2020
Annual Report
Report to Shareholders
Fellow Shareholders,
At this time last year, we celebrated a milestone in our transformation at
George Weston Limited as we completed our first full year of direct
ownership in Choice Properties. With three strategic, complementary
businesses in Retail, Real Estate and Consumer Goods, we were confident
in the long-term opportunities for our group of companies and the
essential role that they play in their communities.
We had no idea just how sharply the term “essential” would come into focus as the current
COVID-19 pandemic unfolded. Today, we look back with a strong sense of pride and purpose
as each of our businesses rose to the challenges of the past year while supporting their
employees, customers, and tenants.
Loblaw helped millions of Canadians stay fed and well while keeping both customers and
colleagues safe through enhanced safety practices. At the same time, Loblaw harnessed
new technologies to meet a step-change in e-commerce demand and brought healthcare
to patients in their homes via virtual platforms.
Choice Properties quickly rolled out additional security, sanitation and social distancing
measures to ensure the safety of tenants at its properties, many of which house the essential
bakeries, warehouses, supermarkets, and pharmacies that we continued to operate across
the group.
Weston Foods kept bakery shelves stocked in stores and quick service restaurants as demand
spiked. Assortments were adjusted in real time to reduce line changes, drive efficiency, and
get customers the products they needed most.
1
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 1 The success of our
businesses is a
direct result of our
remarkable colleagues
who work across the
group of companies.
All of these measures were in response to challenges presented by the pandemic,
and their success was the direct result of the remarkable people who worked across
our group under extraordinary circumstances over the last year. We extend our
heartfelt thanks to each and every one of them.
As we reflect upon 2020, and turn our attention to the future, the current pandemic
will no doubt continue to shape how our businesses operate. But with every challenge
we have overcome during the past year, we have further revealed the many strengths
that underpin our group.
Loblaw’s core business is strong, and its growth strategies have been accelerated
through a threefold increase in e-commerce, the launch of PC Health, and the
rapid uptake of PC Money account. Choice Properties continues to be positioned
to deliver income stability and long-term growth while further improving the
quality of its portfolio. Weston Foods remains focused on a return to top line growth
driven by strategic areas such as artisan and donuts, and supported by on-going
operational improvements.
Since well before the current pandemic, we have always believed in the importance
of owning market leading businesses that serve their communities. 2020 simply
reinforced our conviction that in doing so we will create value over the long term.
Sincerely,
[signed]
[signed]
Galen G. Weston
Chairman and Chief Executive Officer
Richard Dufresne
President and Chief Financial Officer
Toronto, Canada
March 1, 2021
2
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
2 GEORGE WESTON LIMITED 2020 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
annual consolidated financial statements and the accompanying notes on pages 91
to 167 of this Annual Report. The Company’s audited annual consolidated financial
statements and the accompanying notes for the year ended December 31, 2020 have
been prepared in accordance with International Financial Reporting Standards
(“IFRS” or “GAAP”) as issued by the International Accounting Standards Board (“IASB”).
The audited annual consolidated financial statements include the accounts of
the Company and other entities that the Company controls and are reported in
Canadian dollars, except where otherwise noted.
Under GAAP, certain expenses and income must be recognized that are not necessarily
reflective of the Company’s underlying operating performance. Non-GAAP financial
measures exclude the impact of certain items and are used internally when analyzing
Table of Contents
4 At a Glance
5 Our Business
8
Key Performance Indicators
Operating Segments
12 Loblaw
14 Choice Properties
16 Weston Foods
19 Financial Results
74 Outlook
consolidated and segment underlying operating performance. These non-GAAP
75 Non-GAAP Financial Measures
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.
87 Forward-Looking Statements
88 Additional Information
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. 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.
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 March 1, 2021, unless otherwise noted.
Unless otherwise indicated, the Company’s results include an extra week of operations
(the “53rd week”) in the fourth quarter and full year 2020 results when compared to
2019 as a result of the Company’s reporting calendar.
FOOTNOTE LEGEND
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2020 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 Glossary beginning on page 170.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
3
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 3 At a Glance
Key financial highlights
As at or for the year ended December 31, 2020
($ millions except where otherwise indicated)
Consolidated(1)
REVENUE
OPERATING INCOME
ADJUSTED EBITDA( 1)
ADJUSTED EBITDA MARGIN(1) (%)
$54,705
$2,888
$5,607
10.2%
+9.2%
vs. 2019
-2.4%
vs. 2019
+2.3%
vs. 2019
-70bps
vs. 2019
NET EARNINGS AVAILABLE
TO COMMON SHAREHOLDERS
ADJUSTED NET EARNINGS
AVAILABLE TO COMMON
SHAREHOLDERS( 1)
DILUTED NET EARNINGS
PER COMMON SHARE ($)
ADJUSTED DILUTED NET
EARNINGS PER COMMON
SHARE( 1) ($)
$919
+364.1%
vs. 2019
$1,055
-5.6%
vs. 2019
$5.96
+373.0%
vs. 2019
$6.85
-5.4%
vs. 2019
GWL Corporate(2)
CASH FLOW FROM
OPERATING BUSINESSES( 1)
GWL CORPORATE
FREE CASH FLOW(1)
ANNUALIZED DIVIDENDS
DECLARED PER SHARE ($)
ADJUSTED RETURN
ON CAPITAL( 1) (%)
$603
+11.9%
vs. 2019
$811
+97.3%
vs. 2019
$2.20
+4.8%
vs. 2019
10.8%
+50bps
vs. 2019
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2020 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 2020 ANNUAL REPORT
4GEORGE WESTON LIMITED 2020 ANNUAL REPORT George Weston
has a 139-year history
of value investing,
generating attractive
returns through its
ownership of market
leading businesses.
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
Loblaws 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, including
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.
52.6%
61.8%
100.0%
LOBLAW
CHOICE PROPERTIES
WESTON FOODS
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 REIT (TSX: CHP.UN) is a
leading real estate investment trust that
aims to create long-term value by owning,
managing and developing high-quality assets.
The Choice Properties portfolio is comprised of
retail properties, primarily leased to necessity-
based tenants, and industrial, office and
residential assets, concentrated in attractive
markets and includes an impressive pipeline
of development opportunities.
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 a number
of channels, including retail and foodservice;
making bread, rolls, cupcakes, donuts, cookies,
cakes, pies, cones and wafers, artisan baked
goods and more.
5
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
GEORGE WESTON LIMITED 2020 ANNUAL REPORT5 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 2020 ANNUAL REPORT
6GEORGE WESTON LIMITED 2020 ANNUAL REPORT Our Operating and Value Creation Strategy
Our Business
RETAIL
Built on what we have in common
Together, these four concepts unite our operating companies
and are core to our identity:
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 so-
cial, demographic, or environmental matter and underpin
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 2020 ANNUAL REPORT
GEORGE WESTON LIMITED 2020 ANNUAL REPORT7
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
2020
2019
2,500
2,000
1,500
1,000
500
0
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
5,000
4,000
3,000
2,000
1,000
0
2020
2019
$1,200
1,000
800
600
400
200
0
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
54,705
50,109
Q4 2020 13,806
Q4 2019
12,107
+9.2%
+14.0%
2020
2019
Q4 2020
Q4 2019
2,888
2,958
906
718
-2.4%
+26.2%
2020
2019
5,607
5,483
Q4 2020
1,501
Q4 2019
1,351
+2.3%
+11.1%
2020
2019
Q4 2020
Q4 2019
1,055
1,117
312
262
-5.6%
+19.1%
Performance in 2020
Performance in 2020
Revenue growth of $4,596 million
driven by Loblaw, offset by
declines in Weston Foods and
Choice Properties.
