2017 Annual Report
George Weston Limited
Footnote Legend
(1)
(2)
(3)
See Section 18, “Non-GAAP Financial Measures”, of the Company’s 2017 Management’s Discussion and Analysis.
For financial definitions and ratios refer to the Glossary beginning on page 146.
To be read in conjunction with “Forward-Looking Statements” beginning on page 4.
Financial Highlights 2 / Management’s Discussion and Analysis 3 / Financial Results 69 /Three Year Summary 144 /
Glossary 146 / Corporate Directory 148 / Shareholder and Corporate Information 149
George Weston Limited 2017 Annual Report 1
Financial Highlights(2)
As at or for the years ended December 31
($ millions except where otherwise indicated)
Consolidated Operating Results
Sales
Operating income
Adjusted EBITDA(1)
Depreciation and amortization(i)
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(1)
Income taxes
Adjusted income taxes(1)
Net earnings
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the Company
Adjusted net earnings available to common shareholders of the Company(1)
Consolidated Financial Position and Cash Flows
Cash and cash equivalents, short term investments and security deposits
Cash flows from operating activities
Capital investments
Free cash flow(1)
Total debt
Consolidated Per Common Share ($)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(1) ($)
Consolidated Financial Measures and Ratios
Adjusted EBITDA margin(1)
Adjusted return on average equity attributable to common shareholders
of the Company(1)
Adjusted return on capital(1)
Reportable Operating Segments
Weston Foods
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
Loblaw
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
$
$
$
$
$
2017
2016
$
$
$
$
$
48,292
2,540
4,340
1,685
523
555
443
713
1,574
759
715
904
3,233
3,425
1,474
1,395
13,066
5.53
7.00
9.0%
12.9%
13.0%
2,243
91
256
11.4%
117
46,702
2,486
4,084
8.7%
1,568
47,999
2,255
4,140
1,654
700
568
465
678
1,090
550
506
838
2,660
3,760
1,465
1,725
12,804
3.90
6.49
8.6%
12.1%
12.1%
2,268
173
296
13.1%
111
46,385
2,084
3,844
8.3%
1,543
(i) Depreciation and amortization includes $524 million (2016 – $535 million) of amortization of intangible assets, acquired with
Shoppers Drug Mart, recorded by Loblaw and $10 million (2016 – $14 million) of accelerated depreciation recorded by Weston
Foods, related to restructuring and other charges.
2 George Weston Limited 2017 Annual Report
Management’s Discussion and Analysis
1.
2.
3.
4.
5.
6.
7.
8.
9.
Forward-Looking Statements
Overview
Strategic Framework
Key Financial Performance Indicators
Overall Financial Performance
Consolidated Results of Operations
5.1
5.2
Selected Annual Information
Results of Reportable Operating Segments
6.1 Weston Foods Operating Results
6.2
Loblaw Operating Results
Liquidity and Capital Resources
Cash Flows
Liquidity
Components of Total Debt
Financial Condition
Credit Ratings
Share Capital
Off-Balance Sheet Arrangements
Contractual Obligations
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
Quarterly Results of Operations
Quarterly Financial Information (Unaudited)
Fourth Quarter Results (Unaudited)
8.1
8.2
Fourth Quarter Results of Reportable Operating Segments
9.1 Weston Foods Fourth Quarter Operating Results (Unaudited)
Loblaw Fourth Quarter Operating Results (Unaudited)
9.2
10. Disclosure Controls and Procedures
11.
12.
13.
14.
Internal Control Over Financial Reporting
Enterprise Risks and Risk Management
12.1 Operating Risks and Risk Management
12.2 Financial Risks and Risk Management
Related Party Transactions
Critical Accounting Estimates and Judgments
15. Accounting Standards Implemented
16.
Future Accounting Standards
17. Outlook
18. Non-GAAP Financial Measures
19. Additional Information
4
5
6
7
8
8
14
16
16
17
21
21
22
24
26
27
27
29
30
31
31
33
40
40
41
43
43
43
44
51
53
54
55
56
58
59
68
George Weston Limited 2017 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 69 to 143 of this Annual Report. The Company’s audited annual consolidated
financial statements and the accompanying notes for the year ended December 31, 2017 have been prepared in
accordance with International Financial Reporting Standards (“IFRS” or “GAAP”) as issued by the International
Accounting Standards Board (“IASB”). The audited annual 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.
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 18, “Non-GAAP Financial Measures”, of this MD&A for more information on the Company’s
non-GAAP financial measures.
A glossary of terms and ratios used throughout this Annual Report can be found beginning on page 146.
The information in this MD&A is current to March 1, 2018, unless otherwise noted.
FORWARD-LOOKING STATEMENTS
1.
This Annual Report, including this MD&A, for the Company contains forward-looking statements about the
Company’s objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows,
performance, prospects, opportunities and legal and regulatory matters. 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, strategic initiatives and restructuring, regulatory changes including minimum wage
increases and further healthcare reform, future liquidity, planned capital investments, and status and impact of
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 7,
“Liquidity and Capital Resources”, Section 17, “Outlook”, and Section 18, “Non-GAAP Financial Measures” of this
MD&A. Forward-looking statements are typically identified by words such as “expect”, “anticipate”, “believe”,
“foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may”, “maintain”, “achieve”,
“grow”, “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 2018 is based on certain assumptions including assumptions about sales and volume
growth, anticipated cost savings, operating efficiencies, anticipated benefits from strategic initiatives, anticipated
minimum wage increases and healthcare reform impacts. 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 12,
“Enterprise Risks and Risk Management”, of this MD&A and the Company’s Annual Information Form (“AIF”) for
the year ended December 31, 2017. Such risks and uncertainties include:
•
changes to the regulation of generic prescription drug prices, the reduction of reimbursements under public
drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers;
failure to effectively manage or combine Loblaw Companies Limited’s (“Loblaw”) loyalty programs;
the inability of the Company’s IT infrastructure to support the requirements of the Company’s business, or
the occurrence of any internal or external security breaches, denial of service attacks, viruses, worms and
other known or unknown cybersecurity or data breaches;
•
•
4 George Weston Limited 2017 Annual Report
•
•
•
•
failure to execute Loblaw’s e-commerce initiative or to adapt its business model to the shifts in the retail
landscape caused by digital advances;
failure to realize benefits from investments in the Company’s new IT systems;
failure to effectively respond to consumer trends or heightened competition, whether from current
competitors or new entrants to the marketplace;
changes to any of the laws, rules, regulations or policies applicable to the Company's business, including
increases to minimum wage;
• public health events including those related to food and drug safety;
•
failure to realize the anticipated benefits, including revenue growth, anticipated cost savings or operating
efficiencies, associated with the Company's investment in major initiatives that support its strategic
priorities;
• adverse outcomes of legal and regulatory proceedings and related matters;
•
reliance on the performance and retention of third party service providers, including those associated with
the Company’s supply chain and Loblaw’s apparel business, including issues with vendors in both advanced
and developing markets;
failure to achieve desired results in labour negotiations, including the terms of future collective bargaining
agreements;
the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory
and to control shrink;
changes in economic conditions, including economic recession or changes in the rate of inflation or
deflation, employment rates and household debt, political uncertainty, interest rates, currency exchange
rates or derivative and commodity prices;
the inability of the Company to effectively develop and execute its strategy; and
the inability of the Company to anticipate, identify and react to consumer and retail trends.
•
•
•
•
•
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, 2017. 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. The Company also holds cash, short term investments and an interest in Choice
Properties Real Estate Investment Trust (“Choice Properties”) of 6.1%. Loblaw has three reportable operating
segments: Retail, Financial Services and Choice Properties. Loblaw provides Canadians with grocery, pharmacy,
health and beauty, apparel, general merchandise, credit card services, insurance brokerage services, gift cards
and telecommunication services. Loblaw also holds an 82.4% effective interest in Choice Properties, which owns,
manages and develops well-located retail and other commercial real estate across Canada. The Weston Foods
operating segment includes a leading fresh bakery business in Canada and frozen, artisan bakery and biscuit
businesses throughout North America.
George Weston Limited 2017 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 is committed to offering superior products and services to its consumers and customers in an
increasingly competitive environment. To deliver on this commitment, Weston Foods undertook an extensive
business review to best position the business for the future.
Weston Foods introduced its new strategic framework with a corresponding transformation program, centered
on its ambition of becoming a premier North American bakery, all while delivering solid financial results. Weston
Foods aims to redefine bakery for its consumers and customers with superior taste and experiences, enhance its
level of service to customers, build on its leading brands and engage in strategic innovation.
Critical to achieving these goals are engaging talent in its workforce, investing in a competitive integrated supply
chain, executing a new go-to-market approach, and implementing new systems to support agile ways of working.
A transformation program is in place to support these critical elements, with the aim of realizing $100 million of
adjusted EBITDA(1) improvement by 2020.
This strategic framework and the transformation program will be pursued while respecting our core values and
working towards our greater purpose of elevating everyday moments.
Loblaw’s strategic framework is anchored by a powerful purpose: Live Life Well. Loblaw is committed to
delivering industry-leading financial results through data-driven insights and process and efficiency excellence,
while maintaining an intense focus on its customers.
Loblaw’s aim is to offer the “best in food” and the “best in health and beauty”, supported by everyday digital
retail, a connected healthcare network and a single loyalty program - PC Optimum.
The approach to offering “best in food” is driven by fresh selection, and a desire to offer sustainable and
competitive pricing, customized assortments across banners and several of the country’s top control brands.
Achieving “best in health and beauty” requires putting pharmacy customers first, providing high quality health
and wellness products and services, delivering a diverse and differentiated beauty offering, and maintaining
convenient locations and hours of operation.
Loblaw is also focused on continued growth in the President’s Choice Financial Services and Choice Properties
segments.
Weston Foods and Loblaw each have their own risk profiles and operating risk management strategies. The
success of these and other plans and strategies discussed in this MD&A may be affected by risks and
uncertainties, including those described in Section 12, “Enterprise Risks and Risk Management” of this MD&A
and in the Company’s AIF for the year ended December 31, 2017.
6 George Weston Limited 2017 Annual Report
KEY FINANCIAL PERFORMANCE INDICATORS
4.
The Company has identified specific key financial performance indicators to measure the progress of short and
long term objectives. Certain key financial performance indicators are set out below:
($ millions except where otherwise indicated)
As at or for the years ended December 31
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the Company
Adjusted net earnings available to common shareholders of the Company(1)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(1)
Cash and cash equivalents, short term investments and security deposits
Cash flows from operating activities
Free cash flow(1)
Total debt
Adjusted return on average equity attributable to common shareholders
($)
of the Company(1)
Adjusted return on capital(1)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2017
48,292
2,540
4,340
9.0%
759
715
904
5.53
7.00
3,233
3,425
1,395
13,066
12.9%
13.0%
2016
47,999
2,255
4,140
8.6%
550
506
838
3.90
6.49
2,660
3,760
1,725
12,804
12.1%
12.1%
George Weston Limited 2017 Annual Report 7
Management’s Discussion and Analysis
5.
OVERALL FINANCIAL PERFORMANCE
5.1
CONSOLIDATED RESULTS OF OPERATIONS
($ millions except where otherwise indicated)
For the years ended December 31
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
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 attributable to shareholders
of the Company
Net earnings available to common shareholders
of the Company
Adjusted net earnings available to common
shareholders of the Company(1)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(1) ($)
$
$
$
$
$
$
$
$
$
$
$
$
$
2017
48,292
2,540
4,340
9.0%
1,685
523
555
443
713
27.1%
759
715
904
5.53
7.00
$
$
$
$
$
$
$
$
$
$
$
$
$
2016
47,999
2,255
4,140
8.6%
1,654
700
568
465
678
27.5%
550
506
838
3.90
6.49
$
$
$
$
$
$
$
$
$
$
$
$
$
$ Change
293
285
200
31
(177)
(13)
(22)
35
209
209
66
1.63
0.51
% Change
0.6 %
12.6 %
4.8 %
1.9 %
(25.3)%
(2.3)%
(4.7)%
5.2 %
38.0 %
41.3 %
7.9 %
41.8 %
7.9 %
(i) Depreciation and amortization includes $524 million (2016 – $535 million) of amortization of intangible assets, acquired with
Shoppers Drug Mart, recorded by Loblaw and $10 million (2016 – $14 million) of accelerated depreciation recorded by Weston
Foods, related to restructuring and other charges.
Net Earnings Available to Common Shareholders of the Company
Net earnings available to common shareholders of the Company in 2017 were $715 million ($5.53 per common
share), an increase of $209 million ($1.63 per common share) compared to the same period in 2016. The
increase in 2017 was primarily due to an improvement in underlying operating performance of $66 million
($0.51 per common share) and the favourable year-over-year net impact of adjusting items totaling $143 million
($1.12 per common share), as described below.
• The improvement in underlying operating performance of $66 million ($0.51 per common share) was
primarily due to:
the underlying operating performance of Loblaw’s Retail segment; and
the favourable impact of a decrease in adjusted net interest expense and other financing charges, as
described below;
partially offset by,
the unfavourable underlying operating performance of Weston Foods; and
the unfavourable impact of an increase in depreciation and amortization, as described below.
8 George Weston Limited 2017 Annual Report
• The favourable year-over-year net impact of adjusting items totaling $143 million ($1.12 per common share)
was primarily due to:
the gain on disposition of Loblaw’s gas bar operations of $207 million ($1.61 per common share);
the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares of
$57 million ($0.45 per common share);
the favourable year-over-year impact of asset impairments, net of recoveries, of $24 million ($0.18
per common share); and
the favourable year-over-year impact of the statutory corporate income tax rate change of
$20 million ($0.16 per common share);
partially offset by,
the unfavourable impact of Loblaw’s charges related to the announcement of the PC Optimum
Program, including the revaluation of the existing points liability and the impairment of certain IT
assets, of $75 million ($0.58 per common share);
an increase in restructuring and other charges of $65 million ($0.51 per common share); and
the unfavourable impact of the Loblaw Card Program of $39 million ($0.30 per common share).
• Net earnings available to common shareholders of the Company also included the positive contribution from
the increase in the Company’s ownership interest in Loblaw, as a result of Loblaw’s share repurchases.
Adjusted net earnings available to common shareholders of the Company(1) in 2017 were $904 million ($7.00 per
common share), an increase of $66 million ($0.51 per common share) compared to the same period in 2016. The
increase in adjusted net earnings available to common shareholders of the Company(1) in 2017 was primarily due
to the improvement in underlying operating performance and the positive contribution from the increase in the
Company’s ownership interest in Loblaw, as described above.
Sales
($ millions except where otherwise indicated)
For the years ended December 31
Weston Foods
Loblaw
Intersegment
Consolidated
2017
2,243
46,702
(653)
48,292
$
$
$
$
2016
2,268
46,385
(654)
47,999
$
$
$
$
$ Change
(25)
$
317
$
% Change
(1.1)%
0.7 %
$
293
0.6 %
The Company’s 2017 consolidated sales were $48,292 million, an increase of $293 million compared to the same
period in 2016. The increase in sales in 2017 was impacted by each of its reportable operating segments as
follows:
• Negatively by 0.1% due to sales decline of 1.1% at Weston Foods. Foreign currency translation negatively
impacted sales by approximately 1.3%. Excluding the impact of foreign currency translation, sales increased
by 0.2% primarily due to an increase in volumes, partially offset by the negative impact of pricing and
changes in sales mix.
• Positively by 0.7% due to sales growth of 0.7% at Loblaw, primarily driven by Retail. Retail sales increased by
$250 million, or 0.6% compared to 2016. Excluding the consolidation of franchises, Retail sales decreased by
$97 million, or 0.2%. The decrease was primarily due to the impact of the disposition of Loblaw’s gas bar
operations of $718 million, partially offset by same-store sales growth and an increase in Retail net square
footage. Food retail same-store sales growth was 0.3%, after excluding gas bar operations. Loblaw’s food
retail average annual internal food price index declined and was marginally higher than the average annual
national food price deflation of 1.0% as measured by “The Consumer Price Index for Food Purchased from
Stores” (“CPI”). CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in
Loblaw stores. Drug retail same-store sales growth was 3.0%. The unfavourable impact of the timing of New
Year’s Day was nominal on food and drug retail same-store sales growth.
George Weston Limited 2017 Annual Report 9
Management’s Discussion and Analysis
Operating Income
($ millions except where otherwise indicated)
For the years ended December 31
Weston Foods
Loblaw
Other
Consolidated
2017
91
2,486
(37)
2,540
$
$
$
$
2016
173
2,084
(2)
2,255
$
$
$
$
$ Change
(82)
$
402
$
% Change
(47.4)%
19.3 %
$
285
12.6 %
The Company’s 2017 operating income was $2,540 million, an increase of $285 million compared to the same
period in 2016. The increase in operating income in 2017 was driven by the improvements in underlying
operating performance of $154 million and the favourable year-over-year net impact of adjusting items totaling
$131 million, as described below:
•
the improvements in underlying operating performance of $154 million were primarily due to the following:
the underlying operating performance of Loblaw primarily driven by its Retail segment and its Choice
Properties segment, net of consolidation and eliminations, despite the impact of an increase in
depreciation and amortization;
partially offset by,
the underlying operating performance of Weston Foods, including an increase in depreciation and
amortization.
•
the favourable year-over-year net impact of adjusting items totaling $131 million was primarily due to:
the gain on disposition of Loblaw’s gas bar operation of $501 million;
the favourable year-over-year impact of asset impairments, net of recoveries, of $79 million; and
the favourable impact of income earned, net of certain costs incurred, from the wind-down of
PC Financial banking services of $24 million;
partially offset by,
the unfavourable impact of Loblaw’s charges related to the announcement of the PC Optimum
Program, including the revaluation of the existing points liability and the impairment of certain IT
assets, of $211 million;
an increase in restructuring and other charges of $150 million; and
the unfavourable impact of the Loblaw Card Program of $107 million.
Adjusted EBITDA(1)
($ millions except where otherwise indicated)
For the years ended December 31
Weston Foods
Loblaw
Consolidated
2017
256
4,084
4,340
$
$
$
2016
296
3,844
4,140
$ Change
(40)
$
240
$
200
$
$
$
$
% Change
(13.5)%
6.2 %
4.8 %
The Company’s 2017 adjusted EBITDA(1) was $4,340 million, an increase of $200 million compared to the same
period in 2016. The increase in adjusted EBITDA(1) in 2017 was impacted by each of its reportable operating
segments as follows:
• Negatively by 1.0% due to a decrease of 13.5% in adjusted EBITDA(1) at Weston Foods driven by continued
investments in the business, higher input and distribution costs, operational issues and changes in sales mix,
partially offset by productivity improvements.
10 George Weston Limited 2017 Annual Report
• Positively by 5.8% due to an increase of 6.2% in adjusted EBITDA(1) at Loblaw, primarily driven by the Retail
segment and the Choice Properties segment, net of consolidation and eliminations. The Retail segment
included the positive contribution from the consolidation of franchises, partially offset by the unfavourable
impact of the disposition of gas bar operations. The improvement in Retail adjusted EBITDA(1) was primarily
driven by an increase in Retail gross profit, partially offset by an increase in Retail selling, general &
administrative expenses (“SG&A”).
Depreciation and Amortization
($ millions except where otherwise indicated)
For the years ended December 31
Weston Foods
Loblaw
Consolidated
2017
117
1,568
1,685
$
$
$
2016
111
1,543
1,654
$ Change
6
$
25
$
31
$
$
$
$
% Change
5.4 %
1.6 %
1.9 %
Depreciation and amortization in 2017 was $1,685 million, an increase of $31 million compared to the same
period in 2016, and included $524 million (2016 – $535 million) of amortization of intangible assets related to
the acquisition of Shoppers Drug Mart Corporation (“Shoppers Drug Mart”) recorded by Loblaw and $10 million
(2016 – $14 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and other
charges. Excluding these amounts, depreciation and amortization increased by $46 million primarily due to:
• an increase in depreciation from the consolidation of Loblaw franchises;
• higher depreciation due to an increase in Loblaw’s IT assets; and
• higher depreciation due to investments in capital at Weston Foods;
partially offset by,
•
the change in the estimated useful life of certain Loblaw Retail equipment and fixtures in the second quarter
of 2016.
Net Interest Expense and Other Financing Charges
($ millions)
For the years ended December 31
Net interest expense and other financing charges
Add: Fair value adjustment of the Trust Unit liability
Fair value adjustment of the forward sale agreement for 9.6 million
Loblaw common shares
Adjusted net interest expense and other financing charges(1)
2017
523
7
25
555
$
$
2016
700
(79)
(53)
568
$
$
Net interest expense and other financing charges in 2017 were $523 million, a decrease of $177 million
compared to the same period in 2016. The decrease in net interest expense and other financing charges in 2017
was primarily due to the year-over-year impact of a decrease in adjusting items totaling $164 million, itemized in
the table above, and a decrease in adjusted net interest expense and other financing charges(1) of $13 million
driven by:
•
lower interest expense in Loblaw’s Retail segment due to the repayment of Medium Term Notes (“MTNs”) in
the second quarter of 2016; and
lower interest expense due to repayment made by GWL of a $350 million MTN in the fourth quarter of 2016;
•
partially offset by,
• an increase in interest expense on long term debt in Loblaw’s Choice Properties segment due to higher
drawings on credit facilities, higher distributions to Trust unitholders other than the Company and Loblaw
and a prior year gain on settlement of bond forwards, partially offset by lower interest due to the repayment
of the Series 6 senior unsecured debentures in the first quarter of 2017; and
George Weston Limited 2017 Annual Report 11
Management’s Discussion and Analysis
• an increase in interest expense in Loblaw’s Financial Services segment primarily due to the Eagle Credit Card
Trust® (“Eagle”) debt issuance in the fourth quarter of 2017.
Income Taxes
($ millions except where otherwise indicated)
For the years ended December 31
Income taxes
Add: Tax impact of items excluded from adjusted earnings before taxes(1)(i)
Remeasurement of deferred tax balances
Statutory corporate income tax rate change
Adjusted income taxes(1)
Effective income tax rate applicable to earnings before taxes
Adjusted income tax rate applicable to adjusted earnings before taxes(1)
$
$
$
$
2017
443
232
19
19
713
22.0%
27.1%
2016
465
216
(3)
678
29.9%
27.5%
(i)
See the adjusted EBITDA table and the adjusted net interest expense and other financing charges table included in Section 18,
“Non-GAAP Financial Measures”, of this MD&A for a complete list of items excluded from adjusted earnings before taxes(1).
the impact of the non-taxable portion of the gain on disposition of Loblaw’s gas bar operations;
The effective tax rate in 2017 was 22.0%, a decrease of 7.9% compared to the same period in 2016. The decrease
was primarily attributable to:
•
• a decrease in the non-deductible fair value adjustment of the Trust Unit liability;
• a deferred tax recovery resulting from the remeasurement of certain deferred tax balances; and
• a deferred tax recovery resulting from the decrease in the U.S. statutory corporate income tax rate, as
described below.
The adjusted income tax rate(1) in 2017 was 27.1%, a decrease of 0.4% compared to the same period in 2016. The
decrease was primarily attributable to a decrease in certain other non-deductible items.
In the fourth quarter of 2017, the Company recorded a deferred tax recovery of $19 million resulting from a
change in the applicable provincial income tax rate used to measure certain deferred tax balances caused by a
change in the location of certain business activities.
In the fourth quarter of 2017, the U.S. government enacted a 14.0% decrease in the U.S. federal statutory
corporate income tax rate from 35.0% to 21.0%. As a result, Weston Foods recorded a recovery of $19 million in
2017 related to the remeasurement of its deferred tax liabilities.
In the first quarter of 2016, the Government of New Brunswick announced a 2.0% increase in the provincial
statutory corporate income tax rate from 12.0% to 14.0%. Loblaw recorded a charge of $3 million in 2016 related
to the remeasurement of its deferred tax liabilities.
Loblaw has been reassessed by Canada Revenue Agency (“CRA”) and the Ontario Ministry of Finance on the basis
that certain income earned by Glenhuron Bank Limited (“Glenhuron”), a wholly owned Barbadian subsidiary,
should be treated, and taxed, as income in Canada. The reassessments, which were received between 2015 and
2017, are for the 2000 to 2012 taxation years and total $406 million including interest and penalties. Loblaw
believes the reassessments are without merit and is vigorously defending them. Loblaw believes it is likely that
the CRA will issue reassessments for the 2013 taxation year on the same or similar basis. Loblaw has filed a
Notice of Appeal with the Tax Court of Canada for the 2000 to 2010 taxation years and a Notice of Objection for
the 2011 and 2012 taxation years. The Tax Court of Canada trial is scheduled to commence in the second quarter
of 2018. Loblaw does not currently have any significant accruals or provisions for this matter recorded in the
consolidated financial statements.
12 George Weston Limited 2017 Annual Report
Competition Bureau Investigation
On December 19, 2017, the Company and Loblaw announced actions taken to address their role in an industry-
wide price-fixing arrangement involving certain packaged bread products. The arrangement involved the
coordination of retail and wholesale prices of certain packaged bread products over a period extending from late
2001 to March 2015. Under the arrangement, the participants regularly increased prices on a coordinated basis.
Class action lawsuits have been commenced against the Company and Loblaw as well as a number of other
major grocery retailers and another bread wholesaler. It is too early to predict the outcome of such legal
proceedings. Neither the Company nor Loblaw believes that the ultimate resolution of such legal proceedings
will have a material adverse impact on their financial condition or prospects. The Company and Loblaw’s cash
balances far exceed any realistic damages scenario and therefore the Company and Loblaw do not anticipate any
impacts on the Company and Loblaw’s dividend, dividend policy or Loblaw’s share buyback plan.
The Company and Loblaw have not recorded any amounts related to the potential civil liability associated with
the class action lawsuits in the fourth quarter of 2017 on the basis that a reliable estimate of the liability cannot
be determined at this time. The Company and Loblaw will continue to assess whether a provision for civil liability
associated with the class action lawsuits can be reliably estimated and will record an amount in the period that a
reliable estimate of liability can be determined or the matter is ultimately resolved.
As part of its response to this issue, Loblaw has announced the Loblaw Card Program pursuant to which Loblaw
is offering a $25 Loblaw Card to eligible customers. The Loblaw Card can be used to purchase items sold in
Loblaw grocery stores across Canada. Loblaw has recorded a charge of $107 million in relation to the Loblaw
Card Program in the fourth quarter of 2017. The Company and Loblaw expect that Loblaw Cards issued to
customers will be an offset against civil liability. The charge recorded for the Loblaw Card Program should not be
viewed as an estimate of damages.
As a result of their admission that they participated in the arrangement and their cooperation in the Competition
Bureau’s investigation, the Company and Loblaw will not face criminal charges or penalties.
George Weston Limited 2017 Annual Report 13
Management’s Discussion and Analysis
SELECTED ANNUAL INFORMATION
5.2
The selected information presented below has been derived from and should be read in conjunction with the
annual consolidated financial statements of the Company dated December 31, 2017 and 2016. The analysis of
the data contained in the table focuses on the trends and significant events or items affecting the results of
operations and financial condition of the Company over the latest three year period.
For the years ended December 31
($ millions except where otherwise indicated)
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
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
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the Company
Adjusted net earnings available to common shareholders
of the Company(1)
Net earnings per common share ($) – diluted
Adjusted diluted net earnings per common share(1) ($)
Dividends declared per share type ($):
Common shares
Preferred shares – Series I
Preferred shares – Series III
Preferred shares – Series IV
Preferred shares – Series V
2017
(52 weeks)
48,292
2,540
4,340
9.0%
1,685
523
555
443
713
27.1%
1,574
759
715
904
5.53
7.00
1.805
1.45
1.30
1.30
1.1875
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2016
(52 weeks)
47,999
2,255
4,140
8.6%
1,654
700
568
465
678
27.5%
1,090
550
506
838
3.90
6.49
1.745
1.45
1.30
1.30
1.1875
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2015
(52 weeks)
46,894
1,929
3,826
8.2%
1,686
681
585
418
571
27.2%
830
511
467
717
3.62
5.57
1.695
1.45
1.30
1.30
1.1875
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(i) Depreciation and amortization includes $524 million (2016 – $535 million; 2015 – $536 million) of amortization of intangible assets,
acquired with Shoppers Drug Mart, recorded by Loblaw and $10 million (2016 – $14 million; 2015 – $11 million) of accelerated
depreciation recorded by Weston Foods, related to restructuring and other charges.
Sales The Company’s reportable operating segments had the following sales trends over the last three years:
• Weston Foods sales have been positively impacted by volume growth in both 2017 and 2016. Foreign
currency translation had a negative impact on sales in 2017 but a positive impact on sales in 2016.
•
Loblaw’s Retail segment has driven the growth in Loblaw sales over the last three years. Loblaw’s Retail
segment sales have continued to grow despite the pressure of an intensely competitive retail market and an
uncertain economic and regulatory environment over the last three years. Through 2015, Loblaw was
operating in an inflationary environment for food prices. In 2016, this food price inflation trend reversed,
with inflation declining each quarter and becoming deflationary in the fourth quarter. This trend continued
until the third quarter of 2017 where deflation in food prices returned to inflation. Retail segment sales over
the past three years were also impacted by the consolidation of franchises, the changes in the price of fuel
sold at the Loblaw’s gas bars, the impact of drug reform, Loblaw’s store closure plan announced in 2015 and
completed in 2016 and the disposition of Loblaw’s gas bar operations in the third quarter of 2017.
14 George Weston Limited 2017 Annual Report
Net earnings available to common shareholders of the Company and Diluted net earnings per common share
Net earnings available to common shareholders of the Company and diluted net earnings per common share for
the last three years were impacted by of certain adjusting items as described in Section 18, “Non-GAAP Financial
Measures”, of this MD&A and by the underlying operating performance of each of the Company’s reportable
operating segments.
Over the last three years, the Company’s underlying operating performance was impacted by the following:
•
improvements in underlying operating performance at Loblaw in both 2017 and 2016, driven by the Retail
segment, including positive same-store sales in both food and drug retail, and the positive contribution from
net synergies related to the acquisition of Shoppers Drug Mart. The improvements in underlying operating
performance included the impacts of an increase in depreciation and amortization in 2017 and a decrease in
depreciation and amortization in 2016;
• a decline in underlying operating performance at Weston Foods in 2017, driven by the investments in the
business, higher input and distribution costs, operational issues and an increase in depreciation and
amortization. A decline in underlying operating performance at Weston Foods in 2016, including the impact
of incremental investments in the business, higher input costs, new plant costs, and an increase in
depreciation and amortization;
lower adjusted net interest expense and other financing charges(1) in both 2017 and 2016 due to the
repayment of MTNs at Loblaw and GWL; and
•
• an increase in GWL’s ownership interest in Loblaw in 2017 and 2016 as a result of share repurchases. GWL’s
ownership of Loblaw was approximately 48.6% as at the end of 2017 (2016 – approximately 47.0%).
Over the last three years, the impact of certain adjusting items included:
•
•
•
•
•
•
•
•
•
•
the gain on disposition of Loblaw’s gas bar operations;
the change in the fair value adjustment of the forward sale agreement for 9.6 million Loblaw shares;
year-over-year change in asset impairments, net of recoveries;
statutory corporate income tax rate changes;
the change in the fair value adjustment of the Trust Unit liability;
the remeasurement of deferred tax balances;
the wind-down of PC Financial banking services;
the settlement impacts of pension annuities and buy-outs;
the impairment of Loblaw’s drug retail ancillary assets held for sale; and
the accelerated finalization of transitioning of certain Loblaw grocery stores to more cost effective and
efficient Labour Agreements;
partially offset by,
•
•
year-over-year foreign currency translation;
the PC Optimum Program, including the revaluation of existing points liability and the impairment of certain
IT assets;
the Loblaw Card Program; and
year-over-year change in restructuring and other charges.
•
•
Total Assets and Long Term Financial Liabilities
($ millions)
Total assets
Total long term debt
Trust Unit liability
Total long term financial liabilities
Dec. 31, 2017
38,499
$
12,092
$
634
12,726
$
As at
Dec. 31, 2016
37,946
$
11,785
$
635
12,420
$
Dec. 31, 2015
38,220
$
12,276
$
552
12,828
$
George Weston Limited 2017 Annual Report 15
Management’s Discussion and Analysis
In 2017, total assets of $38,499 million increased 1.5% as compared to 2016. The increase in total assets was
primarily driven by an increase in cash and cash equivalents and short term investments as a result of the sale of
Loblaw’s gas bar operation. Total long term financial liabilities increased by 2.5% compared to 2016 driven by the
drawings on the Choice Properties Credit Facilities and the Eagle debt issuance partially offset by the repayment
of the Choice Properties Series 6 senior unsecured debentures.
In 2016, total assets of $37,946 million decreased marginally and total long term financial liabilities decreased by
3.2% compared to 2015. The decrease in total long term financial liabilities was primarily due to repayments of
MTNs, partially offset by debt issuances by Choice Properties to third parties and the increase in the value of the
Trust Unit liability.
The Trust Unit liability is recognized at fair value on the consolidated balance sheets and fluctuates due to
issuances and changes in the fair value of Choice Properties’ Trust Units. As at December 31, 2017, 47,444,450
Units were held by unitholders other than the Company (2016 – 47,071,606, 2015 – 46,721,755) and the
Company held an 88.5% (2016 – 88.5%, 2015 – 88.6%) effective ownership interest in Choice Properties.
6.
RESULTS OF REPORTABLE OPERATING SEGMENTS
The following discussion provides details of the 2017 results of operations of each of the Company’s reportable
operating segments.
6.1 WESTON FOODS OPERATING RESULTS
($ millions except where otherwise indicated)
For the years ended December 31
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
2017
2,243
91
256
11.4%
117
$
$
$
$
$
$
$
$
2016
2,268 $
173 $
296 $
$ Change
(25)
(82)
(40)
% Change
(1.1)%
(47.4)%
(13.5)%
13.1%
111 $
6
5.4 %
(i) Depreciation and amortization includes $10 million (2016 – $14 million) of accelerated depreciation related to restructuring and
other charges.
Sales Weston Foods sales in 2017 were $2,243 million, a decrease of $25 million, or 1.1%, compared to the
same period in 2016. Sales included the negative impact of foreign currency translation of approximately 1.3%.
Excluding the impact of foreign currency translation, sales increased by 0.2% primarily due to an increase in
volumes, partially offset by the negative impact of pricing and changes in sales mix.
Operating income Weston Foods operating income in 2017 was $91 million, a decrease of $82 million compared
to the same period in 2016. The decrease was primarily due to the decline in underlying operating performance
of $50 million and the unfavourable year-over-year net impact of adjusting items totaling $32 million as
described below:
• an increase in restructuring and other charges of $31 million; and
•
partially offset by,
•
the favourable year-over-year impact of inventory loss, net of recoveries, of $17 million.
the fair value adjustment of derivatives of $19 million;
Adjusted EBITDA(1) Weston Foods adjusted EBITDA(1) in 2017 was $256 million, a decrease of $40 million
compared to the same period in 2016. The decrease was driven by continued investments in the business, higher
input and distribution costs, operational issues and changes in sales mix, partially offset by productivity
improvements.
Weston Foods adjusted EBITDA margin(1) was 11.4% compared to 13.1% in the same period in 2016. The decline
in adjusted EBITDA margin(1) was mainly due to factors impacting adjusted EBITDA(1), as described above.
