2019
Annual Report
Report to Shareholders
Fellow Shareholders,
George Weston had a successful year in 2019, executing against its plan,
delivering operational stability, and supporting each of its businesses
in making steady progress against their strategic frameworks. Having
completed our first full year of direct ownership in Choice Properties,
we marked an important milestone in our transformation toward a more
balanced portfolio with three strategic, complementary businesses in
Retail, Real Estate and Consumer Goods.
In Retail, Loblaw remains the market leader and is well-positioned to thrive amidst an
evolving retail landscape. With more than 2,400 stores, and an offering of over 10,000 private
label products including the top two consumer brands in the country, Loblaw is uniquely
placed to serve its customers through the nation’s largest bricks and mortar store network
and Canada’s most convenient online grocery service, PC Express. Additionally, a relentless
focus on process and efficiencies has allowed Loblaw to continue to invest in its growth
initiatives in E-Commerce, Healthcare, and Payments & Rewards, all while delivering earnings
growth and generating more than $1.2 billion in free cash flow(1).
In Real Estate, Choice Properties has refined its strategy following the successful merger with
CREIT in 2018, and today represents Canada’s preeminent diversified REIT with 726 properties
totaling 65.8 million square feet of retail, industrial, office, and residential assets, concentrated
in Canada’s largest markets. With best in class occupancy rates of 97.7%, steady rent
escalations and staggered lease maturities, Choice Properties benefits from a solid balance
sheet that was further strengthened during 2019 following a $395 million equity issuance
and $426 million of asset sales. Choice Properties is well-positioned for future growth as the
business pursues a compelling development pipeline in Canada’s urban centres.
1 GEORGE WESTON LIMITED 2019 ANNUAL REPORT We continue to build
value by investing in
and growing market-
leading businesses.
In Consumer Goods, Weston Foods has stabilized its business following an important
period of transformation. Now making progress in key categories and increasing its
sales outside of Canada, Weston Foods remains an important part of our portfolio. With
over $2 billion in revenue across nine categories, the business is a leader in commercial
bread, artisan and donuts. High basket penetration and steady consumption patterns
make the bakery sector an attractive industry for our company, and one where Weston
Foods is poised to unlock additional earnings as it completes the transformation
initiatives underway. By doing so, Weston Foods will reinforce its ambition of being a
premier North American bakery.
Together, each of these three businesses in George Weston’s portfolio supports our
commitment to delivering long term value appreciation, maintaining a strong
balance sheet and regularly returning capital to our shareholders. We will achieve
this by investing in and growing market-leading businesses, while supporting
strategic transactions that aim to create value across our group. The commitment
and dedication of our employees was clear in 2019, and together we made great
progress. As we look to the year ahead, we would like to thank our employees and
shareholders for their support as we continue to build value over the long term.
[signed]
[signed]
Galen G. Weston
Chairman and Chief Executive Officer
Richard Dufresne
President and Chief Financial Officer
Toronto, Canada
February 24, 2020
2 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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
Table of Contents
4 At a Glance
5 Our Business
annual consolidated financial statements and the accompanying notes on pages 89
8 Key Performance Indicators
to 171 of this Annual Report. The Company’s audited annual consolidated financial
statements and the accompanying notes for the year ended December 31, 2019 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
Operating Segments
12 Loblaw
14 Choice Properties
16 Weston Foods
19 Financial Results
76 Outlook
77 Non-GAAP Financial Measures
measures exclude the impact of certain items and are used internally when analyzing
87 Forward-Looking Statements
88 Additional Information
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 14, “Non-GAAP Financial Measures”, of this MD&A for
more information on the Company’s non-GAAP financial measures.
The Company operates through its three reportable operating segments, Loblaw
Companies Limited (“Loblaw”), Choice Properties Real Estate Investment Trust
(“Choice Properties”) and Weston Foods. Other and Intersegment includes eliminations,
intersegment adjustments related to the consolidation and cash and short term
investments held by the Company. Effective in the first quarter of 2019, all other
company level activities that are not allocated to the reportable operating segments,
such as net interest expense, corporate activities and administrative costs are
included in Other and Intersegment. Weston Foods and Other and Intersegment
comparative figures have been restated to conform to the current year presentation.
In this MD&A, “Consolidated” refers to the consolidated results of GWL including its
subsidiaries, while “GWL Corporate” refers to the non-consolidated financial results
and metrics of GWL, such as dividends paid by GWL to its shareholders or cash flows
received by GWL from its operating businesses. GWL Corporate is a subset of Other
and Intersegment.
This MD&A contains forward-looking statements, which are subject to risks and
uncertainties that could cause the Company’s actual results to differ materially
from the forward-looking statements. For additional information related to forward-
looking statements, material assumptions and material risks associated with them,
see Section 8, “Enterprise Risks and Risk Management”, Section 13, “Outlook” and
Section 15, “Forward-Looking Statements” of this MD&A.
The information in this MD&A is current to February 24, 2020, unless otherwise noted.
FOOTNOTE LEGEND
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2019 Management’s Discussion and Analysis.
2 GWL Corporate refers to the non-consolidated financial results and metrics of GWL. GWL Corporate is a subset of Other and Intersegment.
3 To be read in conjunction with “Forward-Looking Statements” beginning on page 87.
4 Certain comparative figures have been restated to conform with current year presentation.
5 For financial definitions and ratios refer to the Glossary beginning on page 172.
3 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
At a Glance
Key financial highlights
As at or for the years ended December 31, 2019
($ millions except where otherwise indicated)
Consolidated
$50,109 +3.2%
vs. 2018 $2,958 +14.4%
vs. 2018 $5,483 +21.1%
vs. 2018 10.9% +160bps
vs. 2018
REVENUE
OPERATING INCOME
ADJUSTED EBITDA( 1)
ADJUSTED EBITDA
MARGIN ( 1) (%)
$198
-62.6%
vs. 2018 $1,117 +23.0%
vs. 2018 $1.26
-68.4%
vs. 2018 $7.24
+5.7%
vs. 2018
NET EARNINGS AVAILABLE
TO COMMON SHAREHOLDERS
ADJUSTED NET EARNINGS
AVAILABLE TO COMMON
SHAREHOLDERS( 1)
DILUTED NET EARNINGS
PER COMMON SHARE ($)
ADJUSTED DILUTED NET
EARNINGS PER COMMON
SHARE( 1) ($)
GWL Corporate(2)
$539
+143.9%
vs. 2018 $411
+315.2%
vs. 2018 $2.10
+1.9%
vs. 2018 10.3% -170bps
vs. 2018
CASH FLOW FROM
OPERATING BUSINESSES( 1)
GWL CORPORATE
FREE CASH FLOW ( 1)
ANNUALIZED DIVIDENDS
DECLARED PER SHARE ($)
ADJUSTED RETURN
ON CAPITAL( 1) (%)
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2019 Management’s Discussion and Analysis.
2 GWL Corporate refers to the non-consolidated financial results and metrics of GWL. GWL Corporate is a subset of Other and Intersegment.
4 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Our Business
Our history as a family business
In 1882, a young Toronto bread salesman and former baker’s apprentice named George Weston
went into business for himself when he bought a bread route from his employer. By the turn
of the century, Weston’s Bread was known throughout the city and George Weston had become
Canada’s biggest baker.
In 1924, George’s eldest son, Garfield Weston, followed in his father’s footsteps and became
president of George Weston Limited. In spite of war and the depression, Garfield transformed
his father’s Toronto bakery into a commercial food empire with holdings on several continents.
In 1953, George Weston Limited expanded its grocery business, acquiring majority control of
Loblaw Inc. In 1956, Loblaw Companies Limited was incorporated, and over the next two decades,
Loblaw continued to expand its operations throughout Canada and the United States.
In the early 1970s, a third generation took charge as W. Galen Weston successfully consolidated
the large conglomerate, reinventing Loblaw in the process and transforming it into Canada’s
largest grocery chain and GWL’s largest asset.
In 2006, Galen G. Weston assumed responsibility for Loblaw and guided Loblaw through a period
of transformation and growth in response to a rapidly changing business environment, includ-
ing the creation and initial public offering of Choice Properties Real Estate Investment Trust in
2013 and the acquisition of Shoppers Drug Mart shortly thereafter. In 2017, Galen G. Weston was
appointed CEO of George Weston Limited.
In 2018, as part of GWL’s transformation initiative and long term commitment to create shareholder
value, the Company completed a reorganization where Loblaw spun out its majority interest in
Choice Properties to GWL. GWL’s acquisition of a majority ownership of Choice Properties was
a critical milestone in the recent history of the Company. With the addition of Choice Properties
to the portfolio, the Company became more balanced, with three strong and well-positioned
businesses in retail, real estate and consumer goods.
What we do
GWL is a Canadian public company, founded in 1882 and listed on the Toronto Stock Exchange
(TSX:WN) since January 1928. The Company owns three businesses across: (i) retail, (ii) real estate
and (iii) consumer goods.
George Weston
has a 138-year history
of value investing,
generating attractive
returns through its
ownership of market
leading businesses.
52.2%
62.9%
100.0%
LOBLAW
Loblaw (TSX: L) is Canada’s food and pharmacy
leader and the nation’s largest retailer. Loblaw
provides Canadians with grocery, pharmacy,
health and beauty, apparel, general merchan-
dise and financial services, through its grocery
banners, Shoppers Drug Mart, Joe Fresh and
President's Choice Bank.
CHOICE PROPERTIES
Choice Properties REIT (TSX: CHP.UN) is a
large and diversified owner, manager and
developer of a high-quality real estate portfolio
comprising over 700 properties. The Choice
Properties portfolio is comprised of retail
properties, predominantly leased to necessity‐
based tenants, industrial, office and residential
assets concentrated in attractive markets
and offers an impressive and substantial
development pipeline.
WESTON FOODS
Weston Foods is a leading North American
bakery whose purpose is: Elevating Everyday
Moments. The business is an innovative and
trusted leader in the industry. Weston Foods
serves North American customers in two
divisions, foodservice and retail; making bread,
rolls, cupcakes, donuts, biscuits, cakes, pies,
cones and wafers, artisan baked goods
and more.
5 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Our Business
Our Operating and Value Creation Strategy
George Weston Limited’s mission is to
build generational value with an actively
managed portfolio of market-leading
businesses in retail, real estate and
consumer goods through expertise in
strategy, mergers and acquisitions,
capital allocation and talent development.
Over the years, the Company has successfully executed strategic transactions and has tightly
managed its leverage and capital structure.
The Company is a leader in each of its operating segments, retail, real estate and consumer
goods, with market-leading brands in retail, coveted locations in real estate and high-quality
products in consumer goods.
The Company is committed to supporting its portfolio of companies, providing expertise and
decision support. This includes support in areas such as strategy, talent development, capital
allocation and mergers and acquisitions.
The Company brings a unique perspective to the operating business level, having a viewpoint
that spans across the retail, real estate and consumer goods categories, enabling the
identification of opportunities and the sharing of best practices.
By accumulating capital from its existing businesses and prudently leveraging its debt capacity,
the Company supports investments in strategic transactions that create value at its portfolio
companies. The Company also considers strategic initiatives where it can leverage its existing
capabilities and expertise to create long term value for shareholders.
The Company has a track record of providing stability and maintaining a long term outlook.
The Company seeks to deploy its capital optimally, including returning capital to shareholders
through dividends and re-investing capital in its portfolio of companies, where it can further
enhance earnings capability.
6 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Our Business
Our Operating and Value Creation Strategy
Built on what we have in common
Together, these four concepts unite our operating companies
and are core to our identity:
RETAIL
CONSUMER
GOODS
REAL
ESTATE
CORE VALUES
Our actions are shaped by a set of CORE Values, which
express a shared commitment to Care, Ownership,
Respect and Excellence across the group of companies.
ETHICS & COMPLIANCE
Throughout our interactions, our decisions are grounded
in a strong sense of Ethics & Compliance.
BLUE CULTURE
Represents how our values come to life every day in
our interactions with our businesses, each other and
our customers.
SOCIAL RESPONSIBILITY
As a generational investor, long term trends, whether
social, demographic, or environmental matter and under-
pin the importance we place on Social Responsibility.
ACTIVELY MANAGED
PORTFOLIO
BUILD GENERATIONAL
VALUE
Impacting
Through active management and by leveraging our culture
and values we seek to positively impact:
SHAREHOLDERS
We create value for our shareholders by enhancing
the value of our market-leading businesses, through
supporting operational excellence, investing in strategic
transactions and through distributions in the form
of dividends.
TALENT
Our talent is central to achieving our long term goals.
We see our investment in growing, as well as recruiting
exceptional leaders, as a strategic imperative and
are proud to offer challenging and rewarding careers.
COMMUNITIES
Consistent with our heritage and values, we are focused
on improving the quality of life in the communities
where we live and work.
7 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
Key Performance Indicators
As at or for the quarters (unaudited) and years ended December 31
($ millions except where otherwise indicated)
REVENUE
OPERATING INCOME
ADJUSTED EBITDA( 1)
ADJUSTED NET EARNINGS
AVAILABLE TO COMMON
SHAREHOLDERS ( 1)
$60,000
$3,000
$6,000
50,000
40,000
30,000
20,000
10,000
0
2019
2018
2,500
2,000
1,500
1,000
500
0
5,000
4,000
3,000
2,000
1,000
0
$1,200
1,000
800
600
400
200
0
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
50,109
48,568
Q4 2019
12,107
Q4 2018
11,717
+3.2%
+3.3%
2019
2018
Q4 2019
Q4 2018
2,958
2,585
718
690
+14.4%
+4.1%
2019
2018
5,483
4,528
+21.1%
Q4 2019
1,351
Q4 2018
1,146
+17.9%
2019
2018
Q4 2019
Q4 2018
1,117
908
262
232
+23.0%
+12.9%
How we performed in 2019
How we performed in 2019
Growth in the three reportable
operating segments, Loblaw,
Choice Properties and Weston
Foods, drove the increase
in revenue.
Operating income increased
by $373 million. The increase
included a favourable impact
of IFRS 16 of $204 million.
Excluding the favourable impact
of IFRS 16, operating income
increased by $169 million due
to improvements in the under-
lying operating performance
of Loblaw Retail, and Choice
Properties driven by the acqui-
sition of Canadian Real Estate
Investment Trust (“CREIT”).
How we performed in 2019
Adjusted EBITDA(1) increased by
$955 million compared to 2018.
The increase included the
favourable impact of IFRS 16
of $725 million. Excluding the
impact of IFRS 16, adjusted
EBITDA(1) increased by $230 million
due to improvements in Loblaw
Retail, and Choice Properties
driven by the acquisition
of CREIT.
How we performed in 2019
Adjusted net earnings available
to common shareholders(1)
benefited from the full year
contribution of direct owner-
ship in Choice Properties, as
well as the improvement in
Loblaw’s underlying operating
performance and a decrease
in income tax expense.
ADJUSTED EBITDA
MARGIN (1) (%)
ADJUSTED DILUTED NET
EARNINGS PER SHARE (1) ($)
10.9% +160bps
vs. 2018
2019
$7.24 +5.7%
vs. 2018
2019
11.2% +140bps
vs. Q4 2018
Q4 2019
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2019 Management’s Discussion and Analysis.
$1.69 +6.3%
vs. Q4 2018
Q4 2019
8 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Key Performance Indicators
GWL CORPORATE ( 2) CASH
FLOW FROM OPERATING
BUSINESSES ( 1)
GWL CORPORATE ( 2)
FREE CASH FLOW ( 1)
GWL CORPORATE ( 2)
DIVIDENDS PAID
GWL CORPORATE ( 2)
NET DEBT
$600
500
400
300
200
100
0
$500
400
300
200
100
0
$350
300
250
200
150
100
50
0
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
2019
2018
Q4 2019
Q4 2018
539
221
132
30
+143.9%
+340.0%
2019
2018
Q4 2019
411
99
104
Q4 2018
(5)
+315.2%
+2,180.0%
2019
2018
319
241
+32.4%
How we performed in 2019
How we performed in 2019
How we performed in 2019
Increase primarily driven by
an increase in distributions
received from Choice Properties
as a result of the reorganization.
See section 1.1 “Consolidated
Results of Operations”, of this
MD&A for further details.
See page 11 of this MD&A for a
calculation of this metric.
Increase primarily driven by an
increase in distributions received
from Choice Properties. GWL
Corporate, financing costs and
taxes paid were comparable
to 2018.
See page 11 of this MD&A for a
calculation of this metric.
Increase primarily driven by
26.6 million shares issued in
connection with the Choice
Properties reorganization.
$429 +4.4%
vs. 2018
2019
$411
2018
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2019 Management’s Discussion and Analysis.
2 GWL Corporate refers to the non-consolidated financial results and metrics of GWL. GWL Corporate is a subset of Other and Intersegment.
9 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Key Performance Indicators
Total Debt
The Company manages its debt on a segmented basis to ensure each of the reportable operating
segments is employing leverage that is appropriate for that particular business. The following
chart presents total consolidated debt by reportable operating segment as at December 31, 2019
and 2018. There is no recourse to the Company for debt incurred by its operating segments.
The consolidated debt for the group is $21.1 billion. Debt held by Loblaw and Choice Properties
is fully serviced by their respective operating cash flows. Debt held by GWL Corporate(2) is comprised
of $650 million net liability associated with the equity forward sale agreement for 9.6 million
Loblaw common shares and $450 million senior unsecured debentures. For details on the equity
forward sale agreement, see section 3.3 “Components of Total Debt”, of this MD&A.
TOTAL DEBT
As at December 31
($ billions)
$21.1
1.2 (i)
7.0
3.0
4.9
PC Financial
Loblaw Retail
Lease Liabilities
5.0 (i)
$16.4
1.0
7.2
2.8
5.4(ii)
2019
2018
(i) IFRS 16 became effective for the annual period beginning on January 1, 2019. In 2019, the Company recognized lease liabilities
of $5.1 billion on its consolidated balance sheet, of which $5.0 billion is attributable to Loblaw and $0.1 billion
is attributable to Weston Foods. Lease liabilities are recognized primarily for leases of real estate properties, vehicles
and equipment.
(ii) Loblaw Retail debt included $535 million of finance lease obligations as at December 31, 2018 prior to the implementation
of IFRS 16.
10 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Key Performance Indicators
GWL Corporate Free Cash Flow (1)
Following the reorganization of Choice Properties to GWL, management evaluates the cash
generating capabilities of GWL Corporate(2) based on the various cash flow streams it receives
from its operating subsidiaries. As a result, the GWL Corporate free cash flow (1) is based on the
dividends received from Loblaw, distributions received from Choice Properties and net cash
flow contributions received from Weston Foods less corporate expenses, interest and income
taxes paid. Lease payments are excluded from the calculation of GWL Corporate free cash flow (1)
to normalize for the impact of the implementation of IFRS 16.
For the quarters and years ended December 31
($ millions)
Weston Foods adjusted EBITDA(1)
Weston Foods capital expenditures
Distributions from Choice Properties
Dividends from Loblaw
Weston Foods income taxes paid
Other
GWL Corporate cash flow from
operating businesses (1)
GWL Corporate and financing costs (i)
Income taxes paid
GWL Corporate free cash flow (1)
Quarters ended
Years ended
2019
56
(70)
82
–
–
64
132
(24)
(4)
104
2018
59
(91)
43
–
(2)
21
30
(33)
(2)
(5)
2019
223
(194)
325
233
(7)
(41)
539
(109)
(19)
411
2018
233
(212)
43
212
(32)
(23)
221
(108)
(14)
99
(i) Included in Other and Intersegment, GWL Corporate includes all other company level activities that are not allocated
to the reportable operating segments, such as net interest expense, corporate activities and administrative costs.
Also included are preferred share dividends paid.
Dividends
GWL declared an annualized dividend of $2.10 per common share in 2019. It is the Company’s
intention to increase the dividend per common share over time while retaining appropriate free
cash flow to finance future growth. Since 2011, the Company has over time increased its dividend,
representing a 4.8% CAGR.
+4.8%
CAGR
$2.50
2.00
1.50
1.00
0.50
0.00
2011 (i)
2012
2013
2014
2015
2016
2017
2018
2019
(i) Does not include the special one-time common share dividend of $7.75 per common share which was paid on January 25, 2011.
11 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Loblaw
LOBLAW OFFERINGS
Divisions:
Market
Shoppers Drug Mart
Discount
PC Financial
Joe Fresh
Brands:
President’s Choice
No Name
Life Brand
PC Optimum
Loblaw (TSX:L) provides Canadians with grocery,
pharmacy, health and beauty, apparel, general
merchandise and financial services.
Strategy
Loblaw’s strategic framework is anchored by a powerful
purpose – Live Life Well. This framework, known internally
as The Strategic Compass, is built around an unrelenting
passion for customers. Guided by these elements, Loblaw
is committed to delivering industry leading financial
Key performance indicators
As at or for the quarters (unaudited) and years ended December 31
($ millions except where otherwise indicated)
REVENUE
OPERATING INCOME
$50,000
$2,500
performance by leveraging data-driven insights and by
40,000
delivering process and efficiency excellence. This model
ultimately fuels truly customer-centric investments in
Everyday Digital Retail, Payments and Rewards, and
Connected Healthcare.
Loblaw strives to be the “best in food, health and beauty.”
The approach to being “best in food” is driven by fresh food
selection, a desire to offer sustainable and competitive
pricing, customized assortments across banners, and several
30,000
20,000
10,000
of the country’s top control brands. The approach to being
0
“best in health and beauty” is supported by high-quality
health and wellness products and services, and a diverse
and differentiated beauty offering.
Internally, colleagues are committed to Social Responsibility
and Compliance, through a shared set of CORE Values and
a “Blue Culture” that encourages everyone to be authentic,
build trust and make connections.
Together, each of these areas complement one another,
and complete the strategic framework that guides our
direction now and into the future.
Key highlights during the year
Loblaw continues to execute on a multi-year plan, initiated
in 2018, that focuses on improving processes and generating
efficiencies across administrative, store, and distribution
network infrastructure. Many initiatives are underway to
reduce the complexity and cost of business operations,
ensuring a low cost operating structure that allows for
continued investments in Loblaw’s strategic growth areas.
2,000
1,500
1,000
500
0
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
48,037
46,693
Q4 2019
11,590
Q4 2018
11,218
+2.9%
+3.3%
2019
2018
Q4 2019
Q4 2018
2,262
1,915
539
443
+18.1%
+21.7%
How we performed in 2019
How we performed in 2019
Revenue increased primarily
due to growth in Retail
sales as a result of positive
same-store sales growth
and a net increase in Retail
square footage.
Operating income increased
by $347 million compared to
2018. The increase included
the favourable impact of
IFRS 16 of $334 million and
the unfavourable impact of
spin-out related depreciation
of $91 million. Excluding
the impacts of IFRS 16 and
spin-out related depreciation,
operating income increased
by $104 million primarily as
a result of improvements in
Retail, including the favourable
contribution from the
consolidation of franchises.
12 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Loblaw
ADJUSTED EBITDA( 1)
FREE CASH FLOW (1)(i)
FOOD RETAIL SAME-STORE
SALES GROWTH (i) (%)
DRUG RETAIL SAME-STORE
SALES GROWTH (i) (%)
$5,000
4,000
3,000
2,000
1,000
0
2019
2018
$1,500
1,200
900
600
300
0
-300
2.0%
4.0%
1.5
1.0
0.5
0.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
4,904
3,520
+39.3%
Q4 2019
1,203
Q4 2018
893
+34.7%
2019
2018
Q4 2019
1,210
670
272
Q4 2018
(162)
+80.6%
+267.9%
2019
2018
Q4 2019
Q4 2018
1.1%
1.1%
1.9%
0.8%
0bps
+110bps
2019
2018
Q4 2019
Q4 2018
3.6%
2.4%
3.9%
1.9%
+120bps
+200bps
How we performed in 2019
Adjusted EBITDA(1) increased by
$1,384 million compared to 2018.
The increase included the favourable
impact of IFRS 16 of $1,239 million.
Excluding the impact of IFRS 16,
the adjusted EBITDA(1) increased by
$145 million, primarily due to improve-
ments in Retail driven by an increase
in adjusted gross profit(i) partially offset
by an increase in selling, general and
administrative expenses (“SG&A”).
SG&A as a percentage of sales improved
by 10 basis points compared to 2018.
ADJUSTED EBITDA MARGIN ( 1) (%)
How we performed in 2019
How we performed in 2019
How we performed in 2019
Higher cash flows from a
favourable change in non-cash
working capital, an increase
in cash earnings and lower
interest payments led the
increase in free cash flow.
Food retail same-store sales
grew by 1.1% as sales growth
in food was moderate, sales
in pharmacy were flat, food
retail basket size increased
and traffic decreased.
Drug retail same-store sales
grew by 3.6% due to an
increase in the number of
prescriptions dispensed and
the increase in the average
value, as well as growth in
front store sales.
CAPITAL EXPENDITURES
1.2 billion
+12.7%
vs. 2018
RETAIL DEBT TO RETAIL
ADJUSTED EBITDA( 1)(i)
3.0x
+1.1x
vs. 2018
10.2% +270bps
vs. 2018
2019
10.4% +240bps
vs. Q4 2018
Q4 2019
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2019 Management’s Discussion and Analysis.
(i) For more information on these measures, see the 2019 Annual Report filed by Loblaw, which is available on sedar.com or at loblaw.ca.
13 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Choice Properties
Choice Properties REIT (CHP.UN) is a large and
diversified owner, manager and developer of
a high-quality real estate portfolio with over
700 properties. Choice Properties’ portfolio is
comprised of retail properties, predominantly
leased to necessity‐based tenants, industrial,
office and residential assets concentrated
in attractive markets and offers an impressive
and substantial development pipeline.
Strategy
Choice Properties is a generational real estate company
that creates enduring value by owning, managing and
developing high-quality assets. Its goal is to provide net
asset value appreciation, stable net operating income (“NOI”)
growth and capital preservation with a long term focus.
Choice Properties’ large property portfolio of over $15 billion,
anchored by necessity-based retail, provides income stability
through long term leases, while its development pipeline
represents a competitive advantage and opportunity for
meaningful growth.
Key highlights during the year
Throughout 2019, Choice Properties continued to focus
on stable income, active development and balance sheet
improvement. The portfolio delivered stability and growth
with year end occupancy of 97.7% and same-asset NOI(i)
growth of 2.6% versus prior year. Choice Properties develop-
ment initiatives continue to provide the opportunity to add
high-quality real estate to the portfolio at a reasonable cost.
In 2019, Choice Properties completed projects delivering over
1 million square feet of best in-class real estate to its income
producing portfolio at a cost of $232 million. In addition,
Choice Properties took additional steps to strengthen its
balance sheet and leverage metrics, through an equity
issuance in May 2019 for gross proceeds of $395 million and
a property portfolio sale in September 2019 for proceeds of
$426 million. The proceeds from both transactions were used
to repay debt and reduce leverage.
OCCUPANCY RATE
97.7% 0bps
vs. 2018
TOP 10 TENANTS
1. Loblaw
2. Canadian Tire
3. TJX Companies
4. Dollarama
5. Staples
6. GoodLife
7. Sobeys
8. TD Canada Trust
9. Liquor Control
Board of Ontario
10. Lowe's
Key performance indicators
As at or for the quarters (unaudited) and years ended December 31
($ millions except where otherwise indicated)
REVENUE
NET (LOSS) INCOME
$1,500
1,200
900
600
300
0
$800
600
400
200
0
-200
-400
-600
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4 2019
Q4 2018
1,289
1,148
318
323
+12.3%
-1.5%
2019
2018
Q4 2019
Q4 2018
(581)
650
294
281
-189.4%
+4.6%
How we performed in 2019
How we performed in 2019
Revenue benefited from addi-
tional revenue generated by
investment properties included
in the 2018 acquisition of CREIT,
an increase in base rent and
operating cost recoveries from
existing properties, and from
tenant openings in newly
developed leasable space.
Choice Properties’ financial
results are impacted by
adjustments to the fair value
of the Exchangeable Units.
Exchangeable Units are
recorded at their fair value
based on the market trading
price of Choice Properties’
Trust Units (“Trust Units”),
which results in a negative
impact to the financial results
when the Trust Unit price rises
and a positive impact when
the Trust Unit price declines.
The increase in the Trust Unit
price during the year resulted
in an adverse fair value adjust-
ment of the Exchangeable
Units, lowering net income,
partially offset by the favour-
able year-over-year impact of
the CREIT acquisition costs.
(i) For more information on these measures, see the 2019 Annual Report filed by Choice Properties, which is available on sedar.com or at choicereit.ca.
14 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Choice Properties
$800
700
600
500
400
300
200
100
0
FUNDS FROM
OPERATIONS ( 1)
ADJUSTED FUNDS
FROM OPERATIONS (i)
SAME-ASSET NOI,
CASH BASIS (i)
DEBT TO TOTAL
ASSETS (i) (%)
$600
$600
100%
500
400
300
200
100
0
500
400
300
200
100
0
80
60
40
20
0
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
2019
2018
Q4 2019
Q4 2018
680
604
166
172
+12.6%
-3.5%
2019
2018
Q4 2019
Q4 2018
588
483
129
110
+21.7%
+17.3%
2019
2018
Q4 2019
Q4 2018
521
508
133
129
+2.6%
+3.1%
2019
2018
43.1%
47.2%
-410bps
How we performed in 2019
FFO(1) benefited from the full
year contribution of the CREIT
acquisition, as compared to
eight months in 2018.
How we performed in 2019
AFFO(i) benefited from the full
year contribution of the CREIT
acquisition, as compared to
eight months in 2018.
How we performed in 2019
Positive absorption during
the year, as well as increasing
rental rates upon renewal of
expiring leases and contribution
from contractual rent steps.
How we performed in 2019
Proceeds from property
dispositions and the equity
offering were used to repay
debt and reduce leverage.
NORMALIZED DEBT
TO EBITDAFV (i)
7.5x
-0.5x
vs. 2018
DEBT SERVICE
COVERAGE (i)
3.0x
0.0x
vs. 2018
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2019 Management’s Discussion and Analysis.
(i) For more information on these measures, see the 2019 Annual Report filed by Choice Properties, which is available on sedar.com or at choicereit.ca.
15 GEORGE WESTON LIMITED 2019 ANNUAL REPORT WESTON FOODS BRANDS
Wonder Bread
D’Italiano
Gadoua
Country Harvest
Ace Bakery
Casa Mendosa
Key highlights during the year
Weston Foods was focused on a return to top line growth,
financial improvements and organizational capabilities
in 2019. The business delivered sales growth, focusing on
customer engagement and on its key growth categories
of Artisan and Donuts. The business improved its financial
metrics delivering on cost savings, improvements in process
standardization and efficient allocation of resources. The
business also continued to improve its organizational
capabilities, through SAP deployment and collaboration
across the organization. 2019 was a solid year for Weston
Foods as it continued to deliver on its transformation
program and on its objectives of offering superior products
and services to its consumers and customers.
Weston Foods
Weston Foods is a North American bakery whose
purpose is: Elevating Everyday Moments. The
business is an innovative and trusted leader in
the industry.
Weston Foods serves North American customers
in two divisions, foodservice and retail; making
bread, rolls, cupcakes, donuts, biscuits, cakes, pies,
cones and wafers, artisan baked goods and more.
Some of Weston Foods’ brands include Wonder,
Ace Bakery, Country Harvest and D’Italiano.
The reach and potential of Weston Foods is
extensive. The business has approximately 6,000
valued employees spread across 40 bakery
facilities in Canada and the United States. Weston
Foods is committed to delivering top quality and
high-value baked goods and bakery solutions to
our customers across North America.
Strategy
Weston Foods is committed to offering superior products and
services to its consumers and customers in an increasingly
competitive environment.
In 2017, Weston Foods introduced its new strategic framework
with a corresponding multi-year 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.
Achieving these goals requires engaging talent in its workforce,
investing in a competitive integrated supply chain, executing
with excellence 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
$100 million of adjusted EBITDA(1) improvement.
This strategic framework and the transformation program
will be pursued while respecting our core values and working
towards our greater purpose of Elevating Everyday Moments.
16 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Weston Foods
Key performance indicators
As at or for the quarters (unaudited) and years ended December 31
($ millions except where otherwise indicated)
SALES
OPERATING INCOME
ADJUSTED EBITDA( 1)
CAPITAL EXPENDITURES
$2,500
$100
$250
$250
2,000
1,500
1,000
500
0
80
60
40
20
0
200
150
100
50
0
200
150
100
50
0
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4
2019
Q4
2018
2019
2018
Q4 2019
Q4 2018
2,155
2,122
522
507
+1.6%
+3.0%
2019
2018
Q4 2019
Q4 2018
72
92
27
30
-21.7%
-10.0%
2019
2018
Q4 2019
Q4 2018
223
233
56
59
-4.3%
-5.1%
2019
2018
Q4 2019
Q4 2018
194
212
70
91
-8.5%
-23.1%
How we performed in 2019
How we performed in 2019
Growth in key categories and
the combined positive impact
of pricing and changes in sales
mix led the increase.
Operating income decreased
by $20 million compared
to 2018. Excluding the impact
of the 2018 net gain of
$24 million related to the sale
leaseback of properties and
the favourable impact of
IFRS 16 of $4 million, operating
income was flat.
How we performed in 2019
Capital in 2019 included spend
on innovation and growth,
maintenance and information
technology.
How we performed in 2019
Adjusted EBITDA(1) decreased by
$10 million compared to 2018.
Excluding the impact of the 2018
net gain of $24 million related to
the sale leaseback of properties
and the favourable impact of
IFRS 16 of $12 million, adjusted
EBITDA(1) increased by $2 million
primarily due to productivity
improvements and the net bene-
fits realized from the Weston
Foods’ transformation program.
ADJUSTED EBITDA
MARGIN ( 1) (%)
10.3% -70bps
vs. 2018
2019
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2019 Management’s Discussion and Analysis.
10.7% -90bps
vs. 2018
Q4 2019
17 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Financial Highlights(5)
As at or for the years ended December 31
($ millions except where otherwise indicated)
CONSOLIDATED OPERATING RESULTS
Sales
Operating income
Adjusted EBITDA(i)
Depreciation and amortization(ii)
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(i)
Income taxes
Adjusted income taxes(i)
Net earnings
Net earnings attributable to shareholders of the Company(iii)
Net earnings available to common shareholders of the Company
Adjusted net earnings available to common shareholders of
the Company(i)
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(i)
Total debt including lease liabilities
Total equity attributable to shareholders of the Company
Total equity
CONSOLIDATED PER COMMON SHARE ($)
Diluted net earnings per common share
Adjusted diluted net earnings per common share(i)
CONSOLIDATED FINANCIAL MEASURES AND RATIOS
Adjusted EBITDA margin(i) (%)
Adjusted return on average equity attributable to common
shareholders of the Company(i) (%)
Adjusted return on capital(i) (%)
REPORTABLE OPERATING SEGMENTS
Loblaw
Sales
Operating income
Adjusted EBITDA(i)
Adjusted EBITDA margin(i) (%)
Depreciation and amortization(ii)
Choice Properties
Revenue
Net income
Funds from operations(i)
Weston Foods(4)
Sales
Operating income
Adjusted EBITDA(i)
Adjusted EBITDA margin(i) (%)
Depreciation and amortization(ii)
2019
2018
% Change
$
50,109
2,958
$
5,483
2,318
1,704
1,071
431
653
823
242
198
1,117
$
2,139
$
4,555
1,596
1,342
21,131
7,609
13,175
$
$
1.26
7.24
10.9%
16.1%
10.3%
48,568
2,585
4,528
1,746
948
762
639
680
998
574
530
908
1,889
2,719
1,593
134
16,445
8,040
14,204
3.99
6.85
9.3%
12.7%
12.0%
$
48,037
$
46,693
2,262
4,904
10.2%
2,524
1,289
$
(581)
680
2,155
$
72
223
10.3%
147
1,915
3,520
7.5%
1,497
1,148
650
604
2,122
92
233
11.0%
130
$
$
3.2 %
14.4 %
21.1 %
32.8 %
79.7 %
40.6 %
(32.6)%
(4.0)%
(17.5)%
(57.8)%
(62.6)%
23.0 %
13.2 %
67.5 %
0.2 %
901.5 %
28.5 %
(5.4)%
(7.2)%
(68.4)%
5.7 %
2.9 %
18.1 %
39.3 %
68.6 %
12.3 %
(189.4)%
12.6 %
1.6 %
(21.7)%
(4.3)%
13.1 %
(i)
(ii)
(iii)
See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2019 Management’s Discussion and Analysis.
Depreciation and amortization includes $508 million (2018 – $521 million) of amortization of intangible assets, acquired with Shoppers Drug Mart
Corporation, recorded by Loblaw and $9 million (2018 – $9 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and
other related costs.
Includes net earnings available to common shareholders of the Company and preferred dividends.
19GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
1.
Overall Financial Performance
1.1
1.2
1.3
Consolidated Results of Operations
Selected Annual Information
Consolidated Other Business Matters
2.
Results of Reportable Operating Segments
2.1
2.2
2.3
Loblaw Operating Results
Choice Properties Operating Results
Weston Foods Operating Results
3.
Liquidity and Capital Resources
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
Cash Flows
Liquidity
Components of Total Debt
Financial Condition
Credit Ratings
Share Capital
Off-Balance Sheet Arrangements
Contractual Obligations
4.
Quarterly Results of Operations
4.1
4.2
Quarterly Financial Information
Fourth Quarter Results
5.
Fourth Quarter Results of Reportable Operating Segments
5.1
5.2
5.3
Loblaw Fourth Quarter Operating Results
Choice Properties Fourth Quarter Operating Results
Weston Foods Fourth Quarter Operating Results
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Disclosure Controls and Procedures
Internal Control Over Financial Reporting
Enterprise Risks and Risk Management
8.1
8.2
Operating Risks and Risk Management
Financial Risks and Risk Management
Related Party Transactions
Critical Accounting Estimates and Judgments
Accounting Standard Implemented
Future Accounting Standard
Outlook
Non-GAAP Financial Measures
Forward-Looking Statements
Additional Information
21
21
27
29
31
31
34
35
36
36
37
39
43
43
44
46
47
48
48
50
56
56
58
58
59
59
60
61
69
71
72
74
76
76
77
87
88
20 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
1.
1.1
Overall Financial Performance
Consolidated Results of Operations
Unless otherwise indicated, the Company’s results include:
•
•
•
•
the impact of the implementation of IFRS 16 “Leases” (“IFRS 16”), as set out in section 1.3 “Consolidated Other Business
Matters”, of this MD&A;
the impact of the acquisition of CREIT by Choice Properties in the second quarter of 2018;
the year-over-year impact of the fair value adjustment of the Trust Unit liability as a result of the significant changes in
Choice Properties’ unit price, recorded in net interest expense and other financing charges. The Company’s results are
impacted by market price fluctuations of Choice Properties’ Trust Units on the basis that the Trust Units held by unitholders,
other than the Company, are redeemable for cash at the option of the holder. The Company’s financial results are negatively
impacted when the Trust Unit price rises and positively impacted when the Trust Unit price declines; and
the dilutive impact on both the Company’s diluted net earnings per common share and adjusted diluted net earnings per
common share(1) as a result of the issuance of approximately 26.6 million common shares in connection with a
reorganization in November 2018, as set out in section 1.3 “Consolidated Other Business Matters”, of this MD&A.
($ 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 ($)
Adjusted diluted net earnings per common share(1) ($)
$
$
$
$
$
$
$
$
$
$
$
$
$
2019
50,109
2,958
5,483
10.9%
2,318
1,704
1,071
431
653
25.0%
242
198
1,117
1.26
7.24
$
$
$
$
$
$
$
$
$
$
$
$
$
2018
$ Change
% Change
48,568 $
2,585 $
4,528 $
9.3%
1,746 $
948 $
762 $
639 $
680 $
26.7%
1,541
373
955
572
756
309
(208)
(27)
3.2 %
14.4 %
21.1 %
32.8 %
79.7 %
40.6 %
(32.6)%
(4.0)%
574 $
(332)
(57.8)%
530 $
(332)
(62.6)%
908 $
3.99 $
6.85 $
209
(2.73)
0.39
23.0 %
(68.4)%
5.7 %
(i) Depreciation and amortization includes $508 million (2018 – $521 million) of amortization of intangible assets, acquired with Shoppers Drug
Mart Corporation, recorded by Loblaw and $9 million (2018 – $9 million) of accelerated depreciation recorded by Weston Foods, related to
restructuring and other related costs.
On November 1, 2018, the Company and Loblaw completed a reorganization under which Loblaw spun out its approximate
61.6% effective interest in Choice Properties to the Company (the “reorganization” or the “spin-out”). In connection with the
reorganization, the Company issued approximately 26.6 million common shares to Loblaw shareholders other than the
Company and its subsidiaries (“Loblaw minority shareholders”). The issuance of the common shares had a dilutive impact on
both diluted net earnings per common share and adjusted diluted earnings per common share(1) in 2019 and 2018.
Following the reorganization, the Company owned an approximate 65.4% effective interest in Choice Properties directly (which
includes the approximate 3.8% interest in Choice Properties directly owned by GWL prior to the reorganization) and Choice
Properties became a reportable operating segment of the Company. During the second quarter of 2019, Choice Properties
completed an equity offering. As at December 31, 2019, the Company’s ownership interest in Choice Properties was
approximately 62.9%. See Section 1.3 “Consolidated Other Business Matters”, of this MD&A for further details.
21 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS OF THE COMPANY
Net earnings available to common shareholders of the Company in 2019 were $198 million, a decrease of $332 million, or 62.6%,
compared to the same period in 2018. The decrease in 2019 was due to the unfavourable year-over-year net impact of adjusting
items totaling $541 million, partially offset by an improvement in the underlying operating performance of $209 million
described below.
•
The unfavourable year-over-year net impact of adjusting items totaling $541 million was primarily due to:
◦
◦
◦
◦
◦
the unfavourable year-over-year impact of the fair value adjustment of the Trust Unit Liability of $607 million as a
result of the significant increase in Choice Properties’ unit price during 2019;
the unfavourable year-over-year impact of the fair value adjustment on investment properties of $57 million;
the unfavourable year-over-year impact of the remeasurement of deferred tax balances of $47 million;
the unfavourable year-over-year impact of asset impairments, net of recoveries of $31 million; and
the unfavourable year-over-year impact of restructuring and other related costs of $18 million;
partially offset by,
◦
the favourable year-over year impact of the prior year charge related to Glenhuron Bank Limited (“Glenhuron”) at
Loblaw of $184 million; and
the favourable year-over-year impact of acquisition and other costs of $61 million related to Choice Properties’
acquisition of CREIT.
◦
•
The improvement in underlying operating performance of $209 million included the favourable impact of IFRS 16 of
approximately $19 million. Normalized for this impact, the underlying operating performance improved by $190 million,
primarily due to:
◦
◦
◦
◦
◦
◦
the positive contribution from the Company’s direct ownership interest in Choice Properties, as a result of the
reorganization in November 2018;
the favourable underlying operating performance of Loblaw;
the favourable underlying operating performance of Choice Properties, driven by the acquisition of CREIT;
the decrease in income tax expense primarily due to the favourable impact of Choice Properties’ portfolio
transaction as described in Section 1.3, “Consolidated Other Business Matters”, of this MD&A;
the positive contribution from the increase in the Company’s ownership interest in Loblaw, as a result of Loblaw
share repurchases; and
the favourable underlying operating performance of Weston Foods after excluding the prior year impact of a net
gain related to the sale leaseback of properties;
partially offset by,
◦
◦
an increase in adjusted net interest expenses and other financing charges(1) described below; and
an increase in depreciation and amortization described below.
Adjusted net earnings available to common shareholders of the Company(1) in 2019 were $1,117 million, an increase of
$209 million, or 23.0%, compared to the same period in 2018. Normalized for the favourable impact of IFRS 16 of approximately
$19 million, adjusted net earnings available to commons shareholders of the Company(1) increased by $190 million, or 20.9%,
due to the improvement in underlying operating performance described above.
Diluted net earnings per common share in 2019 were $1.26 per common share, a decrease of $2.73 per common share
compared to the same period in 2018. The decrease was mainly due to:
•
the unfavourable year-over-year net impact of adjusting items totaling $3.12 per common share, primarily due to the
following:
◦
the unfavourable year-over-year impact of the fair value adjustment of the Trust Unit Liability of $4.01 per common
share;
the unfavourable year-over-year impact of the remeasurement of deferred tax balances of $0.37 per common
share;
the unfavourable year-over-year impact of the fair value adjustment on investment properties of $0.35 per
common share; and
the unfavourable year-over-year impact of asset impairments, net of recoveries of $0.23 per common share;
partially offset by,
◦
the favourable year-over-year impact of the prior year charge related to Glenhuron at Loblaw of $1.39 per common
share; and
the favourable year-over-year impact of acquisition and other costs of $0.47 per common share related to Choice
Properties’ acquisition of CREIT.
◦
◦
◦
◦
partially offset by,
•
the improvement in the underlying operating performance of $0.39 per common share.
22 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
Adjusted diluted net earnings per common share(1) in 2019 were $7.24 per common share, an increase of $0.39 per common
share, or 5.7%, compared to the same period in 2018. Normalized for the favourable impact of IFRS 16 of approximately $0.12
per common share, adjusted diluted net earnings per common share(1) increased by $0.27 per common share. The increase was
due to the improvement in the underlying operating performance described above, partially offset by the dilutive impact of the
Company’s issuance of common shares in connection with the reorganization.
SALES
($ millions except where otherwise indicated)
For the years ended December 31
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
2019
48,037
1,289
2,155
(1,372)
50,109
$
$
$
$
$
$
$
$
$
$
2018
46,693
1,148
2,122
(1,395)
$
$
$
$ Change
% Change
1,344
141
33
2.9%
12.3%
1.6%
48,568
$
1,541
3.2%
The Company’s 2019 consolidated sales were $50,109 million, an increase of $1,541 million, or 3.2%, compared to the same
period in 2018. The increase in sales in 2019 was impacted by each of the Company’s reportable operating segments as follows:
•
•
•
Positively by 2.8% due to sales growth of 2.9% at Loblaw, primarily driven by an increase in Loblaw’s Retail segment. Retail
sales increased by $1,263 million, or 2.8%, compared to the same period in 2018. Excluding the consolidation of franchises,
Retail sales increased by $976 million, or 2.2% due to positive same-store sales growth and a net increase in Retail square
footage. Food retail same-store sales growth was 1.1%. Food retail basket size increased and traffic decreased in 2019.
Loblaw’s food retail average article price was 2.5% (2018 – 0.7%), which reflects the price inflation on the specific mix of
goods sold in Loblaw’s stores. The average annual national food price inflation was 3.7% (2018 – inflation of 0.8%) 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 3.6%.
Positively by 0.3% due to revenue growth of 12.3% at Choice Properties. The improvement of $141 million was mainly due to
additional revenue generated from the investment properties included in the acquisition of CREIT of $132 million, an
increase in base rent and operating cost recoveries from existing properties and additional revenue generated from
properties acquired in 2018 and 2019 and from tenant openings in newly developed leasable space, partially offset by
Choice Properties’ portfolio transaction.