Operating income decreased
by $70 million. The decrease
was mainly attributable to the
unfavourable year-over-year net
impact of adjusting items, partially
offset by an improvement in the
underlying operating performance
of Loblaw.
Performance in 2020
Adjusted EBITDA(1) increased
by $124 million, driven by an
improvement in the under-
lying operating performance
of Loblaw, partially offset by
declines in Choice Properties
and Weston Foods. The three
operating segments were
negatively impacted by
COVID-19 related costs.
ADJUSTED EBITDA
MARGIN (1) (%)
10.2%
2020
-70bps
vs. 2019
10.9%
Q4 2020
-30bps
vs. Q4 2019
Performance in 2020
Adjusted net earnings available
to common shareholders(1)
decreased by $62 million, driven
by the declines in the under-
lying operating performance of
Choice Properties and Weston
Foods, higher adjusted net
interest expense and other
financing charges(1) and higher
income tax expense, partially
offset by an improvement
in the underlying operating
performance of Loblaw.
ADJUSTED DILUTED NET
EARNINGS PER SHARE (1) ($)
$6.85
2020
$2.03
Q4 2020
-5.4%
vs. 2019
+20.1%
vs. Q4 2019
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2020 Management’s Discussion and Analysis.
8
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
8 GEORGE WESTON LIMITED 2020 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
$700
600
500
400
300
200
100
0
$900
800
700
600
500
400
300
200
100
0
$350
300
250
200
150
100
50
0
-90.0%
vs. 2019
$43
2020
$429
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
2020
2019
Q4 2020
Q4 2019(4)
603
539
165
131
+11.9%
+26.0%
2020
2019
Q4 2020
Q4 2019(4)
811
411
220
102
+97.3%
+115.7%
Performance in 2020
Performance in 2020
GWL Corporate(2) cash flow from
operating businesses(1) increased
primarily due to the timing of
the receipt of the fourth quarter
2020 Loblaw dividend.
See page 11 of this MD&A for a
calculation of this metric.
GWL Corporate(2) free cash flow(1)
increased primarily due to
proceeds from participation in
Loblaw's Normal Course Issuer
Bid and the timing of the
receipt of the fourth quarter
2020 Loblaw dividend.
See page 11 of this MD&A for a
calculation of this metric.
2020
2019
328
319
+2.8%
Performance in 2020
GWL Corporate(2) dividends
paid in the year increased as
a result of an increase in the
dividend per common share
of 4.8% in the fourth quarter
of 2020.
See page 11 of this MD&A for
a history of GWL's dividend
increases.
Performance in 2020
GWL Corporate(2) net debt
decreased primarily driven by
higher cash and short-term
investments and lower
total debt.
See section 3.2 "Liquidity", of
this MD&A for a calculation
of this metric.
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2020 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 2020 ANNUAL REPORT
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 9 Key Performance Indicators
Total Debt
The Company manages its debt on a segmented basis to ensure that each of its businesses is
employing leverage that is appropriate. The following chart presents total consolidated debt
by reportable operating segment as at December 31, 2020 and 2019. There is no recourse to the
Company for debt incurred by its operating segments.
The consolidated debt for the group as at December 31, 2020 was $21.0 billion. Indebtedness of
Loblaw and Choice Properties is fully serviced by their respective operating cash flows. Indebtedness
of GWL Corporate(2) is comprised of a $602 million net liability associated with an equity forward sale
agreement for 9.6 million Loblaw common shares and $450 million of senior unsecured debentures.
For details about the equity forward sale agreement, see section 3.3 “Components of Total Debt”,
of this MD&A.
TOTAL DEBT
As at December 31
($ billions)
PC Financial
Loblaw Retail
1.2 (i)
7.1
2.8
5.0
$21.0
$21.1
1.2 (i)
7.0
3.0
4.9
Lease Liabilities
4.9 (i)
5.0 (i)
2020
2019
(i) In 2020, the Company recognized lease liabilities of $5.0 billion (2019 – $5.1 billion) on its consolidated balance sheet,
of which $4.9 billion (2019 – $5.0 billion) was attributable to Loblaw and $0.1 billion (2019 – $0.1 billion) was attributable
to Weston Foods. Lease liabilities are recognized primarily for leases of real estate, vehicles and equipment.
10
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
10 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Key Performance Indicators
GWL Corporate Free Cash Flow (1)
GWL Corporate free cash flow(1) is generated from the dividends received from Loblaw, distributions
received from Choice Properties, net cash flow contributions from Weston Foods and proceeds
from participation in Loblaw's Normal Course Issuer Bid, less corporate expenses, interest and income
taxes paid.
For the quarters and years ended December 31
($ millions)
Weston Foods adjusted EBITDA(1)
Weston Foods capital expenditures
Distributions from Choice Properties
Dividends from Loblaw
Weston Foods income taxes
recovered (paid)
Other
GWL Corporate cash flow from
operating businesses (1)
Proceeds from participation in Loblaw's
Normal Course Issuer Bid
GWL Corporate and financing costs (i)
Income taxes paid
GWL Corporate free cash flow (1)
Quarters ended
Years ended
2020
2019(4)
79
(53)
81
61
–
(3)
165
75
(20)
–
220
56
(70)
82
–
–
63
131
–
(25)
(4)
102
2020
200
(162)
326
296
14
(71)
603
336
(119)
(9)
811
2019
223
(194)
325
233
(7)
(41)
539
–
(109)
(19)
411
(i) Included in Other and Intersegment, GWL Corporate(2) 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 dividends paid on preferred shares.
Dividends
GWL declared an annualized dividend of $2.20 per common share in 2020. The Company’s objective
is to increase the dividend per common share over time while retaining appropriate free cash flow
to finance future growth. Since 2011, the dividend per common share has increased at 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
2020
(i) Does not include the special one-time common share dividend of $7.75 per common share which was paid on January 25, 2011.
11
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
GEORGE WESTON LIMITED 2020 ANNUAL REPORT11 Loblaw
Loblaw (TSX: L) provides Canadians with grocery,
pharmacy, health and beauty, apparel, general
merchandise and financial services.
Strategy
Loblaw is well positioned to meet changing consumer trends
brought about by the pandemic. The management team
at Loblaw is committed to growing the core businesses of
food and drug retail and everyday banking by leveraging its
industry-leading assets and driving value through its process
and efficiency and data insights programs. Loblaw’s strategy
positions it well to capitalize on the accelerating pace of
change in global food retail and wellness by focusing on three
strategic growth initiatives: Everyday Digital Retail; Payments
& Rewards; and Connected Healthcare.
Loblaw is a recognized leader in Corporate Social Responsibility
(“CSR”). Loblaw's long-standing commitment to CSR and
its strong Environmental, Social and Governance (“ESG”)
practices are based on its goal of creating long-term value,
including, sustainable solutions to material ESG risks
and opportunities, establishment of measurable targets,
transparent disclosure, proactive stakeholder engagement
and robust governance practices.
Key highlights for the year
Loblaw delivered positive results with strong same-store
and e-commerce sales growth in a year heavily impacted by
COVID-19, which included costs incurred to ensure the safety
and security of customers and colleagues. Loblaw continued
to deliver value in categories that mean the most to its
customers through promotional activity.
LOBLAW OFFERINGS
Divisions:
Discount
Market
Shoppers Drug Mart
PC Financial
Joe Fresh
Brands:
President’s Choice
No Name
Life Brand
PC Optimum
PC Money
Key performance indicators
As at or for the quarters (unaudited) and years ended December 31
($ millions except where otherwise indicated)
REVENUE
OPERATING INCOME
$60,000
$2,500
50,000
40,000
30,000
20,000
10,000
0
2020
2019
2,000
1,500
1,000
500
0
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
52,714
48,037
Q4 2020 13,286
Q4 2019
11,590
+9.7%
+14.6%
2020
2019
Q4 2020
Q4 2019
2,357
2,262
700
539
+4.2%
+29.9%
Performance in 2020
Performance in 2020
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 $95 million compared to
2019. The increase was driven
by improvements in retail,
which included the favourable
impacts of the consolidation
of franchises and the 53rd week,
partially offset by a decrease
in financial services. The results
also included the unfavourable
impact of COVID-19 related costs.