16 George Weston Limited 2017 Annual Report
Depreciation and Amortization Weston Foods depreciation and amortization in 2017 was $117 million, an
increase of $6 million compared to the same period in 2016. Depreciation and amortization included $10 million
(2016 – $14 million) of accelerated depreciation. These charges primarily related to closures of unprofitable
facilities in the U.S. and Canada. Excluding these amounts, depreciation and amortization increased $10 million
in 2017 due to investments in capital.
Weston Foods Other Business Matters
Restructuring and other charges Weston Foods continuously evaluates strategic and cost reduction initiatives
related to its manufacturing assets, distribution networks and administrative infrastructure with the objective of
ensuring a low cost operating structure. In the fourth quarter of 2017, Weston Foods recorded restructuring and
other charges of $33 million (2016 – $7 million) and year-to-date $48 million (2016 – $17 million). In 2017, the
restructuring charges were primarily related to the previously announced closure of an unprofitable facility in
the U.S., which is expected to be completed in the first quarter of 2018, and reorganization costs related to the
transformation program. In the fourth quarter of 2017, these charges included severance and exit costs of
$14 million, accelerated depreciation of $10 million, and impairment of a definite life intangible asset of
$9 million. On a year-to-date basis, the restructuring charges included severance and exit costs of $15 million in
addition to the charges in the fourth quarter of 2017 as described above.
6.2
LOBLAW OPERATING RESULTS
($ millions except where otherwise indicated)
For the years ended December 31
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
2017
46,702
2,486
4,084
8.7%
1,568
$
$
$
$
$
$
$
$
$ Change
317
402
240
2016
46,385 $
2,084 $
3,844 $
8.3%
1,543 $
% Change
0.7 %
19.3 %
6.2 %
25
1.6 %
(i) Depreciation and amortization includes $524 million (2016 – $535 million) of amortization of intangible assets acquired with
Shoppers Drug Mart.
Sales, operating income and adjusted EBITDA(1) in 2017 include the impacts of consolidation of franchises and
the impact of the disposition of gas bar operations, as set out in “Loblaw Other Business Matters”.
Sales Loblaw sales in 2017 were $46,702 million, an increase of $317 million compared to the same period in
2016, primarily driven by Retail. Retail sales in 2017 increased by $250 million, or 0.6%, compared to the same
period in 2016 and included food retail sales of $33,055 million (2016 – $33,175 million) and drug retail sales of
$12,579 million (2016 – $12,209 million).
the impact of the disposition of gas bar operations of $718 million;
Excluding the consolidation of franchises, Retail sales in 2017 decreased by $97 million, or 0.2%, primarily driven
by the following factors:
•
partially offset by,
•
food retail same-store sales growth was 0.3%, after excluding gas bar operations. Including gas bar
operations, food retail same-store sales growth was 0.6%. Loblaw’s food retail average annual internal food
price index declined and was marginally higher than the average annual national food price deflation of 1.0%
as measured by CPI. CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in
Loblaw stores;
• drug retail same-store sales growth was 3.0%, including pharmacy same-store sales growth of 3.1% and front
•
store same-store sales growth of 2.9%;
the unfavourable impact of the timing of New Year’s Day was nominal on food and drug retail same-store
sales growth; and
George Weston Limited 2017 Annual Report 17
Management’s Discussion and Analysis
• during 2017, 22 food and drug stores were opened and 19 food and drug stores were closed, resulting in an
increase in Retail net square footage of 0.1 million square feet, or 0.1%.
Operating income Loblaw operating income in 2017 was $2,486 million, an increase of $402 million compared
to the same period in 2016. The increase was primarily driven by improvements in underlying operating
performance of $204 million and the favourable year-over-year net impact of adjusting items totaling
$198 million, as described below:
•
the improvements in underlying operating performance were primarily driven by Retail, due to an increase in
Retail gross profit, partially offset by higher Retail SG&A, and Choice Properties, net of consolidation and
eliminations. Retail also included the positive contribution from the consolidation of franchises, partially
offset by the unfavourable impact of the disposition of gas bar operations; and
•
the favourable year-over-year net impact of adjusting items totaling $198 million was primarily due to:
the gain on disposition of gas bar operations of $501 million;
the favourable year-over-year impact of asset impairments, net of recoveries, of $82 million; and
the favourable impact of income earned, net of certain costs incurred, from the wind-down of
PC Financial banking services of $24 million;
partially offset by,
the unfavourable impact of charges related to the announcement of the PC Optimum Program,
including the revaluation of the existing points liability and the impairment of certain IT assets, of
$211 million;
an increase in restructuring and other charges of $119 million; and
the unfavourable impact of the Loblaw Card Program of $107 million.
Adjusted EBITDA(1) Loblaw adjusted EBITDA(1) in 2017 was $4,084 million, an increase of $240 million compared
to the same period in 2016. The increase was primarily driven by the Retail segment and the Choice Properties
segment, net of consolidation and eliminations. The Retail segment included the positive contribution from the
consolidation of franchises, partially offset by the unfavourable impact of the disposition of gas bar operations.
Retail adjusted EBITDA(1) increased $205 million driven by an increase in Retail gross profit, partially offset by an
increase in Retail SG&A.
• Retail gross profit percentage was 28.1%, an increase of 110 basis points compared to the same period in
2016. Excluding the consolidation of franchises, Retail gross profit percentage was 26.9%, an increase of
50 basis points compared to 2016, primarily driven by the favourable impact of the disposition of gas bar
operations of approximately 30 basis points and higher drug retail margins primarily due to front store
margins. Food retail margins were stable.
• Retail SG&A as a percentage of sales was 19.7%, an increase of 70 basis points compared to the same period
in 2016. Excluding the consolidation of franchises, Retail SG&A increased $27 million. Retail SG&A as a
percentage of sales, excluding the consolidation of franchises, was 18.5%, an unfavourable increase of 10
basis points compared to the same period in 2016, driven by the following factors:
the unfavourable impact of the disposition of gas bar operations of approximately 20 basis points;
partially offset by,
lower store support costs; and
the favourable impact of foreign exchange.
Loblaw adjusted EBITDA(1) in 2017 also included the increase in Choice Properties adjusted EBITDA(1), net of
consolidations and eliminations, of $28 million, primarily due to an increase in base rent and operating cost
recoveries from existing properties and the expansion of the portfolio through acquisitions and development of
properties, and an increase in Financial Services adjusted EBITDA(1) of $7 million, primarily driven by growth in
credit card receivables and higher Mobile Shop sales.
18 George Weston Limited 2017 Annual Report
Depreciation and Amortization Loblaw depreciation and amortization in 2017 was $1,568 million, an increase
of $25 million compared to the same period in 2016. The increase in depreciation and amortization was
primarily driven by the consolidation of franchises and an increase in IT assets, partially offset by the impact of
the change in the estimated useful life of certain equipment and fixtures in the second quarter of 2016. Included
in depreciation and amortization is the amortization of intangible assets acquired with Shoppers Drug Mart of
$524 million (2016 – $535 million).
Loblaw Other Business Matters
PC Optimum Program In the fourth quarter of 2017, Loblaw announced plans to bring together the Shoppers
Optimum and PC Plus reward programs to create one program, PC Optimum. As a result, Loblaw recorded a
charge of $189 million, related to the revaluation of the existing liability for outstanding points to reflect a higher
anticipated redemption rate under the new program, and a charge of $22 million, related to the impairment of
certain IT assets that support the existing loyalty programs in the fourth quarter of 2017. Subsequent to the
fourth quarter of 2017, Loblaw successfully launched the PC Optimum Program.
Restructuring and other charges In the fourth quarter of 2017, Loblaw eliminated approximately 500 corporate
and store-support positions and finalized a plan that will result in the closure of 22 unprofitable retail locations
across a range of banners and formats. Loblaw expects to record charges of approximately $135 million related
to this restructuring, of which $123 million was recorded in the fourth quarter of 2017. The charges included
$109 million for severance and lease related costs, $7 million for asset impairments and $7 million related to
other costs. Loblaw expects to realize approximately $85 million in annualized savings related to these plans.
Loblaw expects that the store closures will be substantially complete by the end of the first quarter of 2018.
In addition, Loblaw recorded $20 million in severance and other related charges and $3 million for asset
impairments as a result of other restructuring plans approved in the fourth quarter of 2017 and a charge of
$19 million related to an adjustment of onerous contract provisions related to previously announced
restructuring plans.
Gas Bar Network On July 17, 2017, Loblaw sold its gas bar operations, for proceeds of approximately
$540 million, to Brookfield Business Partners L.P. (“Brookfield”). Loblaw recorded a pre-tax gain on sale of
$501 million (post-tax gain of $432 million), net of related costs, in the third quarter of 2017. As a result of the
transaction, Brookfield has become a strategic partner to Loblaw and will offer Loblaw’s PC Optimum Program
at the gas bars. In addition, the gas bars operate at certain properties that are either owned by Loblaw or leased
by Loblaw from Choice Properties or third-party landlords. As a result of the transaction, Brookfield leases or
sub-leases these properties from Loblaw. In 2016, the gas bar operations sold approximately 1,700 million litres
of gas and contributed approximately $1,500 million to sales. After taking into account the earnings associated
with the gas bar operations and the ongoing commitment of Loblaw to fund certain loyalty program costs, the
expected annual impact will be a reduction in adjusted EBITDA(1) of approximately $80 million, based on 2016
information. Loblaw expects to use the proceeds from the sale for general corporate activities.
In 2017, the impact of the disposition of gas bar operations was $718 million on Retail sales and approximately
$40 million on Retail adjusted EBITDA(1). Loblaw expects in 2018 that the impact of the disposition of gas bar
operations on Retail sales and Retail adjusted EBITDA(1) will approximate that experienced in 2017.
George Weston Limited 2017 Annual Report 19
Management’s Discussion and Analysis
Consolidation of Franchises Loblaw has more than 500 franchise food retail stores in its network. As at year end
2017, 310 of these stores were consolidated for accounting purposes under a new, simplified franchise
agreement (“Franchise Agreement”) implemented in 2015.
Loblaw will convert franchises to the Franchise Agreement as existing agreements expire, at the end of which all
franchises will be consolidated. The following table presents the net number of franchises consolidated in the
fourth quarter of 2017 and year-to-date, and the total impact of the consolidation of franchises included in the
consolidated results of the Company:
(unaudited)
($ millions except where otherwise indicated)
Number of Consolidated Franchise stores,
beginning of period
Add: Net Number of Consolidated Franchise
stores in the period
Number of Consolidated Franchise stores, end
of period
Sales
Operating income (loss)
Adjusted EBITDA(1)
Depreciation and amortization
Net earnings attributable to
non-controlling interests
Quarters Ended
Years Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2017
Dec. 31, 2016
$
273
37
310
186
16
27
11
14
$
165
35
200
99
21
27
6
28
$
200
110
310
710
23
66
43
24
$
85
115
200
363
(1)
20
21
7
Operating income (loss) included in the table above does not significantly impact net earnings available to
common shareholders of the Company as this amount is largely attributable to non-controlling interests.
Loblaw expects that the estimated annual impact in 2018 of new and current consolidated franchises will be
revenue of approximately $1,000 million, adjusted EBITDA(1) of approximately $100 million, depreciation and
amortization of approximately $60 million and net earnings attributable to non-controlling interests of
approximately $25 million.
Wind-down of PC Financial banking services In the third quarter of 2017, President's Choice Bank (“PC Bank”)
entered into an agreement to end its business relationship with a major Canadian chartered bank, which
represented the personal banking services offered under the President's Choice Financial® brand. As a result of
this agreement, PC Bank will receive a payment of approximately $43 million, net of certain costs incurred,
$24 million of which was recognized in 2017 including $17 million recognized in the fourth quarter of 2017. The
remaining amounts will be recognized in the first and second quarters of 2018.
PC Bank will continue to operate the PC MasterCard® Program and customers will earn PC Optimum points.
PC Bank remains committed to providing payment products to its customers and continues to strengthen its
credit card services and loyalty programs.
Acquisition of properties During 2017, Choice Properties acquired seven investment properties from third-party
vendors for an aggregate purchase price of approximately $64 million, excluding acquisition costs, which was
settled by an assumption of a $7 million mortgage, with the remainder in cash. Of the seven investment
properties acquired during 2017, two investment properties were acquired from third-party vendors, in the
fourth quarter of 2017, for an aggregate purchase price of approximately $18 million, excluding acquisition costs.
20 George Weston Limited 2017 Annual Report
Choice Properties’ Agreement to Acquire Canadian Real Estate Investment Trust On February 15, 2018,
Choice Properties entered into an agreement to acquire all of the assets and assume all of the liabilities,
including long term debt and all residual liabilities of Canadian Real Estate Investment Trust (“CREIT”). CREIT will
then redeem all of its outstanding units for $22.50 in cash plus 2.4904 Choice Properties units per CREIT unit,
on a fully prorated basis. Using the Choice Properties closing unit price on February 14, 2018 of $12.49, this
represents $53.61 per CREIT unit. The maximum amount of cash to be paid by Choice Properties will be
approximately $1.65 billion and approximately 183 million units will be issued, based on the fully diluted number
of CREIT units outstanding.
Choice Properties will finance the cash portion of the transaction with committed credit facilities totaling
$3.6 billion. These committed facilities consist of an $850 million bridge facility that Choice Properties intends to
refinance through the issuance of senior unsecured debentures and a $1.25 billion term loan. The term loan is
structured in tranches maturing in 3, 4 and 5 years. Choice Properties will consider hedging the term loan to
manage floating interest rate exposure. Choice Properties has also arranged a new $1.5 billion committed
revolving credit facility, that will replace its and CREIT’s existing credit facilities ensuring that Choice Properties
will have maximum flexibility to support ongoing growth prospects, including acquisitions and development.
Loblaw, Choice Properties’ controlling unitholder, has entered into a voting agreement in support of the
transaction. To facilitate Choice Properties’ financing for the transaction, Loblaw has agreed to convert all of its
outstanding Class C Limited Partnership units of Choice Properties Limited Partnership with a face value of
$925 million into Class B LP units of Choice Properties Limited Partnership on closing. Following the transaction,
the Company and Loblaw will own approximately 4% and 62% of Choice Properties, respectively.
The transaction is anticipated to close in the second quarter of 2018. The transaction will require the approval of
at least 66 2/3% of the votes cast by unitholders of CREIT at a special meeting expected to take place in April
2018. In addition to CREIT unitholder approval and court approvals, the transaction is subject to compliance with
the Competition Act and certain other closing conditions customary in transactions of this nature. There can be
no assurance that any such approvals will be obtained or that Loblaw will be able to successfully consummate
the proposed transaction as currently contemplated or at all.
7.
LIQUIDITY AND CAPITAL RESOURCES
7.1
CASH FLOWS
($ millions)
For the years ended December 31
Cash and cash equivalents, beginning of period
Cash flows from operating activities
Cash flows used in investing activities
Cash flows used in financing activities
Effect of foreign currency exchange rate changes on
cash and cash equivalents
Cash and cash equivalents, end of period
2017
1,560
3,425
(1,075)
(1,865)
(11)
2,034
$
$
$
$
$
$
2016
$
1,413
3,760
$
(1,324) $
(2,275) $
(14) $
$
1,560
Change
147
(335)
249
410
3
474
$
$
$
$
$
$
Cash Flows from Operating Activities The year-over-year decrease in cash inflows in 2017 was $335 million,
primarily due to:
• an increase in income taxes paid;
partially offset by,
• higher cash earnings.
George Weston Limited 2017 Annual Report 21
Management’s Discussion and Analysis
Cash Flows used in Investing Activities The year-over-year decrease in cash outflows in 2017 was $249 million,
primarily driven by the proceeds from the disposition of Loblaw’s gas bar operations and the acquisition of QHR
Corporation (“QHR”) in 2016, partially offset by an increase in short term investments and higher fixed asset
purchases.
The following table summarizes the Company’s capital investments by each of its reportable operating segments:
($ millions)
For the years ended December 31
Weston Foods
Loblaw
Total capital investments
2017
215
1,259
1,474
$
$
2016
241
1,224
1,465
$
$
Cash Flows used in Financing Activities The year-over-year decrease in cash outflows in 2017 was $410 million,
primarily driven by lower net repayments of Loblaw’s long term debt and timing of dividends paid, partially
offset by Loblaw’s higher repurchases of common shares and the change in short term bank debt.
The Company’s significant long term debt transactions are set out in Section 7.3, “Components of Total Debt”.
Free Cash Flow(1)
($ millions)
For the years ended December 31
Cash flows from operating activities
Less:
Interest paid
Fixed asset purchases
Intangible asset additions
Free cash flow(1)
2017
3,425
556
1,177
297
1,395
$
$
2016
3,760
570
1,129
336
1,725
$
$
Change
(335)
(14)
48
(39)
(330)
$
$
The year-over-year decrease in free cash flow(1) in 2017 was $330 million, primarily due to lower cash flows from
operating activities, as described above.
LIQUIDITY
7.2
The Company (excluding Loblaw) expects that cash and cash equivalents, short term investments and future
operating cash flows will enable it to finance its capital investment program and fund its ongoing business
requirements, including working capital, pension plan funding requirements and financial obligations over the
next 12 months. The Company (excluding Loblaw) does not foresee any impediments in obtaining financing to
satisfy its long term obligations.
Loblaw expects that cash and cash equivalents, short term investments, future operating cash flows and the
amounts available to be drawn against committed credit facilities will enable it to finance its capital investment
program and fund its ongoing business requirements, including working capital, pension plan funding
requirements and financial obligations, over the next 12 months. Financial Services expects to obtain long term
financing for the growth of its credit card portfolio through the issuance of Eagle notes and Guaranteed
Investment Certificates (“GICs”). Choice Properties expects to obtain long term financing for the acquisition of
properties primarily through the issuance of unsecured debentures and equity.
For details on the Company’s cash flows, see Section 7.1 “Cash Flows” of this MD&A.
22 George Weston Limited 2017 Annual Report
Total Debt The following table presents total debt, as monitored by management:
($ 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
As at
Dec. 31, 2017
110
$
1,258
1,635
10,457
41
(435)
13,066
$
Dec. 31, 2016
115
$
1,241
400
11,385
31
(368)
12,804
$
Management targets credit metrics consistent with those of an investment grade profile. The Company
(excluding Loblaw) holds significant cash and cash equivalents and short term investments and as a result
monitors its leverage on a net debt basis. The Company (excluding Loblaw) has total debt of $1,098 million
(2016 – $1,123 million) and cash and cash equivalents and short term investments of $803 million (2016 –
$1,016 million), resulting in a $295 million net debt position (2016 – $107 million net debt position).
Loblaw’s management is focused on managing its capital structure on a segmented basis to ensure that each of
its operating segments is employing a capital structure that is appropriate for the industry in which it operates.
•
Loblaw targets maintaining Retail credit metrics consistent with those of investment grade retailers. Loblaw
monitors the Retail segment’s debt to adjusted EBITDA(1) ratio as a measure of the leverage being employed.
The Retail segment debt to adjusted EBITDA(1) ratio decreased compared to 2016 primarily as a result of
growth in adjusted EBITDA(1).
• PC Bank capital management objectives are to maintain a consistently strong capital position while
considering the economic risks generated by its credit card receivables portfolio and to meet all regulatory
requirements as defined by the Office of the Superintendent of Financial Institutions (“OSFI”).
• Choice Properties targets maintaining credit metrics consistent with those of investment grade Real Estate
Investment Trusts (“REIT”). Choice Properties monitors metrics relevant to the REIT industry including
targeting an appropriate debt to total assets ratio.
Covenants and Regulatory Requirements The Company, Loblaw and Choice Properties are required to comply
with certain financial covenants for various debt instruments. As at year end 2017 and throughout the year, the
Company, Loblaw and Choice Properties were in compliance with their respective covenants. As at year end
2017 and throughout the year, PC Bank and Choice Properties have met all applicable regulatory requirements.
Short Form Base Shelf Prospectus In 2017, Loblaw filed a Short Form Base Shelf Prospectus, which allows for the
potential issuance of up to $2 billion of unsecured debentures and/or preferred shares subject to the availability
of funding in the capital markets.
In 2017, Eagle filed a Short Form Base Shelf Prospectus, which allows for the potential issuance of up to
$1 billion of notes over a 25-month period.
Subsequent to the end of 2017, Choice Properties filed a Short Form Base Shelf Prospectus, which allows for the
potential issuance of up to $2 billion of Units and debt securities, or any combination thereof, over a 25-month
period. Under this Prospectus, Choice Properties issued $650 million of senior unsecured debentures.
Subsequent to the end of 2017, GWL filed a Base Shelf Prospectus allowing for the issuance of up to $1 billion of
senior and subordinated debt securities, and preferred shares, or any combination thereof over a 25-month
period.
George Weston Limited 2017 Annual Report 23
Management’s Discussion and Analysis
7.3
COMPONENTS OF TOTAL DEBT
Debentures and MTNs The following table summarizes the debentures and MTNs issued in the years ended as
indicated:
($ millions except where otherwise indicated)
Choice Properties senior unsecured debentures
Interest
Rate
Maturity
Date
2017
Principal
Amount
– Series G
– Series H
Total debentures issued
3.20%
5.27%
March 7, 2023
March 7, 2046
$
—
2016
Principal
Amount
$
$
250
100
350
No debentures and MTNs were issued in 2017. Subsequent to the end of 2017, Choice Properties issued two
series of senior unsecured debentures: $300 million Series I senior unsecured debentures due March 21, 2022,
which bear interest at a rate of 3.01% per annum; and $350 million Series J senior unsecured debentures due
January 10, 2025, which bear interest at a rate of 3.55% per annum.
The following table summarizes the debentures and MTNs repaid in the years ended as indicated:
($ millions except where otherwise indicated)
George Weston Limited notes
Loblaw Companies Limited notes
Shoppers Drug Mart notes
Choice Properties senior unsecured debentures
– Series 6
– Series 5
Total MTNs and debentures repaid
(i) Redeemed on January 23, 2017.
(ii) Redeemed on March 7, 2016.
Rate
3.78%
7.10%
2.01%
3.00%
3.00%
Interest
2017
Principal
Maturity
Amount
Date
October 25, 2016
June 1, 2016
May 24, 2016
April 20, 2017(i)
April 20, 2016(ii)
2016
Principal
Amount
350
300
225
$
$
$
200
200
$
300
1,175
Subsequent to the end of 2017, Choice Properties issued an early redemption notice for its $400 million Series A
3.55% senior unsecured debentures, which were redeemed on February 12, 2018 with an original maturity date
of July 5, 2018.
24 George Weston Limited 2017 Annual Report
Committed Credit Facilities The components of the committed lines of credit available as at year end 2017 and
2016 were as follows:
As at
Dec. 31, 2017
Dec. 31, 2016
($ millions)
Loblaw’s committed credit facility
Choice Properties’ committed
syndicated credit facility
Choice Properties’ committed bi-lateral
credit facility
Total committed credit facilities
Maturity
Date
Available
Credit
Drawn
June 10, 2021
$
1,000
July 5, 2022(i)
500
$
311
December 21, 2018
250
$
1,750
$
250
561
Available
Credit
$
1,000
500
250
$
1,750
Drawn
$
$
172
172
(i)
Choice Properties’ committed syndicated credit facility was extended for an additional year from July 5, 2021 to July 5, 2022.
Subsequent to the end of 2017, Choice Properties repaid and cancelled the committed bi-lateral credit facility.
Independent Securitization Trusts Loblaw, through PC Bank, participates in various securitization programs
that provide a source of funds for the operation of its credit card business. PC Bank maintains and monitors the
co-ownership interest in credit card receivables with independent securitization trusts, including Eagle and the
Other Independent Securitization Trusts, in accordance with its financing requirements.
The following table summarizes the amounts securitized to independent securitization trusts:
($ millions)
Securitized to independent securitization trusts:
Securitized to Eagle Credit Card Trust
Securitized to Other Independent Securitization Trusts
Total securitized to independent securitization trusts
As at
Dec. 31, 2017
Dec. 31, 2016
$
$
900
640
1,540
$
$
650
665
1,315
In 2017, Eagle filed a Short Form Base Shelf Prospectus, which allows for the potential issuance of up to
$1 billion of notes over a 25-month period. Under this Prospectus, Eagle issued $250 million of senior and
subordinated term notes with a maturity date of October 17, 2022 at a weighted average interest rate of 2.71%.
In connection with this issuance, $200 million of bond forward agreements were settled, resulting in a realized
fair value gain of $6 million, in Other Comprehensive Income and a net effective interest rate of 2.26% on the
Eagle notes issued.
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. The
aggregate gross potential liability under these arrangements for the Other Independent Securitization Trusts was
$62 million (2016 – $71 million), which represented approximately 10% (2016 – 11%) of the securitized credit
card receivables amount. As at year end 2017, the aggregate gross potential liability under these arrangements
for Eagle was $36 million (2016 – $36 million), which represented approximately 9% (2016 – 9%) of the
outstanding Eagle notes issued prior to 2015.
George Weston Limited 2017 Annual Report 25
Management’s Discussion and Analysis
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. PC Bank was in compliance with this
requirement as at year end 2017 and throughout 2017.
The undrawn commitments on facilities available from the Other Independent Securitization Trusts as at year
end 2017 were $160 million (2016 – $210 million).
Independent Funding Trusts As at year end 2017, the independent funding trusts had drawn $551 million
(2016 – $587 million) from the revolving committed credit facility that is the source of funding to the
independent funding trusts. Loblaw provides credit enhancement in the form of a standby letter of credit for the
benefit of the independent funding trusts. As at year end 2017, Loblaw has agreed to provide a credit
enhancement of $64 million (2016 – $64 million) in the form of a standby letter of credit for the benefit of the
independent funding trusts representing not less than 10% (2016 – 10%) of the principal amount of the loans
outstanding.
Guaranteed Investment Certificates The following table summarizes PC Bank’s GIC activity, before commissions,
for the years ended as follows:
($ millions)
Balance, beginning of year
GICs issued
GICs matured
Balance, end of year
2017
928
76
(152)
852
$
$
2016
809
239
(120)
928
$
$
As at year end 2017, $193 million in GICs were recorded as long term debt due within one year (2016 –
$142 million).
Associate Guarantees Loblaw has arranged for its Shoppers Drug Mart licensees (“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 2017, Loblaw’s
maximum obligation in respect of such guarantees was $580 million (2016 – $580 million) with an aggregate
amount of $509 million (2016 – $488 million) in available lines of credit was allocated to the Associates by the
various banks. As at year end 2017, Associates had drawn an aggregate amount of $110 million (2016 –
$115 million) against these available lines of credit. Any amounts drawn by the Associates are included in bank
indebtedness on the Company’s consolidated balance sheets. 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.
7.4
FINANCIAL CONDITION
Adjusted return on average equity attributable to common shareholders
of the Company(1)
Adjusted return on capital(1)
As at
Dec. 31, 2017
Dec. 31, 2016
12.9%
13.0%
12.1%
12.1%
Adjusted return on average equity attributable to common shareholders of the Company(1) increased as at year
end 2017 compared to year end 2016, due to the improvement in Loblaw’s underlying operating performance
and Loblaw’s common shares repurchased. Adjusted return on capital(1) increased as at year end 2017 compared
to year end 2016 due to the factors described above and an increase in cash and cash equivalents and short term
investments as a result of the disposition of Loblaw’s gas bar operations.
26 George Weston Limited 2017 Annual Report
CREDIT RATINGS
7.5
In 2017, Standard & Poor’s (“S&P”) reaffirmed credit ratings and outlook for GWL, Loblaw and Choice Properties.
Also in 2017, Dominion Bond Rating Service (“DBRS”) reaffirmed credit ratings and trends for GWL, Loblaw and
Choice Properties.
Subsequent to the fourth quarter of 2017 and after the announcement that Choice Properties has entered into
an agreement to acquire the assets and assume the liabilities of CREIT, DBRS reaffirmed the ratings of Loblaw
and Choice Properties and changed the trend from Positive to Stable. S&P reaffirmed the ratings of Choice
Properties.
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
DBRS
Credit Rating
BBB
BBB
BBB
Pfd-3
Trend
Stable
Stable
Stable
Stable
The following table sets out the current credit ratings of Loblaw:
Credit Ratings (Canadian Standards)
Issuer rating
Medium term notes
Other notes and debentures
Second Preferred shares, Series B
DBRS
Credit Rating
BBB
BBB
BBB
Pfd-3
Trend
Stable
Stable
Stable
Stable
The following table sets out the current credit ratings of Choice Properties:
S&P
Credit Rating
BBB
BBB
BBB
P-3 (high)
S&P
Credit Rating
BBB
BBB
BBB
P-3 (high)
Outlook
Stable
n/a
n/a
n/a
Outlook
Stable
n/a
n/a
n/a
Credit Ratings (Canadian Standards)
Issuer rating
Senior unsecured debentures
7.6
SHARE CAPITAL
DBRS
Credit Rating
BBB
BBB
Trend
Stable
Stable
S&P
Credit Rating
BBB
BBB
Outlook
Stable
n/a
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, 2017:
(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
127,905,581
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, 2017 and December 31, 2016:
George Weston Limited 2017 Annual Report 27
Management’s Discussion and Analysis
(number of common shares)
Issued and outstanding, beginning of year
Issued for settlement of stock options
Purchased and cancelled
Issued and outstanding, end of year
Shares held in trusts, beginning of year
Purchased for future settlement of RSUs and PSUs
Released for settlement of RSUs and PSUs
Shares held in trusts, end of year
Issued and outstanding, net of shares held in trusts, end of year
Weighted average outstanding, net of shares held in trusts
2017
127,898,582
293,976
(286,977)
127,905,581
(266,999)
(70,198)
108,394
(228,803)
127,676,778
127,692,789
2016
127,911,661
54,921
(68,000)
127,898,582
(272,031)
(102,006)
107,038
(266,999)
127,631,583
127,668,839
As at year end 2017, a total of 1,527,125 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.
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.
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 of Directors (“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 finance future growth. In the second quarter of 2017
and 2016, the Board raised the quarterly common share dividend by $0.015 to $0.455 and $0.44 per share,
respectively. The Board declared dividends as follows:
($)
Dividends declared per share(i):
Common share
Preferred share:
Series I
Series III
Series IV
Series V
2017
1.805
1.45
1.30
1.30
1.1875
$
$
$
$
$
2016
1.745
1.45
1.30
1.30
1.1875
$
$
$
$
$
(i) Dividends declared on common shares and Preferred Shares, Series III, Series IV and Series V were payable on January 1, 2018 and
subsequently paid on January 2, 2018. Dividends declared on Preferred Shares, Series I were paid on December 15, 2017.
28 George Weston Limited 2017 Annual Report
The following table summarizes the Company’s cash dividends declared subsequent to year end 2017:
($)
Dividends declared per share(i) – Common share
– Preferred share:
Series I
Series III
Series IV
Series V
$
0.455
0.3625
$
0.3250
$
$
0.3250
$ 0.296875
(i) Dividends declared on common shares and Preferred Shares, Series III, Series IV and Series V are payable on April 1, 2018. Dividends
declared on Preferred Shares, Series I are payable on March 15, 2018.
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.
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 future settlement of RSUs and PSUs (number of shares)
Purchased and cancelled (number of shares)
Cash consideration paid
Purchased and held in trusts
Purchased and cancelled
Premium charged to retained earnings
2017
70,198
286,977
2016
102,006
68,000
$
$
$
(7)
(31)
38
$
$
$
(11)
(8)
19
In the second quarter of 2017, GWL renewed its NCIB program to purchase on the Toronto Stock Exchange
(“TSX”) or through alternative trading systems up to 6,395,185 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.
OFF-BALANCE SHEET ARRANGEMENTS
7.7
The following is a summary of the Company’s off-balance sheet arrangements. Certain significant arrangements
have also been discussed in Section 7.3, “Components of Total Debt”.
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
franchisees. As at year end 2017, the aggregate gross potential liability related to the Company’s letters of credit
was approximately $844 million (2016 – $771 million).
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 2017, the guarantee on behalf
of PC Bank to MasterCard® was U.S. dollars $190 million (2016 – U.S. dollars $190 million).
Glenhuron Bank Limited Surety Bond In connection with the CRA’s reassessment of Loblaw on certain income
earned by Glenhuron, Loblaw arranged for a surety bond of $149 million (2016 – $141 million) to the Ministry of
Finance in order to dispute the reassessments.
George Weston Limited 2017 Annual Report 29
Management’s Discussion and Analysis
Cash Collateralization As at year end 2017, GWL and Loblaw had agreements to cash collateralize certain
uncommitted credit facilities up to amounts of $45 million (2016 – $45 million) and $102 million (2016 –
$103 million), respectively. As at year end 2017, GWL and Loblaw had $45 million (2016 – $45 million) and
$3 million (2016 – $4 million) deposited with major financial institutions, respectively, and classified as security
deposits on the consolidated balance sheets.
CONTRACTUAL OBLIGATIONS
7.8
The following table summarizes certain of the Company’s significant contractual obligations and other
obligations as at year end 2017:
Summary of Contractual Obligations
($ millions)
Total debt(i)
Foreign exchange forward
contracts
Operating leases(ii)
Contracts for purchases of
real property and capital
investment projects(iii)
Purchase obligations(iv)
Total contractual obligations
Payments due by year
2018
3,458 $
2019
2,535 $
2020
1,715 $
$
2021
985 $
2022
1,239 $
Thereafter
Total
7,822 $ 17,754
511
699
201
158
5,027 $
$
656
583
509
429
1,866
511
4,742
60
3,251 $
35
2,333 $
12
1,506 $
12
1,680 $
201
277
9,688 $ 23,485
(i)
Includes short term debt, bank indebtedness, Loblaw’s certain other liabilities, and the fair value of the equity forward included in
other assets. Total debt also includes fixed interest payments on long term debt which 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 2017.
(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.
As at year end 2017, 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.
30 George Weston Limited 2017 Annual Report
8.
QUARTERLY RESULTS OF OPERATIONS
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
8.1
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. Each of the years ended December 31, 2017 and December 31, 2016 contained 52 weeks.
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 contains 53 weeks, the fourth quarter is 13 weeks in duration.
The following is a summary of selected consolidated financial information derived from the Company’s
unaudited interim period condensed consolidated financial statements for each of the eight most recently
completed quarters.
