goodwill may be impaired as described in the Impairment of Non-Financial Assets policy.
Intangible Assets Intangible assets with finite lives are measured at cost less accumulated amortization and any
accumulated impairment losses. These intangible assets are amortized on a straight-line basis over their
estimated useful lives, ranging from three to 30 years, and are tested for impairment as described in the
Impairment of Non-Financial Assets policy. Useful lives, residual values and amortization methods for intangible
assets with finite useful lives are reviewed at least annually.
Indefinite life intangible assets are measured at cost less any accumulated impairment losses. These intangible
assets are tested for impairment on an annual basis or more frequently if there are indicators that intangible
assets may be impaired as described in the Impairment of Non-Financial Assets policy.
George Weston Limited 2014 Annual Report 73
Notes to the Consolidated Financial Statements
Impairment of Non-Financial Assets At each balance sheet date, the Company reviews the carrying amounts of
its non-financial assets, other than inventories and deferred tax assets, to determine whether there is any
indication of impairment. If any such indication exists, the asset is then tested for impairment by comparing its
recoverable amount to its carrying value. Goodwill and indefinite life intangible assets are tested for impairment
at least annually.
For the purpose of impairment testing, assets are grouped together into the smallest group of assets that
generate cash inflows from continuing use that are largely independent of cash inflows of other assets or groups
of assets. This grouping is referred to as a cash generating unit (“CGU”). Weston Foods’ manufacturing assets are
grouped together at the level of production categories which are capable of servicing their customers
independently of other production categories. Loblaw has determined that each location is a separate CGU for
purposes of impairment testing.
Corporate assets, which include head office facilities and distribution centers, do not generate separate cash
inflows. Corporate assets are tested for impairment at the minimum grouping of CGUs to which the corporate
assets can be reasonably and consistently allocated. Goodwill arising from a business combination is tested for
impairment at the minimum grouping of CGUs that are expected to benefit from the synergies of the
combination.
The recoverable amount of a CGU or CGU grouping is the higher of its value in use and its fair value less costs to
sell. Value in use is based on the estimated future cash flows from the CGU or CGU grouping, discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the CGU or CGU grouping. The fair value less costs to sell is based on the best
information available to reflect the amount that could be obtained from the disposal of the CGU or CGU group in
an arm’s length transaction between knowledgeable and willing parties, net of estimates of the costs of disposal.
An impairment loss is recognized if the carrying amount of a CGU or CGU grouping exceeds its recoverable
amount. For asset impairments other than goodwill, the impairment loss reduces the carrying amounts of the
non-financial assets in the CGU on a pro-rata basis. Any loss identified from goodwill impairment testing is first
applied to reduce the carrying amount of goodwill allocated to the CGU grouping, and then to reduce the
carrying amounts of the other non-financial assets in the CGU or CGU grouping on a pro-rata basis. Impairment
losses are recognized in operating income.
For assets other than goodwill, an impairment loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortization, if no impairment loss had been recognized. An impairment loss in respect of goodwill is not
reversed.
Bank Indebtedness Bank indebtedness is comprised of Loblaw’s Associate bank lines of credit.
Provisions Provisions are recognized when there is a present legal or constructive obligation as a result of a past
event, it is probable that the Company will be required to settle the obligation and a reliable estimate of the
amount of the obligation can be made. The amount recognized as a provision is the present value of the best
estimate of the consideration required to settle the present obligation at the end of the reporting period, taking
into account the risks and uncertainties specific to the obligation. The unwinding of the discount rate for the
passage of time is recognized in net interest expense and other financing charges.
74 George Weston Limited 2014 Annual Report
Financial Instruments and Derivative Financial Instruments Financial assets and liabilities are recognized when
the Company becomes party to the contractual provisions of the financial instrument. Financial instruments,
including derivatives and embedded derivatives in certain contracts, upon initial recognition are measured at
fair value and classified as either financial assets or financial liabilities at fair value through profit or loss,
held-to-maturity investments, loans and receivables or other financial liabilities. Loans and receivables and
other financial liabilities are subsequently measured at cost or amortized cost. Derivatives and non-financial
derivatives must be recorded at fair value on the consolidated balance sheets. Fair values are based on quoted
market prices where available from active markets, otherwise fair values are estimated using valuation
methodologies, primarily discounted cash flows taking into account external market inputs where possible.
Financial derivative instruments in the form of cross currency swaps, interest rate swaps, foreign exchange
forwards and futures and equity forwards, as well as non-financial derivatives in the form of futures contracts,
options contracts and forward contracts, are recorded at fair value on the consolidated balance sheets. The
Company does not use derivative instruments for speculative purposes. Any embedded derivative instruments
that may be identified are separated from their host contract and recorded on the consolidated balance sheets
at fair value. Derivative instruments are recorded in current or non-current assets and liabilities based on their
remaining terms to maturity. All changes in fair values of the derivative instruments are recorded in net earnings
unless the derivative qualifies and is effective as a hedging instrument in a designated hedging relationship.
Certain non-financial derivative instruments that were entered into and continue to be held for the purpose of
the receipt or delivery of a non-financial item in accordance with the Company’s expected purchase, sale or
usage requirements are exempt from financial instrument accounting requirements (“own use exemption”). No
amounts are recorded in the consolidated financial statements related to these contracts until the associated
non-financial items are received by the Company.
Classification The following table summarizes the classification and measurement of the Company’s financial
assets and liabilities:
Asset/Liability
Cash and cash equivalents
Short term investments
Accounts receivable
Credit card receivables
Security deposits
Franchise loans receivable
Certain other assets
Bank indebtedness
Trade payables and other liabilities
Short term debt
Long term debt
Trust Unit liability
Certain other liabilities
Capital securities
Derivatives
Classification
Fair value through profit and loss(1)
Fair value through profit and loss(1)
Loans and receivables
Loans and receivables
Fair value through profit and loss(1)
Loans and receivables
Loans and receivables
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Fair value through profit and loss(2)
Other liabilities
Other liabilities
Fair value through profit and loss(2)
Measurement
Fair value
Fair value
Amortized cost
Amortized cost
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Amortized cost
Amortized cost
Fair value
(1) Financial instruments designated at fair value through profit and loss.
(2) Financial instruments required to be classified at fair value through profit and loss.
The Company has not classified any financial assets as held-to-maturity.
George Weston Limited 2014 Annual Report 75
Notes to the Consolidated Financial Statements
Fair Value The Company measures financial assets and liabilities under the following fair value hierarchy. The
different levels have been defined as follows:
• Fair Value Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Fair Value Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Fair Value Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
Determination of fair value and the resulting hierarchy requires the use of observable market data whenever
available. The classification of a financial instrument in the hierarchy is based upon the lowest level of input that
is significant to the measurement of fair value.
Transaction costs other than those related to financial instruments classified as fair value through profit or loss,
which are expensed as incurred, are capitalized to the carrying amount of the instrument and amortized using
the effective interest method.
Gains and losses on fair value through profit or loss financial assets and financial liabilities are recognized in
earnings before income taxes in the period in which they are incurred. Settlement date accounting is used to
account for the purchase and sale of financial assets. Gains or losses between the trade date and settlement
date on fair value through profit or loss financial assets are recorded in earnings before income taxes.
Valuation Process The determination of the fair value of financial instruments is performed by the Company’s
treasury and financial reporting departments on a quarterly basis. There was no change in the valuation
techniques applied to financial instruments during 2014. The following table describes the valuation techniques
used in the determination of the fair values of financial instruments:
Type
Valuation Approach
Cash and Cash Equivalents, Short Term
Investments, Security Deposits, Accounts
Receivable, Credit Card Receivables, Bank
Indebtedness, Trade Payables and Other Liabilities
and Short Term Debt
Franchise Loans Receivable
Derivatives
Long Term Debt, Trust Unit Liability, Capital
Securities and certain Other Financial Instruments
The carrying amount approximates fair value due to the short term
maturity of these instruments.
The carrying amount approximates fair value as fluctuations in the
forward interest rates would not have significant impacts on the
valuation and the provisions recorded for all impaired receivables.
Specific valuation techniques used to value derivative financial
instruments include:
Quoted market prices or dealer quotes for similar instruments;
The fair value of interest rate swaps is calculated as the present
value of the estimated future cash flows based on observable
yield curves; and
The fair value of other derivative instruments are determined
based on observable market information as well as valuations
determined by external valuators with experience in the financial
markets.
The fair value is based on the present value of contractual cash flows,
discounted at the Company’s current incremental borrowing rate for
similar types of borrowing arrangements or, where applicable, quoted
market prices.
Derecognition of Financial Instruments Financial assets are derecognized when the contractual rights to receive
cash flows and benefits from the financial asset expire, or if the Company transfers the control or substantially all
the risks and rewards of ownership of the financial asset to another party. The difference between the carrying
amount of the financial asset and the sum of the consideration received and receivable is recognized in earnings
before income taxes.
76 George Weston Limited 2014 Annual Report
Financial liabilities are derecognized when obligations under the contract expire, are discharged or cancelled.
The difference between the carrying amount of the financial liability derecognized and the consideration paid
and payable is recognized in earnings before income taxes.
Impairment of Financial Assets An assessment of whether there is objective evidence that a financial asset or a
group of financial assets is impaired is performed at each balance sheet date. A financial asset or group of
financial assets is considered to be impaired if one or more loss events that have an impact on the estimated
future cash flows occur after their initial recognition and the loss can be reliably measured. If such objective
evidence has occurred, the loss is based on the difference between the carrying amount of the financial asset, or
portfolio of financial assets, and the respective estimated future cash flows discounted at the financial assets’
original effective interest rate. Impairment losses are recorded in the consolidated statements of earnings with
the carrying amount of the financial asset or group of financial assets reduced through the use of impairment
allowance accounts.
In periods subsequent to the impairment where the impairment loss has decreased, and such decrease can be
related objectively to an event occurring after the impairment was initially recognized, the previously recognized
impairment loss is reversed through the consolidated statements of earnings. The impairment reversal is limited
to the lesser of the decrease in impairment or the extent that the carrying amount of the financial asset at the
date the impairment is reversed does not exceed what the amortized cost would have been had the impairment
not been recognized, after the reversal.
Foreign Currency Translation The functional currency of the Company is the Canadian dollar.
The assets and liabilities of foreign operations that have a functional currency different from that of the
Company, including goodwill and fair value adjustments arising on acquisition, are translated into Canadian
dollars at the foreign currency exchange rate in effect at the balance sheet date. The resulting foreign currency
exchange gains or losses are recognized in the foreign currency translation adjustment as part of comprehensive
income (loss). When such foreign operation is disposed of, the related foreign currency translation reserve is
recognized in net earnings as part of the gain or loss on disposal. On the partial disposal of such foreign
operation, the relevant proportion is reclassified to net earnings.
Assets and liabilities denominated in United States (“U.S.”) dollars but held in foreign operations that have the
same functional currency as the Company are translated into Canadian dollars at the foreign currency exchange
rate in effect at the balance sheet date. The resulting foreign currency exchange gains or losses are recognized in
operating income.
Revenues and expenses of foreign operations are translated into Canadian dollars at the foreign currency
exchange rates that approximate the rates in effect at the dates when such items are transacted.
Short Term Employee Benefits Short term employee benefits include wages, salaries, compensated absences,
profit-sharing and bonuses. Short term employee benefit obligations are measured on an undiscounted basis
and are recognized in operating income as the related service is provided or capitalized if the service rendered is
in connection with the creation of a tangible or intangible asset. A liability is recognized for the amount expected
to be paid under short term cash bonus or profit-sharing plans if the Company has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee, and the obligation can be
estimated reliably.
Defined Benefit Post Employment Plans The Company has a number of contributory and non-contributory
defined benefit post employment plans providing pension and other benefits to eligible employees. The defined
benefit pension plans provide a pension based on length of service and eligible pay. The other defined benefits
include health care, life insurance and dental benefits provided to eligible employees who retire at certain ages
having met certain service requirements. The Company’s net defined benefit plan obligations (assets) for each
plan are actuarially calculated by a qualified actuary at the end of each annual reporting period using the
projected unit credit method pro-rated based on service and management’s best estimate of the discount rate,
the rate of compensation increase, retirement rates, termination rates, mortality rates and expected growth rate
George Weston Limited 2014 Annual Report 77
Notes to the Consolidated Financial Statements
of health care costs. The discount rate used to value the defined benefit plan obligation for accounting purposes
is based on the yield on a portfolio of Corporate AA bonds denominated in the same currency with cash flows
that match the terms of the defined benefit plan obligations. Past service costs (credits) arising from plan
amendments are recognized in operating income in the year that they arise. The actuarially determined net
interest costs on the net defined benefit plan obligation are recognized in net interest expense and other
financing charges.
The fair values of plan assets are deducted from the defined benefit plan obligations to arrive at the net defined
benefit plan obligations (assets). For plans that result in a net defined benefit asset, the recognized asset is
limited to the present value of economic benefits available in the form of future refunds from the plan or
reductions in future contributions to the plan (the “asset ceiling”). If it is anticipated that the Company will not
be able to recover the value of the net defined benefit asset, after considering minimum funding requirements
for future service, the net defined benefit asset is reduced to the amount of the asset ceiling. When the payment
in the future of minimum funding requirements related to past service would result in a net defined benefit
surplus or an increase in a surplus, the minimum funding requirements are recognized as a liability to the extent
that the surplus would not be fully available as a refund or a reduction in future contributions.
Remeasurements including actuarial gains and losses, the effect of the asset ceiling (if applicable) and the impact
of any minimum funding requirements are recognized through other comprehensive income (loss) and
subsequently reclassified from accumulated other comprehensive income (loss) to retained earnings.
Other Long Term Employee Benefit Plans The Company offers other long term employee benefits including
contributory long term disability benefits and non-contributory continuation of health care and dental benefits
to employees who are on long term disability leave. As the amount of the long term disability benefit does not
depend on length of service, the obligation is recognized when an event occurs that gives rise to an obligation to
make payments. The accounting for other long term employee benefit plans is similar to the method used for
defined benefit plans except that all actuarial gains and losses are recognized in operating income.
Defined Contribution Plans The Company maintains a number of defined contribution pension plans for
employees in which the Company pays fixed contributions for eligible employees into a registered plan and has
no further significant obligation to pay any further amounts. The costs of benefits for defined contribution plans
are expensed as employees have rendered service.
Multi-Employer Pension Plans The Company participates in multi-employer pension plans (“MEPP”) which are
accounted for as defined contribution plans. The Company’s responsibility to make contributions to these plans
is limited by amounts established pursuant to its collective agreements. Defined benefit MEPPs are accounted
for as defined contribution plans as adequate information to account for the Company’s participation in the
plans is not available due to the size and number of contributing employers in the plans. The contributions made
by the Company to MEPPs are expensed as contributions are due.
Termination Benefits Termination benefits are recognized as an expense at the earlier of when the Company
can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring.
Benefits payable are discounted to their present value when the effect of the time value of money is material.
Equity-Settled Share-Based Compensation Plans Stock options, Restricted Share Units (“RSUs”), Performance
Share Units (“PSUs”), Director Deferred Share Units (“DSUs”) and Executive Deferred Share Units (“EDSUs”)
issued by the Company are settled in common shares and are accounted for as equity-settled awards.
Stock options may have a five to ten year term, vest 20% or 33% cumulatively on each anniversary date of the
grant and are exercisable at the designated common share price, which is based on the greater of the volume
weighted average trading prices of the GWL or Loblaw common shares for either the five trading days prior to
the date of grant or the trading day immediately preceding the grant date. The fair value of each tranche of
options granted is measured separately at the grant date using a Black-Scholes option pricing model, and
includes the following assumptions:
78 George Weston Limited 2014 Annual Report
• The expected dividend yield is estimated based on the expected annual dividend prior to the option grant
date and the closing share price as at the option grant date;
• The expected share price volatility is estimated based on the Company’s historical volatility over a period
consistent with the expected life of the options;
• The risk-free interest rate is estimated based on the Government of Canada bond yield in effect at the grant
date for a term to maturity equal to the expected life of the options; and
• The effect of expected exercise of options prior to expiry is incorporated into the weighted average expected
life of the options, which is based on historical experience and general option holder behaviour.
RSUs and PSUs vest after the end of a performance period, ranging from three to five years. The number of PSUs
that vest is based on the achievement of specified performance measures. The fair value of each RSU and PSU
granted is measured separately at the grant date based on the market value of a GWL or Loblaw common share
less the net present value of the expected dividend stream at the date on which RSUs and PSUs are awarded to
each participant.
During 2013, GWL and Loblaw established trusts for each of their RSU and PSU plans to facilitate the purchase of
shares for future settlement upon vesting. The trusts are considered structured entities and are consolidated in
the Company’s financial statements with the cost of the acquired shares recorded at book value as a reduction to
share capital. Any premium on the acquisition of the shares above book value is applied to retained earnings
until the shares are issued to settle RSU and PSU obligations.
Members of GWL’s and Loblaw’s Board, who are not management, may elect to receive a portion of their annual
retainers and fees in the form of DSUs. Eligible executives of the Company may elect to defer up to 100% of the
Short Term Incentive Plan earned in any year into the EDSU plan. Dividends paid earn fractional DSUs and EDSUs,
respectively and are treated as additional awards. DSUs and EDSUs vest upon grant.
The compensation expense for equity-settled plans is prorated over the vesting or performance period, with a
corresponding increase to contributed surplus. Forfeitures are estimated at the grant date and are revised to
reflect changes in expected or actual forfeitures.
Upon exercise of options, the amount recognized in contributed surplus for the award plus the cash received
upon exercise is recognized as an increase in share capital. Upon settlement of RSUs and PSUs, the amount
recognized in contributed surplus for the award is reclassified to share capital, with any premium or discount
applied to retained earnings.
Cash-Settled Share-Based Compensation Plans Unit Options, Restricted Units and Trustee Deferred Units issued
by Choice Properties and certain DSUs are accounted for as cash-settled awards.
The fair value of the amount payable to employees in respect of these cash-settled awards plan is remeasured
at each balance sheet date, and a compensation expense is recognized in selling, general and administrative
expenses over the vesting period for each tranche with a corresponding change in the liability.
On the acquisition of Shoppers Drug Mart, Loblaw converted Shoppers Drug Mart DSUs to Loblaw DSUs. Former
directors of Shoppers Drug Mart who continue to serve Loblaw in the same capacity, hold DSUs that they have
previously elected to receive in lieu of director fees. These converted DSUs, which vested upon grant, will be
settled in cash based on the market value of the Loblaw shares on the date the recipient ceases to serve Loblaw
as director. Dividends paid earn fractional DSUs and are treated as additional awards. The fair value of each
converted DSU granted is measured based on the market value of a Loblaw common share at the balance sheet
date.
Employee Share Ownership Plan (“ESOP”) GWL’s and Loblaw’s contributions to the ESOPs are measured at cost
and recorded as compensation expense in operating income when the contribution is made. The ESOPs are
administered through a trust which purchases GWL’s and Loblaw’s common shares on the open market on behalf
of its employees.
George Weston Limited 2014 Annual Report 79
Notes to the Consolidated Financial Statements
Accounting Standards Implemented in 2014 and Changes to Significant Accounting Policies
The Company implemented the amendments to International Accounting Standards (“IAS”) 32, “Financial
Instruments: Presentation” and International Financial Reporting Interpretations Committee 21, “Levies”
retrospectively in 2014. There was no significant impacts on the Company’s consolidated financial statements as
a result of the implementation of these standards.
Vendor Allowances The timing of recognition of vendor allowances requires judgment to determine the point
at which Loblaw has earned the allowance. In conjunction with the acquisition of Shoppers Drug Mart,
management reviewed the timing of recognition of certain vendor allowances and has determined that it would
be appropriate to align the policies of both Loblaw and Shoppers Drug Mart. The Company implemented the
change retrospectively in 2014 with the following effect to the periods ended as indicated:
Consolidated Statement of Earnings
Decrease
($ millions except where otherwise indicated)
Operating income
Income taxes
Net earnings from continuing operations
Net earnings from continuing operations per common share ($)
Basic
Diluted
Consolidated Statement of Comprehensive Income
Decrease
($ millions)
Net earnings
Comprehensive income
Consolidated Balance Sheets
Increase (decrease)
($ millions)
Accounts receivable
Inventories
Deferred income tax asset
Equity
52 Weeks Ended
Dec. 31, 2013
(5)
(2)
(3)
$
$
$
$
$
(0.01)
(0.02)
52 Weeks Ended
Dec. 31, 2013
(3)
(3)
$
$
As at
Dec. 31, 2013
(39)
13
8
(18)
$
$
$
$
$
$
$
$
Jan. 1, 2013
(32)
11
6
(15)
Note 3. Critical Accounting Estimates and Judgments
The preparation of the consolidated financial statements requires management to make estimates and
judgments in applying the Company’s accounting policies that affect the reported amounts and disclosures made
in the consolidated financial statements and accompanying notes.
Within the context of these consolidated financial statements, a judgment is a decision made by management
in respect of the application of an accounting policy, a recognized or unrecognized financial statement amount
and/or note disclosure, following an analysis of relevant information that may include estimates and
assumptions. Estimates and assumptions are used mainly in determining the measurement of balances
recognized or disclosed in the consolidated financial statements and are based on a set of underlying data that
may include management’s historical experience, knowledge of current events and conditions and other factors
that are believed to be reasonable under the circumstances. Management continually evaluates the estimates
and judgments it uses.
80 George Weston Limited 2014 Annual Report
The following are the accounting policies subject to judgments and key sources of estimation uncertainty that
the Company believes could have the most significant impact on the amounts recognized in the consolidated
financial statements.
The Company’s significant accounting policies are disclosed in note 2.
Basis of Consolidation
Judgments Made in Relation to Accounting Policies Applied The Company uses judgment in determining the
entities that it controls and therefore consolidates. The Company controls an entity when the Company has the
existing rights that give it the current ability to direct the activities that significantly affect the entities’ returns.