Positively by 0.1% due to sales growth of 1.6% at Weston Foods. Sales included the positive impact of foreign currency
translation of approximately 1.4%. Excluding the favourable impact of foreign currency translation, sales increased by 0.2%,
mainly due to growth in key categories and the combined positive impact of pricing and changes in sales mix, partially
offset by the impact of product rationalization and the lapping of sales lost from key customers in 2018.
OPERATING INCOME
($ millions except where otherwise indicated)
For the years ended December 31
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
2019
2,262
890
72
(266)
2,958
$
$
$
$
$
$
$
$
$
$
2018(4)
$ Change
% Change
$
$
$
1,915
593
92
(15)
347
297
(20)
18.1 %
50.1 %
(21.7)%
2,585
$
373
14.4 %
23 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
The Company’s 2019 operating income was $2,958 million, an increase of $373 million, or 14.4%, compared to the same period
in 2018 and included the favourable impact of IFRS 16 of approximately $204 million. Normalized for this amount, operating
income increased by $169 million. The increase was mainly attributable to the improvement in underlying operating
performance of $166 million and the favourable year-over-year net impact of adjusting items totaling $3 million, as described
below:
•
the improvement in underlying operating performance of $166 million was primarily due to:
◦
◦
the favourable underlying operating performance of Loblaw’s Retail segment, including the favourable
contribution from the consolidation of Loblaw franchises and an improvement in the underlying operating
performance of Loblaw’s Financial Services segment, partially offset by an increase in depreciation and
amortization; and
the underlying operating performance of Choice Properties, driven by the acquisition of CREIT;
partially offset by,
◦
the unfavourable underlying operating performance of Weston Foods due to the prior year impact of a net gain
related to the sale leaseback of properties and an increase in depreciation and amortization.
•
the favourable year-over-year net impact of adjusting items totaling $3 million was primarily due to:
◦
◦
the favourable year-over-year impact of acquisition and other costs related to Choice Properties’ acquisition of
CREIT of $133 million; and
the favourable year-over-year impact of transaction and other related costs in connection with Loblaw’s spin-out of
Choice Properties of $19 million;
partially offset by,
◦
◦
◦
the unfavourable year-over-year impact of restructuring and other related costs of $62 million;
the unfavourable year-over-year impact of asset impairments, net of recoveries of $39 million; and
the unfavourable year-over-year impact of the fair value adjustment of investment properties of $37 million.
ADJUSTED EBITDA(1)
($ millions except where otherwise indicated)
For the years ended December 31
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
2019
4,904
914
223
(558)
5,483
$
$
$
$
$
$
$
$
$
$
2018(4)
$ Change
% Change
$
$
$
3,520
824
233
(49)
1,384
90
(10)
39.3 %
10.9 %
(4.3)%
4,528
$
955
21.1 %
The Company’s 2019 adjusted EBITDA(1) was $5,483 million, an increase of $955 million, or 21.1%, compared to the same period
in 2018 and included the favourable impact of IFRS 16 of approximately $725 million. Normalized for this impact, adjusted
EBITDA(1) increased by $230 million, or 5.1%, and was impacted by each of the Company’s reportable operating segments as
follows:
•
•
•
Positively by 3.2% due to an increase of 4.1% in adjusted EBITDA(1) at Loblaw driven by improvements in Loblaw’s Retail
segment and Financial Services segment. The improvement in Loblaw’s Retail segment adjusted EBITDA(1) was primarily
driven by an increase in Retail gross profit, partially offset by an increase in Retail SG&A.
Positively by 2.0% due to an increase of 10.9% in adjusted EBITDA(1) at Choice Properties, primarily driven by the acquisition
of CREIT and growth in net operating income attributable to completed development projects.
Negatively by 0.5% due to a decrease of 9.4% in adjusted EBITDA(1) at Weston Foods. Excluding the prior year impact of a
net gain of $24 million related to the sale leaseback of properties, adjusted EBITDA(1) increased by $2 million driven by
productivity improvements and the net benefits realized from Weston Foods’ transformation program, partially offset by
higher input and distribution costs and an increase in performance related compensation accruals.
24 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
DEPRECIATION AND AMORTIZATION
($ millions except where otherwise indicated)
For the years ended December 31
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
2019
2,524
1
147
(354)
2,318
$
$
$
$
$
$
$
$
$
$
2018
1,497
1
130
118
$
$
$
$ Change
% Change
1,027
—
17
68.6%
—%
13.1%
1,746
$
572
32.8%
Depreciation and amortization in 2019 was $2,318 million, an increase of $572 million compared to the same period in 2018
and included the unfavourable impact of IFRS 16 of approximately $521 million. Normalized for this impact, depreciation and
amortization increased by $51 million. Depreciation and amortization in 2019 included $508 million (2018 – $521 million) of
amortization of intangible assets related to the acquisition of Shoppers Drug Mart Corporation (“Shoppers Drug Mart”) recorded
by Loblaw and $9 million (2018 – $9 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and
other related costs. Excluding these amounts and the impact of IFRS 16, depreciation and amortization increased by $64 million
driven by:
•
•
•
an increase in depreciation from the consolidation of Loblaw franchises;
an increase in Loblaw’s IT assets; and
an increase in depreciation due to capital investments at Weston Foods.
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
($ millions except where otherwise noted)
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
Choice Properties issuance costs
Loblaw’s charge related to Glenhuron
Loblaw’s spin-out of Choice Properties
Adjusted net interest expense and other
financing charges(1)
2019
1,704
(550)
(69)
(14)
—
—
2018
$ Change
% Change
$
948
$
41
(50)
—
(176)
(1)
756
(591)
(19)
(14)
176
1
79.7 %
(1,441.5)%
(38.0)%
— %
— %
— %
$
1,071
$
762
$
309
40.6 %
Net interest expense and other financing charges in 2019 were $1,704 million, an increase of $756 million compared to the
same period in 2018. The increase was primarily due to the unfavourable year-over-year net impact of adjusting items totaling
$447 million, itemized in the table above, and an increase in adjusted net interest expense and other financing charges(1) of
$309 million. Included in the adjusting items was the year-over-year fair value adjustment of the Trust Unit liability of
$591 million, as a result of the significant increase in Choice Properties’ unit price in the year. The Company is exposed to market
price fluctuations as a result of units held by unitholders other than the Company which are redeemable for cash at the option
of the holder and are presented as a liability on the Company’s consolidated balance sheet.
Normalized for the unfavourable impact of IFRS 16 of approximately $182 million, adjusted net interest expense and other
financing charges(1) increased by $127 million driven by:
•
•
higher interest expense in the Choice Properties segment including Other and Intersegment adjustments, primarily related
to higher distributions from the special distribution in the fourth quarter of 2019, as described in Section 1.3 “Consolidated
Other Business Matters”, and from newly issued Trust Units to former CREIT unitholders as part of the acquisition
consideration and as part of the offering of Trust Units in the second quarter of 2019, higher interest expense resulting from
the issuance of new senior unsecured debentures and debt assumed on the acquisition of CREIT, partially offset by the
repayment of senior unsecured debentures and interest income on the joint ventures assumed on the acquisition of CREIT
and the repayments made on term loans; and
higher interest expense in Loblaw’s Financial Services segment, primarily due to the growth in the credit card portfolio.
25 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
INCOME TAXES
($ millions except where otherwise indicated)
For the years ended December 31
2019
2018
$ Change
% Change
Income taxes
$
431
$
639 $
(208)
(32.6)%
Add:
Tax impact of items excluded from adjusted
earnings before taxes(1)(i)
Remeasurement of deferred tax balances
Statutory corporate income tax rate change
Reserve release related to 2014 tax audit
Loblaw’s charge related to Glenhuron
189
15
10
8
—
170
62
—
—
(191)
Adjusted income taxes(1)
$
653
$
680 $
Effective income tax rate applicable to earnings
before taxes
Adjusted income tax rate applicable to adjusted
earnings before taxes(1)
34.4%
39.0%
25.0%
26.7%
19
(47)
10
8
191
(27)
11.2 %
(75.8)%
— %
— %
— %
(4.0)%
(i)
See the adjusted EBITDA(1) table and the adjusted net interest expense and other financing charges(1) table included in Section 14, “Non-
GAAP Financial Measures”, of this MD&A for a complete list of items excluded from adjusted earnings before taxes(1).
The effective income tax rate in 2019 was 34.4%, compared to 39.0% in 2018. The decrease was primarily attributable to a
charge of $191 million in 2018 related to Glenhuron as described in section 2.1, “Loblaw Operating Results”, the impact of the
non-taxable portion of the gain from the sale of a portfolio of properties by Choice Properties, as described in Section 1.3
“Consolidated Other Business Matters”, the reversal of certain tax reserves following the completion of a tax audit that included a
review of the Shoppers Drug Mart acquisition costs incurred in 2014 and a decrease in certain other non-deductible items
including an interest charge related to Glenhuron; partially offset by an increase in the non-deductible fair value adjustment of
the Trust Unit liability and the year-over-year impact of a deferred tax recovery resulting from the remeasurement of certain
deferred tax balances.
The adjusted income tax rate(1) in 2019 was 25.0%, compared to 26.7% in 2018. The decrease was primarily attributable to the
impact of the non-taxable portion of the gain from the sale of a portfolio of properties by Choice Properties and a decrease in
certain other non-deductible items.
26 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
1.2
Selected Annual Information
The selected information presented below has been derived from and should be read in conjunction with the annual
consolidated financial statements of the Company dated December 31, 2019, 2018 and 2017. The analysis of the data contained
in the table focuses on the trends and significant events or items affecting the results of operations and financial condition of the
Company over the latest three year period.
For the years ended December 31
($ 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 ($):
Common shares
Preferred shares – Series I
Preferred shares – Series III
Preferred shares – Series IV
Preferred shares – Series V
Total Assets and Long Term Financial Liabilities
Total assets
Total long term debt
Financial liabilities
Lease liabilities
Trust Unit liability
2019
2018
2017
(52 weeks)
(52 weeks)
(52 weeks)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
50,109
2,958
5,483
10.9%
2,318
1,704
1,071
431
653
25.0%
823
242
198
1,117
1.26
7.24
2.090
1.45
1.30
1.30
1.1875
47,813
14,554
435
5,107
3,601
48,568 $
48,289
2,585 $
4,528 $
9.3%
1,746 $
948 $
762 $
639 $
680 $
26.7%
998 $
574 $
530 $
908 $
3.99 $
6.85 $
2,561
4,337
9.0%
1,685
523
555
449
712
27.1%
1,589
766
722
903
5.58
6.99
1.950 $
1.805
1.45 $
1.30 $
1.30 $
1.45
1.30
1.30
1.1875 $
1.1875
43,814 $
15,318 $
—
—
2,658
38,540
12,092
—
—
634
12,726
Total long term financial liabilities
$
23,697
$
17,976 $
(i)
Depreciation and amortization includes $508 million (2018 – $521 million; 2017 – $524 million) of amortization of intangible assets, acquired
with Shoppers Drug Mart, recorded by Loblaw and $9 million (2018 – $9 million; 2017 – $10 million) of accelerated depreciation recorded by
Weston Foods, related to restructuring and other related costs.
SALES The Company’s reportable operating segments had the following sales trends over the last three years:
•
Loblaw’s Retail segment sales have continued to grow despite the pressure of a competitive retail market and an uncertain
economic and regulatory environment over the last three years. In 2017, the food price inflation trend was deflationary until
the third quarter of 2017 when deflation in food prices returned to inflation. Through 2018, Loblaw experienced food price
inflation while drug retail prices were negatively impacted by the effects of incremental healthcare reform. Sales from 2017
to 2018 were also impacted by the disposition of gas bar operations in the third quarter of 2017. In 2019, food retail prices
were inflationary. Drug retail prices were deflationary until the second quarter of 2019 when they returned to being
inflationary. Retail sales over the past three years were also impacted by the consolidation of franchisees. Loblaw’s Financial
Services segment sales have continued to grow, mainly driven by growth in the credit card portfolio and The Mobile Shop.
27 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
•
Choice Properties has continued to grow mainly through the addition of new properties as a result of the CREIT acquisition,
an increase in base rents and recovery of property operating costs from existing properties and additional revenue
generated from properties acquired in 2018 and 2019 and from tenant openings in newly developed leasable space.
• Weston Foods sales were negatively impacted by volume declines in 2019 and 2018 but positively impacted by volume
growth in 2017. Foreign currency translation had a positive impact on sales in 2019 but an unfavourable impact on sales in
2018 and 2017.
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 certain adjusting items as described in Section 14, “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:
•
•
•
•
•
changes in underlying operating performance of Loblaw’s Retail segment, including positive same-store sales growth in
both Food retail and Drug retail in 2019, 2018 and 2017; cost savings and operating efficiencies from Process and Efficiency
initiatives and investments in and benefits from strategic initiatives; improvements in the performance of Loblaw’s Financial
Services segment including the continued investments in strategic initiatives. Impacts also included, the negative year-over-
year impact from the 2017 disposition of Loblaw gas bar operations; and the negative impact from minimum wage
increases and incremental healthcare reform. The changes in underlying operating performance included increases in
depreciation and amortization in 2019, 2018 and 2017;
the favourable underlying operating performance of Choice Properties, including the acquisition of CREIT in the second
quarter of 2018 and the contribution from completed developments;
improvement in underlying operating performance at Weston Foods in 2019 after excluding the prior year impact of a net
gain related to the sale leaseback of properties, driven by productivity improvements and the net benefits realized from the
transformation program, partially offset by higher input and distribution costs and an increase in performance related
compensation accruals. A decline in underlying operating performance at Weston Foods in 2018, driven by higher input and
distribution costs and the decline in sales, partially offset by productivity improvements and net benefits realized from the
transformation program. A decline in underlying operating performance at Weston Foods in 2017, including the impact of
investments in the business, higher input and distribution costs and operational issues. The changes in underlying operating
performance included increases in depreciation and amortization in 2019, 2018 and 2017;
higher adjusted net interest expense and other financing charges(1) in 2019 in the Choice Properties segment including
Other and Intersegment adjustments, primarily related to higher distributions, higher interest expense resulting from the
issuance of new debt and debt acquired related to the acquisition of CREIT; partially offset by the repayment of senior
unsecured debentures and interest income on the joint ventures assumed on the acquisition of CREIT and higher interest
expense in Loblaw’s Financial Services segment, primarily due to the growth in the credit card portfolio. Higher adjusted net
interest expense and other financing charges(1) in 2018 at Loblaw as a result of an increase in interest rates on borrowings
related to credit card receivables and a net increase in Guaranteed Investment Certificates (“GICs”), and at Choice Properties
due to the issuance of new debt and the debt acquired related to the acquisition of CREIT. A decrease in adjusted net
interest expense and other financing charges(1) in 2017 due to repayment of MTNs at Loblaw and GWL; and
an increase in GWL’s ownership interest in Loblaw in 2019, 2018 and 2017 as a result of share repurchases. GWL’s ownership
of Loblaw was approximately 52.2% as at the end of 2019 (2018 – approximately 50.4% and 2017 – approximately 48.6%).
Over the last three years, the adjusting items included:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the change in fair value adjustment of the Trust Unit liability;
the gain on disposition of Loblaw’s gas bar operations;
Loblaw’s charge related to Glenhuron;
the change in fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares;
restructuring and other related costs;
CREIT acquisition and other related costs;
asset impairments, net of recoveries;
the PC Optimum Program;
the Loblaw Card Program;
Loblaw’s spin-out of Choice Properties;
Choice Properties issuance costs;
the change in fair value adjustment on investment properties;
the remeasurement of deferred tax balances;
statutory corporate income tax rate change;
the wind-down of PC Financial banking services;
certain prior period items;
28 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
•
•
•
the impact of healthcare reform on inventory balances;
the gain on sale of non-operating properties; and
the change in foreign currency translation and other company level activities.
In 2019, total assets of $47,813 million increased by 9.1% as compared to 2018. The increase was primarily driven by the increase
in right-of-use assets due to the implementation of IFRS 16. Total long term financial liabilities of $23,697 million increased by
31.8% compared to 2018 driven by the increase in lease liabilities due to the implementation of IFRS 16.
In 2018, total assets of $43,814 million increased by 13.7% as compared to 2017. The increase in total assets was primarily driven
by an increase in investment properties as a result of the CREIT acquisition. Total long term financial liabilities increased by
41.3% compared to 2017 driven by long term debt assumed on the CREIT acquisition and net drawings on Choice Properties’
credit facility 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, 2019, 259,631,454 Units were held by unitholders
other than the Company (2018 – 231,346,144, 2017 – 47,444,450) and the Company held an approximate 62.9% (2018 – 65.4%,
2017 – 88.5%) effective ownership interest in Choice Properties.
1.3
Consolidated Other Business Matters
IFRS 16 IMPLEMENTATION In 2016, the IASB issued IFRS 16, replacing International Accounting Standard 17, “Leases” (“IAS 17”)
and related interpretations. The standard introduced a single, on-balance sheet recognition and measurement model for
lessees, eliminating the distinction between operating and finance leases. The Company implemented the standard on
January 1, 2019 using the modified retrospective approach. As a result, the Company’s 2019 results incorporate lease accounting
under IFRS 16. Prior year results have not been restated. See Section 11 “Accounting Standard Implemented”, of this MD&A for
more information on the implementation of IFRS 16.
The implementation of IFRS 16 significantly increased the assets and liabilities on the Company’s Consolidated Balance Sheet
and changed the timing and presentation of lease-related expenses in the Company’s results. The Company recorded a right-of-
use asset of $4.1 billion and a lease liability of $5.1 billion under the new standard. Under IFRS 16, the depreciation expense on
right-of-use assets and interest expense on lease liabilities replaced rent expense, which was previously recognized on a straight-
line basis in operating income under IAS 17 over the term of a lease.
The following table provides the year-over-year impacts of the implementation of IFRS 16 on the consolidated results of the
Company in the fourth quarter of 2019 and year-to-date:
12 Weeks
$ Change
52 Weeks
$ Change
($ millions except where otherwise
indicated)
Favourable/(unfavourable)
Operating income
Adjusted EBITDA(1)
Net interest expense and other
financing charges
Depreciation and amortization
Net earnings available to
common shareholders of
the Company
Diluted net earnings per
common share ($)
Loblaw
Weston
Foods
Other and
Intersegment
Total(i)
Loblaw
Weston
Foods
Other and
Intersegment
Total(i)
$
73 $
— $
(26) $
47
$
334 $
4 $
(134) $
204
285
(78)
(212)
2
(1)
(2)
(117)
170
1,239
33
91
(46)
(123)
(348)
(905)
(2)
(1)
5
2
(6)
(0.01)
(0.01)
0.03
0.01
(0.04)
12
(3)
(8)
—
—
(526)
725
169
392
(182)
(521)
25
19
0.16
0.12
(i)
Includes nominal year-over-year impact in the fourth quarter of 2019 and year-to-date from Choice Properties.
29 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
LOBLAW’S SPIN-OUT OF CHOICE PROPERTIES REAL ESTATE INVESTMENT TRUST On November 1, 2018, the Company and
Loblaw completed a reorganization under which Loblaw distributed its approximate 61.6% effective interest in Choice
Properties to the Company on a tax-free basis to Loblaw and its Canadian shareholders. In connection with the reorganization,
Loblaw minority shareholders received 0.135 of a common share of the Company for each common share of Loblaw held, which
was equivalent to the market value of their pro rata interest in Choice Properties as at the announcement date of the spin-out,
and as part of the reorganization the Company received Loblaw’s approximate 61.6% effective interest in Choice Properties.
Following the reorganization, Loblaw no longer retained its interest in Choice Properties and as a result, Loblaw ceased to
consolidate its equity interest in Choice Properties. Choice Properties became a separate reportable operating segment of the
Company. In connection with the reorganization, the Company issued approximately 26.6 million common shares to Loblaw
minority shareholders.
The issuance of approximately 26.6 million common shares in connection with the reorganization had a dilutive impact on
both the Company’s diluted net earnings per common share and adjusted diluted net earnings per common share(1) in 2019
and 2018.
The Company continues to be controlled by Mr. W. Galen Weston who, directly and indirectly through entities which he controls,
owns approximately 53.2% of the outstanding common shares of the Company.
OFFERING OF TRUST UNITS In the second quarter of 2019, Choice Properties completed an offering of 30,042,250 trust units
(the “Units”) at a price of $13.15 per Unit, for aggregate gross proceeds of approximately $395 million, and net proceeds of
approximately $381 million (the “Offering”). The Offering consisted of 26,237,250 Units sold to a syndicate of underwriters and
3,805,000 Units purchased by the Company for approximately $50 million. Choice Properties incurred issuance costs of
$14 million recorded in net interest expense and other financing charges.
CHOICE PROPERITES’ PORTFOLIO TRANSACTION On September 30, 2019, Choice Properties sold a portfolio of 30 properties
across Canada to a third party for aggregate consideration of $426 million. The portfolio consisted of 27 Loblaw stand-alone retail
properties and 3 Loblaw distribution centres. On consolidation, the transaction was not recognized as a sale of assets as under
the terms of the leases, Loblaw did not relinquish control of the properties for purposes of IFRS 16 and IFRS 15. Instead, the
proceeds were recognized as a financial liability on the Company’s consolidated balance sheet as at the end of the third quarter
of 2019. For tax purposes, this transaction was treated as a sale and income tax expense reflects the benefit from the non-
taxable portion of the gain from the sale of the portfolio of properties by Choice Properties.
As a result of the increase in taxable income from the sale transactions in 2019, the Board of Trustees of Choice Properties
declared a special non-cash distribution in the form of Trust Units on December 31, 2019. On consolidation, distributions made
by Choice Properties to unitholders other than the Company are reported as interest expense and other financing charges. As a
result, the Company recorded $18 million in the fourth quarter of 2019 in Other and Intersegment.
30 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
2.
Results of Reportable Operating Segments
The following discussion provides details of the 2019 results of operations of each of the Company’s reportable operating
segments.
2.1
Loblaw Operating Results
($ 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)
2019
48,037
2,262
4,904
10.2%
2,524
$
$
$
$
$
$
$
$
2018
$ Change
% Change
46,693 $
1,915 $
3,520 $
7.5%
1,344
347
1,384
2.9%
18.1%
39.3%
1,497 $
1,027
68.6%
(i)
Depreciation and amortization includes $508 million (2018 – $521 million) of amortization of intangible assets acquired with Shoppers
Drug Mart.
Unless otherwise indicated, Loblaw’s segment results include the impacts of spin-out related incremental depreciation, the
implementation of IFRS 16 and the consolidation of franchises.
SALES Loblaw sales in 2019 were $48,037 million, an increase of $1,344 million, or 2.9%, compared to the same period in 2018,
primarily driven by Retail sales. Retail sales in 2019 increased by $1,263 million, or 2.8%, compared to the same period in 2018
and included food retail sales of $33,756 million (2018 – $32,969 million) and drug retail sales of $13,343 million (2018 –
$12,867 million). Financial Services increased by $114 million or 10.5% driven by higher interest and interchange income and
higher sales attributable to The Mobile Shop.
Excluding the consolidation of franchises, Retail sales in 2019 increased by $976 million, or 2.2%, primarily driven by the
following factors:
•
•
food retail same-store sales growth was 1.1%. Food retail basket size increased and traffic decreased in 2019;
Loblaw’s food retail average article price was 2.5% (2018 – 0.7%), which reflects the price inflation on the specific mix of
goods sold in Loblaw’s stores. The average annual national food price inflation was 3.7% (2018 – inflation of 0.8%) as
measured by CPI. CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in Loblaw stores;
and
drug retail same-store sales growth was 3.6%, including pharmacy same-store sales growth of 4.4% and front store same-
store sales growth of 2.9%.
•
In 2019, 15 food and drug stores were opened and 6 food and drug stores were closed, resulting in a net increase in Retail
square footage of 0.4 million square feet, or 0.6%.
The redemption of Loblaw Cards resulted in the delivery of approximately $5 million of free products to customers in 2019,
which was provided for in the fourth quarter of 2017. The redemptions did not benefit sales or Loblaw’s financial performance
and Loblaw’s management does not believe it had a significant impact on food retail same-store sales.
31 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
OPERATING INCOME Loblaw operating income in 2019 was $2,262 million, an increase of $347 million, or 18.1%, compared to
the same period in 2018. The increase included the favourable impact of IFRS 16 of approximately $334 million and the total
unfavourable impact of spin-out related depreciation of approximately $91 million. Normalized for these impacts, operating
income increased by $104 million due to the improvement in underlying operating performance of $101 million and the
favourable year-over-year net impact of adjusting items totaling $3 million, as described below:
•
•
the improvement in underlying operating performance of $101 million was primarily due to Retail, including the favourable
contribution from the consolidation of franchises of $23 million. The increase was also due to an improvement in underlying
operating performance of Financial Services; and
the favourable year-over-year net impact of adjusting items totaling $3 million was primarily due to:
the favourable impact associated with certain prior period items of $22 million;
the favourable year-over-year impact of the fair value adjustment on investment properties of $21 million;
the favourable impact of the prior year inventory provision related to healthcare reform of $19 million; and
the favourable impact of a net gain on sale of non-operating properties of $12 million;
◦
◦
◦
◦
partially offset by,
◦
◦
the unfavourable year-over-year impact of restructuring and other related costs of $64 million; and
the unfavourable year-over-year impact of the fair value adjustment of derivatives of $3 million.
ADJUSTED EBITDA(1) Loblaw adjusted EBITDA(1) in 2019 was $4,904 million, an increase of $1,384 million, or 39.3%, compared to
the same period in 2018, and included the favourable impact of IFRS 16 of approximately $1,239 million. Normalized for the
impact of IFRS 16, adjusted EBITDA(1) increased by $145 million, or 4.1%, primarily due to improvements in both Retail and
Financial Services. Retail adjusted EBITDA(1) increased by $1,368 million and included the favourable impact of IFRS 16 of
approximately $1,239 million. Normalized for this impact, Retail adjusted EBITDA(1) increased by $129 million, or 3.9%. This was
driven by an increase in Retail gross profit, partially offset by an increase in Retail SG&A.
•
•
Retail gross profit percentage was 29.7%, an increase of 30 basis points compared to 2018. Excluding the consolidation of
franchises, Retail gross profit percentage was 27.6%, a decrease of 10 basis points compared to 2018. Margins were
negatively impacted by drug retail, while food retail margins were stable.
Retail SG&A increased by $373 million compared to 2018. Normalized for the impact of IFRS 16 and the consolidation of
franchises, Retail SG&A increased by $133 million and SG&A as a percentage of sales was 20.4%, an improvement of 10 basis
points compared to 2018, primarily driven by Process and Efficiency initiatives, partially offset by strategic growth
investments.
Financial Services adjusted EBITDA(1) increased by $16 million compared to 2018 due to revenue growth and lower customer
acquisition costs, partially offset by an increase in loyalty program costs and credit losses driven by the growth in the credit card
portfolio and higher operating costs including investments in digital strategy.
Loblaw adjusted EBITDA(1) in 2019 included a net gain of $7 million (2018 – $6 million) related to the sale and leaseback of
properties to Choice Properties.
DEPRECIATION AND AMORTIZATION Loblaw depreciation and amortization in 2019 was $2,524 million, an increase of
$1,027 million compared to the same period in 2018 and included the unfavourable impact of IFRS 16 of approximately
$905 million and the total unfavourable impact of spin-out related depreciation of approximately $91 million. Normalized for
these impacts, the increase in depreciation and amortization was $31 million, primarily driven by the consolidation of franchises
and an increase in IT assets. Included in depreciation and amortization is the amortization of intangible assets acquired with
Shoppers Drug Mart of $508 million (2018 – $521 million).
LOBLAW OTHER BUSINESS MATTERS
Spin-out of Choice Properties Impact on Loblaw Results As a result of the reorganization, buildings owned by Choice
Properties and leased by Loblaw are accounted for as leases and no longer accounted for as owned property by Loblaw. The
building components associated with these leases post spin-out are classified as leasehold improvements and depreciated over
the lesser of the lease term and useful life up to 25 years. The remaining average lease term on the leases related to these
leasehold improvements is approximately 10 years. Loblaw’s 2019 fourth quarter financial results included depreciation and
amortization of $21 million ($91 million year-to-date).
32 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
Process and Efficiency Loblaw continues to execute on a multi-year plan, initiated in 2018, that focuses on improving processes
and generating efficiencies across administrative, store and distribution network infrastructure. Many initiatives are underway to
reduce the complexity and cost of business operations, ensuring a low cost operating structure that allows for continued
investments in Loblaw’s strategic growth areas. Loblaw’s management anticipates investing capital as well as recording
restructuring and other charges related to these initiatives in 2020, and beyond. In the fourth quarter of 2019, Loblaw recorded
approximately $24 million ($74 million year-to-date) of restructuring and other related costs, primarily related to Process and
Efficiency initiatives.
Subsequent to year end 2019, Loblaw announced the future closure of two distribution centres in Laval and Ottawa. Loblaw is
investing to build a modern and efficient expansion to its Cornwall distribution centre to serve its food and drug retail businesses
in Ontario and Quebec. Over the next two years, the distribution centres in Laval and Ottawa will be transferring their volumes to
Cornwall. Loblaw expects to incur additional restructuring costs in 2020 and 2021 related to these closures.
Consolidation of Franchises Loblaw has more than 500 franchise food retail stores in its network. As at year end 2019, 470 of
these stores were consolidated for accounting purposes under a simplified franchise agreement (“Franchise Agreement”)
implemented in 2015.
The following table provides the total impact of the consolidation of franchises included in the consolidated results of the
Company.
($ millions except where otherwise indicated)
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Quarters Ended
Years Ended
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
Adjusted EBITDA(1)
Depreciation and amortization
Net earnings attributable to non-controlling
interests
$
444
26
470
315
7
28
21
9
$
379
21
400
264
20
35
15
19
400
70
470
$
1,335
$
56
135
79
50
310
90
400
1,048
33
92
59
34
Operating income that is included in the table above does not significantly impact net earnings available to common
shareholders of the Company as the related income is largely attributable to non-controlling interests.
Loblaw will convert franchises to the Franchise Agreement as existing agreements expire. At the end of the first quarter of 2020,
Loblaw plans to consolidate all of the remaining franchisees. Loblaw expects that the estimated annual impact in 2020 of total
consolidated franchises will be revenue of approximately $1,680 million, adjusted EBITDA(1) of approximately $210 million,
depreciation and amortization of approximately $105 million and net earnings attributable to non-controlling interests of
approximately $65 million.
Loblaw’s charge related to Glenhuron Bank Limited On September 7, 2018, the Tax Court of Canada (“Tax Court”) released its
decision relating to Glenhuron, a wholly-owned Barbadian subsidiary of Loblaw that was wound up in 2013. The Tax Court ruled
that certain income earned by Glenhuron should be taxed in Canada based on a technical interpretation of the applicable
legislation. On October 4, 2018, Loblaw filed a Notice of Appeal with the Federal Court of Appeal. Although Loblaw believes in
the merits of its position, it recorded a charge during the third quarter of 2018 of $367 million, of which $176 million was
recorded in net interest expense and other financing charges and $191 million was recorded in income taxes. Loblaw believes
that this provision will be sufficient to cover its ultimate liability if the appeal is unsuccessful. In the third quarter of 2018, Loblaw
made a cash payment of $235 million to fund the tax and interest owing in light of the decision of the Tax Court. On October 15,
2019, the appeal was heard by the Federal Court of Appeal, with the court reserving judgment until a later date.
33 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
2.2
Choice Properties Operating Results
($ millions except where otherwise indicated)
For the years ended December 31
Revenue
Net interest expense (income) and other financing
charges(i)
Net (loss) income
Funds from operations(1)(ii)
2019
1,289
1,472
(581)
680
$
$
$
$
$
$
$
$
2018
$ Change
% Change
1,148
$
141
12.3 %
(57) $
650
604
$
$
1,529
(1,231)
76
2,682.5 %
(189.4)%
12.6 %
(i) Net interest expense and other financing charges includes a fair value adjustment on Exchangeable Units.
(ii)
Funds from operations is calculated in accordance with the Real Property Association of Canada’s White Paper on Funds from Operations &
Adjusted Funds from Operations for IFRS issued in February 2019. Funds from operations in 2018 includes the accelerated amortization of
debt premium of $37 million, an exception to the White Paper definition.
REVENUE Revenue was $1,289 million in 2019, an increase of $141 million, or 12.3%, compared to 2018 and included
$750 million (2018 – $753 million) generated from tenants within Loblaw’s Retail segment. The increase in revenue was primarily
driven by:
•
•
•
additional revenue generated from the investment properties included in the acquisition of CREIT of $132 million;
an increase in base rent and operating cost recoveries from existing properties; and
additional revenue generated from properties acquired in 2018 and 2019 and from tenant openings in newly developed
leasable space;
partially offset by,
•
Choice Properties’ portfolio transaction as described in Section 1.3, “Consolidated Other Business Matters”, of this MD&A.
NET INTEREST EXPENSE (INCOME) AND OTHER FINANCING CHARGES Net interest expense and other financing charges in
2019 was $1,472 million, compared to income of $57 million in 2018. The change of $1,529 million was primarily driven by:
the unfavourable year-over-year impact of the fair value adjustment on Class B LP units (“Exchangeable Units”) of
•
$1,526 million as a result of the significant increase in the unit price of Choice Properties in 2019; and
higher interest expense resulting from the issuance of new debt related to the acquisition of CREIT; including senior
unsecured debentures, term loans and draws on the syndicated facility and interest expense on the debt assumed on the
acquisition of CREIT;
•
partially offset by,
•
a charge for the accelerated amortization of the debt premium on the conversion of Class C LP units of $37 million in 2018;
and
a reduction of interest expense on term loans as a result of repayments made using proceeds from the Offering and Choice
Properties’ portfolio transaction.
•
the unfavourable impact of higher interest expense and other financing charges, described above;
NET (LOSS) INCOME Net loss was $581 million in 2019, compared to income of $650 million in 2018, The change of
$1,231 million was primarily driven by:
•
partially offset by,
•
•
the favourable year-over-year impact of acquisition and other costs related to the acquisition of CREIT;
an increase in net operating income from investment properties acquired as part of the acquisition of CREIT and the
contribution from completed developments; and
the favourable year-over-year impact of the fair value adjustment on investment properties.
•
FUNDS FROM OPERATIONS(1) Funds from Operations(1) was $680 million in 2019, an increase of $76 million compared to 2018
primarily driven by growth in net operating income attributable to the portfolio acquired, partially offset by higher interest
expense due to the acquisition of CREIT.
CHOICE PROPERTIES OTHER BUSINESS MATTERS
Investment Property Transactions During 2019, Choice Properties acquired eight investment properties and a financial real
estate asset for an aggregate purchase price of $149 million, excluding transaction costs. Of the eight investment properties
acquired during 2019, five investment properties were acquired from third-party vendors, for an aggregate purchase price of
$77 million, excluding transaction costs, which was settled by an assumption of a $14 million mortgage, settlement of
mortgages receivable of $25 million, with the remainder in cash. During 2019, Choice Properties acquired one property from
Weston Foods and two properties and one financial real estate asset from Loblaw, for an aggregate purchase price of
$72 million, excluding transaction costs, fully settled in cash.
34 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
During 2019, Choice Properties had six disposition transactions for an aggregate selling price of $468 million, excluding
transaction costs, which were settled in cash. These disposition activities included the sale of:
•
a portfolio of 30 properties across Canada to a third-party for aggregate consideration of $426 million, excluding transaction
costs. The portfolio consisted of 27 Loblaw stand-alone retail properties and 3 Loblaw distribution centres;
retail property in Cowansville, Quebec, which had a Loblaw lease for $1 million, excluding transaction costs. Concurrent with
the sale, Choice Properties recognized lease surrender income of $2 million upon disposition, which was settled in cash;
development lands in Brampton, Ontario and in Strathcona County, Alberta for $31 million, excluding transaction costs;
retail property in Red Deer, Alberta, which had a Loblaw lease for $9 million, excluding transaction costs; and
land parcel at retail property in Olds, Alberta for $1 million, excluding transaction costs.
•
•
•
•
2.3 Weston Foods Operating Results
($ 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)
2019
2,155
72
223
10.3%
147
$
$
$
$
$
$
$
$
2018(4)
$ Change
% Change
2,122 $
92 $
233 $
11.0%
33
(20)
(10)
1.6 %
(21.7)%
(4.3)%
130 $
17
13.1 %
(i)
Depreciation and amortization includes $9 million (2018 – $9 million) of accelerated depreciation related to restructuring and
other related costs.
SALES Weston Foods sales in 2019 were $2,155 million, an increase of $33 million, or 1.6%, compared to the same period in
2018. Sales included the positive impact of foreign currency translation of approximately 1.4%. Excluding the favourable impact
of foreign currency translation, sales increased by 0.2% mainly due to growth in key categories and the combined positive
impact of pricing and changes in sales mix, partially offset by the impact of product rationalization and the lapping of sales lost
from key customers in 2018.
OPERATING INCOME Weston Foods operating income in 2019 was $72 million, a decrease of $20 million, or 21.7%, compared
to the same period in 2018. Normalized for the favourable impact of IFRS 16 of approximately $4 million and the prior year
impact of a net gain of $24 million related to the sale leaseback of properties, operating income was flat. The favourable year-
over-year net impact of adjusting items totaling $7 million was offset by the decline in the underlying operating performance of
$7 million. The year-over-year net impact of adjusting items included the following:
•
partially offset by,
•
•
the unfavourable year-over-year impact of the fair value adjustment of derivatives of $12 million; and
the unfavourable year-over-year impact of inventory loss, net of recoveries of $3 million.
the favourable year-over-year impact of restructuring and other related costs of $22 million;
ADJUSTED EBITDA(1) Weston Foods adjusted EBITDA(1) in 2019 was $223 million, a decrease of $10 million, or 4.3%, compared to
the same period in 2018. Normalized for the favourable impact of IFRS 16 of approximately $12 million and the prior year
impact of a net gain of $24 million related to the sale leaseback of properties, adjusted EBITDA(1) increased by $2 million driven
by productivity improvements and the net benefits realized from Weston Foods’ transformation program, partially offset by
higher input and distribution costs and an increase in performance related compensation accruals.
Weston Foods adjusted EBITDA margin(1) decreased to 10.3% compared to 11.0% in the same period in 2018. Normalized for the
favourable impact of IFRS 16 and the prior year net gain related to the sale leaseback of properties, adjusted EBITDA margin(1)
was flat at 9.8% compared to the same period in 2018, driven by the factors described above.
DEPRECIATION AND AMORTIZATION Weston Foods depreciation and amortization in 2019 was $147 million, an increase of
$17 million compared to the same period in 2018. Normalized for the unfavourable impact of IFRS 16 of approximately
$8 million, depreciation and amortization increased by $9 million. Depreciation and amortization included $9 million (2018 –
$9 million) of accelerated depreciation related to Weston Foods’ transformation program. Excluding these amounts and the
impact of IFRS 16, depreciation and amortization increased by $9 million in 2019 due to capital investments.
35 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
WESTON FOODS OTHER BUSINESS MATTERS
Restructuring and other related costs 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 2019, Weston Foods recorded a net gain of $4 million (2018 – costs of $4 million) related to
restructuring activities driven by a gain on sale of an unprofitable facility in Canada, partially offset by reorganization costs from
the transformation program. Year-to-date, charges of $11 million (2018 – $33 million) were primarily related to the
reorganization costs from the transformation program.
3.
3.1
Liquidity and Capital Resources
Cash Flows
($ millions)
For the years ended December 31
Cash and cash equivalents, beginning of year
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 year
2019
1,521
4,555
(1,492)
(2,750)
—
1,834
$
$
$
$
$
$
$
$
$
$
$
$
2018
2,034
2,719
$
$
(2,256) $
(987) $
11
1,521
$
$
$ Change
(513)
1,836
764
(1,763)
(11)
313
CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities were $4,555 million in 2019, an increase of
$1,836 million compared to the same period in 2018. The increase included a favourable impact attributable to the
implementation of IFRS 16 with an offsetting impact in cash flows used in financing activities. Normalized for the impact of IFRS
16, the increase in cash flows from operating activities was primarily due to a favourable change in non-cash working capital and
provisions and higher cash earnings, partially offset by higher income taxes paid.
CASH FLOWS USED IN INVESTING ACTIVITIES Cash flows used in investing activities were $1,492 million in 2019, a decrease of
$764 million compared to the same period in 2018. The decrease in cash flows used in investing activities was primarily due to
prior year’s net cash used in Choice Properties’ acquisition of CREIT, partially offset by an unfavourable change in short term
investments.
The following table summarizes the Company’s capital investments by each of its reportable operating segments:
($ millions)
For the years ended December 31
Loblaw
Choice Properties
Weston Foods
Other
Total capital investments
2019
1,206
$
188
194
8
2018
1,070
311
212
—
1,596
$
1,593
$
$
CASH FLOWS USED IN FINANCING ACTIVITIES Cash flows used in financing activities were $2,750 million in 2019, an increase
of $1,763 million compared to the same period in 2018. Normalized for the impact of IFRS 16, the increase in cash flows used in
financing activities was primarily driven by Choice Properties’ higher net repayments of long term debt and short term debt in
the current year, partially offset by proceeds received from Choice Properties’ portfolio transaction, issuances of Choice
Properties units and lower repurchases of Loblaw’s common shares.
The Company’s significant long term debt transactions are set out in Section 3.3, “Components of Total Debt”.
36GEORGE WESTON LIMITED 2019 ANNUAL REPORT FREE CASH FLOW(1) The definition of free cash flow(1) was changed in the first quarter of 2019 to normalize for the impact of
the implementation of IFRS 16. Lease payments were deducted from the calculation, which resulted in no IFRS 16 impact on
the metric.
($ millions)
For the years ended December 31
Cash flows from operating activities
Less:
Interest paid
Fixed asset and investment properties purchases
Intangible asset additions
Lease payments, net(i)
Free cash flow(1)
2019
2018
$ Change
$
4,555
$
2,719
$
1,836
891
1,193
403
726
992
1,250
343
—
(101)
(57)
60
726
$
1,342
$
134
$
1,208
(i)
Includes cash rent paid on lease liabilities, net of lease payments received from finance leases. This adjustment normalizes for the impact
of the implementation of IFRS 16.
The increase in free cash flow(1) in 2019 was $1,208 million, compared to the same period in 2018. The increase in free cash flow
(1) was primarily due to a favourable change in non-cash working capital and provisions, higher cash earnings and lower interest
paid.
3.2
Liquidity
The Company (excluding Loblaw and Choice Properties) expects that cash and cash equivalents, short term investments and
future operating cash flows will enable it to finance its capital investment program and fund its ongoing business requirements,
including working capital, pension plan funding requirements and financial obligations, over the next 12 months. The Company
(excluding Loblaw and Choice Properties) does not foresee any impediments in obtaining financing to satisfy its long term
obligations.
Loblaw expects that cash and cash equivalents, short term investments, future operating cash flows and the amounts available
to be drawn against committed credit facilities will enable it to finance its capital investment program and fund its ongoing
business requirements over the next 12 months, including working capital, pension plan funding requirements and financial
obligations. President’s Choice Bank (“PC Bank”) expects to obtain long term financing for its credit card portfolio through the
issuance of Eagle Credit Card Trust® (“Eagle”) notes and Guaranteed Investment Certificates (“GICs”).
Choice Properties expects to obtain long term financing for the acquisition of properties primarily through the issuance of
unsecured debentures and equity.
For details on the Company’s cash flows, see Section 3.1 “Cash Flows”, of this MD&A.
37 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
TOTAL DEBT The following table presents total debt, as monitored by management:
($ millions)
Loblaw
Choice
Properties
Weston
Foods
Other/
Intersegment
Bank indebtedness
$
18 $
— $
— $
— $
Total
18
Loblaw
Choice
Properties
Weston
Foods
Other/
Intersegment
$
56 $
— $
— $
— $
Total
56
As at
Dec. 31, 2019
Dec. 31, 2018
Short term debt
Long term debt due
within one year
Long term debt(i)
Certain other
liabilities(ii)
Fair value of financial
derivatives related
to the above debt
Total debt excluding
lease liabilities
Lease liabilities due
within one year(iii)
775
—
1,127
715
5,971
5,826
65
435
—
—
—
—
—
—
—
714
1,489
915
—
1,842
847
496
915
12,712
6,379
6,681
—
500
(537)
(537)
48
—
—
—
—
—
—
—
—
664
1,579
—
1,343
915
13,975
—
48
(556)
(556)
$ 7,956 $ 6,976 $
— $ 1,092 $ 16,024
$ 8,245 $ 7,177 $
— $
1,023 $ 16,445
Lease liabilities(iii)
$ 7,691 $
6 $
60 $ (3,507) $ 4,250
$
1,419 $
1 $
13 $
(576) $
857
$
$
— $
— $
— $
— $
— $
— $
— $
— $
—
—
Total debt including
total lease
liabilities
$ 17,066 $ 6,983 $
73 $ (2,991) $ 21,131
$ 8,245 $ 7,177 $
— $
1,023 $ 16,445
(i)
(ii)
Finance lease obligations of $535 million were included in long term debt as at December 31, 2018, prior to the implementation of
IFRS 16.
Includes financial liabilities of $435 million recorded primarily as a result of Choice Properties’ portfolio transaction. See Section 5.3 “Other
Business Matters”, of this MD&A.
(iii) Lease liabilities due within one year of $4 million and lease liabilities of $12 million relating to GWL Corporate are included under Other
and Intersegment.
Management targets credit metrics consistent with those of an investment grade profile. GWL Corporate holds cash and cash
equivalents and short term investments and as a result monitors its leverage on a net debt basis. GWL Corporate has total debt
including lease liabilities of $1,108 million (2018 – $1,023 million) and cash and cash equivalents and short term investments of
$679 million (2018 – $612 million), resulting in a net debt position of $429 million (2018 – $411 million).
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 segment credit metrics consistent with those of investment grade retailers. Loblaw
monitors the Retail segment’s debt to retail adjusted EBITDA(1) ratio as a measure of the leverage being employed. Loblaw
Retail segment debt to adjusted EBITDA(1) ratio increased compared to 2018 primarily due to an increase in Retail debt
driven by the increase in lease liabilities as a result of the implementation of IFRS 16. This increase was partially offset by the
improvement in adjusted EBITDA(1) also as a result of the implementation of IFRS 16.
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.
38 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
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 2019 and throughout the year, the Company, Loblaw and
Choice Properties were in compliance with their respective covenants.
As at year end 2019 and throughout the year, PC Bank and Choice Properties met all applicable regulatory requirements.
SHORT FORM BASE SHELF PROSPECTUS In 2019, 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 over a 25-month period.
In 2019, Eagle filed a Short Form Base Shelf Prospectus, which allows for the potential issuance of up to $1.25 billion of notes
over a 25-month period.