Selected Quarterly Information (Unaudited)
($ millions except where
otherwise indicated)
Sales
Operating income
Adjusted EBITDA(1)
Depreciation and amortization(i)
Net earnings
Net earnings attributable to
shareholders of the
Company
Net earnings available to
common shareholders of the
Company
Net earnings per common
share ($) - basic
Net earnings per common
share ($) - diluted
Adjusted diluted net earnings
per common share(1) ($)
Weston Foods sales (decline)
growth
Weston Foods sales (decline)
growth excluding impact of
foreign currency translation
Average quarterly national food
price (deflation) inflation
(as measured by CPI)
Food retail same-store sales
(decline) growth
Drug retail same-store sales
growth
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2017
Total
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2016
Total
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(audited)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(audited)
$ 10,800
510
$
924
$
384
$
$ 11,435
639
$
$ 1,037
385
$
$ 14,648
$ 1,244
$ 1,307
509
$
$ 11,409
147
$
$ 1,072
407
$
$ 48,292
$ 2,540
$ 4,340
$ 1,685
$ 10,800
457
$
890
$
395
$
$ 11,075
525
$
981
$
370
$
$ 14,605
782
$
$ 1,242
497
$
$ 11,519
491
$
$ 1,027
392
$
$ 47,999
$ 2,255
$ 4,140
$ 1,654
$
$
$
$
$
$
240
117
107
0.84
0.83
1.42
$
$
$
$
$
$
364
170
160
1.25
1.23
1.67
$
$
$
$
$
$
904
434
420
3.29
3.25
2.14
$
$
$
$
$
$
66
$ 1,574
38
$
759
28
0.22
0.22
1.78
$
$
$
$
715
5.60
5.53
7.00
$
$
$
$
$
$
145
$
227
$
487
$
231
$ 1,090
47
$
143
$
268
$
92
$
550
37
0.29
0.29
1.31
$
$
$
$
133
1.04
1.04
1.56
$
$
$
$
254
1.99
1.97
2.06
$
$
$
$
82
0.64
0.64
1.59
$
$
$
$
506
3.96
3.90
6.49
(4.1)%
2.6 %
(0.7)%
(1.9)%
(1.1)%
11.5%
6.9%
3.7%
1.9 %
5.8%
(1.6)%
0.2 %
1.0 %
0.9 %
0.2 %
4.8%
4.3%
3.7%
2.1 %
3.6%
(3.9)%
(1.4)%
0.3 %
1.0 %
(1.0)%
4.3%
1.8%
0.2%
(2.3)%
1.0%
(1.2)%
1.2 %
1.4 %
0.5 %
0.6 %
2.0%
0.4%
0.8%
1.1 %
1.1%
0.9 %
3.7 %
3.3 %
3.6 %
3.0 %
6.3%
4.0%
2.8%
3.4 %
4.0%
(i) Depreciation and amortization includes amortization of intangible assets acquired with Shoppers Drug Mart recorded by Loblaw
and accelerated depreciation recorded by Weston Foods, related to restructuring and other charges.
Impact of Trends and Seasonality on Quarterly Results Consolidated quarterly results for the last eight quarters
were impacted by the following significant items: foreign currency exchange rates, seasonality and the timing of
holidays. 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.
George Weston Limited 2017 Annual Report 31
Management’s Discussion and Analysis
Sales Over the last eight quarters, consolidated sales have been impacted by each of the Company’s reportable
operating segments as follows:
• Weston Foods 2017 quarterly sales were negatively impacted by foreign currency translation when
compared to the same periods in 2016, except for the second quarter of 2017 which had a positive impact
on sales compared to the same period in 2016. Excluding the impact of foreign currency translation,
quarterly sales had positive growth, except for the first quarter of 2017. The first quarter of 2017 was
negatively impacted by the timing of New Year’s Day and Easter, pricing and changes in sales mix, partially
offset by an increase in volumes.
• Through 2015, Loblaw was operating in an inflationary environment for food prices. In 2016, this food price
inflation trend reversed with inflation declining each quarter and becoming deflationary in the fourth
quarter. This trend continued until the third quarter of 2017 where deflation in food prices returned to
inflation. CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in Loblaw
stores.
• Over the past eight quarters, Loblaw’s net retail square footage increased by 0.4 million square feet to
70.3 million square feet, primarily driven by new store openings partially offset by Loblaw’s store closure
plan announced in 2015 and completed in the first half of 2016.
Net earnings available to common shareholders of the Company and diluted net earnings per common share
Net earnings available to common shareholders of the Company and diluted net earnings per common share for
the last eight quarters were impacted by the underlying operating performance of each of the Company’s
reportable operating segments and certain adjusting items.
The Company’s underlying operating performance for the last eight quarters included the following:
• Weston Foods unfavourable year-over-year quarterly underlying operating performance during 2017
reflected continued investments in the business and higher input and distribution costs, partially offset by
productivity improvements;
Loblaw favourable year-over-year quarterly underlying operating performance during 2017 reflected the
improvements in underlying operating performance of the Retail segment in all quarters of 2017;
year-over year quarterly adjusted net interest and other financing charges(1) decreased in the first, second
and fourth quarters of 2017. The net interest and other financing charges remained flat in the third quarter
of 2017; and
year-over-year quarterly adjusted income tax rate(1) decreased in the first, second and fourth quarter of 2017
and increased in the third quarter of 2017.
•
•
•
The adjusting items impacting consolidated quarterly net earnings available to common shareholders of the
Company and diluted net earnings per common share for the last eight quarters are described in Section 5.2,
“Selected Annual Information”, and Section 18, “Non-GAAP Financial Measures”, of this MD&A.
32 George Weston Limited 2017 Annual Report
FOURTH QUARTER RESULTS (UNAUDITED)
8.2
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.
Selected Consolidated Information
(unaudited)
($ millions except where otherwise indicated)
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
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 attributable to shareholders
of the Company
Net earnings available to common shareholders
of the Company
Adjusted net earnings available to common shareholders
of the Company(1)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(1) ($)
Dividends declared per share ($):
Common shares
Preferred shares – Series I
Preferred shares – Series III
Preferred shares – Series IV
Preferred shares – Series V
Quarters Ended
Dec. 31, 2017
11,409
$
147
$
1,072
$
9.4%
407
115
$
$
Dec. 31, 2016
11,519
$
491
$
1,027
$
8.9%
392
177
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
133
(34)
181
27.3%
38
28
228
0.22
1.78
0.455
0.3625
0.3250
0.3250
0.296875
$
$
$
$
$
$
$
$
$
$
$
$
$
135
83
172
27.4%
92
82
204
0.64
1.59
0.440
0.3625
0.3250
0.3250
0.296875
$ Change
(110)
$
(344)
$
45
$
$
$
$
$
$
$
$
$
$
$
15
(62)
(2)
(117)
9
(54)
(54)
24
(0.42)
0.19
% Change
(1.0)%
(70.1)%
4.4 %
3.8 %
(35.0)%
(1.5)%
(141.0)%
5.2 %
(58.7)%
(65.9)%
11.8 %
(65.6)%
11.9 %
(i) Depreciation and amortization includes $121 million (2016 – $124 million) of amortization of intangible assets, acquired with
Shoppers Drug Mart, recorded by Loblaw and $10 million (2016 – $3 million) of accelerated depreciation recorded by Weston Foods,
related to restructuring and other charges.
George Weston Limited 2017 Annual Report 33
Management’s Discussion and Analysis
Net earnings available to common shareholders of the Company
Net earnings available to common shareholders of the Company in the fourth quarter of 2017 were $28 million
($0.22 per common share), a decrease of $54 million ($0.42 per common share) compared to the same period in
2016. The decrease included improvements in underlying operating performance of $24 million ($0.19 per
common share) which were more than offset by the unfavourable year-over-year net impact of adjusting items
totaling $78 million ($0.61 per common share), as described below.
• The improvements in underlying operating performance of $24 million ($0.19 per common share) were
primarily due to:
the underlying operating performance of Loblaw primarily due to the Retail segment;
partially offset by,
the unfavourable underlying operating performance of Weston Foods.
• The unfavourable year-over-year net impact of certain adjusting items totaling $78 million ($0.61 per
common share) was primarily due to:
an increase in restructuring and other charges of $78 million ($0.61 per common share);
the unfavourable impact of Loblaw’s charges related to the announcement of the PC Optimum
Program, including the revaluation of the existing points liability and the impairment of certain IT
assets, of $75 million ($0.58 per common share); and
the unfavourable impact of the Loblaw Card Program of $39 million ($0.30 per common share);
partially offset by,
the favourable impact of the fair value adjustment of the forward sale agreement for 9.6 million
Loblaw common shares of $39 million ($0.29 per common share);
the favourable year-over-year impact of asset impairments, net of recoveries, of $25 million ($0.19
per common share);
the favourable year-over-year impact of the statutory corporate income tax rate change of
$19 million ($0.15 per common share); and
the favourable impact of the remeasurement of deferred tax balances of $10 million ($0.08 per
common share).
• Net earnings available to common shareholders of the Company also included the positive contribution from
the increase in the Company’s ownership interest in Loblaw, as a result of Loblaw’s share repurchases.
Adjusted net earnings available to common shareholders of the Company(1) in the fourth quarter of 2017 were
$228 million ($1.78 per common share), an increase of $24 million ($0.19 per common share) compared to the
same period in 2016, primarily due to the improvement in underlying operating performance, as described
above.
Sales
(unaudited)
($ millions except where otherwise indicated)
Weston Foods
Loblaw
Intersegment
Consolidated
Quarters Ended
Dec. 31, 2017
527
$
11,030
$
(148)
$
11,409
$
Dec. 31, 2016
537
$
11,130
$
(148)
$
11,519
$
$ Change
(10)
$
(100)
$
% Change
(1.9)%
(0.9)%
$
(110)
(1.0)%
Sales in the fourth quarter of 2017 were $11,409 million, a decrease of $110 million compared to the same
period in 2016. The decrease in sales in the fourth quarter of 2017 was impacted by each of its reportable
operating segments as follows:
• Negatively by 0.1% due to sales decline of 1.9% at Weston Foods, primarily due to the negative impact of
foreign currency translation. Excluding the unfavourable impact of foreign currency translation, sales
increased 0.9% mainly driven by an increase in volumes and positive sales mix.
34 George Weston Limited 2017 Annual Report
• Negatively by 0.9% due to sales decline of 0.9% at Loblaw, primarily driven by Retail. Retail sales decreased
by $127 million, or 1.2%, compared to the same period in 2016. Excluding the consolidation of franchises,
Retail sales decreased by $214 million, or 2.0%. The decrease was primarily due to the impact of the
disposition of gas bar operations of $350 million, partially offset by positive same-store sales growth and a
net increase in Retail square footage.
Operating income
(unaudited)
($ millions except where otherwise indicated)
Weston Foods
Loblaw
Other
Consolidated
Quarters Ended
Dec. 31, 2017
8
$
138
$
1
$
147
$
Dec. 31, 2016
38
$
447
$
$
6
491
$
$ Change
(30)
$
(309)
$
% Change
(78.9)%
(69.1)%
$
(344)
(70.1)%
Operating income in the fourth quarter of 2017 was $147 million, a decrease of $344 million compared to the
same period in 2016. The decrease in operating income in the fourth quarter of 2017 included improvements in
underlying operating performance of $34 million, more than offset by the unfavourable year-over-year net
impact of adjusting items totaling $378 million, as described below:
•
the improvements in underlying operating performance of $34 million were primarily due to:
the underlying operating performance of Loblaw primarily due to Retail, including the unfavourable
year-over-year contribution from the consolidation of Loblaw franchises in the quarter and the
unfavourable impact of the disposition of Loblaw’s gas bar operations;
partially offset by,
the underlying operating performance of Weston Foods.
•
the unfavourable year-over-year net impact of adjusting items totaling $378 million was primarily due to:
the impact of Loblaw’s charges related to the announcement of the PC Optimum Program, including
the revaluation of the existing points liability and the impairment of certain IT assets, of
$211 million;
an increase in restructuring and other related charges of $189 million; and
the unfavourable impact of the Loblaw Card Program of $107 million;
partially offset by,
the favourable year-over-year impact of asset impairments, net of recoveries, of $77 million;
the favourable impact of prior year pension annuities and buy-outs of $21 million; and
the favourable impact of income earned, net of certain costs incurred, from the wind-down of
PC Financial banking services of $17 million.
George Weston Limited 2017 Annual Report 35
Management’s Discussion and Analysis
Adjusted EBITDA(1)
(unaudited)
($ millions except where otherwise indicated)
Weston Foods
Loblaw
Consolidated
Quarters Ended
Dec. 31, 2017
61
$
1,011
$
1,072
$
Dec. 31, 2016
$
$
$
73 $
954 $
1,027 $
$ Change
(12)
57
45
% Change
(16.4)%
6.0 %
4.4 %
Adjusted EBITDA(1) in the fourth quarter of 2017 was $1,072 million, an increase of $45 million compared to the
same period in 2016. The increase in adjusted EBITDA(1) in the fourth quarter of 2017 was impacted by each of
its reportable operating segments as follows:
• Negatively by 1.2% due to a decrease of 16.4% in adjusted EBITDA(1) at Weston Foods driven by the changes
in sales mix and higher input and distribution costs, partially offset by productivity improvements.
• Positively by 5.6% due to an increase of 6.0% in adjusted EBITDA(1) at Loblaw, primarily driven by Retail. The
improvement in Retail adjusted EBITDA(1) was primarily driven by an increase in Retail gross profit, partially
offset by an increase in Retail SG&A and included no impact for the consolidation of franchises in the quarter
and the unfavourable impact of the disposition of gas bar operations of approximately $20 million.
Depreciation and Amortization
(unaudited)
($ millions except where otherwise indicated)
Weston Foods
Loblaw
Consolidated
Quarters Ended
Dec. 31, 2017
35
$
372
$
407
$
Dec. 31, 2016
$
$
$
27 $
365 $
392 $
$ Change
8
7
15
% Change
29.6 %
1.9 %
3.8 %
Depreciation and amortization in the fourth quarter of 2017 was $407 million, an increase of $15 million
compared to the same period in 2016, and included $121 million (2016 – $124 million) of amortization of
intangible assets related to the acquisition of Shoppers Drug Mart recorded by Loblaw and $10 million (2016 –
$3 million) of accelerated depreciation recorded by Weston Foods related to restructuring and other charges.
Excluding these amounts, depreciation and amortization increased by $11 million driven by:
• an increase in depreciation from the consolidation of Loblaw franchises;
• higher depreciation due to an increase in Loblaw’s IT assets; and
• higher depreciation due to investments in capital at Weston Foods.
36 George Weston Limited 2017 Annual Report
Net Interest Expense and Other Financing Charges
(unaudited)
($ millions)
Net interest expense and other financing charges
Add: Fair value adjustment of the Trust Unit liability
Fair value adjustment of the forward sale agreement for 9.6 million
Loblaw common shares
Adjusted net interest expense and other financing charges(1)
Quarters Ended
Dec. 31, 2017
115
$
8
Dec. 31, 2016
177
$
1
10
133
$
(43)
135
$
Net interest expense and other financing charges in the fourth quarter of 2017 were $115 million, a decrease of
$62 million compared to the same period in 2016. The decrease in net interest expense and other financing
charges in the fourth quarter of 2017 was primarily due to the year-over-year impact of adjusting items totaling
$60 million, itemized in the table above, and a decrease in adjusted net interest expense and other financing
charges(1) of $2 million primarily due to:
•
lower interest expense in the Loblaw’s Choice Properties segment due to the repayment of the Series 6
senior unsecured debentures in the first quarter of 2017, partially offset by an increase in interest expense
due to higher drawings on credit facilities; and
lower interest expense due to repayment made by GWL of a $350 million MTN in the fourth quarter of 2016;
•
partially offset by,
• an increase in interest expense in Loblaw’s Financial Services segment primarily due to the Eagle debt
issuance in the fourth quarter of 2017.
George Weston Limited 2017 Annual Report 37
Management’s Discussion and Analysis
Income Taxes
(unaudited)
($ millions except where otherwise indicated)
Income taxes
Add: Tax impact of items excluded from adjusted earnings before taxes(1)(i)
Remeasurement of deferred tax balances
Statutory corporate income tax rate change
Adjusted income taxes(1)
Effective income tax rate applicable to earnings before taxes
Adjusted income tax rate applicable to adjusted earnings before taxes(1)
Quarters Ended
Dec. 31, 2017
(34)
$
177
19
19
181
(106.3)%
27.3 %
$
Dec. 31, 2016
83
$
89
$
172
26.4%
27.4%
(i)
See the adjusted EBITDA table and the adjusted net interest expense and other financing charges table included in Section 18,
“Non-GAAP Financial Measures”, of this MD&A for a complete list of items excluded from adjusted earnings before taxes(1).
The effective tax rate in the fourth quarter of 2017 was negative 106.3%, a decrease of 132.7% compared to the
same period in 2016. The decrease in the effective tax rate was primarily attributable to an increase in certain
non-taxable items, a decrease in the non-deductible fair value adjustment to the Trust Unit liability, a deferred
tax recovery resulting from the remeasurement of certain deferred tax balances and a deferred tax recovery
resulting from the decrease in the U.S. statutory corporate income tax rate, partially offset by an increase in
certain other non-deductible items.
The adjusted income tax rate(1) for the fourth quarter of 2017 was 27.3%, a decrease of 0.1% compared to
the same period in 2016. The decrease was primarily attributable to an decrease in certain non-deductible items.
In the fourth quarter of 2017, the Company recorded a deferred tax recovery of $19 million resulting from a
change in the applicable provincial income tax rate used to measure certain deferred tax balances caused by a
change in the location of certain business activities.
In the fourth quarter of 2017, the U.S. government enacted a 14.0% decrease in the U.S. federal statutory
corporate income tax rate from 35.0% to 21.0%. As a result, Weston Foods recorded a recovery of $19 million in
2017 related to the remeasurement of its deferred tax liabilities.
38 George Weston Limited 2017 Annual Report
Cash Flows
(unaudited)
($ millions)
Cash and cash equivalents, beginning of period
Cash flows from operating activities
Cash flows used in investing activities
Cash flows used in financing activities
Effect of foreign currency exchange rate changes on
cash and cash equivalents
Cash and cash equivalents, end of period
Quarters Ended
Dec. 31, 2017
1,838
$
1,213
$
(950)
$
(69)
$
Dec. 31, 2016
$
1,863
$
976
$
$
(775) $
$
(506) $
$
Change
(25)
237
(175)
437
$
$
2
2,034
$
$
2
1,560
$
$
—
474
Cash Flows from Operating Activities The year-over-year increase in cash inflows in the fourth quarter of 2017
was $237 million, primarily due to:
•
favourable change in non-cash working capital driven by an increase in trade payables and other liabilities;
and
• higher cash earnings;
partially offset by,
•
increase in income taxes paid.
Cash Flows used in Investing Activities The year-over-year increase in cash outflows in the fourth quarter of
2017 was $175 million, primarily due to the change in short term investments and fixed asset purchases,
partially offset by the acquisition of QHR in 2016.
The following table summarizes the Company’s capital investments by each of its reportable operating segments
for the quarters ended as indicated:
(unaudited)
($ millions)
Weston Foods
Loblaw
Total capital investments
Quarters Ended
Dec. 31, 2017
88
$
487
575
$
Dec. 31, 2016
98
$
470
568
$
Cash Flows used in Financing Activities The year-over-year decrease in cash outflows in the fourth quarter of
2017 was $437 million, primarily due to higher net issuances of debt, partially offset by change in short term
debt.
Free Cash Flow(1)
(unaudited)
($ millions)
Cash flows from operating activities
Less:
Interest paid
Fixed asset purchases
Intangible asset additions
Free cash flow(1)
Quarters Ended
Dec. 31, 2017
1,213
$
104
486
89
534
$
Dec. 31, 2016
976
$
103
452
116
305
$
$
$
Change
237
1
34
(27)
229
The year-over-year increase in free cash flow(1) in the fourth quarter of 2017 was $229 million, primarily due
to higher cash flows from operating activities.
George Weston Limited 2017 Annual Report 39
Management’s Discussion and Analysis
FOURTH QUARTER RESULTS OF REPORTABLE OPERATING SEGMENTS
9.
The following discussion provides details of the 2017 fourth quarter results of operations of each of the
Company’s reportable operating segments.
9.1 WESTON FOODS FOURTH QUARTER OPERATING RESULTS (UNAUDITED)
(unaudited)
($ millions except where otherwise indicated)
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
Quarters Ended
Dec. 31, 2017
527
$
8
$
61
$
11.6%
35
$
Dec. 31, 2016
$
$
$
537 $
38 $
73 $
$ Change
(10)
(30)
(12)
% Change
(1.9)%
(78.9)%
(16.4)%
13.6%
$
27 $
8
29.6 %
(i) Depreciation and amortization includes $10 million (2016 – $3 million) of accelerated depreciation related to restructuring and other
charges.
Sales Weston Foods sales in the fourth quarter of 2017 were $527 million, a decrease of $10 million, or 1.9%,
compared to the same period in 2016. Sales included the negative impact of foreign currency translation of
approximately 2.8%. Excluding the unfavourable impact of foreign currency translation, sales increased 0.9%
mainly driven by an increase in volumes and positive sales mix.
Operating income Weston Foods operating income in the fourth quarter of 2017 was $8 million, a decrease of
$30 million compared to the same period in 2016. The decrease was primarily due to the decline in underlying
operating performance of $13 million and the unfavourable year-over-year net impact of adjusting items totaling
$17 million, as described below:
• an increase in restructuring and other charges of $26 million;
partially offset by,
•
•
the favourable impact of inventory loss, net of recoveries, of $7 million; and
the favourable impact of the fair value adjustment of derivatives of $2 million.
Adjusted EBITDA(1) Weston Foods adjusted EBITDA(1) in the fourth quarter of 2017 was $61 million, a decrease of
$12 million compared to the same period in 2016. The decrease was driven by changes in sales mix and higher
input and distribution costs, partially offset by productivity improvements.
Weston Foods adjusted EBITDA margin(1) in the fourth quarter of 2017 was 11.6% compared to 13.6% in the
same period in 2016. The decline in adjusted EBITDA margin(1) in the fourth quarter of 2017 was mainly due to
the factors impacting adjusted EBITDA(1), as described above.
Depreciation and Amortization Weston Foods depreciation and amortization in the fourth quarter of 2017 was
$35 million, an increase of $8 million compared to the same period in 2016. Depreciation and amortization
included $10 million and $3 million in the fourth quarters of 2017 and 2016, respectively, of accelerated
depreciation related to the closures of unprofitable facilities in the U.S. and Canada. Excluding these amounts,
depreciation and amortization in the fourth quarter of 2017 increased nominally.
Weston Foods Other Business Matters
For details see section 6.1, “Weston Foods Operating Results”, of this MD&A.
40 George Weston Limited 2017 Annual Report
9.2
LOBLAW FOURTH QUARTER OPERATING RESULTS (UNAUDITED)
(unaudited)
($ millions except where otherwise indicated)
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
Quarters Ended
Dec. 31, 2017
11,030
$
138
$
1,011
$
9.2%
372
$
Dec. 31, 2016
$
$
$
11,130 $
447 $
954 $
8.6%
365 $
$
$ Change
(100)
(309)
57
% Change
(0.9)%
(69.1)%
6.0 %
7
1.9 %
(ii) Depreciation and amortization includes $121 million (2016 – $124 million) in the fourth quarter of 2017 of amortization of intangible
assets acquired with Shoppers Drug Mart.
Sales, operating income and adjusted EBITDA(1) in the fourth quarter of 2017 include the impacts of the
consolidated franchises and the impact of the disposition of gas bar operations, as set out in “Loblaw Other
Business Matters” of Section 6.2, “Loblaw Operating Results” of this MD&A.
Sales Loblaw sales in the fourth quarter of 2017 were $11,030 million, a decrease of $100 million, or 0.9%,
compared to the same period in 2016, primarily driven by Retail. Retail sales decreased by $127 million, or 1.2%,
compared to the same period in 2016 and included food retail sales of $7,546 million (2016 – $7,789 million) and
drug retail sales of $3,172 million (2016 – $3,056 million). Excluding the consolidation of franchises, Retail sales
decreased by $214 million primarily driven by the following factors:
•
partially offset by,
•
food retail same-store sales growth was 0.5%, after excluding gas bar operations. Loblaw’s food retail
average quarterly internal food price index was marginally higher than the average quarterly national food
price inflation of 1.0% as measured by CPI. CPI does not necessarily reflect the effect of inflation on the
specific mix of goods sold in Loblaw stores;
the impact of the disposition of gas bar operations of $350 million;
• drug retail same-store sales growth was 3.6%, including pharmacy same-store sales growth of 3.9% and front
store same-store sales growth of 3.5%; and
• 22 food and drug stores were opened and 19 food and drug stores were closed in the last 12 months,
resulting in an increase in Retail net square footage of 0.1 million square feet, or 0.1%.
Operating income Loblaw operating income in the fourth quarter of 2017 was $138 million, a decrease of
$309 million compared to the same period in 2016, primarily driven by improvements in underlying operating
performance of $47 million which were more than offset by the unfavourable year-over-year net impact of
adjusting items totaling $356 million, as described below:
•
the improvements in underlying operating performance of $47 million were primarily driven by Retail due to
higher Retail gross profit, partially offset by an increase in Retail SG&A, and included the unfavourable year-
over-year impact of the consolidation of franchises in the quarter and the unfavourable impact of the
disposition of gas bar operations; and
•
the unfavourable year-over-year net impact of adjusting items totaling $356 million was primarily due to:
the unfavourable impact of charges related to the announcement of the PC Optimum Program,
including the revaluation of the existing points liability and the impairment of certain IT assets, of
$211 million;
an increase in restructuring and other related charges of $163 million; and
the unfavourable impact of the Loblaw Card Program of $107 million;
partially offset by,
the year-over-year favourable impact of asset impairments, net of recoveries, of $77 million;
the year-over-year favourable impact of pension annuities and buy-outs in the prior year of
$21 million; and
George Weston Limited 2017 Annual Report 41
Management’s Discussion and Analysis
the favourable impact of income earned, net of certain costs incurred, from the wind-down of
PC Financial banking services of $17 million.
Adjusted EBITDA(1) Loblaw adjusted EBITDA(1) in the fourth quarter of 2017 was $1,011 million, an increase of
$57 million compared to the same period in 2016. The increase was primarily driven by Retail and included no
impact for the consolidation of franchises in the quarter and the unfavourable impact of the disposition of gas
bar operations. Retail adjusted EBITDA(1) was $936 million, an increase of $47 million driven by an increase in
gross profit, partially offset by an increase in SG&A.
• Retail gross profit percentage of 28.9% increased by 170 basis points compared to the fourth quarter of
2016. Excluding the consolidation of franchises, Retail gross profit percentage was 27.5%, an increase of
110 basis points compared to the fourth quarter of 2016. The increase in gross profit was due to the
favourable impact of the disposition of gas bar operations of approximately 70 basis points and higher drug
retail margins primarily driven by front store margins. Food retail margins were stable.
• Retail SG&A as a percentage of sales was 20.1%, an increase of 110 basis points compared to the fourth
quarter of 2016. Excluding the consolidation of franchises, SG&A increased $8 million and as a percentage of
sales was 18.8%, an unfavourable increase of 40 basis points compared to the fourth quarter of 2016 mainly
driven by the unfavourable impact from the disposition of gas bar operations of approximately 50 basis
points as store and store support costs were relatively flat as a percentage of sales.
Loblaw adjusted EBITDA(1) in the fourth quarter of 2017 also included an increase in Choice Properties adjusted
EBITDA(1), net of consolidation and eliminations, of $6 million, primarily due to an increase in base rent and
operating costs recoveries from existing properties and the expansion of the portfolio through acquisitions and
development of properties, and an increase in Financial Services adjusted EBITDA(1) of $4 million, primarily
driven by the growth in the credit card portfolio and higher Mobile Shop sales.
Depreciation and Amortization Loblaw’s depreciation and amortization in the fourth quarter of 2017 was
$372 million, an increase of $7 million compared to the same period in 2016. The increase in depreciation
and amortization was primarily driven by the consolidation of franchises and an increase in IT assets.
Depreciation and amortization included $121 million (2016 – $124 million) in the fourth quarter of 2017 of
amortization of intangible assets acquired with Shoppers Drug Mart.
Loblaw Other Business Matters
For details see Section 6.2, “Loblaw Operating Results”, of this MD&A.
42 George Weston Limited 2017 Annual Report
DISCLOSURE CONTROLS AND PROCEDURES
10.
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 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, 2017.
INTERNAL CONTROL OVER FINANCIAL REPORTING
11.
Management is 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 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, 2017.
In designing such controls, it should be recognized that due to inherent limitations, any control, 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 2017 that materially affected, or are reasonably likely to
materially affect the Company’s internal control over financial reporting.
ENTERPRISE RISKS AND RISK MANAGEMENT
12.
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
the Company’s Enterprise Risk Management (“ERM”) program.
ERM program The ERM program assists all areas of the business in managing risk within appropriate levels of
tolerance by bringing a systematic approach and methodology for evaluating, measuring and monitoring key risks.
The results of the ERM program and other business planning processes are used to identify emerging risks to the
Company, prioritize risk mitigation activities and develop a risk-based internal audit plan.
Risks are not eliminated through the ERM program, but rather, are identified and managed in line with the
Company’s risk appetite and within understood risk tolerances. The ERM program is designed to:
•
facilitate effective corporate governance by providing a consolidated view of risks across the Company;
• enable the Company to focus on key risks that could impact its strategic objectives in order to reduce harm
to financial performance through responsible risk management;
• ensure that the Company’s risk appetite and tolerances are defined and understood;
• promote a culture of awareness of risk management and compliance within the Company;
• assist in developing consistent risk management methodologies and tools across the Company including
methodologies for the identification, assessment, measurement and monitoring of the risks; and
• anticipate and provide early warnings of risks through key risk indicators.
George Weston Limited 2017 Annual Report 43
Management’s Discussion and Analysis
Risk appetite and governance The Board oversees the ERM program, including a review of the Company’s risks
and risk prioritization and annual approval of the ERM policy and risk appetite statement. The risk appetite
statement articulates key aspects of the Company’s businesses, values, and brands and provides directional
guidance on risk taking. Key risk indicators are used to monitor and report on risk performance and whether the
Company is operating within its risk appetite. Risk owners are assigned relevant risks by management and are
responsible for managing risk and implementing risk mitigation strategies.
ERM framework Risk identification and assessments are important elements of the Company’s ERM process and
framework. An annual ERM assessment is completed to assist in the update and identification of internal and
external risks. This assessment is carried out in parallel with strategic planning through interviews, surveys and
facilitated workshops with management and the Board to align stakeholders’ views. This assessment is
completed for each business unit and aggregated where appropriate. 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 on its strategies and achieve its objectives and on the Company’s financial
performance.
Risk monitoring and reporting Management provides periodic updates to the Board (or a Committee of the
Board) on the status of the key risks based on significant changes from the prior update, anticipated impacts in
future periods and significant changes in key risk indicators. In addition, the long term (three year) risk levels are
assessed to monitor potential long term risk impacts, which may assist in risk mitigation planning activities.
Any of the key risks have the potential to negatively affect the Company and its financial performance. The
Company has risk management strategies in place for key risks. However, there can be no assurance that the
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.
12.1 OPERATING RISKS AND RISK MANAGEMENT
Operating Risks The following risks are a subset of the key risks identified through the ERM program. They
should be read in conjunction with the full set of risks inherent in the Company’s business, as included in the
Company’s AIF for the year ended December 31, 2017, which is hereby incorporated by reference:
Healthcare Reform
Loyalty Program
Cyber Security and Data Breaches
Electronic Commerce and Disruptive Technologies
IT Systems Implementations and Data Management
Competitive Environment
Regulatory Compliance
Product Safety and Public Health
Governance and Change Management
Legal Proceedings
Commodity Prices
Execution of Strategic Initiatives
Consumer and Retail Customer Trends
Healthcare Reform Loblaw is reliant on prescription drug sales for a 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 pharmacies 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.
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
44 George Weston Limited 2017 Annual Report
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 pharmacies 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 effect 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 or
financial performance of the Company.
Loyalty Program Loblaw’s loyalty program is a valuable offering to customers and provides a key differentiating
marketing tool for the business. The marketing, promotional and other business activities related to combining
Loblaw’s loyalty programs must be well managed and coordinated to preserve positive customer perception. Any
failure to successfully combine the loyalty programs and manage it thereafter may negatively impact Loblaw’s
reputation or financial performance.
George Weston Limited 2017 Annual Report 45
Management’s Discussion and Analysis
Cyber Security and Data Breaches The Company depends on the uninterrupted operation of its IT systems,
networks and services including internal and public internet sites, data hosting and processing facilities,
cloud-based services and hardware such as point-of-sale processing at stores to operate its business.
In the ordinary course of business, the Company collects, processes, transmits and retains confidential, sensitive
and personal information including personal health and financial information (“Confidential Information”)
regarding the Company and its employees, franchisees, Associates, vendors, customers, patients, credit card
holders and loyalty program members. Some of this Confidential Information is held and managed by third party
service providers. As with other large and prominent companies, the Company is regularly subject to
cyberattacks and such attempts are occurring more frequently, are constantly evolving in nature and are
becoming more sophisticated.
The Company has implemented security measures, including employee training, monitoring and testing,
maintenance of protective systems and contingency plans, to protect and to prevent unauthorized access of
Confidential Information and to reduce the likelihood of disruptions to its IT systems. The Company also has
security processes, protocols and standards that are applicable to its third party service providers.
Despite these measures, all of the Company’s information systems, including its back-up systems and any third
party service provider systems that it employs, are vulnerable to damage, interruption, disability or failures due
to a variety of reasons, including physical theft, electronic theft, fire, power loss, computer and
telecommunication failures or other catastrophic events, as well as from internal and external security breaches,
denial of service attacks, viruses, worms and other known or unknown disruptive events.
The Company or its third party service providers may be unable to anticipate, timely identify or appropriately
respond to one or more of the rapidly evolving and increasingly sophisticated means by which computer hackers,
cyber terrorists and others may attempt to breach the Company’s security measures or those of our third party
service providers’ information systems.
As cyber threats evolve and become more difficult to detect and successfully defend against, one or more cyber
threats might defeat the Company’s security measures or those of its third party service providers. Moreover,
employee error or malfeasance, faulty password management or other irregularities may result in a breach of
the Company’s or its third party service providers’ security measures, which could result in a breach of
employee, franchisee, Associate, customer, credit card holder or loyalty program member privacy or Confidential
Information.
If the Company does not allocate and effectively manage the resources necessary to build and sustain reliable IT
infrastructure, fails to timely identify or appropriately respond to cybersecurity incidents, or the Company’s or its
third party service providers’ information systems are damaged, destroyed, shut down, interrupted or cease to
function properly, the Company’s business could be disrupted and the Company could, among other things, be
subject to: transaction errors; processing inefficiencies; the loss of, or failure to attract new customers; the loss
of revenue; the loss or unauthorized access to Confidential Information or other assets; the loss of or damage to
intellectual property or trade secrets; damage to its reputation; litigation; regulatory enforcement actions;
violation of privacy, security or other laws and regulations; and remediation costs.
Electronic Commerce and Disruptive Technologies Loblaw’s electronic commerce strategy is a growing business
initiative. As part of the e-commerce initiative, customers expect innovative concepts and a positive customer
experience, including a user-friendly website, certain websites and customer offerings that are integrated with
Loblaw’s loyalty program, reliable data, safe and reliable processing of payments and a well-executed
merchandise pick up or delivery process. If systems are damaged or cease to function properly, capital
investment may be required. Loblaw is also vulnerable to various additional uncertainties associated with e-
commerce including website downtime and other technical failures, changes in applicable federal and provincial
regulations, security breaches, and consumer privacy concerns. If these technology-based systems do not
function effectively, Loblaw’s ability to grow its e-commerce business could be adversely affected. Loblaw has
increased its investment in improving the digital customer experience, but there can be no assurances that the
Company will be able to recover the costs incurred to date.
46 George Weston Limited 2017 Annual Report
The retail landscape is quickly changing due to the rise of the digitally influenced shopping experience and the
emergence of disruptive technologies, such as digital payments, drones, driverless cars and robotics. In addition,
the effect of increasing digital advances could have an impact on the physical space requirements of retail
businesses. Although the importance of a retailer’s physical presence has been demonstrated, the size
requirements and locations may be subject to further disruption. Any failure to adapt the business models to
recognize and manage this shift in a timely manner could adversely affect Loblaw’s operations or financial
performance.
IT Systems Implementations and Data Management The Company continues to undertake investments in new
IT systems to improve the operating effectiveness of the organization. Failure to successfully migrate from legacy
systems to the new IT systems or a significant disruption in the Company’s current IT systems during the
implementation of new 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 or implement appropriate processes to support the new IT systems, or failure to
effectively leverage or convert data from one system to another, may preclude the Company from optimizing its
overall performance and could result in inefficiencies and duplication in processes, which could in turn adversely
affect the reputation, operations or 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.