The Company consolidates all of its wholly-owned subsidiaries. Judgment is applied in determining whether the
Company controls the entities in which it does not have ownership rights or does not have full ownership rights.
Most often, judgment involves reviewing contractual rights to determine if rights are participating (giving power
over the entity) or protective rights (protecting the Company’s interest without giving it power).
Inventories
Key sources of estimation Inventories are carried at the lower of cost and net realizable value which requires the
Company to utilize estimates related to fluctuations in shrink, future retail prices, the impact of vendor rebates
on cost, seasonality and costs necessary to sell the inventory.
Impairment of non-financial assets (goodwill, intangible assets, fixed assets and investment properties)
Judgments made in relation to accounting policies applied Management is required to use judgment in
determining the grouping of assets to identify their CGUs for the purposes of testing fixed assets for impairment.
Judgment is further required to determine appropriate groupings of CGUs for the level at which goodwill and
intangible assets are tested for impairment. Loblaw has determined that each location is a separate CGU for
purposes of fixed asset impairment testing. For the purpose of goodwill and intangible assets impairment
testing, CGUs are grouped at the lowest level at which goodwill and intangible assets are monitored for internal
management purposes. In addition, judgment is used to determine whether a triggering event has occurred
requiring an impairment test to be completed.
Key sources of estimation In determining the recoverable amount of a CGU or a group of CGUs, various
estimates are employed. The Company determines fair value less costs to sell using such estimates as market
rental rates for comparable properties, recoverable operating costs for leases with tenants, non-recoverable
operating costs, discount rates, capitalization rates and terminal capitalization rates. The Company determines
value in use by using estimates including projected future revenues, earnings and capital investment consistent
with strategic plans presented to GWL’s and Loblaw’s Boards. Discount rates are consistent with external industry
information reflecting the risk associated with the specific cash flows.
Franchise loans receivable and certain other financial assets
Judgments made in relation to accounting policies applied Management reviews franchise loans receivable,
trade receivables and certain other financial assets relating to Loblaw’s franchise business at each balance sheet
date utilizing judgment to determine whether a triggering event has occurred requiring an impairment test to
be completed.
Key sources of estimation Management determines the initial fair value of Loblaw’s franchise loans and certain
other financial assets using discounted cash flow models. The process of determining these fair values requires
management to make estimates of a long term nature regarding discount rates, projected revenues and margins,
as applicable, derived from past experience, actual operating results, budgets and Loblaw’s five year forecast.
Loyalty Programs
Key Sources of Estimation Loblaw defers revenue equal to the fair value of the award points earned by loyalty
program members at the time of award. Loblaw determines fair value using estimates such as breakage (the
amount of points that will never be redeemed) and the estimated retail value per point on redemption. The
trends in breakage are reviewed on an ongoing basis and the estimated retail value per point is adjusted based
on expected future activity.
George Weston Limited 2014 Annual Report 81
Notes to the Consolidated Financial Statements
Income and other taxes
Judgments made in relation to accounting policies applied The calculation of current and deferred income taxes
requires management to make certain judgments regarding the tax rules in jurisdictions where the Company
performs activities. Application of judgments is required regarding the classification of transactions and in
assessing probable outcomes of claimed deductions including expectations about future operating results, the
timing and reversal of temporary differences and possible audits of income tax and other tax filings by the tax
authorities.
Note 4. Future Accounting Standards
In 2014, the IASB issued IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”). The new standard
provides a comprehensive framework for the recognition, measurement and disclosure of revenue from
contracts with customers, excluding contracts within the scope of the accounting standards on leases, insurance
contracts and financial instruments. IFRS 15 becomes effective for annual periods beginning on or after
January 1, 2017, and is to be applied retrospectively. Early adoption is permitted. The Company is currently
assessing the impact of the new standard on its consolidated financial statements.
In 2014, the IASB issued IFRS 9, “Financial Instruments”, replacing IAS 39, “Financial Instruments: Recognition
and Measurement.” The standard had three main phases: classification and measurement, impairment, and
general hedging. The standard becomes effective for annual periods beginning on or after January 1, 2018 and is
to be applied retrospectively with the exception of the general hedging phase which is applied prospectively.
Early adoption is permitted. The Company is currently assessing the impact of the new standard on its
consolidated financial statements.
In 2014, the IASB issued amendments to IAS 1, “Presentation of Financial Statements” (“IAS 1 amendments”).
The IAS 1 amendments provide guidance on the application of judgment in the preparation of financial
statements and disclosures. The IAS 1 amendments are effective for annual periods beginning on or after
January 1, 2016. Early adoption is permitted. The Company is currently assessing the impact of the IAS 1
amendments on its consolidated financial statements.
82 George Weston Limited 2014 Annual Report
Note 5. Acquisition of Shoppers Drug Mart Corporation
On March 28, 2014, Loblaw acquired all of the outstanding shares of Shoppers Drug Mart for total consideration
of $12.3 billion, comprised of approximately $6.6 billion of cash and the issuance of approximately 119.5 million
Loblaw common shares.
The cash portion of the acquisition of Shoppers Drug Mart was financed by Loblaw as follows:
• $3.5 billion term loan facility (see note 23);
• $1.6 billion of proceeds from the issuance of unsecured notes in 2013 (see note 23);
• $500 million was received in consideration of the issuance of 10.5 million Loblaw common shares to
GWL; and
• approximately $1.0 billion was used from cash on hand.
The preliminary purchase equation is based on management’s current best estimates of fair value. The actual
amount allocated to certain identifiable net assets could vary as the purchase equation is finalized. The
preliminary purchase price allocation as at year end 2014 is as follows:
($ millions)
Net assets acquired:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other assets
Fixed assets
Investment properties
Intangible assets
Goodwill
Deferred income tax assets
Other assets
Bank indebtedness
Trade payables and other liabilities
Income taxes payable
Associate interest
Provisions
Long term debt
Deferred income tax liabilities
Other liabilities
Total net assets acquired
$
$
27
534
3,003
67
1,792
16
9,440
2,285
68
7
(295)
(924)
(11)
(174)
(19)
(1,127)
(2,252)
(164)
12,273
As at year end 2014, Loblaw had not yet finalized the above purchase price allocation. In the fourth quarter of
2014, Loblaw revised its fair value estimate of intangible assets and updated the purchase price equation. The
result was to decrease intangible assets by $35 million to $9,440 million, decrease deferred income tax liabilities
by $9 million to $2,252 million and increase goodwill by $26 million to $2,285 million. Loblaw has one year from
the date of acquisition to finalize the fair value of net tangible assets, goodwill and intangible assets and any
further changes to the amounts presented above will be reflected in the first half of 2015.
George Weston Limited 2014 Annual Report 83
Notes to the Consolidated Financial Statements
Goodwill is attributable to synergies expected following the integration of Shoppers Drug Mart, improved
competitive positioning in the retail market, and future growth of Loblaw’s customer base as a result of the
acquisition. The goodwill arising from this acquisition is not deductible for tax purposes.
Intangible assets are comprised of the following:
($ millions)
Prescription files
Brands
Optimum loyalty program
Other
Total intangible assets
Estimated
Useful Life
11 years
indefinite
18 years
5 to 10 years
$
$
5,005
3,390
490
555
9,440
During 2014, Loblaw incurred costs of $75 million (2013 – $31 million) related to the acquisition of Shoppers
Drug Mart, of which $60 million (2013 – $16 million) was recorded in selling, general and administrative
expenses and $15 million (2013 – $15 million) was recorded in net interest expense and other financing charges.
Upon closing of the acquisition, all amounts owing on Shoppers Drug Mart’s revolving bank credit facility were
repaid and the facility was cancelled. In addition, upon closing, Loblaw guaranteed the outstanding principal
amount of Shoppers Drug Mart’s medium term notes (“MTN”) of $500 million, along with accrued interest.
Loblaw also provided guarantees to various Canadian banks in support of the financing obtained by Shoppers
Drug Mart’s Associates (see note 36).
Included in the 2014 consolidated statement of earnings was approximately $9.1 billion in revenue and
approximately $247 million in net earnings attributable to shareholders of the Company contributed by Shoppers
Drug Mart since the date of acquisition, excluding the impact of purchase price adjustments, acquisition costs
and divestitures required by the Competition Bureau.
On a pro forma basis for 2014, total revenue would have amounted to approximately $46.4 billion and net
earnings attributable to shareholders of the Company would have amounted to approximately $122 million. This
pro forma information incorporates the effect of the preliminary purchase equation as if the acquisition had
been effective January 1, 2014.
84 George Weston Limited 2014 Annual Report
Note 6. Net Interest Expense and Other Financing Charges
The components of net interest expense and other financing charges were as follows:
($ millions)
Interest expense:
Long term debt(1)
Interest associated with the forward sale agreement(2)
Borrowings related to credit card receivables
Post-employment and other long term employee benefits (note 29)
Independent funding trusts
Trust Unit distributions
Dividends on capital securities (note 25)
Choice Properties initial public offering transaction costs
Shoppers Drug Mart net financing charges(3)
Early debt settlement costs (note 23)
Fair value adjustment of Trust Unit liability (note 33)
Bank indebtedness
Capitalized interest (capitalization rate 6.2% (2013 – 6.4%)) (notes 15 & 17)
(note 5)
Interest income:
Interest associated with the forward sale agreement(2)
Accretion income
Short term interest income
Financial derivative instruments
Security deposits(4)
Net interest expense and other financing charges
2014
(53 weeks)
2013
(52 weeks)
$
$
$
$
$
545
175
37
13
15
30
14
18
12
6
(4)
861
(25)
(16)
(5)
(46)
815
$
369
39
25
15
15
14
44
20
18
18
(2)
575
(23)
(21)
(18)
(9)
(7)
(78)
497
$
$
$
$
(1)
(2)
(3)
(4)
Includes accelerated amortization of deferred financing costs of $23 million (2013 – nil) related to Loblaw’s early repayment of the
term loan facility (see note 23).
Includes a non-cash charge of $199 million (2013 – non-cash income of $1 million) related to the fair value adjustment of the forward
sale agreement for 9.6 million Loblaw common shares (see note 33). The fair value adjustment of the forward sale agreement is
non-cash and results from changes in the value of the underlying Loblaw common shares. At maturity, any cash paid under the
forward sale agreement could be offset by the sale of the underlying Loblaw common shares. Also includes forward accretion income
of $42 million (2013 – $40 million) and the forward fee of $18 million (2013 – $18 million) associated with the forward sale
agreement.
Includes a charge of $30 million in 2013 incurred in connection with the committed financing, net of a gain of $10 million on the
unwind of the hedge entered into related to Loblaw’s issuance of $1.6 billion senior unsecured notes (note 33).
Includes interest income of $3 million (2013 – $5 million) related to $1.6 billion of proceeds from the issuance of senior unsecured
notes previously held in escrow (see note 10), which were used to partially fund the acquisition of Shoppers Drug Mart (see note 5).
George Weston Limited 2014 Annual Report 85
2014
(53 weeks)
2013(1)
(52 weeks)
$
$
318
(43)
(291)
40
24
$
$
$
$
$
325
(5)
(36)
(11)
273
2013
(52 weeks)
93
(2)
91
Notes to the Consolidated Financial Statements
Note 7.
Income Taxes
The components of income taxes recognized in the consolidated statements of earnings were as follows:
($ millions)
Current income taxes
Current period
Adjustment in respect of prior periods
Deferred income taxes
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Income taxes
(1) Certain 2013 figures have been amended (see note 2).
Income tax (recovery) expense recognized in other comprehensive income was as follows:
($ millions)
Defined benefit plan actuarial (losses) gains (note 29)
Derecognized derivative instruments (note 33)
Other comprehensive income
2014
(53 weeks)
(22)
$
$
(22)
The effective income tax rates in the consolidated statements of earnings were reported at rates different than
the weighted average basic Canadian federal and provincial statutory income tax rates for the following reasons:
Weighted average basic Canadian federal and provincial statutory
income tax rate
Net increase (decrease) resulting from:
Earnings in jurisdictions taxed at rates different from the Canadian
statutory income tax rates
Unrecognized benefit of foreign currency translation gains
Non-taxable and non-deductible amounts
Impact of fair value adjustment of Trust Unit liability
Impact of statutory income tax rate changes on deferred income
tax balances
Impact of resolution of certain income tax matters from a previous
year and other
Effective income tax rate applicable to earnings before income taxes
(1) Certain 2013 figures have been amended (see note 2).
2014
26.0%
0.7
(5.7)
(6.8)
1.9
(0.9)
15.2%
2013(1)
25.9%
(0.6)
(0.6)
0.4
0.6
(0.1)
(1.2)
24.4%
86 George Weston Limited 2014 Annual Report
Deferred income tax assets which were not recognized on the consolidated balance sheets were as follows:
($ millions)
Deductible temporary differences
Income tax losses and credits
Unrecognized deferred income tax assets
As at
Dec. 31, 2014
26
$
68
94
$
Dec. 31, 2013
28
$
39
67
$
The income tax losses and credits expire in the years 2015 to 2034. The deductible temporary differences do not
expire under current income tax legislation. Deferred income tax assets were not recognized in respect of these
items because it is not probable that future taxable income will be available to the Company to utilize the
benefits.
Deferred income tax assets and liabilities recognized on the consolidated balance sheets were attributable to the
following:
($ millions)
Trade payables and other liabilities
Other liabilities
Fixed assets
Goodwill and intangible assets
Other assets
Non-capital losses carried forward (expiring 2030 to 2034)
Capital losses carried forward
Other
Net deferred income tax (liabilities) assets
Recorded on the consolidated balance sheets as follows:
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax (liabilities) assets
(1) Certain 2013 figures have been amended (see note 2).
Note 8. Discontinued Operations
As at
Dec. 31, 2014
79
$
365
(560)
(1,832)
(82)
163
20
55
(1,792)
$
Dec. 31, 2013(1)
72
$
260
(392)
(24)
(84)
226
1
61
120
$
$
$
215
(2,007)
(1,792)
$
$
307
(187)
120
During 2013, the Company recorded income related to discontinued operations of $58 million, which included
the settlement of a previously disclosed litigation against Domtar of $48 million ($40 million net of income taxes)
and adjustments resulting in income of $18 million associated with the Company’s (excluding Loblaw) previously
owned operations.
George Weston Limited 2014 Annual Report 87
Notes to the Consolidated Financial Statements
Note 9. Basic and Diluted Net Earnings per Common Share from Continuing Operations
($ million except where otherwise indicated)
Net earnings from continuing operations attributable to
shareholders of the Company
Prescribed dividends on preferred shares in share capital
Net earnings from continuing operations available to common shareholders
Reduction in net earnings due to dilution at Loblaw
Net earnings from continuing operations available to common
shareholders for diluted earnings per share
Weighted average common shares outstanding (in millions) (note 26)
Dilutive effect of share-based compensation(2)
Diluted weighted average common shares outstanding (in millions)
Basic net earnings per common share from continuing operations ($)
Diluted net earnings per common share from continuing operations ($)
(in millions)
2014
(53 weeks)
2013(1)
(52 weeks)
$
$
$
$
$
126
(44)
82
82
127.8
0.4
128.2
0.64
0.64
$
$
$
$
$
614
(44)
570
(4)
566
127.6
0.2
127.8
4.47
4.43
(1) Certain 2013 figures have been amended (see note 2).
(2) Excluded from the computation of diluted net earnings per common share from continuing operations were 501,963
(2013 – 516,557) potentially dilutive instruments, as they were anti-dilutive.
Note 10. Cash and Cash Equivalents, Short Term Investments and Security Deposits
The components of cash and cash equivalents, short term investments and security deposits were as follows:
Cash and Cash Equivalents
($ millions)
Cash
Cash equivalents:
Bankers’ acceptances
Government treasury bills
Corporate commercial paper
Government agency securities
Bank term deposits
Other
Cash and cash equivalents
Short Term Investments
($ millions)
Bankers’ acceptances
Government treasury bills
Corporate commercial paper
Government agency securities
Other
Short term investments
88 George Weston Limited 2014 Annual Report
As at
Dec. 31, 2014
586
$
Dec. 31, 2013
629
$
175
490
82
$
1,333
$
325
1,712
100
48
42
13
2,869
As at
Dec. 31, 2014
31
$
344
376
297
24
1,072
$
Dec. 31, 2013
349
$
584
230
326
1
1,490
$
Security Deposits
($ millions)
Cash
Government treasury bills and notes(1)
Government agency securities
Security deposits
As at
Dec. 31, 2014
52
$
31
9
92
$
Dec. 31, 2013
147
$
1,640
4
1,791
$
(1) As at year end 2013, Government treasury bills included $1.6 billion of proceeds from the issuance of senior unsecured notes that
were held in escrow as part of the financing for the acquisition of Shoppers Drug Mart. In 2014, Loblaw completed the acquisition of
Shoppers Drug Mart and the proceeds were released from escrow (see note 5).
During 2014, GWL and Loblaw had agreements to cash collateralize certain uncommitted credit facilities up to
amounts of $45 million (2013 – $45 million) and $141 million (2013 – $136 million), respectively. As at year end
2014, GWL and Loblaw had $45 million (2013 – $45 million) and $7 million (2013 – $102 million) deposited with
major financial institutions, respectively, and classified as security deposits on the consolidated balance sheets.
Note 11. Accounts Receivable
The following is an aging of the Company’s accounts receivable:
As at
($ millions)
Accounts receivable
0 - 90 days
$
1,212 $
> 90 days
> 180 days
39 $
Dec. 31, 2014
Total
1,318
67 $
0 - 90 days
> 90 days
$
664 $
17 $
> 180 days
Dec. 31, 2013(1)
Total
697
16 $
(1) Certain 2013 figures have been amended (see note 2).
The following are continuities of the Company’s allowances for uncollectable accounts receivable:
($ millions)
Allowance, beginning of year
Net reversals (additions)
Allowance, end of year
2014
(122)
23
(99)
$
$
2013
(116)
(6)
(122)
$
$
Credit risk associated with accounts receivable is discussed in note 34.
Note 12. Credit Card Receivables
The components of credit card receivables were as follows:
($ millions)
Gross credit card receivables
Allowance for credit card receivables
Credit card receivables
Securitized to Independent Securitization Trusts
Securitized to Eagle Credit Card Trust®
Securitized to Other Independent Securitization Trusts
As at
Dec. 31, 2014
2,684
$
(54)
2,630
$
Dec. 31, 2013
2,585
$
(47)
2,538
$
$
$
750
605
$
$
750
605
George Weston Limited 2014 Annual Report 89
Notes to the Consolidated Financial Statements
Loblaw, through PC Bank, participates in various securitization programs that provide the primary source of
funds for the operation of its credit card business. PC Bank sells and repurchases credit card receivables with
Independent Securitization Trusts, including Eagle and Other Independent Securitization Trusts, from time to
time depending on PC Bank’s financing requirements.
The associated liability of Eagle is recorded in long term debt (see note 23). The associated liabilities of credit
card receivables securitized to the Other Independent Securitization Trusts are recorded in short term debt
(see note 22).
Loblaw has arranged letters of credit on behalf of PC Bank, for the benefit of the Independent Securitization
Trusts (see note 36). Under its securitization programs, PC Bank is required to maintain at all times a credit card
receivable pool balance equal to a minimum of 107% of the outstanding securitized liability and was in
compliance with this requirement as at year end 2014 and throughout the year.
The following is an aging of Loblaw’s gross credit card receivables:
As at
Dec. 31, 2014
Dec. 31, 2013
($ millions)
Gross credit card receivables
Current
$ 2,505 $
150 $
Total
29 $ 2,684
Current
$ 2,416 $
142 $
Total
27 $ 2,585
1-90 days > 90 days
past due
past due
1-90 days
past due
> 90 days
past due
The following are continuities of Loblaw’s allowances for credit card receivables:
($ millions)
Allowance, beginning of year
Provision for losses
Recoveries
Write-offs
Allowance, end of year
2014
(47)
(121)
(19)
133
(54)
$
$
2013
(43)
(105)
(14)
115
(47)
$
$
The allowance for credit card receivables recorded in credit card receivables on the consolidated balance sheets
is maintained at a level which is considered adequate to absorb credit related losses on credit card receivables.
Note 13. Inventories
The components of inventories were as follows:
($ millions)
Raw materials and supplies
Finished goods
Inventories
As at
Dec. 31, 2014
61
$
4,402
4,463
$
Dec. 31, 2013(1)
$
56
2,188
2,244
$
(1) Certain 2013 figures have been amended (see note 2).
In connection with the acquisition of Shoppers Drug Mart, acquired assets and liabilities were recorded on the
Company’s consolidated balance sheet at their fair value. This resulted in a fair value adjustment to Shoppers
Drug Mart inventory on the date of acquisition of $798 million representing the difference between inventory
cost and its fair value. This difference was recognized as a charge to cost of inventories sold during 2014.
90 George Weston Limited 2014 Annual Report
As at year end 2014, with the upgrade of its information technology (“IT”) infrastructure, Loblaw had completed
the conversion of substantially all of its corporate grocery stores to the new systems. The implementation of a
perpetual inventory system, combined with visibility to integrated costing information provided by the new IT
systems, enabled Loblaw to estimate the cost of inventory using a more precise system-generated average cost.
As a result of the conversion, Loblaw recognized a charge of $190 million to cost of inventories sold and a
corresponding reduction in inventory, representing the estimate of the difference between the measurement of
the cost of corporate grocery store inventory using a system-generated weighted average cost compared to the
retail inventory method and other conversion differences associated with the implementation of a perpetual
inventory system.
For inventories recorded as at year end 2014, Loblaw recorded $23 million (2013 – $16 million) for the
write-down of inventories below cost to net realizable value. The write-down was included in cost of inventories
sold in the consolidated statements of earnings. There were no reversals of previously recorded write-downs of
inventories during 2014 and 2013.