12
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
12GEORGE WESTON LIMITED 2020 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) (%)
$6,000
$2,500
10.0%
5.0%
5,000
4,000
3,000
2,000
1,000
0
2,000
1,500
1,000
500
0
8.0
6.0
4.0
2.0
0.0
4.0
3.0
2.0
1.0
0.0
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
5,033
4,904
Q4 2020
1,330
Q4 2019
1,203
+2.6%
+10.6%
2020
2019
Q4 2020
Q4 2019
2,247
1,210
606
272
+85.7%
+122.8%
2020
2019
8.6%
1.1%
Q4 2020
8.6%
Q4 2019
1.9%
+750bps
+670bps
2020
2019
4.9%
3.6%
Q4 2020
3.7%
Q4 2019
3.9%
+130bps
-20bps
Performance in 2020
Adjusted EBITDA(1) increased by
$129 million compared to 2019,
primarily due to an increase in retail,
which included the favourable
impacts of the consolidation of
franchises and the 53rd week of
2020, partially offset by a decrease
in financial services. The results
also included the unfavourable
impact of COVID-19 related costs.
Adjusted EBITDA margin(1) decreased,
driven by a decrease in retail adjusted
gross profit percentage(1) resulting
from the unfavourable impact of
COVID-19 related changes to sales
mix and competitive pricing, partially
offset by an improvement in selling,
general and administrative expenses
(“SG&A”) as a percentage of sales
due to higher sales volumes, process
and efficiency gains, partially offset
by COVID-19 related costs and incre-
mental e-commerce labour costs.
Performance in 2020
Free cash flow(1)(i) was higher due to
decreased credit card receivables
from reduced customer spending
as a result of COVID-19 and higher
payment rates compared to the prior
year, lower income taxes paid and
higher cash earnings, partially offset
by an increase in lease payments.
CAPITAL EXPENDITURES
1.2 billion
2020
+1.5%
vs. 2019
ADJUSTED EBITDA MARGIN ( 1) (%)
9.6%
2020
10.0%
Q4 2020
-60bps
vs. 2019
-40bps
vs. Q4 2019
Performance in 2020
Performance in 2020
Food retail same-store sales grew
by 8.6%, positively impacted by
COVID-19. Food retail basket size
increased and traffic decreased.
Drug retail same-store sales
grew by 4.9%, which included
the impact of COVID-19.
Pharmacy same-store sales
grew with an increase in the
number and average value
of prescriptions. Front store
sales also grew.
RETAIL DEBT TO RETAIL
ADJUSTED EBITDA( 1)(i)
2.8x
2020
-0.2x
vs. 2019
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2020 Management’s Discussion and Analysis.
(i) For more information on these measures, see the 2020 Annual Report filed by Loblaw, which is available on sedar.com or at loblaw.ca.
13
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
GEORGE WESTON LIMITED 2020 ANNUAL REPORT13 Choice Properties
Choice Properties REIT (TSX: CHP.UN) is a leading
Real Estate Investment Trust that creates
enduring value through the ownership, operation
and development of high-quality commercial
and residential properties.
Strategy
Choice Properties aims to create long-term value by owning,
managing and developing high-quality assets. Choice
Properties’ high-quality and diversified portfolio provides
reliable cash flows and includes an impressive pipeline of
future development opportunities. Choice Properties seeks
to maximize long-term value by taking a disciplined and
sustainable approach to property operations and financial
management, and by unlocking value through development
activities. Choice Properties’ goals are to provide net asset
value appreciation, stable net operating income (“NOI”)
growth and capital preservation, all with a long-term focus.
Key highlights for the year
Choice Properties took thoughtful actions to mitigate the
effects of the pandemic on its business operations and
continued to focus on the best interests of employees,
tenants and other stakeholders throughout 2020. Despite
the challenges presented by COVID-19, Choice Properties'
operating results were strong, reflecting the stability of its
income producing portfolio and its necessity-based tenants,
including grocery stores and pharmacies. Choice Properties
continued to improve its portfolio through its development
program and capital recycling initiatives, and by strengthening
$1,500
1,200
900
600
300
0
TOP 10 TENANTS
1. Loblaw
2. Canadian Tire
3. TJX Companies
4. Dollarama
5. GoodLife
6. Staples
7. Liquor Control
Board of Ontario
8. Weston Foods
9. TD Canada Trust
10. Lowe's
Key performance indicators
As at or for the quarters (unaudited) and years ended December 31
($ millions except where otherwise indicated)
REVENUE
NET INCOME (LOSS)
$800
600
400
200
0
-200
-400
-600
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4 2020
Q4 2019
1,271
1,289
322
318
-1.4%
+1.3%
2020
2019
Q4 2020
Q4 2019
451
(581)
117
294
+177.6%
-60.2%
its balance sheet through debt refinancings.
Performance in 2020
Performance in 2020
OCCUPANCY RATE
97.1% -60bps
vs. 2019
Revenue decreased driven
by foregone revenue from
the disposition of properties,
including those sold as part
of the portfolio transaction
in the third quarter of 2019,
partially offset by additional
revenue generated from
properties acquired in 2019
and 2020 and from tenant
openings in newly developed
leasable space.
Choice Properties’ financial results
are impacted by adjustments to
the fair value of its 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.
Net income increased compared
to 2019 due to a favourable
fair value adjustment for the
Exchangeable Units as the Trust
Unit price decreased during the
year, partially offset by declines
related to unfavourable changes
in the fair value of investment
properties and an increase in
bad debt expense.
(i) For more information on these measures, see the 2020 Annual Report filed by Choice Properties, which is available on sedar.com or at choicereit.ca.
14
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
14GEORGE WESTON LIMITED 2020 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
$1,000
100%
500
400
300
200
100
0
800
600
400
200
0
80
60
40
20
0
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
2020
2019
Q4 2020
Q4 2019
652
680
172
166
-4.1%
+3.6%
2020
2019
Q4 2020
Q4 2019
567
588
136
129
-3.6%
+5.4%
2020
2019
Q4 2020
Q4 2019
796
809
201
206
-1.6%
-2.3%
2020
2019
42.7%
43.1%
-40bps
Performance in 2020
FFO(1) decreased by $28 million
compared to 2019 primarily
due to a reduction in net
operating income attributable
to an increase in bad debt
expense, partially offset by
lower borrowing costs from
the use of proceeds from
deleveraging activities and
capital recycling.
Performance in 2020
AFFO(i) declined mainly due to
an overall reduction in funds
from operations, increased
property capital and internal
leasing costs, partially offset by
a decline in straight-line rent.
Performance in 2020
Same-asset NOI, cash basis(i),
decreased compared to 2019
mainly due to an increase in
bad debt expense, partially
offset by the contribution from
contractual rent steps in the
retail segment.
Performance in 2020
Debt to total assets(i) declined
due to debt repayment and
reduced leverage by using
proceeds from property
dispositions and the equity
offering from May 2019.
NORMALIZED DEBT
TO EBITDAFV (i)
DEBT SERVICE
COVERAGE (i)
7.6x
2020
+0.1x
vs. 2019
3.2x
2020
+0.2x
vs. 2019
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2020 Management’s Discussion and Analysis.