The Company also depends on relevant and reliable information to operate its business. As the volume of data
being generated and reported continues to increase across the Company, data accuracy, quality and governance
are required for effective decision making. Failure by the Company to leverage data, including customer data, in
a timely manner may adversely affect the Company’s ability to execute its strategy and therefore its financial
performance.
Competitive Environment The Company operates in highly competitive industries.
Loblaw competes against a wide variety of retailers including supermarket and retail drug store operators, as
well as mass merchandisers, warehouse clubs, online 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 and general merchandise. Others remain focused on supermarket-type
merchandise. In addition, 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 and
retail drug markets and those offering e-Commerce retail platforms. Loblaw’s inability to effectively predict
market activity, leverage customer preferences and spending patterns and respond timely to trends, or compete
effectively with its current or future competitors could result in, among other things, reduced market share and
reduced profitability. If Loblaw is ineffective in responding to consumer trends or in executing its strategic plans,
its financial performance could be adversely affected. Loblaw’s failure to effectively respond to customer trends
may adversely impact Loblaw’s relationship with its customers. Loblaw closely monitors its competitors and their
strategies, market developments and market share trends.
Weston Foods’ competitors include multi-national food processing companies as well as national and smaller-
scale bakery operations in North America.
Failure by Weston Foods or Loblaw to sustain their competitive position could adversely affect the Company’s
financial performance.
Regulatory Compliance The Company is subject to a wide variety of laws, regulations and orders across all
countries in which it does business, including those laws involving product liability, labour and employment,
anti-trust and competition, pharmacy, food safety, intellectual property, privacy, environmental and other
matters. The Company is subject to taxation by various taxation authorities in Canada and a number of foreign
jurisdictions. Changes to any of the laws, rules, regulations or policies (collectively, “laws”) applicable to the
Company’s business, including tax laws, minimum wage laws, and laws affecting the production, processing,
George Weston Limited 2017 Annual Report 47
Management’s Discussion and Analysis
preparation, distribution, packaging and labelling of food, pharmaceuticals, and general merchandise products,
could adversely affect the operations or financial condition or performance of the Company.
Failure by the Company to comply with applicable laws, regulations 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 condition or performance of
the Company. In the course of complying with changes to laws, 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.
On December 19, 2017, the Company and Loblaw announced actions taken to address their role in an industry-
wide price-fixing arrangement involving certain packaged bread products. The arrangement involved the
coordination of retail and wholesale prices of certain packaged bread products over a period extending from late
2001 to March 2015. Under the arrangement, the participants regularly increased prices on a coordinated basis.
Please refer to the “Legal Proceedings” risk on page 49 of this MD&A.
The Régie de l'assurance maladie du Québec (“RAMQ”) has been investigating certain aspects of Shoppers Drug
Mart’s contractual arrangements with pharmacists and drug manufacturers. Shoppers Drug Mart has and will
continue to cooperate with RAMQ in its review of these practices. If RAMQ is not satisfied with Shoppers Drug
Mart’s practices, then RAMQ may pursue remedies that could have a material adverse effect on the Company’s
reputation, operations, or financial condition or performance.
The Company is subject to tax audits from various tax authorities on an ongoing basis. As a result, from time to
time, tax 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 result in a material adverse effect on the Company’s
reputation, operations or financial condition or performance.
Loblaw is subject to externally imposed capital requirements from OSFI, the primary regulator of PC Bank.
PC Bank’s capital management objectives are to maintain 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 4.5%, a Tier 1 capital ratio of 6.0% and a total capital ratio of 8%.
In addition to the regulatory capital ratios requirement, PC Bank is subject to the Basel III Leverage ratio and
OSFI’s Guideline on Liquidity Adequacy Requirements (“LARs”). The LARs guideline establishes standards based
on the Basel III framework. PC Bank would be assessed fines and other penalties for non-compliance with these
and other regulations. In addition, failure by PC Bank to comply, understand, acknowledge and effectively
respond to applicable regulators could result in regulatory intervention and reputational damages.
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. There can be no assurance that the Canadian
federal income tax laws will not be changed in a manner which adversely affects Choice Properties. If Choice
Properties ceases to qualify for these and other classifications and exceptions, the taxation of Choice Properties
and unitholders, including Loblaw and certain wholly owned subsidiaries of GWL, could be materially adversely
different in certain respects, which could in turn materially adversely affect the trading price of the Units.
Product Safety and Public Health The Company’s products may expose it to risks associated with product safety
and defects and product handling in relation to the manufacturing, design, packaging and labeling, storage,
distribution, and display of products. The Company cannot assure that active management of these risks,
including maintaining strict and rigorous controls and processes in its manufacturing facilities and distribution
systems, will eliminate all the risks related to food and product safety. The Company could be adversely affected
in the event of a significant outbreak of food-borne illness or food safety issues including food tampering or
contamination. In addition, failure to trace or locate any contaminated or defective products or ingredients could
48 George Weston Limited 2017 Annual Report
affect the Company’s ability to be effective in a recall situation. Loblaw is also subject to risk associated with
errors made through medication dispensing or errors related to patient services or consultation. The occurrence
of such events or incidents, as well as the failure to maintain the cleanliness and health standards at Loblaw’s
store level or the Company’s manufacturing facilities, could result in harm to customers, negative publicity or
could adversely affect the Company’s brands, reputation, operations or financial performance and could lead to
unforeseen liabilities from legal claims or otherwise.
Governance and Change Management Significant initiatives in support of the Company’s strategic priorities are
underway, including the execution of IT initiatives, Loblaw’s cost management efforts, and other ongoing
organizational changes.
Specifically, Weston Foods will be implementing a transformation program, to position it for long term growth
and profitability. This transformation program includes changes to the organization and its operation, and
significant capital investments including a major upgrade of its IT system.
The success of these initiatives is dependent on effective leadership and realizing intended benefits. Ineffective
change management could result in a lack of integrated processes and procedures, unclear accountabilities and
decision-making rights, decreased colleague engagement, ineffective communication and training or a lack of
requisite knowledge. Any of the foregoing could disrupt operations, increase the risk of customer dissatisfaction,
adversely affect the Company’s reputation or financial performance or adversely affect the ability of the
Company to implement and achieve its long term strategic objectives.
Legal Proceedings In the ordinary course of business, the Company is involved in and potentially subject to legal
proceedings. The proceedings may involve suppliers, customers, Associates, franchisees, regulators, tax
authorities or other persons. The potential outcome of legal proceedings and claims is uncertain and could result
in a material adverse effect on the Company’s reputation, operations or financial condition or performance.
On August 26, 2015, the Company was served with a proposed class action, which was commenced in the
Ontario Superior Court of Justice (“the Court”) against the Company, Loblaw and certain of its subsidiaries and
others in connection with the collapse of the Rana Plaza complex in Dhaka, Bangladesh in 2013. The claim seeks
approximately $2 billion in damages.
Shoppers Drug Mart has been served with an Amended Statement of Claim in a class action proceeding that has
been filed in the Court 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 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 Court certified as a class proceeding portions of the action. The Court imposed a class closing
date based on the date of certification. New Associates after July 9, 2013 are not members of the class.
Loblaw has been reassessed by CRA and the Ontario Ministry of Finance on the basis that certain income earned
by Glenhuron, a wholly owned Barbadian subsidiary, should be treated, and taxed, as income in Canada. The
reassessments, which were received between 2015 and 2017, are for the 2000 to 2012 taxation years and total
$406 million including interest and penalties. Loblaw believes it is likely that the CRA will issue reassessments for
the 2013 taxation year on the same or similar basis. Loblaw has filed a Notice of Appeal with the Tax Court of
Canada for the 2000 to 2010 taxation years and a Notice of Objection for the 2011 and 2012 taxation years. The
Tax Court of Canada trial is scheduled to commence in the second quarter of 2018.
On December 19, 2017, the Company and Loblaw announced actions taken to address their role in an industry-
wide price-fixing arrangement involving certain packaged bread products. The arrangement involved the
coordination of retail and wholesale prices of certain packaged bread products over a period extending from late
2001 to March 2015. Under the arrangement, the participants regularly increased prices on a coordinated basis.
George Weston Limited 2017 Annual Report 49
Management’s Discussion and Analysis
Class action lawsuits have been commenced against the Company and Loblaw as well as a number of other
major grocery retailers and another bread wholesaler. It is too early to predict the outcome of such legal
proceedings. Neither the Company nor Loblaw believes that the ultimate resolution of such legal proceedings
will have a material adverse impact on their financial condition or prospects. The Company and Loblaw’s cash
balances far exceed any realistic damages scenario and therefore the Company and Loblaw do not anticipate any
impacts on the Company and Loblaw’s dividend, dividend policy or Loblaw’s share buyback plan.
As part of its response to this issue, Loblaw has announced the Loblaw Card Program pursuant to which Loblaw
is offering a $25 Loblaw Card to eligible customers. The Loblaw Card can be used to purchase items sold in
Loblaw grocery stores across Canada. Loblaw has recorded a charge of $107 million in relation to the Loblaw
Card Program in the fourth quarter of 2017. The Company and Loblaw expect that Loblaw Cards issued to
customers will be an offset against civil liability. The charge recorded for the Loblaw Card Program should not be
viewed as an estimate of damages.
As a result of their admission that they participated in the arrangement and their cooperation in the Competition
Bureau’s investigation, the Company and Loblaw will not face criminal charges or penalties.
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.
Execution of Strategic Initiatives The Company undertakes from time to time acquisitions and dispositions that
meet its strategic objectives. The Company holds significant cash and short term investments and is continuing
to evaluate strategic opportunities for the use or deployment of these funds. The use or deployment of the
funds and the execution of the Company’s capital plans could pose a risk if they do not align with the Company’s
strategic objectives or if the Company experiences integration difficulties on the acquisition of any businesses.
Execution of the strategic plan requires prudent operational planning, availability and attention of key personnel,
timely implementation and effective change management. In addition, the Company may not be able to realize
upon the synergies, business opportunities and growth prospects expected from any such investment
opportunities or from the execution of the Company’s strategies. Finally, any acquisition or divestiture activities
may present unanticipated costs and managerial and operational risks, including the diversion of management’s
time and attention from day-to-day activities. If the Company’s strategies are not effectively developed and
executed, it could negatively affect the reputation, operations or financial performance of the Company.
Consumer and Retail Customer Trends The North American bakery market continues to evolve as consumer
preferences and consumption patterns shift. As a result of evolving retail customer trends, the Company must
anticipate and meet these trends in a highly competitive environment on a timely basis. The failure of Weston
Foods to anticipate, identify and react to shifting consumer and retail customer trends and preferences through
successful innovation and enhanced manufacturing capability could adversely result in reduced demand for its
products, which could in turn affect the financial performance of the Company.
50 George Weston Limited 2017 Annual Report
12.2
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:
Liquidity
Foreign Currency Exchange Rates
Credit
Common Share and Trust Unit Prices
Interest Rates
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 risk if it fails to
maintain appropriate levels of cash and short term investments, is unable to access sources of funding or fails to
appropriately diversify sources of funding. If any of these events were to occur, they could 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.
Foreign Currency Exchange Rates The Company’s consolidated financial statements are expressed in Canadian
dollars, however a portion of the Company’s (excluding Loblaw’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
Holdings GmbH 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. 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.
Credit The Company is exposed to credit risk resulting from the possibility that counterparties could default on
their financial obligations to the Company including 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
George Weston Limited 2017 Annual Report 51
Management’s Discussion and Analysis
from 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 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, Weston Holdings Limited (“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 $113.45
(2016 – $109.26) per Loblaw common share as at year end 2017. 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 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.
52 George Weston Limited 2017 Annual Report
Interest Rates The Company is exposed to interest rate risk from fluctuations in interest rates on its floating rate
debt and from the refinancing of existing financial instruments. The Company manages interest rate risk by
monitoring the respective mix of fixed and floating rate debt and by taking action as necessary to maintain an
appropriate balance considering current market conditions, with the objective of maintaining the majority of its
debt at fixed interest rates.
RELATED PARTY TRANSACTIONS
13.
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 80,773,740 of GWL’s common shares, representing approximately 63% (2016 – 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 2017, the Company made rental payments to Wittington in the amount of $4 million (2016 – $4 million). As at
year end 2017 and 2016, there were no rental payments outstanding.
In 2017, 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 $39 million (2016 – $40 million). As at year end
2017, $6 million (2016 – $6 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 year end 2017, 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.
Operating Lease Choice Properties entered into a ten-year lease for office space with Wittington that
commenced in 2014. Lease payments will total $3 million over the term of the lease.
Post-Employment Benefit Plans The Company sponsors a number of post-employment plans, which are related
parties. Contributions made by the Company to these plans are disclosed in the notes to the consolidated
financial statements.
Income Tax Matters From time to time, the Company and Wittington may enter into agreements to make
elections that are permitted or required under applicable income tax legislation with respect to affiliated
corporations.
Compensation of Key Management Personnel The Company’s key management personnel is comprised of
certain members of the executive team of GWL, Loblaw, Weston Foods and Wittington, as well as members of
the Boards of GWL, Loblaw and Wittington to the extent that they have the authority and responsibility for
planning, directing and controlling the day-to-day activities of the Company.
Annual compensation of key management personnel that is directly attributable to the Company was as follows:
($ millions)
Salaries, director fees and other short term employee benefits
Share-based compensation
Total compensation
2017
9
13
22
$
$
2016
11
13
24
$
$
George Weston Limited 2017 Annual Report 53
Management’s Discussion and Analysis
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
14.
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 entity’s 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 retail
location is a separate CGU for purposes of fixed asset impairment testing. For the purpose of goodwill and
indefinite life intangible assets impairment testing, CGUs are grouped at the lowest level at which goodwill and
indefinite life 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.
Impairment of 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.
54 George Weston Limited 2017 Annual Report
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. These estimates are derived from past experience, actual operating results and budgets.
Customer Loyalty Awards Programs
Key Sources of Estimation Loblaw defers revenue equal to the fair value of award points earned by loyalty
program members at the time of award. Loblaw determines fair value using estimates such as retail value per
point on redemption and breakage (the amount of points that will never be redeemed). Prior to the launch of
the PC Optimum Program, the estimated fair value per point for the PC points and PC Plus programs was
determined based on the program reward schedule and was $1 for every 1,000 points. For the Shoppers
Optimum program, the estimated fair value per point was determine based on the expected weighted average
redemption levels for future redemptions, including special redemption events. Each program had its own
breakage rate and the rates were reviewed on an ongoing basis and were estimated utilizing each program’s
historical redemption activity and anticipated earn and redeem behaviour of members. As at year end 2017, as a
result of Loblaw’s plan to create one loyalty program, PC Optimum, Loblaw revalued its existing loyalty award
liabilities to account for a combined anticipated redemption rate.
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 and
the timing and reversal of temporary differences.
Provisions
Judgments made in Relation to Accounting Policies Applied and Key Sources of Estimation The recording of
provisions requires management to make certain judgments regarding whether 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 if a reliable estimate of the amount of the obligation can be made. The Company has recorded
provisions primarily in respect of restructuring, environmental and decommissioning liabilities, onerous lease
arrangements, legal claims and the Loblaw Card Program. The Company reviews the merits, risks and
uncertainties of each provision, based on current information, and the amount expected to be required to settle
the obligation. Provisions are reviewed on an ongoing basis and are adjusted accordingly when new facts and
events become known to the Company.
15.
ACCOUNTING STANDARDS IMPLEMENTED
Statement of Cash Flows The Company implemented the amendments to International Accounting Standard
(“IAS”) 7, “Statement of Cash Flows”, in the first quarter of 2017 and has provided disclosures on changes in
liabilities arising from certain financing activities, including both cash and non-cash flows changes, in the notes
to the consolidated financial statements.
George Weston Limited 2017 Annual Report 55
Management’s Discussion and Analysis
16.
FUTURE ACCOUNTING STANDARDS
The future accounting standards noted below will impact the Company’s business processes, internal controls
over financial reporting, data systems, and IT, as well as financing and compensation arrangements. As a result,
the Company has developed comprehensive project plans to guide the implementations.
IFRS 15 In 2014, the IASB issued IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”), replacing IAS 18,
“Revenue”, IAS 11, “Construction Contracts”, and related interpretations. IFRS 15 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, 2018. The Company
intends to adopt the standard on January 1, 2018 by applying the requirements of the standard retrospectively
with the cumulative effects of initial application recorded in opening retained earnings on January 1, 2017 and
with the restatement of the comparative periods. IFRS 15 permits the use of exemptions and practical
expedients. The Company intends to apply the practical expedient which does not require restatement for
contracts that began and were completed within the same annual reporting period before January 1, 2018 or are
completed on January 1, 2017.
The Company has completed the assessment of significant agreements and contracts with customers and has
determined the preliminary expected impacts of adoption of IFRS 15 on its consolidated financial statements.
The implementation of IFRS 15 will impact the allocation of revenue that is deferred in relation to Loblaw’s
customer loyalty award programs. Revenue is currently allocated to the customer loyalty awards using the
residual fair value method. Under this method, a portion of the consideration equaling the fair value of the
points is allocated to the loyalty awards and deferred until the points are ultimately redeemed. The residual
consideration is allocated to the goods and services sold and recognized as revenue. Under IFRS 15,
consideration will be allocated between the loyalty awards and the goods or services sold on which the awards
were earned based on their relative stand-alone selling prices. Using this relative fair value approach, the
amount allocated to the loyalty points will be, on average, lower than the amounts allocated under the residual
value method. As a result, the Company expects the adoption of the standard to result in a decrease in the
amount recognized as deferred revenue in other liabilities, an increase in income taxes payable, and a
corresponding increase in retained earnings of approximately $30 million, net of income taxes, as at
January 1, 2017.
The Company does not expect the implementation of IFRS 15 to otherwise have a significant impact on its
Weston Foods segment or Loblaw’s Retail, Financial Services or Choice Properties segment revenue streams,
including on its franchise arrangements with non-consolidated stores.
The Company continues to assess the impact of the disclosure requirements under IFRS 15 on the Company’s
consolidated financial statements.
IFRS 9 In 2014, the IASB issued IFRS 9, “Financial Instruments” (“IFRS 9”), replacing IAS 39, “Financial
Instruments: Recognition and Measurement” (“IAS 39”), and related interpretations. IFRS 9 includes revised
guidance on the classification and measurement of financial assets, including impairment and a new general
hedge accounting model. IFRS 9 becomes effective for annual periods beginning on or after January 1, 2018. The
Company intends to adopt the new requirements for classification and measurement, impairment and general
hedging on January 1, 2018 by applying the requirements for classification and measurement, including
impairment, retrospectively with the cumulative effects of initial application recorded in opening retained
earnings as at January 1, 2018, with no restatement of the comparative periods.
Classification and measurement IFRS 9 contains a new classification and measurement approach for financial
assets that reflects the business model in which assets are managed and their cash flow characteristics. IFRS 9
largely retains the existing requirements in IAS 39 for the classification of financial liabilities. The Company will
adopt the new classification requirements under IFRS 9 and it does not expect significant changes in
measurement as a result of the new requirements.
56 George Weston Limited 2017 Annual Report
Impairment IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit
loss’ (“ECL”) model. Applying the ECL model will require considerable judgment, including consideration of how
changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new
impairment model will apply to financial assets measured at amortized cost or those measured at fair value
through other comprehensive income, except for investments in equity instruments, and to contract assets.
The Company’s ECL model will change the valuation of Loblaw’s Financial Services segment’s credit losses on
credit card receivables. Loblaw, through PC Bank, currently assesses for impairment on credit card receivables
using the incurred loss model when objective evidence indicates that there has been a deterioration of credit
quality subsequent to the initial recognition of the receivable, and the loss can be reliably measured. The
adoption of IFRS 9 will have a significant impact on Loblaw’s Financial Services segment’s impairment
methodology.
IFRS 9 outlines a three-stage approach to recognizing ECL which is intended to reflect the deterioration in credit
quality of a financial instrument. Loblaw, through PC Bank, will apply the three-stage approach on assessing the
impairment on credit card receivables.
• Stage 1 is comprised of all financial instruments that have not deteriorated significantly in credit quality since
initial recognition or that have low credit risk at the reporting date. PC Bank will be required to recognize
impairment for Stage 1 financial instruments based on the expected losses over the expected life of the
instrument arising from loss events that could occur during the 12 months following the reporting date.
• Stage 2 is comprised of all financial instruments that have deteriorated significantly in credit quality since
initial recognition but that do not have objective evidence of a credit loss event. For Stage 2 financial
instruments the impairment is recognized based on the expected losses over the expected life of the
instrument arising from loss events that could occur over the expected life. PC Bank is required to recognize
a lifetime ECL for Stage 2 financial instruments.
• Stage 3 is comprised of all financial instruments that have objective evidence of impairment at the reporting
date. PC Bank is required to recognize impairment based on a lifetime ECL for Stage 3 financial instruments.
As a result of the change in valuation, the Company expects the adoption of IFRS 9 to result in a decrease in
credit card receivables, increase in deferred income tax asset, with a corresponding decrease in retained
earnings of up to approximately $90 million, net of income taxes, as at January 1, 2018. PC Bank continues to
revise, refine and validate the impairment model and related process controls , and assess the impact on
Loblaw’s consolidated financial statement.
The Company does not expect the ECL impairment model applied under IFRS 9 to have a material impact on its
other financial assets.
General hedging IFRS 9 will require the Company to ensure that hedge accounting relationships are aligned with
the Company’s risk management objectives and strategy and to apply a more qualitative and forward-looking
approach to assessing hedge effectiveness. The Company expects that the types of hedge accounting
relationships that the Company currently designates will be capable of meeting the requirements of IFRS 9 once
the Company completes certain planned changes to its internal documentation and monitoring processes to
meet the requirements of IFRS 9.
George Weston Limited 2017 Annual Report 57
Management’s Discussion and Analysis
IFRS 16 In 2016, the IASB issued IFRS 16, “Leases” (“IFRS 16”), replacing IAS 17, “Leases” (“IAS 17”) and related
interpretations. The standard introduces a single on-balance sheet recognition and measurement model for
lessees, eliminating the distinction between operating and finance leases. Lessors continue to classify leases
as finance and operating leases. IFRS 16 becomes effective for annual periods beginning on or after
January 1, 2019. For leases where the Company is the lessee, it has the option of adopting a full retrospective
approach or a modified retrospective approach on transition to IFRS 16. While early adoption is permitted if
IFRS 15 has been adopted, the Company does not intend to early adopt IFRS 16.
The Company intends to adopt the standard on January 1, 2019 by applying the requirements of the standard
retrospectively with the cumulative effects of initial application recorded in opening retained earnings as at
January 1, 2019 using the modified retrospective approach with no restatement of the comparative period.
IFRS 16 permits the use of exemptions and practical expedients. The Company intends to measure the
cumulative effect of initial application by applying the use of hindsight in the determination of the lease term if
the contract contains options to extend or terminate a lease. In addition, the Company also intends to apply the
following exemptions and practical expedients.
•
the application of IFRS 16 to only those contracts that were previously identified as leases under IAS 17 and
IFRIC 4, Determining whether an Arrangement contains a Lease;
the exclusion of short term leases and leases for which the underlying asset is of low dollar value from the
application of IFRS 16; and
the application of a single discount rate to a portfolio of leases with similar characteristics.
•
•
The Company has performed a preliminary assessment of the potential impacts of the adoption of IFRS 16 on the
Company’s consolidated financial statements. The adoption of IFRS 16 will result in an increase in fixed assets,
long term debt, and deferred income taxes, and a decrease in opening retained earnings as a result of the
recognition of right-of-use assets and associated lease liabilities. On an ongoing basis there will be a decrease in
rent expense and an increase in depreciation and amortization and net interest expense and other financing
charges. The Company expects to disclose quantitative financial impacts before the adoption of IFRS 16.
OUTLOOK(3)
17.
Weston Foods’ three year strategic framework is focused on becoming a premier North American Bakery and
delivering solid financial results. In 2018, Weston Foods will focus on key fundamental areas by growing the core
business, selectively innovating in new segments and markets, and strengthening key processes in the
organization.
In 2018, on a full-year comparative basis, Weston Foods expects
• Sales will be essentially flat to 2017. Growth in volume is expected to be offset by product rationalization and
negative impacts of foreign exchange;
• Adjusted EBITDA(1) will be essentially flat to 2017. Adjusted EBITDA(1) will include improvements from the
transformation program and productivity, but will be offset by headwinds from higher input and distribution
costs in an inflationary environment, minimum wage increases and foreign exchange. In the first half of
2018, adjusted EBITDA(1) is expected to decline primarily due to costs related to the transformation program
and inflation. Adjusted EBITDA(1) in the second half of 2018 is expected to improve driven by sales growth
and realized benefits from the transformation program, partially offset by continued inflationary pressures;
Investment in capital expenditures of approximately $230 million related to growth, regulatory and
maintenance; and
•
• Depreciation will increase.
58 George Weston Limited 2017 Annual Report
Loblaw is focused on its strategic framework, delivering best in food and health and beauty, using data driven
insights underpinned by process and efficiency excellence. This framework is supported by Loblaw’s financial
plan of maintaining a stable trading environment that targets positive same-store sales and stable gross margin,
creating efficiencies to deliver operating leverage, investing for the future and returning capital to shareholders.
Headwinds from minimum wage increases and healthcare reform will negatively impact Loblaw’s financial
performance in 2018. In addition to the previously announced incremental impact of minimum wage increases
of approximately $190 million, Loblaw now expects that the announced healthcare reform will have an
additional impact of approximately $250 million on operating income. This compares to the average impact of
healthcare reform of approximately $70 million to $80 million per year over the past three years.
In 2018, on a full-year comparative basis, normalized for the disposition of Loblaw’s gas bar business, Loblaw
expects to:
• deliver positive same-store sales and stable gross margin in its Retail segment in a highly competitive market;
• deliver essentially flat adjusted net earnings growth with positive adjusted earnings per share growth based
on our share buyback program;
invest approximately $1.3 billion in capital expenditures, including $1.0 billion in its Retail segment; and
return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.
•
•
For 2018, the Company expects adjusted net earnings to be essentially flat due to the results of Loblaw and
Weston Foods, as described above.
NON-GAAP FINANCIAL MEASURES
18.
The Company uses the following non-GAAP financial measures: adjusted EBITDA and adjusted EBITDA margin,
adjusted net earnings attributable to shareholders of the Company, adjusted net earnings available to common
shareholders of the Company, adjusted diluted net earnings per common share, adjusted return on average
equity attributable to common shareholders of the Company, adjusted return on capital and free cash flow. In
addition to these items, the following measures are used by management in calculating adjusted diluted net
earnings per common share: adjusted operating income, adjusted net interest expense and other financing
charges, adjusted income taxes and adjusted income tax rate. 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.
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.
George Weston Limited 2017 Annual Report 59
$
8 $
138 $
1 $
$
38 $
447 $
6 $
Management’s Discussion and Analysis
Adjusted EBITDA The Company believes adjusted EBITDA is useful in assessing and making decisions regarding
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 investment program.
The following table reconciles adjusted EBITDA to operating income, which is reconciled to GAAP net earnings
attributable to shareholders of the Company reported for the periods ended as indicated.
(unaudited)
($ millions)
Weston
Foods
Loblaw
Other
Consolidated
Weston
Foods
Loblaw
Other
Consolidated
Quarters Ended
Dec. 31, 2017
Dec. 31, 2016
$
38
$
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
Add impact of the following:
Amortization of intangible assets acquired
with Shoppers Drug Mart
PC Optimum Program
Restructuring and other charges
Loblaw Card Program
Asset impairments, net of recoveries
Fair value adjustment of derivatives
Pension annuities and buy-outs
Certain prior period items
Prior year land transfer tax assessment
(recovery)
Wind-down of PC Financial banking services
Inventory losses, net of recoveries
Charges related to retail locations in
Fort McMurray, net of recoveries
Foreign currency translation(i)
Adjusting items
Adjusted operating income
Depreciation and amortization excluding the
impact of the above adjustments(ii)
Adjusted EBITDA
$
$
$
121
211
165
107
53
(5)
(4)
(9)
(17)
33
(3)
(2)
(1)
622 $
(1) $
760 $ — $
28 $
36 $
92
139
83
177
491
124
—
9
—
130
(7)
21
—
—
—
5
(5)
(6)
271
762
28
(34)
115
147
121
211
198
107
53
(8)
—
(4)
(9)
(17)
(2)
—
(1)
649
796
$
$
$
124
7
2
130
(6)
21
(1)
5
(5)
(6)
266 $
(6) $
713 $ — $
11 $
49 $
25
251
61 $ 1,011 $ — $
276
1,072
24
241
73 $
954 $ — $
265
1,027
(i) Represents 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.
(ii) Depreciation and amortization for the calculation of adjusted EBITDA excludes $121 million (2016 – $124 million) of amortization of
intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $10 million (2016 – $3 million) of accelerated
depreciation recorded by Weston Foods, related to restructuring and other charges.
60 George Weston Limited 2017 Annual Report
(unaudited)
($ millions)
Weston
Foods
Loblaw
Other
Consolidated
Weston
Foods
Loblaw
Other
Consolidated
Years Ended
Dec. 31, 2017
Dec. 31, 2016
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
Add impact of the following:
Amortization of intangible assets acquired
with Shoppers Drug Mart
PC Optimum Program
Restructuring and other charges
Loblaw Card Program
Asset impairments, net of recoveries
Fair value adjustment of derivatives
Pension annuities and buy-outs
Certain prior period items
Prior year land transfer tax assessment
(recovery)
Wind-down of PC Financial banking services
Gain on disposition of Loblaw’s gas
bar operations
Inventory losses, net of recoveries
Charges related to retail locations in
Fort McMurray, net of recoveries
Drug retail ancillary assets
Foreign currency translation(i)
Adjusting items
Adjusted operating income
Depreciation and amortization excluding the
impact of the above adjustments(ii)
Adjusted EBITDA
$
$
759
815
443
523
$
91 $ 2,486 $
(37) $
2,540
$
173 $ 2,084 $
(2) $
3
524
211
165
107
53
20
12
(4)
(9)
(24)
(501)
48
14
2
(6)
34
554 $
37 $
149 $ 3,040 $ — $
58 $
$
$
107
1,044
$
256 $ 4,084 $ — $
524
211
213
107
56
34
14
(4)
(9)
(24)
(501)
(6)
—
—
34
649
3,189
1,151
4,340
535
17
46
(5)
3
11
135
5
23
10
2
(4)
2
752 $
2 $
199 $ 2,836 $ — $
26 $
$
$
97
1,008
$
296 $ 3,844 $ — $
550
540
465
700
2,255
535
—
63
—
135
—
26
—
10
—
—
11
2
(4)
2
780
3,035
1,105
4,140
(i) Represents 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.
(ii) Depreciation and amortization for the calculation of adjusted EBITDA excludes $524 million (2016 – $535 million) of amortization of
intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $10 million (2016 – $14 million) of accelerated
depreciation recorded by Weston Foods, related to restructuring and other charges.
The following items impacted operating income in 2017 and 2016:
Amortization of intangible assets acquired with Shoppers Drug Mart The acquisition of Shoppers Drug Mart
in 2014 included approximately $6 billion of definite life intangible assets, which are being amortized over their
estimated useful lives. Loblaw expects to recognize annual amortization associated with the acquired intangible
assets of approximately $525 million until 2024, and decreasing thereafter.
George Weston Limited 2017 Annual Report 61
Management’s Discussion and Analysis
PC Optimum Program In the fourth quarter of 2017, Loblaw announced plans to bring together the Shoppers
Optimum and PC Plus reward programs to create one program, PC Optimum. As a result, Loblaw recorded a
charge of $189 million, related to the revaluation of the existing liability for outstanding points to reflect a higher
anticipated redemption rate under the new program, and $22 million, related to the impairment of certain IT
assets that support the existing loyalty programs in the fourth quarter of 2017.
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. For details on the restructuring and other charges incurred by each of the Company’s operating
segments see Section 6.1, “Weston Foods Operating Results” and Section 6.2, “Loblaw Operating Results” of this
MD&A.
Loblaw Card Program In the fourth quarter of 2017, the Company and Loblaw acknowledged their involvement
in an industry wide price-fixing arrangement. In connection with the arrangement, Loblaw is offering customers
a $25 Loblaw Card, which can be used to purchase items sold in Loblaw grocery stores across Canada. Loblaw
has recorded a charge of $107 million associated with the Loblaw Card Program.
Asset impairments, net of recoveries At each balance sheet date, the Company assesses and, when required,
records impairments and recoveries of previous impairments related to the carrying value of its fixed assets,
investment properties and intangible assets.
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, fuels 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. 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 and U.S. dollar commitments.
Pension annuities and buy-outs The Company is undertaking annuity purchases and pension buy-outs in respect
of former employees designed to reduce its defined benefit pension plan obligation and decrease future pension
volatility and risks.
Certain prior period items In the fourth quarter of 2017, Management identified excess impairment that was
recorded against Loblaw’s Franchise Loans Receivable balance on the consolidated balance sheets and recorded
a gain to correct this prior period error. Management determined that the impact of this item on the Company’s
previously issued annual and interim financial statements and the current period financial statements was not
material. This gain was partially offset by certain charges associated with a prior period regulatory matter
recorded in the fourth quarter of 2017.
Prior year land transfer tax assessment (recovery) In the fourth quarter of 2017, Loblaw recorded a recovery of
$9 million in SG&A in the Retail segment related to a partial recovery of a prior year land transfer tax
assessment.
Wind-down of PC Financial banking services In the third quarter of 2017, PC Bank entered into an agreement to
end its business relationship with a major Canadian chartered bank which represented the personal banking
services offered under the President's Choice Financial brand. As a result of this agreement, PC Bank will receive
payments of approximately $43 million, net of related costs, which will be recognized between the third quarter
of 2017 and the second quarter of 2018.
62 George Weston Limited 2017 Annual Report
Gain on disposition of Loblaw’s gas bar operations On July 17, 2017, Loblaw sold its gas bar operations, for
proceeds of approximately $540 million. Loblaw has recorded a pre-tax gain on sale of $501 million (post-tax gain
of $432 million), net of related costs, in the third quarter of 2017.
Inventory losses, net of recoveries In 2016, Weston Foods’ damaged inventory of $11 million (U.S. $9 million)
was written-off and was recorded in SG&A in the Company’s consolidated statement of earnings. In 2017, the
Company received partial proceeds from the insurance claim. The insurance claim remains in progress and
further proceeds are expected to be recorded as the claim progresses.
Charges related to retail locations in Fort McMurray, net of recoveries In the second quarter of 2016, 10 retail
locations in Fort McMurray were impacted by the wildfire that caused the evacuation of the city. Loblaw
recognized charges related to the inventory losses, site clean-up and other restoration costs. As at the end of
2016, Loblaw received partial proceeds of $10 million from the insurance claim.
Drug retail ancillary assets In the second quarter of 2016, Loblaw ceased actively marketing the remaining
assets in certain drug retail ancillary operations that were previously marketed for sale. As a result, Loblaw
recorded a charge of $4 million related to inventory impairment and reversed $8 million of previous asset
impairments and other related restructuring charges.
Foreign currency translation 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 cash equivalents and
short term investments held by foreign operations, is recorded in SG&A and the associated tax, if any, is
recorded in income taxes. In the fourth quarter of 2017, a foreign currency translation gain of $1 million (2016 –
$6 million) was recorded in SG&A as a result of the appreciation of the U.S. dollar relative to the Canadian dollar.