On August 31, 2014, a weather event in the U.S. caused significant damage to Weston Foods inventories stored
at a third-party warehouse. During 2014, net proceeds of $1 million (U.S. $1 million) were received and recorded
in selling, general and administrative expenses. Additional losses or charges associated with this inventory will be
recorded as incurred and any additional proceeds will be recorded as they are received.
Note 14. Assets Held for Sale
Loblaw holds land and buildings that it intends to dispose of in the next 12 months as assets held for sale. These
assets were previously used in Loblaw’s Retail segment. There were no impairment or other charges recognized
on these properties during 2014 or 2013. In 2014, Loblaw recorded a gain of $4 million (2013 – $7 million) from
the sale of these assets, excluding the impact of completed divestitures related to the acquisition of Shoppers
Drug Mart.
Pursuant to a Consent Agreement reached with the Competition Bureau related to the acquisition of Shoppers
Drug Mart in 2014, Loblaw was required to divest 16 Shoppers Drug Mart stores, two franchise grocery stores,
and nine in-store pharmacy operations. As at year end 2014, the Competition Bureau had approved the sale of
all properties. During 2014, the divestitures of all but three Shoppers Drug Mart stores were completed and
Loblaw received total proceeds of $60 million and recorded a loss of $12 million in operating income related to
divestitures that have been completed.
As at year end 2014, assets totalling $8 million, including intangible assets of $3 million, inventories of $3 million
and fixed assets of $2 million, relating to the three remaining Shoppers Drug Mart stores, were included in assets
held for sale. Subsequent to year end 2014, Loblaw sold the remaining three Shoppers Drug Mart stores for
estimated proceeds of $9 million.
George Weston Limited 2014 Annual Report 91
Notes to the Consolidated Financial Statements
Note 15. Fixed Assets
The following is a continuity of the cost and accumulated depreciation of fixed assets for the year ended
December 31, 2014:
($ millions)
Land
Buildings
Equipment
and
fixtures
Leasehold
improvements
Finance
leases -
land,
buildings,
equipment
and fixtures
Assets
under
construction
Total
Cost, beginning of year
Additions
Disposals
Transfer to assets held for sale
Transfer from (to) investment properties
Transfer from assets under construction
Business acquisitions(1)
Foreign exchange
Cost, end of year
Accumulated depreciation and
impairment losses, beginning of year
Depreciation
Impairment losses
Reversal of impairment losses
Disposals
Transfer to assets held for sale
Transfer from investment properties
Foreign exchange
Accumulated depreciation and
impairment losses, end of year
Carrying amount as at:
December 31, 2014
$
$
$
$
$
1,706 $
7
(12)
(5)
5
38
88
1
1,828 $
7,114 $
13
(15)
(16)
12
260
268
13
7,649 $
7,273 $
104
(113)
(11)
511
380
33
8,177 $
860 $
82
(11)
(14)
32
830
568 $
102
(14)
162
1,779 $
818 $
698 $ 18,219
1,209
901
(178)
(13)
(46)
(56)
(73)
(841)
72
3
1,800
50
747 $ 20,998
2 $
2,551 $
5,240 $
503 $
261 $
7 $
8,564
1
(1)
1
210
11
(31)
(10)
(4)
8
5
711
12
(1)
(91)
(10)
22
133
13
(2)
(9)
(7)
1
2
47
1
(14)
1,102
40
(35)
(124)
(21)
9
27
3 $
2,740 $
5,883 $
631 $
295 $
10 $
9,562
1,825 $
4,909 $
2,294 $
1,148 $
523 $
737 $ 11,436
(1)
Includes $1,792 million related to the acquisition of Shoppers Drug Mart (see note 5).
92 George Weston Limited 2014 Annual Report
The following is a continuity of the cost and accumulated depreciation of fixed assets for the year ended
December 31, 2013:
($ millions)
Land
Buildings
Equipment
and
fixtures
Leasehold
improvements
Finance
leases -
land,
buildings,
equipment
and fixtures
Assets
under
construction
Total
Cost, beginning of year
Additions
Disposals
Transfer from assets held for sale
Transfer (to) from investment properties
Transfer from assets under construction
Business acquisition
Foreign exchange
Cost, end of year
Accumulated depreciation and
impairment losses, beginning of year
Depreciation
Impairment losses
Reversal of impairment losses
Disposals
Transfer (to) from investment properties
Foreign exchange
Accumulated depreciation and
impairment losses, end of year
Carrying amount as at:
December 31, 2013
$
$
$
$
$
1,678 $
1
(2)
1
(2)
30
6,795 $
(4)
(1)
316
1,706 $
8
7,114 $
6,715 $
17
(58)
570
6
23
7,273 $
804 $
9
(7)
54
555 $
62
(53)
4
860 $
568 $
727 $ 17,274
1,034
945
(124)
1
(4)
(5)
(970)
6
32
698 $ 18,219
1
7 $
2,408 $
4,689 $
442 $
269 $
7 $
7,822
(4)
(1)
193
20
(71)
(1)
(1)
3
583
5
(2)
(49)
14
45
24
(3)
(5)
44
3
(3)
(53)
1
865
52
(83)
(109)
17
2 $
2,551 $
5,240 $
503 $
261 $
7 $
8,564
1,704 $
4,563 $
2,033 $
357 $
307 $
691 $
9,655
Assets Held under Finance Leases The Company leases various land and buildings and equipment and fixtures
under a number of finance lease arrangements. As at year end 2014, the net carrying amount of leased land
and buildings was $466 million (2013 – $274 million) and the net carrying amount of leased equipment and
fixtures was $57 million (2013 – $33 million).
Assets under Construction The cost of additions to properties under construction for 2014 was $901 million
(2013 – $945 million). Included in this amount were capitalized borrowing costs of $3 million (2013 – $2 million)
with a weighted average capitalization rate of 6.2% (2013 – 6.4%) (see note 6).
Security and Assets Pledged As at year end 2014, Loblaw had fixed assets with a carrying amount of
$191 million (2013 – $187 million) which were encumbered by mortgages of $86 million (2013 – $87 million)
(see note 23).
Fixed Asset Commitments As at year end 2014, the Company had entered into commitments of $261 million
(2013 – $87 million) for the construction, expansion and renovation of buildings and the purchase of real
property.
George Weston Limited 2014 Annual Report 93
Notes to the Consolidated Financial Statements
Impairment Losses and Reversals In 2014, Loblaw recorded $26 million (2013 – $48 million) of impairment
losses on fixed assets in respect of 13 CGUs (2013 – 21 CGUs) in its Retail segment. Additional impairment losses
of $14 million (2013 – $4 million) were incurred related to store closures, renovations and conversions.
Impairment losses are recorded where the carrying amount of the retail location exceeds its recoverable
amount. The recoverable amount was based on the greater of the CGU’s fair value less costs to sell and its value
in use. Approximately 23% (2013 – 10%) of impaired CGUs had carrying values which were $7 million
(2013 – $6 million) greater than their fair value less costs to sell. The remaining 77% (2013 – 90%) of impaired
CGUs had carrying values which were $19 million (2013 – $42 million) greater than their value in use.
In 2014, Loblaw recorded $35 million (2013 – $83 million) of impairment reversals on fixed assets in respect of
14 CGUs (2013 – 26 CGUs) in its Retail segment. Impairment reversals are recorded where the recoverable
amount of the retail location exceeds its carrying amount. Approximately 93% (2013 – 92%) of CGUs with
impairment reversals had fair value less costs to sell which were $33 million (2013 – $75 million) greater than
their carrying values. The remaining 7% (2013 – 8%) of CGUs with impairment reversals had value in use which
were $2 million (2013 – $8 million) greater than their carrying values.
When determining the value in use of a retail location, Loblaw develops a discounted cash flow model for each
CGU. The duration of the cash flow projections for individual CGUs varies based on the remaining useful life of
the significant assets within the CGU. Sales forecasts for cash flows are based on actual operating results,
operating budgets, and long term growth rates that were consistent with industry averages, all of which are
consistent with strategic plans presented to Loblaw’s Board. The estimate of the value in use of the relevant
CGUs was determined using a pre-tax discount rate of 8.0% to 8.5% at the end of 2014 (2013 – 8.0% to 8.5%).
In 2013, Weston Foods recorded accelerated depreciation of $4 million related to restructuring activities.
Note 16. Investment Properties
The following are continuities of investment properties:
($ millions)
Cost, beginning of year
Acquisition of Shoppers Drug Mart (note 5)
Additions
Disposals
Transfer from fixed assets
Transfer to assets held for sale
Cost, end of year
Accumulated depreciation and impairment losses, beginning of year
Depreciation
Impairment losses
Reversal of impairment losses
Disposals
Transfer to fixed assets
Transfer (to) from assets held for sale
Accumulated depreciation, end of year
($ millions)
Carrying amount
Fair value
94 George Weston Limited 2014 Annual Report
2014
172
16
16
(4)
56
(1)
255
73
2
11
(2)
(9)
(5)
70
$
$
$
$
2013
169
1
(2)
4
172
69
2
(1)
(1)
4
73
$
$
$
$
As at
Dec. 31, 2014
185
$
225
$
Dec. 31, 2013
99
$
144
$
During 2014, Loblaw recognized in operating income $7 million (2013 – $4 million) of rental income and incurred
direct operating costs of $3 million (2013 – $3 million) related to its investment properties. In addition, Loblaw
recognized direct operating costs of $2 million (2013 – $1 million) related to its investment properties for which
no rental income was earned.
An external, independent valuation company, having appropriate recognized professional qualifications and
recent experience in the location and category of property being valued, provided appraisals for certain of
Loblaw’s investment properties. For the other investment properties, Loblaw determined the fair value by relying
on comparable market information.
Where available, the fair values are based on market values, being the estimated amount for which a property
could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length
transaction after proper marketing wherein the parties had each acted knowledgeably and willingly.
Where market values are not available, valuations are prepared using the income approach by considering the
estimated cash flows expected from renting out the property based on existing lease terms and where
appropriate, the ability to renegotiate the lease terms once the initial term or option term(s) expire plus the net
proceeds from a sale of the property at the end of the investment horizon.
The valuations of investment properties using the income approach include assumptions as to market rental
rates for properties of similar size and condition located within the same geographical areas, recoverable
operating costs for leases with tenants, non-recoverable operating costs, vacancy periods, tenant inducements
and capitalization rates for the purposes of determining the estimated net proceeds from the sale of the
property. As at year end 2014, the pre-tax discount rates used in the valuations for investment properties ranged
from 6.00% to 9.75% (2013 – 6.50% to 9.75%) and the terminal capitalization rates ranged from 5.50% to 8.50%
(2013 – 5.75% to 8.75%).
In 2014, Loblaw recorded impairment losses on investment properties of $11 million (2013 – nil) in operating
income and no reversals of impairment losses on investment properties (2013 – $1 million).
George Weston Limited 2014 Annual Report 95
Notes to the Consolidated Financial Statements
Note 17. Intangible Assets
The following is a continuity of the cost and accumulated amortization of intangible assets for the year ended
December 31, 2014:
($ millions)
Cost, beginning of year
Business acquisitions(1)
Additions
Disposal
Write-off cost of fully amortized assets
Transfer to assets held for sale
Impact of foreign currency translation
Cost, end of year
Accumulated amortization and impairment
losses, beginning of year
Amortization
Write-off amortization of fully amortized assets
Transfer to assets held for sale
Impact of foreign currency translation
Accumulated amortization and impairment
losses, end of year
Carrying amount as at:
December 31, 2014
Indefinite
life
intangible
assets
Definite life
internally
generated
intangible
assets
Definite life
trademarks
and brand
names
Definite life
other
intangible
assets
$
71 $
20 $
3,390
230
85
(3)
23 $
2
$
3,461 $
332 $
25 $
$
19 $
23
5 $
1
179 $
5,828
5
(2)
(1)
(29)
9
5,989 $
54 $
420
(1)
(3)
1
Total
293
9,450
90
(5)
(1)
(29)
9
9,807
78
444
(1)
(3)
1
$
42 $
6 $
471 $
519
$
3,461 $
290 $
19 $
5,518 $
9,288
(1)
Includes $9,440 million related to the acquisition of Shoppers Drug Mart (see note 5).
96 George Weston Limited 2014 Annual Report
The following is a continuity of the cost and accumulated amortization of intangible assets for the year ended
December 31, 2013:
($ millions)
Cost, beginning of year
Business acquisition
Additions
Write-off cost of fully amortized assets
Impact of foreign currency translation
Cost, end of year
Accumulated amortization and impairment
losses, beginning of year
Amortization
Write-off amortization of fully amortized assets
Accumulated amortization and impairment
losses, end of year
Carrying amount as at:
December 31, 2013
Definite life
internally
generated
intangible
assets
Definite life
trademarks
and brand
names
Definite life
other
intangible
assets
Indefinite life
intangible
assets
$
$
62 $
20 $
23 $
9
71 $
20 $
23 $
14 $
5
5 $
$
$
19 $
5 $
54 $
176 $
3
3
(8)
5
179 $
46 $
16
(8)
Total
281
3
12
(8)
5
293
65
21
(8)
78
$
71 $
1 $
18 $
125 $
215
Indefinite life intangible assets recorded by Loblaw are comprised of brand names, trademarks, and import
purchase quota. The brand names and trademarks are a result of Loblaw’s acquisition of Shoppers Drug Mart
and T&T Supermarket Inc. Loblaw expects to renew the registration of the brand names, trademarks, and import
purchase quota at each expiry date indefinitely, and expects these assets to generate economic benefit in
perpetuity. As such, Loblaw assessed these intangibles to have indefinite useful lives.
The Company completed its 2014 and 2013 annual impairment tests for indefinite life intangible assets and
concluded that there was no impairment.
Key Assumptions The key assumptions used to calculate the fair value less costs to sell are those regarding
discount rates, growth rates and expected changes in margins. These assumptions are consistent with the
assumptions used to calculate fair value less costs to sell for goodwill (see note 18).
Definite Life Intangible Assets Definite life intangible assets recorded by Loblaw are primarily comprised of
Shoppers Drug Mart prescription files, the carrying value of the Optimum loyalty program, and software
purchases and development (see note 5). Included in these amounts are capitalized borrowing costs of $1 million
(2013 – nil)(see note 6).
The Company completed its assessments of impairment indicators for definite life intangible assets and
concluded that there were no indications of impairment during 2014 and 2013.
George Weston Limited 2014 Annual Report 97
Notes to the Consolidated Financial Statements
Note 18. Goodwill
The following are continuities of the cost and accumulated amortization of goodwill:
($ millions)
Cost, beginning of year
Business acquisitions(1)
Impact of foreign currency translation
Cost, end of year
Accumulated amortization and impairment losses, beginning of year
Accumulated amortization and impairment losses, end of year
Carrying amount as at:
December 31
2014
2,427
2,300
16
4,743
1,062
1,062
3,681
$
$
$
$
$
2013
2,417
10
2,427
1,062
1,062
1,365
$
$
$
$
$
(1)
Includes $2,285 million related to the acquisition of Shoppers Drug Mart (see note 5).
The carrying amount of goodwill attributed to each CGU grouping was as follows:
($ millions)
Weston Foods
Shoppers Drug Mart
Market
Discount
Quebec region – Loblaw
T&T Supermarket Inc.
Other
Carrying amount of goodwill
As at
Dec. 31, 2013
262
$
Dec. 31, 2014
278
$
2,294
337
459
129
184
3,681
$
$
700
129
274
1,365
The Company completed its 2014 and 2013 annual impairment tests for goodwill and concluded that there was
no impairment. Subsequent to the acquisition of Shoppers Drug Mart, Loblaw reorganized its senior
management, including the heads of Loblaw’s banner groups, and as a result, Loblaw reallocated goodwill to this
reorganized structure subsequent to the completion of the 2014 annual impairment test. CGU groupings for
goodwill allocation are done by banner or groups of banners, whereas they were previously grouped by region.
Key Assumptions The key assumptions used to calculate the fair value less costs to sell are those regarding
discount rates, growth rates and expected changes in margins. These assumptions are considered to be Level 3 in
the fair value hierarchy.
The weighted average cost of capital was determined to be in the range of 6.0% to 6.5% (2013 – 6.5% to 7.0%)
and was based on a risk-free rate, an equity risk premium adjusted for betas of comparable publicly traded
companies, an unsystematic risk premium, an after-tax cost of debt based on corporate bond yields and the
capital structure of the Company.
Cash flow projections were discounted using a range of rates derived from the Company’s after-tax weighted
average cost of capital adjusted for specific risks relating to each CGU. As at year end 2014, the after-tax discount
rates used in the recoverable amount calculations ranged from 8.5% to 9.5% (2013 – 9.5%). The pre-tax discount
rates ranged from 11.4% to 13.0% (2013 – 12.8% to 13.0%).
98 George Weston Limited 2014 Annual Report
The Company included a minimum of three years of cash flows in its discounted cash flow model. The cash flow
forecasts were extrapolated beyond the three year period using an estimated long term growth rate of 2.0%
(2013 – 2.0%). The budgeted adjusted EBITDA growth is based on the strategic plans approved by GWL’s and
Loblaw’s Boards.
Note 19. Interests in Other Entities
Associates Loblaw consolidates Associates based on the concept of control, which is determined, for accounting
purposes, to exist through Associate Agreements. Loblaw does not have any direct or indirect shareholdings in
the corporations (the “Associates’ corporations”) that operate the Associates. The Associates’ corporations
remain separate legal entities.
Consolidated Structured Entities
Independent Funding Trusts Certain independent franchisees of Loblaw obtain financing through a structure
involving independent funding trusts, which were created to provide loans to franchisees to facilitate their
purchase of inventory and fixed assets, consisting mainly of fixtures and equipment. Loblaw provides a standby
letter of credit for the benefit of the independent funding trusts (see note 36).
Eagle Credit Card Trust® Loblaw, through PC Bank, participates in various securitization programs that provide
the primary source of funds for the operation of its credit card business. Under these securitization programs, a
portion of the total interest in credit card receivables is sold to third parties pursuant to co-ownership
agreements that issue interest bearing securities. PC Bank participates in a single seller revolving co-ownership
securitization program with Eagle and continues to service the credit card receivables on behalf of Eagle, but
does not receive any fee for its servicing obligations and has a retained interest in the securitized receivables
represented by the right to future cash flows after obligations to investors have been met. Loblaw provides a
standby letter of credit for the benefit of the independent securitization trust (see note 36).
Share-Based Compensation Trusts During 2013, GWL and Loblaw established trusts for each of their RSU and
PSU plans to facilitate the purchase of shares for future settlement upon vesting. Each company is the sponsor of
their respective trusts and has assigned Computershare Trust Company of Canada as the trustee. GWL and
Loblaw fund the purchase of shares for settlement and earn management fees from the trusts.
Unconsolidated Structured Entities
Other Independent Securitization Trusts The Other Independent Securitization Trusts administer multi-seller,
multi-asset securitization programs that acquire assets from various participants, including credit card
receivables from PC Bank. These trusts are managed by major Canadian chartered banks. PC Bank does not
control the trusts through voting interests and does not exercise any control over the trusts’ management,
administration or assets. The activities of these trusts are conducted on behalf of the participants and each trust
is a conduit through which funds are raised to purchase assets through the issuance of senior and subordinated
short term and medium term asset backed notes. Loblaw provides standby letters of credit for the benefit of
these trusts (see note 36).
George Weston Limited 2014 Annual Report 99
Notes to the Consolidated Financial Statements
Note 20. Other Assets
The components of other assets were as follows:
($ millions)
Fair value of equity forward (note 33)
Sundry investments and other receivables
Net accrued benefit plan asset (note 29)
Interest in joint venture (note 37)
Other
Other assets
Note 21. Provisions
As at
Dec. 31, 2014
367
$
141
109
6
60
683
$
Dec. 31, 2013
524
$
136
138
55
853
$
Provisions consist primarily of amounts recorded in respect of restructuring, self-insurance, commodity taxes,
environmental and decommissioning liabilities, onerous lease arrangements and a MEPP withdrawal liability.
The following are continuities relating to the Company’s provisions:
($ millions)
Provisions, beginning of year
Acquisition of Shoppers Drug Mart (note 5)
Additions
Payments
Reversals
Impact of foreign currency translation
Provisions, end of year
($ millions)
Carrying amount of provisions recorded in:
Current provisions
Non-current provisions
Provisions
2014
201
19
89
(79)
(3)
6
233
$
$
2013
217
48
(53)
(15)
4
201
$
$
As at
Dec. 31, 2014
Dec. 31, 2013
$
$
130
103
233
$
$
120
81
201
The Company’s accrued insurance liabilities were $84 million (2013 – $70 million), of which $50 million
(2013 – $40 million) was included in non-current provisions and $34 million (2013 – $30 million) in current
provisions. Included in total accrued insurance liabilities were $30 million (2013 – $34 million) of U.S. workers’
compensation liabilities. The related cost and accrued workers’ compensation liabilities are based on actuarial
valuations which are dependent on assumptions determined by management. The discount rate used in
determining the 2014 workers’ compensation cost and liability was 2.0% (2013 – 2.0%). The total workers’
compensation liability is equal to the ultimate actuarial loss estimate less any actual losses paid to date. Any
change in the workers’ compensation liability is recognized immediately in operating income.
The U.S. workers’ compensation cost associated with the worker’s compensation liabilities was $4 million in 2014
(2013 – $4 million).
100 George Weston Limited 2014 Annual Report
During 2014, Loblaw recorded $46 million (2013 – $32 million) of restructuring and reorganization costs in
operating income, primarily associated with the reduction of corporate and store-support positions, the
departure of certain executives and the realignment of certain of Loblaw’s central office functions. As at year end
2014, $37 million (2013 – $39 million) was included in provisions relating to these restructuring initiatives.
Note 22. Short Term Debt
The components of short term debt were as follows:
($ millions)
Other Independent Securitization Trusts(1)
Series B Debentures(2)
Short term debt
(note 12)
As at
Dec. 31, 2014
605
$
496
1,101
$
Dec. 31, 2013
605
$
455
1,060
$
(1) The outstanding short term debt balances relate to credit card receivables securitized to the Other Independent Securitization Trusts.