(i) For more information on these measures, see the 2020 Annual Report filed by Choice Properties, which is available on sedar.com or at choicereit.ca.
15
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
GEORGE WESTON LIMITED 2020 ANNUAL REPORT15 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 a number of channels, including foodservice
and retail, making bread, rolls, cupcakes, donuts,
cookies, 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 business has approximately 6,000 employees
spread across 33 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 its customers
across North America.
Strategy
WESTON FOODS BRANDS
Wonder Bread
D’Italiano
Gadoua
Country Harvest
Ace Bakery
Casa Mendosa
Key highlights for the year
Weston Foods remained focused on a return to top line
growth, operational improvements and organizational
capabilities in 2020. The business performed well in
the first quarter, building on the strong momentum
it generated in the second half of 2019. The COVID-19
pandemic began to impact the business in early 2020,
however management took swift and deliberate
actions to stabilize the pandemic’s impact on its people,
operations and financial performance. Sales were
negatively impacted in certain retail categories and
foodservice channels as a result of closures to in-store
bakeries and bakery display cases, and government
mandated closures of non-essential businesses including
dine-in restaurants. In addition to the decline in sales,
Weston Foods incurred incremental COVID-19 costs
relating to temporary pay premiums and pay protection
Weston Foods’ ambition is to be a premier North American
safeguards and increased health and safety measures
bakery by offering superior products and services to its
to protect its colleagues. Despite the on-going COVID-19
consumers and customers in an increasingly competitive
impacts, Weston Foods’ achieved sequential quarterly
environment.
Weston Foods aims to create value for its consumers and
improvement in its financial and operational results
beginning in the third quarter of 2020.
customers with superior taste, quality and experiences, by
During 2020, Weston Foods completed its transformation
providing enhanced service levels, leveraging its leading
program and invested in organizational improvements
brands and engaging in strategic innovation.
for longer term growth, including deploying its enterprise
Weston Foods is committed to achieving solid financial results
by growing sales and delivering operational efficiencies and
resource planning system across significant aspects of its
Canadian and corporate operations.
cost leverage. Achieving these goals requires an engaged and
Weston Foods remains confident in its strategy, focused
talented workforce, a competitive integrated supply chain,
on growing its core business, selectively investing in key
executing with excellence and implementing new systems
categories and markets, increased customer engagement,
to support agile ways of working.
and strengthening key operational processes.
This strategic framework is being pursued while also
respecting Weston Foods’ core values and working towards
the overarching purpose of Elevating Everyday Moments.
16
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
16GEORGE WESTON LIMITED 2020 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
2,000
1,500
1,000
500
0
$80
70
60
50
40
30
20
10
0
$250
$200
200
150
100
50
0
150
100
50
0
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4
2020
Q4
2019
2020
2019
Q4 2020
Q4 2019
2,062
2,155
523
522
-4.3%
+0.2%
2020
2019
Q4 2020
Q4 2019
3
72
35
27
-95.8%
+29.6%
2020
2019
Q4 2020
Q4 2019
200
223
79
56
-10.3%
+41.1%
Performance in 2020
Performance in 2020
Sales were impacted by a
decline in volumes in certain
retail categories and food-
service channels as a result of
the COVID-19 pandemic.
Operating income decreased
by $69 million compared to
2019 primarily due to the
unfavourable year-over-year
impact of restructuring and
other related costs, and
the decline in operating
performance driven by the
decline in sales and COVID-19
related costs.
Performance in 2020
Adjusted EBITDA(1) decreased by
$23 million compared to 2019
driven by the decline in sales
and COVID-19 related costs,
partially offset by productivity
improvements, the net benefits
realized from Weston Foods’
transformation program and
cost savings.
ADJUSTED EBITDA
MARGIN ( 1) (%)
9.7%
2020
-60bps
vs. 2019
2020
2019
Q4 2020
Q4 2019
162
194
53
70
-16.5%
-24.3%
Performance in 2020
Capital expenditures in
2020 included spending
on innovation and growth,
information technology
and maintenance.
15.1% +440bps
vs. Q4 2019
Q4 2020
1 See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2020 Management’s Discussion and Analysis.
17
GEORGE WESTON LIMITED 2020 ANNUAL REPORT
GEORGE WESTON LIMITED 2020 ANNUAL REPORT17 Some images in this report were photographed before the start of the pandemic.
Any new imagery has been secured using COVID-19 protocols.
Financial Highlights(5)
As at or for the years ended December 31
($ millions except where otherwise indicated)
CONSOLIDATED OPERATING RESULTS
Revenue
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
Revenue
Operating income
Adjusted EBITDA(i)
Adjusted EBITDA margin(i) (%)
Depreciation and amortization(ii)
Choice Properties
Revenue
Net income
Funds from operations(i)
Weston Foods
Sales
Operating income
Adjusted EBITDA(i)
Adjusted EBITDA margin(i) (%)
Depreciation and amortization(ii)
2020
2019
(53 weeks)
(52 weeks)
% Change
$
54,705
$
50,109
2,888
5,607
2,427
831
1,117
475
679
1,582
963
919
1,055
2,958
5,483
2,318
1,704
1,071
431
653
823
242
198
1,117
$
3,231
$
2,139
5,521
1,658
2,128
21,000
7,811
13,418
$
$
5.96
6.85
10.2%
15.3%
10.8%
4,555
1,596
1,342
21,131
7,609
13,175
1.26
7.24
10.9%
16.1%
10.3%
$
52,714
$
48,037
2,357
5,033
9.6%
2,596
$
1,271
$
451
652
$
2,062
$
3
200
9.7%
175
2,262
4,904
10.2%
2,524
1,289
(581)
680
2,155
72
223
10.3%
147
9.2%
(2.4) %
2.3%
4.7%
(51.2) %
4.3%
10.2%
4.0%
92.2%
297.9%
364.1%
(5.6) %
51.1%
21.2%
3.9%
58.6%
(0.6) %
2.7%
1.8%
373.0%
(5.4) %
9.7%
4.2%
2.6%
2.9%
(1.4) %
(177.6) %
(4.1) %
(4.3) %
(95.8) %
(10.3) %
19.0%
(i)
(ii)
(iii)
See Section 14, “Non-GAAP Financial Measures”, of the Company’s 2020 Management’s Discussion and Analysis.
Depreciation and amortization includes $509 million (2019 – $508 million) of amortization of intangible assets, acquired with Shoppers Drug Mart
Corporation, recorded by Loblaw and $30 million (2019 – $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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 19 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
8.3
COVID-19 Risks and Risk Management
Operating Risks and Risk Management
Financial Risks and Risk Management
Related Party Transactions
Critical Accounting Estimates and Judgments
Accounting Standards Implemented
Future Accounting Standard
Outlook
Non-GAAP Financial Measures
14.1
Non-GAAP Financial Measures Policy Change Commencing Fiscal 2021
Forward-Looking Statements
Additional Information
21
21
27
29
31
31
33
34
35
35
36
38
41
41
42
44
45
46
46
48
55
55
57
57
58
58
59
60
61
69
71
72
74
74
74
75
85
87
88
20 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 1.
Overall Financial Performance
1.1
Consolidated Results of Operations
Unless otherwise indicated, the Company’s results include an extra week of operations (the “53rd week”) in the full year 2020
results when compared to 2019 as a result of the Company’s reporting calendar.
The Company’s results reflect:
•
•
the impact of COVID-19. Also refer to Section 1.3 “Consolidated Other Business Matters”, Section 2, “Results of Reportable
Operating Segments” and Section 8, “Enterprise Risks and Risk Management”, of this MD&A for more information; and
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 and are presented as a liability on the
Company’s consolidated balance sheet. The Company’s financial results are negatively impacted when the Trust Unit price
rises and positively impacted when the Trust Unit price declines.