Year-to-date, a foreign currency translation loss of $34 million (2016 – $2 million) was recorded in SG&A as a
result of the depreciation (2016 – depreciation) of the U.S. dollar relative to the Canadian dollar.
Adjusted Net Interest Expense and Other Financing Charges The Company believes adjusted net interest
expense and other financing charges is useful in assessing the ongoing net financing costs of the Company.
The following table reconciles adjusted net interest expense and other financing charges to GAAP net interest
expense and other financing charges reported for the periods ended as indicated.
(unaudited)
($ millions)
Net interest expense and other financing charges
Add:
Fair value adjustment of the Trust Unit liability
Fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares
Adjusted net interest expense and other financing charges
$
Quarters Ended
Years Ended
Dec. 31, 2017
115
$
8
Dec. 31, 2016
177
$
1
Dec. 31, 2017
523
$
7
Dec. 31, 2016
700
$
(79)
10
133
$
(43)
135
$
25
555
$
(53)
568
In addition to certain items described in the “Adjusted EBITDA” section above, the following items impacted net
interest expense and other financing charges in 2017 and 2016:
Fair value adjustment of the 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
date based on the market price of Trust Units at the end of each period. An increase (decrease) in the market
price of Trust Units results in a charge (income) to net interest expense and other financing charges.
George Weston Limited 2017 Annual Report 63
Management’s Discussion and Analysis
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. An increase (decrease) in the market price of Loblaw common shares
results in a charge (income) to 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)
($ millions except where otherwise indicated)
Adjusted operating income(i)
Adjusted net interest expense and other financing charges(i)
Adjusted earnings before taxes
Income taxes
Add:
Tax impact of items excluded from adjusted earnings
before taxes(ii)
Remeasurement of deferred tax balances
Statutory corporate income tax rate change
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, 2017
796
$
Dec. 31, 2016
762
$
Dec. 31, 2017
3,189
$
Dec. 31, 2016
3,035
$
$
$
$
$
$
$
133
663
(34)
177
19
19
181
(106.3)%
27.3 %
$
$
$
135
627
83
89
172
26.4%
27.4%
$
$
$
555
2,634
443
232
19
19
713
22.0%
27.1%
568
2,467
465
216
(3)
678
29.9%
27.5%
See reconciliations of adjusted operating income and adjusted net interest expense and other financing charges above.
(i)
(ii) See the adjusted EBITDA 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.
In addition to certain items described in the “Adjusted EBITDA” and “Adjusted Net Interest Expense and Other
Financing Charges” sections above, the following item impacted income taxes and the effective income tax rate
in 2017 and 2016:
Remeasurement of deferred tax balances In the fourth quarter of 2017, the Company recorded a deferred tax
recovery of $19 million resulting from a change in the applicable provincial income tax rate used to measure
certain deferred tax balances caused by a change in the location of certain business activities.
Statutory corporate income tax rate change The Company’s deferred income tax assets and liabilities are
impacted by changes to provincial and federal statutory corporate income tax rates resulting in a charge or
benefit to earnings. The Company implements changes in the statutory corporate income tax rate in the same
period the change is substantively enacted by the legislative body.
In the fourth quarter of 2017, the U.S. government enacted a 14.0% decrease in the U.S. federal statutory
corporate income tax rate from 35.0% to 21.0%. As a result, Weston Foods recorded a recovery of $19 million in
2017 related to the remeasurement of its deferred tax liabilities.
In the first quarter of 2016, the Government of New Brunswick announced a 2.0% increase in the provincial
statutory corporate income tax rate from 12.0% to 14.0%. Loblaw recorded a charge of $3 million in 2016 related
to the remeasurement of its deferred tax liabilities.
64 George Weston Limited 2017 Annual Report
Adjusted Net Earnings Available to Common Shareholders and Adjusted Diluted Net Earnings per Common
Share The Company believes adjusted net earnings available to common shareholders and adjusted diluted net
earnings per common share are useful in assessing the Company’s underlying operating performance and in
making decisions regarding the ongoing operations of its business.
The following table reconciles net earnings attributable to shareholders of the Company to net earnings available
to common shareholders of the Company and then to adjusted net earnings available to common shareholders
of the Company reported for the periods ended as indicated.
(unaudited)
($ millions except where otherwise indicated)
Net earnings attributable to shareholders of the Company
Less: Prescribed dividends on preferred shares in share capital
Net earnings available to common shareholders
of the Company
Reduction in net earnings due to dilution at Loblaw
Net earnings available to common shareholders for diluted
earnings per share
Net earnings attributable to shareholders of the Company
Adjusting items (refer to the following table)
Adjusted net earnings attributable to shareholders
of the Company
Less: Prescribed dividends on preferred shares in share capital
Adjusted net earnings available to common shareholders
of the Company
Reduction in net earnings due to dilution at Loblaw
Adjusted net earnings available to common shareholders for
diluted earnings per share
Quarters Ended
Years Ended
Dec. 31, 2017
38
$
Dec. 31, 2016
92
$
Dec. 31, 2017
759
$
Dec. 31, 2016
550
$
(10)
28
28
38
200
238
(10)
228
228
$
$
$
$
$
$
(10)
82
82
92
122
214
(10)
204
204
$
$
$
$
$
$
(44)
(44)
715
6
709
759
189
948
(44)
904
6
898
$
$
$
$
$
$
506
5
501
550
332
882
(44)
838
5
833
$
$
$
$
$
$
Weighted average common shares outstanding (millions)(i)
128.3
128.2
128.3
128.3
(i)
Includes impact of dilutive instruments for purposes of calculating adjusted diluted net earnings per common share.
George Weston Limited 2017 Annual Report 65
Management’s Discussion and Analysis
The following table reconciles adjusted net earnings available to common shareholders of the Company and
adjusted diluted net earnings per common share to GAAP net earnings available to common shareholders of the
Company and diluted net earnings per common share as reported for the periods ended as indicated.
Quarters Ended
Dec. 31, 2017
Dec. 31, 2016
Net Earnings
Available to
Common
Shareholders of
the Company
($ millions)
Diluted
Net
Earnings
Per
Common
Share
Net Earnings
Available to
Common
Shareholders of
the Company
($ millions)
Diluted
Net
Earnings
Per
Common
Share
$
28
$
0.22
$
82
$
0.64
44
75
82
39
19
(5)
(6)
(3)
(7)
(1)
(7)
(2)
(10)
(19)
1
200
228
$
$
$
$
0.35
0.58
0.64
0.30
0.15
(0.04)
(0.05)
(0.02)
(0.05)
(0.01)
(0.05)
(0.02)
(0.08)
(0.15)
0.01
1.56
1.78
41
4
44
(3)
7
2
(1)
32
1
(5)
122
204
$
$
$
$
0.33
0.03
0.34
(0.02)
0.05
0.02
(0.01)
0.24
0.01
(0.04)
0.95
1.59
(unaudited)
($ except where otherwise indicated)
As reported
Add (deduct) impact of the following(i):
Amortization of intangible assets acquired with Shoppers
Drug Mart
PC Optimum Program
Restructuring and other charges
Loblaw Card Program
Asset impairments, net of recoveries
Fair value adjustment of derivatives
Pension annuities and buy-outs
Certain prior period items
Prior year land transfer tax assessment (recovery)
Wind-down of PC Financial banking services
Inventory losses, net of recoveries
Charges related to retail locations in Fort McMurray, net
of recoveries
Fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares
Fair value adjustment of the Trust Unit liability
Remeasurement of deferred tax balances
Statutory corporate income tax rate change
Foreign currency translation
Adjusting items
Adjusted
(i) Net of income taxes and non-controlling interests, as applicable.
66 George Weston Limited 2017 Annual Report
(unaudited)
($ except where otherwise indicated)
As reported
Add (deduct) impact of the following(i):
Amortization of intangible assets acquired with Shoppers
Drug Mart
PC Optimum Program
Restructuring and other charges
Loblaw Card Program
Asset impairments, net of recoveries
Fair value adjustment of derivatives
Pension annuities and buy-outs
Certain prior period items
Prior year land transfer tax assessment (recovery)
Wind-down of PC Financial banking services
Gain on disposition of Loblaw’s gas bar operations
Inventory losses, net of recoveries
Charges related to retail locations in Fort McMurray, net
of recoveries
Drug retail ancillary assets
Fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares
Fair value adjustment of the Trust Unit liability
Statutory corporate income tax rate change
Remeasurement of deferred tax balances
Foreign currency translation
Adjusting items
Adjusted
Years Ended
Dec. 31, 2017
Dec. 31, 2016
Net Earnings
Available to
Common
Shareholders of
the Company
($ millions)
Diluted
Net
Earnings
Per
Common
Share
Net Earnings
Available to
Common
Shareholders of
the Company
($ millions)
Diluted
Net
Earnings
Per
Common
Share
$
715
$
5.53
$
506
$
3.90
184
75
93
39
22
17
5
(6)
(3)
(9)
(207)
(3)
(18)
(2)
(19)
(10)
31
189
904
$
$
$
$
1.43
0.58
0.73
0.30
0.17
0.13
0.04
(0.05)
(0.02)
(0.07)
(1.61)
(0.02)
(0.14)
(0.02)
(0.15)
(0.08)
0.25
1.47
7.00
182
28
46
(1)
10
3
6
1
(1)
39
16
1
2
332
838
$
$
$
$
1.42
0.22
0.35
(0.01)
0.08
0.02
0.05
0.01
(0.01)
0.31
0.12
0.01
0.02
2.59
6.49
(i) Net of income taxes and non-controlling interests, as applicable.
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 following table reconciles free cash flow to GAAP measures reported for the periods ended as indicated.
(unaudited)
($ millions)
Cash flows from operating activities
Less:
Interest paid
Fixed asset purchases
Intangible asset additions
Free cash flow
Quarters Ended
Years Ended
Dec. 31, 2017
1,213
$
Dec. 31, 2016
976
$
Dec. 31, 2017
3,425
$
Dec. 31, 2016
3,760
$
104
486
89
534
$
103
452
116
305
$
556
1,177
297
1,395
$
570
1,129
336
1,725
$
George Weston Limited 2017 Annual Report 67
Management’s Discussion and Analysis
ADDITIONAL INFORMATION
19.
Additional information about the Company, including its 2017 AIF and other disclosure documents, has been
filed electronically with the Canadian securities regulatory authorities 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, a public 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 website at www.loblaw.ca.
Toronto, Canada
March 1, 2018
68 George Weston Limited 2017 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
Investment Properties
Intangible Assets
Nature and Description of the Reporting Entity
Significant Accounting Policies
Critical Accounting Estimates and Judgments
Future Accounting Standards
Business Acquisitions
Net Interest Expense and Other Financing Charges
Income Taxes
Basic and Diluted Net Earnings per Common Share
Cash and Cash Equivalents, Short Term Investments and Security Deposits
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Note 10. Accounts Receivable
Note 11. Credit Card Receivables
Note 12.
Inventories
Note 13. Assets Held for Sale and Disposition
Note 14. Fixed Assets
Note 15.
Note 16.
Note 17. Goodwill
Note 18. Other Assets
Note 19. Customer Loyalty Awards Program Liability
Note 20. Provisions
Note 21. Short Term Debt
Long Term Debt
Note 22.
Note 23. Other Liabilities
Note 24. Share Capital
Note 25.
Note 26. Capital Management
Note 27. Post-Employment and Other Long Term Employee Benefits
Note 28. Share-Based Compensation
Note 29. Employee Costs
Note 30.
Leases
Note 31. Financial Instruments
Note 32. Financial Risk Management
Note 33. Contingent Liabilities
Note 34. Financial Guarantees
Note 35. Related Party Transactions
Note 36. Segment Information
Note 37. Subsequent Events
Three Year Summary
Glossary
Loblaw Capital Transactions
70
71
72
72
72
73
74
75
76
76
76
88
90
93
94
95
97
97
98
98
99
100
100
102
104
106
107
107
108
109
110
113
114
117
117
119
126
129
130
132
134
137
139
140
141
143
144
146
George Weston Limited 2017 Annual Report 69
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 certify as to the design and operating effectiveness of internal controls over financial reporting. A
dedicated control compliance team reviews and evaluates internal controls, the results of which are shared with
management on a quarterly basis.
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]
Galen G. Weston
Chairman and
Chief Executive Officer
March 1, 2018
Toronto, Canada
[signed]
Richard Dufresne
President and
Chief Financial Officer
70 George Weston Limited 2017 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, 2017 and December 31, 2016, 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, 2017 and December 31, 2016, 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 1, 2018
Toronto, Canada
George Weston Limited 2017 Annual Report 71
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 12)
Selling, general and administrative expenses (note 31)
Operating Income
Net Interest Expense and Other Financing Charges (note 6)
Earnings Before Income Taxes
Income Tax (note 7)
Net Earnings
Attributable to:
Shareholders of the Company
Non-Controlling Interests
Net Earnings
Net Earnings per Common Share ($) (note 8)
Basic
Diluted
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 (loss) income
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation adjustment (note 31)
Unrealized gain (loss) on cash flow hedges (note 31)
Items that will not be reclassified to profit or loss:
Net defined benefit plan actuarial (losses) gains (note 27)
Other comprehensive income
Comprehensive Income
Attributable to:
Shareholders of the Company
Non-Controlling Interests
Comprehensive Income
See accompanying notes to the consolidated financial statements.
72 George Weston Limited 2017 Annual Report
2017
48,292
$
2016
47,999
$
33,836
11,916
45,752
2,540
523
2,017
443
1,574
759
815
1,574
5.60
5.53
$
$
$
34,108
11,636
45,744
2,255
700
1,555
465
1,090
550
540
1,090
3.96
3.90
2017
1,574
$
2016
1,090
(64)
2
(20)
(82)
1,492
685
807
1,492
$
(20)
(1)
28
7
1,097
534
563
1,097
$
$
$
$
$
Consolidated Balance Sheets
As at December 31
(millions of Canadian dollars)
ASSETS
Current Assets
Cash and cash equivalents (note 9)
Short term investments (note 9)
Accounts receivable (note 10)
Credit card receivables (note 11)
Inventories (note 12)
Prepaid expenses and other assets
Assets held for sale (note 13)
Total Current Assets
Fixed Assets (note 14)
Investment Properties (note 15)
Intangible Assets (note 16)
Goodwill (note 17)
Deferred Income Taxes (note 7)
Security Deposits (note 9)
Franchise Loans Receivable (note 31)
Other Assets (note 18)
Total Assets
LIABILITIES
Current Liabilities
Bank indebtedness (note 34)
Trade payables and other liabilities
Provisions (note 20)
Income taxes payable
Short term debt (note 21)
Long term debt due within one year (note 22)
Associate interest
Total Current Liabilities
Provisions (note 20)
Long Term Debt (note 22)
Trust Unit Liability (note 31)
Deferred Income Taxes (note 7)
Other Liabilities (note 23)
Total Liabilities
EQUITY
Share Capital (note 24)
Retained Earnings
Contributed Surplus (notes 25 & 28)
Accumulated Other Comprehensive Income
Total Equity Attributable to Shareholders of the Company
Non-Controlling Interests
Total Equity
Total Liabilities and Equity
2017
2016
$
$
$
$
2,034
1,113
1,324
3,100
4,623
236
33
12,463
11,689
235
8,368
4,377
247
86
166
868
38,499
110
5,864
325
137
1,258
1,635
263
9,592
190
10,457
634
2,151
762
23,786
1,038
7,148
(432)
140
7,894
6,819
14,713
38,499
$
$
$
$
1,560
1,011
1,284
2,926
4,559
201
40
11,581
11,534
218
8,875
4,364
201
89
233
851
37,946
115
5,356
135
341
1,241
400
243
7,831
146
11,385
635
2,370
789
23,156
1,012
6,704
(156)
204
7,764
7,026
14,790
37,946
Leases (note 30). Contingent liabilities (note 33). Financial guarantees (note 34). Subsequent Events (note 37).
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board
[signed]
Galen G. Weston
Chairman and
Chief Executive Officer
[signed]
Barbara G. Stymiest
Director
George Weston Limited 2017 Annual Report 73
Balance as at Dec. 31, 2016
Net earnings
Other comprehensive
income (loss)(i)
Comprehensive income (loss)
Effect of share-based
compensation (notes 24 & 28)
Shares purchased and
cancelled (note 24)
Net effect of shares held in
trusts (notes 24 & 28)
Loblaw capital transactions
and dividends (notes 25 & 28)
Dividends declared
Per common share ($)
– $1.805
Per preferred share ($)
– Series I – $1.45
– Series III – $1.30
– Series IV – $1.30
– Series V – $1.1875
Balance as at Dec. 31, 2015
Net earnings
Other comprehensive
income(i)
Comprehensive income
Effect of share-based
compensation (notes 24 & 28)
Shares purchased and
cancelled (note 24)
Net effect of shares held in
trusts (notes 24 & 28)
Loblaw capital
transactions and dividends
(notes 25 & 28)
Dividends declared
Per common share ($)
– $1.745
Per preferred share ($)
– Series I – $1.45
– Series III – $1.30
– Series IV – $1.30
– Series V – $1.1875
Consolidated Statements of Changes in Equity
(millions of Canadian dollars except
where otherwise indicated)
Common
Shares
Preferred
Shares
Total
Share
Capital
Retained
Earnings(i)
Contributed
Surplus(i)
Foreign
Currency
Translation
Adjustment
Cash
Flow
Hedges
Total
Accumulated
Other
Comprehensive
Income
Non-
Controlling
Interests
Total
Equity
$
195 $
817 $ 1,012 $ 6,704 $
(156) $
204
$
204 $ 7,026 $ 14,790
1,574
815
—
26
—
—
26
759
(10)
749
(1)
(31)
2
(232)
(14)
(10)
(9)
(10)
(305)
(65)
(65)
1
1
(64)
(64)
—
(1)
(8)
807
(4)
(82)
1,492
20
(31)
2
(275)
(1,010)
(1,285)
(232)
(14)
(10)
(9)
(10)
(1,569)
140 $ 6,819 $ 14,713
— (1,014)
(276)
(432) $
—
139 $
—
1 $
Balance as at Dec. 31, 2017
$
26
221 $
—
26
817 $ 1,038 $ 7,148 $
(i) Other comprehensive loss includes actuarial losses of $20 million, $10 million of which is presented above in retained earnings
and $10 million in non-controlling interests. Also included in non-controlling interests is a foreign currency translation gain of
$1 million and an unrealized gain on cash flow hedges of $1 million.
(millions of Canadian dollars except
where otherwise indicated)
Common
Shares
Preferred
Shares
Total
Share
Capital
Retained
Earnings(i)
Contributed
Surplus(i)
Foreign
Currency
Translation
Adjustment
Cash
Flow
Hedges
Total
Accumulated
Other
Comprehensive
Income
Non-
Controlling
Interests
Total
Equity
$
191 $
817 $ 1,008 $ 6,422 $
20 $
230 $
1 $
231 $ 7,209 $ 14,890
1,090
540
—
4
—
—
4
550
11
561
(1)
(8)
(4)
(223)
(13)
(10)
(10)
(10)
(279)
—
4
817 $ 1,012 $ 6,704 $
(26)
(26)
(1)
(1)
(27)
(27)
—
15
23
563
8
7
1,097
26
(8)
(4)
(191)
(754)
(945)
(223)
(13)
(10)
(10)
(10)
(746)
(1,197)
204 $ 7,026 $ 14,790
—
(176)
(156) $
—
—
204 $ — $
Balance as at Dec. 31, 2016
$
4
195 $
(i) Other comprehensive income includes actuarial gains of $28 million, $11 million of which is presented above in retained earnings
and $17 million in non-controlling interests. Also included in non-controlling interests is a foreign currency translation gain of
$6 million.
See accompanying notes to the consolidated financial statements.
74 George Weston Limited 2017 Annual Report
Consolidated Statements of Cash Flows
For the years ended December 31
(millions of Canadian dollars)
Operating Activities
Net earnings
Add:
Net interest expense and other financing charges (note 6)
Income taxes (note 7)
Depreciation and amortization
Gain on disposition of Loblaw’s gas bar operations (note 13)
Asset impairments, net of recoveries
Foreign currency translation loss (note 31)
Change in provisions (note 20)
PC Optimum Program (note 19)
Change in credit card receivables (note 11)
Change in non-cash working capital
Income taxes paid
Interest received
Other
Cash Flows from Operating Activities
Investing Activities
Fixed asset purchases
Intangible asset additions (note 16)
Acquisition of QHR, net of cash acquired (note 5)
Cash assumed on initial consolidation of franchises (note 5)
Change in short term investments
Proceeds from sale of Loblaw’s gas bar operations (note 13)
Other
Cash Flows used in Investing Activities
Financing Activities
Change in bank indebtedness
Change in short term debt (note 21)
Interest paid
Long term debt – Issued (note 22)
– Retired (note 22)
Share capital – Issued (notes 24 & 28)
– Purchased and held in trusts (note 24)
– Purchased and cancelled (note 24)
Loblaw common share capital – Issued (notes 25 & 28)
– Purchased and held in trusts (note 25)
– Purchased and cancelled (note 25)
Dividends – To common shareholders
– To preferred shareholders
– To minority shareholders
Other
Cash Flows used in Financing Activities
Effect of foreign currency exchange rate changes on cash and cash equivalents
Change in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
$
See accompanying notes to the consolidated financial statements.
2017
2016
$
1,574
$
1,090
523
443
1,685
(501)
109
34
238
189
4,294
(174)
147
(892)
23
27
3,425
(1,177)
(297)
26
(135)
540
(32)
(1,075)
(5)
17
(556)
686
(450)
22
(7)
(31)
41
(48)
(1,091)
(229)
(44)
(175)
5
(1,865)
(11)
474
1,560
2,034
$
700
465
1,654
142
2
(52)
4,001
(136)
160
(345)
15
65
3,760
(1,129)
(336)
(153)
42
160
92
(1,324)
(28)
155
(570)
815
(1,399)
4
(11)
(8)
42
(90)
(708)
(221)
(44)
(232)
20
(2,275)
(14)
147
1,413
1,560
George Weston Limited 2017 Annual Report 75
Notes to the Consolidated Financial Statements
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.
The Company also holds cash, short term investments and an interest in Choice Properties Real Estate
Investment Trust (“Choice Properties”) of 6.1% (2016 – 5.8%). Loblaw has three reportable operating segments:
Retail, Financial Services and Choice Properties. Loblaw provides Canadians with grocery, pharmacy, health and
beauty, apparel, general merchandise, credit card services, insurance brokerage services, gift cards and
telecommunication services. Loblaw also holds an 82.4% (2016 – 82.7%) effective interest in Choice Properties,
which owns, manages and develops well-located retail and other commercial real estate across Canada. The
Weston Foods operating segment includes a leading fresh bakery business in Canada and frozen, artisan bakery
and biscuit businesses throughout North America.
As at year end 2017, GWL’s ownership interest in Loblaw was approximately 48.6% (2016 – 47.0%). The Company
has the ability to direct the activities of Loblaw and consequently consolidates 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 1, 2018.
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:
• defined benefit pension plan assets with the obligations related to these pension plans measured at their
discounted present value as described in note 27;
• amounts recognized for cash-settled share-based compensation arrangements as described in note 28; and
•
certain financial instruments as described in note 31.
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. Each of the years ended December 31, 2017 and December 31, 2016 contained 52 weeks. The
next 53-week year will occur in fiscal year 2020.
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 48.6% (2016 – 47.0%). GWL’s ownership in Loblaw is impacted by changes in Loblaw’s
common share equity.
76 George Weston Limited 2017 Annual Report
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 non-controlling interests 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 Corporation (“Shoppers Drug Mart”) licensees (“Associates”) as
well as the franchisees of its food retail stores that are subject to a new, simplified franchise agreement
(“Franchise Agreement”). 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 and
the new franchisees is based on the concept of control, for accounting purposes, which was determined to exist,
through agreements that govern the relationships between Loblaw and the Associates and franchisees. 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. The Associates’ corporations and the franchisees remain separate legal entities.
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 2017 Annual Report 77
Notes to the Consolidated Financial Statements
Loblaw Retail revenue includes sale of goods and services to customers through corporate stores and
consolidated franchise stores and Associates, and sales to non-consolidated franchise stores, and independent
wholesale 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 non-consolidated franchises. Revenue
also includes service fees from non-consolidated franchises, and independent wholesale account customers,
which are recognized when services are rendered.
On the initial sale of franchising arrangements, Loblaw offered products and services as part of a multiple
deliverable arrangement. Prior to the implementation of the new Franchise Agreement, the initial sales to
non-consolidated franchise stores were recorded using a relative fair value approach.
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.
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 for
current and deferred taxes related to a business combination, or amounts charged directly to equity or other
comprehensive income.
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 temporary differences as well as 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.
78 George Weston Limited 2017 Annual Report
Deferred tax is recorded 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.
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”) provides 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 Choice Properties’ 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 consists primarily of receivables from Loblaw’s vendors, non-
consolidated franchisees, government and third-party drug plans arising from prescription drug sales,
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.
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 2017 Annual Report 79
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 maintains and monitors co-ownership interest in
credit card receivables with independent securitization trusts, in accordance with its financing requirements.
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 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. Loblaw provides a standby letter of credit for the benefit of the independent
securitization trusts.
Eagle Credit Card Trust® PC Bank participates in a single seller revolving co-ownership securitization program
with Eagle Credit Card Trust® (“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 consolidates
Eagle as a structured entity.
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. These trusts are unconsolidated structured entities.
Franchise Loans Receivable Franchise loans receivable are comprised of amounts due from non-consolidated
franchises for loans issued through a structure involving consolidated independent funding trusts. These trusts,
which are considered structured entities, were created to provide loans to franchises to facilitate their purchase
of inventory and fixed assets. Each franchise provides security to the independent funding trust for its obligations
by way of a general security agreement. In the event that a franchise 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 its 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.
80 George Weston Limited 2017 Annual Report
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 a reduction 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 is 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.
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 annually 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 16 years
up to 10 years
Lesser of term of the lease and useful life up to 25 years
Lesser of term of the lease(i) and useful life(ii)
(i)
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.
(ii) 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.
George Weston Limited 2017 Annual Report 81
Notes to the Consolidated Financial Statements
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. Amortization expense for intangible assets is
recognized in selling, general and administrative expenses (“SG&A”)
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.
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.
82 George Weston Limited 2017 Annual Report
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
grouping 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 and reversals are recognized in SG&A.
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 balances outstanding on bank lines of credit drawn by
Loblaw’s Associates.
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.
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, available-for-sale financial assets, 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 forwards and futures, 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 item in a designated
hedging relationship. The Company has cash flow hedges which are used to manage exposure to fluctuations in
foreign currency exchange and interest rates. The effective portion of the change in fair value of the hedging
item is recorded in other comprehensive income. If the change in fair value of the hedging item is not completely
offset by the change in fair value of the hedged item, the ineffective portion of the hedging relationship is
recorded in net earnings. Amounts accumulated in other comprehensive income are reclassified to net earnings
when the hedged item is recognized in net earnings.
George Weston Limited 2017 Annual Report 83
Notes to the Consolidated Financial Statements
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
Certain long term investments
Bank indebtedness
Trade payables and other liabilities
Short term debt
Long term debt
Trust Unit liability
Certain other liabilities
Derivatives
Classification
Fair value through profit and loss(i)
Fair value through profit and loss(i)
Loans and receivables
Loans and receivables
Fair value through profit and loss(i)
Loans and receivables
Loans and receivables
Available-for-sale
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Fair value through profit and loss(iii)
Other liabilities
Fair value through profit and loss(iii)
Measurement
Fair value
Fair value
Amortized cost
Amortized cost
Fair value
Amortized cost
Amortized cost
Fair value(ii)
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Amortized cost
Fair value
Financial instruments designated at fair value through profit and loss.
(i)
(ii) Measured at fair value through other comprehensive income until realized through disposal or impairment.
(iii) 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.
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.
84 George Weston Limited 2017 Annual Report
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 the current year. 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 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;
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.
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.
George Weston Limited 2017 Annual Report 85
Notes to the Consolidated Financial Statements
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 other
comprehensive income. 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 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
of health care costs. The discount rate used to value the defined benefit plan obligation for accounting purposes
is based on high quality corporate 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.
86 George Weston Limited 2017 Annual Report
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 and subsequently
reclassified from accumulated other comprehensive income 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 to 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 outstanding have a seven year term to expiry, vest 20% 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:
• 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 three year performance period. 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. Dividends paid may
be reinvested in RSUs and PSUs and are treated as capital transactions.
George Weston Limited 2017 Annual Report 87
Notes to the Consolidated Financial Statements
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. 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 capital transactions. 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 accumulated 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
accumulated 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, Performance 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 award recipients in respect of these cash-settled awards plan is
remeasured at each balance sheet date, and a compensation expense is recognized in SG&A over the vesting
period for each tranche with a corresponding change in the liability.
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.
Accounting Standards Implemented in 2017
Statement of Cash Flows The Company implemented the amendments to International Accounting Standard
(“IAS”) 7, “Statement of Cash Flows”, in the first quarter of 2017 and has provided disclosures on changes in
liabilities arising from certain financing activities, including both cash and non-cash flows changes (see note 22).
Comparative information has not been presented.
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.
88 George Weston Limited 2017 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 entity’s 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 retail location is a separate CGU
for purposes of fixed asset impairment testing. For the purpose of goodwill and indefinite life intangible assets
impairment testing, CGUs are grouped at the lowest level at which goodwill and indefinite life 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.
Impairment of 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. These estimates are derived from past experience, actual operating results and budgets.
George Weston Limited 2017 Annual Report 89
Notes to the Consolidated Financial Statements
Customer Loyalty Awards Programs
Key Sources of Estimation Loblaw defers revenue equal to the fair value of award points earned by loyalty
program members at the time of award. Loblaw determines fair value using estimates such as retail value per
point on redemption and breakage (the amount of points that will never be redeemed). Prior to the launch of
the PC Optimum Program, the estimated fair value per point for the PC points and PC Plus programs was
determined based on the program reward schedule and was $1 for every 1,000 points. For the Shoppers
Optimum program, the estimated fair value per point was determine based on the expected weighted average
redemption levels for future redemptions, including special redemption events. Each program had its own
breakage rate and the rates were reviewed on an ongoing basis and were estimated utilizing each program’s
historical redemption activity and anticipated earn and redeem behaviour of members. As at year end 2017, as a
result of Loblaw’s plan to create one loyalty program, PC Optimum, Loblaw revalued its existing loyalty award
liabilities to account for a combined anticipated redemption rate.
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 and
the timing and reversal of temporary differences.
Provisions
Judgments made in Relation to Accounting Policies Applied and Key Sources of Estimation The recording of
provisions requires management to make certain judgments regarding whether 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 if a reliable estimate of the amount of the obligation can be made. The Company has recorded
provisions primarily in respect of restructuring, environmental and decommissioning liabilities, onerous lease
arrangements, legal claims and the Loblaw Card Program. The Company reviews the merits, risks and
uncertainties of each provision, based on current information, and the amount expected to be required to settle
the obligation. Provisions are reviewed on an ongoing basis and are adjusted accordingly when new facts and
events become known to the Company.
Note 4. Future Accounting Standards
The future accounting standards noted below will impact the Company’s business processes, internal controls
over financial reporting, data systems, and information technology (“IT”), as well as financing and compensation
arrangements. As a result, the Company has developed comprehensive project plans to guide the
implementations.
IFRS 15 In 2014, the IASB issued IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”), replacing IAS 18,
“Revenue”, IAS 11, “Construction Contracts”, and related interpretations. IFRS 15 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, 2018. The Company
intends to adopt the standard on January 1, 2018 by applying the requirements of the standard retrospectively
with the cumulative effects of initial application recorded in opening retained earnings on January 1, 2017 and
with the restatement of the comparative periods. IFRS 15 permits the use of exemptions and practical
expedients. The Company intends to apply the practical expedient which does not require restatement for
contracts that began and were completed within the same annual reporting period before January 1, 2018 or are
completed on January 1, 2017.
The Company has completed the assessment of significant agreements and contracts with customers and has
determined the preliminary expected impacts of adoption of IFRS 15 on its consolidated financial statements.
The implementation of IFRS 15 will impact the allocation of revenue that is deferred in relation to Loblaw’s
customer loyalty award programs. Revenue is currently allocated to the customer loyalty awards using the
90 George Weston Limited 2017 Annual Report
residual fair value method. Under this method, a portion of the consideration equaling the fair value of the
points is allocated to the loyalty awards and deferred until the points are ultimately redeemed. The residual
consideration is allocated to the goods and services sold and recognized as revenue. Under IFRS 15,
consideration will be allocated between the loyalty awards and the goods or services sold on which the awards
were earned based on their relative stand-alone selling prices. Using this relative fair value approach, the
amount allocated to the loyalty points will be, on average, lower than the amounts allocated under the residual
value method. As a result, the Company expects the adoption of the standard to result in a decrease in the
amount recognized as deferred revenue in other liabilities, an increase in income taxes payable, and a
corresponding increase in retained earnings of approximately $30 million, net of income taxes, as at
January 1, 2017.
The Company does not expect the implementation of IFRS 15 to otherwise have a significant impact on its
Weston Foods segment or Loblaw’s Retail, Financial Services or Choice Properties segment revenue streams,
including on its franchise arrangements with non-consolidated stores.
The Company continues to assess the impact of the disclosure requirements under IFRS 15 on the Company’s
consolidated financial statements.
IFRS 9 In 2014, the IASB issued IFRS 9, “Financial Instruments” (“IFRS 9”), replacing IAS 39, “Financial
Instruments: Recognition and Measurement” (“IAS 39”), and related interpretations. IFRS 9 includes revised
guidance on the classification and measurement of financial assets, including impairment and a new general
hedge accounting model. IFRS 9 becomes effective for annual periods beginning on or after January 1, 2018. The
Company intends to adopt the new requirements for classification and measurement, impairment and general
hedging on January 1, 2018 by applying the requirements for classification and measurement, including
impairment, retrospectively with the cumulative effects of initial application recorded in opening retained
earnings as at January 1, 2018, with no restatement of the comparative periods.
Classification and measurement IFRS 9 contains a new classification and measurement approach for financial
assets that reflects the business model in which assets are managed and their cash flow characteristics. IFRS 9
largely retains the existing requirements in IAS 39 for the classification of financial liabilities. The Company will
adopt the new classification requirements under IFRS 9 and it does not expect significant changes in
measurement as a result of the new requirements.
Impairment IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit
loss’ (“ECL”) model. Applying the ECL model will require considerable judgment, including consideration of how
changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new
impairment model will apply to financial assets measured at amortized cost or those measured at fair value
through other comprehensive income, except for investments in equity instruments, and to contract assets.
The Company’s ECL model will change the valuation of Loblaw’s Financial Services segment’s credit losses on
credit card receivables. Loblaw, through PC Bank, currently assesses for impairment on credit card receivables
using the incurred loss model when objective evidence indicates that there has been a deterioration of credit
quality subsequent to the initial recognition of the receivable, and the loss can be reliably measured. The
adoption of IFRS 9 will have a significant impact on Loblaw’s Financial Services segment’s impairment
methodology.
IFRS 9 outlines a three-stage approach to recognizing ECL which is intended to reflect the deterioration in credit
quality of a financial instrument. Loblaw, through PC Bank, will apply the three-stage approach on assessing the
impairment on credit card receivables.