In 2018, GWL filed a Base Shelf Prospectus which allows 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.
In 2018, Choice Properties filed a Short Form Base Shelf Prospectus, which allows for the issuance of up to $2 billion of Units and
debt securities, or any combination thereof, over a 25-month period.
3.3
Components of Total Debt
DEBENTURES The following table summarizes the debentures issued or assumed in the years ended as indicated:
($ millions except where otherwise indicated)
Loblaw Term Loans
– Loblaw Companies Limited Notes
– Loblaw Companies Limited Notes
Choice Properties senior unsecured debentures
– Series I
– Series J
– Series K
– Series L
– Series M
– Series A-C
– Series B-C
– Series C-C
– Series D-C
Interest
Rate
Maturity
Date
2019
Principal
Amount
2018
Principal
Amount
3.92%
4.49%
3.01%
3.55%
3.56%
4.18%
3.53%
3.68%
4.32%
2.56%
2.95%
June 10, 2024
$
December 11, 2028
March 21, 2022
January 10, 2025
September 9, 2024
March 8, 2028
June 11, 2029
July 24, 2018
January 15, 2021
November 30, 2019
January 18, 2023
$
—
—
—
—
—
—
750
—
—
—
—
400
400
300
350
550
750
—
125
100
100
125
Total debentures issued or assumed
$
750
$
3,200
39 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
The following table summarizes the debentures, unsecured term loan facilities and term loans repaid in the years ended as
indicated:
($ millions except where otherwise indicated)
Shoppers Drug Mart Notes
Loblaw Companies Limited - Term Loan(i)
Loblaw Companies Limited - Term Loan(ii)
Loblaw Companies Limited Notes(iii)
Choice Properties senior unsecured debentures
– Series A-C
– Series A
– Series 7
– Series C-C
Choice Properties - Term Loan(vi)
Choice Properties - Term Loan(vii)
Total debentures and term loans repaid
Maturity
Date
2019
Principal
Amount
2018
Principal
Amount
Interest
Rate
2.36%
Variable
Variable
May 24, 2018
$
March 28, 2019
March 29, 2019
3.75%
March 12, 2019
3.68%
3.55%
3.00%
2.56%
Variable
Variable
July 24, 2018
July 5, 2018(iv)
September 20, 2019(v)
November 30, 2019(v)
May 4, 2022
May 4, 2023
$
—
—
—
—
—
—
200
100
175
625
275
48
250
800
125
400
—
—
—
—
$
1,100
$
1,898
(i)
Loblaw unsecured term loan facility bearing interest at variable rates of either Prime plus 0.45% or Bankers’ Acceptance rate plus 1.45% were
redeemed on August 29, 2018.
(ii) Loblaw unsecured term loan facility bearing interest at variable rates of either Prime plus 0.13% or Bankers’ Acceptance rate plus 1.13% were
redeemed on August 29, 2018.
(iii) Redeemed on December 31, 2018.
(iv) Redeemed on February 12, 2018.
(v) Redeemed on June 27, 2019.
(vi) Choice Properties term loan facility bearing interest at variable rates of either Prime plus 0.45% or Bankers’ Acceptance rate plus 1.45% were
redeemed on June 11, 2019.
(vii) Choice Properties term loan facility bearing interest at variable rates of either Prime plus 0.45% or Bankers’ Acceptance rate plus 1.45% were
redeemed on June 11, 2019 and September 30, 2019.
Subsequent to year end 2019, Choice Properties, redeemed in full, the $300 million aggregate principal amount of the Series 8
senior unsecured debentures due on April 20, 2020.
Also subsequent to year end 2019, Choice Properties agreed to issue, on a private placement basis, $500 million aggregate
principal amount of senior unsecured debentures. Choice Properties will also repay $250 million aggregate principal amount of
the series E senior unsecured debentures due September 14, 2020, as well as a portion of the balance drawn on its credit facility.
COMMITTED CREDIT FACILITIES The components of the committed lines of credit available as at year end 2019 and 2018 were
as follows:
($ millions)
Maturity
Date
Available
Credit
Drawn
Available
Credit
Drawn
Loblaw committed credit facility
June 10, 2021
$
1,000
$
—
$
1,000
$
—
Choice Properties committed
syndicated credit facility(i)
Total committed credit facilities
May 4, 2023
1,500
$
2,500
$
132
132
1,500
$
2,500
$
325
325
As at
Dec. 31, 2019
Dec. 31, 2018
(i)
Choice Properties has an accordion commitment from the lenders which allows Choice Properties to increase the limit by an additional
$500 million (subject to certain conditions).
40 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
INDEPENDENT SECURITIZATION TRUSTS Loblaw, through PC Bank, participates in various securitization programs that provide
a source of funds for the operation of its credit card business. PC Bank maintains and monitors a co-ownership interest in credit
card receivables with independent securitization trusts, including Eagle and the Other Independent Securitization Trusts, in
accordance with its financing requirements.
The following table summarizes the amounts securitized to independent securitization trusts:
($ 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, 2019
Dec. 31, 2018
$
$
1,000
775
1,775
$
$
750
915
1,665
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 2019
and throughout the year.
During 2019, Eagle issued $250 million (2018 – $250 million) of senior and subordinated term notes with a maturity date of
July 17, 2024 (2018 – July 17, 2023) at a weighted average interest rate of 2.28% (2018 – 3.10%). In connection with this
issuance, $250 million (2018 – $250 million) of bond forward agreements were settled, resulting in a realized fair value loss of
$8 million (2018 – $1 million) before income taxes recorded in other comprehensive income and a net effective interest rate of
2.94% (2018 – 3.15%) on the Eagle notes issued.
During 2018, $400 million of 2.91% senior and subordinated term notes issued by Eagle matured and were repaid.
INDEPENDENT FUNDING TRUSTS As at year end 2019, the independent funding trusts had drawn $505 million (2018 –
$536 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 2019, Loblaw has agreed to provide a credit enhancement of $64 million (2018 – $64 million) in the form of a
standby letter of credit for the benefit of the independent funding trusts representing not less than 10% (2018 – 10%) of the
principal amount of the loans outstanding.
During 2019, Loblaw renewed the revolving committed credit facility relating to the independent funding trusts until
May 27, 2022.
GUARANTEED INVESTMENT CERTIFICATES The following table summarizes PC Bank’s GIC activity, before commissions, for the
years ended as follows:
($ millions)
Balance, beginning of year
GICs issued
GICs matured
Balance, end of year
$
2019
1,141
453
(283)
1,311
$
2018
852
495
(206)
1,141
$
$
As at year end 2019, $527 million in GICs were recorded as long term debt due within one year (2018 – $274 million).
41 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
DEBT ASSOCIATED WITH EQUITY FORWARD SALE AGREEMENT In 2001, Weston Holdings Limited (“WHL”) issued $466 million
of 7.00% Series A Debentures due 2031, which are serviced by the issuance of Series B Debentures. In addition, WHL entered
into an equity forward sale agreement with the lender to sell 9.6 million Loblaw common shares at an initial forward sale price of
$48.50 which increases by the interest rates on Series A Debentures and Series B Debentures. As at December 31, 2019 the
forward rate was $123.64 (2018 – $118.42) and Series B liability was $714 million (2018 – $664 million). The Series A Debentures
(“A”), Series B Debentures and the accrued interest (“B”), and the fair value of the equity forward sale agreement (“C”) should be
considered together. At any time, the aggregate value of A, B, and C will be equivalent to the market value of the 9.6 million
shares (see chart below). WHL is permitted to settle the transaction in whole or in part, at any time prior to 2031.
Interest charges on Series A Debentures and Series B Debentures are non-cash and accrued at an interest rate of 7% and
bankers’ acceptance plus 0.50%, respectively and are serviced by the issuance of Series B Debentures. The amount is offset by
non-cash forward accretion income associated with the equity forward sale agreement. WHL recognizes a non-cash charge or
income, representing the fair value adjustment of the forward sale agreement based on the changes in the value of the
underlying 9.6 million Loblaw common shares. WHL has to pay a forward fee of $20 million (2018 – $22 million) to the lender
comprised of servicing fees and estimated dividends associated with the underlying 9.6 million Loblaw common shares.
As at December 31, 2019
(i)
Included the accrued interest of Series A Debenture and Series B Debenture of $7 million.
(ii) Calculated as the bid price of Loblaw of $67.68 multiplied by 9.6 million Loblaw common shares.
The following table summarizes the Company’s (excluding Loblaw and Choice Properties) debt in Other and Intersegment:
($ millions)
Series A
Series B
Fair value of financial derivatives related to the above debt
Debt associated with equity forward sale agreement
Debentures
Transaction costs and other
Other and Intersegment debt
Maturity Date
Dec. 31, 2019
Dec. 31, 2018
As at
2031
$
On demand
n/a
2024 - 2033
n/a
$
$
$
$
466
714
(537)
643
450
(1)
466
664
(556)
574
450
(1)
1,092
$
1,023
42 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
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 2019, Loblaw’s maximum obligation in respect of such guarantees
was $580 million (2018 – $580 million) with an aggregate amount of $468 million (2018 – $466 million) in available lines of credit
allocated to the Associates by the various banks. As at year end 2019, Associates had drawn an aggregate amount of $18 million
(2018 – $56 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.
3.4
Financial Condition
Adjusted return on average equity attributable to common shareholders of
the Company(1)
Adjusted return on capital(1)(ii)
As at
Dec. 31, 2019(i)
Dec. 31, 2018
16.1%
10.3%
12.7%
12.0%
(i)
(ii)
Opening equity and opening capital include the implementation impacts of IFRS 16 when calculating the average of equity and average of
capital, respectively.
Includes the annual impact of IFRS 16. Tax-effected adjusted operating income(1) was approximately $0.1 billion higher in 2019 due to the
change in presentation of the Company’s rent expense.
Adjusted return on average equity attributable to common shareholders of the Company(1) increased as at year end 2019
compared to year end 2018, primarily due to the spin-out of Choice Properties, earnings growth and decrease in retained
earnings as a result of the implementation of IFRS 16.
Adjusted return on capital(1) decreased as at year end 2019 compared to year end 2018, primarily due to an increase in the
average debt driven by the increase in lease liabilities as a result of the implementation of IFRS 16. This increase was partially
offset by the improvement in tax-effected adjusted operating income(1) also as a result of IFRS 16.
3.5
Credit Ratings
In 2019, Standard and Poor’s reaffirmed the credit ratings and outlook for GWL, Loblaw and Choice Properties. Also, in 2019,
Dominion Bond Rating Service (“DBRS”) reaffirmed the credit ratings and trend for GWL and Choice Properties, and reaffirmed
the credit ratings for Loblaw and changed the trend from Stable to Positive.
The following table sets out the current credit ratings of GWL:
Dominion Bond Rating Service
Standard & Poor’s
Credit Ratings (Canadian Standards)
Credit Rating
Trend
Credit Rating
Outlook
Issuer rating
Medium term notes
Other notes and debentures
Preferred shares
BBB
BBB
BBB
Pfd-3
Stable
Stable
Stable
Stable
BBB
BBB
BBB
P-3 (high)
Stable
n/a
n/a
n/a
The following table sets out the current credit ratings of Loblaw:
Dominion Bond Rating Service
Standard & Poor’s
Credit Ratings (Canadian Standards)
Credit Rating
Trend
Credit Rating
Outlook
Issuer rating
Medium term notes
Other notes and debentures
Second Preferred shares, Series B
BBB
BBB
BBB
Pfd-3
Positive
Positive
Positive
Positive
BBB
BBB
BBB
P-3 (high)
Stable
n/a
n/a
n/a
43 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
The following table sets out the current credit ratings of Choice Properties:
Credit Ratings (Canadian Standards)
Credit Rating
Trend
Credit Rating
Outlook
Dominion Bond Rating Service
Standard & Poor’s
Issuer rating
Senior unsecured debentures
3.6
Share Capital
BBB
BBB
Stable
Stable
BBB
BBB
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, 2019:
(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
153,667,750
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, 2019 and December 31,
2018:
2018
Common
Share
Capital
221
2,547
12
(14)
($ millions except where otherwise indicated)
Number of
Common
Shares
2019
Common
Share
Capital
Number of
Common
Shares
Issued and outstanding, beginning of year
153,370,108
$
2,766
127,905,581
$
Issued for Loblaw’s spin-out of Choice Properties
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,
—
529,965
(232,323)
—
47
(4)
26,596,641
145,076
(1,277,190)
153,667,750
$
2,809
153,370,108
$
2,766
(120,305)
(60,000)
91,473
(88,832)
—
(1)
1
—
(228,803)
—
108,498
(120,305)
—
—
—
—
end of year
153,578,918
$
2,809
153,249,803
$
2,766
Weighted average outstanding, net of shares
held in trusts
153,537,411
131,844,880
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.
44 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
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. During 2018, the Board raised the quarterly common share dividend by $0.035 to $0.490 in the
second quarter and by $0.025 to $0.515 in the fourth quarter. In the second quarter of 2019, the Board raised the quarterly
common share dividend by $0.010 to $0.525 per share. The Board declared dividends for the years ended as follows:
($)
Dividends declared per share(i):
Common share
Preferred share:
Series I
Series III
Series IV
Series V
2019
2.090
1.45
1.30
1.30
1.1875
$
$
$
$
$
2018
1.950
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, 2020 and
subsequently paid on January 2, 2020. Dividend declared on Preferred Shares, Series I was payable on December 15, 2019 and subsequently
paid on December 16, 2019.
The following table summarizes the Company’s cash dividends declared subsequent to year end 2019:
($)
Dividends declared per share(i)
– Common share
– Preferred share:
Series I
Series III
Series IV
Series V
$
$
$
$
$
0.525
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, 2020. Dividends declared
on Preferred Shares, Series I are payable on March 15, 2020.
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 Canada Revenue Agency.
NORMAL COURSE ISSUER BID (“NCIB”) PROGRAM The following table summarizes the Company’s activity under its NCIB
program for the years ended as follows:
($ millions except where otherwise indicated)
Purchased for future settlement of RSUs and PSUs (number of shares)
Purchased for current settlement of RSUs and DSUs (number of shares)
Purchased and cancelled (number of shares)
Cash consideration paid
Purchased and held in trusts
Purchased and settled
Purchased and cancelled
Premium charged to retained earnings
Purchased and held in trusts
Purchased and settled
Purchased and cancelled
Reduction in share capital
2019
60,000
64,851
230,698
2018(i)
—
20,855
1,277,190
$
$
$
(6)
(6)
(25)
4
1
21
4
$
$
$
—
(2)
(123)
—
—
109
14
(i)
Certain comparative figures have been restated to conform with current year presentation.
45 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
In the second quarter of 2019, GWL renewed its NCIB program to purchase on the Toronto Stock Exchange (“TSX”) or through
alternative trading systems up to 7,676,458 of its common shares, representing approximately 5% of issued and outstanding
common shares. In accordance with the rules of the TSX, the Company may purchase its common shares from time to time at
the then market price of such shares.
As of December 31, 2019, the Company purchased 274,193 common shares under its current NCIB program.
3.7
Off-Balance Sheet Arrangements
The following is a summary of the Company’s off-balance sheet arrangements. Certain significant arrangements have also been
discussed in Section 3.3, “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 2019, the aggregate gross
potential liability related to the Company’s letters of credit was approximately $646 million (2018 – $649 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 2019, the guarantee on behalf of PC Bank to MasterCard® was U.S. dollars $190 million (2018 – U.S.
dollars $190 million).
CPH Master Limited Partnership guarantees certain debt assumed by purchasers in connection with past dispositions of
properties made by CREIT before the acquisition. These guarantees will remain until the debt is modified, refinanced or
extinguished. Credit risks arise in the event that the purchasers default on repayment of their debt. These credit risks are
mitigated by the recourse which Choice Properties has under these guarantees, in which case it would have a claim against the
underlying property. The estimated amount of debt as at year end 2019 subject to such guarantees, and therefore the maximum
exposure to credit risk, was $37 million (2018 – $38 million) with an estimated weighted average remaining term of 3.5 years
(2018 – 4.5 years).
GLENHURON BANK LIMITED SURETY BOND In connection with the Canada Revenue Agency’s reassessment of Loblaw on
certain income earned by Glenhuron, Loblaw arranged for a surety bond to the Ministry of Finance in order to appeal the
reassessments. As a result of the decision of the Tax Court and incremental payments by Loblaw, the amount of the surety bond
is $49 million (2018 – $46 million).
CASH COLLATERALIZATION As at year end 2019, GWL and Loblaw had agreements to cash collateralize certain uncommitted
credit facilities up to amounts of $45 million (2018 – $45 million) and $103 million (2018 – $103 million), respectively. As at year
end 2019, GWL and Loblaw had $45 million (2018 – $45 million) and $1 million (2018 – $2 million) deposited with major
financial institutions, respectively, and classified as security deposits on the consolidated balance sheets.
46 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
3.8
Contractual Obligations
The following table summarizes certain of the Company’s significant contractual obligations and other obligations as at year
end 2019:
SUMMARY OF CONTRACTUAL OBLIGATIONS
Payments due by year
($ millions)
Total debt(i)
Foreign exchange forward
contracts
Financial liabilities(ii)
Lease payments
Contracts for purchases of real
property and capital
investment projects(iii)
Purchase obligations(iv)
2020
2021
2022
2023
2024
Thereafter
Total
$
3,885 $
1,734 $
2,155 $
2,376 $
2,189 $
8,203 $
20,542
573
33
862
368
387
—
31
734
169
271
—
28
607
140
86
—
32
587
61
21
—
32
485
32
—
—
238
573
394
2,028
5,303
3
7
773
772
Total contractual obligations
$
6,108 $
2,939 $
3,016 $
3,077 $
2,738 $
10,479 $
28,357
(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, and an independent funding trust, as well as annual payment obligations for consolidated structured entities and
mortgages. Variable interest payments are based on the forward rates as at year end 2019.
(ii) Represents the contractual payments that Loblaw is committed to related to the Choice Properties’ Portfolio Transaction. See Section 5.3
(iii)
(iv)
“Other Business Matters”, of this MD&A.
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.
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 2019, 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.
47 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
4.
4.1
Quarterly Results of Operations
Quarterly Financial Information
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, 2019 and December 31, 2018 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 next 53-week year will occur in fiscal year 2020.
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
($ millions except where
otherwise indicated)
Sales
Operating income
Adjusted EBITDA(1)
Depreciation and
amortization(i)
Net (loss) earnings
Net (loss) earnings attributable
to shareholders of the
Company
Net (loss) earnings available to
common shareholders of
the Company
Net (loss) earnings per
common share ($) - basic
Net (loss) earnings per
common share ($) - diluted
Adjusted diluted net earnings
per common share(1) ($)
Loblaw’s Food retail same-
store sales growth
Loblaw’s Drug retail same-
store sales growth
Average quarterly national
food price inflation
(as measured by CPI)
Choice Properties’ Funds From
Operations per unit
- diluted
Choice Properties’ Net
Operating Income (cash
basis)
Weston Foods’ sales (decline)
growth
Weston Foods’ sales (decline)
growth excluding impact of
foreign currency translation
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2019
Total
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2018
Total
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(audited)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(audited)
$ 11,173
$ 11,603
$ 15,226
$ 12,107
$ 50,109
$ 10,744
$ 11,245
$ 14,862
$
$
$
$
586
1,158
535
(372)
$
$
$
$
770 $
1,313
534
353
$
$
$
884
1,661
701
264
$
$
$
$
718
1,351
548
578
$
$
$
$
2,958
5,483
2,318
823
$
$
$
$
502
918
400
378
$
589
$ 1,073
$
$
400
78
$
$
$
$
804
1,391
530
130
$
$
$
$
$
11,717
$ 48,568
690
$ 2,585
1,146
$ 4,528
416
412
$ 1,746
$
998
$
(478)
$
194
$
83
$
443
$
242
$
190
$
38
$
65
$
281
$
574
$
$
$
$
(488)
$
184
$
69
$
433
$
198
(3.18)
$
1.20 $
0.45
$
2.82
$
1.29
(3.18)
$
1.19
$
0.44
$
2.81
$
1.26
1.30
$
1.70 $
2.54
$
1.69
$
7.24
$
$
$
$
180
1.41
1.40
1.38
$
$
$
$
28
0.22
0.21
1.63
$
$
$
$
51
0.40
0.40
2.25
$
$
$
$
271
1.86
1.86
1.59
$
$
$
$
530
4.02
3.99
6.85
2.0 %
0.6%
0.1%
1.9%
1.1%
1.9 %
0.8 %
0.9 %
0.8 %
1.1 %
2.2 %
4.0%
4.1%
3.9%
3.6%
3.7 %
1.7 %
2.5 %
1.9 %
2.4 %
3.3 %
3.6%
4.1%
3.7%
3.7%
1.2 %
0.1 %
0.3 %
1.7 %
0.8 %
$ 0.252
$
0.248
$ 0.250 $ 0.237
$
0.987
$ 0.255
$ 0.272
$ 0.253
$ 0.256
$ 1.033
$
233
$
235
$
239
$
235
$
942
$
150
$
202
$
230
$
233
$
815
(0.2)%
2.4%
1.3%
3.0%
1.6%
(4.1)%
(8.1)%
(5.7)%
(3.8)%
(5.4)%
(3.1)%
0.2%
0.6%
3.2%
0.2%
(1.5)%
(5.7)%
(7.3)%
(5.9)%
(5.2)%
(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 related costs.
48 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
IMPACT OF TRENDS AND SEASONALITY ON QUARTERLY RESULTS Consolidated quarterly results for the last eight quarters
were impacted by the following significant items: foreign currency exchange rates, seasonality and the timing of holidays. The
impact of Loblaw seasonality is greatest in the fourth quarter and least in the first quarter. The impact of Weston Foods
seasonality is greatest in the third and fourth quarters and least in the first quarter.
SALES Over the last eight quarters, consolidated sales have been impacted by each of the Company’s reportable operating
segments as follows:
•
•
at Loblaw, due to macro-economic conditions impacting food and drug retail prices and the consolidation of franchises.
Over the past eight quarters, Loblaw’s net retail square footage increased by 0.5 million square feet to 70.8 million
square feet.
Choice Properties revenue was impacted by the acquisition of CREIT in the second quarter of 2018, an increase in base
rents and recovery of property operating costs from existing properties and additional revenue generated from properties
acquired in 2018 and 2019 and from tenant openings in newly developed leasable space.
• Weston Foods sales were impacted by changes in volume, the impact of pricing and changes in sales mix; starting in the
second quarter of 2018, sales were impacted by product rationalization, and from the third quarter of 2018 to the second
quarter of 2019 sales were impacted by the loss of sales from key customers, when compared to the same periods in
prior year.
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:
•
Loblaw year-over-year quarterly underlying operating performance during 2019 reflected the changes in underlying
operating performance of Loblaw’s Retail segment, minimum wage increases and incremental healthcare reform, cost
savings and operating efficiencies from Process and Efficiency initiatives and benefits from strategic initiatives;
Choice Properties favourable year-over-year quarterly underlying operating performance during 2019 was impacted by the
acquisition of CREIT in the second quarter of 2018 and the contribution from completed developments;
normalized for the prior year impact of a net gain related to the sale leaseback of properties, Weston Foods year-over-year
quarterly underlying operating performance during 2019 reflected productivity improvements and the net benefits realized
from the transformation program, partially offset by higher input and distribution costs and an increase in performance
related compensation accruals;
year-over year quarterly adjusted net interest and other financing charges(1) increased during 2019 due to the special
distribution in the fourth quarter of 2019, higher distributions from newly issued Trust Units to former CREIT unitholders as
part of the acquisition consideration and as part of the offering of Trust Units in the second quarter of 2019 and the issuance
of new debt and the debt acquired related to the acquisition of CREIT, partially offset by repayments on term loans; and
year-over-year quarterly adjusted income tax rate(1) was flat in the first quarter of 2019 and decreased in the second, third
and fourth quarter of 2019.
•
•
•
•
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 1.2, “Selected Annual Information”
and Section 14, “Non-GAAP Financial Measures”, of this MD&A.
49 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
4.2
Fourth Quarter Results
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.
(unaudited)
($ millions except where otherwise indicated)
Quarters Ended
Dec. 31, 2019
Dec. 31, 2018
$ Change
% Change
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12,107
718
1,351
11.2%
548
7
277
133
171
26.5%
443
433
262
2.81
1.69
0.525
0.3625
0.3250
0.3250
0.296875
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
11,717 $
690 $
1,146 $
9.8%
416 $
218 $
208 $
60 $
178 $
27.7%
281 $
271 $
232 $
1.86 $
1.59 $
0.515
0.3625
0.3250
0.3250
0.296875
390
28
205
132
(211)
69
73
(7)
162
162
30
0.95
0.10
3.3 %
4.1 %
17.9 %
31.7 %
(96.8)%
33.2 %
121.7 %
(3.9)%
57.7 %
59.8 %
12.9 %
51.1 %
6.3 %
(i)
Depreciation and amortization includes $116 million (2018 – $120 million) of amortization of intangible assets, acquired with Shoppers Drug
Mart, recorded by Loblaw and $3 million (2018 – nominal) of accelerated depreciation recorded by Weston Foods, related to restructuring and
other related costs.
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS OF THE COMPANY
Net earnings available to common shareholders of the Company in the fourth quarter of 2019 were $433 million, an increase of
$162 million, or 59.8%, compared to the same period in 2018. The increase included the favourable year-over-year net impact of
adjusting items totaling $132 million and the improvement in underlying operating performance of $30 million, as described
below.
•
The favourable year-over-year net impact of certain adjusting items totaling $132 million was primarily due to:
◦
◦
the favourable year-over-year impact of the fair value adjustment of the forward sale agreement for 9.6 million
Loblaw common shares of $135 million; and
the favourable year-over-year impact of the fair value adjustment of the Trust Unit Liability of $104 million as a
result of the decrease in Choice Properties’ unit price in the quarter. The Company is exposed to market price
fluctuations as a result of units held by unitholders other than the Company which are redeemable for cash at the
option of the holder and are presented as a liability on the Company’s consolidated balance sheet;
partially offset by,
◦
◦
the unfavourable year-over-year impact of the remeasurement of deferred tax balances of $62 million; and
the unfavourable year-over-year impact of asset impairments, net of recoveries of $31 million.
50 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
•
The improvement in underlying operating performance of $30 million was primarily due to:
◦
◦
◦
◦
◦
the favourable underlying operating performance of Loblaw;
a decrease in income tax expense described below;
the positive contribution from the increase in the Company’s ownership interest in Loblaw, as a result of Loblaw
share repurchases;
the positive contribution from the Company’s direct ownership interest in Choice Properties, as a result of the
reorganization in November 2018; and
the favourable underlying operating performance of Weston Foods after excluding the prior year impact of a net
gain related to the sale leaseback of a property;
partially offset by,
◦
an increase in adjusted net interest expenses and other financing charges(1) as described in Section 1.3,
“Consolidated Other Business Matters”, of this MD&A.
Adjusted net earnings available to common shareholders of the Company(1) in the fourth quarter of 2019 were $262 million, an
increase of $30 million, or 12.9%, due to the improvement in underlying operating performance described above. Adjusted net
earnings available to common shareholders of the Company(1) included the favourable impact of IFRS 16 of $2 million in the
fourth quarter of 2019.
Diluted net earnings per common share in the fourth quarter of 2019 were $2.81, an increase of $0.95 per common share
compared to the same period in 2018. The increase was mainly due to:
•
the favourable year-over-year net impact of adjusting items totaling $0.85 per common share, primarily due to the following:
◦
◦
the favourable year-over-year impact of the fair value adjustment of the forward sale agreement for 9.6 million
Loblaw common shares of $0.91 per common share; and
the favourable year-over-year impact of the fair value adjustment of the Trust Unit Liability of $0.63 per common
share;
partially offset by,
◦
◦
the unfavourable impact of the remeasurement of deferred tax balances of $0.43 per common share; and
the unfavourable year-over-year impact of asset impairments, net of recoveries of $0.20 per common share.
•
the improvement in the underlying operating performance of $0.10 per common share.
Adjusted diluted net earnings per common share(1) in the fourth quarter of 2019 were $1.69, an increase of $0.10 per common
share, or 6.3%, compared to the same period in 2018. The increase was due to the improvement in the underlying operating
performance described above, partially offset by the dilutive impact of the Company’s issuance of common shares in connection
with the reorganization. IFRS 16 had a nominal impact on adjusted diluted net earnings per common share (1) in the fourth
quarter of 2019.
SALES
(unaudited)
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2019
Dec. 31, 2018
$ Change
% Change
Loblaw
Choice Properties
Weston Foods
Intersegment
Consolidated
$
$
$
$
$
11,590
318
522
(323)
12,107
$
$
$
$
$
$
$
$
11,218
323
507
(331)
372
(5)
15
3.3 %
(1.5)%
3.0 %
11,717
$
390
3.3 %
Sales in the fourth quarter of 2019 were $12,107 million, an increase of $390 million, or 3.3%, compared to the same period in
2018. The increase in sales in the fourth quarter of 2019 was impacted by each of its reportable operating segments as follows:
•
Positively by 3.2% due to sales growth of 3.3% at Loblaw, driven by an increase in Loblaw’s Retail segment. Retail sales
increased by $345 million, or 3.1%, compared to the same period in 2018. Excluding the consolidation of franchises, Retail
sales increased by $294 million, or 2.7%. The increase was primarily due to positive same-store sales growth and a net
increase in Retail square footage. Food retail same-store sales growth was 1.9% for the quarter. After excluding the
favourable impact of the timing of Thanksgiving, food retail same-store sales growth was approximately 0.8%. Food retail
basket size increased and traffic increased in the quarter. Loblaw’s food retail average article price was 0.8% (2018 – 2.3%),
which reflects the price inflation on the specific mix of goods sold in Loblaw’s stores in the quarter. The average quarterly
national food price inflation was 3.7% (2018 – inflation of 1.7%), 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 3.9%.
51 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
•
•
Negatively by a nominal amount due to a decline in revenue of 1.5% at Choice Properties. The decline of $5 million was
mainly due to a decrease in revenue due to Choice Properties’ portfolio transaction, partially offset by additional revenue
generated from properties acquired in 2018 and 2019 and from tenants openings in newly developed leasable space and
an increase in base rent and operating cost recoveries from existing properties.
Positively by 0.1% due to sales growth of 3.0% at Weston Foods. Sales included the negative impact of foreign currency
translation of approximately 0.2%. Excluding the unfavourable impact of foreign currency translation, sales increased by
3.2%. Sales were impacted by an increase in volumes and the combined positive impact of pricing and changes in sales
mix, partially offset by the unfavourable impact of product rationalization.
OPERATING INCOME
(unaudited)
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2019
Dec. 31, 2018(4)
$ Change
% Change
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
$
$
$
$
$
539
220
27
(68)
718
$
$
$
$
$
443
202
30
15
690
$
$
$
$
96
18
(3)
28
21.7 %
8.9 %
(10.0)%
4.1 %
Operating income in the fourth quarter of 2019 was $718 million, an increase of $28 million, or 4.1%, compared to the same
period in 2018 and included the favourable impact of IFRS 16 of approximately $47 million. Normalized for this amount,
operating income decreased by $19 million. The decrease was mainly attributable to the unfavourable year-over-year net impact
of adjusting items totaling $44 million, as described below, partially offset by an improvement in the underlying operating
performance of $25 million:
•
the unfavourable year-over-year net impact of adjusting items totaling $44 million was primarily due to:
◦
◦
◦
the unfavourable year-over-year impact of asset impairments, net of recoveries of $39 million;
the unfavourable year-over-year impact of restructuring and other related costs of $25 million; and
the unfavourable year-over-year impact of the fair value adjustment of investment properties of $23 million;
partially offset by,
◦
◦
the favourable year-over-year impact of the fair value adjustment of derivatives of $14 million;
the favourable year-over-year impact of acquisition and other costs of $11 million related to Choice Properties’
acquisition of CREIT; and
the favourable year-over-year impact of transaction and other related costs in connection with Loblaw’s spin-out of
Choice Properties of $10 million.
◦
•
the improvement in underlying operating performance of $25 million was primarily due to:
◦
Financial Services, partially offset by Retail, including the unfavourable contribution from the consolidation of
franchises.
ADJUSTED EBITDA(1)
(unaudited)
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2019
Dec. 31, 2018(4)
$ Change
% Change
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
$
$
$
$
$
1,203
225
56
(133)
1,351
$
$
$
$
$
$
$
$
893
233
59
(39)
310
(8)
(3)
34.7 %
(3.4)%
(5.1)%
1,146
$
205
17.9 %
Adjusted EBITDA(1) in the fourth quarter of 2019 was $1,351 million, an increase of $205 million, or 17.9%, compared to the same
period in 2018 and included the favourable impact of IFRS 16 of approximately $170 million. Normalized for this impact,
adjusted EBITDA(1) increased by $35 million, or 3.1%, and was impacted by each of its reportable operating segments as follows:
•
Positively by 2.2% due to an increase of 2.8% in adjusted EBITDA(1) at Loblaw, primarily driven by the improvement in
Loblaw’s Financial Services segment, partially offset by the decline in Loblaw’s Retail segment. The improvement in Loblaw’s
Financial Services segment adjusted EBITDA(1) was primarily driven by revenue growth, lower operating costs including
investments in digital strategy and lower customer acquisition costs, partially offset by higher credit losses and an
associated increase to the forward-looking allowance for credit card receivables.
52 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
•
•
Negatively by 0.7% due to a decrease of 3.4% in adjusted EBITDA(1) at Choice Properties, primarily driven by a decrease in
revenue as described above.
Negatively by 0.4% due to a decrease of 8.5% in adjusted EBITDA(1) at Weston Foods. Excluding the prior year impact of a
net gain of $10 million related to the sale leaseback of a property, adjusted EBITDA(1) increased by $5 million driven by
productivity improvements and the net benefits realized from Weston Foods’ transformation program, partially offset by an
increase in performance related compensation accruals and higher input costs.
DEPRECIATION AND AMORTIZATION
(unaudited)
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2019
Dec. 31, 2018(4)
$ Change
% Change
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
$
$
$
$
$
589
—
36
(77)
548
$
$
$
$
$
$
$
$
356
1
28
31
233
(1)
8
65.4 %
(100.0)%
28.6 %
416
$
132
31.7 %
Depreciation and amortization in the fourth quarter of 2019 was $548 million, an increase of $132 million compared to the
same period in 2018 and included the unfavourable impact of IFRS 16 of approximately $123 million. Normalized for this
impact, depreciation and amortization increased by $9 million. Depreciation and amortization in the fourth quarter of 2019
included $116 million (2018 – $120 million) of amortization of intangible assets related to the acquisition of Shoppers Drug Mart
recorded by Loblaw and $3 million (2018 – nominal) of accelerated depreciation recorded by Weston Foods, related to
restructuring and other related costs. Excluding these amounts, depreciation and amortization increased by $10 million
driven by:
•
•
partially offset by,
•
an increase in depreciation from the consolidation of Loblaw franchises; and
an increase in depreciation due to capital investments at Weston Foods;
a decrease in Loblaw’s IT assets.
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
(unaudited)
($ millions)
Quarters Ended
Dec. 31, 2019
Dec. 31, 2018
$ Change
% Change
Net interest expense and other financing charges
$
7
$
Add:
Fair value adjustment of the Trust Unit liability
Fair value adjustment of the forward sale
agreement for 9.6 million Loblaw
common shares
Loblaw’s spin-out of Choice Properties
203
67
—
$
218
85
(94)
(1)
Adjusted net interest expense and other
financing charges(1)
$
277
$
208
$
(211)
118
161
1
69
(96.8)%
138.8 %
171.3 %
— %
33.2 %
Net interest expense and other financing charges in the fourth quarter of 2019 were $7 million, a decrease of $211 million
compared to the same period in 2018. The decrease in net interest expense and other financing charges in the fourth quarter of
2019 was primarily due to the year-over-year impact of adjusting items totaling $280 million, itemized in the table above,
partially offset by an increase in adjusted net interest expense and other financing charges(1) of $69 million. Normalized for the
unfavourable impact of IFRS 16 of approximately $46 million, adjusted net interest expense and other financing charges(1)
increased by $23 million. The increase was primarily due to:
•
higher interest expense in the Choice Properties segment including Other and Intersegment adjustments, primarily related
to the special distribution in the fourth quarter of 2019 and from higher distributions from newly issued Trust Units as part
of the offering of Trust Units in the second quarter of 2019, as described in Section 1.3 “Consolidated Other Business
Matters”, of this MD&A; and
higher interest expense in Loblaw’s Financial Services segment, due to increases in the interest rates and net issuances
related to GICs.
•
53 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
INCOME TAXES
(unaudited)
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2019
Dec. 31, 2018
$ Change
% Change
Income taxes
Add:
Tax impact of items excluded from adjusted
earnings before taxes(1)(i)
Remeasurement of deferred tax balances
Adjusted income taxes(1)
Effective income tax rate applicable to earnings
before taxes
Adjusted income tax rate applicable to adjusted
earnings before taxes(1)
$
$
133
$
60 $
38
—
171
18.7%
26.5%
56
62
$
178 $
12.7%
27.7%
73
(18)
(62)
(7)
121.7 %
(32.1)%
— %
(3.9)%
(i)
See the adjusted EBITDA table and the adjusted net interest expense and other financing charges table included in Section 14, “Non-GAAP
Financial Measures”, of this MD&A for a complete list of items excluded from adjusted earnings before taxes(1).
The effective income tax rate in the fourth quarter of 2019 was 18.7%, compared to 12.7% in the same period in 2018. The
increase in the effective income tax rate was primarily attributable to the deferred tax recovery resulting from the
remeasurement of certain deferred tax balances in Q4 2018, partially offset by a decrease in certain other non-deductible items.
The adjusted income tax rate(1) for the fourth quarter of 2019 was 26.5%, compared to 27.7% in the same period in 2018. The
decrease was primarily attributable to a decrease in certain other non-deductible items.
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, 2019
Dec. 31, 2018
Change
$
$
$
$
$
$
1,495
1,272
(505)
(427)
(1)
1,834
$
$
$
$
$
$
1,853
455
$
$
(117) $
(678) $
8
1,521
$
$
(358)
817
(388)
251
(9)
313
CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities were $1,272 million in the fourth quarter of
2019, an increase of $817 million compared to the same period in 2018, The increase in cash flows from operating activities
included a favourable impact attributable to the implementation of IFRS 16 with an offsetting impact in cash flows used in
financing activities. Normalized for the impact of IFRS 16, the increase in cash flows from operating activities was primarily due
to a favourable change in non-cash working capital and higher cash earnings, partially offset by an increase in income taxes paid.
54 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
CASH FLOWS USED IN INVESTING ACTIVITIES Cash flows used in investing activities were $505 million in the fourth quarter of
2019, an increase of $388 million compared to the same period in 2018. The increase in cash flows used in investing activities
was primarily due to an unfavourable change in security deposits and lower proceeds from the disposal of assets, partially offset
by favourable changes in short term investments.
The following table summarizes the Company’s capital investments by each of its reportable operating segments for the quarters
ended as indicated:
(unaudited)
($ millions)
Loblaw
Choice Properties
Weston Foods
Other
Total capital investments
Quarters Ended
Dec. 31, 2019
Dec. 31, 2018
$
$
426
$
80
70
5
581
$
414
115
91
—
620
CASH FLOWS USED IN FINANCING ACTIVITIES Cash flows used in financing activities were $427 million in the fourth quarter of
2019, a decrease of $251 million compared to the same period in 2018. The decrease is primarily due to lower net repayments of
debt in the current year, lower repurchases of Loblaw’s common shares and lower interest paid, partially offset by lower share
issuances by the Company.
FREE CASH FLOW(1) The definition of free cash flow(1) was changed in the first quarter of 2019 to normalize for the impact of the
implementation of IFRS 16. Lease payments were deducted from the calculation, which resulted in no IFRS 16 impact on the
metric.
(unaudited)
($ millions)
Cash flows from operating activities
Less:
Interest paid
Fixed asset and investment properties purchases
Intangible asset additions
Lease payments, net(i)
Free cash flow(1)
Quarters Ended
Dec. 31, 2019
Dec. 31, 2018
Change
$
1,272
$
181
479
102
131
379
$
$
455
224
546
74
—
$
(389) $
817
(43)
(67)
28
131
768
(i)
Includes cash rent paid on lease liabilities, net of lease payments received from finance leases.
The year-over-year increase in free cash flow(1) in the fourth quarter of 2019 was $768 million, primarily due to a favourable
change in non-cash working capital and provisions, higher cash earnings and lower interest paid.
55 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
5.
Fourth Quarter Results of Reportable Operating Segments
The following discussion provides details of the 2019 fourth quarter results of operations of each of the Company’s reportable
operating segments.
5.1
Loblaw Fourth Quarter Operating Results
(unaudited)
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2019
Dec. 31, 2018
$ Change
% Change
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
$
$
$
$
11,590
539
1,203
10.4%
589
$
$
$
$
11,218 $
443 $
893 $
8.0%
356 $
372
96
310
233
3.3%
21.7%
34.7%
65.4%
(i) Depreciation and amortization includes $116 million (2018 – $120 million) of amortization of intangible assets acquired with Shoppers
Drug Mart.
Unless otherwise indicated, Loblaw’s segment results include the impacts of spin-out related incremental depreciation, the
implementation of IFRS 16 and the consolidation of franchises.
SALES Loblaw sales in the fourth quarter of 2019 were $11,590 million, an increase of $372 million, or 3.3%, compared to the
same period in 2018, primarily driven by Retail. Retail sales increased by $345 million, or 3.1%, compared to the same period
in 2018 and included food retail sales of $7,960 million (2018 – $7,750 million) and drug retail sales of $3,361 million (2018 –
$3,226 million). Excluding the consolidation of franchises, Retail sales increased by $294 million, or 2.7%, primarily driven by the
following factors:
•
food retail same-store sales growth was 1.9% for the quarter. After excluding the favourable impact of the timing of
Thanksgiving, food retail same-store sales growth was approximately 0.8%. The timing of Thanksgiving had a nominal
impact on food retail same-store sales growth in the fourth quarter of 2018. Food retail basket size increased and traffic
increased in the quarter;
Loblaw’s food retail average article price was 0.8% (2018 – 2.3%), which reflects the price inflation on the specific mix of
goods sold in Loblaw’s stores in the quarter. The average quarterly national food price inflation was 3.7% (2018 – inflation of
1.7%), as measured by CPI. CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in Loblaw
stores; and
drug retail same-store sales growth was 3.9%, including pharmacy same-store sales growth of 6.1% and front store same-
store sales growth of 2.2%. The timing of Thanksgiving had a nominal impact on the drug retail same-store sales growth in
the fourth quarter of 2019 and 2018.
•
•
In 2019, 15 food and drug stores were opened and 6 food and drug stores were closed, resulting in a net increase in Retail
square footage of 0.4 million square feet, or 0.6%.
The redemption of Loblaw Cards resulted in the delivery of approximately $1 million of free products to customers in the fourth
quarter of 2019, which was provided for in the fourth quarter of 2017. The redemptions did not benefit sales or Loblaw’s financial
performance and Loblaw’s management does not believe it had a significant impact on food retail same-store sales.
OPERATING INCOME Loblaw operating income in the fourth quarter of 2019 was $539 million, an increase of $96 million, or
21.7%, compared to the same period in 2018. The increase included the favourable impact of IFRS 16 of approximately
$73 million and the total unfavourable impact of spin-out related depreciation of approximately $21 million. Normalized for
these impacts, operating income increased by $44 million primarily driven by the favourable year-over-year net impact of
adjusting items totaling $23 million and the improvement in underlying operating performance of $21 million described below:
•
the favourable year-over-year net impact of adjusting items totaling $23 million was primarily due to the following:
the favourable year-over-year impact of the fair value adjustment on investment properties of $17 million;
the favourable year-over-year impact of the fair value adjustment of derivatives of $13 million;
the favourable impact of a net gain on sale of non-operating properties of $8 million;
the favourable impact associated with a prior period item of $7 million; and
the favourable year-over-year impact of transaction and other related costs in connection with Loblaw’s spin-out of
Choice Properties of $2 million;
◦
◦
◦
◦
◦
partially offset by,
◦
the unfavourable year-over-year impact of restructuring and other related costs of $28 million.
56 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
•
the improvement in underlying operating performance of $21 million was primarily due to Financial Services, partially offset
by Retail, including the unfavourable contribution from the consolidation of franchises of $13 million.
ADJUSTED EBITDA(1) Loblaw adjusted EBITDA(1) in the fourth quarter of 2019 was $1,203 million, an increase of $310 million, or
34.7%, compared to the same period in 2018 and included the favourable impact of IFRS 16 of approximately $285 million.
Normalized for the impact of IFRS 16, adjusted EBITDA(1) increased by $25 million, or 2.8%, primarily due to improvements in
Financial Services, partially offset by Retail.
Retail adjusted EBITDA(1) was $1,135 million, an increase of $280 million compared to the same period in 2018 and included the
favourable impact of IFRS 16 of approximately $285 million. Normalized for this impact, Retail adjusted EBITDA(1) decreased by
$5 million, or 0.6% driven by an increase in Retail SG&A, partially offset by an increase in Retail gross profit.
•
•
Retail gross profit percentage of 29.8% was flat compared to the same period in 2018. Excluding the consolidation of
franchises, Retail gross profit percentage was 27.7%, a decrease of 10 basis points compared to the fourth quarter of 2018.
Margins were negatively impacted by the mix within drug retail and the pricing strategy in food retail.
Retail SG&A increased by $116 million compared to the same period in 2018. Normalized for the impact of IFRS 16 and the
consolidation of franchises, Retail SG&A increased by $62 million and SG&A as a percentage of sales was 20.2%, flat
compared to the fourth quarter of 2018, primarily driven by Process and Efficiency initiatives, offset by strategic growth
investments.
Financial Services adjusted EBITDA(1) increased by $30 million compared to the same period in 2018, primarily driven by revenue
growth, lower operating costs including investments in digital strategy and lower customer acquisition costs, partially offset by
higher credit losses and an associated increase to the forward-looking allowance for credit card receivables.
Loblaw adjusted EBITDA(1) in the fourth quarter of 2019 was not impacted by any sale and leaseback of properties to Choice
Properties (2018 – gain of $8 million).
DEPRECIATION AND AMORTIZATION Loblaw’s depreciation and amortization in the fourth quarter of 2019 was $589 million, an
increase of $233 million compared to the same period in 2018 and included the unfavourable impact of IFRS 16 of
approximately $212 million and the total unfavourable impact of spin-out related depreciation of approximately $21 million.
Normalized for these impacts, depreciation and amortization was flat compared to the fourth quarter of 2018. Included in
depreciation and amortization is the amortization of intangible assets acquired with Shoppers Drug Mart of $116 million (2018 –
$120 million).
LOBLAW OTHER BUSINESS MATTERS
For details see Section 2.1, “Loblaw Operating Results”, of this MD&A.