($ millions except where otherwise indicated)
For the years ended as indicated
2020
2019
(53 weeks)
(52 weeks)
$ Change
% Change
Revenue
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 effective 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 ($)
Adjusted diluted net earnings per common share(1) ($)
$
$
$
$
$
$
$
$
$
$
$
$
$
54,705
2,888
5,607
10.2%
2,427
831
1,117
475
679
26.1%
963
919
1,055
5.96
6.85
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
$
$
$
4,596
(70)
124
109
(873)
46
44
26
721
721
(62)
4.70
(0.39)
9.2%
(2.4) %
2.3%
4.7%
(51.2) %
4.3%
10.2%
4.0%
297.9%
364.1%
(5.6) %
373.0%
(5.4) %
(i)
Depreciation and amortization includes $509 million (2019 – $508 million) of amortization of intangible assets, acquired with Shoppers Drug
Mart Corporation, recorded by Loblaw and $30 million (2019 – $9 million) of accelerated depreciation recorded by Weston Foods, related to
restructuring and other related costs.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 21 Management’s Discussion and Analysis
The following table provides the approximate impact of the 53rd week on the consolidated results of the Company in the fourth
quarter of 2020:
($ millions except where otherwise indicated)
Loblaw
Weston
Foods
Other and
Intersegment
Revenue
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization
Operating income
Net earnings available to common shareholders of
the Company
Diluted net earnings per common share ($)
$
$
$
$
$
$
878
67
7.6%
—
67
18
0.12
$
$
$
$
$
$
29
4
13.8%
—
4
3
0.02
$
$
$
$
$
$
(10) $
— $
— $
— $
— $
— $
53rd week
2020
Total
897
71
—
71
21
0.14
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS OF THE COMPANY
Net earnings available to common shareholders of the Company in 2020 were $919 million ($5.96 per common share)
compared to $198 million ($1.26 per common share) in 2019. The increase of $721 million ($4.70 per common share) was due to
the favourable year-over-year net impact of adjusting items totaling $783 million ($5.09 per common share), partially offset by a
decline in the Company’s consolidated underlying operating performance of $62 million ($0.39 per common share) described
below.
•
•
The favourable year-over-year net impact of adjusting items totaling $783 million ($5.09 per common share) was primarily
due to:
◦
◦
the favourable year-over-year impact of the fair value adjustment of the Trust Unit liability of $789 million ($5.14
per common share) as a result of the significant decrease in Choice Properties’ unit price during 2020; and
the favourable year-over-year impact of the fair value adjustment of the forward sale agreement for 9.6 million
Loblaw common shares of $101 million ($0.66 per common share);
partially offset by,
◦
the unfavourable year-over-year impact of the fair value adjustment on investment properties of $69 million ($0.45
per common share); and
the unfavourable year-over-year impact of restructuring and other related costs of $16 million ($0.10 per common
share).
The decline in the Company’s consolidated underlying operating performance of $62 million ($0.39 per common share) was
due to:
the unfavourable underlying operating performance of Choice Properties and Weston Foods driven by the impact
of COVID-19 and related costs;
an increase in adjusted net interest expense and other financing charges(1);
the increase in adjusted income tax expense(1) due to the unfavourable year-over-year impact of the non-taxable
portion of the gain from Choice Properties’ transactions, as described in Section 1.3 “Consolidated Other Business
Matters”, and the impact of certain non-deductible tax items; and
an increase in depreciation and amortization;
the favourable underlying operating performance of Loblaw including the impact of COVID-19 and related costs;
certain one-time gains recorded on consolidation in Other and Intersegment related to Choice Properties’
transactions in the third quarter of 2020, as described in Section 1.3 “Consolidated Other Business Matters”; and
the positive contribution from the year-over-year increase in the Company’s ownership interest in Loblaw, as a
result of Loblaw share repurchases.
Adjusted net earnings available to common shareholders of the Company(1) in 2020 were $1,055 million ($6.85 per common
share), a decrease of $62 million ($0.39 per common share), or 5.6%, compared to 2019, due to the decline in the Company’s
consolidated underlying operating performance described above. Excluding the impact of the 53rd week of $21 million ($0.14
per common share), adjusted net earnings available to common shareholders of the Company(1) decreased by $83 million ($0.53
per common share), or 7.4%, compared to the same period in 2019.
◦
partially offset by,
◦
◦
◦
◦
◦
◦
◦
22 GEORGE WESTON LIMITED 2020 ANNUAL REPORT REVENUE
($ millions except where otherwise indicated)
For the years ended as indicated
2020
2019
(53 weeks)
(52 weeks)
$ Change
% Change
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
$
$
$
$
$
52,714
1,271
2,062
(1,342)
54,705
$
$
$
$
$
48,037 $
4,677
1,289 $
2,155 $
(1,372)
(18)
(93)
9.7%
(1.4) %
(4.3) %
50,109 $
4,596
9.2%
The Company’s 2020 consolidated revenue was $54,705 million, an increase of $4,596 million, or 9.2%, compared to 2019. The
increase in revenue was impacted by each of the Company’s reportable operating segments as follows:
•
•
•
Positively by 9.3% due to revenue growth of 9.7% at Loblaw, primarily driven by retail sales partially offset by a decrease in
financial services revenue. Retail sales increased by $4,760 million, or 10.1%, compared to 2019. Excluding the consolidation
of franchises, retail sales increased by $4,248 million, or 9.3%, which included the impact of the 53rd week of $845 million.
The increase was driven by positive same-store sales growth and a net increase in retail square footage. Food retail same-
store sales growth was 8.6%. Food retail same-store sales growth was positively impacted by COVID-19. Food retail basket
size increased and traffic decreased in 2020. Loblaw’s food retail average article price was higher by 3.9% (2019 – 2.5%),
which reflects the year-over-year growth in food retail revenue over the average number of articles sold in Loblaw’s stores.
The increase in average article price was due to sales mix. Drug retail same-store sales growth was 4.9%.
Negatively by a nominal amount due to a decline in revenue of 1.4% at Choice Properties. The decrease of $18 million was
mainly due to foregone revenue from sold properties including those sold as part of the Choice Properties’ portfolio
transaction in the third quarter of 2019, partially offset by additional revenue generated from properties acquired in 2019
and 2020 and from tenant openings in newly developed leasable space.
Negatively by 0.2% due to a decline in sales of 4.3% at Weston Foods. Sales included the favourable impacts of the 53rd
week of approximately 1.3% and foreign currency translation of approximately 0.4%. Excluding the favourable impacts of
the 53rd week and foreign currency translation, sales decreased by 6.0%. Sales were impacted by a decrease in volumes in
certain retail categories and foodservice channels as a result of the COVID-19 pandemic and the unfavourable impact of
product rationalization. The combined impact of pricing and changes in sales mix had a nominal impact on sales when
compared to the same period in 2019.
OPERATING INCOME
($ millions except where otherwise indicated)
For the years ended as indicated
2020
2019
(53 weeks)
(52 weeks)
$ Change
% Change
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
$
$
$
$
$
2,357
622
3
(94)
2,888
$
$
$
$
$
2,262 $
890 $
72 $
(266)
95
(268)
(69)
4.2%
(30.1) %
(95.8) %
2,958 $
(70)
(2.4) %
The Company’s 2020 operating income was $2,888 million compared to $2,958 million in 2019, a decrease of $70 million, or
2.4%. The decrease of $70 million was mainly attributable to the unfavourable year-over-year net impact of adjusting items
totaling $107 million, partially offset by the improvement in underlying operating performance of $37 million, which included
the favourable impact of the 53rd week of $71 million, as described below:
•
the unfavourable year-over-year net impact of adjusting items totaling $107 million was primarily due to:
◦
◦
the unfavourable year-over-year impact of the fair value adjustment of investment properties of $85 million;
the unfavourable year-over-year impact of Loblaw’s fair value adjustment on non-operating properties of
$16 million;
the unfavourable impact of the reversal of certain prior period items recognized in 2019 of $15 million; and
the unfavourable year-over-year impact of restructuring and other related costs of $13 million;
the favourable year-over-year impact of asset impairments, net of recoveries of $14 million; and
the favourable impact of prior year pension annuities and buy-outs of $10 million.