• Stage 1 is comprised of all financial instruments that have not deteriorated significantly in credit quality since
initial recognition or that have low credit risk at the reporting date. PC Bank will be required to recognize
impairment for Stage 1 financial instruments based on the expected losses over the expected life of the
instrument arising from loss events that could occur during the 12 months following the reporting date.
George Weston Limited 2017 Annual Report 91
Notes to the Consolidated Financial Statements
• Stage 2 is comprised of all financial instruments that have deteriorated significantly in credit quality since
initial recognition but that do not have objective evidence of a credit loss event. For Stage 2 financial
instruments the impairment is recognized based on the expected losses over the expected life of the
instrument arising from loss events that could occur over the expected life. PC Bank is required to recognize
a lifetime ECL for Stage 2 financial instruments.
• Stage 3 is comprised of all financial instruments that have objective evidence of impairment at the reporting
date. PC Bank is required to recognize impairment based on a lifetime ECL for Stage 3 financial instruments.
As a result of the change in valuation, the Company expects the adoption of IFRS 9 to result in a decrease in
credit card receivables, increase in deferred income tax asset, with a corresponding decrease in retained
earnings of up to approximately $90 million, net of income taxes, as at January 1, 2018. PC Bank continues to
revise, refine and validate the impairment model and related process controls , and assess the impact on
Loblaw’s consolidated financial statement.
The Company does not expect the ECL impairment model applied under IFRS 9 to have a material impact on its
other financial assets.
General hedging IFRS 9 will require the Company to ensure that hedge accounting relationships are aligned with
the Company’s risk management objectives and strategy and to apply a more qualitative and forward-looking
approach to assessing hedge effectiveness. The Company expects that the types of hedge accounting
relationships that the Company currently designates will be capable of meeting the requirements of IFRS 9 once
the Company completes certain planned changes to its internal documentation and monitoring processes to
meet the requirements of IFRS 9.
IFRS 16 In 2016, the IASB issued IFRS 16, “Leases” (“IFRS 16”), replacing IAS 17, “Leases” (“IAS 17”) and related
interpretations. The standard introduces a single on-balance sheet recognition and measurement model for
lessees, eliminating the distinction between operating and finance leases. Lessors continue to classify leases
as finance and operating leases. IFRS 16 becomes effective for annual periods beginning on or after
January 1, 2019. For leases where the Company is the lessee, it has the option of adopting a full retrospective
approach or a modified retrospective approach on transition to IFRS 16. While early adoption is permitted if
IFRS 15 has been adopted, the Company does not intend to early adopt IFRS 16.
The Company intends to adopt the standard on January 1, 2019 by applying the requirements of the standard
retrospectively with the cumulative effects of initial application recorded in opening retained earnings as at
January 1, 2019 using the modified retrospective approach with no restatement of the comparative period.
IFRS 16 permits the use of exemptions and practical expedients. The Company intends to measure the
cumulative effect of initial application by applying the use of hindsight in the determination of the lease term if
the contract contains options to extend or terminate a lease. In addition, the Company also intends to apply the
following exemptions and practical expedients.
•
the application of IFRS 16 to only those contracts that were previously identified as leases under IAS 17 and
IFRIC 4, Determining whether an Arrangement contains a Lease;
the exclusion of short term leases and leases for which the underlying asset is of low dollar value from the
application of IFRS 16; and
the application of a single discount rate to a portfolio of leases with similar characteristics.
•
•
The Company has performed a preliminary assessment of the potential impacts of the adoption of IFRS 16 on the
Company’s consolidated financial statements. The adoption of IFRS 16 will result in an increase in fixed assets,
long term debt, and deferred income taxes, and a decrease in opening retained earnings as a result of the
recognition of right-of-use assets and associated lease liabilities. On an ongoing basis there will be a decrease in
rent expense and an increase in depreciation and amortization and net interest expense and other financing
charges. The Company expects to disclose quantitative financial impacts before the adoption of IFRS 16.
92 George Weston Limited 2017 Annual Report
Note 5. Business Acquisitions
Consolidation of Franchises Loblaw accounts for the consolidation of existing franchises as business
acquisitions. During the year, Loblaw consolidated its franchises as of the date the franchisee entered into a new
simplified franchise agreement with Loblaw. The assets acquired and liabilities assumed through the
consolidation were valued at the acquisition date using fair values, which approximate the franchise carrying
values at the date of acquisition. The results of operations of the acquired franchises were included in Loblaw’s
results of operations from the date of acquisition.
The following table summarizes the amounts recognized for the assets acquired, the liabilities assumed and
the non-controlling interests at the acquisition dates:
($ millions)
Net assets acquired:
Cash and cash equivalents
Inventories
Fixed assets
Trade payables and other liabilities(i)
Other liabilities(i)
Non-controlling interests
Total net assets acquired
2017
$
26
73
81
(43)
(132)
(5)
— $
2016
42
72
76
(67)
(107)
(16)
—
$
$
(i) On consolidation, trade payables and other liabilities and other liabilities eliminate against existing accounts receivable, franchise
loans receivable and franchise investments held by Loblaw.
Acquisition of QHR Corporation In 2017, Loblaw finalized the purchase price allocation related to the
acquisition of QHR Corporation (“QHR”) in 2016. Loblaw acquired all issued and outstanding shares of QHR
for total cash consideration of $167 million. The final purchase price allocation was as follows:
($ millions)
Net assets acquired:
Cash and cash equivalents
Accounts receivables and prepaid expenses
Fixed assets
Intangible assets
Goodwill
Trade payables and other liabilities
Deferred income tax liabilities
Other liabilities
Total net assets acquired
$
$
14
2
2
72
99
(3)
(14)
(5)
167
Goodwill is attributable to synergies expected from integrating QHR into Loblaw’s existing business. The goodwill
is not deductible for tax purposes.
George Weston Limited 2017 Annual Report 93
Notes to the Consolidated Financial Statements
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
Borrowings related to credit card receivables
Trust Unit distributions
Independent funding trusts
Post-employment and other long term employee benefits (note 27)
Bank indebtedness
Capitalized interest (capitalization rate 3.5% (2016 – 3.6%)) (notes 14 & 16)
Interest income:
Accretion income
Short term interest income
Derivative financial instruments(ii)
Forward sale agreement(i)
Fair value adjustment of the Trust Unit liability (note 31)
Net interest expense and other financing charges
2017
2016
$
$
$
$
$
$
$
518
30
35
16
11
6
(2)
614
(10)
(25)
(35)
(49)
(7)
523
$
$
$
$
$
$
$
536
27
33
15
12
6
(4)
625
(15)
(16)
(3)
(34)
30
79
700
(i)
Included a non-cash income of $25 million (2016 – charge of $53 million) related to the fair value adjustment of the forward sale
agreement for 9.6 million Loblaw common shares (see note 31). 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 included is forward accretion income
of $42 million (2016 – $40 million), and the forward fee of $18 million (2016 – $17 million), associated with the forward sale
agreement.
(ii) Represents a realized fair value gain of $3 million related to Choice Properties bond forward agreements settled in 2016
(see note 31).
94 George Weston Limited 2017 Annual Report
Note 7.
Income Taxes
The components of income taxes recognized in the consolidated statements of earnings were as follows:
($ millions)
Current income taxes
Current period
Adjustment in respect of prior periods
Deferred income taxes
Origination and reversal of temporary differences
Effect of change in income tax rates(i), (ii)
Adjustment in respect of prior periods
Income taxes
2017
679
8
(211)
(36)
3
443
$
$
2016
600
4
(152)
3
10
465
$
$
(i)
In the fourth quarter of 2017, the U.S. government enacted a 14% decrease in the U.S. federal statutory corporate income tax rate
from 35% to 21%. As a result, the Company recorded a recovery of $19 million related to the remeasurement of its deferred tax
liabilities.
(ii)
In 2016, the Government of New Brunswick announced a 2.0% increase in the provincial statutory corporate income tax rate from
12.0% to 14.0%. Loblaw recorded a charge of $3 million related to the remeasurement of its deferred tax liabilities in 2016.
Income tax expense recognized in other comprehensive income was as follows:
($ millions)
Net defined benefit plan actuarial (losses) gains (note 27)
Total income tax (recoveries) recognized in Other
comprehensive income
2017
(8)
(8)
$
$
2016
10
10
$
$
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 (decrease) increase resulting from:
Effect of tax rate in foreign jurisdictions
Impact of foreign currency translation
Non-taxable and non-deductible amounts
Impact of fair value adjustment of Trust Unit liability
Impact of income tax rate changes on deferred income tax balances
Adjustments in respect of prior periods
Other
Effective income tax rate applicable to earnings before income taxes
2017
26.7%
(0.3)
0.2
(3.5)
(0.1)
(1.8)
0.7
0.1
22.0%
2016
27.0%
0.2
1.4
0.2
1.0
0.1
29.9%
George Weston Limited 2017 Annual Report 95
Notes to the Consolidated Financial Statements
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, 2017
28
$
160
188
$
Dec. 31, 2016
48
$
103
151
$
The income tax losses and credits expire in the years 2026 to 2037. 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 2037)
Capital losses carried forward
Other
Net deferred income tax liabilities
Recorded on the consolidated balance sheets as follows:
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax liabilities
As at
Dec. 31, 2017
69
$
410
(587)
(1,936)
53
133
21
(67)
(1,904)
$
Dec. 31, 2016
63
$
320
(569)
(2,090)
55
94
24
(66)
(2,169)
$
$
$
247
(2,151)
(1,904)
$
$
201
(2,370)
(2,169)
96 George Weston Limited 2017 Annual Report
Note 8. Basic and Diluted Net Earnings per Common Share
($ millions except where otherwise indicated)
Net earnings attributable to shareholders of the Company
Prescribed dividends on preferred shares in share capital
Net earnings available to common shareholders of the Company
Reduction in net earnings due to dilution at Loblaw
Net earnings available to common shareholders for diluted earnings per share
Weighted average common shares outstanding (in millions) (note 24)
Dilutive effect of share-based compensation(i)
Weighted average common shares outstanding(ii) (in millions)
Basic net earnings per common share ($)
Diluted net earnings per common share ($)
(in millions)
$
$
$
$
$
2017
759
(44)
715
(6)
709
127.7
0.6
128.3
5.60
5.53
$
$
$
$
$
2016
550
(44)
506
(5)
501
127.7
0.6
128.3
3.96
3.90
(i) Excluded from the computation of diluted net earnings per common share were 450,042 (2016 – 316,643) potentially dilutive
instruments, as they were anti-dilutive.
Includes impact of dilutive instruments for purposes of calculating diluted net earnings per common share.
(ii)
Note 9. 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
Cash and cash equivalents
Short Term Investments
($ millions)
Bankers’ acceptances
Government treasury bills
Corporate commercial paper
Government agency securities
Other
Short term investments
As at
Dec. 31, 2017
655
$
Dec. 31, 2016
684
$
685
237
457
2,034
$
492
208
176
1,560
$
As at
Dec. 31, 2017
341
$
297
442
31
2
1,113
$
Dec. 31, 2016
306
$
341
324
38
2
1,011
$
George Weston Limited 2017 Annual Report 97
Notes to the Consolidated Financial Statements
Security Deposits
($ millions)
Cash
Government treasury bills
Security deposits
As at
Dec. 31, 2017
48
$
38
86
$
Dec. 31, 2016
49
$
40
89
$
As at year end 2017, GWL and Loblaw had agreements to cash collateralize certain uncommitted credit facilities
up to amounts of $45 million (2016 – $45 million) and $102 million (2016 – $103 million), respectively. As at year
end 2017, GWL and Loblaw had $45 million (2016 – $45 million) and $3 million (2016 – $4 million) deposited
with major financial institutions, respectively, and classified as security deposits on the consolidated balance
sheets.
Note 10. Accounts Receivable
The following is an aging of the Company’s accounts receivable:
As at
($ millions)
Accounts receivable
0 - 90 days
$
1,224 $
45 $
> 90 days
> 180 days
0 - 90 days
> 90 days
> 180 days
$
1,165 $
42 $
Dec. 31, 2017
Total
1,324
55 $
Dec. 31, 2016
Total
1,284
77 $
The following are continuities of the Company’s allowances for uncollectable accounts receivable:
($ millions)
Allowance, beginning of year
Net write-offs
Allowance, end of year
2017
(75)
18
(57)
$
$
2016
(106)
31
(75)
$
$
Credit risk associated with accounts receivable is discussed in note 32.
Note 11. 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:
(note 22)
Securitized to Eagle Credit Card Trust®
Securitized to Other Independent Securitization Trusts (note 21)
Total securitized to independent securitization trusts
As at
Dec. 31, 2017
3,147
$
(47)
3,100
$
Dec. 31, 2016
2,978
$
(52)
2,926
$
$
$
900
640
1,540
$
$
650
665
1,315
98 George Weston Limited 2017 Annual Report
Loblaw, through PC Bank, participates in various securitization programs that provide a source of funds for the
operation of its credit card business. PC Bank maintains and monitors the co-ownership interest in credit card
receivables with independent securitization trusts, including Eagle and the Other Independent Securitization
Trusts, in accordance with its financing requirements.
Loblaw has arranged letters of credit on behalf of PC Bank for the benefit of the Independent Securitization
Trusts (see note 34).
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. PC Bank was in compliance with
this requirement as at year end 2017 and throughout the year.
The following is an aging of gross credit card receivables:
As at
Dec. 31, 2017
Dec. 31, 2016
($ millions)
Gross credit card receivables
Current
$ 2,951 $
169 $
Total
27 $ 3,147
Current
$ 2,791 $
156 $
Total
31 $ 2,978
1-90 days > 90 days
past due
past due
1-90 days
past due
> 90 days
past due
The following are continuities of allowances for credit card receivables:
($ millions)
Allowance, beginning of year
Provision for losses
Recoveries
Write-offs
Allowance, end of year
2017
(52)
(104)
(22)
131
(47)
$
$
2016
(54)
(120)
(19)
141
(52)
$
$
The allowances for credit card receivables recorded in credit card receivables on the consolidated balance sheets
are maintained at a level which is considered adequate to absorb credit related losses on credit card receivables.
Note 12. Inventories
The components of inventories were as follows:
($ millions)
Raw materials and supplies
Finished goods
Inventories
As at
Dec. 31, 2017
72
$
4,551
4,623
$
Dec. 31, 2016
78
$
4,481
4,559
$
As at year end 2017, inventories included a charge of $39 million (2016 – $29 million) recorded by Loblaw 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 2017 and 2016.
George Weston Limited 2017 Annual Report 99
Notes to the Consolidated Financial Statements
Note 13. Assets Held for Sale and Disposition
Loblaw classifies certain assets, primarily 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 business segment. In 2017, Loblaw
recorded a $1 million gain (2016 – $5 million gain) from the sale of these assets. Impairment charges of
$2 million were recognized on these properties during 2017 (2016 – nil).
In 2017, Loblaw sold its gas bar operations, for proceeds of approximately $540 million, to Brookfield Business
Partners L.P. (“Brookfield”). Loblaw recorded a pre-tax gain on sale of $501 million (post-tax gain of $432 million),
net of related costs, in SG&A. As a result of the transaction, Brookfield has become a strategic partner to Loblaw
and will offer Loblaw’s PC Optimum Program at the gas bars. In addition, the gas bars operate at certain
properties that are either owned by Loblaw or leased by Loblaw from Choice Properties or third-party landlords.
As a result of the transaction, Brookfield leases or sub-leases these properties from Loblaw.
Note 14. Fixed Assets
The following is a continuity of the cost and accumulated depreciation and impairment losses of fixed assets for
the year ended December 31, 2017:
Buildings
and
Building
Improvements
Land
Equipment
and
fixtures
Leasehold
improvements
1,954 $
21
(2)
8,327 $
54
(10)
(93)
7,856 $
238
(50)
(49)
1,977 $
98
(17)
(3)
Finance
leases -
land,
buildings,
equipment
and fixtures
Assets
under
construction
Total
920 $
15
755 $ 21,789
1,163
737
(79)
(145)
2
8
1
43
5
292
(1)
2,016 $
(15)
8,560 $
413
81
(37)
8,452 $
33
1
2,089 $
937 $
(781)
—
82
(59)
705 $ 22,759
(6)
$
3,121 $
5,806 $
910 $
410 $
8 $ 10,255
1
1
220
17
(8)
(9)
(25)
2
(4)
463
18
(2)
(41)
(46)
(21)
64
18
165
21
(2)
(16)
(1)
912
75
(12)
(66)
(72)
3
(25)
2 $
3,314 $
6,177 $
1,077 $
492 $
8 $ 11,070
2,014 $
5,246 $
2,275 $
1,012 $
445 $
697 $ 11,689
($ millions)
Cost, beginning of year
Additions
Disposals
Transfer to assets held for sale
Net transfer to investment properties
(note 15)
Transfer from assets under construction
Business acquisitions
Impact of foreign currency translation
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
Net transfer from investment properties
(note 15)
Impact of foreign currency translation
Accumulated depreciation and
impairment losses, end of year
Carrying amount as at:
December 31, 2017
$
$
$
$
$
100 George Weston Limited 2017 Annual Report
The following is a continuity of the cost and accumulated depreciation and impairment losses of fixed assets for
the year ended December 31, 2016:
($ millions)
Cost, beginning of year
Additions
Disposals
Net transfer to investment properties
(note 15)
Transfer from assets under construction
Business acquisitions
Impact of foreign currency translation
Cost, end of year
Accumulated depreciation and
impairment losses, beginning of year
Depreciation
Impairment losses
Reversal of impairment losses
Disposals
Net transfer to investment properties
(note 15)
Impact of foreign currency translation
Accumulated depreciation and
impairment losses, end of year
Carrying amount as at:
December 31, 2016
$
$
$
$
$
Buildings
and
Building
Improvements
Land
Equipment
and
fixtures
Leasehold
improvements
Finance
leases -
land,
buildings,
equipment
and fixtures
Assets
under
construction
Total
1,906 $
7
(1)
8,056 $
49
(28)
7,469 $
209
(215)
1,878 $
78
(29)
884 $
35
(27)
69
(77)
331
1,954 $
(4)
8,327 $
333
76
(16)
7,856 $
48
2
1
1,977 $
920 $
777 $ 20,970
1,160
782
(283)
(10)
(8)
(112)
(781)
—
79
(25)
755 $ 21,789
(5)
3 $
2,958 $
5,550 $
758 $
339 $
10 $
9,618
(3)
212
24
(10)
(22)
(39)
(2)
450
43
(15)
(210)
(12)
67
4
162
16
(26)
(2)
891
87
(28)
(260)
(39)
(14)
— $
3,121 $
5,806 $
910 $
410 $
8 $ 10,255
1,954 $
5,206 $
2,050 $
1,067 $
510 $
747 $ 11,534
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 2017, the net carrying amount of leased land
and buildings was $424 million (2016 – $468 million) and the net carrying amount of leased equipment and
fixtures was $21 million (2016 – $42 million).
Assets under Construction The cost of additions to properties under construction for 2017 was $737 million
(2016 – $782 million). Included in this amount were capitalized borrowing costs of $2 million (2016 – $4 million)
with a weighted average capitalization rate of 3.5% (2016 – 3.6%) (see note 6).
Security and Assets Pledged As at year end 2017, Loblaw had fixed assets with a carrying amount of
$187 million (2016 – $243 million) which were encumbered by mortgages of $81 million (2016 – $78 million)
(see note 22).
Fixed Asset Commitments As at year end 2017, the Company had entered into commitments of $201 million
(2016 – $167 million) for the construction, expansion and renovation of buildings and the purchase of real
property.
Impairment Losses and Reversals In 2017, Loblaw recorded $60 million (2016 – $41 million) of impairment
losses on fixed assets in respect of 21 CGUs (2016 – 24 CGUs) in its Retail segment. The recoverable amount was
based on the greater of the CGU’s fair value less costs to sell and its value in use. Approximately 29% (2016 –
21%) of impaired CGUs had carrying values which were $11 million (2016 – $14 million) greater than their fair
value less costs to sell. The remaining 71% (2016 – 79%) of impaired CGUs had carrying values which were
$48 million (2016 – $27 million) greater than their value in use.
George Weston Limited 2017 Annual Report 101
Notes to the Consolidated Financial Statements
In 2017, Loblaw recorded $12 million (2016 – $13 million) of impairment reversals on fixed assets in respect of
seven CGUs (2016 – six CGUs) in its Retail segment. Impairment reversals are recorded where the recoverable
amount of the retail location exceeds its carrying amount. Approximately 57% (2016 – 100%) of CGUs with
impairment reversals had fair value less costs to sell which were $6 million (2016 – $13 million) greater than
their carrying values. The remaining 43% (2016 – nil) of CGUs with impairment reversals had value in use which
were $5 million (2016 – nil) 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 2017 (2016 – 8.0% to 8.5%).
In 2017, Loblaw recorded $7 million of impairment losses on its fixed assets relating to the announced closures
of approximately 22 unprofitable retail locations across a range of banners and formats and $3 million related to
other restructuring plans. Additional impairment losses of $5 million (2016 – $13 million) were incurred related
to store closures, renovations and conversions of retail locations. Impairment losses are recorded where the
carrying amount of the retail location exceeds its recoverable amount.
In 2016, Loblaw’s ancillary healthcare business triggered for impairment testing and an impairment was
identified. As a result Loblaw recorded an impairment charge of $15 million in fixed assets.
Note 15. Investment Properties
The following are continuities of the cost and accumulated depreciation and impairment losses of investment
properties for the years ended December 31, 2017 and December 31, 2016:
($ millions)
Cost, beginning of year
Additions
Disposals
Net transfer (to) from fixed assets (note 14)
Net transfer from (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
Net transfer (to) from fixed assets (note 14)
Net transfer from (to) assets held for sale
Accumulated depreciation and impairment losses, end of year
($ millions)
Carrying amount
Fair value
102 George Weston Limited 2017 Annual Report
2017
324
32
(13)
(8)
3
338
106
3
2
(1)
(6)
(3)
2
103
$
$
$
$
2016
236
2
(19)
112
(7)
324
76
2
2
(9)
39
(4)
106
$
$
$
$
As at
Dec. 31, 2017
235
$
276
$
Dec. 31, 2016
218
$
261
$
During 2017, Loblaw recognized in operating income $11 million (2016 – $6 million) of rental income and
incurred direct operating costs of $10 million (2016 – $2 million) related to its investment properties. In addition,
Loblaw recognized direct operating costs of $2 million (2016 – $11 million) related to its investment properties
for which no rental income was earned.
For disclosure purposes, Loblaw calculates the fair value of investment properties. 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 buyer and a 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 2017, the pre-tax discount rates used in the valuations for investment properties ranged
from 7.50% to 9.50% (2016 – 7.75% to 9.50%) and the terminal capitalization rates ranged from 6.75% to 8.75%
(2016 – 6.75% to 8.75%).
George Weston Limited 2017 Annual Report 103
Notes to the Consolidated Financial Statements
Note 16. Intangible Assets
The following is a continuity of the cost and accumulated amortization and impairment losses of intangible
assets for the year ended December 31, 2017:
($ millions)
Cost, beginning of year
Additions
Business acquisitions
Disposal
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
Impairment losses
Write-off amortization of fully
amortized assets
Impact of foreign currency translation
Accumulated amortization and impairment
losses, end of year
Carrying amount as at:
December 31, 2017
Indefinite
life
intangible
assets
Definite life
internally
generated
intangible
assets
Definite
life
trademarks
and brand
names
$
3,475 $
10
20 $
25 $
Software
2,180 $
279
(5)
$
3,485 $
20 $
20 $
(1)
2,458 $
Other
definite
life
intangible
assets
6,125 $
8
27
(6)
(7)
6,147 $
Total
11,825
297
27
(5)
(6)
(8)
12,130
$
20 $
8 $
1,300 $
1,622 $
2,950
1
247
29
532
11
(6)
(2)
780
40
(6)
(2)
$
$
— $
20 $
9 $
1,576 $
2,157 $
3,762
3,485 $
— $
11 $
882 $
3,990 $
8,368
The following is a continuity of the cost and accumulated amortization and impairment losses of intangible
assets for the year ended December 31, 2016:
($ millions)
Cost, beginning of year
Additions
Business acquisitions
Disposal
Cost, end of year
Accumulated amortization and impairment
losses, beginning of year
Amortization
Disposal
Impairment losses
Impact of foreign currency translation
Accumulated amortization and impairment
losses, end of year
Carrying amount as at:
December 31, 2016
Indefinite
life
intangible
assets
Definite life
internally
generated
intangible
assets
Definite
life
trademarks
and brand
names
$
3,461 $
14
20 $
25 $
$
3,475 $
20 $
25 $
Other
definite
life
intangible
assets
6,044 $
10
74
(3)
6,125 $
Software
1,852 $
312
18
(2)
2,180 $
Total
11,402
336
92
(5)
11,825
$
20 $
7 $
1,070 $
1,013 $
2,110
1
229
(2)
3
539
(1)
73
(2)
769
(3)
76
(2)
$
$
— $
20 $
8 $
1,300 $
1,622 $
2,950
3,475 $
— $
17 $
880 $
4,503 $
8,875
Indefinite Life Intangible Assets Indefinite life intangible assets recorded by Loblaw are comprised of brand
names, trademarks, import purchase quotas and certain liquor licenses. The brand names and trademarks are a
104 George Weston Limited 2017 Annual Report
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, import purchase quotas and liquor licenses 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 annual impairment tests for indefinite life intangible assets and concluded 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 17).
Software Software is comprised of software purchases and development costs. There were no capitalized
borrowing costs included in 2017 (2016 – nil). Loblaw recorded impairment losses of $29 million, which included
$22 million related to the impairment of certain IT assets that support the existing loyalty programs as a result of
the PC Optimum Program (see note 19).
Other Definite Life Intangible Assets Other definite life intangible assets recorded by Loblaw primarily consist of
prescription files, the Shoppers Optimum loyalty program and customer relationships.
In 2016, an ancillary healthcare business triggered for impairment testing and an impairment was identified. As a
result, Loblaw recorded an impairment charge of $73 million relating to a customer relationship intangible asset
for an ancillary healthcare business.
George Weston Limited 2017 Annual Report 105
Notes to the Consolidated Financial Statements
Note 17. Goodwill
The following are continuities of the cost and accumulated amortization and impairment losses of goodwill:
($ millions)
Cost, beginning of year
Business acquisitions (note 5)
Impact of foreign currency translation
Cost, end of year
Accumulated amortization and impairment losses, beginning of year
Impairment loss
Accumulated amortization and impairment losses, end of year
Carrying amount as at:
December 31
The carrying amount of goodwill attributed to each CGU grouping was as follows:
($ millions)
Weston Foods
Shoppers Drug Mart
Market
Discount
T&T Supermarket Inc.
Other
Carrying amount of goodwill
2017
5,431
27
(14)
5,444
1,067
1,067
4,377
$
$
$
$
$
$
$
$
$
$
2016
5,316
120
(5)
5,431
1,062
5
1,067
4,364
As at
Dec. 31, 2017
295
$
2,952
375
459
129
167
4,377
$
Dec. 31, 2016
309
$
2,925
375
459
129
167
4,364
$
The Company completed its annual impairment tests for goodwill 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 considered to be Level 3
in the fair value hierarchy.
The weighted average cost of capital was determined to be 7.0% (2016 – 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 rate derived from the Company’s after-tax weighted average
cost of capital. As at year end 2017, the after-tax discount rate used in the recoverable amount calculations was
7.1% (2016 – 7.0%). The pre-tax discount rate was 9.7% (2016 – 9.6%).
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%
(2016 – 2.0%). The budgeted adjusted EBITDA(1) growth was based on the strategic plans approved by GWL’s and
Loblaw’s Boards.
106 George Weston Limited 2017 Annual Report
Note 18. Other Assets
The components of other assets were as follows:
($ millions)
Fair value of equity forward (note 31)
Sundry investments and other receivables
Net accrued benefit plan asset (note 27)
Other
Other assets
As at
Dec. 31, 2017
435
$
56
154
223
868
$
Dec. 31, 2016
368
$
79
200
204
851
$
Note 19. Customer Loyalty Awards Program Liability
The liability associated with Loblaw’s customer loyalty awards programs (“loyalty liability”) is included in trade
payables and other liabilities. The carrying amount of the loyalty liability was as follows:
($ millions)
Loyalty liability
Dec. 31, 2017
413
$
Dec. 31, 2016
229
$
In 2017, Loblaw announced plans to bring together the Shoppers Optimum and PC Plus loyalty programs to
create one program, PC Optimum. As a result, Loblaw recorded a charge of $189 million, related to the
revaluation of the existing Shoppers Optimum liability for outstanding points to reflect a higher anticipated
redemption rate under the new program. In addition, Loblaw recorded charges of $22 million related to the
impairment of certain IT assets that support the existing loyalty programs (see note 16). Subsequent to the year
end 2017, Loblaw launched the PC Optimum Program.
George Weston Limited 2017 Annual Report 107
Notes to the Consolidated Financial Statements
Note 20. Provisions
Provisions consist primarily of amounts recorded in respect of restructuring, self-insurance, environmental and
decommissioning liabilities, onerous lease arrangements, legal claims, the Loblaw Card Program and a MEPP
withdrawal liability.
The following are continuities of provisions for the years ended December 31, 2017 and December 31, 2016:
($ millions)
Provisions, beginning of year
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
2016
337
136
(165)
(23)
(4)
281
$
$
2017
281
379
(112)
(29)
(4)
515
$
$
As at
Dec. 31, 2017
Dec. 31, 2016
$
$
325
190
515
$
$
135
146
281
The Company’s accrued insurance liabilities were $84 million (2016 – $88 million), of which $48 million
(2016 – $49 million) was included in non-current provisions and $36 million (2016 – $39 million) in current
provisions. Included in total accrued insurance liabilities were $22 million (2016 – $27 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 2017 U.S. workers’ compensation cost and liability was 2.0% (2016 – 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.
In 2017, the U.S. workers’ compensation cost associated with the worker’s compensation liabilities was
$6 million (2016 – $6 million).
Competition Bureau Investigation On December 19, 2017, the Company and Loblaw announced actions taken
to address their role in an industry-wide price-fixing arrangement involving certain packaged bread products. The
arrangement involved the coordination of retail and wholesale prices of certain packaged bread products over a
period extending from late 2001 to March 2015. Under the arrangement, the participants regularly increased
prices on a coordinated basis. In connection with the arrangements, Loblaw has announced the Loblaw Card
Program pursuant to which Loblaw is offering a $25 Loblaw Card to eligible customers. The Loblaw Card can be
used to purchase items sold in Loblaw grocery stores across Canada. Loblaw recorded a charge of $107 million in
relation to the Loblaw Card Program in 2017 (see note 33).
Restructuring and other charges In 2017, Weston Foods recorded restructuring and other charges of $48 million
(2016 – $17 million). In 2017, the restructuring charges were primarily related to the previously announced
closure of an unprofitable facility in the U.S., which is expected to be completed in the first quarter of 2018, and
reorganization costs related to the transformation program. These charges included severance and exit costs of
$29 million, accelerated depreciation of $10 million, and impairment of a definite life intangible asset of
$9 million.
108 George Weston Limited 2017 Annual Report
In 2017, Loblaw eliminated approximately 500 corporate and store-support positions and finalized a plan that
will result in the closure of 22 unprofitable retail locations across a range of banners and formats. Loblaw expects
to record charges of approximately $135 million related to this restructuring, of which $123 million was recorded
in the fourth quarter of 2017. The charges included $109 million for severance and lease related costs, $7 million
for asset impairments and $7 million related to other costs. Loblaw expects that the store closures will be
substantially complete by the end of the first quarter of 2018.
In addition, Loblaw recorded $20 million in severance and other related charges and $3 million for asset
impairments as a result of other restructuring plans approved in the fourth quarter of 2017 and a charge of
$19 million related to an adjustment of onerous contract provisions related to previously announced
restructuring plans.
Note 21. Short Term Debt
The components of short term debt were as follows:
($ millions)
Other Independent Securitization Trusts
Series B Debentures(i)
Short term debt
(note 11)
As at
Dec. 31, 2017
640
$
618
1,258
$
Dec. 31, 2016
665
$
576
1,241
$
(i)
Series B Debentures issued by GWL are due on demand, and pay a current weighted average interest rate of 1.59% (2016 – 1.38%).
The Series A, 7.00% (see note 22) and Series B Debentures are secured by a pledge of 9.6 million Loblaw common shares.
Other Independent Securitization Trusts The outstanding short term debt balances relate to credit card
receivables securitized to the Other Independent Securitization Trusts with recourse (see note 11).
The securitization agreements between PC Bank and the Other Independent Securitization Trusts are renewed
and extended on an annual basis. The existing agreements were renewed in 2017, with their respective maturity
dates extended to 2019 and 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 2017 were $160 million (2016 – $210 million).
George Weston Limited 2017 Annual Report 109
Notes to the Consolidated Financial Statements
Note 22. Long Term Debt
The components of long term debt were as follows:
($ millions)
Loblaw Unsecured Term Loan Facility
1.13% + Bankers’ Acceptance, due 2019
1.45% + Bankers’ Acceptance, due 2019
Medium Term Notes and Debentures
George Weston Limited Notes
Series A, 7.00%, due 2031(i)
4.12%, due 2024
7.10%, due 2032
6.69%, due 2033
Loblaw Companies Limited Notes
3.75%, due 2019
5.22%, due 2020
4.86%, due 2023
6.65%, due 2027
6.45%, due 2028
6.50%, due 2029
11.40%, due 2031
Principal
Effect of coupon repurchase
6.85%, due 2032
6.54%, due 2033
8.75%, due 2033
6.05%, due 2034
6.15%, due 2035
5.90%, due 2036
6.45%, due 2039
7.00%, due 2040
5.86%, due 2043
Shoppers Drug Mart Notes
2.36%, due 2018
Choice Properties Debentures
Series A 3.55%, due 2018
Series B 4.90%, due 2023
Series C 3.50%, due 2021
Series D 4.29%, due 2024
Series E 2.30%, due 2020
Series F 4.06%, due 2025
Series G 3.20%, due 2023
Series H 5.27%, due 2046
Series 6 3.00%, due 2017
Series 7 3.00%, due 2019
Series 8 3.60%, due 2020
Series 9 3.60%, due 2021
Series 10 3.60%, due 2022
Long Term Debt Secured by Mortgage
2.47% - 5.49%, due 2018 - 2029 (note 14)
Guaranteed Investment Certificates
0.85% - 3.25%, due 2018 - 2021
Independent Securitization Trust (note 11)
2.91%, due 2018
2.23%, due 2020
2.71%, due 2022
Independent Funding Trusts
Finance Lease Obligations (note 30)
Choice Properties Credit Facilities
Transaction costs and other
Total long term debt
Less amount due within one year
Long term debt
As at
Dec. 31, 2017
Dec. 31, 2016
$
$
$
$
250
48
466
200
150
100
800
350
800
100
200
175
151
(19)
200
200
200
200
200
300
200
150
55
275
400
200
250
200
250
200
250
100
200
300
200
300
81
852
400
250
250
551
568
561
(22)
12,092
1,635
10,457
$
$
250
48
466
200
150
100
800
350
800
100
200
175
151
(33)
200
200
200
200
200
300
200
150
55
275
400
200
250
200
250
200
250
100
200
200
300
200
300
78
928
400
250
587
607
172
(24)
11,785
400
11,385
(i)
The Series A, 7.00% and Series B Debentures (see note 21) are secured by a pledge of 9.6 million Loblaw common shares.