57 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
5.2
Choice Properties Fourth Quarter Operating Results
(unaudited)
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2019
Dec. 31, 2018
$ Change
% Change
Revenue
Net interest income and other financing charges(i)
Net income
Funds from operations(1)(ii)
$
$
$
$
318
(74)
294
166
$
$
$
$
323
$
(80) $
281
172
$
$
(5)
6
13
(6)
(1.5)%
7.5 %
4.6 %
(3.5)%
(i) Net interest expense and other financing charges includes a fair value adjustment on Exchangeable Units.
(ii)
Funds from operations is calculated in accordance with the Real Property Association of Canada’s White Paper on Funds from Operations &
Adjusted Funds from Operations for IFRS issued in February 2019.
REVENUE Revenue in the fourth quarter of 2019 was $318 million, a decrease of $5 million, or 1.5%, compared to the same
period in 2018, and included $178 million (2018 – $189 million) generated from tenants within Loblaw’s Retail segment. The
decrease in revenue was primarily driven by:
•
partially offset by,
•
Choice Properties’ portfolio transaction as described in Section 1.3, “Consolidated Other Business Matters” of this MD&A;
additional revenue generated from properties acquired in 2018 and 2019 and from tenant openings in newly developed
leasable space; and
an increase in base rent and operating cost recoveries from existing properties.
•
NET INTEREST INCOME AND OTHER FINANCING CHARGES Net interest income and other financing charges in the fourth
quarter of 2019 was $74 million, compared to $80 million in the same period in 2018. The change of $6 million was primarily
driven by:
•
•
partially offset by,
•
the unfavourable year-over-year impact of the fair value adjustment on the Exchangeable Units of $8 million; and
higher interest expense resulting from the issuance of new senior unsecured debentures;
lower interest expense resulting from the repayments made on the term loans.
NET INCOME Net income in the fourth quarter of 2019 was $294 million, an increase of $13 million compared to the same
period in 2018. The increase was primarily driven by:
•
•
partially offset by,
•
the favourable year-over-year impact of the fair value adjustment on investment properties; and
the favourable year-over-year impact of acquisition and other costs related to the acquisition of CREIT;
the unfavourable impact of higher interest expense and other financing charges described above.
FUNDS FROM OPERATIONS(1) Funds from Operations(1) in the fourth quarter of 2019 was $166 million, a decrease of $6 million
compared to the same period in 2018, primarily driven by the decrease in revenue due to Choice Properties’ portfolio
transaction, partially offset by growth in net operating income attributable to properties acquired in 2018 and 2019 and from
tenant openings in newly developed leasable space.
CHOICE PROPERTIES OTHER BUSINESS MATTERS
For details see Section 2.2 “Choice Properties Operating Results”, of this MD&A.
5.3 Weston Foods Fourth Quarter Operating Results
(unaudited)
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2019
Dec. 31, 2018(4)
$ Change
% Change
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
$
$
$
$
522
27
56
10.7%
36
$
$
$
$
507 $
30 $
59 $
11.6%
28 $
15
(3)
(3)
8
3.0 %
(10.0)%
(5.1)%
28.6 %
(i)
Depreciation and amortization includes $3 million (2018 – nominal) of accelerated depreciation related to restructuring and other related
costs.
58 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
SALES Weston Foods sales in the fourth quarter of 2019 were $522 million, an increase of $15 million, or 3.0%, compared to the
same period in 2018. Sales included the negative impact of foreign currency translation of approximately 0.2%. Excluding the
unfavourable impact of foreign currency translation, sales increased by 3.2%. Sales were impacted by an increase in volumes and
the combined positive impact of pricing and changes in sales mix, partially offset by the unfavourable impact of product
rationalization.
OPERATING INCOME Weston Foods operating income in the fourth quarter of 2019 was $27 million, a decrease of $3 million, or
10.0%, compared to the same period in 2018. Normalized for the nominal impact of IFRS 16 and the prior year impact of a net
gain of $10 million related to the sale leaseback of a property, operating income increased by $7 million. The increase included
the favourable year-over-year net impact of adjusting items totaling $5 million and the improvement in the underlying operating
performance of $2 million. The year-over-year net impact of adjusting items included the following:
the favourable year-over-year impact of restructuring and other related costs of $8 million; and
•
the favourable year-over-year impact of the fair value adjustment of derivatives of $1 million;
•
partially offset by,
•
the unfavourable year-over-year impact of inventory losses, net of recoveries, of $4 million.
ADJUSTED EBITDA(1) Weston Foods adjusted EBITDA(1) in the fourth quarter of 2019 was $56 million, a decrease of $3 million, or
5.1%, compared to the same period in 2018. Normalized for the favourable impact of IFRS 16 of approximately $2 million and
the prior year impact of a net gain of $10 million related to the sale leaseback of a property, adjusted EBITDA(1) increased by
$5 million. The increase was driven by productivity improvements and the net benefits realized from Weston Foods’
transformation program, partially offset by an increase in performance related compensation accruals and higher input costs.
Weston Foods adjusted EBITDA margin(1) in the fourth quarter of 2019 decreased to 10.7% compared to 11.6% in the same
period in 2018. Normalized for the favourable impact of IFRS 16 and the prior year impact of a net gain related to the sale
leaseback of a property, adjusted EBITDA margin(1) increased by 60 basis points to 10.3% in the fourth quarter of 2019 compared
to 9.7% in the same period in 2018, driven by the factors described above.
DEPRECIATION AND AMORTIZATION Weston Foods depreciation and amortization in the fourth quarter of 2019 was
$36 million, an increase of $8 million compared to the same period in 2018. Normalized for the unfavourable impact of IFRS 16
of approximately $2 million, depreciation and amortization increased by $6 million. Depreciation and amortization included
$3 million (2018 – nominal) of accelerated depreciation related to Weston Foods’ transformation program. Excluding this
amount and the impact of IFRS 16, depreciation and amortization in the fourth quarter of 2019 increased by $3 million due to
capital investments.
WESTON FOODS OTHER BUSINESS MATTERS
For details see Section 2.3, “Weston Foods Operating Results”, of this MD&A.
6.
Disclosure Controls and Procedures
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
Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) caused the effectiveness of the disclosure controls and
procedures to be evaluated. Based on that evaluation, they concluded that the design and operation of the system of disclosure
controls and procedures were effective as at December 31, 2019.
7.
Internal Control Over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for
external purposes in accordance with IFRS.
As required by NI 52-109, the Chairman and CEO and the CFO 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, 2019.
59 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
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 2019 that materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
8.
Enterprise Risks and Risk Management
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.
The ERM program assists all areas of the business in managing risks 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 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.
(i) 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.
(ii) 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.
60 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
8.1
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 Annual Information Form
(“AIF”) for the year ended December 31, 2019, which is hereby incorporated by reference:
Cybersecurity, Privacy and Data Breaches
Healthcare Reform
Competitive Environment and Strategy
Labour Relations
Economic Conditions
Service Providers
Electronic Commerce and Disruptive Technologies
Franchisee Relationships
IT Systems Implementations and
Data Management
Associate-owned Drug Store Network and Relationships
with Associates
Governance, Change Management, Process and Efficiency
Regulatory Compliance
Employee Attraction, Development and Succession Planning
Property Valuation Process
Food, Drug, Product Safety and Public Health
Distribution and Supply Chain
Legal Proceedings
Capitalization Rate Risk
Tenant Concentration
Commodity Prices
Property Development and Construction
Execution of Strategic Initiatives
Inventory Management
Consumer and Retail Customer Trends
CYBERSECURITY, PRIVACY 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 and 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 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 continues to make strategic investments in this area,
including employee training, in order to mitigate cyber threats. 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. Any such occurrences
could adversely affect the reputation, operations or financial performance of the Company.
61 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
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, including the potential implementation of a national pharmacare system, changes in the models used to
fund prescription drugs such as the introduction of a pharmacare system, 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 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
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 three types of payers: (i) government or public, (ii) private
insurers or employers and (iii) out-of-pocket by the patient or cash. These 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 establishes 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 to private
payers. Also, private 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 payers.
In addition, private 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.
Changes impacting pharmacy reimbursement programs, prescription drug pricing, manufacturer allowance funding and private
label prescription drug products, 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.
COMPETITIVE ENVIRONMENT AND STRATEGY 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
62 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
expanding into the grocery and retail drug markets and those offering e-commerce retail platforms. 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 Loblaw’s loyalty program must be well managed and coordinated to preserve positive
customer perception. Loblaw has made significant investments in support of certain strategic priorities. Failure to achieve these
strategic priorities could adversely affect its ability to compete with competitors, which could in turn affect the Company’s
financial position.
Loblaw’s inability to effectively predict market activity, leverage customer preferences and spending patterns and respond in a
timely manner 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.
Choice Properties will compete with other investors, managers and owners of properties in seeking tenants and for the purchase
and development of desirable real estate properties. Competitors may have newer or better located properties, greater financial
or other resources, or greater operating flexibility than Choice Properties. An increase in the availability of funds for investment or
an increase in interest in real estate property investments may increase the competition for real estate property investments,
thereby increasing purchase prices and reducing the yield on the investment. Increased competition to lease properties could
adversely impact Choice Properties’ ability to find suitable tenants at the appropriate rent and may negatively impact the
financial performance of Choice Properties.
Weston Foods’ competitors include multi-national food processing companies as well as national and smaller-scale bakery
operations in North America.
Failure by Loblaw, Choice Properties, or Weston Foods to sustain their competitive position could adversely affect the Company’s
financial performance.
ELECTRONIC COMMERCE AND DISRUPTIVE TECHNOLOGIES Loblaw’s e-commerce strategy is a growing business 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 Loblaw will be able to recover the costs incurred to date.
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 Company’s business model to recognize and manage this shift in a timely manner could adversely affect Loblaw’s
operations or financial performance.
A large portion of Choice Properties’ existing real estate portfolio is comprised of necessity-based retail tenants. Shifting
consumer preferences toward e-commerce may result in a decrease in the demand for physical space by retail tenants. The
failure of Choice Properties to adapt to changes in the retail landscape, including finding new tenants to replace any lost income
stream from existing tenants that reduce the amount of physical space they rent from Choice Properties, could adversely affect
Choice Properties’ 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.
63 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
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.
GOVERNANCE, CHANGE MANAGEMENT, PROCESS AND EFFICIENCY Many initiatives are underway to reduce the complexity
and cost of the Company’s business operations, ensuring a low cost operating structure that allows for continued investments in
the Company’s strategic growth areas. These efforts include initiatives focused on improving processes and generating
efficiencies across its administrative, store, manufacturing and distribution network infrastructures and other organizational
changes.
Weston Foods continues with the implementation of its multi-year 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 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.
EMPLOYEE ATTRACTION, DEVELOPMENT AND SUCCESSION PLANNING The Company’s operations and continued growth are
dependent on its ability to hire, retain and develop its leaders and other key personnel. Any failure to effectively attract talented
and experienced colleagues and to establish adequate succession planning and retention strategies could result in a lack of
requisite knowledge, skill and experience. This could erode the Company’s competitive position or result in increased costs,
competition for or high turn-over of colleagues. Any of the foregoing could negatively affect the Company’s ability to operate its
business, which in turn, could adversely affect the Company’s reputation, operations or financial performance.
FOOD, DRUG, 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 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.
DISTRIBUTION AND SUPPLY CHAIN The Company’s ability to satisfy its customers’ demands and achieve its cost objectives
depends on its ability to maintain key logistic and transport arrangements. The Company’s distribution and supply chain could
be negatively affected by unforeseen disruptions due to fire, severe weather conditions, natural disasters, or other catastrophic
events, labour disagreements, or other shipping problems. The loss of or disruption to these types of arrangements could
interrupt product supply, which in turn could adversely affect the assortment and product availability at store level. If not
effectively managed or remedied, these events could negatively impact customer experience and the Company’s ability to
attract and retain customers, and could adversely affect the Company’s operations or financial performance.
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.
Shoppers Drug Mart has been served with an Amended Statement of Claim in a class action proceeding that has been filed in
the Ontario Superior Court of Justice (“Superior 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 Superior Court
certified as a class proceeding portions of the action. The Superior Court imposed a class closing date based on the date of
certification. New Associates after July 9, 2013 are not members of the class.
In 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
64 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
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. In December 2019, a proposed class action
on behalf of independent distributors was commenced against the Company and Weston Foods. 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 its financial condition or prospects. The Company’s cash balances far exceed
any realistic damages scenario and therefore it does not anticipate any impacts on its or Loblaw’s dividend, dividend policy or
share buyback plan. The Company has not recorded any amounts related to the potential civil liability associated with the class
action lawsuits in 2019 on the basis that a reliable estimate of the liability cannot be determined at this time. The Company 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 at the earlier of when a reliable estimate of liability can be determined or the matter is
ultimately resolved. As a result of admission of participation in the arrangement and cooperation in the Competition Bureau’s
investigation, the Company and Loblaw will not face criminal charges or penalties.
In August 2018, the Province of British Columbia filed a class action against numerous opioid manufacturers and distributors,
including Loblaw and its subsidiaries, Shoppers Drug Mart Inc. and Sanis Health Inc. The claim contains allegations of breach of
the Competition Act, fraudulent misrepresentation and deceit and negligence, and seeks damages (unquantified) for the
expenses incurred by the province in paying for opioid prescriptions and other healthcare costs related to opioid addiction and
abuse in British Columbia. In May 2019, two further opioid-related class actions were commenced in each of Ontario and
Quebec against a large group of defendants, including Sanis Health Inc. The allegations in the Ontario and Quebec class actions
are similar to the allegations against manufacturer defendants in the Province of British Columbia class action, except that these
May 2019 claims seek recovery of damages on behalf of opioid users directly.
Loblaw has been reassessed by the Canada Revenue Agency and the Ontario Ministry of Finance on the basis that certain
income earned by Glenhuron, a wholly owned Barbadian subsidiary of Loblaw that was wound up in 2013, should be treated,
and taxed, as income in Canada. The reassessments, which were received between 2015 and 2019, are for the 2000 to 2013
taxation years. On September 7, 2018, the Tax Court released its decision relating to the 2000 to 2010 taxation years. The Tax
Court ruled that certain income earned by Glenhuron should be taxed in Canada based on a technical interpretation of the
applicable legislation. On October 4, 2018, Loblaw filed a Notice of Appeal with the Federal Court of Appeal. On October 15,
2019, the appeal was heard by the Federal Court of Appeal, with the court reserving judgment until a later date.
PROPERTY DEVELOPMENT AND CONSTRUCTION Choice Properties engages in development, redevelopment and major
renovation activities with respect to certain properties. It is subject to certain risks, including: (a) the availability and pricing of
financing on satisfactory terms or availability at all; (b) the availability and timely receipt of zoning, occupancy, land use and
other regulatory and governmental approvals; (c) the ability to achieve an acceptable level of occupancy upon completion; (d)
the potential that Choice Properties may fail to recover expenses already incurred if it abandons redevelopment opportunities
after commencing to explore them; (e) the potential that Choice Properties may expend funds on and devote management
time to projects which are not completed; (f) construction or redevelopment costs of a project, including certain fees payable to
Loblaw under a strategic alliance agreement, may exceed original estimates, possibly making the project less profitable than
originally estimated, or unprofitable; (g) the time required to complete the construction or redevelopment of a project or to
lease-up the completed project may be greater than originally anticipated, thereby adversely affecting Choice Properties’ cash
flows and liquidity; (h) the cost and timely completion of construction (including risks beyond Choice Properties’ control, such as
weather, labour conditions or material shortages); (i) contractor and subcontractor disputes, strikes, labour disputes or supply
disruptions; (j) occupancy rates and rents of a completed project may not be sufficient to make the project profitable; (k) Choice
Properties’ ability to dispose of properties redeveloped with the intent to sell could be impacted by the ability of prospective
buyers to obtain financing given the current state of the credit markets; and (l) the availability and pricing of financing to fund
Choice Properties’ development activities on favourable terms or availability at all.
The above risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent the
initiation of development activities or the completion of development activities once undertaken. In addition, development
projects entail risks that investments may not perform in accordance with expectations and can carry an increased risk of
litigation (and its accompanying risks) with contractors, subcontractors, suppliers, partners and others. Any failure by Choice
Properties to develop quality assets and effectively manage all development, redevelopment and major renovation initiatives
may negatively impact the reputation and financial performance of the Company.
INVENTORY MANAGEMENT Loblaw is subject to risks associated with managing its inventory. Failure to successfully manage
such risks could result in shortages of inventory, or excess or obsolete inventory which cannot be sold profitably or increases in
levels of inventory shrink. Any of these outcomes could adversely affect the financial performance of the Company. Although
Loblaw has implemented new IT systems, which are intended to provide increased visibility to integrated costing and sales
information at store level, Loblaw’s failure to effectively implement such new IT systems and applicable processes may increase
the risks associated with managing inventory, including the risk that inaccurate inventory could result in inaccurate financial
statements.
65 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
Loblaw’s Retail segment is also examining its fundamental processes related to article lifecycle management, with the goal of
making existing processes more efficient. This will impact existing workflow and system processes across procurement, supply
chain and merchandising. Such simplification and efficiency processes are critical to Loblaw’s ability to integrate towards longer
term system solutions and achieve efficiencies across its Retail divisions. Any failure to effectively deliver this enterprise core
solution could negatively impact Loblaw’s operations or financial performance.
LABOUR RELATIONS The Company’s workforce is comprised of both unionized and non-unionized colleagues. With respect to
those colleagues that are covered by collective agreements, there can be no assurance as to the outcome of any labour
negotiations or the timing of their completion. Renegotiating collective agreements or the failure to successfully renegotiate
collective agreements could result in strikes, work stoppages or business interruptions, and if any of these events were to occur,
they could adversely affect the reputation, operations and financial performance of the Company. If non-unionized colleagues
become unionized, the terms of the resulting collective agreements would have implications for the affected operations such as
higher labour costs. Weston Foods’ manufacturing locations across North America are subject to risks associated with having
insufficient or inadequate labour. Failure to successfully manage such risks could result in decreased production or additional
higher costs at these manufacturing facilities which could adversely affect the operations or financial performance of the
Company.
ECONOMIC CONDITIONS The Company’s revenues and profitability are impacted by consumer discretionary spending which is
influenced by general economic conditions. These economic conditions could include high levels of unemployment and
household debt, political uncertainty, fuel and energy costs, the impact of natural disasters or acts of terrorism, global viruses,
changes in interest rates, inflation, tax, exchange rates and access to consumer credit. A number of these conditions impact
consumer spending and, as a result, payment patterns could deteriorate or remain unpredictable due to global, national,
regional or local economic volatility. Uncertain economic conditions may adversely impact demand for the Company’s products
and services which could adversely affect the Company’s operations or financial performance.
SERVICE PROVIDERS The Company has a wide range of key business relationships with third parties including vendors,
suppliers, distributors and contractors. The Company relies on vendors, including offshore vendors in both mature and
developing markets, to provide the Company with goods and services. Offshore sourcing increases certain risks to the Company,
including risks associated with food safety and general merchandise product defects, non-compliance with ethical and safe
business practices and inadequate supply of products. The Company has no direct influence over how vendors are managed.
Negative events affecting vendors or inefficient, ineffective or incomplete vendor management strategies, policies and/or
procedures could adversely impact the Company’s reputation and impair the Company’s ability to meet customer needs or
control costs and quality, which could adversely affect the reputation, operations or financial performance of the Company.
The Company relies on service providers including transport carriers, logistic service providers and operators of warehouses and
distribution facilities. Ineffective selection, contractual terms or relationship management could impact the Company’s ability to
source products (both Loblaw national brand and control brand products and Weston Foods’ baked goods products), to have
products available for customers, to market to customers or to operate efficiently and effectively. Disruption in services from
suppliers could interrupt the delivery of merchandise to stores, which in turn could adversely affect the operations or financial
performance of the Company.
PC Bank uses third party service providers to process credit card transactions, operate call centres and operationalize certain risk
management strategies for the President’s Choice Financial MasterCard. A significant disruption in the services provided by
third party service providers could adversely affect the financial performance of PC Bank and the Company.
The Company has outsourced certain administrative functions of its business to service providers including account payments,
payroll services, IT support, investment management and custodial relationships and benefit plan administration. Any disruption
in the services provided by these suppliers could adversely affect the return on these assets or liquidity of the Company.
FRANCHISEE RELATIONSHIPS Loblaw has entered into agreements with third party franchisees that permit the franchisees to
own and operate retail stores in accordance with prescribed procedures and standards. A substantial portion of Loblaw’s
revenues and earnings comes from amounts paid by franchisees in connection with their store operations and leased property.
Franchisees are independent operators and their operations may be negatively affected by factors beyond Loblaw’s control. If
franchisees do not operate their stores in accordance with Loblaw’s standards or otherwise in accordance with good business
practices, franchisee fees and rent paid to Loblaw could be negatively affected, which in turn could adversely affect the
Company’s reputation, operations or financial performance. In addition, the Company’s reputation could be harmed if a
significant number of franchisees were to experience operational failures, health and safety exposures or were unable to pay
Loblaw for products, fees or rent.
Loblaw’s franchise system is also subject to franchise legislation enacted by a number of provinces. Any new legislation or failure
to comply with existing legislation could adversely affect operations and could add administrative costs and burdens, any of
which could affect Loblaw’s relationship with its franchisees.
66 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
Supply chain or system changes by Loblaw could cause or be perceived to cause disruptions to franchised store operations and
could result in negative effects on the financial performance of franchisees. Relationships with franchisees could pose significant
risks if they are disrupted, which could adversely affect the reputation, operations or financial performance of the Company.
ASSOCIATE-OWNED DRUG STORE NETWORK AND RELATIONSHIPS WITH ASSOCIATES The success of Loblaw and the
reputation of its brands are closely tied to the performance of the Shoppers Drug Mart Associate-owned drug stores.
Accordingly, Loblaw relies on Associates to successfully operate, manage and execute retail programs and strategies at their
respective drug store locations. Associates are independent business operators that have entered into agreements with Loblaw
to own and operate retail stores in accordance with prescribed procedures and standards. The success of the operations and
financial performance of their respective drug stores may be beyond Loblaw’s control. In addition, Associates are subject to
franchise legislation. Disruptions to Loblaw’s relationships with Shoppers Drug Mart Associate-owned drug stores or changes in
legislation could negatively affect revenue from Associates, which in turn, could adversely affect the reputation, operations or
financial performance of the Company.
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 applicable to the Company’s business, including tax laws, minimum wage laws, and
laws affecting the production, processing, 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.
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.
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 damage.
Choice Properties is currently classified as a “unit trust” and a “mutual fund trust” under the Income Tax Act (Canada). It also
qualifies for the Real Estate Investment Trust Exception under the Income Tax Act (Canada) and as such is not subject to
specified investment flow through rules. 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 the Company, could be materially
adversely different in certain respects, which could in turn materially adversely affect the trading price of the Trust Units.
PROPERTY VALUATION PROCESS Choice Properties conducts a valuation assessment of its properties on a quarterly basis. As
property values fluctuate over time in response to market factors, or as underlying assumptions and inputs to the valuation
model change, the fair value of Choice Properties’ portfolio could change materially. Choice Properties is responsible for the
reasonableness of the assumptions and for the accuracy of the inputs into the property valuation model. Errors in the inputs to
the valuation model or inappropriate assumptions may result in an inaccurate valuation of the properties. In addition to a
market activity report that is tailored to Choice Properties’ portfolio, management uses the market information obtained in
external appraisals, across multiple firms, commissioned during the reporting period to assess whether changes to market-
related assumptions are required for the balance of the portfolio. Choice Properties is responsible for monitoring the value of its
portfolio going forward and evaluating the impact of any changes in property value over time. Any changes in the value of the
properties may impact unitholder value.
67 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
A publicly traded real estate investment trust will not necessarily trade at values determined solely by reference to the
underlying value of its real estate assets. Accordingly, the Units may trade at a premium or a discount to values implied by the
above-mentioned valuations.
CAPITALIZATION RATE RISK The fair market property valuation process is dependent on several inputs, including the current
market capitalization rate. Risks associated with Choice Properties’ property valuation model include fluctuations in the current
market capitalization rate which can significantly impact the value of Choice Properties’ overall real estate portfolio. In addition,
Choice Properties is subject to certain financial and non-financial covenants in Choice Properties existing financial instruments
that include maintaining certain leverage ratios. Changes in the market capitalization rate could impact Choice Properties’
property valuation which in turn could impact financial covenants.
TENANT CONCENTRATION Investment properties generate income through rent payments made by tenants, and particularly
rent payments made by Loblaw as Choice Properties’ largest tenant. Upon the expiry of any lease, there can be no assurance that
the lease will be renewed or the tenant replaced. Furthermore, the terms of any subsequent lease may be less favourable than
the existing lease, including the addition of restrictive covenants. In addition, historical occupancy rates and rents are not
necessarily an accurate prediction of future occupancy rates. Choice Properties’ cash flows and financial position would be
adversely affected if its tenants (and especially Loblaw) were to become unable to meet their obligations under their leases or if
a significant amount of available space in the properties was not able to be leased on economically favourable lease terms. In
the event of default by a tenant, Choice Properties may experience delays or limitations in enforcing its rights as lessor and incur
substantial costs in protecting its investment. In addition, restrictive covenants and the terms of a strategic alliance agreement
may narrow the field of potential tenants at a property and could contribute to difficulties in leasing space to new tenants.
Choice Properties’ net income could also be adversely affected in the event of a downturn in the business, or the bankruptcy or
insolvency, of Loblaw, as Choice Properties’ largest tenant. Choice Properties derives a large majority of its annual base minimum
rent from Loblaw. Consequently, revenues are dependent on the ability of Loblaw to meet its rent obligations and Choice
Properties’ ability to collect rent from Loblaw. If Loblaw were to terminate its tenancies, default on or cease to satisfy its payment
obligations, it would have a material adverse effect on Choice Properties’ financial condition or results of operations and its
ability to make distributions to unitholders.
The closing of an anchor store at a property could also have a material adverse effect on the value of that property. Vacated
anchor tenant space also tends to adversely affect the entire property because of the loss of the departed anchor tenant’s power
to draw customers to the property, which in turn may cause other tenants’ operations to suffer and adversely affect such other
tenants’ ability to pay rent or perform any other obligations under their leases. No assurance can be given that Choice Properties
will be able to quickly re-lease space vacated by an anchor tenant on favourable terms, if at all. In addition, certain leases contain
a provision requiring tenants to maintain continuous occupancy of leased premises, and there can be no assurance that such
tenants will continue to occupy such premises. Furthermore, at any time, an anchor tenant may seek the protection of
bankruptcy, insolvency or similar laws which could result in the rejection and termination of the lease of the tenant and thereby
cause a reduction in Choice Properties’ cash flows, financial condition or results of operations and its ability to make distributions
to unitholders.
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 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. Rising commodity prices could
adversely affect the financial performance of the Company and the impact could be material. 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 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.
68 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
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, Weston Foods 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 result in reduced demand for its products, which could in turn negatively affect the financial performance of
the Company.
8.2
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
Common Share and Trust Unit Prices
Foreign Currency Exchange Rates
Interest Rates
Credit
LIQUIDITY Liquidity risk is the risk that the Company is unable to generate or obtain sufficient cash or its equivalents in a cost
effective manner to fund its obligations as they come due. The Company is exposed to liquidity risk through, among other areas,
PC Bank and its credit card business, which requires a reliable source of funding for its credit card business. PC Bank relies on its
securitization programs and the acceptance of GIC deposits to fund the receivables of its credit cards. The Company would
experience liquidity risks if it fails to maintain appropriate levels of cash and short term investments, 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 other foreign subsidiaries 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 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.
69 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
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 finance lease receivable, 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 tenants, and other receivables from Weston Foods’ customers and suppliers, are actively monitored on an
ongoing basis and settled on a frequent basis in accordance with the terms specified in the applicable agreements.
Despite the mitigation strategies described above, it is possible that the Company’s financial performance could be negatively
impacted by the failure of a counterparty to fulfill its obligations.
COMMON SHARE AND TRUST UNIT PRICES Changes in the Loblaw common share price impact the Company’s net interest
expense and other financing charges. In 2001, WHL issued $466 million of 7.00% Series A Debentures due 2031, which are
serviced by the issuance of Series B Debentures. In addition, WHL entered into an equity forward sale agreement with the lender
to sell 9.6 million Loblaw common shares at an initial forward sale price of $48.50 per Loblaw common share which, under the
terms of the agreement had increased to a forward rate of $123.64 (2018 – $118.42) per Loblaw common share as at year end
2019. WHL is permitted to settle the transaction, in whole or in part, at any time prior to 2031. If the forward is settled in cash,
WHL will receive the forward price and will pay the market value of the underlying Loblaw common shares. 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. If the forward price is greater (less) than the
market price upon settlement, 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.
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.
70 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
9.
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 Investments, Limited (“Wittington”), a total of 81,706,054 of GWL’s common
shares, representing approximately 53.2% (2018 – 53.1%) 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
for those in the normal course of business. Transactions between the Company and its consolidated entities have been
eliminated on consolidation and are not disclosed below.
In 2019, the Company made rental payments to Wittington in the amount of $5 million (2018 – $4 million). As at year end 2019
and 2018, there were no rental payments outstanding.
In 2019, 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 $38 million (2018 – $44 million). As at year end 2019, $2 million (2018 – $3 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 2019, 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.
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
Equity-based compensation
Total compensation
2019
13
11
24
$
$
2018
8
12
20
$
$
71 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
10.
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 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 RIGHT-OF-USE ASSETS)
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 and right-of-use 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. The Company has determined that each retail location is a separate CGU for the
purposes of fixed asset and right-of-use 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 the Boards at GWL and Loblaw. Discount
rates are consistent with external industry information reflecting the risk associated with the specific cash flows.
CUSTOMER LOYALTY AWARDS PROGRAMS
Key Sources of Estimation Loblaw defers revenue at the time the award is earned by members based on the relative fair value
of the award. The relative fair value is determined by allocating consideration between the fair value of the loyalty awards earned
by loyalty program members, net of breakage, and the goods and services on which the awards were earned, based on their
relative stand-alone selling price. The estimated fair value per point for the PC Optimum® program is determined based on the
program reward schedule and is $1 for every 1,000 points earned. The breakage rate of the program is an estimate of the
amount of points that will never be redeemed. The rate is reviewed on an ongoing basis and is estimated utilizing historical
redemption activity and anticipated earn and redeem behaviour of members.
72 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
IMPAIRMENT OF CREDIT CARD RECEIVABLES
Judgments Made in Relation to Accounting Policies Applied In each stage of the impairment model, impairment is
determined based on the probability of default, loss given default, and expected exposures at default on drawn and undrawn
exposures on credit card receivables, discounted using an average portfolio yield rate. The application of the expected credit loss
(“ECL”) model requires management to apply the following significant judgments, assumptions and estimations:
• Movement of impairment measurement between the three stages of the ECL model, based on the assessment of the
increase in credit risks on credit card receivables. The assessment of changes in credit risks includes qualitative and
quantitative factors of the accounts, such as historical credit loss experience and external credit scores;
Thresholds for significant increase in credit risks based on changes in probability of default over the expected life of the
instrument relative to initial recognition; and
Forecasts of future economic conditions.
•
•
FAIR VALUE OF INVESTMENT PROPERTIES
Key Sources of Estimation The fair value of investment properties is dependent on available comparable transactions, future
cash flows over the holding period, and discount rates and capitalization rates applicable to those assets. The review of
anticipated cash flow involves assumptions relating to occupancy, market rental rates, net operating expenses, and residual
value. In addition to reviewing anticipated cash flows, management assesses changes in the business climate and other factors,
which may affect the ultimate value of the property. These assumptions may not ultimately be achieved.
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, certain onerous costs on leased properties and legal claims. 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.
LEASES
Judgments Made in Relation to Accounting Policies Applied Management exercises judgment in determining the appropriate
lease term on a lease by lease basis. Management considers all facts and circumstances that create an economic incentive to
exercise a renewal option or to not exercise a termination option including investments in major leaseholds, store performances
and past business practice and the length of time remaining before the option is exercisable. The periods covered by renewal
options are only included in the lease term if management is reasonably certain to renew. Management considers reasonably
certain to be a high threshold. Changes in the economic environment or changes in the retail industry may impact
management’s assessment of lease term, and any changes in management’s estimate of lease terms may have a material
impact on the Company’s balance sheet and statement of earnings.
Key Sources of Estimation In determining the carrying amount of right-of-use assets and lease liabilities, the Company is
required to estimate the incremental borrowing rate specific to each leased asset or portfolio of leased assets if the interest rate
implicit in the lease is not readily determined. Management determines the incremental borrowing rate using a base risk-free
interest rate estimated by reference to the Government of Canada bond yield with an adjustment that reflects the Company’s
credit rating, the security, lease term and value of the underlying leased asset, and the economic environment in which the
leased asset operates. The incremental borrowing rates are subject to change due to changes in the business and
macroeconomic environment.
73 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
11.
Accounting Standard Implemented
IFRS 16 In 2016, the IASB issued IFRS 16, replacing 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. Lessees recognize a right-of-use asset representing its control of and right to use the underlying asset and a lease liability
representing its obligation to make future lease payments. Lessor accounting remains similar to IAS 17.
IFRS 16 became effective for annual periods beginning on or after January 1, 2019. For leases where the Company is the lessee, it
had the option of adopting a fully retrospective approach or a modified retrospective approach on transition to IFRS 16. The
Company adopted the standard on January 1, 2019 using the modified retrospective approach. The Company applied the
requirements of the standard retrospectively with the cumulative effects of initial application recorded in opening retained
earnings as at January 1, 2019, and no restatement of the comparative period. Under the modified retrospective approach, the
Company chose to measure all right-of-use assets retrospectively as if the standard had been applied since lease
commencement dates using the Company’s incremental borrowing rates at the date of initial application.
Substantially all of the Company's operating leases are real estate leases for retail stores, production plants, distribution centers
and corporate offices. Other leased assets include passenger vehicles, trucks and equipment. The Company recognized right-of-
use assets and lease liabilities for its operating leases except for certain low-value leases and classes of underlying assets in which
the lease terms are 12 months or less. The depreciation expense on right-of-use assets and interest expense on lease liabilities
replaced rent expense, which was previously recognized on a straight-line basis under IAS 17 over the term of a lease. There are
no significant impacts to the Company’s existing finance leases under IAS 17 as a lessee.
The Company also has owned and leased properties which are leased and subleased to third parties, respectively. The subleases
are primarily related to non-consolidated franchise stores, medical centres and ancillary tenants within stores. As an
intermediate lessor, the Company reassessed the classification of its subleases by reference to the right-of-use assets arising
from the head lease and recognized a corresponding finance lease receivable when the reassessment concluded that the
subleases were finance leases.
IFRS 16 permits the use of recognition exemptions and practical expedients. The Company applied the following recognition
exemptions and practical expedients:
•
•
•
•
•
•
grandfathered the definition of leases for existing contracts at the date of initial application;
applied the recognition exemption for certain low value leases and short-term trailer rentals and properties. The practical
expedient for excluding leases for which the lease term ends within 12 months of the date of initial application was not
elected by the Company;
used portfolio application for leases with similar characteristics, such as vehicle and equipment leases;
applied a single discount rate to a portfolio of leases with reasonably similar characteristics at the date of initial application;
excluded initial direct costs from the measurement of right-of-use assets at the date of initial application; and
used hindsight in determining lease term at the date of initial application.
The Company did not exercise the practical expedient wherein a lessee may rely on its assessment of whether leases are onerous
applying IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” immediately before the date of initial application as an
alternative to performing an impairment review. On the date of initial application, the Company applied the requirements of
IAS 36, “Impairment of Assets” and recorded an impairment of $62 million on right-of-use assets in opening retained earnings,
which represents an incremental $16 million to the previous onerous lease provision.
74 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
The impact of adopting IFRS 16 on the Company’s consolidated balance sheet as at January 1, 2019 was as follows:
Consolidated Balance Sheet
Increase / (Decrease)
($ millions)
Current Assets
Prepaid expenses and other assets(i)
Total Current Assets Impacted
Fixed Assets(ii)
Right-of-Use Assets(ii)
Intangible Assets(iii)
Deferred Income Taxes(iv)
Other Assets(v)
Total Assets Impacted
Current Liabilities
Trade payables and other liabilities(vi)
Provisions(vii)
Long term debt due within one year(ii)
Lease liabilities due within one year(ii)
Total Current Liabilities Impacted
Provisions(vii)
Long Term Debt(ii)
Lease Liabilities(ii)
Deferred Income Taxes(iv)
Other Liabilities(vi)
Non-Controlling Interests
Retained Earnings(viii)
As reported as at
IFRS 16
As at
Dec. 31, 2018
Adjustments
Jan 1, 2019
$
$
$
$
$
370 $
370 $
12,101
—
7,958
286
1,087
(62) $
(62) $
(435)
4,114
(82)
32
85
21,802
$
3,652
$
5,762
$
(11) $
205
1,343
—
(4)
(37)
736
7,310 $
684
$
167
13,975
—
2,515
691
6,164
5,017
(76)
(498)
4,350
(89)
(210)
(394)
(115)
308
308
11,666
4,114
7,876
318
1,172
25,454
5,751
201
1,306
736
7,994
91
13,477
4,350
2,426
481
5,770
4,902
39,491
Total Liabilities and Equity Impacted
$
35,839
$
3,652
$
(i)
(ii)
Relates to prepaid rent as at December 31, 2018, which is captured under lease liabilities due within one year after the implementation of
IFRS 16.
Leases previously classified as finance lease arrangements under IAS 17 were presented within fixed assets, long term debt due within one
year and long term debt. Effective January 1, 2019, these balances are included in right-of-use assets, lease liabilities due within one year
and lease liabilities.
(iii) Derecognize fair value of acquired leased assets on business combination as at December 31, 2018.
(iv) Deferred income tax impacts resulting from the implementation entries at the date of initial application.
(v)
(vi) Derecognize deferred rent obligation, tenant inducements and fair value of acquired lease liabilities on business combination as at
Recognize finance lease receivable as determined under IFRS 16.
December 31, 2018.
(vii) Derecognize the base rent portion of the onerous lease provision.
(viii) The cumulative effects of initial application are recorded in retained earnings with no restatement of the comparative period.
The Company used its incremental borrowing rates as at January 1, 2019 to measure lease liabilities. The weighted average
incremental borrowing rate was 4.39%. The weighted average lease term remaining as at January 1, 2019 was approximately
10 years.
75 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
The following reconciliation is between lease liabilities recognized on January 1, 2019 and operating lease commitments
disclosed under IAS 17 as at December 31, 2018 discounted using the incremental borrowing rates as at the date of initial
application:
($ millions)
Operating lease commitment as at December 31, 2018 as disclosed in the Company's notes to the
consolidated financial statements
Discounted using the weighted average incremental borrowing rate as at January 1, 2019(i)
Finance lease obligations recognized as at December 31, 2018(ii)
Extension and termination options reasonably certain to be exercised(iii)
Lease liabilities recognized as at January 1, 2019
Lease liabilities due within one year
Lease liabilities
Total lease liabilities
As at
Jan. 1, 2019
4,826
3,932
535
619
5,086
736
4,350
5,086
$
$
$
$
$
(i)
(ii)
Operating lease commitments as at December 31, 2018 were disclosed based on undiscounted cash flows. Under IFRS 16, lease payment
obligations are discounted using the Company’s incremental borrowing rates.
Finance lease obligations, as determined under IAS 17, were recognized in lease liabilities on January 1, 2019 at the carrying amount
immediately before the date of initial application.
(iii) Operating lease commitments as at December 31, 2018 reflected only the contractual lease payments. Under IFRS 16, lease liabilities
include lease payments for renewal periods where management is reasonably certain to renew.
12.
Future Accounting Standard
IFRS 17 In 2017, the IASB issued IFRS 17, “Insurance Contracts” (“IFRS 17”) replacing IFRS 4, “Insurance Contracts”. IFRS 17
introduces consistent accounting for all insurance contracts. The standard requires a company to measure insurance contracts
using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to these contracts.
Additionally, IFRS 17 requires an entity to recognize profits as it delivers insurance services, rather than when it receives
premiums. The standard is effective for annual periods beginning on or after January 1, 2021 and is to be applied retrospectively.
However, the IASB has proposed deferring the effective date to January 1, 2022. While early adoption is permitted, the Company
does not intend to early adopt IFRS 17. The Company is currently assessing the impact of the standard on its consolidated
financial statements.
13.
Outlook(3)
For 2020, the Company expects adjusted net earnings(1) to increase due to the results from its operating segments as described
below.
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 market
share, with positive same-store sales and stable gross margin, creating efficiencies to deliver operating leverage, investing for the
future and returning capital to shareholders.
Loblaw will remain focused on delivering Process and Efficiency improvements to offset increasing costs and to fund
continued incremental investments in infrastructure and to support its strategic growth areas of Everyday Digital Retail,
Connected Healthcare and Payments & Rewards.
In 2020, on a full-year comparative basis, excluding the impact of the 53rd week, Loblaw expects to:
•
•
•
•
deliver positive same-store sales and stable gross margin in its Retail segment in a highly competitive market;
deliver positive adjusted net earnings(1) growth;
invest approximately $1.1 billion in capital expenditures, net of proceeds from property disposals; and
return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.
76 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
Choice Properties’ real estate platform is positioned to deliver both income stability and long term growth for its investors,
underpinned by disciplined financial management. Choice Properties’ income producing property portfolio provides a solid
foundation for stable cash flows through effective management and portfolio diversification. The portfolio is diversified by both
geography and product type including retail, industrial, office and residential assets. Overall, Choice Properties expects its
income producing portfolio will continue to operate at high occupancy levels and deliver low single digits same asset NOI
growth. Development initiatives provide the opportunity to add high quality real estate by focusing primarily on retail
intensification projects which provide incremental growth to existing sites, to larger, more complex major mixed-use
developments which Choice Properties expects will drive net asset value growth in the future.
In 2020, Choice Properties will continue to improve its portfolio quality and seek out opportunities, when available, to strengthen
its balance sheet by extending debt maturities with longer term debt.
Weston Foods is focused on becoming a premier North American bakery and delivering solid financial results. In 2020, Weston
Foods will continue to focus on growing its core business, selectively investing in key categories and markets, and strengthening
key operational processes.
In 2020, Weston Foods expects:
•
sales will be modestly higher compared to full year 2019, after excluding the impact of foreign currency translation and the
impact of the 53rd week in 2020;
adjusted EBITDA(1) will be higher compared to 2019;
investment in capital expenditures to decrease to approximately $185 million; and
depreciation will increase compared to 2019.
•
•
•
14.
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures in this document, such as: 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, free cash flow, Choice Properties funds from operations, among
others. 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 with regard to accurately assessing the Company’s financial performance and financial
condition for the reasons outlined below.
Further, certain non-GAAP measures of Loblaw and Choice Properties are included in this document. For more information on
these measures, refer to the 2019 Annual Reports filed by Loblaw and Choice Properties, which are available on sedar.com or at
loblaw.ca or choicereit.ca, respectively.
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 underlying consolidated and segment operating performance, as the
excluded items are not necessarily reflective of the Company’s underlying operating performance and make comparisons of
underlying financial performance between periods difficult. The Company excludes 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 should not be construed as an alternative to other
financial measures determined in accordance with GAAP.
77 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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)
Loblaw
Choice
Properties
Weston
Foods
Other &
Intersegment
Consolidated
Loblaw
Choice
Properties(4)
Weston
Foods(4)
Other &
Intersegment(4)
Consolidated
Quarters Ended
Dec. 31, 2019
Dec. 31, 2018
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
Restructuring and other
related costs
Fair value adjustment on
investment properties
Asset impairments, net of
recoveries
CREIT acquisition and other
related costs
Inventory loss, net of recoveries
Loblaw’s spin-out of Choice
Properties
Fair value adjustment of
derivatives
Certain prior period items
Gain on sale of non-operating
properties
Foreign currency translation
and other company level
activities
$
443
$
281
135
133
7
131
60
218
$ 539 $ 220 $ 27 $
(68) $
718
$ 443 $ 202 $ 30 $
15 $
690
$
116 $
— $
— $
— $
116
$
120 $
— $
— $
— $
120
24
(12)
83
—
—
—
(5)
(7)
(8)
—
—
5
—
—
—
—
—
—
—
—
(4)
—
—
—
4
—
(4)
—
—
—
10
34
(38)
—
—
—
—
7
—
30
27
45
—
4
—
(9)
—
(8)
(1)
(1)
(4)
5
83
—
—
2
8
—
—
—
—
19
—
11
—
—
—
—
—
—
4
—
—
—
—
—
(3)
—
—
—
5
(20)
(77)
—
—
8
—
—
—
5
4
6
11
—
10
5
—
—
(1)
(1)
(85) $
(70) $
160
850
Adjusting items
$
191 $
5 $
(4) $
12 $
Adjusted operating income
$ 730 $ 225 $ 23 $
(56) $
204
922
$
214 $
30 $
1 $
$ 657 $ 232 $
31 $
Depreciation and amortization
excluding the impact of the
above adjustments(i)
473
—
33
(77)
429
236
1
28
31
296
Adjusted EBITDA
$ 1,203 $ 225 $ 56 $
(133) $
1,351
$ 893 $ 233 $ 59 $
(39) $
1,146
(i)
Depreciation and amortization for the calculation of adjusted EBITDA excludes $116 million (2018 – $120 million) of amortization of
intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $3 million (2018 – nominal) of accelerated depreciation
recorded by Weston Foods, related to restructuring and other related costs.
78GEORGE WESTON LIMITED 2019 ANNUAL REPORT78 GEORGE WESTON LIMITED 2019 ANNUAL REPORT (unaudited)
($ millions)
Loblaw
Choice
Properties
Weston
Foods
Other &
Intersegment
Consolidated
Loblaw
Choice
Properties
Weston
Foods(4)
Other &
Intersegment(4)
Consolidated
Years Ended
Dec. 31, 2019
Dec. 31, 2018
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
Restructuring and other
related costs
Fair value adjustment on
investment properties
Asset impairments, net of
recoveries
Pension annuities and buy-outs
CREIT acquisition and other
related costs
Inventory loss, net of recoveries
Loblaw’s spin-out of Choice
Properties
Fair value adjustment of
derivatives
Certain prior period items
Gain on sale of non-operating
properties
Impact of healthcare reform on
inventory balances
Loblaw Card Program
Wind-down of PC Financial
personal banking services
Gain on sale of air rights
Foreign currency translation
and other company level
activities
$
242
$
574
581
431
1,704
424
639
948
$ 2,262 $ 890 $ 72 $
(266) $ 2,958
$ 1,915 $ 593 $ 92 $
(15) $ 2,585
$ 508 $
— $
— $
— $
508
$
521 $
— $
— $
— $
521
—
33
(10)
74
(15)
83
10
—
—
—
—
(22)
(12)
—
—
—
—
—
—
15
—
—
8
—
—
—
—
—
—
—
—
—
—
11
—
—
—
—
2
—
—
—
—
—
—
—
—
—
10
85
(38)
—
—
—
1
—
7
—
—
—
—
—
95
85
45
10
8
2
1
—
(15)
(12)
—
—
—
—
(3)
(3)
10
6
83
1
—
—
8
(3)
—
—
19
4
(20)
—
—
89
—
—
141
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
—
(12)
—
—
—
—
—
—
—
33
48
6
1
141
(1)
20
(15)
—
—
19
4
(20)
(13)
(47)
(77)
—
—
—
12
—
—
—
—
—
—
(13)
(17)
(17)
Adjusting items
$ 626 $
23 $
13 $
62 $
724
$ 629 $ 230 $ 20 $
(152) $
727
Adjusted operating income
$2,888 $ 913 $ 85 $
(204) $ 3,682
$ 2,544 $ 823 $ 112 $
(167) $
3,312
Depreciation and amortization
excluding the impact of the
above adjustments(i)
2,016
1
138
(354)
1,801
976
1
121
118
1,216
Adjusted EBITDA
$4,904 $ 914 $ 223 $
(558) $ 5,483
$ 3,520 $ 824 $ 233 $
(49) $ 4,528
(i)
Depreciation and amortization for the calculation of adjusted EBITDA excludes $508 million (2018 – $521 million) of amortization of
intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $9 million (2018 – $9 million) of accelerated depreciation
recorded by Weston Foods, related to restructuring and other related costs.