During 2014, PC Bank extended the maturity date for one of its Other Independent Securitization Trust agreements from the third
quarter of 2015 to the third quarter of 2016, with all other terms and conditions remaining substantially the same. In addition,
PC Bank extended the maturity date for two of its Other Independent Securitization Trust agreements from the second quarter of
2015 to the second quarter of 2016, with all other terms and conditions remaining substantially the same.
During 2013, PC Bank repurchased $300 million of co-ownership interests in the securitized receivables from the Other Independent
Securitization Trusts, and recorded a corresponding decrease to short term debt.
The undrawn commitments on facilities available from the Other Independent Securitization Trusts as at year end 2014 were
$120 million (2013 – $120 million). Loblaw has arranged letters of credit on behalf of PC Bank, for the benefit of the Other
Independent Securitization Trusts (see note 36).
Subsequent to year end 2014, Loblaw, through PC Bank, extended the maturity date for certain Other Independent Securitization
Trust agreements from the second quarter of 2016 to the second quarter of 2017, with all other terms and conditions remaining
substantially the same.
(2) Series B Debentures issued by GWL are due on demand, and pay a current weighted average interest rate of 1.77% (2013 – 1.78%).
The Series A, 7.00% (see note 23) and Series B Debentures are secured by a pledge of 9.6 million Loblaw common shares.
George Weston Limited 2014 Annual Report 101
Notes to the Consolidated Financial Statements
Note 23. Long Term Debt
The components of long term debt were as follows:
($ millions)
George Weston Limited
Debentures
Series A, 7.00%, due 2031(i)
Notes
due 2014(ii)
due 2016
due 2024(iii)
due 2032
due 2033
Loblaw Companies Limited
5.05%,
3.78%,
4.12%,
7.10%,
6.69%,
Notes(vii)
6.00%,
4.85%,
7.10%,
3.75%,
5.22%,
4.86%,
6.65%,
6.45%,
6.50%,
11.40%,
due 2014(iv)
due 2014(v)
due 2016
due 2019(vi)
due 2020
due 2023(vi)
due 2027
due 2028
due 2029
due 2031
Principal
Effect of coupon repurchase
6.85%,
6.54%,
8.75%,
6.05%,
6.15%,
5.90%,
6.45%,
7.00%,
5.86%,
due 2032
due 2033
due 2033
due 2034
due 2035
due 2036
due 2039
due 2040
due 2043
Shoppers Drug Mart
2.01%,
2.36%,
due 2016(viii)
due 2018(viii)
Unsecured term loan facility(ix)
1.45% + Bankers’ Acceptance, due 2019
Long term debt secured by mortgage
5.49%,
due 2018 (note 15)
Guaranteed investment certificates(x)
due 2015 – 2019 (1.20% – 3.78%)
Independent securitization trusts(xi)
Eagle, 3.58%, due 2015
Eagle, 2.91%, due 2018
Independent funding trusts(xii)
Finance lease obligations (note 32)
Choice Properties
Series A 3.55%, due 2018(xiv)
4.90%, due 2023(xiv)
Series B
3.50%, due 2021(xiii)
Series C
Series D 4.29%, due 2024(xiii)
3.00%, due 2016
Series 5
3.00%, due 2017
Series 6
3.00%, due 2019
Series 7
3.60%, due 2020
Series 8
Series 9
3.60%, due 2021
Series 10 3.60%, due 2022
Credit facility
Transaction costs and other
Total long term debt
Less – amount due within one year
Long term debt
102 George Weston Limited 2014 Annual Report
As at
Dec. 31, 2014
Dec. 31, 2013
$
466
$
466
200
350
150
100
100
350
300
800
350
800
100
200
175
151
(67)
200
200
200
200
200
300
200
150
55
87
430
350
400
475
388
400
200
(16)
8,944
(1,208)
7,736
$
350
200
150
100
300
800
350
800
100
200
175
151
(57)
200
200
200
200
200
300
200
150
55
225
275
1,229
86
634
350
400
498
600
400
200
250
200
300
200
200
300
200
300
122
(33)
12,726
(420)
12,306
$
(i)
(ii)
(iii)
(iv)
(v)
(vi)
The Series A, 7.00% and Series B Debentures (see note 22) are secured by a pledge of 9.6 million Loblaw
common shares.
In 2014, GWL’s $200 million 5.05% MTN due March 10, 2014 matured and was repaid.
In 2014, GWL issued $200 million principal amount of senior unsecured notes bearing interest at a fixed
rate of 4.12% and maturing on June 17, 2024.
In 2014, Loblaw’s $100 million 6.00% MTN due March 3, 2014 matured and was repaid.
In 2014, Loblaw’s $350 million 4.85% MTN due May 8, 2014 matured and was repaid.
During 2013, Loblaw issued $1.6 billion aggregate principal amount of senior unsecured notes, consisting
of $800 million of Senior Unsecured Notes, 3.75% Series 2019 due March 12, 2019 and $800 million of
Senior Unsecured Notes, 4.86% Series 2023 due September 12, 2023. The net proceeds from the
offering were initially placed in escrow until used in connection with the acquisition of Shoppers Drug
Mart (see note 5).
(vii)
During 2013, Loblaw’s $200 million 5.40% MTN due November 20, 2013 matured and was repaid.
(viii)
(ix)
In connection with the acquisition of Shoppers Drug Mart, Loblaw assumed Shoppers Drug Mart’s
outstanding principal amount of MTNs of $225 million at 2.01% and $275 million at 2.36%, maturing in
2016 and 2018, respectively.
During 2014, as part of the financing of the acquisition of Shoppers Drug Mart, $3.5 billion was obtained
through an unsecured term loan facility bearing interest at a rate equal to the Bankers’ Acceptance
rate plus 1.75% and subsequently re-priced to the Bankers’ Acceptance rate plus 1.45%.
During 2014, Loblaw repaid $2.3 billion of the $3.5 billion drawn on this facility. During 2014, Loblaw
amortized $25 million of the $41 million of deferred financing costs related to the facility in net interest
expense and other financing charges, of which $23 million related to accelerated amortization for early
repayments (see note 6).
(x)
The following table summarizes PC Bank’s Guaranteed Investment Certificates (“GICs”) activity, before
commissions:
($ millions)
Balance, beginning of year
GICs issued
GICs matured
Balance, end of year
2014
430
261
(57)
634
$
$
2013
303
167
(40)
430
$
$
(xi)
(xii)
The notes issued by Eagle are MTNs, which are collateralized by PC Bank’s credit card receivables
(see note 12). During 2013, Eagle issued $400 million of senior and subordinated term notes with a
maturity date of October 17, 2018 at a weighted average interest rate of 2.91%, and repaid $250 million
of senior and subordinated term notes which matured on December 17, 2013.
As at year end 2014, the independent funding trusts had drawn $498 million (2013 – $475 million) from
the revolving committed credit facility that is the source of funding to the independent funding trusts.
During 2014, Loblaw renewed the revolving committed credit facility and extended the maturity date to
May 6, 2017, with all other terms and conditions remaining substantially the same. Loblaw provides
credit enhancement in the form of a standby letter of credit for the benefit of the independent funding
trusts (see note 36).
George Weston Limited 2014 Annual Report 103
Notes to the Consolidated Financial Statements
Choice Properties During 2014, Choice Properties Limited Partnership entered into a Master Trust Indenture
agreement with Computershare Trust Company of Canada to create supplemental indentures in order to
facilitate the replacement of all tranches of transferor notes held by Loblaw, with Series 5 to Series 10 notes
containing the same principal amounts, interest rates and maturity dates. These replacement notes bear fixed
interest rates between 3.00% and 3.60% and mature during 2016 through 2022. The remaining terms and
conditions are substantially similar to the original notes. Loblaw subsequently sold the replacement notes to
unrelated parties and received net proceeds of $1.5 billion. Loblaw used these proceeds to partially repay the
$3.5 billion unsecured term loan facility drawn to fund a portion of the cost to acquire Shoppers Drug Mart
(see note 5).
(xiii)
During 2014, Choice Properties issued Series C senior unsecured debentures and Series D senior
unsecured debentures under its Short Form Base Shelf Prospectus. The majority of the proceeds were
used to repay $440 million of transferor notes held by Loblaw.
(xiv)
As part of its initial public offering in 2013, Choice Properties issued Series A senior unsecured
debentures and Series B senior unsecured debentures.
Subsequent to year end 2014, Choice Properties issued $250 million aggregate principal amount of Series E
senior unsecured debentures bearing interest at a rate of 2.30% per annum and maturing in 2020. The net
proceeds from the issuance were used by Choice Properties to repay existing indebtedness and for general
business purposes.
Committed Facilities During 2014, effective on the closing of the acquisition of Shoppers Drug Mart, Loblaw’s
committed credit facility was increased from $800 million to $1.0 billion and the term was extended to
December 31, 2018, with all other terms and conditions remaining substantially the same. The credit facility
contains certain financial covenants (see note 28). As at year end 2014 and 2013, Loblaw had not drawn on its
committed credit facility.
As required by the unsecured term loan facility agreement, $478 million, which was the outstanding balance
owing on Shoppers Drug Mart’s revolving bank credit facility, was repaid and the facility was cancelled upon
closing of the acquisition of Shoppers Drug Mart (see note 5).
During 2013, Choice Properties entered into an agreement for a $500 million, 5-year senior unsecured
committed credit facility provided by a syndicate of lenders. During 2014, Choice Properties extended the
maturity date of its committed credit facility to July 5, 2019. This facility bears interest at variable rates: Prime
plus 0.45% or Banker’s Acceptance rate plus 1.45%. The facility contains certain financial covenants
(see note 28). As at year end 2014, Choice Properties had drawn $122 million (2013 – nil) under its committed
credit facility.
Private Placement Notes During 2013, Loblaw settled its U.S. $300 million private placement (“USPP”) notes
and related cross currency swaps (see note 33). Loblaw incurred approximately $18 million of early-settlement
costs related to the settlement of the USPP note due May 29, 2015, which were recorded in net interest expense
and other financing charges (see note 6).
Long Term Debt Due within One Year The components of long term debt due within one year were as follows:
($ millions)
Independent securitization trust
Medium term notes
Independent funding trusts
GICs
Other
Long term debt due within one year
104 George Weston Limited 2014 Annual Report
As at
Dec. 31, 2014
350
$
Dec. 31, 2013
$
$
650
475
52
31
1,208
29
41
420
$
Schedule of Repayments The schedule of repayment of long term debt, based on maturity is as follows:
($ millions)
2015
2016
2017
2018
2019
Thereafter
Total long term debt (excludes transaction costs)
See note 33 for the fair value of long term debt.
Note 24. Other Liabilities
The components of other liabilities were as follows:
($ millions)
Net defined benefit plan obligation (note 29)
Other long term employee benefit obligation
Share-based compensation liability (note 30)
Fair value of acquired leases
Deferred lease obligation
Other
Other liabilities
Note 25. Capital Securities
As at
Dec. 31, 2014
420
$
1,333
847
1,353
2,588
6,275
12,816
$
As at
Dec. 31, 2014
370
$
124
7
104
77
167
849
$
Dec. 31, 2013
292
$
117
1
25
183
618
$
Loblaw has 9.0 million 5.95% non-voting Second Preferred Shares, Series A, outstanding (authorized –
12.0 million), with a face value of $225 million, which were issued for net proceeds of $218 million, and entitle
the holder to a fixed cumulative preferred cash dividend of $1.4875 per share per annum which, if declared, will
be payable quarterly. These preferred shares are measured using the effective interest method and are
presented as capital securities on the consolidated balance sheets and classified as other financial liabilities. As
at year end 2014, the capital securities were recorded in current liabilities (2013 – non-current liabilities).
On and after July 31, 2014 and 2015, Loblaw may, at its option, redeem for cash, in whole or in part, these
outstanding preferred shares at $25.50 and $25.00 per share, respectively. Loblaw may, at its option, convert
these preferred shares into that number of common shares of Loblaw determined by dividing the then
applicable redemption price, together with all accrued and unpaid dividends to but excluding the date of
conversion, by the greater of $2.00 per share and 95% of the then current market price of the common shares.
On and after July 31, 2015, these outstanding preferred shares are convertible, at the option of the holder, into
that number of common shares of Loblaw determined by dividing $25.00 per share, together with accrued and
unpaid dividends to but excluding the date of conversion, by the greater of $2.00 per share and 95% of the then
current market price of the common shares. This option is subject to Loblaw’s right to redeem the preferred
shares for cash or arrange for their sale to substitute purchasers.
Dividends on capital securities are presented in net interest expense and other financing charges in the
consolidated statements of earnings (see note 6).
George Weston Limited 2014 Annual Report 105
Notes to the Consolidated Financial Statements
Note 26. Share Capital
The components of share capital were as follows:
($ millions)
Common share capital
Preferred shares, Series I
Preferred shares, Series III
Preferred shares, Series IV
Preferred shares, Series V
Share capital
As at
Dec. 31, 2014
180
$
228
196
197
196
997
$
Dec. 31, 2013
155
$
228
196
197
196
972
$
Common Share Capital (authorized – unlimited) Common shares issued are fully paid and have no par value.
The following table summarizes the activity in the Company’s common shares issued and outstanding for the
years ended December 31, 2014 and December 31, 2013:
($ millions except where otherwise indicated)
Issued and outstanding, beginning of year
Issued for settlement of stock
options (note 30)
Purchased for cancellation
Issued and outstanding, end of year
Shares held in trust, beginning of year
Purchased for future settlement of
RSUs and PSUs
PSUs (note 30)
Shares held in trust, end of year
Issued and outstanding net of shares
held in trust, end of year
Weighted average outstanding, net of
shares held in trust
2013
Common
Share Capital
136
20
(1)
155
$
$
$
$
Number of
Common Shares
127,899,410
2014
Common
Share Capital
155
$
Number of
Common Shares
128,221,841
312,583
(310,762)
127,901,231
(218,726)
$
$
(127,000)
54,422
(291,304)
25
180
257,569
(580,000)
127,899,410
(220,000)
1,274
(218,726)
127,609,927
$
180
127,680,684
$
155
127,788,025
127,580,415
Released for settlement of RSUs and
Preferred Shares, Series I (authorized – 10.0 million) GWL has 9.4 million 5.80% non-voting Preferred Shares,
Series I outstanding, with a face value of $235 million, which entitle the holder to a fixed cumulative preferred
cash dividend of $1.45 per share per annum which will, if declared, be payable quarterly. GWL may, at its option,
redeem for cash, in whole or in part, these outstanding preferred shares at $25.00 per share, together with all
accrued and unpaid dividends to the redemption date.
At any time after issuance, GWL may, at its option, give the holders of these preferred shares the right, at the
option of the holder, to convert their preferred shares into preferred shares of a further series designated by
GWL on a share-for-share basis on a date specified by GWL.
Preferred Shares, Series III (authorized – 10.0 million) GWL has 8.0 million 5.20% non-voting Preferred Shares,
Series III outstanding, with a face value of $200 million, which entitle the holder to a fixed cumulative preferred
cash dividend of $1.30 per share per annum which will, if declared, be payable quarterly. GWL may, at its option,
redeem for cash, in whole or in part, these outstanding preferred shares at $25.00 per share, together with all
accrued and unpaid dividends to the redemption date.
106 George Weston Limited 2014 Annual Report
At any time after issuance, GWL may, at its option, give the holders of these preferred shares the right, at the
option of the holder, to convert their preferred shares into preferred shares of a further series designated by
GWL on a share-for-share basis on a date specified by GWL.
Preferred Shares, Series IV (authorized – 8.0 million) GWL has 8.0 million 5.20% non-voting Preferred Shares,
Series IV outstanding, with a face value of $200 million, which entitle the holder to a fixed cumulative preferred
cash dividend of $1.30 per share per annum which will, if declared, be payable quarterly. GWL may, at its option,
redeem for cash, in whole or in part, these outstanding preferred shares at $25.00 per share, together with all
accrued and unpaid dividends to the redemption date.
At any time after issuance, GWL may, at its option, give the holders of these preferred shares the right, at the
option of the holder, to convert their preferred shares into preferred shares of a further series designated by
GWL on a share-for-share basis on a date specified by GWL.
Preferred Shares, Series V (authorized – 8.0 million) GWL has 8.0 million 4.75% non-voting Preferred Shares,
Series V outstanding, with a face value of $200 million, which entitle the holder to a fixed cumulative preferred
cash dividend of $1.1875 per share per annum which will, if declared, be payable quarterly. GWL may, at its
option, redeem for cash, in whole or in part, these outstanding preferred shares as follows:
Until June 30, 2015 at $25.25 per share, together with all accrued and unpaid dividends to the
redemption date; and
On or after July 1, 2015 at $25.00 per share, together with all accrued and unpaid dividends to the
redemption date.
At any time after issuance, GWL may, at its option, give the holders of these preferred shares the right, at the
option of the holder, to convert their preferred shares into preferred shares of a further series designated by
GWL on a share-for-share basis on a date specified by GWL.
Dividends The declaration and payment of dividends on the Company’s common shares and the amount thereof
are at the discretion of the Board which takes into account the Company’s financial results, capital requirements,
available cash flow, future prospects of the Company’s business and other factors considered relevant from time
to time. Over time, it is the Company’s intention to increase the amount of the dividend while retaining
appropriate free cash flow to reduce debt and finance future growth. In the second quarter of 2014, the Board
raised the quarterly common share dividend by $0.005 to $0.42 per share. The Board declared dividends
as follows:
($)
Dividends declared per share(1) – Common share
– Preferred share:
Series I
Series III
Series IV
Series V
2014
1.675
1.45
1.30
1.30
1.19
$
$
$
$
$
2013
1.625
1.45
1.30
1.30
1.19
$
$
$
$
$
(1) Dividends declared on common shares and Preferred Shares, Series III, Series IV and Series V were paid on January 1, 2015.
Dividends declared on Preferred Shares, Series I were paid on December 15, 2014.
George Weston Limited 2014 Annual Report 107
Notes to the Consolidated Financial Statements
The following table summarizes the Company’s cash dividends declared subsequent to year end 2014:
($)
Dividends declared per share(1) – Common share
– Preferred share:
Series I
Series III
Series IV
Series V
$
$
$
$
$
0.42
0.36
0.32
0.32
0.30
(1) Dividends declared on common shares and Preferred Shares, Series III, Series IV and Series V are payable on April 1, 2015.
Dividends declared on Preferred Shares, Series I are payable on March 15, 2015.
Normal Course Issuer Bid (“NCIB”) Program The following table summarizes the Company’s activity under its
NCIB program:
($ millions except where otherwise indicated)
Purchased for cancellation (number of shares)
Purchased for future settlement of RSUs and PSUs (number of shares)
Cash consideration paid
Retired
Purchased and held in trust
Premium charged to retained earnings
Reduction in share capital
2014
(53 weeks)
310,762
127,000
2013
(52 weeks)
580,000
220,000
$
$
$
$
29
11
40
$
$
$
$
42
15
56
1
In 2014, GWL renewed its NCIB program to purchase on the Toronto Stock Exchange (“TSX”) or enter into equity
derivative contracts to purchase up to 6,395,629 of its common shares, representing approximately 5% of the
common shares outstanding. In accordance with the rules and regulations of the TSX, any purchases must be at
the then market price of such shares.
Note 27. Loblaw Capital Transactions
During 2014, Loblaw issued 4,048,766 (2013 – 2,167,593) of its common shares in connection with its
share-based compensation plans including shares settled from the trusts established for the RSU and PSU plans.
As a result, contributed surplus increased by $28 million (2013 – $25 million).
During 2014, Loblaw purchased under its NCIB 3,353,800 (2013 – 2,603,500) of its common shares for cash
consideration of $178 million (2013 – $119 million). As a result, contributed surplus decreased by $34 million
(2013 – $36 million).
During 2014, Loblaw issued 119,471,382 of its common shares for the acquisition of Shoppers Drug Mart
(see note 5) resulting in a reduction in the Company’s ownership interest in Loblaw. The impact of a reduction in
ownership interest is determined based on the change in the proportionate share of identifiable net assets. The
gain resulting from the dilution of the Company’s ownership interest in Loblaw was recorded in retained earnings
as GWL remains the controlling shareholder of Loblaw (see note 1). As a result, retained earnings increased by
$1,078 million.
108 George Weston Limited 2014 Annual Report
Note 28. Capital Management
In order to manage its capital structure, the Company, among other activities, may adjust the amount of
dividends paid to shareholders, purchase shares for cancellation pursuant to its NCIB program, issue new shares
or issue or repay long term debt with the objective of:
• ensuring sufficient liquidity is available to support its financial obligations and to execute its operating and
•
strategic plans;
targeting a reduction in debt following the Shoppers Drug Mart acquisition to return to credit rating metrics
consistent with those of investment grade companies;
• maintaining financial capacity and flexibility through access to capital to support future development of the
business;
• minimizing the after-tax cost of its capital while taking into consideration current and future industry, market
and economic risks and conditions; and
• utilizing short term funding sources to manage its working capital requirements and long term funding
sources to manage the long term capital expenditures of the business.
The Company has policies in place which govern debt financing plans and risk management strategies for
liquidity, interest rates and foreign exchange. These policies outline measures and targets for managing capital,
including a range for leverage consistent with the desired credit rating. Management and the Audit Committee
regularly review the Company’s compliance with, and performance against, these policies. In addition,
management regularly reviews these policies to ensure they remain consistent with the risk tolerance acceptable
to the Company.
The following table summarizes the Company’s total capital under management:
As at
($ millions)
Bank indebtedness
Short term debt
Long term debt due within one year
Long term debt
Certain other liabilities
Fair value of financial derivatives related to the above debt
Total debt
Capital securities
Equity attributable to shareholders of the Company
Total capital under management
(1) Certain 2013 figures have been amended (see note 2).