110 George Weston Limited 2017 Annual Report
Significant long term debt transactions are described below:
Debentures and Medium Term Notes (“MTNs”) The following table summarizes the debentures and MTNs
issued in the years ended as indicated:
($ millions except where otherwise indicated)
Choice Properties senior unsecured debentures
– Series G
– Series H
Total debentures issued
Interest
Rate
Maturity
Date
3.20%
5.27%
March 7, 2023
March 7, 2046
2017
Principal
Amount
2016
Principal
Amount
$
$
250
100
350
$
—
No debentures and MTNs were issued in 2017. Subsequent to the end of 2017, Choice Properties issued two
series of senior unsecured debentures: $300 million Series I senior unsecured debentures due March 21, 2022,
which bear interest at a rate of 3.01% per annum; and $350 million Series J senior unsecured debentures due
January 10, 2025, which bear interest at a rate of 3.55% per annum.
The following table summarizes the debentures and MTNs repaid in the years ended as indicated:
($ millions except where otherwise indicated)
George Weston Limited notes
Loblaw Companies Limited notes
Shoppers Drug Mart notes
Choice Properties senior unsecured debentures
– Series 6
– Series 5
Total debentures and MTNs repaid
(i) Redeemed on January 23, 2017.
(ii) Redeemed on March 7, 2016.
Maturity
Interest
Rate
Date
3.78% October 25, 2016
7.10%
2.01%
3.00%
3.00%
June 1, 2016
May 24, 2016
April 20, 2017(i)
April 20, 2016(ii)
2017
Principal
Amount
2016
Principal
Amount
350
$
300
225
$
$
200
200
$
300
1,175
Subsequent to the end of 2017, Choice Properties issued an early redemption notice for its $400 million Series A
3.55% senior unsecured debentures, which were redeemed on February 12, 2018 with an original maturity date
of July 5, 2018.
Guaranteed Investment Certificates (“GICs”) The following table summarizes PC Bank’s GIC activity, before
commissions, for the years ended as follows:
($ millions)
Balance, beginning of year
GICs issued
GICs matured
Balance, end of year
2017
928
76
(152)
852
$
$
2016
809
239
(120)
928
$
$
George Weston Limited 2017 Annual Report 111
Notes to the Consolidated Financial Statements
Independent Securitization Trust The notes issued by Eagle are MTNs, which are collateralized by PC Bank’s
credit card receivables (see note 11). Loblaw has arranged letters of credit for the benefit of Eagle notes issued
prior to 2015 and outstanding as at year end 2017 (see note 34).
In 2017, Eagle issued $250 million of senior and subordinated term notes with a maturity date of
October 17, 2022 at a weighted average interest rate of 2.71%. In connection with this issuance, $200 million
of bond forward agreements were settled, resulting in a realized fair value gain of $6 million, in Other
Comprehensive Income, and a net effective interest rate of 2.26% on the Eagle notes issued.
Independent Funding Trusts As at year end 2017, the independent funding trusts had drawn $551 million
(2016 – $587 million) from the revolving committed credit facility that is the source of funding to the independent
funding trusts.
Committed Credit Facilities The components of the committed lines of credit available as at year end 2017 and
2016 were as follows:
As at
Dec. 31, 2017
Dec. 31, 2016
($ millions)
Maturity
Date
Available
Credit
Drawn
Loblaw’s committed credit facility
June 10, 2021
$
1,000
Choice Properties’ committed
syndicated credit facility
Choice Properties’ committed bi-lateral
July 5, 2022(i)
500
$
311
credit facility
December 21, 2018
250
Total committed credit facilities
$
1,750
$
250
561
Available
Credit
$
1,000
500
250
$
1,750
Drawn
$
$
172
172
(i) Choice Properties’ committed syndicated credit facility was extended for an additional year from July 5, 2021 to July 5, 2022.
Subsequent to the end of 2017, Choice Properties repaid and cancelled the committed bi-lateral credit facility.
These facilities contain certain financial covenants (see note 26).
Long Term Debt due Within One Year The components of long term debt due within one year were as follows:
As at
Dec. 31, 2017
400
$
275
193
400
44
73
250
1,635
$
Dec. 31, 2016
200
$
142
53
5
$
400
($ millions)
Choice Properties debenture
Shoppers Drug Mart MTN
GICs
Independent Securitization Trust
Finance lease obligations
Long term debt secured by mortgage
Choice Properties Credit Facility
Long term debt due within one year
112 George Weston Limited 2017 Annual Report
Schedule of Repayments The schedule of repayment of long term debt, based on maturity is as follows:
($ millions)
2018
2019
2020
2021
2022
Thereafter
Long Term Debt (excludes transaction costs and effect of coupon repurchases)
As at
Dec. 31, 2017
1,635
$
2,150
1,380
658
930
5,380
12,133
$
See note 31 for the fair value of long term debt.
Reconciliation of Long Term Debt The following table reconciles the changes in cash flows from financing
activities for long term debt in the year ended as indicated:
($ millions)
Total long term debt, beginning of period
Long term debt issuances(i)
Long term debt repayments(ii)
Total cash flow from long term debt financing activities
Finance lease additions
Other non-cash changes
Total non-cash long term debt activities
Total long term debt, end of period
2017
11,785
686
(450)
236
16
55
71
12,092
$
$
(i)
(ii)
Includes net issuances from Choice Properties’ credit facilities and the Independent Funding Trust, which are revolving debt
instruments.
Includes repayment on finance lease obligations of $94 million.
Note 23. Other Liabilities
The components of other liabilities were as follows:
($ millions)
Net defined benefit plan obligation (note 27)
Other long term employee benefit obligation
Deferred lease obligation
Fair value of acquired leases
Share-based compensation liability (note 28)
Other
Other liabilities
As at
Dec. 31, 2017
380
$
115
140
65
4
58
762
$
Dec. 31, 2016
381
$
116
119
77
4
92
789
$
George Weston Limited 2017 Annual Report 113
Notes to the Consolidated Financial Statements
Note 24. 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, 2017
221
$
228
196
197
196
1,038
$
Dec. 31, 2016
195
$
228
196
197
196
1,012
$
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, 2017 and December 31, 2016:
($ millions except where otherwise indicated)
Issued and outstanding, beginning of year
Issued for settlement of stock
options (note 28)
Purchased and cancelled
Issued and outstanding, end of year
Shares held in trusts, beginning of year
Purchased for future settlement
of RSUs and PSUs
Released for settlement of RSUs
and PSUs (note 28)
Shares held in trusts, end of year
Issued and outstanding, net of shares held
in trusts, end of year
Weighted average outstanding, net of shares
held in trusts
2016
Common
Share
Capital
191
4
195
2017
Common
Share
Capital
195
26
221
Number of
Common
Shares
127,898,582
293,976
(286,977)
127,905,581
(266,999)
$
$
(70,198)
108,394
(228,803)
Number of
Common
Shares
127,911,661
54,921
(68,000)
127,898,582
(272,031)
$
$
(102,006)
107,038
(266,999)
127,676,778 $
221
127,631,583 $
195
127,692,789
127,668,839
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.
114 George Weston Limited 2017 Annual Report
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.
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 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 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 finance future growth. In the second quarter of 2017 and 2016, the Board
raised the quarterly common share dividend by $0.015 to $0.455 and $0.44 per share, respectively. The Board
declared dividends as follows:
($)
Dividends declared per share(i):
Common share
Preferred share:
Series I
Series III
Series IV
Series V
2017
2016
$
$
$
$
$
1.805
1.45
1.30
1.30
1.1875
$
$
$
$
$
1.745
1.45
1.30
1.30
1.1875
(i) Dividends declared on common shares and Preferred Shares, Series III, Series IV and Series V were payable on January 1, 2018 and
subsequently paid on January 2, 2018. Dividends declared on Preferred Shares, Series I were paid on December 15, 2017.
George Weston Limited 2017 Annual Report 115
Notes to the Consolidated Financial Statements
The following table summarizes the Company’s cash dividends declared subsequent to year end 2017:
($)
Dividends declared per share(i) – Common share
– Preferred share:
Series I
Series III
Series IV
Series V
$
0.455
0.3625
$
0.3250
$
$
0.3250
$ 0.296875
(i) Dividends declared on common shares and Preferred Shares, Series III, Series IV and Series V are payable on April 1, 2018.
Dividends declared on Preferred Shares, Series I are payable on March 15, 2018.
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 future settlement of RSUs and PSUs (number of shares)
Purchased and cancelled (number of shares)
Cash consideration paid
Purchased and held in trusts
Purchased and cancelled
Premium charged to retained earnings
2017
70,198
286,977
2016
102,006
68,000
$
$
$
(7)
(31)
38
$
$
$
(11)
(8)
19
There was a nominal reduction in share capital in 2017 and 2016, as a result of the Company’s activity under its
NCIB program.
In the second quarter of 2017, GWL renewed its NCIB program to purchase on the Toronto Stock Exchange
(“TSX”) or through alternative trading systems up to 6,395,185 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.
116 George Weston Limited 2017 Annual Report
Note 25. Loblaw Capital Transactions
Loblaw Preferred Shares As at year end 2017, the Second Preferred Shares, Series B in the amount of
$221 million net of $4 million of after-tax issuance costs, and related cash dividends, were presented as a
component of non-controlling interests in the Company’s consolidated balance sheet. In 2017, Loblaw
declared dividends of $12 million (2016 – $12 million) related to the Second Preferred Shares, Series B.
Loblaw Common Shares The following table summarizes Loblaw’s common share activity under its share-based
compensation arrangements and NCIB program, and includes the impact on the Company’s consolidated
financial statements for the years ended as follows:
($ millions except where otherwise indicated)
Issued (number of shares)
Purchased and held in trusts (number of shares)
Purchased and cancelled(i)
(number of shares)
Cash consideration received (paid)
Share-based compensation
Purchased and held in trusts
Purchased and cancelled
Increase (decrease) in contributed surplus
Share-based compensation
Purchased and held in trusts
Purchased and cancelled
2017
2,030,292
(686,000)
(15,555,539)
(14,211,247)
2016
1,919,776
(1,250,000)
(10,287,300)
(9,617,524)
$
$
$
$
41
(48)
(1,091)
(1,098)
14
(12)
(277)
(275)
$
$
$
$
42
(90)
(708)
(756)
10
(23)
(178)
(191)
(i)
Includes 22,012 shares held in escrow that were transferred and cancelled in a private transaction and are excluded from Loblaw’s
Normal Course Issuer Bid.
Note 26. 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;
• 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;
• utilizing short term funding sources to manage its working capital requirements and long term funding
•
sources to manage the long term capital investments of the business; and
targeting an appropriate leverage and capital structure for the Company and each of its reportable operating
segments.
George Weston Limited 2017 Annual Report 117
Notes to the Consolidated Financial Statements
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
Equity attributable to shareholders of the Company
Total capital under management
Dec. 31, 2017
110
$
1,258
1,635
10,457
41
(435)
13,066
7,894
20,960
$
$
Dec. 31, 2016
115
$
1,241
400
11,385
31
(368)
12,804
7,764
20,568
$
$
Short Form Base Shelf Prospectus In 2017, Loblaw filed a Short Form Base Shelf Prospectus, which allows for the
potential issuance of up to $2 billion of unsecured debentures and/or preferred shares subject to the availability
of funding in the capital markets.
In 2017, Eagle filed a Short Form Base Shelf Prospectus, which allows for the potential issuance of up to
$1 billion of notes over a 25-month period.
Subsequent to the end of 2017, Choice Properties filed a Short Form Base Shelf Prospectus, which allows for the
potential issuance of up to $2 billion of Units and debt securities, or any combination thereof, over a 25-month
period. Under this Prospectus, Choice Properties issued $650 million of senior unsecured debentures (note 22).
Subsequent to the end of 2017, GWL filed a Base Shelf Prospectus allowing for the issuance of up to $1 billion of
senior and subordinated debt securities, and preferred shares, or any combination thereof over a 25-month
period.
Covenants and Regulatory Requirements Loblaw is subject to certain key financial and non-financial covenants
under its existing credit facility, unsecured term loan facilities, 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. As at year end 2017 and
throughout the year, 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. As at year end 2017 and throughout the year, 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
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 4.5%, a
Tier 1 capital ratio of 6.0% and a total capital ratio of 8.0%. In addition to the regulatory capital ratios
requirement, PC Bank is subject to the Basel III Leverage ratio. PC Bank is also subject to the OSFI’s Guideline on
118 George Weston Limited 2017 Annual Report
Liquidity Adequacy Requirements (“LARs”). The LARs guideline establishes standards based on the Basel III
framework, including a Liquidity Coverage Ratio (“LCR”). As at year end 2017 and throughout the year, PC Bank
has met all applicable regulatory requirements.
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 2017.
Note 27. 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 GWL’s and Loblaw’s Boards in fulfilling their general oversight
responsibilities for the plans. The Committees assist the Boards with oversight of management’s 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 2018 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.
George Weston Limited 2017 Annual Report 119
Notes to the Consolidated Financial Statements
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:
As at
Dec. 31, 2017
Other
Defined
Benefit
Plans
$
$
$
$
(158)
(158)
(158)
(158)
Defined
Benefit
Pension
Plans
(1,870)
(197)
(2,067)
2,023
(44)
(24)
(68)
154
(222)
$
(158)
Dec. 31, 2016
Other
Defined
Benefit
Plans
$
$
$
$
(176)
(176)
(176)
(176)
Defined
Benefit
Pension
Plans
(1,892)
(185)
(2,077)
2,099
22
(27)
(5)
200
(205)
$
(176)
$
$
$
$
$
$
($ 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
Assets not recognized due to asset ceiling
Total net defined benefit plan obligations
Recorded on the consolidated balance sheets
as follows:
Other assets (note 18)
Other liabilities (note 23)
$
$
$
$
$
$
120 George Weston Limited 2017 Annual Report
The following are the continuities of the fair value of plan assets and the present value of the defined benefit
plan obligations:
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2017
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$ 2,099
57
4
(79)
82
$ 2,099
57
4
(79)
82
$ 2,485
35
4
(108)
97
2016
Total
$ 2,485
35
4
(108)
97
149
(285)
(4)
$ 2,023 $
149
(285)
(4)
— $ 2,023
8
(414)
(8)
$ 2,099 $
8
(414)
(8)
— $ 2,099
($ millions)
Changes in the fair value of plan assets
Fair value, beginning of year
Employer contributions
Employee contributions
Benefits paid
Interest income
Actuarial gains in other comprehensive
income
Settlements(i)
Other(ii)
Fair value, end of year
Changes in the present value of the
defined benefit plan obligations
Balance, beginning of year
$ 2,077 $
Current service cost
Interest cost
Benefits paid
Employee contributions
Actuarial losses (gains) in other
comprehensive income
Settlements(i)
Other(ii)
Balance, end of year
59
84
(89)
4
203
(271)
$ 2,067 $
176 $ 2,253
65
90
(96)
4
6
6
(7)
(23)
180
(271)
—
158 $ 2,225
$ 2,465 $
63
99
(119)
4
(44)
(388)
(3)
$ 2,077 $
166 $ 2,631
68
106
(126)
4
5
7
(7)
5
(39)
(388)
(3)
176 $ 2,253
(i) Relates to annuity purchases and pension buy-outs completed.
(ii)
Includes foreign exchange impact on U.S. defined benefit pension plans.
In 2017, the Company completed several annuity purchases with respect to former employees. In 2016, the
Company also completed several annuity purchases and pension buy-outs with respect to former employees.
These activities are designed to reduce the Company’s defined benefit pension plan obligations and decrease
future risks and volatility associated with these obligations. The Company paid $285 million (2016 – $414 million)
from the impacted plans’ assets to settle $271 million (2016 – $388 million) of pension obligations and recorded
settlement charges of $14 million (2016 – $26 million) in SG&A. The settlement charges resulted from the
difference between the amount paid for the annuity purchases and pension buy-outs and the value of the
Company’s defined benefit plan obligations related to these annuity purchases and buy-outs at the time of the
settlement.
For the year ended 2017, the actual return on plan assets was $231 million (2016 – $105 million).
The net defined benefit obligation can be allocated to the plans’ participants as follows:
• Active plan participants – 55% (2016 – 47%)
• Deferred plan participants – 10% (2016 – 10%)
• Retirees – 35% (2016 – 43%)
George Weston Limited 2017 Annual Report 121
Notes to the Consolidated Financial Statements
During 2018, the Company expects to contribute approximately $58 million (2017 – contributed $57 million) to
its registered defined benefit pension plans. The actual amount paid may vary from the estimate based on
actuarial valuations being completed, investment performance, volatility in discount rates, regulatory
requirements and other factors.
The net cost recognized in net earnings before income taxes for the Company’s defined benefit pension plans
and other defined benefit plans was as follows:
($ millions)
Current service cost
Interest cost on net defined benefit
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
59 $
6 $
plan obligations
Settlement charges(i)
Other
Net post-employment defined benefit costs
2
14
4
79 $
6
12 $
$
2017
Total
65
8
14
4
91
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
63 $
5 $
2
26
5
96 $
7
12 $
$
2016
Total
68
9
26
5
108
(i) Relates to annuity purchases and pension buy-outs.
The actuarial losses (gains) recognized in other comprehensive income for defined benefit plans were as follows:
($ millions)
Return on plan assets excluding amounts
included in interest income
Experience adjustments
Actuarial gains from change in
demographic assumptions
Actuarial losses (gains) from change in
financial assumptions
Change in liability arising from asset ceiling
Total net actuarial losses (gains) recognized
in other comprehensive income
before income taxes
Income tax (recoveries) expenses on
actuarial losses (gains) (note 7)
Actuarial losses (gains) net of income tax
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2017
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
(149)
29 $
(28)
$
(149)
1
$
174
(3)
5
—
179
(3)
$
(8)
(10)
(1)
(33) $
9
5
2016
Total
(8)
(10)
(1)
(28)
9
$
51 $
(23) $
28
$
(43) $
5 $
(38)
(14)
6
(8)
11
(1)
10
(recoveries) expenses
$
37 $
(17) $
20
$
(32) $
4 $
(28)
122 George Weston Limited 2017 Annual Report
The cumulative actuarial (gains) losses 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
Other
Defined
Benefit
Plans
$
$
14 $
(52) $
51
65 $
(23)
(75) $
2017
Total
(38)
28
(10)
Defined
Benefit
Pension
Plans
$
$
57 $
(43)
14 $
Other
Defined
Benefit
Plans
(57) $
5
(52) $
2016
Total
—
(38)
(38)
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 – pooled funds
– pooled funds
Foreign
Total equity securities
Debt securities
Fixed income securities – government
– corporate
Fixed income pooled funds(i)
– government
– corporate
Total debt securities
Other investments
Cash and cash equivalents
Total
As at
Dec. 31, 2017
Dec. 31, 2016
$
$
$
$
$
$
$
83
749
832
466
140
433
11
1,050
117
24
2,023
4% $
37%
41% $
23% $
7%
21%
1%
52% $
6% $
1% $
100% $
92
804
896
475
145
439
23
1,082
109
12
2,099
4%
38%
42%
23%
7%
21%
1%
52%
5%
1%
100%
(i) Both government and corporate securities may be included within the same fixed income pooled fund.
As at year end 2017 and 2016, 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 as prices or indirectly, either derived from prices or as per
agreements for contractual returns.
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.
George Weston Limited 2017 Annual Report 123
Notes to the Consolidated Financial Statements
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
2017
Other
Defined
Benefit
Plans
3.50%
3.50%
n/a
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
3.00%
Defined
Benefit
Pension
Plans
4.00%
3.00%
CPM-RPP2014Pub/Priv
2016
Other
Defined
Benefit
Plans
3.75%
n/a
CPM-RPP2014Pub/Priv
Generational
Generational
Generational
Generational
4.00%
3.75%
4.00%
4.00%
n/a
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
3.00%
n/a
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
3.50%
Generational
Generational
Generational
Generational
Defined Benefit Plan
Obligations
Discount rate
Rate of compensation
increase
Mortality table(i)
Net Defined Benefit
Plan Cost
Discount rate
Rate of compensation
increase
Mortality table(i)
n/a – not applicable
(i) Public or private sector mortality table is used depending on the prominent demographics of each plan.
The weighted average duration of the defined benefit obligations as at year end 2017 is 17.4 years
(2016 – 17.4 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 2017 was estimated at 4.50% and is expected to remain at 4.50% by year end 2018
and thereafter.
124 George Weston Limited 2017 Annual Report
Sensitivity of Key Actuarial Assumptions The following table outlines the key assumptions for 2017 (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.
Defined Benefit Pension Plans
Other Defined Benefit Plans
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
Net
Plan
Obligations
3.50%
(332)
398
$
$
$
$
Defined
Benefit
Plan Cost(i)
4.00%
(30)
29
Defined
Benefit
Plan
Obligations
3.50%
(20)
25
4.50%
17
(14)
$
$
$
$
Net
Defined
Benefit
Plan Cost(i)
3.75%
4.50%
2
(1)
$
$
n/a
n/a
n/a
n/a
n/a – not applicable
(i) Discount rate and expected growth rate of health care costs sensitivity is for current service and interest costs only.
(ii) Multi-Employer Pension Plans
During 2017, the Company recognized an expense of $67 million (2016 – $66 million) in operating income, which
represents the contributions made in connection with MEPPs. During 2017, the Company expects to continue to
make contributions into these MEPPs.
Loblaw, together with its franchises, is the largest participating employer in the Canadian Commercial Workers
Industry Pension Plan (“CCWIPP”), with approximately 54,000 (2016 – 53,000) employees as members. Included
in the 2017 expense described above are contributions of $65 million (2016 – $65 million) to CCWIPP.
(iii) Post-Employment and Other Long Term Employee Benefit Costs
The net cost recognized in net earnings before income taxes for the Company’s post-employment and other long
term employee benefit plans was as follows:
($ millions)
Net post-employment defined benefit cost(i)
Defined contribution costs(ii)
Multi-employer pension plan costs(iii)
Total net post-employment benefit costs
Other long term employee benefit costs(iv)
Net post-employment and other long term employee benefit costs
Recorded on the consolidated statements of earnings as follows:
Operating income (note 29)
Net interest expense and other financing charges (note 6)
Net post-employment and other long term employee benefits costs
2017
91
32
67
190
29
219
208
11
219
$
$
$
$
$
2016
108
30
66
204
25
229
217
12
229
$
$
$
$
$
Includes settlement charges of $14 million (2016 – $26 million) related to annuity purchases and pension buy-outs.
(i)
(ii) Amounts represent the Company’s contributions made in connection with defined contribution plans.
(iii) Amounts represent the Company’s contributions made in connection with MEPPs.
(iv) Other long term employee benefit costs include $3 million (2016 – $3 million) of net interest expense and other financing charges.
George Weston Limited 2017 Annual Report 125
Notes to the Consolidated Financial Statements
Note 28. 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-based compensation plans. The Company’s costs recognized in
SG&A related to its share-based compensation arrangements in 2017 were $72 million (2016 – $77 million).
The following is the carrying amount of the Company’s share-based compensation arrangements:
($ millions)
Trade payables and other liabilities
Other liabilities (note 23)
Contributed surplus
As at
Dec. 31, 2017
11
$
4
$
132
$
Dec. 31, 2016
10
$
4
$
133
$
Details related to the share-based compensation plans of GWL and Loblaw are as follows:
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
Outstanding options, end of year
Options exercisable, end of year
2017
Weighted
Average
Exercise
Price/Share
82.65
112.54
74.62
92.87
87.41
76.81
$
$
$
$
$
$
Options
(number
of shares)
1,662,855
166,058
(293,976)
(7,812)
1,527,125
851,666
2016
Weighted
Average
Exercise
Price/Share
78.42
112.06
71.17
98.97
82.65
73.69
$
$
$
$
$
$
Options
(number
of shares)
1,532,828
218,263
(54,921)
(33,315)
1,662,855
871,302
The following table summarizes information about GWL’s outstanding stock options:
Outstanding Options
2017
Exercisable Options
Number of
Options
Outstanding
572,252
580,877
373,996
1,527,125
Weighted
Average
Remaining
Contractual
Life (years)
2
4
6
Weighted
Average
Exercise
Price/Share
67.92
90.63
112.24
87.41
$
$
$
$
Number of
Exercisable
Options
520,429
289,888
41,349
851,666
Weighted
Average
Exercise
Price/Share
67.34
88.81
111.93
76.81
$
$
$
$
Range of Exercise Prices ($)
$59.74 - $77.83
$77.84 - $101.88
$101.89 - $123.73
During 2017, GWL issued common shares on the exercise of stock options with a weighted average market share
price of $109.91 (2016 – $114.14) per common share and received $22 million (2016 – $4 million) of cash
consideration.
126 George Weston Limited 2017 Annual Report
During 2017, GWL granted stock options with a weighted average exercise price of $112.54 (2016 – $112.06) per
common share and a fair value of $2 million (2016 – $3 million). The assumptions used to measure the grant
date fair value of the GWL options granted during the years ended 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
2017
1.6%
15.3% - 17.1%
1.0% - 1.9%
4.6 - 6.6 years
2016
1.5%
16.5% - 18.1%
0.6% - 1.2%
4.7 - 6.7 years
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture
rate applied as at year end 2017 was 0.7% (2016 – 1.3%).
The following is a summary of Loblaw’s stock option plan activity:
Outstanding options, beginning of year
Granted
Exercised
Forfeited/cancelled
Outstanding options, end of year
Options exercisable, end of year
2017
Weighted
Average
Exercise
Price/Share
48.93
70.02
39.98
64.74
53.77
43.57
$
$
$
$
$
$
Options
(number
of shares)
7,322,358
1,584,407
(1,019,610)
(399,381)
7,487,774
3,847,491
2016
Weighted
Average
Exercise
Price/Share
43.77
68.97
37.16
52.77
48.93
40.33
$
$
$
$
$
$
Options
(number
of shares)
7,411,405
1,285,649
(1,131,944)
(242,752)
7,322,358
3,384,188
The following table summarizes information about Loblaw’s outstanding stock options:
Outstanding Options
2017
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (years)
1
2
5
Weighted
Average
Exercise
Price/Share
34.97
43.03
67.58
53.77
$
$
$
$
Number of
Exercisable
Options
1,527,978
1,617,683
701,830
3,847,491
Weighted
Average
Exercise
Price/Share
34.97
42.30
65.24
43.57
$
$
$
$
Number of
Options
Outstanding
1,527,978
2,187,451
3,772,345
7,487,774
Range of Exercise Prices ($)
$32.47 - $38.62
$38.63 - $51.85
$51.86 - $77.81
During 2017, Loblaw issued common shares on the exercise of stock options with a weighted average
market share price of $70.98 (2016 – $70.19) per common share and received cash consideration of $41 million
(2016 – $42 million).
George Weston Limited 2017 Annual Report 127
Notes to the Consolidated Financial Statements
During 2017, Loblaw granted stock options with a weighted average exercise price of $70.02 (2016 – $68.97) per
common share and a fair value of $15 million (2016 – $13 million). The assumptions used to measure the grant
date fair value of the Loblaw options granted during the years ended as indicated 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
2017
1.5%
16.0% - 18.2%
0.9% - 1.7%
3.8 - 6.3 years
2016
1.5%
17.7% - 19.0%
0.6% - 1.1%
3.8 - 6.3 years
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture
rate applied as at year end 2017 was 10.0% (2016 – 10.0%).
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
Reinvested
Settled
Forfeited
Outstanding RSUs, end of year
GWL
Loblaw
2017
213,084
58,325
656
(74,875)
(13,230)
183,960
2016
202,276
69,890
(52,992)
(6,090)
213,084
2017
858,106
337,846
4,418
(323,894)
(51,771)
824,705
2016
887,792
283,962
(295,403)
(18,245)
858,106
The fair value of GWL’s and Loblaw’s RSUs granted during 2017 was $6 million (2016 – $8 million) and $24 million
(2016 – $19 million), respectively.
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
Reinvested
Settled
Forfeited
Outstanding PSUs, end of year
GWL
Loblaw
2017
127,866
24,924
288
(40,820)
(11,995)
100,263
2016
135,025
50,654
(54,046)
(3,767)
127,866
2017
965,863
404,150
3,152
(687,007)
(54,630)
631,528
2016
1,100,356
373,844
(492,929)
(15,408)
965,863
The fair value of GWL’s and Loblaw’s PSUs granted during 2017 was $3 million (2016 – $4 million) and $16 million
(2016 – $14 million), respectively.
Settlement of Awards from Shares Held in Trusts The following table summarizes GWL’s settlement of RSUs and
PSUs from shares held in trusts for the years ended as indicated:
(Number of awards)
Settled
Released from trusts (note 24)
2017
115,695
108,394
2016
107,038
107,038
128 George Weston Limited 2017 Annual Report
During 2017, the settlement of awards from shares held in trusts resulted in an increase of $9 million
(2016 – $7 million) in retained earnings. There were nominal increases in share capital in 2017 and 2016
related to these settlements.
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
2017
191,232
16,373
3,043
(33,960)
176,688
2016
190,741
18,168
2,864
(20,541)
191,232
2017
188,202
29,289
3,181
220,672
2016
183,722
27,784
2,773
(26,077)
188,202
The fair value of GWL’s and Loblaw’s DSUs granted during 2017 was $2 million (2016 – $2 million) and $2 million
(2016 – $2 million), respectively.
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
2017
45,199
1,955
716
(3,023)
44,847
2016
35,312
9,193
694
45,199
2017
35,559
16,558
686
(5,509)
47,294
2016
24,023
15,383
434
(4,281)
35,559
The fair value of GWL’s and Loblaw’s EDSUs granted during 2017 was nominal (2016 – $1 million) and $1 million
(2016 – $1 million), respectively.
Note 29. Employee Costs
Included in operating income were the following employee costs:
($ millions)
Wages, salaries and other short term employee benefits
Post-employment benefits (note 27)
Other long term employee benefits (note 27)
Share-based compensation (note 28)
Capitalized to fixed assets
Employee costs
2017
5,962
182
26
68
(46)
6,192
$
$
2016
5,702
195
22
72
(42)
5,949
$
$
George Weston Limited 2017 Annual Report 129
Notes to the Consolidated Financial Statements
Note 30. Leases
The Company leases certain of Loblaw’s retail stores, Weston Foods’ 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
$
$
2018
2019
Payments due by year
2021
2020
2022 Thereafter
Dec. 31, 2017
Dec. 31, 2016
As at
699 $
656 $
583 $
509 $
429 $
1,866
(56)
(46)
(34)
(31)
(29)
(104)
643 $
610 $
549 $
478 $
400 $
1,762
$
$
4,742
(300)
4,442
$
$
5,406
(274)
5,132
In 2017, the Company recorded operating lease expenses of $704 million (2016 – $699 million) and sub-lease
income of $55 million (2016 – $51 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
(2016 – $2 million) and $3 million (2016 – $4 million), respectively, and were also recognized in operating
income.
Operating Leases – As Lessor Future minimum lease payments to be received by Loblaw relating to properties
that are leased to third parties are as follows:
($ millions)
Net operating
lease income
Payments to be received by year
As at
2018
2019
2020
2021
2022 Thereafter
Dec. 31, 2017
Dec. 31, 2016
$
125 $
103 $
89 $
75 $
69 $
219
$
680
$
726
130 George Weston Limited 2017 Annual Report
As at year end 2017, Loblaw leased certain owned land and buildings with a cost of $2,974 million (2016 –
$2,721 million) and related accumulated depreciation of $796 million (2016 – $759 million). For the year ended
2017, rental income was $131 million (2016 – $138 million) and contingent rent was $2 million (2016 –
$4 million), both of which were recognized in operating income.
Finance Leases – As Lessee Future minimum lease payments relating to Loblaw’s finance leases are as follows:
($ millions)
Finance lease
payments
Less future
finance charges
Present value
of minimum
lease payments
2018
2019
Payments due by year
2021
2020
2022 Thereafter
Dec. 31, 2017
Dec. 31, 2016
As at
$
71 $
64 $
59 $
57 $
57 $
606
$
914
$
989
(27)
(24)
(23)
(25)
(24)
(223)
(346)
(382)
$
44 $
40 $
36 $
32 $
33 $
383
$
568
$
607
In 2017, contingent rent recognized by Loblaw as an expense in respect of finance leases was $1 million
(2016 – $1 million).
Certain assets classified as finance leases have been sub-leased by Loblaw to third parties. Future sub-lease
income relating to these sub-lease agreements are as follows:
($ millions)
2018
2019
2020
2021
Sub-lease income
$
14 $
13 $
11 $
7 $
2022 Thereafter
8
6 $
Dec. 31, 2017
59
$
Dec. 31, 2016
77
$
Payments to be received by year
As at
In 2017, the sub-lease income earned under finance leases was $15 million (2016 – $15 million).
George Weston Limited 2017 Annual Report 131
Notes to the Consolidated Financial Statements
Note 31. Financial Instruments
The following table presents the fair values and fair value hierarchy of the Company’s financial instruments and
excludes financial instruments measured at amortized cost that are short term in nature. The carrying values of
the Company’s financial instruments approximate their fair values except for long term debt.
($ millions)
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
As at
Dec. 31, 2017
Dec. 31, 2016
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
Long term debt
Trust Unit liability
Certain other liabilities
Derivatives included in trade payables and
other liabilities
$
892
297
86
$ 1,142
816
20
(2)
3
634
$
166
23
24
(7)
2
18
435
13,103
11
$ 2,034
1,113
86
166
67
(9)
5
435
13,103
634
18
11
$
892
341
89
$
668
670
23
(1)
7
21
7
11
368
12,856
635
$ 1,560
1,011
89
233
86
6
18
368
12,856
635
22
2
$
233
42
22
2
There were no transfers between the levels of the fair value hierarchy during 2017 and 2016.
During 2017, a loss of $6 million (2016 – gain of $5 million) was recognized in operating income on financial
instruments designated as fair value through profit or loss. In addition, a net loss of $3 million (2016 –
$124 million) was recognized in earnings before income taxes on financial instruments required to be classified
as fair value through profit or loss.
Cash and Cash Equivalents, Short Term Investments and Security Deposits As at year end 2017, the Company
had cash and cash equivalents, short term investments and security deposits of $3,233 million (2016 –
$2,660 million), including U.S. dollars of $573 million (2016 – $545 million) that was held primarily by Dunedin
Holdings GmbH (“Dunedin”), a subsidiary of GWL, and certain of its affiliates (see note 9).
In 2017, a loss of $64 million (2016 – $20 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, in 2017, a loss of $34 million (2016 – $2 million) was recorded in SG&A 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.
Level 3 Financial Instruments
Franchise Loans Receivable and Franchise Investments in Other Assets As at year end 2017, the value of Loblaw
franchise loans receivable of $166 million (2016 – $233 million) was recorded on the consolidated balance
sheets. In 2017, Loblaw recorded a gain of $8 million (2016 – loss of $1 million) in operating income related to
these loans receivable.
As at year end 2017, the value of Loblaw franchise investments was $20 million (2016 – $39 million) and was
recorded in other assets. During 2017, Loblaw recorded a gain of $2 million (2016 – $4 million) in operating
income related to these investments.
132 George Weston Limited 2017 Annual Report
Embedded Derivatives The Level 3 financial instruments classified as fair value through profit or loss consist of
Loblaw 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 one of the inputs would result in a significantly higher
(lower) fair value measurement.
In 2017, a fair value gain of $4 million (2016 – $5 million) was recognized in operating income related to these
derivatives. In addition, as at year end 2017, a corresponding asset of $2 million was included in prepaid
expenses and other assets (2016 – $2 million liability included in trade payable and other liabilities). A 1%
increase in foreign currency exchange rates would result in an additional gain of $1 million in fair value and a 1%
decrease in foreign currency exchange rates would result in an additional loss of $2 million in fair value.