79 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
The following items impacted operating income in 2019 and 2018:
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. Annual
amortization associated with the acquired intangible assets will be approximately $500 million until 2024, and will decrease
thereafter.
Restructuring and other related costs 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 related costs incurred by each of the Company’s operating segments see Section 2.1, “Loblaw Operating Results” and
Section 2.3, “Weston Foods Operating Results” of this MD&A.
Fair value adjustment on investment properties In conjunction with the acquisition of CREIT, the Company elected to change
the measurement of investment properties from cost model to fair value model. Prior to the second quarter of 2018, the
Company recognized investment properties at cost less accumulated depreciation and any accumulated impairment losses.
Under the fair value model, investment properties are initially measured at cost and subsequently measured at fair value. Fair
value is determined based on available market evidence. If market evidence is not readily available in less active markets, the
Company uses alternative valuation methods such as discounted cash flow projections or recent transaction prices. Gains and
losses on fair value are recognized in operating income in the period in which they are incurred. Gains and losses from disposal
of investment properties are determined by comparing the fair value of disposal proceeds and the carrying amount and are
recognized in operating income.
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, right-of-use assets, and
intangible assets.
Pension annuities and buy-outs The Company has and continues to undertake annuity purchases and pension buy-outs in
respect of former employees to reduce its defined benefit pension plan obligation and decrease future pension volatility and
risks.
CREIT acquisition and other related costs During 2018 and 2019, Choice Properties recorded acquisition and other related
costs in connection with the acquisition of CREIT.
Inventory loss, net of recoveries In the fourth quarter of 2019, Weston Foods' damaged inventory of $4 million was written off
and was recorded in SG&A. The Company also recorded partial proceeds in 2018 and 2019 from an insurance claim related to a
previous inventory loss.
Loblaw’s spin-out of Choice Properties During 2018 and 2019, the Company and Loblaw recorded transaction and other
related costs in connection with the spin-out of Loblaw’s interest in Choice properties.
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.
Certain prior period items In the second quarter of 2019, Loblaw revised its estimate of the amount owed associated with a
prior period regulatory matter. In addition, Loblaw sold certain properties to Choice Properties and the revenue received with
respect to solar rooftop leases was incorrectly allocated to Choice Properties. In 2019, Loblaw was reimbursed $7 million for
revenue Choice Properties had received in prior periods on behalf of Loblaw. Loblaw and Choice Properties acknowledged that
all future revenue and liabilities relating to the solar rooftop leases and related rooftop repair costs belong to Loblaw.
Gain on sale of non-operating properties In 2019, Loblaw disposed of non-operating properties to a third party and recorded a
gain of $12 million related to the sale.
Impact of healthcare reform on inventory balances In the first quarter of 2018, Loblaw recorded an inventory provision for the
write-down of inventories below cost to net realizable value, related to its generic drug inventory, as a result of healthcare reform
announced in the first quarter of 2018, effective April 1, 2018.
80 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
Loblaw Card Program In the fourth quarter of 2017, the Company and Loblaw acknowledged their involvement in an industry
wide price-fixing arrangement involving certain packaged bread products. In connection with the arrangement, the Company
offered customers a $25 Loblaw Card, which can be used to purchase items sold in Loblaw grocery stores across Canada. The
Company recorded a charge of $107 million associated with the Loblaw Card Program in the fourth quarter of 2017. In 2018, the
Company recorded an additional charge of $4 million.
Wind-down of PC Financial personal 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 PC Financial brand. As a result of this agreement, PC Bank received a payment of approximately $44 million, net of certain
costs incurred, $20 million of which was recognized in the first half of 2018 and $24 million which was recognized in 2017.
Gain on sale of air rights In the third quarter of 2018, a joint venture owned by Choice Properties completed the sale of air
rights on one of its properties. The Company recorded a gain of $13 million related to the sale.
Foreign currency translation and other company level activities The Company’s consolidated financial statements are
expressed in Canadian dollars. A portion of the Company’s (excluding Loblaw’s) net assets are denominated in U.S. dollars and as
a result, the Company is exposed to foreign currency translation gains and losses. The impact of foreign currency translation on a
portion of the U.S. dollar denominated net assets, primarily cash and cash equivalents and short term investments held by
foreign operations, is recorded in SG&A and the associated tax, if any, is recorded in income taxes. Other company level activities
include fair value adjustments related to investments held by the Company.
ADJUSTED NET INTEREST EXPENSE AND OTHER FINANCING CHARGES The Company believes adjusted net interest expense
and other financing charges is useful in assessing the ongoing net financing costs of the Company.
The following table reconciles adjusted net interest expense and other financing charges to GAAP net interest expense and
other financing charges reported for the periods ended as indicated.
(unaudited)
($ millions)
Quarters Ended
Years Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Net interest expense and other financing charges
$
7
$
Add: Fair value adjustment of the Trust Unit liability
Fair value adjustment of the forward sale agreement
for 9.6 million Loblaw common shares
Choice Properties issuance costs
Loblaw’s charge related to Glenhuron
Loblaw’s spin-out of Choice Properties
203
67
—
—
—
218
85
(94)
—
—
(1)
$
1,704
$
(550)
(69)
(14)
—
—
Adjusted net interest expense and other financing charges
$
277
$
208
$
1,071
$
948
41
(50)
—
(176)
(1)
762
In addition to certain items described in the “Adjusted EBITDA” section above, the following items impacted net interest
expense and other financing charges in 2019 and 2018:
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.
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.
Choice Properties issuance costs Choice Properties incurred issuance costs of $14 million related to the Offering in the second
quarter of 2019.
Loblaw’s charge related to Glenhuron In the third quarter of 2018, Loblaw recorded a charge of $367 million related to the Tax
Court of Canada’s decision on Glenhuron. Of the total charge, $176 million was recorded in net interest expense and other
financing charges and $191 million was recorded in income taxes.
81 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
ADJUSTED INCOME TAXES AND ADJUSTED INCOME TAX RATE The Company believes the adjusted income tax rate applicable
to adjusted earnings before taxes is useful in assessing the underlying operating performance of its business.
The following table reconciles the effective income tax rate applicable to adjusted earnings before taxes to the GAAP effective
income tax rate applicable to earnings before taxes as reported for the periods ended as indicated.
(unaudited)
($ 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
Reserve release related to 2014 tax audit
Loblaw’s charge related to Glenhuron
$
$
$
Quarters Ended
Years Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
922
$
850
$
3,682
$
3,312
$
$
277
645
133
38
—
—
—
—
$
$
208
642
60
56
62
—
—
—
$
$
1,071
2,611
431
189
15
10
8
—
762
2,550
639
170
62
—
—
(191)
680
Adjusted income taxes
$
171
$
178
$
653
$
Effective income tax rate applicable to earnings
before taxes
Adjusted income tax rate applicable to adjusted
earnings before taxes
18.7%
12.7%
34.4%
39.0%
26.5%
27.7%
25.0%
26.7%
(i)
(ii)
See reconciliations of adjusted operating income and adjusted net interest expense and other financing charges above.
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 items impacted income taxes and the effective income tax rate in 2019 and 2018:
Remeasurement of deferred tax balances In the second quarter of 2019, Choice Properties’ equity offering of Trust Units
resulted in the dilution of the Company’s interest in Choice Properties. The Company recorded income of $15 million in the
second quarter of 2019 on the resulting remeasurement of its deferred income tax balances. In the fourth quarter of 2018, the
Company recorded a deferred tax recovery of $62 million resulting from the change in the manner by which the Company
expects to recover certain assets.
Statutory corporate income tax rate change The Company’s deferred income tax assets and liabilities are impacted by changes
to provincial 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 second quarter of 2019, the Government of Alberta substantively enacted a gradual decrease in the provincial statutory
corporate income tax rate from 12% to 8% by 2022. The Company recorded income of $10 million in the second quarter of 2019
related to the remeasurement of its deferred income tax balances.
Reserve release related to 2014 tax audit In the third quarter of 2019, Loblaw reversed certain tax reserves following the
completion of a tax audit that included a review of the Shoppers Drug Mart acquisition costs incurred in 2014.
82 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
ADJUSTED NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS AND ADJUSTED DILUTED NET EARNINGS PER
COMMON SHARE The Company believes that adjusted net earnings available to common shareholders and adjusted diluted
net earnings per common share are useful in assessing the Company’s underlying operating performance and in making
decisions regarding the ongoing operations of its business.
The following table reconciles adjusted net earnings available to common shareholders of the Company and adjusted net
earnings attributable to shareholders of the Company to net earnings attributable to shareholders of the Company and then to
net earnings available to common shareholders of the Company reported for the periods ended as indicated.
(unaudited)
($ millions except where otherwise indicated)
Quarters Ended
Years Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
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
Less: 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
Less: Reduction in net earnings due to dilution at Loblaw
Adjusted net earnings available to common shareholders
for diluted earnings per share
$
$
$
$
$
$
$
443
$
281
$
242
$
574
(10)
433
$
(1)
432
443
(171)
$
$
(10)
271
—
271
281
(39)
$
$
$
(44)
198
$
(4)
$
$
194
242
919
(44)
530
(2)
528
574
378
272
$
242
$
1,161
$
952
(10)
(10)
(44)
262
$
232
$
1,117
$
(1)
—
(4)
(44)
908
(2)
261
$
232
$
1,113
$
906
Diluted weighted average common shares outstanding (in
millions)
154.0
145.7
153.7
132.2
83 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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, 2019
Dec. 31, 2018
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
433
$
2.81
$
271
$
1.86
$
44
16
30
5
—
2
—
(5)
2
(3)
0.29
0.10
0.19
0.03
—
0.01
—
(0.03)
0.01
(0.02)
(1.31)
$
44
$
5
4
(26)
9
—
9
1
—
—
(99)
77
(62)
(1)
$
$
(39) $
232
$
0.30
0.03
0.03
(0.17)
0.06
—
0.06
0.01
—
—
(0.68)
0.53
(0.43)
(0.01)
(0.27)
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
Restructuring and other related costs
Fair value adjustment on investment properties
Asset impairments, net of recoveries
CREIT acquisition and other related costs
Inventory loss, net of recoveries
Loblaw’s spin-out of Choice Properties
Fair value adjustment of derivatives
Certain prior period items
Gain on sale of non-operating properties
Fair value adjustment of the Trust Unit liability
(203)
Fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares
Remeasurement of deferred tax balances
Foreign currency translation and other company level
activities
Adjusting items
Adjusted
(58)
(0.38)
—
(1)
$
$
(171) $
262
$
—
(0.01)
(1.12)
1.69
(i)
Net of income taxes and non-controlling interests, as applicable.
84 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
Years Ended
Dec. 31, 2019
Dec. 31, 2018
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
198
$
1.26
$
530
$
3.99
$
$
192
$
44
80
5
4
7
1
1
—
(4)
(5)
—
—
—
—
550
60
14
—
(15)
(8)
(4)
(3)
1.25
0.28
0.52
0.04
0.03
0.04
0.01
0.01
—
(0.03)
(0.03)
—
—
—
—
3.58
0.39
0.09
—
(0.10)
(0.05)
(0.03)
(0.02)
5.98
7.24
$
191
$
26
23
(26)
1
68
(1)
16
(10)
—
—
7
1
(7)
(6)
(57)
45
—
184
(62)
—
—
(15)
378
908
$
$
$
$
1.45
0.19
0.17
(0.19)
0.01
0.51
(0.01)
0.12
(0.08)
—
—
0.05
0.01
(0.05)
(0.05)
(0.43)
0.35
—
1.39
(0.47)
—
—
(0.11)
2.86
6.85
$
$
919
1,117
$
$
(unaudited)
($ except where otherwise indicated)
As reported
Add (deduct) impact of the following(i):
Amortization of intangible assets acquired with Shoppers
Drug Mart
Restructuring and other related costs
Fair value adjustment on investment properties
Asset impairments, net of recoveries
Pension annuities and buy-outs
CREIT acquisition and other related costs
Inventory loss, net of recoveries
Loblaw’s spin-out of Choice Properties
Fair value adjustment of derivatives
Certain prior period items
Gain on sale of non-operating properties
Impact of healthcare reform on inventory balances
Loblaw Card Program
Wind-down of PC Financial personal banking services
Gain on sale of air rights
Fair value adjustment of the Trust Unit liability
Fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares
Choice Properties issuance costs
Loblaw’s charge related to Glenhuron
Remeasurement of deferred tax balances
Statutory corporate income tax rate change
Reserve release related to 2014 tax audit
Foreign currency translation and other company level
activities
Adjusting items
Adjusted
(i)
Net of income taxes and non-controlling interests, as applicable.
85 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
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 definition of free cash flow was changed in the first quarter of 2019 to normalize for the impact of the implementation of
IFRS 16. Lease payments were deducted from the calculation, which resulted in no IFRS 16 impact on the metric.
The following table reconciles free cash flow to GAAP measures reported for the periods ended as indicated.
(unaudited)
($ millions)
Quarters Ended
Years Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Cash flows from operating activities
$
1,272
$
Less:
Interest paid
Fixed asset and investment properties
purchases
Intangible asset additions
Lease payments, net(i)
Free cash flow
$
181
479
102
131
379
455
224
546
74
—
$
4,555
$
891
1,193
403
726
$
(389)
$
1,342
$
2,719
992
1,250
343
—
134
(i)
Includes cash rent paid on lease liabilities, net of lease payments received from finance leases.
Choice Properties’ Funds from Operations Choice Properties considers Funds from Operations to be a useful measure of
operating performance as it adjusts for items included in net income that do not arise from operating activities or do not
necessarily provide an accurate depiction of the Trust’s performance.
The following table reconciles Choice Properties’ Funds from Operations to net income for the periods ended as indicated.
(unaudited)
($ millions)
Net income (loss)
Quarters Ended
Years Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
$
294
$
281
$
(581)
$
650
Add (deduct) impact of the following:
Fair value adjustments on Exchangeable Units
Unit distributions on Exchangeable Units
Fair value adjustments on investment properties
CREIT acquisition and other related costs
Fair value adjustments on investment property
held in equity accounted joint ventures
Internal expenses for leasing
Capitalized interest on equity accounted
joint ventures
Income taxes
Fair value adjustments on unit-based
compensation
Funds from Operations
Accelerated amortization of debt premium
Funds from Operations, for management purposes
$
$
(207)
73
(8)
—
13
1
2
—
(2)
166
—
166
(215)
72
19
11
1
2
1
—
—
932
289
4
8
11
6
5
(1)
7
$
$
172
—
172
$
$
680
—
680
$
$
(594)
271
89
141
5
6
3
—
(4)
567
37
604
86 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
15.
Forward-Looking Statements
This Annual Report, including this MD&A, contains forward-looking statements about the Company’s objectives, plans, goals,
aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects, 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 further healthcare reform, future liquidity, planned capital investments, and the status and impact of information
technology (“IT”) systems implementations. These specific forward-looking statements are contained throughout this Annual
Report including, without limitation, in Section 3, “Liquidity and Capital Resources”, Section 13, “Outlook”, and Section 14, “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 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 2020 is based on
certain assumptions including assumptions about healthcare reform impacts, anticipated cost savings and operating efficiencies
and anticipated benefits from strategic initiatives. The Company’s estimates, beliefs and assumptions are inherently subject to
significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are
subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.
Numerous risks and uncertainties could cause the Company’s actual results to differ materially from those expressed, implied or
projected in the forward-looking statements, including those described in Section 8, “Enterprise Risks and Risk Management”, of
this MD&A and the Company’s AIF for the year ended December 31, 2019. Such risks and uncertainties include:
•
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;
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 respond to consumer trends or heightened competition, whether from current competitors or new
entrants to the marketplace;
failure to execute e-commerce initiatives or adapt the 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 realize the anticipated benefits associated with the Company’s strategic priorities and major initiatives, including
revenue growth, anticipated cost savings and operating efficiencies, or organizational changes that may impact the
relationships with franchisees and associates;
failure to attract and retain talent for key roles that may impact the Company’s ability to effectively operate and achieve
financial performance goals;
public health events including those related to food and drug safety;
errors made through medication dispensing or errors related to patient services or consultation;
failure to maintain an effective supply chain and consequently an appropriate assortment of available product at store level;
adverse outcomes of legal and regulatory proceedings and related matters;
failure by Choice Properties to realize the anticipated benefits associated with its strategic priorities and major initiatives,
including failure to develop quality assets and effectively manage development, redevelopment, and renovation initiatives;
the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory or control shrink;
failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements;
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;
reliance on the performance and retention of third party service providers, including those associated with the Company’s
supply chain and apparel business, including issues with vendors in both advanced and developing markets;
changes to any of the laws, rules, regulations or policies applicable to the Company’s business;
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.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
87 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Management’s Discussion and Analysis
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, 2019. 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 MD&A. 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.
16.
Additional Information
Additional information about the Company, including its 2019 AIF and other disclosure documents, has been filed electronically
with various securities regulators in Canada through the System for Electronic Document Analysis and Retrieval (SEDAR) and is
available online at www.sedar.com.
This Annual Report includes selected information on Loblaw, a public company with shares trading on the TSX. For information
regarding Loblaw, readers should also refer to the materials filed by Loblaw on SEDAR from time to time. These filings are also
maintained on Loblaw’s corporate website at www.loblaw.ca.
This Annual Report also includes selected information on Choice Properties, a public real estate investment trust with units
trading on the TSX. For information regarding Choice Properties, readers should also refer to the materials filed by Choice
Properties on SEDAR from time to time. These filings are also maintained on Choice Properties’ website at www.choicereit.ca.
Toronto, Canada
February 24, 2020
88 GEORGE WESTON LIMITED 2019 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
Note 1.
Nature and Description of the Reporting Entity
Note 2.
Significant Accounting Policies
Note 3.
Critical Accounting Estimates and Judgments
Note 4.
Future Accounting Standard
Note 5.
Subsidiaries
Note 6.
Business Acquisitions
Note 7.
Net Interest Expense and Other Financing Charges
Note 8.
Income Taxes
Note 9.
Basic and Diluted Net Earnings per Common Share
Note 10.
Cash and Cash Equivalents, Short Term Investments and Security Deposits
Note 11.
Accounts Receivable
Note 12.
Credit Card Receivables
Note 13.
Inventories
Note 14.
Assets Held for Sale and Disposition
Note 15.
Fixed Assets
Note 16.
Investment Properties
Note 17.
Equity Accounted Joint Ventures
Note 18.
Intangible Assets
Note 19.
Goodwill
Note 20. Other Assets
Note 21.
Customer Loyalty Awards Program Liability
Note 22.
Provisions
Note 23.
Short Term Debt
Note 24.
Long Term Debt
Note 25. Other Liabilities
Note 26.
Share Capital
Note 27.
Loblaw Capital Transactions
Note 28.
Capital Management
Note 29.
Post-Employment and Other Long Term Employee Benefits
Note 30.
Equity-Based Compensation
Note 31.
Employee Costs
Note 32.
Leases
Note 33.
Financial Instruments
Note 34.
Financial Risk Management
Note 35.
Contingent Liabilities
Note 36.
Financial Guarantees
Note 37.
Related Party Transactions
Note 38.
Segment Information
Three Year Summary
Glossary
90
91
94
94
94
95
96
97
98
98
98
113
115
115
116
117
118
119
120
120
121
123
123
124
126
127
128
130
131
131
131
132
133
137
137
140
141
142
147
154
154
157
160
162
163
165
166
170
172
89 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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
Toronto, Canada
February 24, 2020
[signed]
Richard Dufresne
President and
Chief Financial Officer
90 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Independent Auditors’ Report
TO THE SHAREHOLDERS OF GEORGE WESTON LIMITED
Opinion
We have audited the consolidated financial statements of George Weston Limited (the “Entity”), which comprise:
•
•
•
•
•
•
the consolidated balance sheets as at December 31, 2019 and December 31, 2018
the consolidated statements of earnings for the years then ended
the consolidated statements of comprehensive income for the years then ended
the consolidated statements of changes in equity for the years then ended
the consolidated statements of cash flows for the years then ended
and notes to the consolidated financial statements, including a summary of significant accounting policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated
financial position of the Entity as at December 31, 2019 and December 31, 2018, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial
Statements” section of our auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the
financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Emphasis of Matter - Change in Accounting Policy
We draw attention to Note 2 to the financial statements which indicates that the Entity has changed its accounting
policy for leases as of January 1, 2019 due to the adoption of IFRS 16 Leases and has applied that change using a
modified retrospective approach.
Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities
Commissions.
the information, other than the financial statements and the auditors’ report thereon, included in a document
entitled “2019 Annual Report”.
Our opinion on the financial statements does not cover the other information and we do not and will not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the audit and remain alert for indications that the other
information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis and a document entitled “2019
Annual Report” filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If,
based on the work we have performed on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
91 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Independent Auditors’ Report
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance
with IFRS, and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of the financial
statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
92 GEORGE WESTON LIMITED 2019 ANNUAL REPORT •
•
•
•
•
•
•
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Entity's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions
may cause the Entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures,
and whether the financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
Communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
Provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the group Entity to express an opinion on the financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Sebastian Distefano.
Toronto, Canada
February 24, 2020
93 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Consolidated Statements of Earnings
For the years ended December 31
(millions of Canadian dollars except where otherwise indicated)
Revenue
Operating Expenses
Cost of inventories sold (note 13)
Selling, general and administrative expenses (note 33)
Operating Income
Net Interest Expense and Other Financing Charges (note 7)
Earnings Before Income Taxes
Income Tax (note 8)
Net Earnings
Attributable to:
Shareholders of the Company (note 9)
Non-Controlling Interests
Net Earnings
Net Earnings per Common Share ($) (note 9)
Basic
Diluted
(i)
Certain comparative figures have been restated to conform with current year presentation.
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 33)
Unrealized losses on cash flow hedges (note 33)
Items that will not be reclassified to profit or loss:
Net defined benefit plan actuarial gains (note 29)
Adjustment to fair value of investment properties (note 16)
Other comprehensive (loss) income
Comprehensive Income
Attributable to:
Shareholders of the Company
Non-Controlling Interests
Comprehensive Income
(i)
Certain comparative figures have been restated to conform with current year presentation.
See accompanying notes to the consolidated financial statements.
2019
2018(i)
$
50,109
$
48,568
34,166
12,985
47,151
2,958
1,704
1,254
431
823
242
581
823
1.29
1.26
$
$
$
33,340
12,643
45,983
2,585
948
1,637
639
998
574
424
998
4.02
3.99
2019
823
$
2018(i)
998
(49)
(7)
1
10
(45)
778
202
576
778
$
91
(3)
92
16
196
1,194
717
477
1,194
$
$
$
$
$
94 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Consolidated Balance Sheets
As at December 31
(millions of Canadian dollars)
ASSETS
Current Assets
Cash and cash equivalents (note 10)
Short term investments (note 10)
Accounts receivable (note 11)
Credit card receivables (note 12)
Inventories (note 13)
Prepaid expenses and other assets
Assets held for sale (note 14)
Total Current Assets
Fixed Assets (note 15)
Right-of-Use Assets (note 32)
Investment Properties (note 16)
Equity Accounted Joint Ventures (note 17)
Intangible Assets (note 18)
Goodwill (note 19)
Deferred Income Taxes (note 8)
Security Deposits (note 10)
Franchise Loans Receivable (note 33)
Other Assets (note 20)
Total Assets
LIABILITIES
Current Liabilities
Bank indebtedness (note 36)
Trade payables and other liabilities
Loyalty liability (note 21)
Provisions (note 22)
Income taxes payable
Short term debt (note 23)
Long term debt due within one year (note 24)
Lease liabilities due within one year (note 32)
Associate interest
Total Current Liabilities
Provisions (note 22)
Long Term Debt (note 24)
Lease Liabilities (note 32)
Trust Unit Liability (note 33)
Deferred Income Taxes (note 8)
Other Liabilities (note 25)
Total Liabilities
EQUITY
Share Capital (note 26)
Retained Earnings
Contributed Surplus (notes 27 & 30)
Accumulated Other Comprehensive Income
Total Equity Attributable to Shareholders of the Company
Non-Controlling Interests
Total Equity
Total Liabilities and Equity
Certain comparative figures have been restated to conform with current year presentation.
(i)
Contingent liabilities (note 35).
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
2019
2018(i)
$
$
$
$
$
$
1,834
229
1,375
3,518
5,270
256
203
12,685
11,773
4,074
4,888
605
7,488
4,775
250
76
19
1,180
47,813
18
5,906
191
147
53
1,489
1,842
857
280
10,783
90
12,712
4,250
3,601
2,245
957
34,638
3,626
4,766
(979)
196
7,609
5,566
13,175
$
47,813
$
1,521
281
1,329
3,309
5,001
370
44
11,855
12,101
—
4,847
734
7,958
4,781
286
87
78
1,087
43,814
56
5,762
228
205
171
1,579
1,343
—
260
9,604
167
13,975
—
2,658
2,515
691
29,610
3,583
5,017
(799)
239
8,040
6,164
14,204
43,814
95 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Consolidated Statements of Changes in Equity
(millions of Canadian dollars except
where otherwise indicated)
Common
Shares
Preferred
Shares
Total
Share
Capital
Retained
Earnings
Contributed
Surplus
Foreign
Currency
Translation
Adjustment
Cash
Flow
Hedges
Adjustment
to Fair Value
on Transfer of
Investment
Properties
Total
Accumulated
Other
Comprehensive
Income
Non-
Controlling
Interests
Total
Equity
Balance as at Dec. 31, 2018
$ 2,766 $
817 $ 3,583 $
5,017 $
(799) $
231 $
— $
8 $
239 $
6,164 $
14,204
Impact of adopting IFRS 16
(note 2)
Restated balance as at
Jan. 1, 2019
Net earnings
Other comprehensive income
(loss)(ii)
Comprehensive income (loss)
Effect of equity-based
compensation (notes 26 & 30)
Shares purchased and
cancelled (note 26)
Net effect of shares held in
trusts (notes 26 & 30)
Loblaw capital transactions and
dividends (notes 27 & 30)
Dividends declared
Per common share ($)
– $2.090
Per preferred share ($)
– Series I – $1.45
– Series III – $1.30
– Series IV – $1.30
– Series V – $1.1875
—
—
—
(115)
—
—
—
—
—
(394) $
(509)
$ 2,766 $
817 $ 3,583 $
4,902 $
(799) $
231 $
— $
8 $
239 $
5,770 $
13,695
—
—
—
47
(4)
—
—
—
—
—
—
—
43
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
47
(4)
—
—
—
—
—
—
—
242
3
245
(1)
(21)
5
—
(321)
(13)
(10)
(10)
(10)
—
—
—
(10)
—
—
(170)
—
—
—
—
—
43
(381)
(180)
—
(49)
(49)
—
—
—
—
—
—
—
—
—
—
—
(4)
(4)
—
—
—
—
—
—
—
—
—
—
—
10
10
—
—
—
—
—
—
—
—
—
—
—
581
823
(43)
(43)
(5)
576
(45)
778
—
—
—
—
—
—
—
—
—
—
(3)
33
—
—
(25)
5
(777)
(947)
—
—
—
—
—
(321)
(13)
(10)
(10)
(10)
(780)
(1,298)
Balance as at Dec. 31, 2019
$ 2,809 $
817 $ 3,626 $
4,766 $
(979) $
182 $
(4) $
18 $
196 $
5,566 $
13,175
(millions of Canadian dollars except
where otherwise indicated)
Common
Shares
Preferred
Shares
Total
Share
Capital
Retained
Earnings
Contributed
Surplus
Foreign
Currency
Translation
Adjustment(i)
Cash
Flow
Hedges(i)
Adjustment
to Fair Value
on Transfer of
Investment
Properties
Total
Accumulated
Other
Comprehensive
Income
Non-
Controlling
Interests
Total
Equity
Balance as at Dec. 31, 2017
$
221 $
817 $ 1,038 $
7,188 $
(432) $
139 $
1 $
Impact of adopting IFRS 9
—
—
—
(36)
—
—
—
— $
—
140 $
6,861 $
14,795
—
(36)
(72)
$
221 $
817 $ 1,038 $
7,152 $
(432) $
139 $
1 $
— $
140 $
6,825 $
14,723
Restated balance as at
Jan. 1, 2018
Net earnings
Other comprehensive income
(loss)(ii)
Comprehensive income (loss)
Effect of equity-based
compensation (notes 26 & 30)
Shares purchased and
cancelled (note 26)
Net effect of shares held in
trusts (notes 26 & 30)
—
—
—
12
(14)
—
Spin-out of Choice Properties
2,547
Loblaw capital transactions
and dividends (notes 27 & 30)
Dividends declared
Per common share ($)
– $1.950
Per preferred share ($)
– Series I – $1.45
– Series III – $1.30
– Series IV – $1.30
– Series V – $1.1875
Tax impact on conversion of
Class C LP Units
—
—
—
—
—
—
—
2,545
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12
574
47
621
—
(14)
(109)
—
10
2,547
(2,353)
—
—
—
(9)
—
—
—
—
—
—
—
—
—
—
—
(350)
(261)
(13)
(10)
(10)
(10)
—
—
—
—
—
—
(8)
2,545
(2,756)
(367)
—
92
92
—
—
—
—
—
—
—
—
—
—
—
—
(4)
(4)
—
—
—
3
—
—
—
—
—
—
3
—
8
8
—
—
—
—
—
—
—
—
—
—
—
—
96
96
—
—
—
3
—
—
—
—
—
—
—
3
424
53
477
(1)
—
(73)
998
196
1,194
2
(123)
10
124
(1,064)
(1,414)
—
—
—
—
—
—
(261)
(13)
(10)
(10)
(10)
(8)
(1,138)
(1,713)
Balance as at Dec. 31, 2018
$ 2,766 $
817 $ 3,583 $
5,017 $
(799) $
231 $
— $
8 $
239 $
6,164 $
14,204
(i)
(ii)
Certain comparative figures have been restated to conform with current year presentation.
Other comprehensive income (loss) includes actuarial gain of $1 million (2018 – $92 million), gain of $3 million (2018 – $47 million) which is presented above in retained earnings
and loss of $2 million (2018 – gain of $45 million) in non-controlling interests. Also included in non-controlling interests is foreign currency translation loss of $1 million in 2018,
unrealized loss on cash flow hedges of $3 million (2018 – gain of $1 million) and fair value gain on transfer of investment properties of $8 million in 2018.
See accompanying notes to the consolidated financial statements.
96 GEORGE WESTON LIMITED 2019 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 7)
Income taxes (note 8)
Depreciation and amortization
Asset impairments, net of recoveries
Adjustment to fair value of investment properties
Foreign currency translation gain (note 33)
Change in provisions (note 22)
Change in credit card receivables (note 12)
Change in non-cash working capital
Income taxes paid
Interest received
Interest received from finance leases (note 32)
Other
Cash Flows from Operating Activities
Investing Activities
Fixed asset and investment properties purchases (notes 15 & 16)
Intangible asset additions (note 18)
Business acquisition, net of cash acquired (note 6)
Cash assumed on initial consolidation of franchises (note 6)
Proceeds from disposal of assets
Lease payments received from finance leases
Change in short term investments (note 10)
Change in security deposits (note 10)
Other
Cash Flows used in Investing Activities
Financing Activities
Change in bank indebtedness
Change in short term debt (note 23)
Proceeds from other financing (note 25)
Interest paid
Long term debt – Issued (note 24)
– Repayments (note 24)
Cash rent paid on lease liabilities – Interest (note 32)
Cash rent paid on lease liabilities – Principal (note 32)
Share capital – Issued (notes 26 & 30)
– Purchased and held in trusts (note 26)
– Purchased and cancelled (note 26)
Loblaw common share capital – Issued (notes 27 & 30)
– Purchased and held in trusts (note 27)
– Purchased and cancelled (note 27)
Choice Properties units – Issued (note 5)
– Issuance Costs
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 Year
Cash and Cash Equivalents, End of Year
Certain comparative figures have been restated to conform with current year presentation.
(i)
See accompanying notes to the consolidated financial statements.
2019
2018(i)
$
823
$
998
1,704
431
2,318
54
85
—
(54)
5,361
(209)
(7)
(656)
35
4
27
4,555
(1,155)
(403)
—
20
87
8
52
7
(108)
(1,492)
(38)
(90)
435
(891)
1,438
(1,690)
(214)
(520)
40
(6)
(25)
82
(62)
(937)
345
(14)
(319)
(44)
(228)
(12)
(2,750)
—
313
1,521
$
1,834
$
948
639
1,746
21
48
(17)
(188)
4,195
(307)
(644)
(557)
44
—
(12)
2,719
(1,250)
(343)
(1,619)
18
189
—
832
(1)
(82)
(2,256)
(54)
321
—
(992)
4,880
(3,565)
—
—
134
—
(123)
78
(36)
(1,082)
—
—
(241)
(44)
(228)
(35)
(987)
11
(513)
2,034
1,521
97 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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 2S5. The Company’s parent is Wittington Investments, Limited
(“Wittington”).
On November 1, 2018, the Company and Loblaw Companies Limited (“Loblaw”) completed a reorganization under which Loblaw
spun out its approximate 61.6% effective interest in Choice Properties Real Estate Investment Trust (“Choice Properties”) to the
Company (the “reorganization” or the “spin-out”). In connection with the reorganization, the Company issued approximately
26.6 million common shares to Loblaw shareholders other than the Company and its subsidiaries (“Loblaw minority
shareholders”). Following the reorganization, the Company owned an approximate 65.4% effective interest in Choice Properties
directly (which includes the approximate 3.8% interest in Choice Properties directly owned by GWL prior to the reorganization)
and Choice Properties became a reportable operating segment of the Company. During the second quarter of 2019, Choice
Properties completed an equity offering. As at December 31, 2019, the Company’s ownership interest in Choice Properties was
62.9% (see note 5).
The Company operates through its three reportable operating segments, Loblaw, Choice Properties and Weston Foods. Other
and Intersegment includes eliminations, intersegment adjustments related to consolidation and cash and short term
investments held by the Company. Effective in the first quarter of 2019, all other company level activities that are not allocated to
the reportable operating segments, such as interest expense, corporate activities and administrative costs are included in Other
and Intersegment. Weston Foods and Other and Intersegment comparative figures have been restated to conform to the current
year presentation.
Loblaw has two reportable operating segments, Retail and Financial Services. Loblaw provides Canadians with grocery,
pharmacy, health and beauty, apparel, general merchandise and financial services.
Choice Properties owns, manages and develops a high-quality portfolio of commercial retail, industrial, office and residential
properties across Canada.
Weston Foods is a North American bakery making bread, rolls, cupcakes, donuts, biscuits, cakes, pies, cones and wafers, artisan
baked goods and more.
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
February 24, 2020.
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:
•
•
•
•
investment properties as described in note 16;
defined benefit pension plan assets with the obligations related to these pension plans measured at their discounted
present value as described in note 29;
amounts recognized for cash-settled equity-based compensation arrangements as described in note 30; and
certain financial instruments as described in note 33.
The significant accounting policies set out below have been applied consistently in the preparation of the consolidated financial
statements for all periods presented, with the exception of IFRS 16, “Leases” (“IFRS 16”).
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, 2019 and December 31, 2018 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 and Choice Properties (see note 5).
98 GEORGE WESTON LIMITED 2019 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 simplified franchise agreement (“Franchise Agreement”) implemented in
2015. 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 trademarks. The consolidation of Associates and the new franchisees is based on the concept of
control, for accounting purposes, which was determined to exist through the 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 control of the goods or services has been transferred.
Revenue is measured at the amount of consideration to which the Company expects to be entitled to, including variable
consideration to the extent that it is highly probable that a significant reversal will not occur.
Loblaw Retail revenue includes the 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 amount of consideration to which the Company expects to be entitled to, net of estimated returns,
sales incentives and franchise fee reductions. The Company recognizes revenue made through corporate stores, consolidated
franchise stores and Associates at the time the point of sale is made or when service is delivered to the customers. The Company
recognizes revenue made through non-consolidated franchise stores and independent wholesale customers at the time of
delivery of inventory and when administrative and management services are rendered.
On the initial sale of franchising arrangements, the Company offered products and services as part of an arrangement with
multiple performance obligations. Prior to the implementation of the Franchise Agreement implemented in 2015, the initial sale
to non-consolidated franchise stores were recorded using a relative fair value approach.
Customer loyalty awards are accounted for as a separate performance obligation of the sales transaction in which they are
granted. The Company defers revenue at the time the award is earned by members based on the relative fair value of the award.
The relative fair value is determined by allocating consideration between the fair value of the loyalty awards earned by loyalty
program members, net of breakage, and the goods and services on which the awards were earned, based on their relative stand-
alone selling price.
For certain sale of goods in which the Company earns commissions, including but not limited to lottery and third party gift
cards, the Company records net revenue as an agent on the basis that the Company does not control pricing or bear inventory
risk.
99 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Loblaw Financial Services revenue includes interest income on credit card loans, credit card service fees, commissions, and
other revenue related to financial services. Interest income is recognized using the effective interest method. Credit card service
fees are recognized when services are rendered. Commission revenue is recorded on a net basis. 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.
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.
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, which
are recognized in the consolidated balance sheets.
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.
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” and a real estate investment trust (“REIT”) under the Income Tax Act
(Canada). Certain 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.
Under the SIFT rules, the taxation regime will not apply to a REIT that meets prescribed conditions relating to the nature of its
assets and revenue (the “REIT Conditions”) and distributions may be deducted against the REIT’s taxable income. Choice
Properties has reviewed the SIFT rules and has assessed its interpretation and application to Choice Properties’ assets and
revenue and has determined that it meets the REIT Conditions. The Trustees intend to annually distribute all taxable income
directly earned by Choice Properties to Unitholders and to deduct such distributions for income tax purposes and, accordingly,
no net current income tax expense or deferred income tax assets or liabilities have been recorded in the consolidated financial
statements of Choice Properties related to its Canadian investment properties.
Choice Properties also consolidates certain taxable entities in Canada and in the United States for which current and deferred
income taxes are recorded. 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.
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.
100 GEORGE WESTON LIMITED 2019 ANNUAL REPORT ACCOUNTS RECEIVABLE Accounts receivable consists primarily of receivables from Loblaw’s 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. For credit-impaired credit card
receivables, a credit-adjusted effective interest rate is calculated using estimated future cash flows including expected credit
losses.
The Company applies the expected credit loss (“ECL”) model to assess for impairment on its credit card receivables at each
balance sheet date. Credit card receivables are assessed collectively for impairment by applying the three-stage approach. Refer
to the Impairment of Financial Assets policy for details of each stage. The application of the ECL model requires PC Bank to
apply significant judgments, assumptions and estimations (see note 3).
Impairment losses are recorded in selling, general and administrative expenses (“SG&A”) in the consolidated statements of
earnings with the carrying amount of the credit card receivables 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 conditions and changes in factors 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 credit card receivables at the date the impairment is
reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
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 the Company 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 the Company and draw upon a
standby letter of credit. The Company has agreed to reimburse the issuing bank for any amount drawn on the standby letter of
credit. The carrying amount of franchise loan receivables approximates fair value.
INVENTORIES The Company values inventories at the lower of cost and net realizable value. Cost includes the costs of purchases
net of vendor allowances plus other costs, such as transportation, that are directly incurred to bring inventories to their present
location and condition. Loblaw’s retail store inventories, Loblaw’s inventories at distribution centres and Weston Foods’
inventories are measured at weighted average cost. Shoppers Drug Mart’s inventories are measured at weighted average cost or
on a first-in first-out basis.
101 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Loblaw estimates net realizable value as the amount that inventories are expected to be sold taking into consideration
fluctuations in retail prices due to seasonality less estimated costs necessary to make the sale. Inventories are written down to
net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage or declining
selling prices. When circumstances that previously caused inventories to be written down below cost no longer exist or when
there is clear evidence of an increase in selling prices, the amount of the write-down previously recorded is reversed. Storage
costs, indirect administrative overhead and certain selling costs related to inventories are expensed in the period that these costs
are incurred.
VENDOR ALLOWANCES The Company receives allowances from certain of its vendors whose products it purchases. These
allowances are received for a variety of buying and/or merchandising activities, including vendor programs such as volume
purchase allowances, purchase discounts, listing fees and exclusivity allowances. Allowances received from a vendor are 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 goods or services delivered to the vendor or for direct reimbursement of selling costs incurred to promote goods.
The consideration is then recognized as a reduction of the cost incurred in the consolidated statements of earnings.
ASSETS HELD FOR SALE Non-current assets are classified as assets held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through continuing use. To qualify as assets held for sale, the sale must be
highly probable, assets must be available for immediate sale in their present condition and management must be committed to
a plan to sell assets that should be expected to close within one year from the date of classification. Assets held for sale are
recognized at the lower of their carrying amount and fair value less costs to sell and are not depreciated.
FIXED ASSETS 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. For transactions in which the sale of a fixed asset satisfies
the requirements of IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), and the asset is leased back by the Company,
the Company recognizes, in operating income, only the amount of gains or losses that relates to the rights transferred to the
purchaser.
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(i)
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(ii)
Lesser of term of the lease and useful life(ii)
(i)
(ii)
As determined under IAS 17, “Leases”, which is only applicable for the 2018 comparative year.
If it is reasonably certain that the Company will obtain ownership by the end of the lease term, assets held under financing leases and
associated leasehold improvements are depreciated over the useful life of the asset on the same basis as owned assets.
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.
102 GEORGE WESTON LIMITED 2019 ANNUAL REPORT LEASES The Company did not restate prior year comparative information under the modified retrospective approach upon the
implementation of IFRS 16. Therefore, the comparative information continues to be reported under applicable accounting
policies under International Accounting Standard (“IAS”) 17, “Leases” (“IAS 17”) and related interpretations.
Policy applicable prior to January 1, 2019
As a Lessee At inception of a contract, the Company determines whether a contract is or contains a lease. A contract is or
contains a lease if the fulfillment of the arrangement depends upon a specific asset and if the arrangement conveys a right to
control the use of the underlying asset. The right to control the use of the underlying asset is met when the Company has the
right to operate the asset, controls the physical access to the asset or obtains substantially all output from the asset.
The Company classifies leases that substantially transferred all the risk and rewards as finance leases. Assets held under finance
leases are recognized at the lower of the fair value of the leased asset or the present value of the minimum lease payments,
discounted at the interest rate implicit in the lease, or if that rate cannot be readily determined, the Company's incremental
borrowing rate. Assets held under finance leases are depreciated under the applicable Fixed Assets policy. Finance lease
payments are apportioned between interest expense and the reduction of finance lease obligations.
Operating leases are not recognized on the balance sheets. Operating lease payments are recognized in cost of inventories sold
and SG&A on a straight-line basis over the lease term.
As a Lessor The Company recognizes rental income from operating leases on a straight-line basis over the lease term.
Policy applicable from January 1, 2019
As a Lessee At inception of a contract, the Company determines whether a contract is or contains a lease. A contract is or
contains a lease if the contract gives the Company the right to control the use of an identified asset for the duration of the
lease term in exchange for consideration. When a contract contains both lease and non-lease components, the Company will
allocate the consideration in the contract to each of the components on the basis of the relative stand-alone price of the lease
component and the aggregate stand-alone price of the non-lease components. Relative stand-alone prices are determined by
maximizing the most observable supplier prices for a similar asset and/or service.
The Company recognizes a right-of-use asset and a lease liability based on the present value of future lease payments when
the leased asset is available for use by the Company. Lease payments for assets that are exempt through the short term or low-
value exemptions and variable payments not based on an index or rate are recognized in cost of inventories sold and SG&A on
the most systematic basis.
The measurement of lease liabilities includes the fixed and in-substance fixed payments and variable lease payments that
depend on an index or a rate, less any lease incentives receivable. If applicable, lease liabilities will also include a purchase
option exercise price if the Company is reasonably certain to exercise that option, termination penalties if the lease term also
reflects the termination option and amounts expected to be payable under a residual value guarantee. Subsequent to initial
measurement, the Company measures lease liabilities at amortized cost using the effective interest method. Lease liabilities
are remeasured when there is a change in Management’s assessment of whether it will exercise a renewal or termination
option or a change in future lease payments due to a change in index or rate. Right-of-use assets are adjusted by the same
remeasurement amount.
Right-of-use assets are measured at the initial amount of the lease liabilities plus any initial direct costs, lease payments made
at or before the commencement date net of lease incentives received, and decommissioning costs. Subsequent to initial
measurement, the Company applies the cost model with the exception of the fair value model application to right-of-use
assets that meet the definition of investment properties. Right-of-use assets are measured at cost less accumulated
depreciation, accumulated impairment losses and any remeasurements of lease liabilities. The assets are depreciated on a
straight-line basis over the earlier of the assets’ useful lives or the end of the lease terms. Right-of-use 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.
Discount rates used in the present value calculation are the interest rates implicit in the leases, or if the rates cannot be
readily determined, the Company's incremental borrowing rates. Lease terms applied are the contractual non-cancellable
periods of the leases plus periods covered by an option to renew the leases if the Company is reasonably certain to exercise
that option and the periods covered by an option to terminate the leases if the Company is reasonably certain not to
exercise that option.
For sale and leaseback transactions, the Company applies the requirements of IFRS 15 to determine whether the transfer of the
asset should be accounted for as a sale. If the transfer of the asset is a sale, the Company will measure the right-of-use asset
arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained
by the Company.
103 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
As a Lessor At the date the Company makes the underlying leased asset available for use to the lessee, the Company classifies
each lease as either an operating lease or a finance lease. A lease is a finance lease if it transfers substantially all the risks and
rewards of the underlying asset to the lessee; otherwise, the lease is an operating lease. Rental income from operating leases is
recognized on a straight-line basis over the lease term. Rental income from finance leases is recognized on a systematic basis
that reflects the Company's rate of return on the net investment in the leased asset.