Dec. 31, 2014
162
$
1,101
420
12,306
28
(367)
13,650
225
7,289
21,164
$
$
Dec. 31, 2013(1)
$
$
$
1,060
1,208
7,736
39
(524)
9,519
224
6,313
16,056
Covenants and Regulatory Requirements Loblaw is subject to certain key financial and non-financial covenants
under its existing credit facility, unsecured term loan facility, certain MTNs and letters of credit. These covenants,
which include interest coverage and leverage ratios, as defined in the respective agreements, are measured by
Loblaw on a quarterly basis to ensure compliance with these agreements. During and as at year end 2014,
Loblaw was in compliance with each of the covenants under these agreements.
Choice Properties has certain key financial and non-financial covenants under its debentures and credit facility
which include debt service ratios and leverage ratios. These ratios are measured by Choice Properties on a
quarterly basis to ensure compliance. During and as at year end 2014, Choice Properties was in compliance with
the covenants under these agreements.
Loblaw is subject to externally imposed capital requirements from the Office of the Superintendent of Financial
Institutions (“OSFI”), the primary regulator of PC Bank. PC Bank’s capital management objectives are to maintain
George Weston Limited 2014 Annual Report 109
Notes to the Consolidated Financial Statements
a consistently strong capital position while considering the economic risks generated by its credit card
receivables portfolio and to meet all regulatory capital requirements as defined by OSFI. PC Bank uses Basel III as
its regulatory capital management framework which includes a common equity Tier 1 capital ratio of 4.0%, a
Tier 1 capital ratio of 5.5% and a total capital ratio of 8%. In addition to the regulatory capital ratios requirement,
prior to January 1, 2015, financial institutions were expected to meet an assets-to-capital multiple test. During
and as at year end 2014 and 2013, PC Bank met all applicable regulatory requirements related to capital ratios
and the assets-to-capital multiple test. Effective January 1, 2015, the Basel III Leverage ratio replaced the assets-
to-capital multiple test.
In 2014, OFSI released the final Guideline on Liquidity Adequacy Requirements (“LARs”). The LARs guideline
establishes standards based on the Basel III framework, including a Liquidity Coverage Ratio (“LCR”) standard
effective January 1, 2015 and a Net Stable Funding Ratio standard effective January 1, 2018. The LCR standard
specifies the level of liquid securities that PC Bank is required to maintain to meet its financial liabilities.
In addition, the Company has wholly-owned subsidiaries that engage in insurance related activities. These
subsidiaries each exceeded their minimum regulatory capital and surplus requirements as at year end 2014.
Note 29. Post-Employment and Other Long Term Employee Benefits
Post-Employment Benefits The Company sponsors a number of pension plans, including registered defined
benefit pension plans, registered defined contribution pension plans and supplemental unfunded arrangements
providing pension benefits in excess of statutory limits. Certain obligations of the Company under these
supplemental pension arrangements are secured by a standby letter of credit issued by a major Canadian
chartered bank.
GWL’s and Loblaw’s Pension Committees (“the Committees”) oversee the Company’s pension plans. The
Committees are responsible for assisting the GWL’s and Loblaw’s Boards in fulfilling its general oversight
responsibilities for the plans. The Committees assist the Boards with administration of the plans, pension
investment and monitoring responsibilities, and compliance with legal and regulatory requirements.
The Company’s defined benefit pension plans are primarily funded by the Company, predominantly
non-contributory and the benefits are, in general, based on career average earnings subject to limits. The
funding is based on a solvency valuation for which the assumptions may differ from the assumptions used for
accounting purposes as detailed in this note.
The Company also offers certain other defined benefit plans other than pension plans. These other defined
benefit plans are generally not funded, are mainly non-contributory and include health care, life insurance and
dental benefits. Employees eligible for these other defined benefit plans are those who retire at certain ages
having met certain service requirements. The majority of other defined benefit plans for current and future
retirees include a limit on the total benefits payable by the Company.
The Company’s defined benefit pension plans and other defined benefit plans expose it to a number of actuarial
risks, such as longevity risk, interest rate risk and market risk.
In Canada, the Company also has a national defined contribution plan for salaried employees. All newly hired
salaried employees are only eligible to participate in this defined contribution plan.
The Company also contributes to various MEPPs, which are administered by independent boards of trustees
generally consisting of an equal number of union and employer representatives. The Company’s responsibility to
make contributions to these plans is limited by amounts established pursuant to its collective agreements.
The Company expects to make contributions in 2015 to its defined benefit and defined contribution plans and
the MEPPs in which it participates as well as make benefit payments to the beneficiaries of the supplemental
unfunded defined benefit pension plans, other defined benefit plans and other long term employee benefit
plans.
110 George Weston Limited 2014 Annual Report
Other Long Term Employee Benefits The Company offers other long term employee benefit plans that include
long term disability benefits and continuation of health care and dental benefits while on disability.
Defined Benefit Pension Plans and Other Defined Benefit Plans
(i)
Information on the Company’s defined benefit pension plans and other defined benefit plans, in aggregate, is
summarized as follows:
($ millions)
Present value of funded obligations
Present value of unfunded obligations
Total present value of defined benefit obligations
Fair value of plan assets
Total funded status of (obligations) surpluses
Liability arising from minimum funding
requirement for past service
Total net defined benefit plan (obligation) surplus
Recorded on the consolidated balance sheets
as follows:
Other assets (note 20)
Other liabilities (note 24)
As at
Dec. 31, 2014
Other
Defined
Benefit
Plans
$
$
$
(204)
(204)
(204)
(204)
$
$
$
$
$
Dec. 31, 2013
Other
Defined
Benefit
Plans
$
$
$
$
(174)
(174)
(174)
(174)
Defined
Benefit
Pension
Plans
(1,903)
(114)
(2,017)
2,044
27
(7)
20
$
(204)
$
$
138
(118)
$
(174)
Defined
Benefit
Pension
Plans
(2,423)
(131)
(2,554)
2,502
(52)
(5)
(57)
109
(166)
$
$
$
$
$
$
George Weston Limited 2014 Annual Report 111
Notes to the Consolidated Financial Statements
The following are the continuities of the fair value of plan assets and the present value of the defined benefit
plan obligations:
($ millions)
Changes in the fair value of plan assets
Fair value, beginning of year
Acquisition of Shoppers Drug Mart (note 5)
Employer contributions
Employee contributions
Benefits paid
Interest income
Actuarial gains in other comprehensive
income
Other
Fair value, end of year
Changes in the present value of the
defined benefit plan obligations
Balance, beginning of year
Acquisition of Shoppers Drug Mart (note 5)
Current service cost
Interest cost
Benefits paid
Employee contributions
Actuarial losses (gains) in other
comprehensive income
Plan amendments(1)
Contractual termination benefits(2)
Special termination benefits(2)
Other
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$ 2,044
161
58
4
(107)
101
242
(1)
$ 2,502
2014
Total
$ 2,044
161
58
4
(107)
101
242
(1)
$ 2,502
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2013
Total
$ 1,847
$ 1,847
118
3
(105)
74
109
(2)
$ 2,044
118
3
(105)
74
109
(2)
$ 2,044
$ 2,017 $
173
53
102
(114)
4
174 $ 2,191
179
60
110
(120)
4
6
7
8
(6)
310
15
325
1
2
6
1
2
6
204 $ 2,758
$ 2,185 $
253 $ 2,438
56
86
(111)
3
(182)
(28)
2
6
$ 2,017 $
9
9
(7)
(60)
(23)
65
95
(118)
3
(242)
(51)
2
(7)
(1)
174 $ 2,191
Balance, end of year
$ 2,554 $
(1) Relates to the amendments to certain of the Company’s defined benefit plans impacting certain employees retiring after
January 1, 2015 which were announced in 2013.
(2) Relates to the reduction of head office and administrative positions at Loblaw (see note 21).
For the year ended 2014, the actual return on plan assets was $343 million (2013 – $183 million).
The net defined benefit obligation can be allocated to the plans’ participants as follows:
• Active plan participants – 42% (2013 – 42%)
• Deferred plan participants – 11% (2013 – 12%)
• Retirees – 47% (2013 – 46%)
During 2015, the Company expects to contribute approximately $40 million (2014 – contributed $58 million) to
its registered defined benefit pension plans. The actual amount paid may vary from the estimate based on
actuarial valuations being completed, investment performance, volatility in discount rates, regulatory
requirements and other factors.
112 George Weston Limited 2014 Annual Report
The net cost recognized in net earnings before income taxes for the Company’s defined benefit pension plans
and other defined benefit plans was as follows:
($ millions)
Current service cost
Interest cost on net defined benefit
plan obligations
Contractual and special termination benefits(1)
Past service costs(2)
Other
Net post-employment defined benefit costs
2014
(53 weeks)
2013
(52 weeks)
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
53 $
7 $
8
1
3
6
63 $
$
15 $
Total
60
9
3
6
78
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
56 $
9 $
12
2
(28)
8
50 $
9
(23)
(3)
(8) $
$
Total
65
21
2
(51)
5
42
(1) Relates to the reduction of head office and administrative positions at Loblaw (see note 21).
(2) Relates to the amendments to certain of the Company’s defined benefit plans impacting certain employees retiring after
January 1, 2015 which were announced in 2013.
The actuarial losses (gains) recognized in other comprehensive income for defined benefit plans was as follows:
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
(242)
18 $
(1)
2014
(53 weeks)
Total
$
(242)
17
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
(109)
(12) $
(48)
2013
(52 weeks)
Total
$
(109)
(60)
34
258
(2)
3
13
37
271
81
4
85
(251)
(16)
(267)
(2)
4
4
$
66 $
15 $
81
$
(287) $
(60) $
(347)
(18)
(4)
(22)
77
16
93
($ millions)
Return on plan assets excluding amounts
included in interest income
Experience adjustments
Actuarial losses from change in
demographic assumptions
Actuarial losses (gains) from change in
financial assumptions
Change in liability arising from minimum
funding requirements for past service
Total net actuarial losses (gains) recognized
in other comprehensive income
before income taxes
Income tax (recovery) expense on
actuarial losses (gains) (note 7)
Actuarial losses (gains) net of income tax
(recovery) expense
$
48 $
11 $
59
$
(210) $
(44) $
(254)
George Weston Limited 2014 Annual Report 113
Notes to the Consolidated Financial Statements
The cumulative actuarial losses (gains) before income taxes recognized in equity for the Company’s defined
benefit plans were as follows:
($ millions)
Cumulative amount, beginning of year
Net actuarial losses (gains) recognized in
the year before income taxes
Cumulative amount, end of year
Defined
Benefit
Pension
Plans
140 $
66
206 $
$
$
Other
Defined
Benefit
Plans
(26) $
15
(11) $
2014
Total
114
81
195
$
$
Defined
Benefit
Pension
Plans
427 $
Other
Defined
Benefit
Plans
34 $
2013
Total
461
(287)
140 $
(60)
(26) $
(347)
114
Composition of Plan Assets The defined benefit pension plan assets are held in trust and consisted of the
following asset categories:
($ millions except where otherwise indicated)
Equity securities
Canadian – common
Foreign
– pooled funds
– pooled funds
Total equity securities
Debt securities
Fixed income securities – government
– corporate
Fixed income pooled funds(1) – government
– corporate
Total debt securities
Other investments
Cash and cash equivalents
Refundable tax on account with CRA
Total
$
$
$
$
$
$
$
$
336
570
906
789
273
375
70
1,507
54
20
15
2,502
As at
Dec. 31, 2014
Dec. 31, 2013
$
13%
23%
36% $
31% $
11%
15%
3%
60% $
2%
1% $
1%
100% $
152
208
603
963
549
177
234
55
1,015
66
7%
10%
30%
47%
27%
9%
11%
3%
50%
3%
2,044
100%
(1) Both government and corporate securities may be included within the same fixed income pooled fund.
As at year end 2014 and 2013, the defined benefit pension plans did not directly include any GWL or Loblaw
securities.
All equity and debt securities and other investments are valued based on quoted prices (unadjusted) in active
markets for identical assets or liabilities or based on inputs other than quoted prices in active markets that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
The Company’s asset allocation reflects a balance of interest rate sensitive investments, such as fixed income
investments and equities, which are expected to provide higher returns over the long term. The Company’s
targeted asset allocations are actively monitored and adjusted on a plan by plan basis to align the asset mix with
the liability profiles of the plans.
114 George Weston Limited 2014 Annual Report
Principal Actuarial Assumptions The principal actuarial assumptions used in calculating the Company’s defined
benefit plan obligations and net defined benefit plan cost for the year were as follows (expressed as weighted
averages):
Defined
Benefit
Pension
Plans
2014
Other
Defined
Benefit
Plans
Defined
Benefit
Pension
Plans
2013
Other
Defined
Benefit
Plans
4.00%
n/a
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
4.00%
3.50%
4.75%
3.50%
CPM-RPP2014Priv
4.50%
n/a
CPM-RPP2014Priv
Generational
Generational
Generational
Generational
4.75%
3.50%
CPM-RPP2014Priv
4.50%
n/a
CPM-RPP2014Priv
Generational
Generational
4.00%
3.50%
UP94@Fully
Generational
4.00%
n/a
UP94@Fully
Generational
Defined Benefit Plan
Obligations
Discount rate
Rate of compensation increase
Mortality table
Net Defined Benefit Plan Cost
Discount rate
Rate of compensation increase
Mortality table
n/a – not applicable
The weighted average duration of the defined benefit obligations as at year end 2014 is 15.1 years
(2013 – 15.4 years).
The growth rate of health care costs, primarily drug and other medical costs, for the other defined benefit plan
obligations as at year end 2014 was estimated at 4.50% and is expected to remain at 4.50% by year end 2015
and thereafter.
Sensitivity of Key Actuarial Assumptions The following table outlines the key assumptions for 2014 (expressed
as weighted averages) and the sensitivity of a 1% change in each of these assumptions on the defined benefit
plan obligations and the net defined benefit plan cost.
The sensitivity analysis provided in the table is hypothetical and should be used with caution. The sensitivities of
each key assumption have been calculated independently of any changes in other key assumptions. Actual
experience may result in changes in a number of key assumptions simultaneously. Changes in one factor may
result in changes in another, which could amplify or reduce the impact of such assumptions.
Increase (Decrease)
($ millions)
Discount rate
Impact of:
1% increase
1% decrease
Expected growth rate of health care costs
Impact of:
1% increase
1% decrease
Defined Benefit Pension Plans
Other Defined Benefit Plans
Defined
Benefit
Plan
Obligations
4.00%
(357)
417
$
$
Net
Defined
Benefit
Plan Cost(1)
4.75%
(32)
31
$
$
n/a
n/a
n/a
n/a
Defined
Benefit
Plan
Obligations
4.00%
$
$
$
$
(25) $
$
31
4.50%
25
$
(21) $
Net
Defined
Benefit
Plan Cost(1)
4.50%
(1)
1
4.00%
2
(2)
n/a – not applicable
(1) Discount rate and expected growth rate of health care costs sensitivity is for current service and interest costs only.
George Weston Limited 2014 Annual Report 115
Notes to the Consolidated Financial Statements
(ii) Multi-Employer Pension Plans
During 2014, the Company recognized an expense of $61 million (2013 – $61 million) in selling, general and
administrative expenses, which represents the contributions made in connection with MEPPs. During 2015, the
Company expects to continue to make contributions into these MEPPs.
Loblaw, together with its independent franchisees, is the largest participating employer in the Canadian
Commercial Workers Industry Pension Plan (“CCWIPP”), with approximately 52,000 (2013 – 53,000) employees
as members. Included in the 2014 expense described above are contributions of $54 million (2013 – $54 million)
to CCWIPP.
Weston Foods participates in a U.S. MEPP, providing pension benefits to union employees pursuant to the
provisions of one of its collective bargaining agreements. During 2014, Weston Foods made a settlement
payment of $8 million (U.S. $7 million) which was recorded in selling, general and administrative expenses.
Weston Foods will participate in the MEPP as a new employer as defined by the plan pursuant to its collective
bargaining agreement.
During 2012, Weston Foods withdrew from one of the U.S. MEPPs in which it participated. In 2013, the Company
recorded $5 million (U.S. $5 million) in selling, general and administrative expenses associated with its
withdrawal liability.
(iii) Post-Employment and Other Long Term Employee Benefit Costs
The net cost recognized in net earnings before income taxes for the Company’s post-employment and other long
term employee benefit plans was as follows:
($ millions)
Net post-employment defined benefit cost
Defined contribution costs(1)
Multi-employer pension plan costs(2)
Total net post-employment benefit costs
Other long term employee benefit costs(3)
Net post-employment and other long term employee benefit costs
Recorded on the consolidated statements of earnings as follows:
Operating income (note 31)
Net interest expense and other financing charges (note 6)
Net post-employment and other long term employee benefits costs
2014
(53 weeks)
78
26
61
165
31
196
183
13
196
$
$
$
$
$
2013
(52 weeks)
42
25
61
128
22
150
125
25
150
$
$
$
$
$
(1) Amounts represent the Company’s contributions made in connection with defined contribution plans.
(2) Amounts represent the Company’s contributions made in connection with MEPPs.
(3) Other long term employee benefit costs include $4 million (2013 – $4 million) of net interest expense and other financing charges.
Note 30. Share-Based Compensation
The Company’s share-based compensation arrangements include stock option plans, RSU plans, PSU plans,
DSU plans, EDSU plans and Choice Properties’ unit option plan, restricted unit plan and trustee deferred unit
plan. The Company’s cost recognized in selling, general and administrative expenses related to its share-based
compensation arrangements in 2014 was $83 million (2013 – $46 million).
As a result of the acquisition of Shoppers Drug Mart, all awards that were based on Shoppers Drug Mart shares
were converted to awards based on shares of Loblaw. Accordingly, included in the Company’s 2014 share-based
compensation expense above was $28 million related to these converted awards, of which $7 million related to
the fair value adjustment of converted awards that initially required settlement in cash. On November 10, 2014,
Loblaw amended the converted Shoppers Drug Mart RSU awards to require settlement in shares. These
116 George Weston Limited 2014 Annual Report
converted RSUs will vest on December 1, 2015 and earn Loblaw dividends during the vesting period, which are
reinvested as additional RSUs.
During 2013, GWL’s and Loblaw’s RSU, PSU, DSU and EDSU plans were amended to require settlement in
common shares rather than in cash.
The following is the carrying amount of the Company’s share-based compensation arrangements:
($ millions)
Trade payables and other liabilities
Other liabilities (note 24)
Contributed surplus
As at
Dec. 31, 2014
3
$
7
$
115
$
Dec. 31, 2013
1
$
1
$
94
$
Stock Option Plans GWL maintains a stock option plan for certain employees. Under this plan, GWL may grant
options for up to 6,453,726 of its common shares.
Loblaw maintains a stock option plan for certain employees. Under this plan, Loblaw may grant options for up to
28,137,162 of its common shares.
The following is a summary of GWL’s stock option plan activity:
Outstanding options, beginning of year
Granted
Exercised
Forfeited/cancelled
Expired
Outstanding options, end of year
Options exercisable, end of year
2014
Weighted
Average
Exercise
Price/Share
68.18
82.22
67.20
73.59
72.21
71.63
67.60
$
$
$
$
$
$
$
Options
(number
of shares)
1,491,168
374,981
(312,583)
(107,996)
(7,425)
1,438,145
572,702
2013
Weighted
Average
Exercise
Price/Share
66.55
73.74
65.93
65.30
68.18
67.10
$
$
$
$
$
$
Options
(number
of shares)
1,436,234
314,777
(258,418)
(1,425)
1,491,168
629,961
The following table summarizes information about GWL’s outstanding stock options:
Outstanding Options
Weighted
Average
Remaining
Contractual
Life (years)
3
4
5
Weighted
Average
Exercise
Price/Share
61.33
71.34
81.92
$
$
$
Number of
Options
Outstanding
450,596
522,163
465,386
1,438,145
2014
Exercisable Options
Weighted
Average
Exercise
Price/Share
60.05
70.06
81.05
$
$
$
Number of
Exercisable
Options
253,704
215,978
103,020
572,702
Range of Exercise Prices ($)
$46.24 - $66.75
$66.76 - $77.39
$77.40 - $87.65
During 2014, GWL issued 312,583 (2013 – 258,418) common shares on the exercise of stock options with a
weighted average share price of $84.54 (2013 – $83.27) per common share and received cash consideration of
$21 million (2013 – $17 million).
George Weston Limited 2014 Annual Report 117
Notes to the Consolidated Financial Statements
During 2014, GWL granted stock options with a weighted average exercise price of $82.22 (2013 – $73.74) per
common share and a fair value of $5 million (2013 – $5 million). The assumptions used to measure the grant
date fair value of the GWL options granted during 2014 and 2013 under the Black-Scholes stock option valuation
model were as follows:
Expected dividend yield
Expected share price volatility
Risk-free interest rate
Expected life of options
2014
2.0%
17.9% - 23.7%
1.5% - 2.0%
4.8 - 6.7 years
2013
2.0%
21.0% - 24.7%
1.3% - 2.3%
4.8 - 6.7 years
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture
rate applied as at year end 2014 was 3.5% (2013 – 3.7%).