◦
◦
partially offset by,
◦
◦
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 23 Management’s Discussion and Analysis
•
the improvement in underlying operating performance of $37 million was due to:
◦
◦
certain one-time gains recorded on consolidation in Other and Intersegment related to Choice Properties’
transactions in the third quarter of 2020, as described in Section 1.3 “Consolidated Other Business Matters”; and
the favourable underlying operating performance of Loblaw retail which included the favourable impact of the
53rd week, partially offset by a decline in the underlying operating performance of Loblaw financial services;
partially offset by,
◦
the unfavourable underlying operating performance of Weston Foods and Choice Properties primarily as a result of
the impact of COVID-19 and related costs; and
an increase in depreciation and amortization.
◦
ADJUSTED EBITDA(1)
($ millions except where otherwise indicated)
For the years ended as indicated
2020
2019
(53 weeks)
(52 weeks)
$ Change
% Change
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
$
$
$
$
$
5,033
879
200
(505)
5,607
$
$
$
$
$
4,904 $
914 $
223 $
(558)
129
(35)
(23)
2.6%
(3.8) %
(10.3) %
5,483 $
124
2.3 %
The Company’s 2020 adjusted EBITDA(1) was $5,607 million compared to $5,483 million in 2019, an increase of $124 million, or
2.3%. The increase in adjusted EBITDA(1), excluding the impact of certain one-time gains recorded on consolidation in Other and
Intersegment related to Choice Properties’ transactions, as described in Section 1.3 “Consolidated Other Business Matters”, was
impacted by each of the Company’s reportable operating segments as follows:
•
•
•
Positively by 2.4% due to an increase of 2.6% in adjusted EBITDA(1) at Loblaw driven by the increase in Loblaw retail, which
included the impact of the 53rd week of $67 million, partially offset by a decrease in financial services. The increase in
Loblaw retail adjusted EBITDA(1) was driven by an increase in retail gross profit, partially offset by an increase in retail selling,
general and administrative expenses (“SG&A”).
Negatively by 0.6% due to a decrease of 3.8% in adjusted EBITDA(1) at Choice Properties, primarily driven by foregone
revenue from sold properties including those sold as part of the Choice Properties’ portfolio transaction in the third quarter
of 2019, an increase in expected credit loss provisions across the portfolio, partially offset by additional revenue generated
from properties acquired in 2019 and 2020 and from tenant openings in newly developed leasable space.
Negatively by 0.4% due to a decrease of 10.3% in adjusted EBITDA(1) at Weston Foods. Excluding the impact of the 53rd
week of $4 million, adjusted EBITDA(1) decreased by $27 million, or 12.1%. The decrease was driven by the decline in sales,
an increase in COVID-19 related expenses and higher input costs, partially offset by productivity improvements, the net
benefits realized from Weston Foods’ transformation program, cost savings initiatives and a decrease in performance related
compensation accruals.
DEPRECIATION AND AMORTIZATION
($ millions except where otherwise indicated)
For the years ended as indicated
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
2020
2019
(53 weeks)
(52 weeks)
$ Change
% Change
$
$
$
$
$
2,596
3
175
(347)
2,427
$
$
$
$
$
2,524 $
1 $
147 $
(354)
72
2
28
2.9%
200.0%
19.0%
2,318 $
109
4.7%
24 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Depreciation and amortization in 2020 was $2,427 million, an increase of $109 million compared to 2019. Depreciation and
amortization in 2020 included $509 million (2019 – $508 million) of amortization of intangible assets related to the acquisition of
Shoppers Drug Mart Corporation (“Shoppers Drug Mart”) recorded by Loblaw and $30 million (2019 – $9 million) of accelerated
depreciation recorded by Weston Foods, related to restructuring and other related costs. Excluding these amounts, depreciation
and amortization increased by $87 million driven by:
•
•
•
an increase in depreciation from the consolidation of Loblaw franchises;
an increase in Loblaw’s information technology (“IT”) assets; and
an increase in depreciation and amortization due to capital investments at Weston Foods.
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
($ millions except where otherwise indicated)
For the years ended as indicated
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
Adjusted net interest expense and other
financing charges(1)
2020
2019
(53 weeks)
(52 weeks)
$ Change
% Change
831
239
47
—
$
1,704 $
(550)
(69)
(14)
$
1,117
$
1,071 $
(873)
789
116
14
46
(51.2) %
143.5%
168.1%
100.0%
4.3%
Net interest expense and other financing charges in 2020 were $831 million, a decrease of $873 million compared to 2019. The
decrease was primarily due to the favourable year-over-year net impact of adjusting items totaling $919 million, itemized in the
table above, partially offset by an increase in adjusted net interest expense and other financing charges(1) of $46 million.
Included in the adjusting items was the favourable year-over-year fair value adjustment of the Trust Unit liability of $789 million,
as a result of the decrease in Choice Properties’ unit price during 2020.
Adjusted net interest expense and other financing charges(1) in 2020 increased by $46 million, which included the impact of the
53rd week of $6 million. Excluding the impact of the 53rd week, adjusted net interest expense and other financing charges(1)
increased by $40 million primarily driven by:
•
•
•
•
partially offset by,
•
higher interest expense in Other and Intersegment adjustments, primarily related to interest expense on the financial
liabilities recognized on the Choice Properties’ transactions, as discussed in Section 1.3 “Consolidated Other Business
Matters”;
higher interest expense in the Choice Properties segment including Other and Intersegment adjustments, primarily related
to higher distributions from newly issued Trust Units in the second quarter of 2019 and third quarter of 2020; and
higher interest expense in Loblaw financial services due to increased holdings in the liquid asset portfolio;
a decrease in interest expense in the Choice Properties segment primarily due to lower overall debt levels compared to the
prior year and the completion of refinancing activity over the last year at lower interest rates; and
a decrease in interest expense in the Loblaw segment from lease liabilities.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 25 Management’s Discussion and Analysis
INCOME TAXES
($ millions except where otherwise indicated)
For the years ended as indicated
2020
2019
(53 weeks)
(52 weeks)
$ Change
% Change
Income taxes
$
475
$
431
$
Add: Tax impact of items excluded from adjusted
earnings before taxes(i)
Remeasurement of deferred tax balances
Statutory corporate income tax rate change
Outside basis difference in certain Loblaw shares
Reserve release related to 2014 tax audit
197
7
2
(2)
—
189
15
10
—
8
Adjusted income taxes(1)
$
679
$
653
$
Effective tax rate applicable to earnings before taxes
23.1%
34.4%
Adjusted effective tax rate applicable to adjusted
earnings before taxes(1)
26.1%
25.0%
44
8
(8)
(8)
(2)
(8)
26
10.2%
4.2%
(53.3) %
(80.0) %
(100.0) %
(100.0) %
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 tax rate in 2020 was 23.1%, compared to 34.4% in 2019. The decrease was primarily attributable to an increase in
the non-taxable fair value adjustment of the Trust Unit liability, partially offset by the reduced impact in 2020 of the non-taxable
portion of the gain from the sale of properties by Choice Properties, an increase in tax expense related to temporary differences
in respect of GWL’s investment in certain Loblaw shares as a result of GWL’s participation in Loblaw’s Normal Course Issuer Bid
(“NCIB”) program, the remeasurement of certain deferred tax balances and the impact of certain other non-deductible items.