When the Company is an intermediate lessor, it will assess the sublease classification by reference to the right-of-use asset. The
Company considers factors such as whether the sublease term covers a major portion of the head lease term.
INVESTMENT PROPERTIES Investment properties are properties owned by the Company that are held to either earn rental
income, for capital appreciation, or both. The Company’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 the Company’s operating activities.
Investment property assets are measured using the fair value model. Under the fair value model, investment properties are
initially measured at cost and subsequently measured at fair value. Fair value is determined based on available market evidence.
If market evidence is not readily available in less active markets, the Company uses alternative valuation methods such as
discounted cash flow projections or recent transaction prices. Under the discounted cash flow methodology, discount rates are
applied to the projected annual operating cash flows, generally over a minimum term of ten years, including a terminal value of
the investment properties based on a capitalization rate applied to the estimated net operating income, a non-GAAP measure,
in the terminal year. Gains and losses on fair value are recognized in operating income in the period in which they are incurred.
Gains and losses from disposal of investment properties are determined by comparing the fair value of disposal proceeds and
the carrying amount and are recognized in operating income.
When a property changes from own use to investment property, the property is remeasured to fair value. Any gain arising from
the remeasurement is recognized in profit or loss to the extent that it reverses a previous impairment loss on that property, with
any remaining gain recognized in the Company’s other comprehensive income. Any loss on remeasurement is recognized in
profit or loss. However, to the extent a previous gain on remeasurement is included in the revaluation surplus for that property,
the loss is first recognized in the Company’s other comprehensive income to reduce the revaluation surplus within equity. Upon
sale of an investment property that was previously classified as fixed assets, amounts included in the revaluation reserve is
transferred to retained earnings.
JOINT ARRANGEMENTS The Company, through Choice Properties, owns investments under joint arrangements. Joint
arrangements are arrangements of which two or more parties have joint control. Joint control is the contractual sharing of
control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the
parties sharing control. Joint arrangements are classified as either joint operations or joint ventures depending on Choice
Properties’ rights and obligations in the arrangement based on factors such as the structure, legal form and contractual terms of
the arrangement.
Joint Ventures A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights
to the net assets of the joint arrangement.
Choice Properties’ investment in a joint venture is recorded using the equity method and is initially recognized in the
consolidated balance sheet at cost and adjusted thereafter to recognize Choice Properties’ share of the profit or loss and other
comprehensive income of the joint venture. The Company’s share of the joint venture’s profit or loss is recognized in the
Company’s operating income and other comprehensive income.
The financial statements of the equity-accounted investment are prepared for the same reporting period as Choice Properties.
Where necessary, adjustments are made to bring the accounting policies in line with those of the Company’s.
A joint venture is considered to be impaired if there is objective evidence of impairment, as a result of one or more events that
occurred after initial recognition of the joint venture, and that event has a negative impact on the future cash flows of the joint
venture that can be reliably estimated.
Joint Operations A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets
and obligations for the liabilities relating to the arrangement. The financial statements of the joint operations are prepared for
the same reporting period as Choice Properties. Where necessary, adjustments are made to bring the accounting policies in line
with those of the Company’s. The Company recognizes its proportionate share of assets, liabilities, revenues and expenses of the
joint operations.
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.
104 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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 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, deferred tax assets and investment properties, 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, including right-of-use 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 retail location is a separate CGU for purposes of impairment testing.
Corporate assets, which include head office facilities and distribution centers, do not generate separate cash inflows. Corporate
assets are tested for impairment at the minimum grouping of CGUs to which the corporate assets can be reasonably and
consistently allocated. Goodwill arising from a business combination is tested for impairment at the minimum grouping of CGUs
that are expected to benefit from the synergies of the combination.
The recoverable amount of a CGU or CGU grouping is the higher of its value in use and its fair value less costs to sell. Value in use
is based on the estimated future cash flows from the CGU or CGU grouping, discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU or CGU
grouping. If the CGU or CGU grouping includes right-of-use assets in its carrying amount, the pre-tax discount rate reflects the
risks associated with the exclusion of lease payments from the estimated future cash flows. 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, up to an asset’s individual recoverable amount. 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. Upon initial recognition, financial
instruments, including derivatives and embedded derivatives in certain contracts, are measured at fair value plus or minus
transaction costs that are directly attributable to the acquisition or issue of financial instruments that are not classified as fair
value through profit or loss.
Classification and Measurement The classification and measurement approach for financial assets reflect the business model
in which assets are managed and their cash flow characteristics. Financial assets are classified and measured based on these
categories: amortized cost, fair value through other comprehensive income (“FVOCI”), or fair value through profit and loss
105 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
(“FVTPL”). Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are not separated,
but the hybrid financial instrument as a whole is assessed for classification.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as FVTPL:
•
The financial asset is held within a business model whose objective is to hold assets in order to collect contractual cash
flows; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
•
A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
•
The financial asset is held within a business model in which assets are managed to achieve a particular objective by both
collecting contractual cash flows and selling financial assets; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
•
A financial asset shall be measured at FVTPL unless it is measured at amortized cost or at FVOCI.
Financial assets are not reclassified subsequent to their initial recognition unless the Company identifies changes in its business
model in managing financial assets.
Financial liabilities are classified and measured based on two categories: amortized cost or FVTPL.
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. The
amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial
recognition, minus principal payments, plus or minus the cumulative amortization using the effective interest method of any
difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.
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 / Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Amortized cost
Amortized cost / fair value through profit and loss
Fair value through other comprehensive income
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Amortized cost
Fair value through profit and loss / fair value through other
comprehensive income
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 sheet. The Company
does not use derivative instruments for speculative purposes. Embedded derivatives are separated from the host contract and
accounted for separately on the consolidated balance sheet at fair value if the host contract is not a financial asset. 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.
106 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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. The Company ensures that the
hedge accounting relationships are aligned with the Company’s risk management objectives and strategy and applies a more
qualitative and forward-looking approach to assessing hedge effectiveness. The Company’s risk management strategy and
hedging activities are disclosed in Note 33 “Financial Instruments” and Note 34 “Financial Risk Management”.
Fair Value The Company measures financial assets and financial 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 FVTPL, 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 FVTPL financial assets and financial liabilities are recognized in net earnings 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 FVTPL financial assets are recorded in net earnings.
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; and
The fair values of other derivative instruments are determined based
on observable market information as well as valuations determined by
external valuators with experience in 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.
107 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Impairment of Financial Assets The Company applies a forward-looking ECL model at each balance sheet date to financial
assets measured at amortized cost or those measured at FVOCI, except for investments in equity instruments.
The ECL model outlines a three-stage approach to reflect the increase in credit risks of a financial instrument:
•
•
•
Stage 1 is comprised of all financial instruments that have not had a significant increase in credit risks since initial
recognition or that have low credit risk at the reporting date. The Company is 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 had a significant increase in credit risks 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. The Company 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. The
Company is required to recognize impairment based on a lifetime ECL for Stage 3 financial instruments.
The ECL model applied to financial assets require judgment, assumptions and estimations on changes in credit risks, forecasts of
future economic conditions and historical information on the credit quality of the financial asset. Consideration of how changes
in economic factors affect ECLs are determined on a probability-weighted basis.
Impairment losses are recorded in SG&A 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 conditions and changes in factors occurring after the impairment
was initially recognized, the previously recognized impairment loss is reversed. 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.
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.
108 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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 (“asset
ceiling”). If it is anticipated that the Company will not be able to recover the value of the net defined benefit asset, after
considering minimum funding requirements for future service, the net defined benefit asset is reduced to the amount of the
asset ceiling. When the payment in the future of minimum funding requirements related to past service would result in a net
defined benefit surplus or an increase in a surplus, the minimum funding requirements are recognized as a liability to the extent
that the surplus would not be fully available as a refund or a reduction in future contributions.
Remeasurements including actuarial gains and losses, the effect of the asset ceiling (if applicable) and the impact of any
minimum funding requirements are recognized through other comprehensive income 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 EQUITY-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
substantially all settled in common shares and are accounted for as equity-settled awards.
The Company and Loblaw’s 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 historical volatility of GWL or Loblaw 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.
109 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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, Loblaw’s and Choice Properties’ 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 EQUITY-BASED COMPENSATION PLANS Unit Options, Restricted Units (“RUs”), Performance Units (“PUs”),
Trustee Deferred Units (“DUs”), and Unit-Settled Restricted Units (“URUs”) issued by Choice Properties, and certain DSUs and
stock options are accounted for as cash-settled awards. The fair value of the amount payable to recipients in respect of these
cash settled awards is re-measured 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.
Choice Properties’ Unit Options have a five to ten year term, vest 25% cumulatively on each anniversary date of the grant and are
exercisable at the designated Unit price, which is based on the greater of the volume weighted average trading price of a Unit
for 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 is valued separately using a Black-Scholes option pricing model, and includes the following assumptions:
•
•
•
•
The expected distribution yield is estimated based on the expected annual distribution prior to the balance sheet date and
the closing Unit price as at the balance sheet date;
The expected Unit price volatility is estimated based on the average volatility of investment grade entities in the Standard &
Poor’s/Toronto Stock Exchange (“TSX”) REIT Index 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 balance sheet 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 expectations of option holder behaviour.
RUs entitle certain employees to receive the value of the RU award in cash or Units at the end of the applicable vesting period,
which is usually three years in length. The RU plan provides for the crediting of additional RUs in respect of distributions paid on
Units for the period when an RU is outstanding. The fair value of each RU granted is measured based on the market value of a
Unit at the balance sheet date.
PUs entitle certain employees to receive the value of the PU award in cash or Units at the end of the applicable performance
period, which is usually three years in length, based on Choice Properties achieving certain performance conditions. The PU plan
provides for the crediting of additional PUs in respect of distributions paid on Units for the period when a PU is outstanding. The
fair value of each PU granted is measured based on the market value of a Unit and an estimate of the performance conditions
being met at the balance sheet date.
Members of the Choice Properties’ Board of Trustees, who are not management of Choice Properties, are required to receive a
portion of their annual retainer in the form of DUs and may also elect to receive up to 100% of their remaining fees in DUs.
Distributions paid earn fractional DUs, which are treated as additional awards. DUs vest upon grant. The fair value of each DU
granted is measured based on the market value of a Unit at the balance sheet date.
URUs are accounted for as cash-settled awards. Typically, full vesting of the URUs would not occur until the employee had
remained with Choice Properties for three or five years from the grant date. Depending on the nature of the grant, the URUs are
subject to a six- or seven-year holding period during which the Units cannot be disposed. The fair value of each URU granted is
measured based on the market value of a Unit at the balance sheet date, less a discount to account for the vesting and holding
period restriction placed on the URUs.
110 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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 STANDARD IMPLEMENTED IN 2019
IFRS 16 In 2016, the IASB issued IFRS 16, replacing 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. Lessees recognize a right-of-use asset representing its control of and right to use the underlying asset and a lease liability
representing its obligation to make future lease payments. Lessor accounting remains similar to IAS 17.
IFRS 16 became effective for annual periods beginning on or after January 1, 2019. For leases where the Company is the
lessee, it had the option of adopting a fully retrospective approach or a modified retrospective approach on transition to IFRS
16. The Company adopted the standard on January 1, 2019 using the modified retrospective approach. The Company applied
the requirements of the standard retrospectively with the cumulative effects of initial application recorded in opening
retained earnings as at January 1, 2019, and no restatement of the comparative period. Under the modified retrospective
approach, the Company chose to measure all right-of-use assets retrospectively as if the standard had been applied since
lease commencement dates using the Company’s incremental borrowing rates at the date of initial application.
Substantially all of the Company's operating leases are real estate leases for retail stores, production plants, distribution centers
and corporate offices. Other leased assets include passenger vehicles, trucks and equipment. The Company recognized right-of-
use assets and lease liabilities for its operating leases except for certain low-value leases and classes of underlying assets in which
the lease terms are 12 months or less. The depreciation expense on right-of-use assets and interest expense on lease liabilities
replaced rent expense, which was previously recognized on a straight-line basis under IAS 17 over the term of a lease. There are
no significant impacts to the Company’s existing finance leases under IAS 17 as a lessee.
The Company also has owned and leased properties which are leased and subleased to third parties, respectively. The subleases
are primarily related to non-consolidated franchise stores, medical centres and ancillary tenants within stores. As an
intermediate lessor, the Company reassessed the classification of its subleases by reference to the right-of-use assets arising
from the head lease and recognized a corresponding finance lease receivable when the reassessment concluded that the
subleases were finance leases.
IFRS 16 permits the use of recognition exemptions and practical expedients. The Company applied the following recognition
exemptions and practical expedients:
•
•
grandfathered the definition of leases for existing contracts at the date of initial application;
applied the recognition exemption for certain low value leases and short-term trailer rentals and properties. The practical
expedient for excluding leases for which the lease term ends within 12 months of the date of initial application was not
elected by the Company;
used portfolio application for leases with similar characteristics, such as vehicle and equipment leases;
applied a single discount rate to a portfolio of leases with reasonably similar characteristics at the date of initial application;
excluded initial direct costs from the measurement of right-of-use assets at the date of initial application; and
used hindsight in determining lease term at the date of initial application.
•
•
•
•
The Company did not exercise the practical expedient wherein a lessee may rely on its assessment of whether leases are onerous
applying IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” immediately before the date of initial application as an
alternative to performing an impairment review. On the date of initial application, the Company applied the requirements of
IAS 36, “Impairment of Assets” and recorded an impairment of $62 million on right-of-use assets in opening retained earnings,
which represents an incremental $16 million to the previous onerous lease provision.
GEORGE WESTON LIMITED 2019 ANNUAL REPORT
111
111 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
The impact of adopting IFRS 16 on the Company’s consolidated balance sheet as at January 1, 2019 was as follows:
Consolidated Balance Sheet
Increase / (Decrease)
($ millions)
Current Assets
Prepaid expenses and other assets(i)
Total Current Assets Impacted
Fixed Assets(ii)
Right-of-Use Assets(ii)
Intangible Assets(iii)
Deferred Income Taxes(iv)
Other Assets(v)
Total Assets Impacted
Current Liabilities
Trade payables and other liabilities(vi)
Provisions(vii)
Long term debt due within one year(ii)
Lease liabilities due within one year(ii)
Total Current Liabilities Impacted
Provisions(vii)
Long Term Debt(ii)
Lease Liabilities(ii)
Deferred Income Taxes(iv)
Other Liabilities(vi)
Non-Controlling Interests
Retained Earnings(viii)
As reported as at
IFRS 16
As at
Dec. 31, 2018
Adjustments
Jan. 1, 2019
$
$
$
$
$
370 $
370 $
12,101
—
7,958
286
1,087
(62) $
(62) $
(435)
4,114
(82)
32
85
21,802
$
3,652
$
5,762
$
(11) $
205
1,343
—
(4)
(37)
736
7,310 $
684
$
167
13,975
—
2,515
691
6,164
5,017
(76)
(498)
4,350
(89)
(210)
(394)
(115)
308
308
11,666
4,114
7,876
318
1,172
25,454
5,751
201
1,306
736
7,994
91
13,477
4,350
2,426
481
5,770
4,902
39,491
Total Liabilities and Equity Impacted
$
35,839
$
3,652
$
(i)
(ii)
Relates to prepaid rent as at December 31, 2018, which is captured under lease liabilities due within one year after the implementation of
IFRS 16.
Leases previously classified as finance lease arrangements under IAS 17 were presented within fixed assets (see note 15), long term debt
due within one year and long term debt (see note 24). Effective January 1, 2019, these balances are included in right-of-use assets, lease
liabilities due within one year and lease liabilities (see note 32).
(iii) Derecognize fair value of acquired leased assets on business combination as at December 31, 2018 (see note 18).
(iv) Deferred income tax impacts resulting from the implementation entries at the date of initial application.
(v)
(vi) Derecognize deferred rent obligation, tenant inducements and fair value of acquired lease liabilities on business combination as at
Recognize finance lease receivable as determined under IFRS 16.
December 31, 2018 (see note 25).
(vii) Derecognize the base rent portion of the onerous lease provision (see note 22).
(viii) The cumulative effects of initial application are recorded in retained earnings with no restatement of the comparative period.
The Company used its incremental borrowing rates as at January 1, 2019 to measure lease liabilities. The weighted average
incremental borrowing rate was 4.39%. The weighted average lease term remaining as at January 1, 2019 was approximately
10 years.
112 GEORGE WESTON LIMITED 2019 ANNUAL REPORT The following reconciliation is between lease liabilities recognized on January 1, 2019 and operating lease commitments
disclosed under IAS 17 as at December 31, 2018 discounted using the incremental borrowing rates as at the date of initial
application:
($ millions)
Operating lease commitment as at December 31, 2018 as disclosed in the Company's notes to the
consolidated financial statements
Discounted using the weighted average incremental borrowing rate as at January 1, 2019(i)
Finance lease obligations recognized as at December 31, 2018(ii)
Extension and termination options reasonably certain to be exercised(iii)
Lease liabilities recognized as at January 1, 2019
Lease liabilities due within one year
Lease liabilities
Total lease liabilities
As at
Jan. 1, 2019
4,826
3,932
535
619
5,086
736
4,350
5,086
$
$
$
$
$
(i)
(ii)
Operating lease commitments as at December 31, 2018 were disclosed based on undiscounted cash flows. Under IFRS 16, lease payment
obligations are discounted using the Company’s incremental borrowing rates.
Finance lease obligations, as determined under IAS 17, were recognized in lease liabilities on January 1, 2019 at the carrying amount
immediately before the date of initial application.
(iii) Operating lease commitments as at December 31, 2018 reflected only the contractual lease payments. Under IFRS 16, lease liabilities
include lease payments for renewal periods where management is reasonably certain to renew.
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.
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.
113 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
IMPAIRMENT OF NON-FINANCIAL ASSETS (GOODWILL, INTANGIBLE ASSETS, FIXED ASSETS AND RIGHT-OF-USE ASSETS)
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 and right-of-use 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. The Company has determined that each retail location is a separate CGU for the purposes of fixed
asset and right-of-use 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 the Boards at GWL and Loblaw. Discount
rates are consistent with external industry information reflecting the risk associated with the specific cash flows.
CUSTOMER LOYALTY AWARDS PROGRAMS
Key Sources of Estimation Loblaw defers revenue at the time the award is earned by members based on the relative fair value
of the award. The relative fair value is determined by allocating consideration between the fair value of the loyalty awards earned
by loyalty program members, net of breakage, and the goods and services on which the awards were earned, based on their
relative stand-alone selling price. The estimated fair value per point for the PC Optimum® program is determined based on the
program reward schedule and is $1 for every 1,000 points earned. The breakage rate of the program is an estimate of the
amount of points that will never be redeemed. The rate is reviewed on an ongoing basis and is estimated utilizing historical
redemption activity and anticipated earn and redeem behaviour of members.
IMPAIRMENT OF CREDIT CARD RECEIVABLES
Judgments Made in Relation to Accounting Policies Applied In each stage of the impairment model, impairment is
determined based on the probability of default, loss given default, and expected exposures at default on drawn and undrawn
exposures on credit card receivables, discounted using an average portfolio yield rate. The application of the ECL model requires
management to apply the following significant judgments, assumptions and estimations:
•
•
•
Movement of impairment measurement between the three stages of the ECL model, based on the assessment of the
increase in credit risks on credit card receivables. The assessment of changes in credit risks includes qualitative and
quantitative factors of the accounts, such as historical credit loss experience and external credit scores;
Thresholds for significant increase in credit risks based on changes in probability of default over the expected life of the
instrument relative to initial recognition; and
Forecasts of future economic conditions.
FAIR VALUE OF INVESTMENT PROPERTIES
Key Sources of Estimation The fair value of investment properties is dependent on available comparable transactions, future
cash flows over the holding period, and discount rates and capitalization rates applicable to those assets. The review of
anticipated cash flow involves assumptions relating to occupancy, market rental rates, net operating expenses, and residual
value. In addition to reviewing anticipated cash flows, management assesses changes in the business climate and other factors,
which may affect the ultimate value of the property. These assumptions may not ultimately be achieved.
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, certain onerous costs on leased properties and legal claims. 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.
114 GEORGE WESTON LIMITED 2019 ANNUAL REPORT LEASES
Judgments Made in Relation to Accounting Policies Applied Management exercises judgment in determining the appropriate
lease term on a lease by lease basis. Management considers all facts and circumstances that create an economic incentive to
exercise a renewal option or to not exercise a termination option including investments in major leaseholds, store performances
and past business practice and the length of time remaining before the option is exercisable. The periods covered by renewal
options are only included in the lease term if management is reasonably certain to renew. Management considers reasonably
certain to be a high threshold. Changes in the economic environment or changes in the retail industry may impact
management’s assessment of lease term, and any changes in management’s estimate of lease terms may have a material
impact on the Company’s balance sheet and statement of earnings.
Key Sources of Estimation In determining the carrying amount of right-of-use assets and lease liabilities, the Company is
required to estimate the incremental borrowing rate specific to each leased asset or portfolio of leased assets if the interest rate
implicit in the lease is not readily determined. Management determines the incremental borrowing rate using a base risk-free
interest rate estimated by reference to the Government of Canada bond yield with an adjustment that reflects the Company’s
credit rating, the security, lease term and value of the underlying leased asset, and the economic environment in which the
leased asset operates. The incremental borrowing rates are subject to change due to changes in the business and
macroeconomic environment.
Note 4. Future Accounting Standard
IFRS 17 In 2017, the IASB issued IFRS 17, “Insurance Contracts” (“IFRS 17”) replacing IFRS 4, “Insurance Contracts”. IFRS 17
introduces consistent accounting for all insurance contracts. The standard requires a company to measure insurance contracts
using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to these contracts.
Additionally, IFRS 17 requires an entity to recognize profits as it delivers insurance services, rather than when it receives
premiums. The standard is effective for annual periods beginning on or after January 1, 2021 and is to be applied retrospectively.
However, the IASB has proposed deferring the effective date to January 1, 2022. While early adoption is permitted, the Company
does not intend to early adopt IFRS 17. The Company is currently assessing the impact of the standard on its consolidated
financial statements.
Note 5. Subsidiaries
The table below summarizes the Company’s principal subsidiaries. The proportion of ownership interests held equals the voting
rights held by the Company. GWL’s ownership in Choice Properties and Loblaw is impacted by changes in Choice Properties’
trust units and Loblaw’s common share equity, respectively.
Loblaw
Choice Properties
Common shares(i)
Class B LP Units(ii)
Trust Units
As at
Dec. 31, 2019
Number
of shares /
units held
187,815,136
389,961,783
50,661,415
440,623,198
Ownership
interest
Number
of shares /
units held
52.2%
187,815,136
n/a
n/a
62.9%
389,961,783
46,856,415
436,818,198
Dec. 31, 2018
Ownership
interest
50.4%
n/a
n/a
65.4%
(i)
(ii)
Includes 9.6 million Loblaw common shares pledged under the equity forward sale agreement (see note 33).
Class B LP Units (“Exchangeable Units”) are economically equivalent to Trust Units, receive distributions equal to the distributions paid on
Trust Units and are exchangeable, at the holder's option, into Trust Units.
In the second quarter of 2019, Choice Properties completed an offering of 30,042,250 trust units (the “Units”) at a price of $13.15
per Unit, for aggregate gross proceeds of approximately $395 million, and net proceeds of approximately $381 million (the
“Offering”). The Offering consisted of 26,237,250 Units sold to a syndicate of underwriters and 3,805,000 Units purchased by the
Company for approximately $50 million. Choice Properties incurred issuance costs of $14 million recorded in net interest
expense and other financing charges (see note 7).
115 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 6. Business Acquisitions
CONSOLIDATION OF FRANCHISES Loblaw accounts for the consolidation of existing franchises as business acquisitions and
consolidates its franchises as of the date the franchisee enters into a Franchise Agreement with Loblaw. The assets acquired and
liabilities assumed through the consolidation are valued at the acquisition date using fair values, which approximate the
franchise carrying values at the date of acquisition. The results of operations of the acquired franchises were included in Loblaw’s
results of operations from the date of acquisition.
The following table summarizes the amounts recognized for the assets acquired, the liabilities assumed and the non-controlling
interests recognized at the acquisition dates:
($ millions)
Net assets acquired:
Cash and cash equivalents
Inventories
Fixed assets (note 15)
Trade payables and other liabilities(i)
Other liabilities(i)
Non-controlling interests
Total net assets acquired
2019
2018
$
20
51
67
(48)
(73)
(17)
—
$
18
66
78
(36)
(114)
(12)
—
$
$
(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.
CHOICE PROPERTIES’ ACQUISITION OF CANADIAN REAL ESTATE INVESTMENT TRUST On May 4, 2018, Choice Properties
acquired all the assets and assumed all the liabilities, including outstanding debt, of Canadian Real Estate Investment Trust
(“CREIT”) for total consideration of $3,708 million. The consideration was comprised of $1,652 million of cash and the issuance of
182,836,481 new Trust Units.
In the second quarter of 2019, the Company finalized the purchase price allocation. Deferred income tax liabilities and goodwill
decreased by $1 million to $366 million. The final purchase price allocation is summarized below:
($ millions)
Net Assets Acquired:
Cash and cash equivalents
Accounts receivable and other assets
Mortgages, loans and notes receivable(i)
Equity accounted joint ventures
Investment properties
Intangible assets
Goodwill
Trade payables and other liabilities
Long term debt
Deferred income tax liabilities
Total Net Assets Acquired
(i)
Included in other assets in the audited consolidated balance sheets.
As at
May 4, 2018
32
50
196
683
4,730
30
366
(172)
(1,841)
(366)
3,708
$
$
116 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Note 7. 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
Lease liabilities (note 32)
Borrowings related to credit card receivables
Trust Unit distributions(i)
Choice Properties issuance costs(i)
Independent funding trusts
Post-employment and other long term employee benefits (note 29)
Bank indebtedness
Financial liabilities (note 25)
Capitalized interest (capitalization rate 4.0% (2018 - 4.0%)) (notes 15 & 18)
Interest income:
Accretion income
Short term interest income
Forward sale agreement(ii)
Fair value adjustment of the Trust Unit liability (note 33)
Charge related to Glenhuron Bank Limited (note 8)
Net interest expense and other financing charges
2019
2018
$
$
$
$
$
$
$
$
644
214
45
203
14
19
9
6
7
(4)
1,157
(9)
(33)
(42)
39
550
—
$
1,704
$
636
—
41
126
—
19
12
8
—
(6)
836
(5)
(43)
(48)
25
(41)
176
948
(i)
(ii)
Choice Properties issued 182,836,481 new Trust Units to Trust Unitholders other than the Company and Loblaw in connection with the
acquisition of CREIT (see note 6). In the second quarter of 2019, Choice Properties completed the Offering to sell 26,237,250 new Trust Units
(see note 5). In the fourth quarter of 2019, Choice Properties’ Board of Trustees declared a special non-cash distribution in the form of Trust
Units.
Included a charge of $69 million (2018 – $50 million) related to the fair value adjustment of the forward sale agreement for 9.6 million Loblaw
common shares (see note 33). The fair value adjustment of the forward sale agreement is non-cash and results from changes in the value of
the underlying Loblaw common shares. At maturity, any cash paid under the forward sale agreement could be offset by the sale of the
underlying Loblaw common shares. Also included is forward accretion income of $50 million (2018 – $47 million), and the forward fee of
$20 million (2018 – $22 million), associated with the forward sale agreement.
117 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 8.
Income Taxes
The components of income taxes recognized in the consolidated statements of earnings were as follows:
($ millions)
Current income taxes
Current period
Charges related to Glenhuron Bank Limited
Adjustment in respect of prior periods
Deferred income taxes
Origination and reversal of temporary differences
Effect of change in income tax rates
Adjustment in respect of prior periods
Income taxes
Income tax expense recognized in other comprehensive income was as follows:
($ millions)
Net defined benefit plan actuarial gains (note 29)
Adjustment to fair value on transfer of investment properties
Total income tax recognized in other comprehensive income
2019
2018
$
534
$
—
8
(80)
(10)
(21)
431
2019
1
2
3
$
$
$
$
$
$
584
191
(70)
(89)
(62)
85
639
2018
34
5
39
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
Charges related to Glenhuron Bank Limited
Impact of foreign currency translation
Non-deductible and non-taxable items
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
2019
26.7%
2018
26.6%
(0.7)
—
—
(1.2)
11.7
(0.8)
(0.8)
(0.5)
(1.0)
11.7
(0.2)
4.9
(0.7)
(3.8)
1.4
0.1
Effective income tax rate applicable to earnings before income taxes
34.4%
39.0%
On September 7, 2018, the Tax Court of Canada (“Tax Court”) released its decision relating to Glenhuron Bank Limited
(“Glenhuron”), a wholly-owned Barbadian subsidiary of Loblaw that was wound up in 2013. The Tax Court ruled that certain
income earned by Glenhuron should be taxed in Canada based on a technical interpretation of the applicable legislation. On
October 4, 2018, Loblaw filed a Notice of Appeal with the Federal Court of Appeal (see note 35). Although Loblaw believes in the
merits of its position, it recorded a charge during the third quarter of 2018 of $367 million, of which $176 million was recorded
in net interest expense and other financing charges and $191 million was recorded in income taxes. Loblaw believes that this
provision will be sufficient to cover its ultimate liability if the appeal is unsuccessful. In the third quarter of 2018, Loblaw made a
cash payment of $235 million to fund the tax and interest owing in light of the decision of the Tax Court. On October 15, 2019,
the appeal was heard by the Federal Court of Appeal, with the court reserving judgment until a later date.
In the first quarter of 2018, voting control of Loblaw was acquired by a related group, which included the Company and Wittington,
resulting in certain adjustments in respect to prior periods for tax purposes during the first quarter of 2018.
118 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Deferred income tax assets which were not recognized on the consolidated balance sheets were as follows:
($ millions)
Deductible temporary differences
Income tax losses and credits
Unrecognized deferred income tax assets
As at
Dec. 31, 2019
Dec. 31, 2018
$
$
19
185
204
$
$
26
164
190
The portion of the income tax losses and credits which have a limited carry-forward period expire in the years 2026 to 2039. 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
Lease liabilities
Fixed assets
Right-of-use assets
Goodwill and intangible assets
Non-capital losses carried forward (expiring 2026 to 2039)
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
Note 9. 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 26)
Dilutive effect of equity-based compensation(i) (in millions)
Diluted weighted average common shares outstanding (in millions)
Basic net earnings per common share ($)
Diluted net earnings per common share ($)
As at
Dec. 31, 2019
Dec. 31, 2018
$
$
$
$
$
$
$
$
$
$
92
141
1,160
(1,037)
(902)
(1,674)
155
32
38
(1,995)
250
(2,245)
(1,995)
2019
242
(44)
198
(4)
194
153.5
0.2
153.7
1.29
1.26
$
$
$
$
$
$
$
$
69
352
—
(1,062)
—
(1,820)
174
8
50
(2,229)
286
(2,515)
(2,229)
2018
574
(44)
530
(2)
528
131.8
0.4
132.2
4.02
3.99
(i)
Excluded from the computation of diluted net earnings per common share were 955,551 (2018 – 674,981) potentially dilutive instruments, as
they were anti-dilutive.
119 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 10. Cash and Cash Equivalents, Short Term Investments and Security Deposits
The components of cash and cash equivalents, short term investments and security deposits were as follows:
CASH AND CASH EQUIVALENTS
($ millions)
Cash
Cash equivalents:
Bankers’ acceptances
Government treasury bills
Corporate commercial paper
Cash and cash equivalents
SHORT TERM INVESTMENTS
($ millions)
Bankers’ acceptances
Government treasury bills
Corporate commercial paper
Other
Short term investments
SECURITY DEPOSITS
($ millions)
Cash
Government treasury bills
Security deposits
As at
Dec. 31, 2019
Dec. 31, 2018
$
775
$
661
557
262
240
$
1,834
$
258
405
197
1,521
As at
Dec. 31, 2019
Dec. 31, 2018
32
61
136
—
229
$
$
85
143
52
1
281
As at
Dec. 31, 2019
Dec. 31, 2018
46
30
76
$
$
48
39
87
$
$
$
$
Note 11. Accounts Receivable
The following is an aging of the Company’s accounts receivable:
($ millions)
0 - 90 days
> 90 days
> 180 days
Total
0 - 90 days
> 90 days
> 180 days
Accounts receivable
$
1,263 $
36 $
76 $
1,375 $
1,208 $
53 $
68 $
Total
1,329
As at
Dec. 31, 2019
Dec. 31, 2018(i)
(i)
Certain comparative figures have been restated to conform with current year presentation.
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
2019
(34)
—
(34)
$
$
2018
(57)
23
(34)
$
$
Credit risk associated with accounts receivable is discussed in note 34.
120 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Note 12. Credit Card Receivables
The components of credit card receivables were as follows:
($ millions)
Gross credit card receivables
Allowance for credit card receivables
Credit card receivables
Securitized to independent securitization trusts:
Securitized to Eagle Credit Card Trust® (note 24)
Securitized to Other Independent Securitization Trusts (note 23)
Total securitized to independent securitization trusts
As at
Dec. 31, 2019
Dec. 31, 2018(i)
$
$
$
$
3,714
(196)
3,518
1,000
775
1,775
$
$
$
$
3,476
(167)
3,309
750
915
1,665
(i)
Certain comparative figures have been restated to conform with current year presentation.
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.
On a year-to-date basis in 2019, PC Bank recorded a $140 million net decrease of co-ownership interest in the securitized
receivables held with the Other Independent Securitization Trusts due to additional funding acquired from the Eagle issuance
in 2019.
Loblaw has arranged letters of credit on behalf of PC Bank for the benefit of the Independent Securitization Trusts (see note 36).
Under its securitization programs, PC Bank is required to maintain, at all times, a credit card receivable pool balance equal to a
minimum of 107% of the outstanding securitized liability. PC Bank was in compliance with this requirement as at year end 2019
and throughout the year.
The following is an aging of gross credit card receivables:
As at
Dec. 31, 2019
Dec. 31, 2018(i)
1-90 days
> 90 days
1-90 days > 90 days
($ millions)
Current
past due past due
Total
Current
past due
past due
Total
Gross credit card receivables
$
3,504 $
176 $
34 $
3,714
$
3,260 $
187 $
29 $
3,476
(i)
Certain comparative figures have been restated to conform with current year presentation.
121 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
The following are continuities of Loblaw’s allowances for credit card receivables for the years ended December 31, 2019 and
December 31, 2018:
($ millions)
Balance, beginning of the year
Increase / (Decrease) during the period:
Stage 1
Stage 2
Stage 3
$
62
$
80
$
25
$
Transfers(i)
To Stage 1
To Stage 2
To Stage 3
New loans originated(ii)
New remeasurements(iii)
Write-offs
Recoveries
Balance, end of year
31
(7)
(1)
9
(22)
—
—
(31)
8
(16)
13
38
—
—
$
72
$
92
$
—
(1)
17
3
105
(139)
22
32
$
Transfers reflect allowance movements between stages for loans that were recognized as of the beginning of the year.
(i)
(ii) New loans originated reflect the stage of loan, and the related loan balance, as of the end of the year.
(iii) Net remeasurement of loss allowance includes impact from changes in loan balances and credit quality during the year.
($ millions)
Balance, beginning of the year(i)
Increase / (Decrease) during the period:
Stage 1
Stage 2
Stage 3
$
51
$
71
$
23
$
Transfers(ii)
To Stage 1
To Stage 2
To Stage 3
New loans originated(iii)
New remeasurements(iv)
Write-offs
Recoveries
Balance, end of year
26
(4)
(1)
9
(19)
—
—
(26)
6
(14)
14
29
—
—
$
62
$
80
$
—
(2)
15
3
80
(120)
26
25
$
2019
Total
167
—
—
—
25
121
(139)
22
196
2018
Total
145
—
—
—
26
90
(120)
26
167
Allowance at the beginning of 2018 included the impacts of the implementation of IFRS 9, “Financial Instruments”.
Transfers reflect allowance movements between stages for loans that were recognized as of the beginning of the year.
(i)
(ii)
(iii) New loans originated reflect the stage of loan, and the related loan balance, as of the end of the year.
(iv) Net remeasurement of loss allowance includes impact from changes in loan balances and credit quality during the year.
The allowances for credit card receivables recorded on the consolidated balance sheets are maintained at a level which is
considered adequate to absorb credit related losses on credit card receivables.
122 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Note 13. Inventories
The components of inventories were as follows:
($ millions)
Raw materials and supplies
Finished goods
Inventories
As at
Dec. 31, 2019
Dec. 31, 2018
$
$
70
5,200
5,270
$
$
68
4,933
5,001
As at year end 2019, inventories included a charge of $33 million (2018 – $37 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 2019 and 2018.
Note 14. 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 2019, Loblaw recorded a net gain of $12 million
(2018 – nominal loss) from the sale of these assets. Impairment charges of $8 million were recognized on these properties in
2019 (2018 – $3 million).
As at December 31, 2019, Choice Properties classified its only US retail property as an asset held for sale. Subsequent to year end
2019, the property was sold to a third-party for cash consideration of $98 million, excluding transaction costs.
123 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 15. Fixed Assets
The following is a continuity of the cost and accumulated depreciation and impairment losses of fixed assets for the year ended
December 31, 2019:
($ millions)
Cost, beginning of year(i)
IFRS 16 adjustments (note 2)
Restated balance, beginning
of year
Additions(ii)
Disposals
Transfer to assets held for sale
Net transfer to investment
properties (note 16)
Net transfer to equity accounted
joint ventures
Transfer from assets under
construction
Business acquisitions (note 6)
Impact of foreign currency
translation
Buildings
and
building
improvements
Land
Equipment
and
fixtures
Leasehold
improvements
Finance
leases -
land,
buildings,
equipment
and fixtures
Assets
under
construction
Total
$ 2,050 $
8,895 $
9,164 $
2,217 $
951 $
747 $ 24,024
—
—
(42)
—
(951)
—
(993)
2,050
8,895
9,122
2,217
5
(7)
(9)
(12)
—
44
—
—
32
(18)
(4)
(36)
(8)
174
38
167
(205)
—
—
—
528
66
(11)
(30)
52
(18)
—
—
—
133
(37)
—
—
—
—
—
—
—
—
—
—
747
852
—
—
(1)
—
(879)
—
23,031
1,108
(248)
(13)
(49)
(8)
—
67
(6)
(47)
Cost, end of year
$
2,071 $
9,062 $
9,648 $
2,347 $
— $
713 $ 23,841
Accumulated depreciation and
impairment losses, beginning
of year(i)
IFRS 16 adjustments (note 2)
Restated balance, beginning of
year
Depreciation
Impairment losses
Reversal of impairment losses
Disposals
Transfer to assets held for sale
Transfer to investment
properties (note 16)
Impact of foreign currency
translation
Accumulated depreciation
and impairment losses,
end of year
Carrying amount as at:
December 31, 2019
$
2 $
3,499 $
6,659 $
1,220 $
540 $
3 $ 11,923
—
2
—
—
—
—
—
—
—
—
(18)
—
(540)
6,641
1,220
3,499
227
7
(18)
(18)
(1)
(12)
561
20
(5)
(198)
—
—
(4)
(19)
163
18
(4)
(14)
—
—
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
(558)
11,365
951
45
(27)
(230)
(1)
(12)
(23)
$
2 $
3,680 $
7,000 $
1,383 $
— $
3 $ 12,068
$ 2,069 $
5,382 $
2,648 $
964 $
— $
710 $ 11,773
Certain comparative figures have been restated to conform with current year presentation.
(i)
(ii) Additions to fixed assets includes $13 million of non-cash consideration.
124 GEORGE WESTON LIMITED 2019 ANNUAL REPORT The following is a continuity of the cost and accumulated depreciation and impairment losses of fixed assets for the year ended
December 31, 2018:
($ millions)
Cost, beginning of year
Additions(i)
Disposals
Transfer to assets held for sale
Net transfer (to) from
investment properties(i) (note 16)
Transfer from assets under
construction(i)
Business acquisitions (note 6)
Impact of foreign currency
translation
Cost, end of year
Accumulated depreciation and
impairment losses, beginning
of year
Depreciation(i)
Impairment losses
Reversal of impairment losses
Disposals
Transfer to assets held for sale
Net transfer to investment
properties (note 16)
Impact of foreign currency
translation
Accumulated depreciation and
impairment losses,
end of year
Carrying amount as at:
December 31, 2018
Buildings
and
building
improvements
Land
Equipment
and
fixtures
Leasehold
improvements
Finance
leases -
land,
buildings,
equipment
and fixtures
Assets
under
construction
Total
$
2,016 $
8,560 $
8,452 $
2,089 $
937 $
705 $ 22,759
49
(34)
(15)
(7)
40
—
1
48
(10)
(15)
74
219
—
19
301
(100)
—
—
382
78
51
121
(21)
—
(3)
31
—
—
20
(6)
—
—
—
—
—
710
1,249
(4)
—
—
(672)
—
8
(175)
(30)
64
—
78
79
$ 2,050 $
8,895 $
9,164 $
2,217 $
951 $
747 $ 24,024
$
2 $
3,314 $
6,177 $
1,077 $
492 $
8 $ 11,070
—
—
(1)
1
—
—
—
231
20
(35)
(30)
(1)
(6)
6
516
19
(1)
(80)
—
—
28
160
20
(11)
(23)
—
(3)
—
45
3
—
—
—
—
—
1
(5)
—
(1)
—
—
—
953
57
(48)
(133)
(1)
(9)
34
$
2 $
3,499 $
6,659 $
1,220 $
540 $
3 $ 11,923
$ 2,048 $
5,396 $
2,505 $
997 $
411 $
744 $ 12,101
(i)
Certain comparative figures have been restated to conform with current year presentation.
ASSETS UNDER CONSTRUCTION The cost of additions to properties under construction for 2019 was $852 million (2018 –
$710 million). Included in this amount were capitalized borrowing costs of $4 million (2018 – $6 million) with a weighted
average capitalization rate of 4.0% (2018 – 4.0%) (see note 7).
SECURITY AND ASSETS PLEDGED As at year end 2019, the Company had fixed assets with a carrying amount of $58 million
(2018 - $72 million) which were encumbered by mortgages of $38 million (2018 - $27 million) (see note 24).
FIXED ASSET COMMITMENTS As at year end 2019, the Company had entered into commitments of $773 million (2018 –
$310 million) for the construction, expansion and renovation of buildings and the purchase of real property.
IMPAIRMENT LOSSES AND REVERSALS OF FIXED ASSETS AND RIGHT-OF-USE ASSETS In 2019, the Company recorded
$41 million (2018 – $50 million) of impairment losses on fixed assets and $16 million (2018 - nil) of impairment losses on right-of-
use assets (note 32) in respect of 32 CGUs (2018 – 23 CGUs). The recoverable amount was based on the greater of the CGU’s fair
value less costs to sell and its value in use. Approximately 6% (2018 – 26%) of impaired CGUs had carrying values which were
$3 million (2018 – $16 million) greater than their fair value less costs to sell. The remaining 94% (2018 – 74%) of impaired CGUs
had carrying values which were $54 million (2018 – $34 million) greater than their value in use.
125 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
In 2019, the Company recorded $27 million (2018 – $48 million) of impairment reversals on fixed assets in respect of 10 CGUs
(2018 – 38 CGUs). Impairment reversals are recorded where the recoverable amount of the retail location exceeds its carrying
values. Approximately 30% (2018 – 34%) of CGUs with impairment reversals had fair value less costs to sell greater than their
carrying values of $12 million (2018 – $13 million). The remaining 70% (2018 – 66%) of CGUs with impairment reversals had value
in use of $15 million (2018 – $35 million) greater than their carrying values.
When determining the value in use of a retail location, the Company 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
are consistent with industry averages, all of which are consistent with strategic plans presented to GWL’s and Loblaw’s Boards.
The estimate of the value in use of relevant CGUs was determined using a pre-tax discount rate of 8.0% to 8.5% at the end of
2019 (2018 – 8.0% to 8.5%).
Additional impairment losses of $4 million (2018 – $7 million) were incurred related to Loblaw’s store closures, renovations and
conversions of retail locations.
Note 16. Investment Properties
The following are continuities of investment properties for the years ended December 31, 2019 and December 31, 2018:
($ millions)
Balance, beginning of the year
Adjustment to fair value of investment properties
Additions(i)
Business acquisitions (note 6)
Disposals
Impairment losses
Net transfer from (to) fixed assets(ii) (note 15)
Net transfer to assets held for sale
Net transfer from equity accounted joint ventures
Other
Balance, end of the year
2019
$
4,847
$
(74)
85
—
(34)
—
49
(174)
182
7
2018
276
(48)
78
4,730
(127)
(4)
(62)
(2)
—
6
$
4,888
$
4,847
(i)
(ii)
In 2019, additions to investment properties includes $25 million of non-cash consideration.
Includes the fair value gain of $12 million (2018 – $21 million) recognized in other comprehensive income related to transfer of fixed assets to
investment properties.
During 2019, the Company recognized in operating income $400 million (2018 – $329 million) of rental revenue and incurred
direct operating costs of $123 million (2018 – $108 million) related to its investment properties. In addition, the Company
recognized direct operating costs of $2 million (2018 – $3 million) related to its investment properties for which no rental
revenue was earned.
INTERNAL APPRAISALS
Investment properties are measured at fair value, which was primarily determined by using the discounted cash flow method.
Management reviews the valuation process and results prepared by the internal valuation team at least once per quarter. The
valuations exclude any portfolio premium or value for the management platform and reflect the highest and best use for each of
the Company’s investment properties. As part of the internal valuation process, Management considers external valuations
performed by independent national real estate valuation firms for a cross-section of properties that represent different
geographical locations and asset classes across the Company’s portfolio. On a quarterly basis, the internal valuation team reviews
and updates, as deemed necessary, the valuation models to reflect current market data. Updates may be made to capitalization
rates, discount rates, market rents, as well as current leasing and/or development activity, renewal probability, downtime on lease
expiry, vacancy allowances, and expected maintenance costs.
126 GEORGE WESTON LIMITED 2019 ANNUAL REPORT INDEPENDENT APPRAISALS
Properties are typically independently appraised at the time of acquisition. In addition, the Company has engaged independent
nationally-recognized valuation firms to appraise its investment properties such that the majority of the portfolio will be
independently appraised at least once over a four-year period. When an independent appraisal is obtained, the internal
valuation team assesses all major inputs used by the independent valuators in preparing their reports and holds discussions with
them on the reasonableness of their assumptions. The reports are then used by the internal valuation team for consideration in
preparing the valuations as reported in these consolidated financial statements.
Note 17. Equity Accounted Joint Ventures
Choice Properties accounts for its investments in joint ventures using the equity method. These investments hold primarily
development properties and some income-producing properties. The table below summarizes Choice Properties’ investment in
joint ventures.