The following is a summary of Loblaw’s stock option plan activity:
Outstanding options, beginning of year
Granted
Converted options
Exercised
Forfeited/cancelled
Expired
Outstanding options, end of year
Options exercisable, end of year
2014
Weighted
Average
Exercise
Price/Share
37.37
47.67
35.26
36.47
40.75
45.49
38.42
35.95
$
$
$
$
$
$
$
$
Options
(number
of shares)
10,995,995
1,688,368
1,026,118
(3,536,489)
(1,074,427)
(734,681)
8,364,884
3,195,241
2013
Weighted
Average
Exercise
Price/Share
36.74
40.62
35.25
38.03
54.71
37.37
38.04
$
$
$
$
$
$
$
Options
(number
of shares)
12,538,928
1,484,264
(2,131,416)
(847,039)
(48,742)
10,995,995
4,200,472
The following table summarizes information about Loblaw’s outstanding stock options:
Outstanding Options
Weighted
Average
Remaining
Contractual
Life (years)
4
3
6
Weighted
Average
Exercise
Price/Share
34.08
38.14
44.57
$
$
$
Number of
Options
Outstanding
3,424,670
2,414,922
2,525,292
8,364,884
2014
Exercisable Options
Weighted
Average
Exercise
Price/Share
33.09
37.88
42.33
$
$
$
Number of
Exercisable
Options
1,553,396
1,354,570
287,275
3,195,241
Range of Exercise Prices ($)
$28.95 - $35.55
$35.56 - $39.92
$39.93 - $60.29
During 2014, Loblaw issued 3,536,489 (2013 – 2,131,416) common shares on the exercise of stock options with a
weighted average share price of $51.20 (2013 – $46.54) per common share and received cash consideration of
$129 million (2013 – $75 million).
In connection with the acquisition of Shoppers Drug Mart, Loblaw converted Shoppers Drug Mart stock options
to Loblaw stock options. The fair value of converted Shoppers Drug Mart stock options to Loblaw stock options
was $13 million.
118 George Weston Limited 2014 Annual Report
During 2014, Loblaw granted stock options with a weighted average exercise price of $47.67 (2013 – $40.62) per
common share and a fair value of $13 million (2013 – $11 million). The assumptions used to measure the grant
date or conversion date fair value of the Loblaw options granted and converted during 2014 and 2013 under the
Black-Scholes stock option valuation model were as follows:
Expected dividend yield
Expected share price volatility
Risk-free interest rate
Expected life of options
2014
1.8%
18.5% - 23.2%
1.1% - 1.9%
1.0 - 6.5 years
2013
2.1%
19.2% - 23.8%
1.2% - 2.0%
4.2 - 6.5 years
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture
rate applied as at year end 2014 was 11.0% (2013 – 12.0%).
Restricted Share Unit Plans The following is a summary of GWL’s and Loblaw’s RSU plan activity:
(Number of Awards)
Outstanding RSUs, beginning of year
Granted
Converted RSUs
Settled
Forfeited
Outstanding RSUs, end of year
RSUs settled ($ millions)(1)
GWL
Loblaw
2014
184,242
75,875
(53,399)
(15,759)
190,959
2013
147,926
60,672
(24,210)
(146)
184,242
2
2014
1,084,514
435,976
542,175
(494,912)
(104,963)
1,462,790
2
$
2013
1,038,271
379,899
(273,937)
(59,719)
1,084,514
10
$
$
(1) Relates to cash payments made prior to amending RSU plans to require settlement in shares.
The fair value of GWL’s and Loblaw’s RSUs granted during 2014 was $6 million (2013 – $4 million) and $20 million
(2013 – $15 million), respectively.
On November 10, 2014, Loblaw amended the plan for the remaining 542,175 converted Shoppers Drug Mart
RSUs to require settlement in shares. The fair value of awards on the amendment date was $32 million.
Performance Share Unit Plans The following is a summary of GWL’s and Loblaw’s PSU plan activity:
(Number of Awards)
Outstanding PSUs, beginning of year
Granted
Settled
Forfeited
Outstanding PSUs, end of year
GWL
Loblaw
2014
85,117
55,024
(1,023)
(651)
138,467
2013
41,101
44,016
85,117
2014
309,110
871,355
(17,365)
(143,796)
1,019,304
2013
50,818
283,569
(2,794)
(22,483)
309,110
The fair value of GWL’s and Loblaw’s PSUs granted during 2014 was $4 million (2013 – $3 million) and $39 million
(2013 – $11 million), respectively.
George Weston Limited 2014 Annual Report 119
Notes to the Consolidated Financial Statements
Settlement of Awards from Shares Held in Trusts During 2014, GWL settled RSUs and PSUs totaling 54,422
(2013 – 1,274) through the trusts established for settlement of each of the RSU and PSU plans (see note 26). The
settlements resulted in an increase of $4 million (2013 – nominal) in retained earnings and a nominal increase in
share capital (2013 – nominal).
Director Deferred Share Unit Plans The following is a summary of GWL’s and Loblaw’s DSU plan activity:
(Number of Awards)
Outstanding DSUs, beginning of year
Granted
Reinvested
Settled
Outstanding DSUs, end of year
GWL
Loblaw
2014
188,197
18,131
3,803
210,131
2013
172,830
20,079
3,716
(8,428)
188,197
2014
226,601
31,322
5,901
2013
198,780
24,582
3,239
263,824
226,601
The fair value of GWL’s and Loblaw’s DSUs granted during 2014 was $2 million (2013 – $2 million) and $2 million
(2013 – $1 million), respectively.
In 2014, in addition to the awards granted under Loblaw’s equity-settled DSU plan, Loblaw converted Shoppers
Drug Mart DSUs to Loblaw DSUs. These converted DSUs, which have all vested, will be settled in cash. As at year
end 2014, the number of converted DSUs outstanding was 101,788.
Executive Deferred Share Unit Plans The following is a summary of GWL’s and Loblaw’s EDSU plan activity:
(Number of Awards)
Outstanding EDSUs, beginning of year
Granted
Reinvested
Settled
Outstanding EDSUs, end of year
GWL
Loblaw
2014
3,950
23,904
544
28,398
2013
3,598
273
79
3,950
2014
22,126
4,929
599
(4,739)
22,915
2013
26,707
2,606
421
(7,608)
22,126
The fair value of GWL’s and Loblaw’s EDSUs granted during 2014 and 2013 was nominal.
Note 31. Employee Costs
Included in operating income were the following employee costs:
($ millions)
Wages, salaries and other short term employee benefits
Post-employment benefits (note 29)
Other long term employee benefits (note 29)
Share-based compensation (note 30)
Capitalized to fixed assets
Employee costs
2014
(53 weeks)
4,892
156
27
79
(30)
5,124
$
$
2013
(52 weeks)
3,411
107
18
40
(10)
3,566
$
$
120 George Weston Limited 2014 Annual Report
Note 32. Leases
The Company leases certain of Loblaw’s retail stores, Weston Food’s and Loblaw’s distribution centres, corporate
offices, and other assets under operating or finance lease arrangements. Substantially all of Loblaw’s retail store
leases have renewal options for additional terms. The contingent rents under certain of Loblaw’s retail store
leases are based on a percentage of Loblaw’s Retail segment sales. The Company also has properties which are
sub-leased to third parties.
Determining whether a lease arrangement is classified as finance or operating requires judgment with respect to
the fair value of the leased asset, the economic life of the lease, the discount rate and the allocation of leasehold
interests between the land and building elements of property leases.
Operating Leases – As Lessee Future minimum lease payments relating to the Company’s operating leases are
as follows:
($ millions)
Operating lease
payments
Sub-lease income
Net operating lease
payments
$
$
2015
2016
Payments due by year
2018
2017
2019 Thereafter
Dec. 31, 2014
Dec. 31, 2013
As at
685 $
665 $
630 $
581 $
536 $
2,829
(63)
(54)
(43)
(36)
(26)
(109)
622 $
611 $
587 $
545 $
510 $
2,720
$
$
5,926
(331)
5,595
$
$
1,277
(205)
1,072
In 2014, the Company recorded operating lease expenses of $588 million (2013 – $220 million) and sub-lease
income of $61 million (2013 – $53 million) in operating income. In addition, contingent rent expense in respect
of operating leases and contingent rental income in respect of sub-leased operating leases were $1 million
(2013 – $1 million) and $3 million (2013 – $1 million), respectively, and were also recognized in operating
income.
Operating Leases – As Lessor As at year end 2014, Loblaw leased certain owned land and buildings with a
cost of $2,578 million (2013 – $2,076 million) and related accumulated depreciation of $718 million
(2013 – $562 million). For the year ended 2014, rental income was $148 million (2013 – $136 million) and
contingent rent was $3 million (2013 – $2 million), both of which were recognized in operating income.
Future rental income relating to Loblaw’s operating leases is as follows:
($ millions)
Net operating
lease income
Payments to be received by year
As at
2015
2016
2017
2018
2019 Thereafter
Dec. 31, 2014
Dec. 31, 2013
$
137 $
116 $
93 $
76 $
55 $
170
$
647
$
559
George Weston Limited 2014 Annual Report 121
Notes to the Consolidated Financial Statements
Finance Leases – As Lessee Loblaw has finance leases for certain property, plant and equipment.
Future minimum lease payments relating to Loblaw’s finance leases are as follows:
($ millions)
Finance lease
payments
Less future
finance charges
Present value
of minimum
lease payments
2015
2016
Payments due by year
2018
2017
2019 Thereafter
Dec. 31, 2014
Dec. 31, 2013
As at
$
85 $
88 $
78 $
65 $
60 $
715
$
1,091
$
771
(47)
(43)
(46)
(36)
(32)
(287)
(491)
(383)
$
38 $
45 $
32 $
29 $
28 $
428
$
600
$
388
In 2014, contingent rent recognized by Loblaw as an expense in respect of finance leases was $1 million
(2013 – $1 million).
Future sub-lease income relating to Loblaw’s sub-lease agreements is as follows:
($ millions)
2015
2016
2017
2018
Sub-lease income
$
16 $
12 $
11 $
9 $
2019 Thereafter
33
8 $
Dec. 31, 2014
89
$
Dec. 31, 2013
45
$
Payments to be received by year
As at
As at year end 2014, the sub-lease payments receivable under finance leases was $16 million
(2013 – $14 million).
122 George Weston Limited 2014 Annual Report
Note 33. Financial Instruments
The following table presents the fair values and fair value hierarchy of the Company’s financial instruments and
excludes financial instruments measured at amortized cost that are short term in nature:
($ millions)
Financial Assets
Cash and cash equivalents
Short term investments
Security deposits
Franchise loans receivable
Certain other assets
Derivatives included in
accounts receivable
Derivatives included in
prepaid expenses and
other assets
Derivatives included in
other assets
Financial liabilities
Derivatives included in
trade payables and
other liabilities
Capital securities(1)
Long term debt
Trust Unit liability
Certain other liabilities
Level 1
Level 2
As at
Dec. 31, 2014
Total
Level 3
Level 1
Level 2
Dec. 31, 2013
Total
Level 3
$ 1,251
672
$
92
$
$
(4)
$
$
$
$
$
$
82
400
$
$
8
$ 1,333
$ 1,072
92
$
399
399 $
72
64 $
$ 2,756
$ 1,259
$ 1,791
$
$
$
(4)
$
(4)
10
367
10
367
$
$
$
$
$
113
231
8
2
524
11
$
4 $
15
$
$
234
494
$ 13,854
$
234
$ 13,854
494
$
28
28 $
$
$
$
236
478
$ 9,503
$ 2,869
$ 1,490
$ 1,791
375
67
375 $
59 $
$
$
$
(4)
2
524
4 $
4
$
236
$ 9,503
478
$
40
40 $
$
$
$
$
(1) Recorded in current liabilities as at year end 2014.
The carrying value of the Company’s financial instruments approximates its fair value except for long term debt
and capital securities.
There were no transfers between the levels of the fair value hierarchy during 2014 and 2013.
The level 3 financial instruments classified as fair value through profit or loss consist of embedded derivatives on
purchase orders placed in neither Canadian dollars nor the functional currency of the vendor. These derivatives
are valued using a market approach based on the differential in exchange rates and timing of settlement. The
significant unobservable input used in the fair value measurement is the cost of purchase orders. Significant
increases (decreases) in any of the inputs would result in a significantly higher (lower) fair value measurement.
As at year end 2014, the fair value of the embedded foreign currency derivatives classified as level 3 and
recorded in trade payables and other liabilities was $4 million (2013 – $4 million). In addition, in 2014, a nominal
loss (2013 – $3 million) was recognized in operating income. A 1% increase (decrease) in foreign currency
exchange rates would result in an additional gain (loss) of $1 million in fair value.
During 2014, a gain of $11 million (2013 – $32 million) was recognized in earnings before income taxes on
financial instruments designated as fair value through profit or loss. In addition, a loss of $215 million
(2013 – $31 million) was recognized in earnings before income taxes on financial instruments required to be
classified as fair value through profit or loss.
During 2014, net interest expense of $636 million (2013 – $511 million) was recorded related to financial
instruments not classified or designated as fair value through profit or loss.
George Weston Limited 2014 Annual Report 123
Notes to the Consolidated Financial Statements
Cash and Cash Equivalents, Short Term Investments and Security Deposits As at year end 2014, the
Company had cash and cash equivalents, short term investments and security deposits of $2,497 million
(2013 – $6,150 million), including U.S. $1,025 million (2013 – U.S. $1,143 million) that was held primarily by
Dunedin Holdings GmbH (“Dunedin”), a subsidiary of GWL, and certain of its affiliates. Comparative period U.S.
dollar balances include amounts held by Glenhuron Bank Limited (“Glenhuron”).
In 2014, a gain of $75 million (2013 – $44 million) was recognized in other comprehensive income related to the
effect of foreign currency translation on the Company’s U.S. net investment in foreign operations.
In addition, a gain of $88 million (2013 – $75 million) was recorded in selling, general and administrative
expenses related to the effect of foreign currency translation on a portion of the U.S. dollar denominated cash
and cash equivalents and short term investments held by foreign operations that have the same functional
currency as that of the Company (excluding Loblaw).
See cross currency swaps section below for the (gain) loss recognized in Loblaw’s 2013 operating income as a
result of translating U.S. dollar denominated cash and cash equivalents, short term investments and security
deposits.
Cross Currency Swaps In 2013, Glenhuron unwound its cross currency swaps and received a net cash settlement
of $76 million, representing the cumulative fair value gain on these swaps. The cross currency swaps were offset
by the effect of translation (gains) losses related to U.S. dollar cash and cash equivalents, short term investments
and security deposits.
In 2013, Loblaw settled its U.S. $300 million USPP cross currency swaps in conjunction with the settlement of the
underlying U.S. $300 million USPP notes and received a net cash settlement of $18 million. The USPP cross
currency swaps were used to manage the effect of translation (gains) losses on the underlying U.S. dollar USPP
notes in long term debt. As part of the full settlement, Loblaw settled its U.S. $150 million USPP cross currency
swap, which matured on May 29, 2013. On settlement of the swap, an unrealized fair value gain of $5 million,
net of tax of $2 million, which had been deferred in accumulated other comprehensive income was realized in
operating income.
The following table summarizes the changes in fair value of the cross currency swaps and the underlying
exposures:
2013
(52 weeks)
Glenhuron
USPP
($ millions)
Fair value loss (gain) related to swaps recorded in operating income(1)
Translation (gain) loss related to the underlying exposures
Cross Currency Swaps Cross Currency Swaps
(11)
$
14
$
37
$
(33) $
(1) The impact to USPP cross currency swaps excludes the gain of $7 million on derecognized derivative instruments, before income
taxes, reclassified from accumulated other comprehensive income.
Interest Rate Swaps In 2013, Loblaw settled its notional $150 million in interest rate swaps and a fair value gain
of $5 million was recognized in operating income related to these swaps.
Equity Derivative Contracts In 2013, GWL paid $29 million to settle its remaining equity swap contract
representing 800,000 GWL common shares and recorded a nominal loss in operating income related to this
equity swap contract.
In 2013, Glenhuron paid $16 million to settle its remaining equity forward contract representing 1,103,500
Loblaw common shares and recorded a nominal loss in operating income related to this equity forward contract.
124 George Weston Limited 2014 Annual Report
In 2001, Weston Holdings Limited (“WHL”), a subsidiary of GWL, entered into an equity forward sale agreement
based on 9.6 million Loblaw common shares at an original forward price of $48.50 per Loblaw common share.
As at year end 2014, the forward price had increased to $100.80 (2013 – $96.46) per Loblaw common share
under the terms of the agreement and the fair value of this forward sale agreement of $367 million
(2013 – $524 million) was recorded in other assets (see note 20). In 2014, a fair value loss of $199 million
(2013 – gain of $1 million) was recorded in net interest expense and other financing charges related to this
agreement (see note 6).
Franchise Loans Receivable and Franchise Investments in Other Assets The value of Loblaw franchise loans
receivable of $399 million (2013 – $375 million) was recorded on the consolidated balance sheets. During 2014,
Loblaw recorded an impairment loss of $12 million (2013 – $14 million) in operating income related to these
loans receivable.
The value of Loblaw franchise investments of $62 million (2013 – $58 million) was recorded in other assets.
During 2014, Loblaw recorded a loss of $3 million (2013 – $6 million) in operating income related to these
investments.
Trust Unit Liability Trust Units held by unitholders other than the Company are presented as a liability on the
Company’s consolidated balance sheets as they are redeemable for cash at the option of the holder, subject
to certain restrictions. As at year end 2014, the fair value of the Trust Unit liability was $494 million
(2013 – $478 million), resulting in a fair value loss of $12 million (2013 – $18 million) (see note 6).
Weston Foods Commodity Derivatives Weston Foods uses futures, options and forward contracts to manage its
anticipated exposure to fluctuations in commodity prices and U.S. dollar exchange rates. During 2014, a loss of
$3 million (2013 – $14 million) was recognized in operating income related to these derivatives. As at year end
2014, the unrealized loss related to Weston Foods’ commodity derivatives of $4 million (2013 – $4 million) was
recorded in accounts receivable.
Other Derivatives Loblaw also maintains other financial derivatives including foreign exchange forwards,
electricity forwards and fuel exchange traded futures and options. During 2014, Loblaw recognized a loss of
$1 million (2013 – gain of $7 million) in operating income related to these derivatives. The following table
summarizes the cumulative unrealized impact of these derivatives included in the consolidated balance sheets:
($ millions)
Cumulative unrealized gain recorded in prepaid expenses and other assets
Cumulative unrealized loss recorded in trade payables and other liabilities
2014
(53 weeks)
10
11
$
$
2013
(52 weeks)
2
$
In connection with Loblaw’s issuance of $1.6 billion of senior unsecured notes in 2013 (see note 23), Loblaw
hedged its exposure to interest rates in the period prior to the issuance. This relationship did not qualify for
hedge accounting, resulting in a gain of $10 million on the unwind of the hedge which was recorded in net
interest expense and other financing charges (see note 6).
George Weston Limited 2014 Annual Report 125
Notes to the Consolidated Financial Statements
Note 34. Financial Risk Management
As a result of holding and issuing financial instruments, the Company is exposed to certain risks. The following is
a description of those risks and how the exposures are managed:
Level of Indebtedness To fund the cash portion of the acquisition of Shoppers Drug Mart, Loblaw utilized excess
cash and significantly increased its indebtedness. Although Loblaw has made progress in reducing its level of
indebtedness subsequent to the acquisition of Shoppers Drug Mart, there can be no assurance that Loblaw will
generate sufficient free cash flow to significantly further reduce indebtedness and maintain adequate cash
reserves. A failure to achieve these objectives could adversely affect the Company’s credit ratings and its cost of
funding.
If GWL, Loblaw, PC Bank or Choice Properties’ financial performance and condition deteriorate or downgrades in
GWL’s, Loblaw’s or Choice Properties’ current credit ratings occur, their ability to obtain funding from external
sources could be restricted, which could adversely affect the financial performance of the Company.
Liquidity Risk Liquidity risk is the risk that the Company is unable to generate or obtain sufficient cash or its
equivalents in a cost effective manner to fund its obligations as they come due. The Company is exposed to
liquidity risk through, among other areas, PC Bank and its credit card business, which requires a reliable source
of funding for its credit card business. PC Bank relies on its securitization programs and the acceptance of GIC
deposits to fund the receivables of its credit cards. The Company would experience liquidity risks if it fails to
maintain appropriate levels of cash and short term investments, it is unable to access sources of funding or it
fails to appropriately diversify sources of funding. If any of these events were to occur, they would adversely
affect the financial performance of the Company.
Liquidity risk is mitigated by maintaining appropriate levels of cash and cash equivalents and short term
investments, actively monitoring market conditions, and by diversifying sources of funding, including the
Company’s committed credit facilities, and maintaining a well diversified maturity profile of debt and capital
obligations.
Maturity Analysis The following are the undiscounted contractual maturities of significant financial liabilities as
at December 31, 2014:
($ millions)
Long term debt including
interest payments(1)
2015
2016
2017
2018
2019
Thereafter
Total(3)
$
950 $
1,834 $
1,304 $
1,793 $
2,946 $
9,439 $ 18,266
Foreign exchange forward contracts
Short term debt (note 22)
Bank indebtedness
Certain other liabilities(2)
232
1,101
162
4
8
5
3
2
6
232
1,101
162
28
$
2,449 $
1,842 $
1,309 $
1,796 $
2,948 $
9,445 $ 19,789
(1) Fixed interest payments are based on the maturing face values and annual interest for each instrument, including GICs, long term
independent securitization trusts and an independent funding trust, as well as annual payment obligations for consolidated
structured entities, mortgages and finance lease obligations. Variable interest payments are based on the forward rates as at year
end 2014.
(2) Contractual amount of Loblaw’s obligation related to certain other liabilities.
(3) The Trust Unit liability and the Loblaw capital securities and their related dividends have been excluded as these liabilities do not
have a contractual maturity date. The Company also excluded trade payables and other liabilities which are due within the next
12 months.
126 George Weston Limited 2014 Annual Report
Choice Properties’ Capital Availability Risk The real estate industry is highly capital intensive. Choice Properties
requires access to capital to maintain its properties, refinance its indebtedness as well as to fund its growth
strategy and certain capital expenditures from time to time. Although Choice Properties expects to have access
to its credit facility, there can be no assurance that it will otherwise have sufficient capital or access to capital on
acceptable terms for future property acquisitions, refinancing indebtedness, financing or refinancing properties,
funding operating expenses or for other purposes. Further, in certain circumstances, Choice Properties may not
be able to borrow funds due to certain limitations. Failure by Choice Properties to access required capital could
have a material adverse effect on the Company’s ability to pay its financial or other obligations. An inability to
access capital could also impact Choice Properties’ ability to make distributions which could have a material
adverse effect on the trading price of Trust Units which would adversely affect the financial performance of the
Company.