The adjusted effective tax rate(1) in 2020 was 26.1%, compared to 25.0% in 2019. The increase was primarily attributable to the
unfavourable year-over-year impact of the non-taxable portion of the gain from Choice Properties’ transactions , as described in
Section 1.3 “Consolidated Other Business Matters”, and the impact of certain other non-deductible items.
Loblaw has been reassessed by the Canada Revenue Agency and the Ontario Ministry of Finance on the basis that certain
income earned by Glenhuron Bank Limited (“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 of Canada (“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. During the second quarter, on April 23, 2020, the Federal Court of Appeal released its decision in the
Glenhuron case in favour of Loblaw and reversed the decision of the Tax Court. During the fourth quarter, on October 29, 2020,
the Supreme Court granted the Crown leave to appeal and on November 30, 2020, the Crown filed a Notice of Appeal with the
Supreme Court. Subsequent to the end of the year, the Supreme Court scheduled the hearing of the appeal for May 13, 2021,
Loblaw has not reversed any portion of the $367 million of charges recorded during the third quarter of 2018, of which
$176 million was recorded in interest and $191 million was recorded in income taxes.
26 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 1.2
Selected Annual Information
The selected information presented below has been derived from and should be read in conjunction with the annual
consolidated financial statements of the Company dated December 31, 2020, 2019 and 2018. The analysis of the data contained
in the table focuses on the trends and significant events or items affecting the results of operations and financial condition of the
Company over the latest three year period.
For the years ended December 31
($ millions except where otherwise indicated)
Revenue
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 effective 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
2020
2019
2018
(53 weeks)
(52 weeks)
(52 weeks)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
54,705
2,888
5,607
10.2%
2,427
831
1,117
475
679
26.1%
1,582
963
919
1,055
5.96
6.85
2.125
1.45
1.30
1.30
1.1875
48,075
14,443
666
5,005
3,600
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
2,585
4,528
9.3%
1,746
948
762
639
680
26.7 %
998
574
530
908
3.99
6.85
1.950
1.45
1.30
1.30
1.1875
43,814
15,318
—
—
2,658
17,976
Total long-term financial liabilities
$
23,714
$
23,697
$
(i)
Depreciation and amortization includes $509 million (2019 – $508 million; 2018 – $521 million) of amortization of intangible assets, acquired
with Shoppers Drug Mart, recorded by Loblaw and $30 million (2019 – $9 million; 2018 – $9 million) of accelerated depreciation recorded by
Weston Foods, related to restructuring and other related costs.
REVENUE The Company’s reportable operating segments had the following sales trends over the last three years:
•
Loblaw’s retail 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 2018, Loblaw experienced food price inflation while drug retail
prices were negatively impacted by the effects of incremental healthcare reform. Sales in 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. In 2020, the COVID-19 pandemic had a significant impact on
our colleagues, customers, suppliers and other stakeholders. This included the impact of the 53rd week of $878 million.
Loblaw experienced sales volatility and changes in sales mix as the pandemic impacted consumer behaviour throughout
the year. Loblaw’s financial services revenue was negatively impacted by the COVID-19 pandemic from lower credit card
related revenues from lower customer spending and lower sales attributable to the partial closure of The Mobile Shop
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 27 Management’s Discussion and Analysis
kiosks during the second quarter of 2020. Loblaw’s financial services segment also launched the PC Money account in the
third quarter of 2020. In both 2019 and 2018, financial services sales continued to grow, mainly driven by growth in the
credit card portfolio and The Mobile Shop.
•
Choice Properties revenue grew in 2018 and 2019 driven mainly through the addition of new properties as a result of the
Canadian Real Estate Investment Trust (“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. Choice Properties revenue decreased in 2020 primarily due to the
forgone revenue from a disposition of a portfolio of properties in the third quarter of 2019, partially offset by additional
revenue generated from properties acquired in 2019 and 2020 and from tenant openings in newly developed leasable
space.
• Weston Foods sales were negatively impacted by volume declines in 2020, 2019 and 2018. The COVID-19 pandemic had a
significant impact on the volume of sales in 2020. Foreign currency translation had a positive impact on sales in 2020 and
2019 but an unfavourable impact on sales in 2018.
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 the underlying operating performance of Loblaw’s retail, including positive same-store sales growth in both food
retail and drug retail in 2020, 2019 and 2018; cost savings and operating efficiencies from Process and Efficiency initiatives
and investments in and benefits from strategic initiatives; fluctuations in the performance of Loblaw’s financial services
including the continued investments in strategic initiatives. In 2020, the results also included the impact of the COVID-19
related costs. The changes in underlying operating performance included increases in depreciation and amortization in
2020, 2019 and 2018;
changes in the underlying operating performance of Choice Properties, including the unfavourable underlying operating
performance in 2020 primarily due to COVID-19 related expected credit losses, and the favourable underlying operating
performance in 2018 and 2019, including the acquisition of CREIT in the second quarter of 2018 and the contribution from
completed developments;
changes in the underlying operating performance at Weston Foods. In 2020, the underlying operating performance in
Weston Foods declined due to decrease in sales primarily driven by the impact of COVID-19, increase in COVID-19 related
expenses, and higher input costs partially offset by productivity improvements, the net benefits realized from Weston Foods’
transformation program, cost savings initiatives and a decrease in performance related compensation accruals. In 2019,
after excluding the prior year impact of a net gain related to the sale leaseback of properties, the underlying operating
performance of Weston Foods increased 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. In 2018, underlying operating performance of Weston Foods declined 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. The changes in underlying operating performance included increases in depreciation and
amortization in 2020, 2019, and 2018;
higher adjusted net interest expense and other financing charges(1) in 2020 in Other and Intersegment adjustments,
primarily related to interest expense on the financial liabilities recognized on Choice Properties’ dispositions and higher
interest expense in the Choice Properties segment including Other and Intersegment adjustments, primarily related to
higher distributions. 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, 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; and
an increase in GWL’s ownership interest in Loblaw in 2020, 2019 and 2018 as a result of share repurchases. GWL’s ownership
of Loblaw was approximately 52.6% as at the end of 2020 (2019 – approximately 52.2% and 2018 – approximately 50.4%).
28 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Over the last three years, the adjusting items included:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Loblaw’s charge related to Glenhuron;
the change in fair value adjustment of the Trust Unit liability;
the change in fair value adjustment on investment properties;
the change in fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares;
acquisition transactions costs and other related costs;
Loblaw’s spin-out of Choice Properties;
the remeasurement of deferred tax balances;
outside basis difference in certain Loblaw shares;
asset impairments, net of recoveries;
restructuring and other related costs;
the change in fair value adjustment of derivatives;
the wind-down of PC Financial banking services;
the impact of healthcare reform on inventory balances;
inventory loss, net of recoveries;
statutory corporate income tax rate change;
certain prior period items;
pension annuities and buy-outs;
Loblaw Card Program;
the gain on sale of non-operating properties;
amortization of intangible assets acquired with Shoppers Drug Mart; and
the change in foreign currency translation and other company level activities.
In 2020, total assets of $48,075 million increased by 0.5% as compared to 2019. The increase was primarily driven by the increase
in cash and cash equivalents and short-term investments, partially offset by a decrease in intangible assets driven by higher
depreciation and amortization and decline in credit card receivables as a result of lower customer spending due to COVID-19.
Total long-term financial liabilities of $23,714 million increased by 0.1% compared to 2019 driven by an increase in financial
liabilities recorded due to the consolidation impacts of Choice Properties’ dispositions in 2020.
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.