Retail
Industrial(i)
Residential
Mixed-use
Total equity accounted joint ventures
The Company’s investment in equity accounted
joint ventures ($ millions)
Number of
joint
ventures
16
2
3
1
22
2019
Ownership
interest
25% - 75%
50%
47% - 50%
40%
Number of
joint
ventures
16
4
3
1
24
2018
Ownership
interest
25% - 75%
50% - 85%
47% - 50%
40%
$
605
$
734
(i)
During 2019, Choice Properties acquired its partner’s interest in two equity accounted joint ventures, thereby increasing its ownership to
100%. As a result, these interests have been transferred from equity accounted joint ventures to consolidated investments as of the
acquisition date.
127 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
Notes to the Consolidated Financial Statements
Note 18. 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, 2019:
($ millions)
Cost, beginning of year
IFRS 16 adjustments (note 2)
Restated balance, 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
IFRS 16 adjustments (note 2)
Restated balance, beginning of year
Amortization
Impairment losses
Disposal
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, 2019
Indefinite
life
intangible
assets
Definite life
internally
generated
intangible
assets
Definite
life
trademarks
and brand
names
Other
definite
life
intangible
assets
Software
Total
$
$
$
$
$
$
$
3,519 $
20 $
20 $
2,789 $
6,174 $
12,522
—
—
—
—
(207)
(207)
3,519 $
20 $
20 $
2,789 $
5,967 $
12,315
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
397
—
—
—
—
5
23
(1)
(1)
(5)
403
23
(1)
(1)
(5)
3,520 $
20 $
20 $
3,186 $
5,988 $
12,734
— $
—
— $
—
—
—
—
—
20 $
10 $
1,852 $
2,682 $
4,564
—
—
—
(125)
(125)
20 $
10 $
1,852 $
2,557 $
4,439
—
—
—
—
—
1
—
—
—
—
290
508
799
—
—
—
—
12
(1)
(1)
(2)
12
(1)
(1)
(2)
— $
20 $
11 $
2,142 $
3,073 $
5,246
3,520 $
— $
9 $
1,044 $
2,915 $
7,488
128 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
The following is a continuity of the cost and accumulated amortization and impairment losses of intangible assets for the year
ended December 31, 2018:
($ 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
Disposals
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, 2018
$
$
$
$
Indefinite
life
intangible
assets
Definite life
internally
generated
intangible
assets
Definite
life
trademarks
and brand
names
Other
definite
life
intangible
assets
Software
Total
$
3,485 $
20 $
20 $
2,458 $
6,147 $
12,130
4
30
—
—
—
—
—
—
—
—
—
—
—
—
—
331
—
(5)
—
5
8
25
(2)
(11)
7
343
55
(7)
(11)
12
3,519 $
20 $
20 $
2,789 $
6,174 $
12,522
— $
20 $
9 $
1,576 $
2,157 $
3,762
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
269
534
804
11
(4)
—
—
1
(1)
(11)
2
12
(5)
(11)
2
— $
20 $
10 $
1,852 $
2,682 $
4,564
3,519 $
— $
10 $
937 $
3,492 $
7,958
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 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 19).
SOFTWARE Software is comprised of software purchases and development costs. There were no capitalized borrowing costs
included in 2019 (2018 – nil).
OTHER DEFINITE LIFE INTANGIBLE ASSETS Other definite life intangible assets recorded by Loblaw primarily consist of
prescription files, the customer loyalty awards program and customer relationships.
129 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 19. Goodwill
The following are continuities of the cost and accumulated impairment losses of goodwill for the years ended December 31,
2019 and December 31, 2018:
($ millions)
Cost, beginning of year
Business acquisitions(i)
Adjusted purchase price allocation
Impact of foreign currency translation
Cost, end of year
Accumulated impairment losses, beginning of year
Impairment losses
Accumulated impairment losses, end of year
Carrying amount as at:
December 31
(i)
Included goodwill of $366 million associated with the acquisition of CREIT in 2018 (see note 6).
The carrying amount of goodwill attributed to each CGU grouping was as follows:
($ millions)
Weston Foods
Shoppers Drug Mart
Market
Discount
T&T Supermarket Inc.
Other
Carrying amount of goodwill
2019
$
5,848
$
4
(1)
(9)
5,842
1,067
—
1,067
4,775
$
$
$
$
$
$
$
$
2018
5,444
387
—
17
5,848
1,067
—
1,067
4,781
As at
Dec. 31, 2019
Dec. 31, 2018
$
303
$
2,974
375
461
129
533
312
2,972
375
459
129
534
$
4,775
$
4,781
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 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 7.1% to 9.3% (2018 – 7.0% to 9.3%) 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 comparable public traded companies.
Cash flow projections were discounted using a rate derived from the Company’s after-tax weighted average cost of capital. As at
year end 2019, the after-tax discount rate used in the recoverable amount calculations was 7.1% to 9.3% (2018 – 7.0% to 9.3%).
The pre-tax discount rate was 9.7% to 12.7% (2018 – 9.5% to 12.7%).
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% (2018 – 2.0%). The budgeted
adjusted EBITDA(i) growth was based on the strategic plans approved by GWL’s and Loblaw’s Boards.
(i)
Excludes certain items and is used internally by management when analyzing segment underlying operating performance.
130 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Note 20. Other Assets
The components of other assets were as follows:
($ millions)
Fair value of equity forward (note 33)
Sundry investments and other receivables
Net accrued benefit plan asset (note 29)
Finance lease receivable (note 32)
Mortgages, loans and notes receivable
Other
Total Other Assets
Current portion of mortgages, loans and notes receivable(i)
Other assets
As at
Dec. 31, 2019
Dec. 31, 2018
$
$
$
537
43
249
73
188
177
1,267
(87)
1,180
$
$
$
556
51
233
—
187
159
1,186
(99)
1,087
(i)
Current portion of mortgages, loans and note receivable are included in prepaid expenses and other assets in the consolidated balance
sheets.
Note 21. Customer Loyalty Awards Program Liability
The carrying amount of the liability associated with Loblaw’s customer loyalty awards programs (“loyalty liability”) was as follows:
($ millions)
Loyalty liability
As at
Dec. 31, 2019
Dec. 31, 2018
$
191
$
228
The majority of the Company’s loyalty liability, which is a contract liability, is expected to be redeemed and recognized as
revenue within one year of issuance.
Note 22. Provisions
The following are continuities of provisions for the years ended December 31, 2019 and December 31, 2018:
($ millions)
Provisions, beginning of year
IFRS 16 adjustment (note 2)
Restated balance, 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
$
$
$
$
2019
372
(80)
292
104
(142)
(16)
(1)
$
237
$
2018
515
—
515
151
(257)
(41)
4
372
As at
Dec. 31, 2019
Dec. 31, 2018
$
$
147
90
237
$
$
205
167
372
131 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Provisions consist primarily of amounts recorded in respect of restructuring, self-insurance, environmental and decommissioning
liabilities, certain onerous costs on leased properties, legal claims, the Loblaw Card Program and a MEPP withdrawal liability.
The Company’s accrued insurance liabilities were $79 million (2018 – $83 million), of which $44 million (2018 – $48 million) was
included in non-current provisions and $35 million (2018 – $35 million) in current provisions. Included in total accrued insurance
liabilities were $20 million (2018 – $23 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 2019 U.S. workers’ compensation cost and liability was 2.0% (2018 – 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 2019, the U.S. workers’ compensation cost associated with the worker’s compensation liabilities was $4 million (2018 –
$4 million).
COMPETITION BUREAU INVESTIGATION In 2017, the Company and Loblaw announced actions taken to address their
involvement in an industry-wide price-fixing arrangement. In connection with the arrangement, Loblaw offered customers a
$25 Loblaw Card, which can be used to purchase items sold in Loblaw grocery stores across Canada. As at December 31, 2019,
the Loblaw Card Program liability is $17 million (2018 – $21 million). Loblaw expects 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 (see note 35).
RESTRUCTURING AND OTHER RELATED COSTS The Company continues to execute on a multi-year plan, initiated in 2018, that
focuses on improving processes and generating efficiencies across administrative, store, manufacturing and distribution network
infrastructure. Many initiatives are underway to reduce the complexity and cost of business operations, ensuring a low cost
operating structure that allows for continued investments in the Company’s strategic growth areas. As at December 31, 2019,
the provision related to restructuring and other related costs was $79 million (2018 – $126 million).
Subsequent to the end of 2019, Loblaw announced the future closure of two distribution centres in Laval and Ottawa. Loblaw is
investing to build a modern and efficient expansion to its Cornwall distribution centre to serve its food and drug retail businesses
in Ontario and Quebec. Over the next two years, the distribution centres in Laval and Ottawa will be transferring their volumes to
Cornwall. During this period, Loblaw expects to incur additional restructuring costs in 2020 and 2021 with respect to these
closures.
Note 23. Short Term Debt
The components of short term debt were as follows:
($ millions)
Other Independent Securitization Trusts (note 12)
Series B Debentures(i)
Short term debt
As at
Dec. 31, 2019
Dec. 31, 2018
$
$
775
714
1,489
$
$
915
664
1,579
(i)
Series B Debentures issued by GWL are due on demand, and pay a current weighted average interest rate of 2.55% (2018 – 2.31%). The Series
A, 7.00% (see note 24) 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 12).
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 2019, with their respective maturity dates extended to 2021 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 2019 were
$125 million (2018 – $110 million).
132 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Note 24. Long Term Debt
The components of long term debt were as follows:
($ millions)
Unsecured Term Loan Facility
Choice Properties
1.45% + Bankers’ Acceptance, due 2022
$
Debentures
George Weston Limited Notes
Series A, 7.00%, due 2031(i)
1.45% + Bankers’ Acceptance, due 2023
Loblaw Companies Limited Notes
5.22%, due 2020
4.12%, due 2024
7.10%, due 2032
6.69%, due 2033
As at
Dec. 31, 2019
Dec. 31, 2018
4.86%, due 2023
3.92% due 2024
6.65%, due 2027
6.45%, due 2028
4.49%, 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
Choice Properties Debentures
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 I 3.01%, due 2022
Series J 3.55%, due 2025
Series K 3.56%, due 2024
Series L 4.18%, due 2028
Series M 3.53%, due 2029
Series 7 3.00%, due 2019
Series 8 3.60%, due 2020
Series 9 3.60%, due 2021
Series 10 3.60%, due 2022
Series B-C 4.32%, due 2021
Series C-C 2.56%, due 2019
Series D-C 2.95%, due 2023
Long Term Debt Secured by Mortgage
2.47% - 5.49%, due 2020 - 2038 (note 15)
Guaranteed Investment Certificates
1.10% - 3.78%, due 2020 - 2024
Independent Securitization Trust (note 12)
2.23%, due 2020
2.71%, due 2022
3.10%, due 2023
2.28%, due 2024
Independent Funding Trusts
Finance Lease Obligations(ii)
Choice Properties Credit Facility
Choice Properties Construction Loans
Transaction costs and other
Total long term debt
Less amount due within one year
Long term debt
(i)
(ii)
The Series A, 7.00% and Series B Debentures (see note 23) are secured by a pledge of 9.6 million Loblaw common shares.
As a result of the implementation of IFRS 16, finance lease obligations are included in lease liabilities (see note 2).
$
—
—
466
200
150
100
350
800
400
100
200
400
175
151
15
200
200
200
200
200
300
200
150
55
200
250
200
250
200
250
100
300
350
550
750
750
—
300
200
300
100
—
125
1,231
1,311
250
250
250
250
505
—
132
25
175
625
466
200
150
100
350
800
400
100
200
400
175
151
(4)
200
200
200
200
200
300
200
150
55
200
250
200
250
200
250
100
300
350
550
750
—
200
300
200
300
100
100
125
1,328
1,141
250
250
250
—
536
535
325
21
(36)
15,318
1,343
13,975
$
$
(37)
14,554
1,842
12,712
$
$
133 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Significant long term debt transactions are described below:
DEBENTURES The following table summarizes the debentures issued or assumed in the years ended as indicated:
($ millions except where otherwise indicated)
Loblaw Term Loans
– Loblaw Companies Limited Notes
– Loblaw Companies Limited Notes
Choice Properties senior unsecured debentures
– Series I
– Series J
– Series K
– Series L
– Series M
– Series A-C
– Series B-C
– Series C-C
– Series D-C
Interest
Rate
Maturity
Date
2019
Principal
Amount
2018
Principal
Amount
3.92%
4.49%
3.01%
3.55%
3.56%
4.18%
3.53%
3.68%
4.32%
2.56%
2.95%
June 10, 2024
$
December 11, 2028
March 21, 2022
January 10, 2025
September 9, 2024
March 8, 2028
June 11, 2029
July 24, 2018
January 15, 2021
November 30, 2019
January 18, 2023
$
—
—
—
—
—
—
750
—
—
—
—
400
400
300
350
550
750
—
125
100
100
125
Total debentures issued or assumed
$
750
$
3,200
The following table summarizes the debentures, unsecured term loan facilities and term loans repaid in the years ended as
indicated:
($ millions except where otherwise indicated)
Shoppers Drug Mart Notes
Loblaw Companies Limited - Term Loan(i)
Loblaw Companies Limited - Term Loan(ii)
Loblaw Companies Limited Notes(iii)
Choice Properties senior unsecured debentures
– Series A-C
– Series A
– Series 7
– Series C-C
Choice Properties - Term Loan(vi)
Choice Properties - Term Loan(vii)
Total debentures and term loans repaid
Interest
Rate
2.36%
Variable
Variable
3.75%
3.68%
3.55%
3.00%
2.56%
Variable
Variable
Maturity
Date
May 24, 2018
$
March 28, 2019
March 29, 2019
March 12, 2019
July 24, 2018
July 5, 2018(iv)
September 20, 2019(v)
November 30, 2019(v)
May 4, 2022
May 4, 2023
2019
Principal
Amount
2018
Principal
Amount
$
—
—
—
—
—
—
200
100
175
625
275
48
250
800
125
400
—
—
—
—
$
1,100
$
1,898
(i)
(ii)
Loblaw unsecured term loan facility bearing interest at variable rates of either Prime plus 0.45% or Bankers’ Acceptance rate plus 1.45% were
redeemed on August 29, 2018.
Loblaw unsecured term loan facility bearing interest at variable rates of either Prime plus 0.13% or Bankers’ Acceptance rate plus 1.13% were
redeemed on August 29, 2018.
(iii) Redeemed on December 31, 2018.
(iv) Redeemed on February 12, 2018.
(v)
Redeemed on June 27, 2019.
(vi) Choice Properties term loan facility bearing interest at variable rates of either Prime plus 0.45% or Bankers’ Acceptance rate plus 1.45% were
redeemed on June 11, 2019.
(vii) Choice Properties term loan facility bearing interest at variable rates of either Prime plus 0.45% or Bankers’ Acceptance rate plus 1.45% were
redeemed on June 11, 2019 and September 30, 2019.
Subsequent to year end 2019, Choice Properties, redeemed in full, the $300 million aggregate principal amount of the Series 8
senior unsecured debentures due on April 20, 2020.
134 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Also subsequent to year end 2019, Choice Properties agreed to issue, on a private placement basis, $500 million aggregate
principal amount of senior unsecured debentures. Choice Properties will also repay $250 million aggregate principal amount of
the series E senior unsecured debentures due September 14, 2020, as well as a portion of the balance drawn on its credit facility.
GUARANTEED INVESTMENT CERTIFICATES (“GICs”) The following table summarizes PC Bank’s GIC activity, before commissions,
for the years ended as follows:
($ millions)
Balance, beginning of year
GICs issued
GICs matured
Balance, end of year
$
2019
1,141
453
(283)
1,311
$
2018
852
495
(206)
1,141
$
$
INDEPENDENT SECURITIZATION TRUST The notes issued by Eagle are debentures, which are collateralized by PC Bank’s credit
card receivables (see note 12).
During 2019, Eagle issued $250 million (2018 – $250 million) of senior and subordinated term notes with a maturity date of
July 17, 2024 (2018 – July 17, 2023) at a weighted average interest rate of 2.28% (2018 – 3.10%). In connection with this
issuance, $250 million (2018 – $250 million) of bond forward agreements were settled, resulting in a realized fair value loss of
$8 million (2018 – $1 million) before income taxes recorded in other comprehensive income and a net effective interest rate of
2.94% (2018 – 3.15%) on the Eagle notes issued (see note 33).
During 2018, $400 million of 2.91% senior and subordinated term notes issued by Eagle matured and were repaid.
INDEPENDENT FUNDING TRUSTS As at year end 2019, the independent funding trusts had drawn $505 million (2018 –
$536 million) from the revolving committed credit facility that is the source of funding to the independent funding trusts.
During 2019, Loblaw renewed the revolving committed credit facility relating to the independent funding trusts until
May 27, 2022.
COMMITTED CREDIT FACILITIES The components of the committed lines of credit available as at year end 2019 and 2018 were
as follows:
($ millions)
Maturity
Date
Available
Credit
Drawn
Available
Credit
Drawn
Loblaw committed credit facility
June 10, 2021
$
1,000
$
—
$
1,000
$
—
Choice Properties committed syndicated
credit facility(i)
Total committed credit facilities
May 4, 2023
1,500
$
2,500
$
132
132
1,500
$
2,500
$
325
325
As at
Dec. 31, 2019
Dec. 31, 2018
(i)
Choice Properties has an accordion commitment from the lenders which allows Choice Properties to increase the limit by an additional
$500 million (subject to certain conditions).
These facilities contain certain financial covenants (see note 28).
135 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
LONG TERM DEBT DUE WITHIN ONE YEAR The components of long term debt due within one year were as follows:
($ millions)
Debentures
GICs
Independent Securitization Trust
Independent funding trusts
Finance lease obligations(i)
Long term debt secured by mortgage
Construction Loans
Long term debt due within one year
$
As at
Dec. 31, 2019
Dec. 31, 2018
$
897
527
250
—
—
156
12
300
274
—
536
37
182
14
$
1,842
$
1,343
(i)
As a result of the implementation of IFRS 16, finance lease obligations are included in lease liabilities (see note 2).
SCHEDULE OF REPAYMENTS The schedule of repayment of long term debt, based on maturity is as follows:
($ millions)
2020
2021
2022
2023
2024
Thereafter
Long Term Debt (excludes transaction costs)
See note 33 for the fair value of long term debt.
$
As at
Dec. 31, 2019
1,842
1,200
1,664
1,946
1,827
6,112
$
14,591
RECONCILIATION OF LONG TERM DEBT The following table reconciles the changes in cash flows from financing activities for
long term debt for the years ended as indicated:
($ millions)
Total long term debt, beginning of year
Reclassification of finance lease obligations due to IFRS 16 (note 2)
Restated balance, beginning of year
Long term debt assumed on acquisition of CREIT (note 6)
Long term debt issuances(i)(ii)
Long term debt repayments(i)(iii)
Total cash flow (used in) from long term debt financing activities
Finance lease additions, net of disposals
Other non-cash changes
Total non-cash long term debt activities
Total long term debt, end of year
2019
$
15,318
$
(535)
14,783
—
1,438
(1,690)
(252)
—
23
23
2018
12,092
—
12,092
1,841
4,880
(3,565)
1,315
13
57
70
$
14,554
$
15,318
(i)
(ii)
(iii)
Includes net issuances or repayments from Choice Properties’ credit facility depending on the activity in the period.
Includes net issuances from the Independent Funding Trust, which are revolving debt instruments.
Includes repayments on finance lease obligations of $83 million in 2018.
136 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Note 25. Other Liabilities
The components of other liabilities were as follows:
($ millions)
Financial liabilities
Net defined benefit plan obligation (note 29)
Other long term employee benefit obligation
Equity-based compensation liability (note 30)
Other(i)
Deferred lease obligation(i)
Fair value of acquired leases(i)
Other liabilities
As at
Dec. 31, 2019
Dec. 31, 2018
$
$
431
375
128
7
16
—
—
$
957
$
—
347
115
6
21
148
54
691
(i)
Certain balances were impacted as a result of the implementation of IFRS 16 (note 2).
CHOICE PROPERITES’ PORTFOLIO TRANSACTION On September 30, 2019, Choice Properties sold a portfolio of 30 properties
across Canada to a third-party for aggregate consideration of $426 million. The portfolio consisted of 27 Loblaw stand-alone
retail properties and 3 Loblaw distribution centres. On December 2, 2019, Choice Properties sold an additional property
consisting of a Loblaw stand-alone retail property to a third-party for consideration of $9 million. On consolidation, these
transactions were not recognized as sales of assets as under the terms of the leases, Loblaw did not relinquish control of the
properties for purposes of IFRS 16 and IFRS 15. Instead, the proceeds were recognized as financial liabilities and as at December
31, 2019, $4 million was recorded in trade payables and other liabilities and $431 million was recorded in other liabilities.
Note 26. Share Capital
The components of share capital were as follows:
($ millions)
Common share capital
Preferred shares, Series I
Preferred shares, Series III
Preferred shares, Series IV
Preferred shares, Series V
Share capital
As at
Dec. 31, 2019
Dec. 31, 2018
$
2,809
$
2,766
228
196
197
196
228
196
197
196
$
3,626
$
3,583
137 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
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, 2019 and December 31, 2018:
2018
Common
Share
Capital
221
2,547
12
(14)
($ millions except where otherwise indicated)
Number of
Common
Shares
2019
Common
Share
Capital
Number of
Common
Shares
Issued and outstanding, beginning of year
153,370,108
$
2,766
127,905,581
$
Issued for Loblaw’s spin-out of Choice Properties
Issued for settlement of stock options (note 30)
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 30)
Shares held in trusts, end of year
Issued and outstanding, net of shares held in trusts,
—
529,965
(232,323)
—
47
(4)
26,596,641
145,076
(1,277,190)
153,667,750 $
2,809
153,370,108
$
2,766
(120,305)
(60,000)
91,473
(88,832)
—
(1)
1
—
(228,803)
—
108,498
(120,305)
—
—
—
—
end of year
153,578,918
$
2,809
153,249,803
$
2,766
Weighted average outstanding, net of shares held
in trusts
153,537,411
131,844,880
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 holders 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
holders, to convert their preferred shares into preferred shares of a further series designated by GWL on a share-for-share basis on
a date specified by GWL.
Preferred Shares, Series III (authorized – 10.0 million) GWL has 8.0 million 5.20% non-voting Preferred Shares, Series III
outstanding, with a face value of $200 million, which entitle the holders 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
holders, 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 holders 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
holders, 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 holders 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
holders, 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.
138 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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.
During 2018, the Board raised the quarterly common share dividend by $0.035 to $0.490 in the second quarter and by $0.025 to
$0.515 in the fourth quarter. In the second quarter of 2019, the Board raised the quarterly common share dividend by $0.010 to
$0.525 per share. The Board declared dividends for the years ended as follows:
($)
Dividends declared per share(i):
Common share
Preferred share:
Series I
Series III
Series IV
Series V
2019
2018
$
$
$
$
$
2.090
1.45
1.30
1.30
1.1875
$
$
$
$
$
1.950
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, 2020 and
subsequently paid on January 2, 2020. Dividend declared on Preferred Shares, Series I was payable on December 15, 2019 and subsequently
paid on December 16, 2019.
The following table summarizes the Company’s cash dividends declared subsequent to year end 2019:
($)
Dividends declared per share(i)
– Common share
– Preferred share:
Series I
Series III
Series IV
Series V
$
$
$
$
$
0.525
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, 2020. Dividends declared
on Preferred Shares, Series I are payable on March 15, 2020.
NORMAL COURSE ISSUER BID (“NCIB”) PROGRAM The following table summarizes the Company’s activity under its NCIB
program for the years ended as follows:
($ millions except where otherwise indicated)
Purchased for future settlement of RSUs and PSUs (number of shares)
Purchased for current settlement of RSUs and DSUs (number of shares)
Purchased and cancelled (number of shares)
Cash consideration paid
Purchased and held in trusts
Purchased and settled
Purchased and cancelled
Premium charged to retained earnings
Purchased and held in trusts
Purchased and settled
Purchased and cancelled
Reduction in share capital
2019
60,000
64,851
230,698
2018(i)
—
20,855
1,277,190
$
$
$
(6)
(6)
(25)
4
1
21
4
$
$
$
—
(2)
(123)
—
—
109
14
(i)
Certain comparative figures have been restated to conform with current year presentation.
139 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
In the second quarter of 2019, GWL renewed its NCIB program to purchase on the Toronto Stock Exchange (“TSX”) or through
alternative trading systems up to 7,676,458 of its common shares, representing approximately 5% of issued and outstanding
common shares. In accordance with the rules of the TSX, the Company may purchase its common shares from time to time at
the then market price of such shares.
As of December 31, 2019, the Company purchased 274,193 common shares under its current NCIB program.
Note 27. Loblaw Capital Transactions
LOBLAW PREFERRED SHARES As at year end 2019, 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 2019, Loblaw declared dividends of $12 million (2018 – $12 million)
related to the Second Preferred Shares, Series B.
LOBLAW COMMON SHARES The following table summarizes Loblaw’s common share activity under its equity-based
compensation arrangements and NCIB program, and includes the impact on the Company’s consolidated financial statements
for the years ended as follows:
($ 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)
Equity-based compensation
Purchased and held in trusts
Purchased and cancelled
Increase (decrease) in contributed surplus
Equity-based compensation
Purchased and held in trusts
Purchased and cancelled
2019
2,408,158
(900,000)
2018
2,709,946
(582,500)
(13,613,225)
(16,584,209)
(12,105,067)
(14,456,763)
$
$
$
$
$
$
$
82
(62)
(937)
(917)
25
(19)
(176)
(170)
$
78
(36)
(1,082)
(1,040)
18
(9)
(359)
(350)
(i)
Common shares purchased and cancelled in 2018 do not include the repurchase obligation under the automatic share purchase plan, which
were transacted and settled in the first quarter of 2019.
In addition, in 2019, Loblaw repurchased and distributed 5,857 (2018 – 18,405) common shares under its NCIB to certain
directors for settlement of their equity-based compensation plans.
140 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Note 28. Capital Management
In order to manage its capital structure, the Company, among other activities, may adjust the amount of dividends paid to
shareholders, purchase shares for cancellation pursuant to its NCIB program, issue new shares or issue or repay long term debt
with the objective of:
•
• 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
ensuring sufficient liquidity is available to support its financial obligations and to execute its operating and strategic plans;
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.
•
•
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:
($ millions)
Bank indebtedness
Short term debt
Long term debt due within one year
Long term debt(i)
Certain other liabilities(ii)
Fair value of financial derivatives related to the above debt
Total debt excluding lease liabilities
Lease liabilities due within one year
Lease liabilities
Total debt including lease liabilities
Equity attributable to shareholders of the Company
Total capital under management
As at
Dec. 31, 2019
Dec. 31, 2018
$
18
$
1,489
1,842
12,712
500
(537)
56
1,579
1,343
13,975
48
(556)
$
$
$
16,024
$
16,445
857
4,250
21,131
7,609
28,740
$
$
—
—
16,445
8,040
24,485
(i)
(ii)
Finance lease obligations of $535 million were included in long term debt as at December 31, 2018, prior to the implementation of
IFRS 16.
Includes financial liabilities of $435 million recorded primarily as a result of Choice Properties’ portfolio transaction.
SHORT FORM BASE SHELF PROSPECTUS In 2019, 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 over a 25-month period.
In 2019, Eagle filed a Short Form Base Shelf Prospectus, which allows for the potential issuance of up to $1.25 billion of notes
over a 25-month period.
In 2018, GWL filed a Base Shelf Prospectus which allows 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.
In 2018, Choice Properties filed a Short Form Base Shelf Prospectus, which allows for the issuance of up to $2 billion of Units and
debt securities, 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, certain debentures 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 2019 and throughout the year, Loblaw was in compliance with each of the covenants under these
agreements.
141 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Choice Properties has certain key financial covenants in its debentures and committed credit facilities which include debt
service ratios and leverage ratios, as defined in the respective agreements. These ratios are measured by Choice Properties on an
on-going basis to ensure compliance with the agreements. As at year end 2019 and throughout the year, Choice Properties was
in compliance with each of the key financial 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 Liquidity Adequacy Requirements (“LARs”). The LARs guideline establishes standards based on the Basel III
framework, including a Liquidity Coverage Ratio standard. As at year end 2019 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 2019.
Note 29. Post-Employment and Other Long Term Employee Benefits
POST-EMPLOYMENT BENEFITS The Company sponsors a number of pension plans, including registered defined benefit
pension plans, registered defined contribution pension plans and supplemental unfunded arrangements providing pension
benefits in excess of statutory limits. Certain obligations of the Company under these supplemental pension arrangements are
secured by a standby letter of credit issued by a major Canadian chartered bank.
GWL’s and Loblaw’s Pension Committees (“the Committees”) oversee the Company’s pension plans. The Committees are
responsible for assisting 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 2020 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.
142 GEORGE WESTON LIMITED 2019 ANNUAL REPORT OTHER LONG TERM EMPLOYEE BENEFITS The Company offers other long term employee benefit plans that include long term
disability benefits and continuation of health care and dental benefits while on disability.
DEFINED BENEFIT PENSION PLANS AND OTHER DEFINED BENEFIT PLANS Information on the Company’s defined benefit
pension plans and other defined benefit plans, in aggregate, is summarized as follows:
($ millions)
Present value of funded obligations
Present value of unfunded obligations
Total present value of defined benefit obligations
Fair value of plan assets
Total funded status of surpluses (obligations)
Assets not recognized due to asset ceiling
Total net defined benefit plan obligations
Recorded on the consolidated balance sheets as follows:
Other assets (note 20)
Other liabilities (note 25)
As at
Dec. 31, 2019
Dec. 31, 2018
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$ (1,670) $
—
$
(1,561) $
(196)
$ (1,866) $
1,899
(156)
(156)
—
(181)
$
(1,742) $
1,802
—
(152)
(152)
—
$
$
$
$
33 $
(156)
(3)
—
30 $
(156)
249 $
—
(219) $
(156)
$
$
$
$
60 $
(152)
(22)
—
38 $
(152)
233 $
—
(195) $
(152)
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
2019
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2018
Total
$
1,802 $
— $
1,802
$
2,023 $
— $
2,023
47
3
(58)
64
231
(187)
(3)
—
—
—
—
—
—
—
47
3
(58)
64
231
(187)
(3)
45
5
(66)
70
(43)
(228)
(4)
—
—
—
—
—
—
—
45
5
(66)
70
(43)
(228)
(4)
$
1,899 $
— $
1,899
$
1,802 $
— $
1,802
$
1,742 $
152 $
1,894
$
2,067 $
158 $
2,225
61
64
(73)
3
246
(177)
5
5
(8)
—
2
—
66
69
(81)
3
248
(177)
61
74
(80)
3
(156)
(227)
5
5
(8)
—
(8)
—
66
79
(88)
3
(164)
(227)
$
1,866 $
156 $
2,022
$
1,742 $
152 $
1,894
($ millions)
Changes in the fair value of plan assets
Fair value, beginning of year
Employer contributions
Employee contributions
Benefits paid
Interest income
Actuarial gains (losses) in other comprehensive
income
Settlements(i)
Other
Fair value, end of year
Changes in the present value of the
defined benefit plan obligations
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Employee contributions
Actuarial losses (gains) in other comprehensive
income
Settlements(i)
Balance, end of year
(i)
Settlements relate to annuity purchases.
143 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
In 2019 and 2018, the Company completed several annuity purchases 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 $187 million (2018 – $228 million) from the impacted plans’ assets to settle
$177 million (2018 – $227 million) of pension obligations and recorded settlement charges of $10 million (2018 – $1 million) in
SG&A. The settlement charges resulted from the difference between the amount paid for the annuity purchases and the value of
the Company’s defined benefit plan obligations related to these annuity purchases at the time of the settlement.
For the year ended 2019, the actual return on plan assets was $295 million (2018 – $27 million).
The net defined benefit obligation can be allocated to the plans’ participants as follows:
•
•
•
Active plan participants – 63% (2018 – 56%)
Deferred plan participants – 14% (2018 – 10%)
Retirees – 23% (2018 – 34%)
During 2020, the Company expects to contribute approximately $47 million (2019 – contributed $47 million) to its registered
defined benefit pension plans. The actual amount paid may vary from the estimate based on actuarial valuations being
completed, investment performance, volatility in discount rates, regulatory requirements and other factors.
The net cost recognized in net earnings before income taxes for the Company’s defined benefit pension plans and other defined
benefit plans was as follows:
($ millions)
Current service cost
Interest cost on net defined benefit plan obligations
Settlement charges(i)
Other
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
61 $
5 $
—
10
3
5
—
—
Net post-employment defined benefit costs
$
74 $
10 $
2019
Total
66
5
10
3
84
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2018
Total
$
61 $
5 $
66
4
1
4
5
—
—
9
1
4
$
70 $
10 $
80
(i)
Relates to annuity purchases.
The actuarial (gains) losses 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 losses (gains) from change in
financial assumptions
Change in liability arising from asset ceiling
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2019
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
(231) $
— $
(231)
$
43 $
3
(21)
(18)
243
(19)
23
—
266
(19)
8
(164)
(5)
— $
2
(10)
—
2018
Total
43
10
(174)
(5)
Total net actuarial (gains) losses recognized in other
comprehensive income before income taxes
Income tax expenses on actuarial (gains)
losses (note 8)
Actuarial (gains) losses net of income tax expenses
$
$
(4) $
2 $
(2)
$
(118) $
(8) $
(126)
1
(3) $
—
2 $
1
(1)
33
1
$
(85) $
(7) $
34
(92)
144 GEORGE WESTON LIMITED 2019 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 (gains) losses recognized in
the year before income taxes
Cumulative amount, end of year
$
$
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2019
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2018
Total
(53) $
(83) $
(136)
$
65 $
(75) $
(10)
(4)
2
(2)
(118)
(8)
(57) $
(81) $
(138)
$
(53) $
(83) $
(126)
(136)
COMPOSITION OF PLAN ASSETS The defined benefit pension plan assets are held in trust and consist of the following asset
categories:
($ millions except where otherwise indicated)
Dec. 31, 2019
Dec. 31, 2018
As at
Equity securities
Canadian – pooled funds
Foreign
– pooled funds
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
$
$
$
$
$
$
$
66
575
641
865
200
36
14
1,115
125
18
4%
30%
34%
45%
10%
2%
1%
58%
7%
1%
1,899
100%
$
$
$
$
$
$
$
53
481
534
468
165
304
10
947
123
198
3%
27%
30%
25%
9%
17%
1%
52%
7%
11%
1,802
100%
(i)
Both government and corporate securities may be included within the same fixed income pooled fund.
As at year end 2019 and 2018, the defined benefit pension plans did not directly include any GWL, Loblaw or Choice Properties
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.
145 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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
3.25%
3.00%
2019
Other
Defined
Benefit
Plans
3.00%
n/a
Defined
Benefit
Pension
Plans
4.00%
3.00%
2018
Other
Defined
Benefit
Plans
4.00%
n/a
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
Generational
Generational
Generational
Generational
4.00%
3.00%
4.00%
n/a
3.50%
3.00%
3.50%
n/a
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
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 2019 is 18.5 years (2018 – 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 2019 was estimated at 4.50% and is expected to remain at 4.50% as at year end 2020.
SENSITIVITY OF KEY ACTUARIAL ASSUMPTIONS The following table outlines the key assumptions for 2019 (expressed as
weighted averages) and the sensitivity of a 1% change in each of these assumptions on the defined benefit plan obligations and
the net defined benefit plan cost.
The sensitivity analysis provided in the table is hypothetical and should be used with caution. The sensitivities of each key
assumption have been calculated independently of any changes in other key assumptions. Actual experience may result in
changes in a number of key assumptions simultaneously. Changes in one factor may result in changes in another, which could
amplify or reduce the impact of such assumptions.
Increase (Decrease)
($ millions)
Discount rate
Impact of:
1% increase
1% decrease
Expected growth rate of health care costs
Impact of:
1% increase
1% decrease
n/a – not applicable
Defined Benefit Pension Plans
Other Defined Benefit Plans
Defined
Benefit
Plan
Obligations
Net
Defined
Benefit
Plan Cost(i)
Defined
Benefit
Plan
Obligations
Net
Defined
Benefit
Plan Cost(i)
3.25%
4.00%
$
$
(316)
382
$
$
n/a
n/a
(27)
27
n/a
n/a
$
$
$
$
3.00%
(20)
26
4.50%
14
(12)
$
$
$
$
4.00%
—
—
4.50%
1
(1)
(i)
Discount rate and expected growth rate of health care costs sensitivity is for current service and interest costs only.
MULTI-EMPLOYER PENSION PLANS During 2019, the Company recognized an expense of $66 million (2018 – $67 million) in
operating income, which represents the contributions made in connection with MEPPs. During 2020, 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 55,000 (2018 – 54,000) employees as members. Included in the 2019 expense described
above are contributions of $64 million (2018 – $65 million) to CCWIPP.
146 GEORGE WESTON LIMITED 2019 ANNUAL REPORT POST-EMPLOYMENT AND OTHER LONG TERM EMPLOYEE BENEFIT COSTS The net cost recognized in net earnings before
income taxes for the Company’s post-employment and other long term employee benefit plans was as follows:
($ 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 31)
Net interest expense and other financing charges (note 7)
Net post-employment and other long term employee benefits costs
2019
2018
$
$
$
$
$
84
34
66
184
43
227
218
9
227
$
$
$
$
$
80
34
67
181
30
211
199
12
211
Includes settlement charges of $10 million (2018 – $1 million) related to annuity purchases.
(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 $4 million (2018 – $3 million) of net interest expense and other financing charges.
Note 30. Equity-Based Compensation
The Company’s equity-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 equity-based compensation arrangements in 2019 were $69 million (2018 – $60 million).
The following is the carrying amount of the Company’s equity-based compensation arrangements:
($ millions)
Trade payables and other liabilities
Other liabilities (note 25)
Contributed surplus
As at
Dec. 31, 2019
Dec. 31, 2018
$
$
$
8
7
113
$
$
$
7
6
123
During 2018, Loblaw cancelled stock options and granted new stock options at an adjusted share price to “make-whole” stock
option holders for the decline in Loblaw’s share price as a result of the spin-out of Loblaw’s equity interest in Choice Properties. In
addition, Loblaw issued additional RSUs, PSUs, DSUs, and EDSUs to “make-whole” unit holders as a result of the spin-out. These
"make-whole" arrangements were not considered modifications to Loblaw's equity-based compensation plans and as a result
had no impact on Loblaw's financial statements.
Details related to the equity-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.
147 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
The following is a summary of GWL’s stock option plan activity:
Outstanding options, beginning of year
Granted
Exercised(i)
Forfeited/cancelled
Expired
Outstanding options, end of year
Options exercisable, end of year
2019
Weighted
Average
Exercise
Price/ Share
90.82
93.17
75.09
107.45
62.96
100.22
101.07
Options
(number
of shares)
1,548,044
427,523
(595,496)
(53,096)
(80,257)
1,246,718
455,884
$
$
$
$
$
$
$
Options
(number
of shares)
1,527,125
234,517
(145,076)
(67,878)
(644)
1,548,044
926,956
$
$
$
$
$
$
$
(i)
During 2019, GWL settled 65,531 stock options in cash.
The following table summarizes information about GWL’s outstanding stock options:
2018
Weighted
Average
Exercise
Price/Share
87.41
104.81
71.51
103.55
111.97
90.82
81.50
2019
Range of Exercise Prices ($)
$81.92 - $96.88
$96.89 - $106.99
$107.00 - $123.73
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (years)
5
4
4
$
$
$
$
Weighted
Average
Exercise
Price/Share
91.10
102.70
112.26
100.22
Number of
Exercisable
Options
95,872
201,573
158,439
455,884
Weighted
Average
Exercise
Price/Share
81.94
101.39
112.22
101.07
$
$
$
$
Number of
Options
Outstanding
520,782
417,644
308,292
1,246,718
During 2019, GWL issued common shares on the exercise of stock options with a weighted average market share price of
$102.67 (2018 – $102.13) per common share and received cash consideration of $40 million (2018 – $10 million).
During 2019, GWL granted stock options with a weighted average exercise price of $93.17 (2018 – $104.81) per common share
and a fair value of $5 million (2018 – $4 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
2019
2.2%
2018
1.7%
14.9% - 15.4%
14.9% - 15.6%
1.7% - 1.8%
2.0% - 2.1%
4.8 - 6.7 years
4.6 - 6.6 years
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture rate applied as at
year end 2019 and 2018 was 0.8%.
148 GEORGE WESTON LIMITED 2019 ANNUAL REPORT The following is a summary of Loblaw’s stock option plan activity:
Outstanding options, beginning of year
Granted (i)
Exercised (ii)
Forfeited/cancelled (i)
Outstanding options, end of year
Options exercisable, end of year
Options
(number
of shares)
7,509,631
1,552,458
(2,345,820)
(398,347)
6,317,922
2,117,144
$
$
$
$
$
$
2019
Weighted
Average
Exercise
Price/Share
51.60
65.66
43.82
57.88
57.57
52.79
2018
Weighted
Average
Exercise
Price/Share
53.77
53.26
38.87
59.36
51.60
45.14
Options
(number
of shares)
7,487,774
9,672,806
(2,081,235)
(7,569,714)
7,509,631
3,033,156
$
$
$
$
$
$
(i)
During 2018, Loblaw cancelled all 6,725,773 stock options and granted 8,013,333 stock options at an adjusted share price to “make-whole”
stock option holders for the decline in Loblaw’s share price as a result of the spin-out of Loblaw’s equity interest in Choice Properties.
(ii) During 2019, Loblaw settled 459,087 stock options in cash.
The following table summarizes information about Loblaw’s outstanding stock options:
Outstanding Options
Exercisable Options
2019
Weighted
Average
Remaining
Contractual
Life (years)
4
4
6
$
$
$
$
Weighted
Average
Exercise
Price/Share
52.35
58.46
65.65
57.57
Number of
Exercisable
Options
1,215,214
897,345
4,585
2,117,144
Weighted
Average
Exercise
Price/Share
48.63
58.36
64.90
52.79
$
$
$
$
Number of
Options
Outstanding
2,708,412
2,091,359
1,518,151
6,317,922
Range of Exercise Prices ($)
$34.12 - $56.28
$56.29 - $60.40
$60.41 - $70.19
During 2019, Loblaw issued common shares on the exercise of stock options with a weighted average market share price of
$69.21 (2018 – $65.45) per common share and received cash consideration of $82 million (2018 – $78 million).
During 2019, Loblaw granted stock options with a weighted average exercise price of $65.66 (2018 – $53.26) per common share
and a fair value of $12 million (2018 – $15 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
2019
1.8%
2018
1.8%
13.7 - 15.7%
1.4% - 1.8%
15.2% - 21.0%
1.9% - 2.3%
3.7 - 6.2 years
3.9 - 6.3 years
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture rate applied as at
year end 2019 and 2018 was 9.0%.
149 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
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 (ii)
Reinvested
Settled
Forfeited
Outstanding RSUs, end of year
GWL
Loblaw
2019
166,034
37,264
2,749
(54,774)
(14,485)
136,788
2018(i)
183,960
63,694
1,810
(69,098)
(14,332)
166,034
2019
1,024,275
355,311
17,125
(274,335)
(89,544)
2018
824,705
528,614
7,954
(277,698)
(59,300)
1,032,832
1,024,275
Certain comparative figures have been restated to conform with current year presentation.
(i)
(ii) During 2018, as a result of Loblaw’s spin-out of Choice Properties, Loblaw granted additional 164,322 RSUs to “make-whole” RSU unitholders
for the decline in Loblaw’s share price as a result of the spin-out of Loblaw’s equity interest in Choice Properties.
The fair value of GWL’s and Loblaw’s RSUs granted during 2019 was $4 million (2018 – $7 million) and $24 million (2018 –
$24 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(i)
Reinvested
Settled
Forfeited
Outstanding PSUs, end of year
GWL
Loblaw
2019
89,656
69,951
2,074
(40,341)
(6,867)
114,473
2018
100,263
36,769
848
(44,695)
(3,529)
89,656
2019
674,945
258,261
11,264
(235,881)
(45,894)
662,695
2018
631,528
434,692
5,409
(355,618)
(41,066)
674,945
(i)
During 2018, as a result of Loblaw’s spin-out of Choice Properties, Loblaw granted additional 114,778 PSUs due to “make-whole” PSU
unitholders for the decline in Loblaw’s share price as a result of the spin-out of Loblaw’s equity interest in Choice Properties.
The fair value of GWL’s and Loblaw’s PSUs granted during 2019 was $6 million (2018 – $3 million) and $16 million (2018 –
$15 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 26)
2019
95,115
91,473
2018(i)
113,793
108,498
(i)
Certain comparative figures have been restated to conform with current year presentation.
During 2019, the settlement of awards from shares held in trusts resulted in increases of $9 million (2018 – $10 million) in
retained earnings and $1 million (2018 – nominal) in share capital.
150 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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 (i)
Reinvested
Settled
Outstanding DSUs, end of year
GWL
Loblaw
2019
186,600
22,937
3,116
(57,235)
155,418
2018
176,688
19,330
3,476
(12,894)
186,600
2019
296,329
34,895
5,673
—
2018
220,672
78,860
2,917
(6,120)
336,897
296,329
(i)
During 2018, as a result of Loblaw’s spin-out of Choice Properties, Loblaw granted additional 47,027 DSUs to “make-whole” DSU unitholders
for the decline in Loblaw’s share price as a result of the spin-out of Loblaw’s equity interest in Choice Properties.
The fair value of GWL’s and Loblaw’s DSUs granted during 2019 was $2 million (2018 – $2 million) and $2 million (2018 –
$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 (i)
Reinvested
Settled
Outstanding EDSUs, end of year
GWL
Loblaw
2019
43,065
—
882
—
43,947
2018
44,847
—
883
(2,665)
43,065
2019
45,473
4,796
846
(5,857)
45,258
2018
47,294
11,402
578
(13,801)
45,473
(i)
During 2018, as a result of Loblaw’s spin-out of Choice Properties, Loblaw granted additional 7,868 EDSUs to “make-whole” EDSU unitholders
for the decline in Loblaw’s share price as a result of the spin-out of Loblaw’s equity interest in Choice Properties.
There were no GWL EDSUs granted in 2019 and 2018. The fair value of Loblaw’s EDSUs granted during 2019 and 2018 was
nominal.
CHOICE PROPERTIES The following are details related to the unit-based compensation plans of Choice Properties:
UNIT OPTION PLAN Choice Properties maintains a Unit Option plan for certain employees. Under this plan, Choice Properties
may grant Unit Options totaling up to 19,774,697 Units, as approved at the annual and special meeting of Unitholders on April
29, 2015. The Unit Options vest in tranches over a period of four years.