Market Risk Market risk is the loss that may arise from changes in factors such as commodity prices, foreign
currency exchange rates, interest rates, and common share and Trust Unit prices and the impact these factors
may have on other counterparties.
Commodity Price Risk Weston Foods costs are directly impacted by fluctuations in the prices of commodity
linked raw materials such as wheat flours, sugars, vegetable oils, cocoa powders and chocolate. Loblaw is also
exposed to fluctuations in the commodity prices as a result of the indirect effect of changing commodity prices
on the price of consumer products. In addition, both Weston Foods and Loblaw are exposed to increases in the
prices of energy in operating, in the case of Weston Foods, its bakeries and distribution networks, and, in the
case of Loblaw, its stores and distribution networks. Both Weston Foods and Loblaw use purchase commitments
and derivative instruments in the form of futures contracts, option contracts and forward contracts to manage
their current and anticipated exposure to fluctuations in commodity prices. The Company estimates that based
on the outstanding derivative contracts held by the Company at the end of 2014, a 10% decrease in relevant
commodity prices, with all other variables held constant, would result in a net loss of $8 million in earnings
before income taxes. This amount excludes the offsetting impact of the commodity price risk inherent in the
transactions being hedged.
Foreign Currency Exchange Rate Risk The Company’s consolidated financial statements are expressed in
Canadian dollars, however a portion of the Company’s net assets are denominated in U.S. dollars through both
its net investment in foreign operations in the U.S. and its foreign subsidiaries held by Dunedin and certain of its
affiliates with a functional currency that is the same as that of the Company. The U.S. dollar denominated net
assets are translated into Canadian dollars at the foreign currency exchange rate in effect at the balance sheet
date. As a result, the Company is exposed to foreign currency translation gains and losses. Those gains and losses
arising from the translation of the U.S. dollar denominated assets of foreign subsidiaries with a functional
currency that is the same as that of the Company are included in operating income, while translation gains and
losses on the net investment in foreign operations in the U.S. are recorded in accumulated other comprehensive
income (loss). The Company estimates that based on the U.S. net assets held by foreign operations that have the
same functional currency as that of the Company at the end of 2014, an appreciation in the Canadian dollar of
one cent relative to the U.S. dollar would result in a loss of $11 million in earnings before income taxes.
Revenues and expenses of all foreign operations are translated into Canadian dollars at the foreign currency
exchange rates that approximate the rates in effect at the dates when such items are recognized. An appreciating
U.S. dollar relative to the Canadian dollar will positively impact operating income and net earnings, while a
depreciating U.S. dollar relative to the Canadian dollar will have the opposite impact.
Weston Foods and Loblaw are also exposed to fluctuations in the prices of U.S. dollar denominated purchases as
a result of changes in U.S. dollar exchange rates. A depreciating Canadian dollar relative to the U.S. dollar will
negatively impact operating income and net earnings, while an appreciating Canadian dollar relative to the U.S.
dollar will have the opposite impact. During 2014, Weston Foods and Loblaw entered into derivative instruments
in the form of futures contracts and forward contracts to manage their current and anticipated exposure to
fluctuations in U.S. dollar exchange rates.
George Weston Limited 2014 Annual Report 127
Notes to the Consolidated Financial Statements
Interest Rate Risk The Company is exposed to interest rate risk from fluctuations in interest rates on its floating
rate debt and financial instruments, net of cash and cash equivalents, short term investments and security
deposits. An increase in interest rates could adversely affect the financial performance of the Company. GWL
and Loblaw manage interest rate risk by monitoring their respective mix of fixed and floating rate debt, net of
cash and cash equivalents, short term investments and security deposits, and by taking action as necessary to
maintain an appropriate balance considering current market conditions. The Company estimates that a 100 basis
point increase in short term interest rates, with all other variables held constant, would result in an increase of
$1 million in net interest expense and other financing charges.
Common Share and Trust Unit Price Risk Changes in the Loblaw common share price impact the Company’s net
interest expense and other financing charges. The obligation of WHL under the equity forward sale agreement
based on 9.6 million Loblaw common shares, which matures in 2031, is secured by the underlying Loblaw
common shares. If the market value of the underlying Loblaw common shares exceeds the obligation of WHL
under this forward, a portion of the proceeds from a future sale of these shares may be used to satisfy the
obligation under this forward contract upon termination or maturity. At maturity, if the forward price is greater
(less) than the market price of the Loblaw common shares, WHL will receive (pay) cash equal to the difference
between the notional value and the market value of the forward contract. A one dollar increase in the market
value of the underlying shares of the equity forward, with all other variables held constant, would result in a loss
of $10 million in net interest expense and other financing charges.
The Company is exposed to market price risk from Choice Properties’ Trust Units that are held by unitholders
other than the Company. These Trust Units are presented as a liability on the Company’s consolidated balance
sheets as they are redeemable for cash at the option of the holders. The liability is recorded at fair value at each
reporting period based on the market price of Trust Units. The change in the fair value of the liability negatively
impacts net earnings when the Trust Unit price increases and positively impacts net earnings when the Trust
Unit price declines. A one dollar increase in the market value of Trust Units, with all other variables held
constant, would result in a loss of $46 million in net interest expense and other financing charges.
Credit Risk The Company is exposed to credit risk resulting from the possibility that counterparties could default
on their financial obligations to the Company. Exposure to credit risk relates to derivative instruments, cash and
cash equivalents, short term investments, security deposits, PC Bank’s credit card receivables, Loblaw’s franchise
loans receivable, pension assets held in the Company’s defined benefit plans, Loblaw’s accounts receivable
including amounts due from independent franchisees, government, prescription sales and third-party drug plans,
independent accounts and amounts owed from vendors, and other receivables from Weston Foods’ customers
and suppliers. Failure to manage credit risk could adversely affect the financial performance of the Company.
The risk related to derivative instruments, cash and cash equivalents, short term investments and security
deposits is reduced by policies and guidelines that require that the Company enters into transactions only with
counterparties or issuers that have a minimum long term “A-” credit rating from a recognized credit rating
agency and place minimum and maximum limits for exposures to specific counterparties and instruments.
Choice Properties mitigates the risk of credit loss relating to rent receivables by evaluating the creditworthiness
of new tenants, obtaining security deposits wherever permitted by legislation, ensuring its tenant mix is
diversified and by limiting its exposure to any one tenant except Loblaw. Choice Properties establishes an
allowance for doubtful accounts that represents the estimated losses with respect to rents receivable. The
allowance is determined on a tenant-by-tenant basis based on the specific factors related to the tenant.
PC Bank manages its credit card receivable risk by employing stringent credit scoring techniques, actively
monitoring the credit card portfolio and reviewing techniques and technology that can improve the effectiveness
of the collection process. In addition, these receivables are dispersed among a large, diversified group of credit
card customers.
Loblaw’s franchise loans receivable and Loblaw’s accounts receivable including amounts due from independent
franchisees, governments, prescription sales covered by third-party drug plans, independent accounts and
amounts owed from vendors, and other receivables from Weston Foods’ customers and suppliers are actively
128 George Weston Limited 2014 Annual Report
monitored on an ongoing basis and settled on a frequent basis in accordance with the terms specified in the
applicable agreements.
The Company’s maximum exposure to credit risk as it relates to derivative instruments is approximated by the
positive fair market value of the derivatives on the consolidated balance sheets (see note 33).
Refer to notes 11 and 12 for additional information on the credit quality performance of Loblaw’s credit card
receivables and other receivables, mentioned above, of Loblaw and Weston Foods.
Note 35. Contingent Liabilities
The Company is involved in, and potentially subject to, various claims and matters arising out of the normal
course and conduct of its business including, but not limited to, product liability, labour and employment,
regulatory and environmental claims. Although such matters cannot be predicted with certainty, management
currently considers the Company’s exposure to such claims and litigation, tax assessments and reassessments, to
the extent not covered by the Company’s insurance policies or otherwise provided for, not to be material to the
consolidated financial statements, except for Income and Other Taxes as disclosed below.
Legal Proceedings The Company is the subject of various legal proceedings and claims that arise in the ordinary
course of business. The outcome of all of these proceedings and claims is uncertain. However, based on
information currently available, these proceedings and claims, individually and in the aggregate, are not
expected to have a material impact on the Company.
Shoppers Drug Mart has been served with an Amended Statement of Claim in a proposed class action
proceeding that has been filed under the Ontario Superior Court of Justice by two licensed Associates, claiming
various declarations and damages resulting from Shoppers Drug Mart’s alleged breaches of the Associate
Agreement, in the amount of $500 million. The proposed class action comprises all of Shoppers Drug Mart’s
current and former licensed Associates residing in Canada, other than in Québec, who are parties to Shoppers
Drug Mart’s 2002 and 2010 forms of the Associate Agreement. On July 9, 2013, the Ontario Superior Court of
Justice certified as a class proceeding portions of the action. While Shoppers Drug Mart continues to believe that
the claim is without merit and will vigorously defend the claim, the outcome of this matter cannot be predicted
with certainty.
Income and Other Taxes The Company is subject to tax audits from various government and regulatory agencies
relating to income, capital, commodity, property and other taxes on an ongoing basis. As a result, from time to
time, taxing authorities may disagree with the positions and conclusions taken by the Company in its tax filings
or legislation could be amended or interpretations of current legislation could change, any of which events could
lead to reassessments. These reassessments could have a material impact on the Company in future periods.
In 2012, Loblaw received indication from the Canada Revenue Agency (the “CRA”) that the CRA intends to
proceed with reassessments of the tax treatment of Loblaw’s wholly-owned subsidiary, Glenhuron. The CRA’s
position is that certain income earned by Glenhuron in Barbados in respect of the 2000 to 2010 taxation years
should be treated, and taxed, as income in Canada.
Based on the proposal letter from the CRA, if the CRA and the relevant provincial tax authorities were to prevail
in all of these reassessments, which Loblaw believes would be unlikely, the estimated total tax and interest for
the 2000 to 2010 taxation years would be approximately $440 million, which would increase as interest accrues.
However, Loblaw is in discussions with the CRA about the amount of taxes in dispute. Loblaw believes it is likely
that the CRA and the relevant provincial tax authorities will issue reassessments for 2011 to 2013 on the same or
similar basis. No amount for any reassessments has been provided for in the Company’s consolidated financial
statements.
Subsequent to the end of 2014, Loblaw received a letter from the CRA stating that the CRA will be proceeding
with the reassessments. Loblaw expects to receive reassessments from the CRA and the relevant provincial tax
authorities sometime in the coming months. Loblaw strongly disagrees with the CRA’s position and intends to
vigorously defend its position including appealing the reassessments when they are received. Loblaw will make
George Weston Limited 2014 Annual Report 129
Notes to the Consolidated Financial Statements
cash payments or provide other forms of security on a portion of the taxes in dispute. If Loblaw is successful in
defending its position, in whole or in part, some or all of the cash payments or security would be returned to
Loblaw.
During 2010, GWL received a reassessment from the CRA challenging GWL’s characterization of a gain reported
in a previous year’s tax return filing. The amount of the tax and applicable interest that would be payable if the
CRA was successful in its assertion would be approximately $68 million. GWL appealed the CRA’s assessment and
the appeal was allowed by the Tax Court of Canada on February 15, 2015. The deadline for the CRA to initiate an
appeal of the Court’s decision is March 23, 2015. No amount has been provided for in the Company’s
consolidated financial statements.
Indemnification Provisions The Company from time to time enters into agreements in the normal course of its
business, such as service and outsourcing arrangements and leases, and in connection with business or asset
acquisitions or dispositions. These agreements by their nature may provide for indemnification of
counterparties. These indemnification provisions may be in connection with breaches of representation and
warranty or with future claims for certain liabilities, including liabilities related to tax and environmental matters.
The terms of these indemnification provisions vary in duration and may extend for an unlimited period of time.
Given the nature of such indemnification provisions, the Company is unable to reasonably estimate its total
maximum potential liability as certain indemnification provisions do not provide for a maximum potential
amount and the amounts are dependent on the outcome of future contingent events, the nature and likelihood
of which cannot be determined at this time. Historically, the Company has not made any significant payments in
connection with these indemnification provisions.
Note 36. Financial Guarantees
The Company established letters of credit used in connection with certain obligations mainly related to real
estate transactions, benefit programs, purchase orders and performance guarantees with a gross potential
liability of approximately $384 million (2013 – $442 million). In addition, Loblaw has provided to third parties the
following significant guarantees:
Associate Guarantees Loblaw has arranged for its Shoppers Drug Mart Associates to obtain financing to
facilitate their inventory purchases and fund their working capital requirements by providing guarantees to
various Canadian chartered banks that support Associate loans. As at year end 2014, Loblaw’s maximum
obligation in respect of such guarantees was $570 million, with an aggregate amount of $476 million in available
lines of credit allocated to the Associates by the various banks. As at year end 2014, Associates had drawn an
aggregate amount of $162 million against these available lines of credit. Any amounts drawn by the Associates
are included in bank indebtedness on the Company’s consolidated balance sheet. As recourse in the event that
any payments are made under the guarantees, Loblaw holds a first-ranking security interest on all assets of
Associates, subject to certain prior-ranking statutory claims.
Independent Funding Trusts The full balance relating to the debt of the independent funding trusts has been
consolidated on the balance sheets of the Company (see note 23). As at year end 2014, Loblaw has agreed to
provide a credit enhancement of $50 million (2013 – $48 million) in the form of a standby letter of credit for the
benefit of the independent funding trusts representing not less than 10% (2013 – 10%) of the principal amount
of the loans outstanding. This credit enhancement allows the independent funding trusts to provide financing to
Loblaw’s independent franchisees. As well, each independent franchisee provides security to the independent
funding trusts for its obligations by way of a general security agreement. In the event that an independent
franchisee defaults on its loan and Loblaw has not, within a specified time period, assumed the loan, or the
default is not otherwise remedied, the independent funding trusts would assign the loan to Loblaw and draw
upon this standby letter of credit. This standby letter of credit has never been drawn upon. Loblaw has agreed to
reimburse the issuing bank for any amount drawn on the standby letter of credit.
130 George Weston Limited 2014 Annual Report
Lease Obligations In connection with historical dispositions of certain of its assets, Loblaw has assigned leases
to third parties. Loblaw remains contingently liable for these lease obligations in the event any of the assignees
are in default of their lease obligations. The minimum rent, which does not include other lease related expenses
such as property tax and common area maintenance charges, was in aggregate, approximately $17 million
(2013 – $14 million). Additionally, Loblaw has guaranteed lease obligations of a third-party distributor in the
amount of $13 million (2013 – $17 million).
Financial Services Loblaw has provided a guarantee on behalf of PC Bank to MasterCard® International
Incorporated (“MasterCard®”) for accepting PC Bank as a card member and licensee of MasterCard®. As at year
end 2014, the guarantee on behalf of PC Bank to MasterCard® was U.S. $170 million (2013 – U.S. $170 million).
In 2014, Loblaw arranged for an irrevocable standby letter of credit from a major Canadian chartered bank on
behalf of one of its wholly-owned subsidiaries in the amount of $91 million.
Letters of credit for the benefit of independent securitization trusts with respect to the securitization programs
of PC Bank have been issued by major financial institutions. These standby letters of credit can be drawn upon in
the event of a major decline in the income flow from or in the value of the securitized credit card receivables.
Loblaw has agreed to reimburse the issuing banks for any amount drawn on the standby letters of credit.
As at year end 2014, the aggregate gross potential liability under these arrangements for the Other Independent
Securitization Trusts was $61 million (2013 – $54 million), which represented 10% (2013 – 9%) of the securitized
credit card receivables amount (see note 22). As at year end 2014, the aggregate gross potential liability under
these arrangements for Eagle was $68 million (2013 – nil), which represented 9% (2013 – nil) of the Eagle notes
outstanding (see note 23).
Choice Properties Letters of credit to support performance guarantees related to its investment properties
including maintenance and development obligations to municipal authorities are issued by Choice Properties.
As at year end 2014, the aggregate gross potential liability related to these letters of credit totaled $23 million
(2013 – $20 million).
Choice Properties’ credit facility and debentures are guaranteed by each of the General Partner, the Partnership
and any other person that becomes a subsidiary of Choice Properties (with some exceptions). In the case of
default by Choice Properties, the Indenture Trustee will be entitled to seek redress from the Guarantors for the
guaranteed obligations in the same manner and upon the same terms that it may seek to enforce the obligations
of Choice Properties. These guarantees are intended to eliminate structural subordination, which would
otherwise arise as a consequence of Choice Properties’ assets being primarily held in its various subsidiaries.
Note 37. Related Party Transactions
The Company’s majority shareholder is Mr. W. Galen Weston, who beneficially owns, directly and indirectly
through private companies which he controls, including Wittington, a total of 80,746,099 of GWL’s common
shares, representing approximately 63% (2013 – 63%) of GWL’s outstanding common shares. The Company’s
policy is to conduct all transactions and settle all balances with related parties on market terms and conditions.
Transactions between the Company and its consolidated entities have been eliminated on consolidation and are
not disclosed in this note.
In 2014, the Company made rental payments to Wittington in the amount of $4 million (2013 – $4 million). As at
year end 2014 and 2013, there were no rental payments outstanding.
In 2014, inventory purchases from Associated British Foods plc, a related party by virtue of Mr. W. Galen Weston
being a director of such entity’s parent company, amounted to $35 million (2013 – $31 million). As at year
end 2014, $3 million (2013 – $4 million) was included in trade payables and other liabilities relating to these
inventory purchases.
George Weston Limited 2014 Annual Report 131
Notes to the Consolidated Financial Statements
Joint Venture In 2014, a joint venture, formed between Choice Properties and Wittington, completed the
acquisition of property from Loblaw. The joint venture intends to develop the acquired site into a mixed-used
property, anchored by a Loblaw food store. As at year end 2014, the joint venture did not have any operating
activity. Choice Properties uses the equity method of accounting to record its 40% interest in the joint venture,
which is included in other assets (see note 20).
Post-Employment Benefit Plans The Company sponsors a number of post-employment plans, which are related
parties. Contributions made by the Company to these plans are disclosed in note 29.
Income Tax Matters From time to time, the Company and Wittington may enter into agreements to make
elections that are permitted or required under applicable income tax legislation with respect to affiliated
corporations. In 2014, these elections and accompanying agreements did not have a material impact on
the Company.
Compensation of Key Management Personnel The Company’s key management personnel is comprised of
certain members of the executive team of GWL, Loblaw, Weston Foods and Wittington, as well as members of
the Boards of GWL, Loblaw and Wittington to the extent that they have the authority and responsibility for
planning, directing and controlling the day-to-day activities of the Company.
Annual compensation of key management personnel that is directly attributable to the Company was as follows:
($ millions)
Salaries, director fees and other short term employee benefits
Share-based compensation
Total compensation
2014
(53 weeks)
17
9
26
$
$
2013
(52 weeks)
19
12
31
$
$
132 George Weston Limited 2014 Annual Report
Note 38. Segment Information
The Company has two reportable operating segments: Weston Foods and Loblaw. The accounting policies of the
reportable operating segments are the same as those described in the Company’s summary of significant
accounting policies (see note 2). The Company measures each reportable operating segment’s performance
based on adjusted EBITDA(2) and adjusted operating income(2). Neither reportable operating segment is reliant on
any single external customer.
($ millions)
Revenue
Weston Foods
Loblaw
Intersegment
Consolidated
Adjusted EBITDA(2)
Weston Foods
Loblaw
Total
Depreciation and Amortization(3)
Weston Foods
Loblaw
Total
Adjusted Operating Income(2)
Weston Foods
Loblaw
Impact of certain items(4)
Other(5)
Consolidated operating income
Net Interest Expense and Other Financing Charges
Weston Foods
Loblaw
Other(6)
Intersegment(7)
Consolidated net interest expense and other financing charges
2014
(53 weeks)
2013(1)
(52 weeks)
$
$
$
$
$
$
$
$
$
$
1,923
42,611
(616)
43,918
311
3,228
3,539
70
1,055
1,125
241
2,173
(1,529)
88
973
$
$
$
$
$
$
$
$
250
584
(14)
(5)
815
$
$
1,812
32,371
(601)
33,582
322
2,098
2,420
63
824
887
259
1,274
8
75
1,616
54
458
(6)
(9)
497
(1) Certain 2013 figures have been amended (see note 2).
(2) Excludes certain items and is used internally by management when analyzing segment underlying operating performance.
(3) Excludes $417 million (2013 – nil) of amortization of intangible assets acquired with Shoppers Drug Mart recorded by Loblaw and
accelerated depreciation of $4 million incurred in 2013 by Weston Foods, included in restructuring and other charges.
(4) The impact of certain items excluded by management includes restructuring and other charges, the fair value adjustment of
derivatives, fixed asset and other related impairments at Loblaw net of recoveries, net insurance proceeds received by Weston
Foods, the MEPP settlement payment and withdrawal liability by Weston Foods, restructuring of franchise fees at Loblaw, the fair
value adjustment of Shoppers Drug Mart’s share-based compensation liability, certain costs relating to Choice Properties, certain
costs and charges and divestiture loss relating to the acquisition of Shoppers Drug Mart, a charge related to the change in inventory
valuation methodology at Loblaw, and defined benefit plan amendments.
(5) Represents the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and short term investments
held by foreign operations.
(6) Represents the Trust Unit distributions from Choice Properties to GWL.
(7) Represents the elimination of the fair value adjustment of the Trust Unit liability related to GWL’s direct investment in
Choice Properties.
George Weston Limited 2014 Annual Report 133
Notes to the Consolidated Financial Statements
($ millions)
Total Assets
Weston Foods
Loblaw
Other(2)
Intersegment
Consolidated
As at
Dec. 31, 2014
Dec. 31, 2013(1)
$
$
2,105
33,844
1,350
(228)
37,071
$
$
2,067
20,901
1,845
(209)
24,604
(1) Certain 2013 figures have been amended (see note 2).