Equity Derivative Contracts As at year end 2017, Weston Holdings Limited (“WHL”), a subsidiary of GWL, held an
outstanding 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 2017, the forward price had increased to $113.45
(2016 – $109.26) per Loblaw common share under the terms of the agreement. In 2017, a fair value gain of
$25 million (2016 – loss of $53 million) was recorded in net interest expense and other financing charges related
to this agreement (see note 6).
Trust Unit Liability In 2017, a fair value gain of $7 million (2016 – loss of $79 million) was recognized in net
interest expense and other financing charges (see note 6).
Other Derivatives The Company uses bond forwards and interest rate swaps, to manage its anticipated
exposure to fluctuations in interest rates on future debt issuances. The Company also uses futures, options and
forward contracts to manage its anticipated exposure to fluctuations in commodity prices and exchange rates in
its underlying operations. The following is a summary of the fair values recognized in the consolidated balance
sheet and the net realized and unrealized gains (losses) before income taxes related to the Company’s other
derivatives:
($ millions)
Derivatives designated as cash flow hedges(i)
Foreign Exchange Forwards
Bond Forwards(ii)
Total derivatives designated as cash flow hedges
Derivatives not designated in a formal hedging relationship
Foreign Exchange Futures and Forwards
Other Non-Financial Derivatives
Total derivatives not designated in a formal hedging relationship
Total derivatives
Net asset
(liability)
fair value
Gain/(loss)
recorded in
OCI
Dec. 31, 2017
Gain/(loss)
recorded in
operating
income
$
(1) $
(1)
(17)
1
(16)
(17)
(3) $
6
3
—
3
1
1
(36)
(3)
(39)
(38)
(i)
(ii)
Includes interest rate swap agreement with a notional value of $100 million. In 2017, a nominal unrealized fair value loss was
recorded in OCI relating to these agreements.
In 2017, as a result of the issuance of Eagle notes, bond forward agreements with a notional value of $200 million were settled
(note 22).
George Weston Limited 2017 Annual Report 133
Notes to the Consolidated Financial Statements
($ millions)
Derivatives designated as cash flow hedges(i)
Foreign Exchange Forwards
Total derivatives designated as cash flow hedges
Derivatives not designated in a formal hedging relationship
Foreign Exchange Futures and Forwards
Bond Forwards(ii)
Other Non-Financial Derivatives
Total derivatives not designated in a formal hedging relationship
Total derivatives
Net asset
(liability)
fair value
Gain/(loss)
recorded in
OCI
Dec. 31, 2016
Gain/(loss)
recorded in
operating
income
$
2
2
16
6
22
24
$
(1) $
(1)
—
(1)
2
2
(9)
3
11
5
7
(i)
Includes bond forward agreements with a notional value of $95 million, which were settled within 2016, and interest rate swap
agreements with a notional value of $200 million. In 2016, a nominal unrealized fair value gain was recorded in OCI relating to these
agreements.
(ii) Represents a realized fair value gain of $3 million related to Choice Properties bond forward agreements settled in 2016 and
recorded in net interest expense and other financing charges (see note 6).
Note 32. Financial Risk Management
As a result of holding and issuing financial instruments, the Company is exposed to certain risks. The following is
a description of those risks and how the exposures are managed:
Liquidity Risk Liquidity risk is the risk that the Company is unable to generate or obtain sufficient cash or its
equivalents in a cost effective manner to fund its obligations as they come due. The Company is exposed to
liquidity risk through, among other areas, PC Bank and its credit card business, which requires a reliable source
of funding for its credit card business. PC Bank relies on its securitization programs and the acceptance of GIC
deposits to fund the receivables of its credit cards. The Company would experience liquidity risk if it fails to
maintain appropriate levels of cash and short term investments, is unable to access sources of funding or fails to
appropriately diversify sources of funding. If any of these events were to occur, they could adversely affect the
financial performance of the Company.
Liquidity risk is mitigated by maintaining appropriate levels of cash and cash equivalents and short term
investments, actively monitoring market conditions, and by diversifying sources of funding, including the
Company’s committed credit facilities, and maintaining a well diversified maturity profile of debt and capital
obligations.
134 George Weston Limited 2017 Annual Report
Maturity Analysis The following are the undiscounted contractual maturities of significant financial liabilities as
at December 31, 2017:
($ millions)
Long term debt including
interest payments(i)
2018
2019
2020
2021
2022
Thereafter
Total(ii)
$
2,087 $
2,533 $
1,712 $
982 $
1,239 $
7,822 $ 16,375
Foreign exchange forward contracts
Short term debt (note 21)
Bank indebtedness
Certain other liabilities
511
1,258
110
3
2
3
3
511
1,258
110
11
$
3,969 $
2,535 $
1,715 $
985 $
1,239 $
7,822 $ 18,265
(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 2017.
(ii) The Trust Unit liability has been excluded as this liability does not have a contractual maturity date. The Company also excluded trade
payables and other liabilities which are due within the next 12 months.
Foreign Currency Exchange Rate Risk The Company’s consolidated financial statements are expressed in
Canadian dollars, however a portion of the Company’s (excluding Loblaw’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 2017, an appreciation of
the Canadian dollar of one cent relative to the U.S. dollar would result in a loss of $6 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. 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.
Credit Risk The Company is exposed to credit risk resulting from the possibility that counterparties could default
on their financial obligations to the Company including 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 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.
George Weston Limited 2017 Annual Report 135
Notes to the Consolidated Financial Statements
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 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.
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 31).
Refer to notes 10 and 11 for additional information on the credit quality performance of Loblaw’s credit card
receivables and other receivables, mentioned above, of Loblaw and Weston Foods.
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 an
increase 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 an increase of $47 million in net interest expense and other financing charges.
Interest Rate Risk The Company is exposed to interest rate risk from fluctuations in interest rates on its floating
rate debt and from the refinancing of existing financial instruments. The Company manages interest rate risk by
monitoring the respective mix of fixed and floating rate debt and by taking action as necessary to maintain an
appropriate balance considering current market conditions, with the objective of maintaining the majority of its
debt at fixed interest rates. The Company estimates that a 100 basis point increase (decrease) in short term
interest rates, with all other variables held constant, would result in a decrease (increase) of $11 million in net
interest expense and other financing charges.
136 George Weston Limited 2017 Annual Report
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 as at year end 2017, a 10% decrease in relevant
commodity prices, with all other variables held constant, would result in a net loss of $6 million in earnings
before income taxes. This amount excludes the offsetting impact of the commodity price risk inherent in the
transactions being hedged.
Note 33. Contingent Liabilities
In the ordinary course of business, the Company is involved in and potentially subject to legal actions and
proceedings. In addition, the Company is subject to tax audits from various tax authorities on an ongoing basis.
As a result, from time to time, tax 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 these events could lead to reassessments.
There are a number of uncertainties involved in such matters, individually or in aggregate, and as such, there is a
possibility that the ultimate resolution of these matters may result in a material adverse effect on the Company’s
reputation, operations or financial condition or performance in future periods. It is not currently possible to
predict the outcome of the Company’s legal actions and proceedings with certainly. Management regularly
assesses its position on the adequacy of such accruals or provisions and will make any necessary adjustments.
The following is a description of the Company’s significant legal proceedings:
On August 26, 2015, the Company was served with a proposed class action, which was commenced in the
Ontario Superior Court of Justice (“the Court”) against the Company, Loblaw and certain of its subsidiaries
and others in connection with the collapse of the Rana Plaza complex in Dhaka, Bangladesh in 2013. The claim
seeks approximately $2 billion in damages. The Company believes this proceeding is without merit and is
vigorously defending it. The Company does not currently have any significant accruals or provisions for this
matter recorded in the consolidated financial statements.
Shoppers Drug Mart has been served with an Amended Statement of Claim in a class action proceeding that
has been filed in the Court 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
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 Court certified as a class proceeding portions of the action. The Court
imposed a class closing date based on the date of certification. New Associates after July 9, 2013 are not
members of the class. Loblaw believes this claim is without merit and is vigorously defending it. Loblaw does
not currently have any significant accruals or provisions for this matters recorded in the consolidated financial
statements.
George Weston Limited 2017 Annual Report 137
Notes to the Consolidated Financial Statements
Loblaw was reassessed by the Canada Revenue Agency (“CRA”) and the Ontario Ministry of Finance on the basis
that certain income earned by Glenhuron Bank Limited (“Glenhuron”), a wholly owned Barbadian subsidiary,
should be treated and taxed as income in Canada. The reassessments, which were received in 2015 and 2017,
are for the 2000 to 2012 taxation years totaling $406 million including interest and penalties. Loblaw believes
the reassessment are without merit and is vigorously defending them. Loblaw believes it is likely that the CRA
will issue reassessments for the 2013 taxation years on the same or similar basis. Loblaw has filed a Notice of
Appeal with the Tax Court of Canada for the 2000 to 2010 taxation years and a Notice of Objection for the 2011
and 2012 taxation years. The Tax Court of Canada is scheduled to commence in the second quarter of 2018.
Loblaw does not currently have any significant accruals or provisions for this matter recorded in the consolidated
financial statements.
On December 19, 2017, the Company and Loblaw announced actions taken to address their role in an industry-
wide price-fixing arrangement involving certain packaged bread products. The arrangement involved the
coordination of retail and wholesale prices of certain packaged bread products over a period extending from late
2001 to March 2015. Under the arrangement, the participants regularly increased prices on a coordinated basis.
Class action lawsuits have been commenced against the Company and Loblaw as well as a number of other
major grocery retailers and another bread wholesaler. It is too early to predict the outcome of such legal
proceedings. Neither the Company nor Loblaw believes that the ultimate resolution of such legal proceedings
will have a material adverse impact on their financial condition or prospects. The Company and Loblaw’s cash
balances far exceed any realistic damages scenario and therefore the Company and Loblaw do not anticipate any
impacts on the Company and Loblaw’s dividend, dividend policy or Loblaw’s share buyback plan.
The Company and Loblaw have not recorded any amounts related to the potential civil liability associated with
the class action lawsuits in the fourth quarter of 2017 on the basis that a reliable estimate of the liability cannot
be determined at this time. The Company and Loblaw will continue to assess whether a provision for civil liability
associated with the class action lawsuits can be reliably estimated and will record an amount in the period that a
reliable estimate of liability can be determined or the matter is ultimately resolved.
As part of its response to this issue, Loblaw has announced the Loblaw Card Program pursuant to which Loblaw
is offering a $25 Loblaw Card to eligible customers. The Loblaw Card can be used to purchase items sold in
Loblaw grocery stores across Canada. Loblaw has recorded a charge of $107 million in relation to the Loblaw
Card Program in the fourth quarter of 2017. The Company and Loblaw expect that Loblaw Cards issued to
customers will be an offset against civil liability. The charge recorded for the Loblaw Card Program should not be
viewed as an estimate of damages.
As a result of their admission that they participated in the arrangement and their cooperation in the Competition
Bureau’s investigation, the Company and Loblaw will not face criminal charges or penalties.
Indemnification Provisions The Company from time to time enters into agreements in the normal course of
its business, such as service and outsourcing arrangements, lease agreements in connection with business or
asset acquisitions or dispositions, and other types of commercial agreements. These agreements by their nature
may provide for indemnification of counterparties. These indemnification provisions may be in connection with
breaches of representations and warranties or in respect of 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. In addition, the terms of these indemnification provisions vary in
amount and certain indemnification provisions do not provide for a maximum potential indemnification amount.
Indemnity amounts are dependent on the outcome of future contingent events, the nature and likelihood of
which cannot be determined at this time. As a result, the Company is unable to reasonably estimate its total
maximum potential liability in respect of indemnification provisions. Historically, the Company has not made any
significant payments in connection with these indemnification provisions.
138 George Weston Limited 2017 Annual Report
Note 34. 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 guarantees with a gross potential liability of
approximately $424 million (2016 – $417 million). In addition, Loblaw has provided to third parties the following
significant guarantees:
Associate Guarantees Loblaw has arranged for its 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 2017, Loblaw’s maximum obligation in respect of
such guarantees was $580 million (2016 – $580 million) with an aggregate amount of $509 million (2016 –
$488 million) in available lines of credit was allocated to the Associates by the various banks. As at year end
2017, Associates had drawn an aggregate amount of $110 million (2016 – $115 million) against these available
lines of credit. Any amounts drawn by the Associates are included in bank indebtedness on the Company’s
consolidated balance sheets. 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 22). As at year end 2017, Loblaw has agreed to
provide a credit enhancement of $64 million (2016 – $64 million) in the form of a standby letter of credit for the
benefit of the independent funding trusts representing not less than 10% (2016 – 10%) of the principal amount
of the loans outstanding. This credit enhancement allows the independent funding trusts to provide financing to
Loblaw’s franchisees. As well, each franchisee provides security to the independent funding trusts for its
obligations by way of a general security agreement. In the event that a 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.
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
$15 million (2016 – $16 million). Additionally, Loblaw has guaranteed lease obligations of a third-party
distributor in the amount of $3 million (2016 – $6 million).
Glenhuron Bank Limited Surety Bond In connection with the CRA’s reassessment of Loblaw on certain income
earned by Glenhuron (see note 33), Loblaw arranged for a surety bond of $149 million (2016 – $141 million) to
the Ministry of Finance in order to dispute the reassessments.
Cash Collateralization As at year end 2017, GWL and Loblaw had agreements to cash collateralize certain
uncommitted credit facilities up to amounts of $45 million (2016 – $45 million) and $102 million (2016 –
$103 million), respectively. As at year end 2017, GWL and Loblaw had $45 million (2016 – $45 million) and
$3 million (2016 – $4 million) deposited with major financial institutions, respectively, and classified as security
deposits on the consolidated balance sheets.
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 2017, the guarantee on behalf of PC Bank to MasterCard® was U.S. dollars $190 million (2016 – U.S. dollars
$190 million).
.
Loblaw had in place 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 $76 million (2016 – $11 million).
George Weston Limited 2017 Annual Report 139
Notes to the Consolidated Financial Statements
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. The
aggregate gross potential liability under these arrangements for the Other Independent Securitization Trusts was
$62 million (2016 – $71 million), which represented approximately 10% (2016 – 11%) of the securitized credit
card receivables amount (see note 21). As at year end 2017, the aggregate gross potential liability under these
arrangements for Eagle was $36 million (2016 – $36 million), which represented approximately 9% (2016 – 9%)
of the outstanding Eagle notes issued prior to 2015 (see note 22).
Choice Properties Letters of credit to support guarantees related to its investment properties including
maintenance and development obligations to municipal authorities are issued by Choice Properties.
As at year end 2017, the aggregate gross potential liability related to these letters of credit totaled $33 million
(2016 – $31 million).
Choice Properties’ credit facilities and debentures are guaranteed by each of the General Partner, the
Partnership and any other person that becomes a subsidiary of Choice Properties (with certain 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 35. 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 80,773,740 of GWL’s common
shares, representing approximately 63% (2016 – 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 2017, the Company made rental payments to Wittington in the amount of $4 million (2016 – $4 million). As at
year end 2017 and 2016, there were no rental payments outstanding.
In 2017, 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 $39 million (2016 – $40 million). As at year
end 2017, $6 million (2016 – $6 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 year end 2017, 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.
Operating Lease Choice Properties entered into a ten-year lease for office space with Wittington that
commenced in 2014. Lease payments will total $3 million over the term of the lease.
Post-Employment Benefit Plans The Company sponsors a number of post-employment plans, which are related
parties. Contributions made by the Company to these plans are disclosed in note 27.
Income Tax Matters From time to time, the Company and Wittington may enter into agreements to make
elections that are permitted or required under applicable income tax legislation with respect to affiliated
corporations.
140 George Weston Limited 2017 Annual Report
Compensation of Key Management Personnel The Company’s key management personnel is comprised of
certain members of the executive team of GWL, Loblaw, Weston Foods and Wittington, as well as members of
the Boards of GWL, Loblaw and Wittington to the extent that they have the authority and responsibility for
planning, directing and controlling the day-to-day activities of the Company.
Annual compensation of key management personnel that is directly attributable to the Company was as follows:
($ millions)
Salaries, director fees and other short term employee benefits
Share-based compensation
Total compensation
2017
9
13
22
$
$
2016
11
13
24
$
$
Note 36. 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(i) and adjusted operating income(i). Neither reportable operating segment is reliant on
any single external customer.
($ millions)
Revenue
Operating income
Net interest expense and other
financing charges
Earnings before income tax
Operating income
Depreciation and amortization
Adjusting items(i)
Adjusted EBITDA(i)
Depreciation and amortization(iii)
Adjusted operating income(i)
$
$
$
$
$
$
Weston
Foods
Loblaw
Other and
Intersegment(ii)
2017
Total
2,243 $ 46,702 $
(653) $ 48,292
91 $
2,486 $
(37) $
2,540
13
525
(15)
523
78 $
1,961 $
(22) $
2,017
91 $
2,486 $
(37) $
117
48
256 $
107
1,568
30
4,084
1,044
37
$
149 $
3,040 $
— $
2,540
1,685
115
4,340
1,151
3,189
Weston
Foods
Loblaw
Other and
Intersegment(ii)
2016
Total
2,268 $ 46,385 $
(654) $ 47,999
173 $
2,084 $
(2) $
2,255
102
653
(55)
700
71 $
1,431 $
53 $
1,555
173 $
2,084 $
(2) $
111
12
296 $
97
1,543
217
3,844
1,008
2
$
199 $
2,836 $
— $
2,255
1,654
231
4,140
1,105
3,035
$
$
$
$
$
$
(i) Certain items are excluded from operating income to derive adjusted EBITDA(1). Adjusted EBITDA(1) is used internally by management
when analyzing segment underlying performance.
(ii) Other and intersegment includes the following items:
• intercompany revenue elimination;
• Trust Unit distributions from Choice Properties to GWL and the elimination of the fair value adjustment of the Trust Unit liability
related to GWL’s direct investment in Choice Properties recorded in net interest expense and other financing charges;
• the effect of certain asset impairment related to the carrying value of its fixed asset, intangible, and other assets; and
• 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.
(iii) Excludes $524 million (2016 – $535 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by
Loblaw, and $10 million (2016 – $14 million) of accelerated depreciation recorded by Weston Foods, included in restructuring and
other charges.
George Weston Limited 2017 Annual Report 141
Notes to the Consolidated Financial Statements
($ millions)
Total Assets
Weston Foods
Loblaw
Other(i)
Intersegment
Consolidated
As at
Dec. 31, 2017
Dec. 31, 2016
$
$
2,645
35,266
927
(339)
38,499
$
$
2,670
34,596
1,004
(324)
37,946
(i) 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
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
2017
215
1,259
1,474
2017
47,068
1,224
48,292
$
$
$
$
2016
241
1,224
1,465
2016
46,762
1,237
47,999
$
$
$
$
As at
Dec. 31, 2017
Dec. 31, 2016
$
$
23,652
782
24,434
$
$
23,952
821
24,773
142 George Weston Limited 2017 Annual Report
Note 37. Subsequent Events
On February 15, 2018, Choice Properties entered into an agreement to acquire all of the assets and assume all of
the liabilities, including long term debt and all residual liabilities of Canadian Real Estate Investment Trust
(“CREIT”). CREIT will then redeem all of its outstanding units for $22.50 in cash plus 2.4904 Choice Properties
units per CREIT unit, on a fully prorated basis. Using the Choice Properties closing unit price on February 14,
2018 of $12.49, this represents $53.61 per CREIT unit. The maximum amount of cash to be paid by Choice
Properties will be approximately $1.65 billion and approximately 183 million units will be issued, based on the
fully diluted number of CREIT units outstanding.
Choice Properties will finance the cash portion of the transaction with committed credit facilities totaling
$3.6 billion. These committed facilities consist of an $850 million bridge facility that Choice Properties intends to
refinance through the issuance of senior unsecured debentures and a $1.25 billion term loan. The term loan is
structured in tranches maturing in 3, 4 and 5 years. Choice Properties will consider hedging the term loan to
manage floating interest rate exposure. Choice Properties has also arranged a new $1.5 billion committed
revolving credit facility, that will replace its and CREIT’s existing credit facilities ensuring that Choice Properties
will have maximum flexibility to support ongoing growth prospects, including acquisitions and development.
Loblaw, Choice Properties’ controlling unitholder, has entered into a voting agreement in support of the
transaction. To facilitate Choice Properties’ financing for the transaction, Loblaw has agreed to convert all of its
outstanding Class C Limited Partnership units of Choice Properties Limited Partnership with a face value of
$925 million into Class B LP units of Choice Properties Limited Partnership on closing. Following the transaction,
the Company and Loblaw will own approximately 4% and 62% of Choice Properties, respectively.
The transaction is anticipated to close in the second quarter of 2018. The transaction will require the approval of
at least 66 2/3% of the votes cast by unitholders of CREIT at a special meeting expected to take place in April
2018. In addition to CREIT unitholder approval and court approvals, the transaction is subject to compliance with
the Competition Act and certain other closing conditions customary in transactions of this nature.
George Weston Limited 2017 Annual Report 143
Three Year Summary
CONSOLIDATED INFORMATION(i)
As at or for the years ended December 31
($ millions except where otherwise indicated)
Operating Results
Sales
Operating income
Adjusted EBITDA(ii)
Depreciation and amortization(iii)
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(ii)
Income taxes
Adjusted income taxes(ii)
Net earnings
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the
Company
Adjusted net earnings available to common shareholders of
the Company(ii)
Financial Position
Fixed assets
Goodwill and intangible assets
Total assets
Cash and cash equivalents, short term investments
and security deposits
Total debt
Total equity attributable to shareholders of the Company
Total equity
Cash Flows
Cash flows from operating activities
Capital investments
Free cash flow(ii)
Per Common Share ($)
Diluted net earnings
Adjusted diluted net earnings(ii)
Financial Measures and Ratios
Adjusted EBITDA margin (%)
Adjusted return on average equity attributable to common
(ii)
shareholders of the company (%)
Adjusted return on capital (%)
(ii)
(ii)
2017
(52 weeks)
2016
(52 weeks)
2015
(52 weeks)
48,292
2,540
4,340
1,685
523
555
443
713
1,574
759
715
904
11,689
12,745
38,499
3,233
13,066
7,894
14,713
3,425
1,474
1,395
5.53
7.00
9.0
12.9
13.0
47,999
2,255
4,140
1,654
700
568
465
678
1,090
550
506
838
11,534
13,239
37,946
2,660
12,804
7,764
14,790
3,760
1,465
1,725
3.90
6.49
8.6
12.1
12.1
46,894
1,929
3,826
1,686
681
585
418
571
830
511
467
717
11,352
13,546
38,220
2,667
13,154
7,681
14,890
3,367
1,500
1,280
3.62
5.57
8.2
10.8
10.6
For financial definitions and ratios refer to the Glossary beginning on page 146.
(i)
(ii) See non-GAAP financial measures beginning on page 59.
(iii) Includes $524 million (2016 – $535 million; 2015 – $536 million) of amortization of intangible assets, acquired with Shoppers Drug
Mart, recorded by Loblaw and $10 million (2016 – $14 million; 2015 – $11 million) of accelerated depreciation recorded by Weston
Foods, related to restructuring and other charges.
144 George Weston Limited 2017 Annual Report
SEGMENT INFORMATION(i)
As at or for the years ended December 31
($ millions except where otherwise indicated)
OPERATING RESULTS
Revenue
Operating income
Adjusted EBITDA(ii)
Adjusted EBITDA Margin (%)
(ii)
Depreciation and Amortization(iii)
FINANCIAL POSITION
Fixed Assets
Total Assets
CASH FLOWS
Fixed Asset Purchases and Intangible
Asset Additions
Weston Foods
Loblaw
Intersegment
Consolidated
Weston Foods
Loblaw
Other
Consolidated
Weston Foods
Loblaw
Consolidated
Weston Foods
Loblaw
Consolidated
Weston Foods
Loblaw
Consolidated
Weston Foods
Loblaw
Consolidated
Weston Foods
Loblaw
Other(iv)
Intersegment
Consolidated
Weston Foods
Loblaw
Consolidated
2017
(52 weeks)
2016
(52 weeks)
2015
(52 weeks)
2,243
46,702
(653)
48,292
91
2,486
(37)
2,540
256
4,084
4,340
11.4
8.7
9.0
117
1,568
1,685
1,020
10,669
11,689
2,645
35,266
927
(339)
38,499
215
1,259
1,474
2,268
46,385
(654)
47,999
173
2,084
(2)
2,255
296
3,844
4,140
13.1
8.3
8.6
111
1,543
1,654
975
10,559
11,534
2,670
34,596
1,004
(324)
37,946
241
1,224
1,465
2,144
45,394
(644)
46,894
177
1,593
159
1,929
285
3,541
3,826
13.3
7.8
8.2
94
1,592
1,686
872
10,480
11,352
2,470
34,517
1,502
(269)
38,220
259
1,241
1,500
For financial definitions and ratios refer to the Glossary beginning on page 146.
(i)
(ii) See non-GAAP financial measures beginning on page 59.
(iii) Includes $524 million (2016 – $535 million; 2015 – $536 million) of amortization of intangible assets, acquired with Shoppers Drug
Mart, recorded by Loblaw and $10 million (2016 – $14 million; 2015 – $11 million) of accelerated depreciation recorded by Weston
Foods, related to restructuring and other charges.
(iv) 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 2017 Annual Report 145
Glossary
Term
Adjusted diluted net earnings per
common share
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted income taxes
Adjusted income tax rate
Adjusted net earnings attributable to
shareholders of the Company
Adjusted net earnings available to common
shareholders of the Company
Adjusted net interest expense and other
financing charges
Adjusted operating income
Adjusted return on average equity
attributable to common shareholders of
the Company
Adjusted return on capital
Basic net earnings per common share
Capital
Capital under management
Capital investment
Control brand
Conversion
146 George Weston Limited 2017 Annual Report
Definition
Adjusted net earnings available to common shareholders of the Company
including the effect of all dilutive instruments divided by the weighted
average number of common shares outstanding during the period
adjusted for the impact of dilutive items (see Section 18, “Non-GAAP
Financial Measures”, of the Company’s Management’s Discussion and
Analysis).
Adjusted operating income before depreciation and amortization (see
Section 18, “Non-GAAP Financial Measures”, of the Company’s
Management’s Discussion and Analysis).
Adjusted EBITDA divided by sales (see Section 18, “Non-GAAP Financial
Measures”, of the Company’s Management’s Discussion and Analysis).
Income taxes adjusted for the tax impact of items included in adjusted
operating income less adjusted net interest and other financing charges
(see Section 18, “Non-GAAP Financial Measures”, of the Company’s
Management’s Discussion and Analysis).
Adjusted income taxes divided by adjusted operating income less
adjusted net interest and other financing charges (see Section 18, “Non-
GAAP Financial Measures”, of the Company’s Management’s Discussion
and Analysis).
Net earnings attributable to shareholders of the Company adjusted for
items that are not necessarily reflective of the Company’s underlying
operating performance (see Section 18, “Non-GAAP Financial Measures”,
of the Company’s Management’s Discussion and Analysis).
Adjusted net earnings attributable to shareholders of the Company less
preferred dividends (see Section 18, “Non-GAAP Financial Measures”, of
the Company’s Management’s Discussion and Analysis).
Net interest expense and other financing charges adjusted for items that
are not necessarily reflective of the Company’s ongoing net financing
costs (see Section 18, “Non-GAAP Financial Measures”, of the Company’s
Management’s Discussion and Analysis).
Operating income adjusted for items that are not necessarily reflective of
the Company’s underlying operating performance (see Section 18, “Non-
GAAP Financial Measures”, of the Company’s Management’s Discussion
and Analysis).
Adjusted net earnings available to common shareholders of the Company
divided by average total equity attributable to common shareholders of
the Company (see Section 18, “Non-GAAP Financial Measures”, of the
Company’s Management’s Discussion and Analysis).
Tax-effected adjusted operating income divided by average capital (see
Section 18, “Non-GAAP Financial Measures”, of the Company’s
Management’s Discussion and Analysis).
Net earnings available to common shareholders of the Company divided
by the weighted average number of common shares outstanding during
the period.
Total debt, plus total equity attributable to shareholders of the Company,
less cash and cash equivalents, short term investments and amounts held
in escrow.
Total debt plus total equity attributable to shareholders of the Company.
Fixed asset purchases and intangible asset additions.
A brand and associated trademark that is owned by Loblaw for use in
connection with its own products and services.
A store that changes from one Loblaw banner to another Loblaw banner.
Term
Diluted net earnings per common share
Free cash flow
Major expansion/contraction
Minor expansion
Net earnings attributable to shareholders of
the Company
Net earnings available to common
shareholders of the Company
New store
Operating income
Renovation
Retail debt to adjusted EBITDA
Retail gross profit
Retail sales
Retail square footage
Rolling year adjusted return on capital
Rolling year adjusted return on average
equity attributable to common
shareholders of the Company
Same-store sales
Total equity attributable to common
shareholders of the Company
Total equity attributable to shareholders
of the Company
Weighted average common shares
outstanding
Year
Definition
Net earnings 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.
Cash flows from operating activities less interest paid, fixed asset
purchases and intangible asset additions (see Section 18, “Non-GAAP
Financial Measures”, of the Company’s Management’s Discussion and
Analysis).
Expansion/contraction of a store that results in an increase/decrease in
square footage that is greater than 25% of the square footage of the store
prior to the expansion/contraction.
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 less non-controlling interests.
Net earnings attributable to shareholders of the Company less preferred
dividends.
A newly constructed store, acquisition, conversion or major expansion.
Net earnings before net interest expense and other financing charges and
income taxes.
A capital investment in a store resulting in no significant change to the
store square footage.
Retail segment total debt divided by Retail segment adjusted EBITDA.
Loblaw retail sales less cost of merchandise inventories sold.
Combined sales of stores owned by Loblaw’s corporate stores, franchisees
and associate-owned drug stores.
Retail square footage includes Loblaw’s corporate stores, franchised
stores and associate-owned drug stores.
Tax-effected rolling year (most recent four quarters) adjusted operating
income divided by average capital (see Section 18, “Non-GAAP Financial
Measures”, of the Company’s Management’s Discussion and Analysis).
Rolling year (most recent four quarters) adjusted net earnings available to
common shareholders of the Company divided by average total equity
attributable to common shareholders of the Company (see Section 18,
“Non-GAAP Financial Measures”, of the Company’s Management’s
Discussion and Analysis).
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/contraction in the period.
Total equity less preferred shares outstanding and non-controlling
interests.
Total equity less non-controlling interests.
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.
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.
Each of the years ended December 31, 2017 and December 31, 2016
contained 52 weeks.
George Weston Limited 2017 Annual Report 147
Corporate Directory
Board of Directors
Galen G. Weston, B.A., M.B.A.
Chairman and Chief Executive Officer of the
Corporation; Chairman and Chief Executive
Officer, Loblaw Companies Limited; Chairman,
President’s Choice Bank; Director, Wittington
Investments, Limited; former Chairman, Choice
Properties Real Estate Investment Trust.
Gordon M. Nixon, C.M., O.Ont.(1,2)
Corporate Director; Chair, BCE Inc. and Director,
BlackRock, Inc.; former President and Chief
Executive Officer, Royal Bank of Canada;
Advisory Board, KingSett Canadian Real Estate
Income Fund L.P.; Chairman, MaRS Discovery
District; Trustee, Art Gallery of Ontario.
Alannah Weston(4)
Deputy Chairman, former Creative Director,
Selfridges Group Limited; Chair, Selfridges
Group Foundation; Board member, Reta Lila
Weston Trust and Reta Lila Howard Foundation;
Director, Wittington Investments, Limited;
former Trustee, Blue Marine Foundation.
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, former
President and Chief Executive Officer,
Metrolinx; Chair, Bank of Montreal; Director,
Onex Corporation and Barrick Gold
Corporation; President Emeritus, University of
Toronto; Trustee, Hospital for Sick Children.
Christi Strauss(1,4)
Corporate Director; former President and Chief
Executive Officer, Cereal Partners Worldwide, a
General Mills joint venture with Nestlé.
Barbara Stymiest(1*,2,3)
Corporate Director; Director, Blackberry Limited;
Director, SunLife Financial Inc.; Director,
President’s Choice Bank; former Member, Group
Executive, Royal Bank of Canada; former Chief
Executive Officer, TMX Group Inc., Chair,
Canadian Institute for Advanced Research; Vice
Chair, University Health Network; Chair, Advisory
Council for the Ivey Institute for Leadership.
Thomas F. Rahilly, B.A., M.A., LL.B.(2,3*,4)
Corporate Director; Retired Vice-Chairman,
RBC Capital Markets.
Robert Sawyer(1,4)
Corporate Director; Director, Walter Group;
former Director and President and Chief
Executive Officer, RONA Inc.; former Chief
Operating Officer of Metro Inc.
(1) Audit Committee
(2) Governance, Human Resource, Nominating
and Compensation Committee
(3) Pension Committee
(4) Environmental, Health and Safety Committee
* Chair of the Committee
Isabelle Marcoux, B.A., LL.B.(4*)
Chair, Board of Directors, Transcontinental Inc.;
Director, Rogers Communications Inc. and
Power Corporation of Canada; Director of the
Montreal Children’s Hospital Foundation; Chair
of the Major Donors’ Circle and Co-Chair of the
2016 campaign of Centraide of Greater
Montreal.
Sarabjit (Sabi) S. Marwah(1,2)
Senator with the Senate of Canada; former
Vice-Chairman and Chief Operating Officer of
The Bank of Nova Scotia; Director, Cineplex Inc.
and TELUS Corporation; Trustee and Chair,
Hospital for Sick Children; former member of
the Board of Directors, Toronto International
Film Festival.
Corporate Officers
W. Galen Weston, O.C.
Chairman Emeritus
Allan Bifield
Deputy Chief Financial Officer
Galen G. Weston
Chairman and Chief Executive Officer
Khush Dadyburjor
Chief Strategy Officer
Richard Dufresne
President
and Chief Financial Officer
Deborah Morshead
Group Chief Compliance Officer
Nadeem Mansour
Vice President,
Internal Audit Services
John Poos
Group Head,
Pension and Benefits
Andrew Bunston
Vice President,
Legal and Secretary
John Williams
Group Treasurer
Peter Effer
Group Head, Tax
Chantalle Butler
Vice President,
Group Controller
Kerry Rathbone
Assistant Secretary
Gordon A.M. Currie
Executive Vice President,
Chief Legal Officer
Rashid Wasti
Executive Vice President,
Chief Talent Officer
148 George Weston Limited 2017 Annual Report
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 2017, there were 127,905,581 common shares issued and
outstanding.
The average 2017 daily trading volume of the Company’s common
shares was 130,529.
Preferred Shares
As at year end 2017, 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 2017 daily trading volume of the Company’s preferred
shares was:
Series I:
Series III:
Series IV:
Series V:
4,376
4,697
3,533
4,443
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 2018 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 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 2018 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
1.800.564.6253 (Canada and U.S.A.)
Toll Free Tel:
International Tel: 514.982.7555 (direct dial)
Fax:
Toll Free Fax:
416.263.9394
1.888.453.0330
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 8, 2018, at 11:00 a.m. (EST) 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 2017 Annual Report 149
This 2017 Annual Report was printed in Canada on
Enviro print, which contains 100% post-consumer waste
and is processed chlorine-free, using biogas energy.
www.weston.ca