The following is a summary of Choice Properties’ Unit Option plan activity:
Outstanding Unit Options, beginning of year
Granted
Exercised
Cancelled
Expired
Outstanding Unit Options, end of year
Unit Options exercisable, end of year
2019
Weighted
average
exercise
price/unit
11.66
—
11.04
11.96
14.21
12.51
12.27
Number
of awards
3,764,107
—
(2,048,060)
(417,439)
(11,294)
1,287,314
561,779
$
$
$
$
$
$
$
2018
Weighted
average
exercise
price/ unit
11.56
11.92
11.01
12.41
—
11.66
11.24
Number
of awards
4,403,857
724,571
(899,566)
(464,755)
—
3,764,107
2,287,879
$
$
$
$
$
$
$
151 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
The assumptions used to measure the fair value of the Unit Options under the Black-Scholes model were as follows:
Expected average distribution yield
Expected average Unit price volatility
Average risk-free interest rate
Expected average life of options
2019
5.38%
2018
6.42%
13.87% - 18.27%
14.39% - 25.19%
0.02% - 1.74%
0.02% - 1.88%
0.1 - 3.6 years
0.1 - 4.6 years
RESTRICTED UNIT PLAN RUs entitle certain employees to receive the value of the RU award in cash or Units at the end of the
applicable vesting period, which is usually three years. The RU plan provides for the crediting of additional RUs in respect of
distributions paid on Units for the period when a RU is outstanding. The fair value of each RU granted is measured based on the
market value of a Trust Unit at the balance sheet date. There were no RUs vested as at year end 2019 and 2018.
The following is a summary of Choice Properties’ RU plan activity:
(Number of awards)
Outstanding RUs, beginning of year
Granted
Reinvested
Exercised
Cancelled
Outstanding RUs, end of year
2019
446,341
239,483
26,547
(106,355)
(121,472)
484,544
2018
359,154
215,002
28,029
(118,670)
(37,174)
446,341
152 GEORGE WESTON LIMITED 2019 ANNUAL REPORT UNIT-SETTLED RESTRICTED UNIT PLAN Under the terms of the URU plan, certain employees were granted URUs, which are
subject to vesting conditions and disposition restrictions. Typically, full vesting of the URUs would not occur until the employee
has remained with Choice Properties for three or five years from the date of grant. Depending on the nature of the grant, the
URUs are subject to a six or seven-year holding period during which the Units cannot be disposed. There were 1,147,753 URUs
vested, but still subject to disposition restrictions as at year end 2019 (2018 – 1,110,761).
The following is a summary of Choice Properties’ URU plan activity for units not yet vested:
(Number of awards)
Outstanding URUs, beginning of year
Assumed in conjunction with the acquisition of CREIT
Granted
Forfeited
Vested
Outstanding URUs, end of year
2019
717,815
—
155,946
(40,796)
(208,546)
624,419
2018
—
626,128
577,306
(28,946)
(456,673)
717,815
PERFORMANCE UNIT PLAN PUs entitle certain employees to receive the value of the PU award in cash or Units at the end of
the applicable performance period, which is usually three years in length, based on Choice Properties achieving certain
performance conditions. The PU plan provides for the crediting of additional PUs in respect of distributions paid on Units for the
period when a PU is outstanding. The fair value of each PU granted is measured based on the market value of a Trust Unit at the
balance sheet date. There were no PUs vested as at year end 2019 and 2018.
The following is a summary of Choice Properties’ PU plan activity:
(Number of awards)
Outstanding PUs, beginning of year
Granted
Reinvested
Exercised
Cancelled
Added by performance factor
Outstanding PUs, end of year
2019
104,449
50,686
5,867
(58,282)
(21,471)
22,619
103,868
2018
79,612
44,374
6,727
(18,906)
(16,194)
8,836
104,449
TRUSTEE DEFERRED UNIT PLAN Members of the Choice Properties’ Board of Trustees, who are not management of Choice
Properties, are required to receive a portion of their annual retainer in the form of DUs and may also elect to receive up to 100%
of their remaining fees in DUs. Distributions paid earn fractional DUs, which are treated as additional awards. The fair value of
each DU granted is measured based on the market value of a Unit at the balance sheet date. All DUs vest when granted,
however, they cannot be exercised while Trustees are members of the Board.
The following is a summary of Choice Properties’ DU plan activity:
(Number of awards)
Outstanding Trustee DUs, beginning of year
Granted
Reinvested
Cancelled
Exercised
Outstanding Trustee DUs, end of year
2019
302,589
68,123
17,046
(185)
(110,434)
277,139
2018
283,704
56,705
17,631
(1,108)
(54,343)
302,589
153 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 31. Employee Costs
Included in operating income were the following employee costs:
($ millions)
Wages, salaries and other short term employee benefits
Post-employment benefits (note 29)
Other long term employee benefits (note 29)
Equity-based compensation
Capitalized to fixed assets
Employee costs
Note 32. Leases
2019
$
6,620
$
179
39
56
(63)
2018
6,296
172
27
56
(54)
$
6,831
$
6,497
The Company leases certain of Loblaw’s retail stores and distribution centres, Weston Foods' bakeries and distribution centres,
corporate offices, passenger vehicles, trailers and IT equipment. Leases of Loblaw’s retail stores are a substantial portion of the
Company’s lease portfolio. Loblaw retail store leases typically have an initial lease term with additional renewal options available
thereafter.
The Company has owned and leased properties that are leased and subleased to third parties, respectively. Owned properties
are held to either earn rental income, for capital appreciation, or both. Subleases are primarily related to non-consolidated
franchise stores, medical centres and ancillary tenants within Loblaw stores.
AS A LESSEE
Right-of-Use Assets The following is a continuity of the cost and accumulated depreciation of right-of-use assets for the year
ended December 31, 2019:
($ millions)
Cost
Balance, beginning of year
Lease additions
Lease extensions and other items
Balance, end of year
Accumulated depreciation
Balance, beginning of year
Depreciation
Impairment losses (note 15)
Balance, end of year
Carrying amount as at December 31, 2019
Property
Other
4,046
$
68
$
176
366
2
—
2019
Total
4,114
178
366
4,588
$
70
$
4,658
—
$
544
16
560
4,028
$
$
—
24
—
24
46
$
$
$
—
568
16
584
4,074
$
$
$
$
$
Under IAS 17, as at December 31, 2018, the carrying amount of finance lease assets of $411 million was presented in fixed assets
(see note 15).
154 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Lease Liabilities The following is the continuity of lease liabilities for the year ended December 31, 2019:
($ millions)
Balance, beginning of year
Lease additions
Lease extensions and other items
Lease payments
Interest expense on lease liabilities (note 7)
Balance, end of year
Lease liabilities due within one year
Lease liabilities
Total lease liabilities
2019
5,086
178
363
(734)
214
5,107
857
4,250
5,107
$
$
$
$
Under IAS 17, as at December 31, 2018, finance lease obligations of $535 million were presented in long term debt due within
one year and long term debt (see note 24).
Liquidity The future undiscounted contractual lease payments are as follows:
($ millions)
Lease payments
2020
2021
2022
2023
2024
Thereafter
$
862 $
734 $
607 $
587 $
485 $
2,028
$
Payments due by year
As at
Dec. 31, 2019
Total
5,303
The Company also has a future undiscounted cash flow of $208 million related to leases not yet commenced but committed to.
Finance Lease Future Payments Under IAS 17 As at December 31, 2018, the undiscounted future finance lease payments and
future finance charges were $933 million and $398 million, respectively. During 2018, the Company also recognized $2 million of
contingent finance lease rent expense in SG&A.
Operating Lease Future Payments Under IAS 17 As at December 31, 2018, the undiscounted future minimum lease payments
were $4,826 million. During 2018, the Company recognized $712 million of operating lease rent expense and $2 million of
contingent operating lease rent expense in SG&A.
Short-Term Leases The Company has short-term leases that are primarily related to trailer rentals and certain properties. During
2019, $28 million was recognized in cost of inventories sold and SG&A.
Variable Lease Payments The Company makes variable lease payments for property tax and insurance charges on leased
properties. The Company also has certain retail store leases where portions of the lease payments are contingent on a
percentage of retail sales. During 2019, $227 million was recognized in SG&A.
Extension Options Substantially all of Loblaw’s retail store leases have extension options for additional lease terms. As at
December 31, 2019, approximately 14% of the lease liabilities are related to extension options that were deemed reasonably
certain to be exercised.
As at December 31, 2019, approximately $5 billion of discounted future lease payments are related to extension options that
were not deemed to be reasonably certain to be exercised and were not included in lease liabilities. These future lease payments
are discounted at the incremental borrowing rates associated with the current lease liability profile.
Sale and Leaseback Transactions During 2019, Loblaw disposed of and leased back one retail store property, and recognized a
nominal gain in SG&A.
155 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
AS A LESSOR
Finance Leases Finance lease receivable is included in other assets on the Company’s consolidated balance sheet (see note 20).
During 2019, the Company recognized finance interest income of $4 million. The future finance lease payments to be received
by the Company relating to properties that are subleased to third parties are as follows:
Payments to be received by year
December 31, 2019
As at
($ millions)
2020
2021
2022
2023
2024
Thereafter
Finance lease payments to be received
Less: unearned finance interest income
Total finance lease receivable (note 20)
$
$
14 $
14 $
15 $
15 $
9 $
(3)
(2)
(2)
(1)
(1)
11 $
12 $
13 $
14 $
8 $
15
—
15
$
$
Total
82
(9)
73
Finance Leases Under IAS 17 As at December 31, 2018, the Company did not classify any leases as finance leases.
Operating Leases During 2019, the Company recognized operating lease income of $371 million, of which $23 million is related
to subleases of right-of-use assets.
The future undiscounted operating lease payments to be received by the Company are as follows:
($ millions)
2020
2021
2022
2023
2024
Thereafter
Operating lease income
$
389 $
355 $
312 $
266 $
218 $
934
$
Total
2,474
Payments to be received by year
December 31, 2019
As at
The Company has certain owned land and buildings that it leases to third parties, which as at December 31, 2019 had a net
carrying amount of $1,115 million (2018 – $1,038 million).
Operating Leases Under IAS 17 During 2018, the Company recognized $67 million of operating lease income and $1 million of
contingent operating lease income in operating income. As at December 31, 2018, the undiscounted future minimum lease
payments to be received by the Company’s operating leases as classified under IAS 17 was $2,136 million.
During 2018, the Company recognized $63 million of sublease income and $3 million of contingent sublease income in
operating income. As at December 31, 2018, the undiscounted future minimum sublease payments to be received by the
Company were $320 million.
156 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Note 33. Financial Instruments
The following table presents the fair values and fair value hierarchy of the Company’s financial instruments and excludes financial
instruments measured at amortized cost that are short term in nature. The carrying values of the Company’s financial
instruments approximate their fair values except for long term debt.
As at
Dec. 31, 2019
Dec. 31, 2018(i)
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$
— $
—
— $
19 $
19 $
—
116
116
— $
—
— $
78 $
—
128
78
128
($ millions)
Financial assets
Amortized cost:
Franchise loans receivable
Certain other assets(ii)
Fair value through other comprehensive
income:
Certain long term investments and other
assets(ii)
Derivatives included in prepaid expenses and
other assets
Fair value through profit and loss:
Security deposits
Certain other assets(ii)
Derivatives included in accounts receivable
Derivatives included in prepaid expenses and
other assets
Derivatives included in other assets
Financial liabilities
Amortized cost:
Long term debt
Certain other liabilities(ii)
Fair value through other comprehensive
income:
Derivatives included in trade payables and
other liabilities
Fair value through profit and loss:
Trust Unit liability
Derivatives included in trade payables and
other liabilities
50
—
76
—
1
5
—
—
—
—
3,601
—
21
—
—
—
2
—
537
—
—
—
86
—
1
—
71
—
76
86
3
6
537
15,839
— 15,839
—
444
444
5
—
5
—
—
—
5
3,601
2,658
5
11
50
—
87
—
(2)
2
—
—
—
—
20
2
—
—
7
11
556
16,012
—
7
—
—
—
—
—
76
—
—
—
70
2
87
76
5
13
556
—
13
16,012
13
—
—
3
7
2,658
14
(i)
(ii)
Certain comparative figures have been restated to conform with current year presentation.
Certain other assets, certain other long term investments, and certain other liabilities are included in the consolidated balance sheets in Other
Assets and Other Liabilities, respectively.
There were no transfers between the levels of the fair value hierarchy during 2019 and 2018.
During 2019, a loss of $3 million (2018 – gain of $6 million) was recognized in operating income on financial instruments
designated as amortized cost. In addition, a net gain of $614 million (2018 – $5 million) was recognized in earnings before
income taxes on financial instruments required to be classified as fair value through profit or loss.
157 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Cash and Cash Equivalents, Short Term Investments and Security Deposits As at year end 2019, the Company had cash and
cash equivalents, short term investments and security deposits of $2,139 million (2018 – $1,889 million), including U.S. dollars of
$68 million (2018 – $161 million).
In 2019, a loss of $49 million (2018 – gain of $91 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 2019, a nominal loss (2018 – gain of $17 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.
Franchise Loans Receivable and Franchise Investments As at year end 2019, the value of Loblaw franchise loans receivable of
$19 million (2018 – $78 million) was recorded on the consolidated balance sheets. In 2019, Loblaw recorded a gain of $1 million
(2018 – $3 million) in operating income related to these loans receivable.
As at year end 2019, the value of Loblaw franchise investments of $12 million (2018 – $14 million) was recorded in other assets.
During 2019, Loblaw recorded a gain of $1 million (2018 – $2 million) in operating income related to these investments.
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.
During 2019, a gain of $4 million (2018 – loss of $5 million) was recognized in operating income related to these derivatives. In
addition, as at year end 2019, a corresponding $1 million asset was included in prepaid expenses and other assets (2018 –
$3 million liability included in trade payables and other liabilities). As at year end 2019, a 1% increase (decrease) in foreign
currency exchange rates would result in a gain (loss) in fair value of $1 million.
Equity Derivative Contracts As at year end 2019, 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 initial forward sale price of $48.50 per Loblaw
common share. As at year end 2019, the forward rate was $123.64 (2018 – $118.42) per Loblaw common share. In 2019, a fair
value loss of $69 million (2018 – $50 million) was recorded in net interest expense and other financing charges related to this
agreement (see note 7).
Trust Unit Liability In 2019, a fair value loss of $550 million (2018 – gain of $41 million) was recorded in net interest expense and
other financing charges (see note 7).
158 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Other Derivatives The Company uses bond forwards and interest rate swaps, to manage its anticipated exposure to fluctuations
in interest rates on future debt issuances. The Company also uses futures, options and forward contracts to manage its
anticipated exposure to fluctuations in commodity prices and exchange rates in its underlying operations. The following is a
summary of the fair values recognized in the consolidated balance sheet and the net realized and unrealized gains (losses)
before income taxes related to the Company’s other derivatives:
($ millions)
Derivatives designated as cash flow hedges
Foreign Exchange Currency Risk - Foreign Exchange Forwards(i)
Interest Rate Risk - Bond Forwards(ii)
Interest Rate Risk - Interest Rate Swaps(iii)
Total derivatives designated as cash flow hedges
Derivatives not designated in a formal hedging relationship
Foreign Exchange and Other Forwards
Other Non-Financial Derivatives
Total derivatives not designated in a formal hedging relationship
Total derivatives
Dec. 31, 2019
Net asset
(liability)
fair value
Gain/
(loss)
recorded
in OCI
Gain/(loss)
recorded in
operating
income
$
$
$
$
$
— $
(1) $
—
(4)
(6)
(2)
(4) $
(9) $
(3) $
— $
6
3 $
(1) $
—
— $
(9) $
1
—
(1)
—
(18)
19
1
1
(i)
(ii)
PC Bank uses foreign exchange forwards, with a notional value of U.S. dollars $5 million, to manage its foreign exchange currency risk related
to certain U.S. payables. The fair value of the derivatives is included in prepaid expenses and other assets.
PC Bank uses bond forwards, with a notional value of $50 million, to manage its interest risk related to future debt issuances. The fair value of
the derivatives is included in trade payables and other liabilities.
(iii) PC Bank uses interest rate swaps, with a notional value of $300 million, to manage its interest risk related to future debt issuances. The fair
value of the derivatives is included in trade payables and other liabilities. Choice Properties uses interest rate swaps, with a notional value of
$277 million, to manage its interest risk related to variable rate mortgages. The fair value of the derivatives is included in other assets or other
liabilities.
($ millions)
Derivatives designated as cash flow hedges
Foreign Exchange Currency Risk - Foreign Exchange Forwards
Interest Rate Risk - Bond Forwards
Interest Rate Risk - Interest Rate Swaps
Total derivatives designated as cash flow hedges
Derivatives not designated in a formal hedging relationship
Foreign Exchange and Other Forwards
Other Non-Financial Derivatives
Total derivatives not designated in a formal hedging relationship
Total derivatives
(i)
Certain comparative figures have been restated to conform with current year presentation.
Dec. 31, 2018(i)
Net asset
(liability)
fair value
Gain/
(loss)
recorded
in OCI
Gain/(loss)
recorded in
operating
income
$
$
$
$
$
1 $
2 $
(4)
(1)
(5)
—
(4) $
(3) $
18 $
— $
(13)
5 $
1 $
—
— $
(3) $
—
1
—
1
41
(24)
17
18
159 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 34. Financial Risk Management
As a result of holding and issuing financial instruments, the Company is exposed to certain risks. The following is a description of
those risks and how the exposures are managed:
LIQUIDITY RISK Liquidity risk is the risk that the Company is unable to generate or obtain sufficient cash or its equivalents in a
cost effective manner to fund its obligations as they come due. The Company is exposed to liquidity risk through, among other
areas, PC Bank and its credit card business, which requires a reliable source of funding for its credit card business. PC Bank relies
on its securitization programs and the acceptance of GIC deposits to fund the receivables of its credit cards. The Company
would experience liquidity risks if it fails to maintain appropriate levels of cash and short term investments, 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.
Maturity Analysis The following are the undiscounted contractual maturities of significant financial liabilities as at
December 31, 2019:
($ millions)
Long term debt including
interest payments(i)
Foreign exchange forward contracts
Short term debt (note 23)
Financial liabilities(iii)
Bank indebtedness
Certain other liabilities
Total
2020
2021
2022
2023
2024 Thereafter
Total(ii)
$
2,375 $
1,731 $
2,155 $
2,376 $
2,189 $
8,203 $
19,029
573
1,489
33
18
3
—
—
31
—
3
—
—
28
—
—
—
—
32
—
—
—
—
32
—
—
—
—
238
—
—
573
1,489
394
18
6
$
4,491 $
1,765 $
2,183 $
2,408 $
2,221 $
8,441 $
21,509
(i)
(ii)
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 structured entities and
mortgages. Variable interest payments are based on the forward rates as at year end 2019.
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.
(iii) Represents the contractual payments that Loblaw is committed to related to the Choice Properties’ Portfolio Transaction (see note 25).
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 other foreign subsidiaries 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 2019, an appreciation of the Canadian dollar of one cent relative to the U.S. dollar would result in a
nominal loss 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
160 GEORGE WESTON LIMITED 2019 ANNUAL REPORT defined benefit plans, Loblaw’s accounts receivable 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 finance lease receivable, 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 tenants, 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 33).
Refer to notes 11 and 12 for additional information on the credit quality performance of Loblaw’s credit card receivables and
other receivables, mentioned above, of Loblaw and Weston Foods.
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. 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 $260 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 an
increase (decrease) of $7 million in net interest expense and other financing charges.
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
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. Rising commodity prices
could adversely affect the financial performance of the Company and the impact could be material. 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 2019, a 10% decrease in relevant commodity
prices, with all other variables held constant, would result in a net loss of $12 million in earnings before income taxes. This
amount excludes the offsetting impact of the commodity price risk inherent in the transactions being hedged.
161 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 35. 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 which 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,
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 certainty. Management regularly assesses its position on the adequacy of accruals or provisions
related to such matters and will make any necessary adjustments.
The following is a description of the Company’s significant legal proceedings:
Shoppers Drug Mart has been served with an Amended Statement of Claim in a class action proceeding that has been filed
in the Ontario Superior Court of Justice (“Superior 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
Superior Court certified as a class proceeding portions of the action. The Superior 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
matter recorded in the consolidated financial statements.
In 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. In December 2019,
a proposed class action on behalf of independent distributors was commenced against the Company and Weston Foods. 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 its financial condition or prospects. The
Company’s cash balances far exceed any realistic damages scenario and therefore it does not anticipate any impacts on its or
Loblaw’s dividend, dividend policy or share buyback plan. The Company has not recorded any amounts related to the
potential civil liability associated with the class action lawsuits in 2019 on the basis that a reliable estimate of the liability
cannot be determined at this time. The Company 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 at the earlier of when a reliable
estimate of liability can be determined or the matter is ultimately resolved. As a result of admission of participation in the
arrangement and cooperation in the Competition Bureau’s investigation, the Company and Loblaw will not face criminal
charges or penalties.
In August 2018, the Province of British Columbia filed a class action against numerous opioid manufacturers and distributors,
including Loblaw and its subsidiaries, Shoppers Drug Mart Inc. and Sanis Health Inc. The claim contains allegations of breach of
the Competition Act, fraudulent misrepresentation and deceit and negligence, and seeks damages (unquantified) for the
expenses incurred by the province in paying for opioid prescriptions and other healthcare costs related to opioid addiction and
abuse in British Columbia. In May 2019, two further opioid-related class actions were commenced in each of Ontario and
Quebec against a large group of defendants, including Sanis Health Inc. The allegations in the Ontario and Quebec class actions
are similar to the allegations against manufacturer defendants in the Province of British Columbia class action, except that these
May 2019 claims seek recovery of damages on behalf of opioid users directly. Loblaw believes these proceedings are without
merit and is vigorously defending them. Loblaw does not currently have any significant accruals or provisions for these matters
recorded in the consolidated financial statements.
Loblaw has been reassessed by the Canada Revenue Agency and the Ontario Ministry of Finance on the basis that certain
income earned by Glenhuron, a wholly owned Barbadian subsidiary of Loblaw that was wound up in 2013, should be treated,
and taxed, as income in Canada. The reassessments, which were received between 2015 and 2019, are for the 2000 to 2013
taxation years. On September 7, 2018, the Tax Court released its decision relating to the 2000 to 2010 taxation years. The Tax
Court ruled that certain income earned by Glenhuron should be taxed in Canada based on a technical interpretation of the
applicable legislation. On October 4, 2018, Loblaw filed a Notice of Appeal with the Federal Court of Appeal. On October 15,
2019, the appeal was heard by the Federal Court of Appeal, with the court reserving judgment until a later date.
162 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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.
Note 36. Financial Guarantees
The Company established letters of credit used in connection with certain obligations mainly related to real estate transactions,
benefit programs, purchase orders and guarantees with a gross potential liability of approximately $416 million (2018 –
$400 million). In addition, Loblaw and Choice Properties have 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 2019, Loblaw’s maximum obligation in respect of such guarantees was $580 million (2018 – $580 million)
with an aggregate amount of $468 million (2018 – $466 million) in available lines of credit allocated to the Associates by the
various banks. As at year end 2019, Associates had drawn an aggregate amount of $18 million (2018 – $56 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 24). As at year end 2019, Loblaw has agreed to provide a credit
enhancement of $64 million (2018 – $64 million) in the form of a standby letter of credit for the benefit of the independent
funding trusts representing not less than 10% (2018 – 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 $12 million (2018 – $12 million). Additionally, Loblaw has
guaranteed lease obligations of a third-party distributor in the amount of $2 million (2018 – $3 million).
GLENHURON BANK LIMITED SURETY BOND In connection with the Canada Revenue Agency’s reassessment of Loblaw on
certain income earned by Glenhuron (see note 8), Loblaw arranged for a surety bond to the Ministry of Finance in order to appeal
the reassessments. As a result of the decision of the Tax Court and incremental payments by Loblaw, the amount of the surety
bond is $49 million (2018 – $46 million).
CASH COLLATERALIZATION As at year end 2019, GWL and Loblaw had agreements to cash collateralize certain uncommitted
credit facilities up to amounts of $45 million (2018 – $45 million) and $103 million (2018 – $103 million), respectively. As at year
end 2019, GWL and Loblaw had $45 million (2018 – $45 million) and $1 million (2018 – $2 million) deposited with major
financial institutions, respectively, and classified as security deposits on the consolidated balance sheets.
163 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
®
FINANCIAL SERVICES Loblaw has provided a guarantee on behalf of PC Bank to MasterCard
(“MasterCard
behalf of PC Bank to MasterCard
”) for accepting PC Bank as a card member and licensee of MasterCard
was U.S. dollars $190 million (2018 – U.S. dollars $190 million).
®
®
®
.
International Incorporated
As at year end 2019, the guarantee on
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 $11 million (2018 – $11 million).
Letters of credit for the benefit of independent securitization trusts with respect to the securitization programs of PC Bank have
been issued by major financial institutions. These standby letters of credit can be drawn upon in the event of a major decline in
the income flow from or in the value of the securitized credit card receivables. Loblaw has agreed to reimburse the issuing banks
for any amount drawn on the standby letters of credit. The aggregate gross potential liability under these arrangements for the
Other Independent Securitization Trusts was $70 million (2018 – $89 million), which represented approximately 10% (2018 –
10%) of the securitized credit card receivables amount (see note 23).
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 2019, the aggregate gross
potential liability related to these letters of credit totaled $36 million (2018 – $39 million).
Choice Properties’ credit facility and debentures are guaranteed by each of the General Partner, the Partnership and any other
person that becomes a subsidiary of Choice Properties (with 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.
CPH Master Limited Partnership guarantees certain debt assumed by purchasers in connection with past dispositions of
properties made by CREIT before the acquisition. These guarantees will remain until the debt is modified, refinanced or
extinguished. Credit risks arise in the event that the purchasers default on repayment of their debt. These credit risks are
mitigated by the recourse which Choice Properties has under these guarantees, in which case it would have a claim against the
underlying property. The estimated amount of debt as at year end 2019 subject to such guarantees, and therefore the maximum
exposure to credit risk, was $37 million (2018 – $38 million) with an estimated weighted average remaining term of 3.5 years
(2018 – 4.5 years).
164 GEORGE WESTON LIMITED 2019 ANNUAL REPORT
Note 37. Related Party Transactions
The Company’s majority shareholder is Mr. W. Galen Weston, who beneficially owns, directly and indirectly through private
companies which he controls, including Wittington, a total of 81,706,054 of GWL’s common shares, representing approximately
53.2% (2018 – 53.1%) 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
for those in the normal course of business. Transactions between the Company and its consolidated entities have been
eliminated on consolidation and are not disclosed in this note.
In 2019, the Company made rental payments to Wittington in the amount of $5 million (2018 – $4 million). As at year end 2019
and 2018, there were no rental payments outstanding.
In 2019, 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 $38 million (2018 – $44 million). As at year end 2019, $2 million (2018 – $3 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 2019, 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.
OPERATING LEASE Choice Properties entered into a ten-year lease for office space with Wittington that commenced in 2014.
Lease payments will total $3 million over the term of the lease.
POST-EMPLOYMENT BENEFIT PLANS The Company sponsors a number of post-employment plans, which are related parties.
Contributions made by the Company to these plans are disclosed in note 29.
INCOME TAX MATTERS From time to time, the Company and Wittington may enter into agreements to make elections that are
permitted or required under applicable income tax legislation with respect to affiliated corporations.
COMPENSATION OF KEY MANAGEMENT PERSONNEL The Company’s key management personnel is comprised of certain
members of the executive team of GWL, Loblaw, Weston Foods and Wittington, as well as members of the Boards of GWL,
Loblaw and Wittington to the extent that they have the authority and responsibility for planning, directing and controlling the
day-to-day activities of the Company.
Annual compensation of key management personnel that is directly attributable to the Company was as follows:
($ millions)
Salaries, director fees and other short term employee benefits
Equity-based compensation
Total compensation
2019
13
11
24
$
$
2018
8
12
20
$
$
165 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 38. Segment Information
The Company has three reportable operating segments: Loblaw, Choice Properties and Weston Foods. Other and Intersegment
includes eliminations, intersegment adjustments related to consolidation, cash and short term investments held by the
Company and all other company level activities that are not allocated to the reportable operating segments, as further illustrated
below.
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(ii) and adjusted operating income(ii). No reportable operating segment is reliant on any single external customer.
Loblaw
Choice
Properties
Weston
Foods
Other and
Intersegment
Total
Loblaw
Choice
Properties
Weston
Foods(i)
Other and
Intersegment(i)
2019
2018
Total
$ 48,037 $ 1,289 $ 2,155 $
(1,372) $ 50,109
$ 46,693 $ 1,148 $ 2,122 $
(1,395) $ 48,568
$ 2,262 $ 890 $
72 $
(266) $ 2,958
$
1,915 $
593 $
92 $
(15) $ 2,585
747
1,472
1
(516)
1,704
564
(57)
(1)
442
948
($ millions)
Revenue
Operating income
Net interest expense
and other financing
charges
Earnings before
income tax
$ 1,515 $ (582) $
71 $
250 $ 1,254
$
$
1,351 $
650 $
93 $
(457) $
1,637
1,915 $
593 $
92 $
(15) $ 2,585
Operating income
$ 2,262 $ 890 $
72 $
(266) $ 2,958
Depreciation and
amortization
Adjusting items(ii)
Adjusted EBITDA(ii)
Depreciation and
amortization(iii)
Adjusted operating
2,524
118
1
23
147
4
(354)
2,318
1,497
1
62
207
108
230
130
11
118
1,746
(152)
197
$ 4,904 $
914 $
223 $
(558) $ 5,483
$ 3,520 $
824 $
233 $
(49) $ 4,528
2,016
1
138
(354)
1,801
976
1
121
118
1,216
income(ii)
$ 2,888 $
913 $
85 $
(204) $ 3,682
$ 2,544 $
823 $
112 $
(167) $
3,312
(i)
(ii)
Certain comparative figures have been restated to conform with current year presentation.
Certain items are excluded from operating income to derive adjusted EBITDA(1). Adjusted EBITDA(1) is used internally by management when
analyzing segment underlying operating performance.
(iii) Excludes $508 million (2018 – $521 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by Loblaw and
$9 million (2018 – $9 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and other related costs.
166 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Other and Intersegment includes the following items:
($ millions)
Revenue
Operating
Income
2019
Net
Interest
Expense
and
Other
Financing
Charges
2018(i)
Net
Interest
Expense
and
Other
Financing
Charges
Revenue
Operating
Income
Elimination of internal lease arrangements
$
(531) $
(148) $
(170)
$
(556) $
— $
Elimination of cost recovery
Elimination of lease surrender
(209)
(3)
Loblaw’s net gain on sale leaseback of property to
Choice Properties
Weston Food's net gain on sale leaseback of property
to Choice Properties
Recognition of depreciation on Choice Properties’
investment properties classified as fixed assets by
the Company and measured at cost
Fair value adjustment on investment properties
Fair value adjustment on Choice Properties’
Exchangeable Units
Fair value adjustment on Trust Unit liability
Unit distributions on Exchangeable Units paid by
Choice Properties to GWL and Loblaw
Unit distributions on Trust Units paid by Choice
Properties, excluding amounts paid to GWL
and Loblaw
Interest on debt due from Choice Properties to
Loblaw and accretion income earned on
intercompany Class C Units
Intercompany sales
Foreign currency translation(ii)
Fair value adjustment of the forward sale agreement
for 9.6 million Loblaw common shares
Choice Properties issuance costs
Asset impairments, net of recoveries
Other
Total Consolidated
—
—
(7)
—
(37)
(85)
—
—
—
—
—
—
—
—
—
38
(27)
—
—
—
—
—
—
(932)
550
(289)
203
—
—
—
69
14
—
39
(181)
(10)
—
—
—
—
—
—
—
—
—
(648)
—
—
—
—
—
—
(10)
(6)
(10)
(118)
47
—
—
—
—
—
—
17
—
—
77
(12)
—
—
—
—
—
—
—
—
—
(629)
—
—
—
—
—
$ (1,372) $
(266) $
(516)
$ (1,395) $
(15) $
—
—
—
—
—
—
594
(41)
(271)
126
(55)
—
—
50
—
—
39
442
Certain comparative figures have been restated to conform with current year presentation.
(i)
(ii) 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.
167 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements
($ millions)
Total Assets
Loblaw
Choice Properties
Weston Foods
Other(ii)
Intersegment
Consolidated
As at
Dec. 31, 2019
Dec. 31, 2018(i)
$
36,451
15,575
4,261
28
(8,502)
$
47,813
$
$
30,228
15,518
3,001
305
(5,238)
43,814
(i)
Certain comparative figures have been restated to conform with current year presentation.
(ii) Other includes cash and cash equivalents and short term investments held by foreign operations.
($ millions)
Additions to Fixed Assets, Investment Properties and Intangible Assets
Loblaw
Choice Properties
Weston Foods
Other
Consolidated
2019(i)
2018
1,206
$
1,070
188
194
8
311
212
—
1,596
$
1,593
$
$
(i)
In 2019, additions to fixed assets and investment properties includes non-cash consideration of $13 million in Loblaw and $25 million in
Choice Properties, respectively.
168 GEORGE WESTON LIMITED 2019 ANNUAL REPORT The Company operates primarily in Canada and the United States.
($ millions)
Revenue (excluding intersegment)
Canada
United States
Consolidated
($ millions)
Fixed Assets, Goodwill and Intangible Assets
Canada
United States
Consolidated
2019
2018
48,897
1,212
50,109
$
$
47,415
1,153
48,568
As at
Dec. 31, 2019
Dec. 31, 2018
23,127
909
24,036
$
$
23,936
904
24,840
$
$
$
$
169 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Three Year Summary
CONSOLIDATED INFORMATION(i)
As at or for the years ended December 31
2019
2018
2017
($ millions except where otherwise indicated)
(52 weeks)
(52 weeks)
(52 weeks)
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 including lease liabilities
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(ii) (%)
Adjusted return on average equity attributable to common
shareholders of the company(ii) (%)
Adjusted return on capital(ii) (%)
50,109
2,958
5,483
2,318
1,704
1,071
431
653
823
242
198
1,117
11,773
12,263
47,813
2,139
21,131
7,609
13,175
4,555
1,596
1,342
1.26
7.24
10.9
16.1
10.3
48,568
2,585
4,528
1,746
948
762
639
680
998
574
530
908
12,101
12,739
43,814
1,889
16,445
8,040
14,204
2,719
1,593
134
3.99
6.85
9.3
12.7
12.0
48,289
2,561
4,337
1,685
523
555
449
712
1,589
766
722
903
11,689
12,745
38,540
3,233
13,066
7,934
14,795
3,425
1,474
1,395
5.58
6.99
9.0
12.9
13.0
(i)
(ii)
(iii)
For financial definitions and ratios refer to the Glossary beginning on page 172.
See non-GAAP financial measures beginning on page 77.
Includes $508 million (2018 – $521 million; 2017 – $524 million) of amortization of intangible assets, acquired with Shoppers Drug Mart
Corporation, recorded by Loblaw and $9 million (2018 – $9 million; 2017 – $10 million) of accelerated depreciation recorded by Weston Foods,
related to restructuring and other related costs.
170 GEORGE WESTON LIMITED 2019 ANNUAL REPORT SEGMENT INFORMATION(i)
As at or for the years ended December 31
($ millions except where otherwise indicated)
OPERATING RESULTS
Revenue
Operating income
Adjusted EBITDA(iii)
Adjusted EBITDA Margin (%)(iii)
Loblaw
Choice Properties
Weston Foods
Other & Intersegment
Consolidated
Loblaw
Choice Properties
Weston Foods
Other & Intersegment
Consolidated
Loblaw
Choice Properties
Weston Foods
Other & Intersegment
Consolidated
Loblaw
Weston Foods
Consolidated
Depreciation and Amortization(iv)
Loblaw
FINANCIAL POSITION
Total Assets
CASH FLOWS
Fixed Assets , Investment Properties
and Intangible Assets Additions
Choice Properties
Weston Foods
Other & Intersegment
Consolidated
Loblaw
Choice Properties
Weston Foods
Other(v)
Intersegment
Consolidated
Loblaw
Choice Properties
Weston Foods
Other & Intersegment
Consolidated
2019
2018(ii)
2017
(52 weeks)
(52 weeks)
(52 weeks)
48,037
1,289
2,155
(1,372)
50,109
2,262
890
72
(266)
2,958
4,904
914
223
(558)
5,483
10.2
10.3
10.9
2,524
1
147
(354)
2,318
36,451
15,575
4,261
28
(8,502)
47,813
1,206
188
194
8
1,596
46,693
1,148
2,122
(1,395)
48,568
1,915
593
92
(15)
2,585
3,520
824
233
(49)
4,528
7.5
11.0
9.3
1,497
1
130
118
1,746
30,228
15,518
3,001
305
(5,238)
43,814
1,070
311
212
—
1,593
46,587
830
2,243
(1,371)
48,289
2,041
756
91
(327)
2,561
3,513
597
256
(29)
4,337
7.5
11.4
9.0
1,454
1
117
113
1,685
34,230
9,924
2,645
927
(9,186)
38,540
1,026
233
215
—
1,474
For financial definitions and ratios refer to the Glossary beginning on page 172.
Certain comparative figures have been restated to conform with current year presentation.
(i)
(ii)
(iii) See non-GAAP financial measures beginning on page 77.
(iv)
Includes $508 million (2018 – $521 million; 2017 – $524 million) of amortization of intangible assets, acquired with Shoppers Drug Mart
Corporation, recorded by Loblaw and $9 million (2018 – $9 million; 2017 – $10 million) of accelerated depreciation recorded by Weston Foods,
related to restructuring and other related costs.
(v) Other includes cash and cash equivalents and short term investments held by foreign operations.
171 GEORGE WESTON LIMITED 2019 ANNUAL REPORT 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
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 14, “Non-GAAP Financial Measures”, of the Company’s
Management’s Discussion and Analysis).
Adjusted operating income before depreciation and amortization (see Section 14,
“Non-GAAP Financial Measures”, of the Company’s Management’s Discussion and
Analysis).
Adjusted EBITDA divided by sales (see Section 14, “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 14, “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 14, “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 14, “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 14, “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 14,
“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 14, “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 14, “Non-GAAP Financial Measures”, of the Company’s Management’s
Discussion and Analysis).
Tax-effected adjusted operating income divided by average capital (see Section 14,
“Non-GAAP Financial Measures”, of the Company’s Management’s Discussion and
Analysis).
Average article price
The price inflation on the specific mix of goods sold in Loblaw’s stores.
Basic net earnings per common share
Net earnings available to common shareholders of the Company divided by the
weighted average number of common shares outstanding during the period.
Capital
Total debt, plus total equity attributable to shareholders of the Company, less cash
and cash equivalents, short term investments and amounts held in escrow.
Capital under management
Total debt plus total equity attributable to shareholders of the Company.
Capital investment
Choice Properties’ Funds from Operations
Fixed asset purchases, investment properties purchases and intangible asset
additions.
Choice Properties’ net income (loss) adjusted for items that are not necessarily
reflective of Choice Properties’ underlying operating performance capital (see
Section 14, “Non-GAAP Financial Measures”, of the Company’s Management’s
Discussion and Analysis).
Choice Properties’ Funds From Operations per
unit - diluted
Choice Properties’ Funds from Operations available to unit holders adjusted for the
impact of dilutive items divided by the weighted average number of average unit
outstanding during the period adjusted for the impact of dilutive items.
Choice Properties’ Net Operating income for same
properties, excluding development activities
Choice Properties’ net operating income for same properties, adjusting for the
impact of recent property acquisition and disposition transactions.
172 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Term
Control brand
Conversion
Diluted net earnings per common share
Free cash flow
Definition
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.
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 intangible asset additions, fixed asset and
investment properties purchases, interest paid, and net lease payments (see Section
14, “Non-GAAP Financial Measures”, of the Company’s Management’s Discussion
and Analysis).
Net earnings attributable to shareholders of
Net earnings less non-controlling interests.
the Company
Net earnings available to common shareholders
Net earnings attributable to shareholders of the Company less preferred dividends.
of the Company
Operating income
Renovation
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 debt to adjusted EBITDA
Loblaw retail total debt divided by Loblaw retail adjusted EBITDA.
Retail gross profit
Retail square footage
Same-store sales
Loblaw retail sales less cost of merchandise inventories sold.
Retail square footage includes Loblaw’s corporate stores, franchised stores and
associate-owned drug stores.
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 attributable to common shareholders
Total equity less preferred shares outstanding and non-controlling interests.
of the Company
Total equity attributable to shareholders of the
Total equity less non-controlling interests.
Company
Weighted average common shares outstanding
Year
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, 2019 and December 31, 2018 contained 52 weeks.
173 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Corporate Directory
Board of Directors
Galen G. Weston, B.A., M.B.A.
Chairman and Chief Executive Officer of the
Corporation; Executive Chairman, Loblaw
Companies Limited; Chairman and Director
President’s Choice Bank; Director, Wittington
Investments, Limited; Chairman, Choice
Properties Real Estate Investment Trust.
Alannah Weston
Chairman, former Deputy Chairman and
Creative Director, Selfridges Group Limited;
Chair, Selfridges Group Foundation; Director,
Wittington Investments, Limited; Director,
Garfield Weston Foundation; former Board
member, Reta Lila Weston Trust and Reta Lila
Howard Foundation; former Trustee, Blue
Marine Foundation.
Paviter S. Binning(2, 4*)
President and Director of Wittington
Investments Limited; former President and,
Chief Executive Officer and Chief Financial
Officer of the Corporation; Director, Loblaw
Companies Limited; former Chief Financial
Officer and Chief Restructuring Officer, Nortel
Networks Corporation; former Chief Financial
Officer, Hanson plc and Marconi Corporation
plc.
Andrew Ferrier(1,2*)
Executive Chairman of Canz Capital Limited;
Director, Bunge Limited; Chair, New Zealand
Trade and Enterprise; Council Member,
University of Auckland; former Chief
Executive Officer of Fonterra Co-operative
Group Limited; former President and Chief
Executive Officer, GSW Inc; former Director,
Orion Health Group Limited.
(1) Audit Committee
(2) Weston Foods Committee
(3) Governance, Human Resource,
Nominating and Compensation
Committee
(4) Pension Committee
* Chair of the Committee
Corporate Officers
W. Galen Weston, O.C.
Chairman Emeritus
Galen G. Weston
Chairman and Chief Executive Officer
Richard Dufresne
President
and Chief Financial Officer
Gordon A.M. Currie
Executive Vice President,
Chief Legal Officer
Nancy H.O. Lockhart, O. Ont.(3, 4)
Corporate Director; Trustee, Choice
Properties Real Estate Investment Trust;
Director, Atrium Mortgage Investment
Corporation, The Royal Conservatory of
Music; Member, Sotheby’s Canada Advisory
Board; Chair Emeritus, Crow’s Theatre
Company; former Chief Administrative
Officer, Frum Development Group, former
Vice President, Shoppers Drug Mart
Corporation; former Chair, Ontario Science
Centre and Canadian Film Centre; former
President, Canadian Club of Toronto; former
Director, Loblaw Companies Limited, Gluskin
Sheff & Associates Inc. and Barrick Gold
Corporation.
Sarabjit (Sabi) S. Marwah(1, 3)
Senator with the Senate of Canada; former
Vice-Chairman and Chief Operating Officer
of The Bank of Nova Scotia; Director,
Cineplex Inc.; former Director, TELUS
Corporation; former Trustee and Chair,
Hospital for Sick Children; former Chair,
Humber River Regional Hospital; former
member of the Board of Directors, C.D.Howe
Institute and Toronto International Film
Festival.
Gordon M. Nixon, C.M., O.Ont.(3)
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.; Director, MaRS
Discovery District; Trustee, Art Gallery of
Ontario.
J. Robert S. Prichard, O.C., O.Ont., LL.B., M.B.A.,
LL.M., LL.D.(3*, 4)
Non-Executive Chair, Torys LLP; Chair, Bank
of Montreal; Director, Onex Corporation;
Director, Alamos Gold Inc.; President Emeritus,
University of Toronto; Chair and Trustee,
Hospital for Sick Children; former Chair,
President and Chief Executive Officer,
Metrolinx; former Director, President and Chief
Executive Officer, Torstar Corporation.
Robert Sawyer(1)
Corporate Director; Director, Walter Group and
Oatbox; Director of Mira Foundation; former
Director and President and Chief Executive
Officer, RONA Inc.; former Chief Operating
Officer of Metro Inc; former Board member,
Accueil Bonneau; former President, La Maison
Du Pere and Moisson Montreal.
Christi Strauss(1,2)
Corporate Director; former President and Chief
Executive Officer, Cereal Partners Worldwide, a
General Mills joint venture with Nestlé;
Director of two not-for-profit organizations,
Social Venture Partners Minnesota and Health
Builders; past Chair, Advertising Standards
Canada; past Chair, Canadian Food
Information Council; former Board member;
The Stratford Festival and Food and Consumer
Products of Canada.
Barbara Stymiest, F.C.A., F.C.P.A.(1*,3)
Corporate Director; Director, Blackberry
Limited; Director, Sun Life Financial Inc.;
Director, President’s Choice Bank; former
Member, Group Executive, Royal Bank of
Canada; former Chief Executive Officer, TMX
Group Inc., Director, Canadian Institute for
Advanced Research; A Vice Chair, University
Health Network; Director, Advisory Council for
the Ivey Institute for Leadership.
Rashid Wasti
Executive Vice President,
Chief Talent Officer
Khush Dadyburjor
Chief Strategy Officer
Peter Effer
Group Head, Tax
Wendy Mizuno
Group Head,
Pension and Benefits
Lina Taglieri
Group Controller
John Williams
Group Treasurer
Andrew Bunston
Vice President,
General Counsel and Secretary
Anemona Turcu
Vice President,
Chief Risk Officer
174 GEORGE WESTON LIMITED 2019 ANNUAL REPORT Shareholder and Corporate Information
Executive Office
George Weston Limited
22 St. Clair Avenue East
Toronto, Canada M4T 2S5
Tel: 416.922.2500
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 2019, there were 153,667,750 common shares issued
and outstanding.
The average 2019 daily trading volume of the Company’s common
shares was 184,521.
Preferred Shares
As at year end 2019, 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 2019 daily trading volume of the Company’s preferred
shares was:
Series I:
Series III:
Series IV:
Series V:
4,370
3,934
4,537
6,275
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 2020 are:
Series I
Record Date
Feb. 29
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 2020 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.tc.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 5, 2020, at 11:00 a.m. (EDT) 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, Choice
Properties Real Estate Investment Trust and their respective
subsidiaries own a number of trademarks. These trademarks are the
exclusive property of George Weston Limited, Loblaw Companies
Limited, Choice Properties Real Estate Investment Trust 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 Tara Speers, Senior Director, Investor
Relations, 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, and Choice
Properties Real Estate Investment Trust, a public entity with units,
both of which are traded on the Toronto Stock Exchange.
Ce rapport est disponible en français.
175GEORGE WESTON LIMITED 2019 ANNUAL REPORT GEORGE WESTON LIMITED
22 St Clair Ave E,
Toronto, ON M4T 2S5
Tel: (416) 922-2500
www.weston.ca