(2) Other includes cash and cash equivalents and short term investments held by foreign operations that have the same functional
currency as that of the Company and GWL’s direct investment in Choice Properties.
($ millions)
Additions to Fixed Assets and Intangible Assets
Weston Foods
Loblaw
Consolidated
2014
(53 weeks)
2013
(52 weeks)
$
$
128
1,086
1,214
$
$
111
877
988
134 George Weston Limited 2014 Annual Report
The Company operates primarily in Canada and the United States.
($ millions)
Revenue (excluding intersegment)
Canada
United States
Consolidated
($ millions)
Fixed Assets and Goodwill and Intangible Assets
Canada
United States
Consolidated
2014
(53 weeks)
2013
(52 weeks)
$
$
43,004
914
43,918
$
$
32,771
811
33,582
As at
Dec. 31, 2014
Dec. 31, 2013
$
$
23,899
506
24,405
$
$
10,808
427
11,235
George Weston Limited 2014 Annual Report 135
Three Year Summary
CONSOLIDATED INFORMATION(1)
As at or for the years ended December 31
($ millions except where otherwise indicated)
Operating Results
Sales
EBITDA(3)
Adjusted EBITDA(3)
Operating income
Adjusted operating income(3)
Net interest expense and other financing charges(4)
Adjusted net interest expense and other
financing charges(3)
Net earnings
Discontinued operations
Net earnings from continuing operations
Net earnings from continuing operations attributable to
shareholders of the Company
Adjusted net earnings from continuing operations
attributable to shareholders of the Company(3)
Financial Position
Fixed assets
Goodwill and intangible assets
Total assets
Cash and cash equivalents, short term investments
and security deposits
Adjusted debt(3)
Total equity attributable to shareholders of the Company
Total equity
Cash Flows
Cash flows from operating activities of
continuing operations
Fixed asset purchases
Free cash flow(3)
Per Common Share ($)
Basic net earnings from continuing operations
Adjusted basic net earnings from continuing operations(3)
Financial Measures and Ratios
Sales growth (%)
Adjusted EBITDA margin (%)
Adjusted operating margin (%)
Adjusted debt(3) to adjusted EBITDA(3)
(3)
(3)
2014
(53 weeks)
2013(2)
(52 weeks)
2012
(52 weeks)
43,918
2,515
3,539
973
2,414
815
566
134
134
126
728
11,436
12,969
37,071
2,497
11,388
7,289
14,249
2,851
1,124
1,033
0.64
5.35
30.8
8.1
5.5
3.2x
33,582
2,507
2,420
1,616
1,533
497
403
904
58
846
614
586
9,655
1,580
24,604
6,150
7,483
6,313
8,901
1,738
976
284
4.47
4.25
2.6
7.2
4.6
3.1x
32,742
2,233
2,377
1,393
1,541
441
406
708
708
475
589
9,452
1,571
21,804
4,075
5,807
5,693
8,072
1,852
1,110
243
3.36
4.25
1.1
7.3
4.7
2.4x
(1) For financial definitions and ratios refer to the Glossary beginning on page 138.
(2) Certain 2013 figures have been amended (see note 2 to the consolidated financial statements).
(3) See non-GAAP financial measures beginning on page 52.
(4) 2014 included a non-cash charge of $199 million (2013 – non-cash income of $1 million) related to the fair value adjustment of
the forward sale agreement for 9.6 million Loblaw common shares. Also included in 2014 is a non-cash charge of $12 million
(2013 – $18 million) related to the fair value adjustment of the Trust Unit liability (see note 6 to the consolidated financial
statements).
136 George Weston Limited 2014 Annual Report
SEGMENT INFORMATION(1)
As at or for the years ended December 31
($ millions except where otherwise indicated)
OPERATING RESULTS
Sales
EBITDA(3)
Adjusted EBITDA(3)
Operating Income
Adjusted Operating
Income(3)
FINANCIAL POSITION
Fixed Assets
Total Assets
CASH FLOWS
Fixed Asset Purchases
FINANCIAL MEASURES AND RATIOS
Sales Growth (Decline) (%)
Adjusted EBITDA Margin (%)
(3)
Adjusted Operating Margin (%)
(3)
Weston Foods
Loblaw
Intersegment
Consolidated
Weston Foods
Loblaw
Other(4)
Consolidated
Weston Foods
Loblaw
Consolidated
Weston Foods
Loblaw
Other(4)
Consolidated
Weston Foods
Loblaw
Consolidated
Weston Foods
Loblaw
Consolidated
Weston Foods
Loblaw
Other(5)
Intersegment
Consolidated
Weston Foods
Loblaw
Consolidated
Weston Foods
Loblaw
Consolidated
Weston Foods
Loblaw
Consolidated
Weston Foods
Loblaw
Consolidated
2014
(53 weeks)
2013(2)
(52 weeks)
2012
(52 weeks)
1,923
42,611
(616)
43,918
301
2,126
88
2,515
311
3,228
3,539
231
654
88
973
241
2,173
2,414
642
10,794
11,436
2,105
33,844
1,350
(228)
37,071
128
996
1,124
6.1
31.6
30.8
16.2
7.6
8.1
12.5
5.1
5.5
1,812
32,371
(601)
33,582
305
2,127
75
2,507
322
2,098
2,420
238
1,303
75
1,616
259
1,274
1,533
550
9,105
9,655
2,067
20,901
1,845
(209)
24,604
111
865
976
2.7
2.4
2.6
17.8
6.5
7.2
14.3
3.9
4.6
1,765
31,604
(627)
32,742
293
1,964
(24)
2,233
333
2,044
2,377
230
1,187
(24)
1,393
274
1,267
1,541
479
8,973
9,452
1,979
18,121
1,704
21,804
93
1,017
1,110
(0.4)
1.1
1.1
18.9
6.5
7.3
15.5
4.0
4.7
(1) For financial definitions and ratios refer to the Glossary beginning on page 138.
(2) Certain 2013 figures have been amended (see note 2 to the consolidated financial statements).
(3) See non-GAAP financial measures beginning on page 52.
(4) EBITDA and operating income for the year includes a gain of $88 million (2013 – $75 million) related to the effect of foreign currency
translation on a portion of the U.S. dollar denominated cash and short term investments held by foreign operations.
(5) Other includes cash and cash equivalents and short term investments held by foreign operations that have the same functional
currency as that of the Company and GWL’s direct investment in Choice Properties.
George Weston Limited 2014 Annual Report 137
Adjusted operating income
Operating income adjusted for items that are not
necessarily reflective of the Company’s underlying
operating performance (see non-GAAP financial
measures beginning on page 52).
Adjusted operating margin
Adjusted operating income divided by sales (see
non-GAAP financial measures beginning on page 52).
Basic net earnings per common share from continuing
operations
Net earnings from continuing operations available to
common shareholders of the Company divided by the
weighted average number of common shares
outstanding during the period.
Capital investment
Fixed asset purchases and intangible asset additions.
Control brand
A brand and associated trademark that is owned by
Loblaw for use in connection with its own products and
services.
Conversion
A store that changes from one Loblaw banner to another
Loblaw banner.
Diluted net earnings per common share from continuing
operations
Net earnings from continuing operations available to
common shareholders of the Company adjusted for the
impact of dilutive items divided by the weighted average
number of common shares outstanding during the period
adjusted for the impact of dilutive items.
EBITDA
Operating income before depreciation and amortization
(see non-GAAP financial measures beginning on page 52).
Free cash flow
Cash flows from operating activities of continuing
operations less interest paid, fixed asset purchases and
intangible asset additions (see non-GAAP financial
measures beginning on page 52).
Gross profit/margin
Sales less cost of inventories sold including inventory
shrink divided by sales.
Glossary
Adjusted basic net earnings per common share from
continuing operations
Adjusted net earnings from continuing operations
available to common shareholders of the Company
divided by the weighted average number of common
shares outstanding during the period (see non-GAAP
financial measures beginning on page 52).
Adjusted debt
Bank indebtedness, short term debt, long term debt,
Trust Unit liability, capital securities, certain other
liabilities and the fair value of certain financial derivative
liabilities less independent securitization trusts in short
term and long term debt, Trust Unit liability, independent
funding trusts and President’s Choice Bank’s guaranteed
investment certificates (see non-GAAP financial measures
beginning on page 52).
Adjusted debt to adjusted EBITDA
Adjusted debt divided by adjusted EBITDA (see non-GAAP
financial measures beginning on page 52).
Adjusted EBITDA
Adjusted operating income before depreciation and
amortization (see non-GAAP financial measures
beginning on page 52).
Adjusted EBITDA margin
Adjusted EBITDA divided by sales (see non-GAAP financial
measures beginning on page 52).
Adjusted income taxes
Income taxes adjusted for the tax impact of items
included in adjusted operating income less adjusted net
interest and other financing charges (see non-GAAP
financial measures beginning on page 52).
Adjusted income tax rate
Adjusted income taxes divided by adjusted operating
income less adjusted net interest and other financing
charges (see non-GAAP financial measures beginning
on page 52).
Adjusted net earnings from continuing operations
available to common shareholders of the Company
Net earnings from continuing operations available to
common shareholders of the Company adjusted for items
that are not necessarily reflective of the Company’s
underlying operating performance (see non-GAAP
financial measures beginning on page 52).
Adjusted net interest expense and other financing
charges
Net interest expense and other financing charges
adjusted for items that are not necessarily reflective of
the Company’s ongoing net financing costs (see non-
GAAP financial measures beginning on page 52).
138 George Weston Limited 2014 Annual Report
Major expansion/contraction
Expansion/contraction of a store that results in an
increase/decrease in square footage that is greater/less
than 25% of the square footage of the store prior to the
expansion/contraction.
Minor expansion
Expansion of a store that results in an increase in square
footage that is less than or equal to 25% of the square
footage of the store prior to the expansion.
Net earnings from continuing operations attributable
to shareholders of the Company
Net earnings from continuing operations less
non-controlling interests.
Net earnings from continuing operations available
to common shareholders of the Company
Net earnings from continuing operations attributable to
shareholders of the Company less preferred dividends.
New store
A newly constructed store, acquisition, conversion or
major expansion.
Operating income
Net earnings before net interest expense and other
financing charges and income taxes.
Renovation
A capital investment in a store resulting in no significant
change to the store square footage.
Retail sales
Combined sales of stores owned by Loblaw’s corporate
stores, those owned by Loblaw’s independent franchisees
and associate-owned drug stores.
Retail square footage
Retail square footage includes Loblaw’s corporate stores,
independent franchised stores and associate-owned
drug stores.
Same-store sales
Retail sales from the same location for stores in
operation in that location in both periods excluding
sales from a store that has undergone a major
expansion or contraction in the period.
Total equity attributable to common shareholders
of the Company
Total equity less preferred shares outstanding and
non-controlling interests.
Total equity attributable to shareholders
of the Company
Total equity less non-controlling interests.
Weighted average common shares outstanding
The number of common shares outstanding determined
by relating the portion of time within the period the
common shares were outstanding to the total time in
that period.
Year
The Company’s year end is December 31. Activities are
reported on a fiscal year ending on the Saturday closest
to December 31, usually 52 weeks in duration but
includes a 53rd week every five to six years. The years
ended December 31, 2014 and December 31, 2013
contained 53 weeks and 52 weeks, respectively.
George Weston Limited 2014 Annual Report 139
Corporate Directory
Board of Directors
W. Galen Weston, O.C., B.A., LL.D.
Executive Chairman of the Corporation;
Chairman, Holt, Renfrew & Co., Limited, Brown
Thomas Group Limited and Selfridges & Co. Ltd.;
President, The W. Garfield Weston Foundation;
former Chairman, Loblaw Companies Limited
and former Director Associated British
Foods, plc.
A. Charles Baillie, O.C., B.A., M.B.A., LL.D. (1,2,5*)
Corporate Director; former Chair, Alberta
Investment Management Corporation; Retired
Chairman and Chief Executive Officer, The
Toronto-Dominion Bank; Director, Canadian
National Railway Company and TELUS
Corporation; Chancellor Emeritus, Queen’s
University; past President and Chair, Art Gallery
of Ontario’s Board of Trustees.
Paviter S. Binning, F.C.M.A.
President of the Corporation; former Executive
Vice President, Chief Financial Officer and
Chief Restructuring Officer, Nortel Networks
Corporation and Nortel Networks Limited;
Director, Loblaw Companies Limited and
President's Choice Bank; former Director and
Chief Financial Officer, Hanson plc and Marconi
Corporation plc.
Darren Entwistle, B.A., M.B.A., LL.D.(4)
Executive Chair and Director, TELUS
Corporation; Director, Canadian Board Diversity
Council, Canadian Council of Chief Executives;
former Director, TD Bank Financial Group and
The Toronto-Dominion Bank; former President
and Chief Executive Officer of TELUS
Corporation.
Anthony R. Graham, LL.D.(2,3)
Vice Chairman and Director, Wittington
Investments, Limited, President of Selfridges
Group Limited; President and Chief Executive
Officer, Sumarria Inc.; Director, Loblaw
Companies Limited, Power Corporation of
Canada, Power Financial Corporation,
President’s Choice Bank, Graymont Limited,
Brown Thomas Group Limited, Holt, Renfrew &
Co., Limited, Selfridges & Co. Ltd. and Grupo
Calidra, S.A. de C.V.; Director, Art Gallery of
Ontario, Canadian Institute for Advanced
Research, Luminato, St. Michael’s Hospital and
Trans Canada Trail Foundation and Chairman of
the Ontario Arts Foundation, the Shaw Festival
Theatre Endowment Foundation; former
Director, Garbell Holdings Limited.
John S. Lacey, B.A.
Chairman of the Advisory Board, Brookfield
Private Equity Group; Consultant to the Board
and to the Board of Loblaw Companies Limited;
former President and Chief Executive Officer,
The Oshawa Group; Director, Loblaw
Companies Limited, TELUS Corporation and
Ainsworth Lumber Co. Ltd.; former Chairman
of Alderwoods Group, Inc.; former Director,
Canadian Imperial Bank of Commerce.
Gordon M. Nixon, C.M., O.Ont.(1,5)
Corporate Director; former President and Chief
Executive Officer of Royal Bank of Canada;
former Chief Executive Officer of RBC Dominion
Securities Inc.; Director, BCE Inc.; former
Director, Royal Bank of Canada; Chairman, MaRS
Discovery District; Chair, Queen’s University
Capital Campaign; Advisory Board Member,
KingSett Canadian Real Estate Income Fund L.P.
J. Robert S. Prichard, O.C., O.Ont., LL.B.,
M.B.A., LL.M., LL.D.(2*,3)
Non-Executive Chair, Torys LLP; Chair, Bank of
Montreal and Metrolinx; former President and
Chief Executive Officer, Metrolinx and Torstar
Corporation; President Emeritus, University of
Toronto; Director, Onex Corporation; former
Director, Torstar Corporation, Four Seasons
Hotels Inc.; Trustee, Hospital for Sick Children;
Member, Ontario’s Economic Advisory Panel.
Thomas F. Rahilly, B.A., M.A., LL.B.(1,2,3*,4,5)
Corporate Director; former Vice-Chairman,
RBC Capital Markets; former Director,
Wittington Investments, Limited.
Isabelle Marcoux, B.A., LL.B.(4*)
Chair, Transcontinental Inc.; Director, Rogers
Communications Inc., Power Corporation of
Canada.
Barbara G. Stymiest, B.A., F.C.A., F.C.P.A.(1*,3)
Corporate Director; former member of the
Group Executive, Royal Bank of Canada; former
Chief Executive Officer, TMX Group Inc.; former
Executive Vice-President and Chief Financial
Officer, BMO Capital Markets; former Partner of
Ernst & Young LLP; Director, BlackBerry Limited,
Sun Life Financial Inc., Chair, Canadian Institute
for Advanced Research; Trustee, University
Sarabjit S. Marwah, B.A., M.A., M.B.A.(1,5)
Health Network.
Corporate Director; former Vice-Chairman and
Chief Operating Officer, The Bank of Nova
Scotia; Director, Cineplex Inc.; Trustee, Hospital
for Sick Children; former Director, Torstar
Corporation; past Chair, Humber River Regional
Hospital.
(1) Audit Committee
(2) Governance, Human Resource, Nominating
and Compensation Committee
(3) Pension Committee
(4) Environmental, Health and Safety Committee
(5) Finance Committee
* Chair of the Committee
Corporate Officers
W. Galen Weston, O.C.
Executive Chairman
Robert A. Balcom
Senior Vice President,
General Counsel - Canada and Secretary
David Farnfield
Vice President,
Commodities
Paviter S. Binning
President
Gordon A.M. Currie
Executive Vice President,
Chief Legal Officer
Rashid Wasti
Executive Vice President,
Chief Talent Officer
Richard Dufresne
Executive Vice President,
Chief Financial Officer
Brian Bidulka
Deputy Chief Financial Officer
140 George Weston Limited 2014 Annual Report
Khush Dadyburjor
Senior Vice President,
Strategy
Nadeem Mansour
Vice President,
Internal Audit Services
Geoffrey H. Wilson
Senior Vice President,
Investor Relations,
Business Intelligence and Communications
John Poos
Vice President,
Pension and Benefits
Paul Barnicke
Vice President,
Tax
Tamara Rebanks
Vice President,
Community Affairs
Allison Doner
Vice President,
Controller
John Williams
Vice President,
Treasurer
Shareholder and Corporate Information
Executive Office
George Weston Limited
22 St. Clair Avenue East
Toronto, Canada M4T 2S7
Tel: 416.922.2500
Fax: 416.922.4395
www.weston.ca
Stock Exchange Listing and Symbols
The Company’s common and preferred shares are listed on the Toronto
Stock Exchange and trade under the symbols: “WN”, “WN.PR.A”,
“WN.PR.C”, “WN.PR.D” and “WN.PR.E”.
Common Shares
At year end 2014, there were 127,901,231 common shares issued and
outstanding.
The average 2014 daily trading volume of the Company’s common
shares was 117,663.
Preferred Shares
At year end 2014, there were 9,400,000 preferred shares Series I,
8,000,000 preferred shares Series III, 8,000,000 preferred shares Series
IV and 8,000,000 preferred shares Series V issued and outstanding.
The average 2014 daily trading volume of the Company’s preferred
shares was:
Series I:
Series III:
Series IV:
Series V:
5,687
5,303
4,266
5,924
Preferred Dividend Dates
The declaration and payment of quarterly preferred dividends are made
subject to approval by the Board of Directors. The record and payment
dates for 2015 are:
Series I
Record Date
Feb. 28
May 31
Aug. 31
Nov. 30
Payment Date
March 15
June 15
Sept. 15
Dec. 15
Series III, Series IV and Series V
Record Date
March 15
June 15
Sept. 15
Dec. 15
Payment Date
April 1
July 1
Oct. 1
Jan. 1
Common Dividend Policy
The declaration and payment of dividends on the Company’s common
shares and the amount thereof are at the discretion of the Board of
Directors which takes into account the Company’s financial results,
capital requirements, available cash flow, future prospects of the
Company’s business and other factors considered relevant from time to
time. Over time, it is the Company’s intention to increase the amount of
the dividend while retaining appropriate free cash flow to reduce debt
and finance future growth.
Common Dividend Dates
The declaration and payment of quarterly common dividends are made
subject to approval by the Board of Directors. The anticipated record
and payment dates for 2015 are:
Record Date
March 15
June 15
Sept. 15
Dec. 15
Payment Date
April 1
July 1
Oct. 1
Jan. 1
Printing: TC Transcontinental Printing www.tcprinting.tc
Normal Course Issuer Bid
The Company has a Normal Course Issuer Bid on the Toronto Stock
Exchange.
Value of Common Shares
For capital gains purposes, the valuation day (December 22, 1971) cost
base for the Company, adjusted for the 4 for 1 stock split (effective
May 27, 1986) and the 3 for 1 stock split (effective May 8, 1998), is
$1.50 per share. The value on February 22, 1994 was $13.17 per share.
Registrar and Transfer Agent
Computershare Investor Services Inc.
100 University Avenue
Toronto, Canada M5J 2Y1
Toll Free Tel:
International Tel: 514.982.7555 (direct dial)
Fax:
Toll Free Fax:
416.263.9394
1.888.453.0330
1.800.564.6253 (Canada and U.S.A.)
To change your address or eliminate multiple mailings,
or for other shareholder account inquiries, please contact
Computershare Investor Services Inc.
Independent Auditors
KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
Annual Meeting
The George Weston Limited Annual Meeting of Shareholders
will be held on Tuesday, May 12, 2015, at 11:00 a.m. at
The Royal Conservatory, TELUS Centre for Performance and
Learning, Koerner Hall, 273 Bloor Street West, Toronto, Ontario,
Canada.
Trademarks
George Weston Limited, Loblaw Companies Limited and their respective
subsidiaries own a number of trademarks. These trademarks are the
exclusive property of George Weston Limited, Loblaw Companies
Limited and their respective subsidiary companies. Trademarks where
used in this report are in italics.
Investor Relations
Shareholders, security analysts and investment professionals should
direct their requests to Mr. Geoffrey H. Wilson, Senior Vice President,
Investor Relations, Business Intelligence and Communications, at the
Company’s Executive Office or by e-mail at investor@weston.ca.
Additional financial information has been filed electronically with the
Canadian securities regulatory authorities in Canada through the
System for Electronic Document Analysis and Retrieval (SEDAR). The
Company holds an analyst call shortly following the release of its
quarterly results. These calls are archived in the Investor Centre section
of the Company’s website.
This Annual Report includes selected information on Loblaw Companies
Limited, a public company with shares trading on the Toronto Stock
Exchange.
Ce rapport est disponible en français.
George Weston Limited 2014 Annual Report 141
This 2014 Annual Report was printed in Canada on
Enviro 100, which contains 100% post-consumer waste
and is processed chlorine-free, using biogas energy.
www.weston.ca