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, 2020, 276,280,248 Units were held by unitholders
other than the Company (2019 – 259,631,454, 2018 – 231,346,144) and the Company held an approximate 61.8% (2019 – 62.9%,
2018 – 65.4%) effective ownership interest in Choice Properties.
1.3
Consolidated Other Business Matters
COVID-19 RELATED COSTS In 2020, the Company incurred significant COVID-19 costs related to temporary pay premiums, pay
protection safeguards, additional security, customer convenience and increased health and safety measures, totaling
approximately $490 million. The Company incurred COVID-19 related costs of approximately $50 million in the fourth quarter of
2020 primarily related to safety and security measures to protect colleagues, customers, tenants and other stakeholders. The
estimated COVID-19 related costs incurred by each of the Company’s reportable operating segments were as follows:
(unaudited)
($ millions)
Loblaw
Choice Properties(i)
Weston Foods
Consolidated
Quarter Ended
Year Ended
Dec. 31, 2020
Dec. 31, 2020
(13 weeks)
(53 weeks)
$
$
45
$
3
2
50
$
445
21
24
490
(i)
Choice Properties recorded a provision of $3 million and $21 million in the fourth quarter and year-to-date of 2020, respectively, for certain
past due amounts, reflecting increased collectability risk and potential abatements.
Refer to Section 8, “Enterprise Risks and Risk Management” of this MD&A for more information.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 29 Management’s Discussion and Analysis
CONSOLIDATION IMPACTS ON CHOICE PROPERTIES’ TRANSACTIONS Choice Properties completed various property
acquisitions and dispositions and financing activities in 2019 and 2020, improving the strength of its portfolio and reducing
leverage. As a result of certain of these transactions, the Company recorded the consolidation impact in Other and Intersegment
as set out below:
(unaudited)
($ millions)
Choice Properties’ Ground Lease
Transaction between Choice Properties
and Wittington
Operating income
Choice Properties’ Transactions
Net interest expense and other financing charges
Quarters Ended
Years Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
(53 weeks)
(52 weeks)
$
$
$
$
—
—
—
11
11
$
$
$
$
—
—
—
7
7
$
$
$
$
15
10
25
31
31
$
$
$
$
—
—
—
7
7
CHOICE PROPERTIES’ GROUND LEASE In the third quarter of 2020, Choice Properties entered into a 99-year ground lease for a
parcel of land on a property with an equity accounted joint venture in which Choice Properties has a 50% ownership interest.
Under IFRS 16 “Leases”, this arrangement was accounted for as a disposition by Choice Properties to the equity accounted joint
venture. On consolidation, the Company recorded the property including the parcel of land in fixed assets as own-use property
because Loblaw continues to be a tenant on the property. The approximate fair value of the parcel of land on the property was
$22 million. As a result of the disposition, the Company recorded a lease receivable of $22 million, a disposition of the property at
a cost of $7 million, and a gain of $15 million in operating income.
TRANSACTION BETWEEN CHOICE PROPERTIES AND WITTINGTON On July 31, 2020, Choice Properties acquired two real
estate assets from Wittington Properties Limited, a related party and subsidiary of Wittington Investments, Limited (“Wittington”),
at market terms and conditions, for an aggregate purchase price of $209 million, excluding transaction costs, which was satisfied
in full by the issuance of 16.5 million Trust Units of Choice Properties. As a result of the transaction, the Company recorded gains
of $10 million in operating income. See Section 9, “Related Party Transactions” for further details of the transaction.
CHOICE PROPERTIES’ TRANSACTIONS In 2020, Choice Properties disposed or partially disposed of 17 properties (2019 – 31
properties) to third parties for aggregate consideration of $233 million (2019 – $435 million). On consolidation, these transactions
were not recognized as a sale of assets as under the terms of the leases, the Company did not relinquish control of the properties
for purposes of IFRS 16 “Leases” and IFRS 15 “Revenue from Contracts with Customers”. The proceeds from the transactions were
recognized as financial liabilities totaling $233 million (2019 – $435 million) on the Company’s consolidated balance sheets. As at
December 31, 2020, the Company recognized $666 million (2019 – $435 million) in financial liabilities. The corresponding
interest expense of $11 million in the fourth quarter of 2020 (2019 – $7 million) and $31 million year-to-date (2019 – $7 million)
was recorded in the consolidated statements of earnings.
For tax purposes, these transactions were treated as a sale, and the income tax expense reflects the benefit from the non-taxable
portion of the gain from the sale of properties by Choice Properties.
30 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 2.
Results of Reportable Operating Segments
The following discussion provides details of 2020 results of operations of each of the Company’s reportable operating segments.
2.1
Loblaw Operating Results
($ millions except where otherwise indicated)
For the years ended as indicated
2020
2019
(53 weeks)
(52 weeks)
$ Change
% Change
Revenue
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
$
$
$
$
52,714
2,357
5,033
9.6%
$
$
$
$
$
$
48,037
2,262
4,904
10.2%
4,677
95
129
9.7%
4.2%
2.6%
2,596
$
2,524
$
72
2.9%
(i)
Depreciation and amortization includes $509 million (2019 – $508 million) of amortization of intangible assets acquired with Shoppers
Drug Mart.
Unless otherwise indicated, Loblaw’s operating results include the 53rd week, the consolidation of franchises, and impacts of
COVID-19.
REVENUE Loblaw revenue in 2020 was $52,714 million, an increase of $4,677 million, or 9.7%, compared to 2019, primarily
driven by retail sales partially offset by a decrease in financial services revenue.
Retail sales were $51,859 million, an increase of $4,760 million, or 10.1%, compared to 2019, which included the impact of the
53rd week of $878 million. Food retail sales were $37,596 million (2019 – $33,756 million) and drug retail sales were
$14,263 million (2019 – $13,343 million).
Excluding the consolidation of franchises, retail sales increased by $4,248 million, or 9.3%, which included the impact of the 53rd
week of $845 million, driven by the following factors:
•
•
•
food retail same-store sales growth was 8.6%. Food retail same-store sales growth was positively impacted by COVID-19. On
a comparable week basis, food retail basket size increased and traffic decreased in 2020;
Loblaw’s food retail average article price was higher by 3.9% (2019 – 2.5%), which reflects the year-over-year growth in food
retail revenue over the average number of articles sold in Loblaw’s stores. The increase in average article price was due to
sales mix; and
drug retail same-store sales growth was 4.9%, including pharmacy same-store sales growth of 5.3% and front store same-
store sales growth of 4.5%.
In 2020, 19 food and drug stores were opened, and 9 food and drug stores were closed, resulting in a net increase in retail square
footage of 0.2 million square feet, or 0.3%.
Financial services revenue decreased by $99 million, or 8.3%, compared to 2019, primarily driven by lower interest income, lower
credit card related revenues from lower customer spending due to COVID-19 and lower sales attributable to the partial closure
of The Mobile Shop kiosks due to COVID-19 in the second quarter of 2020.
OPERATING INCOME Loblaw operating income in 2020 was $2,357 million, an increase of $95 million, or 4.2%, compared to
2019, which included the impact of the 53rd week of $67 million. The increase included the improvements in underlying
operating performance of $58 million and the favourable year-over-year net impact of adjusting items totaling $37 million, as
described below:
•
•
the improvement in underlying operating performance of $58 million was primarily due to retail, including the favourable
contribution from consolidation of franchises of $36 million and the favourable impact of the 53rd week of $67 million. This
was partially offset by a decline in underlying operating performance of financial services.
the favourable year-over-year net impact of adjusting items totaling $37 million was primarily due to:
◦
◦
◦
the favourable year-over-year impact of asset impairments, net of recoveries of $58 million;
the favourable year-over-year impact of restructuring and other related costs of $16 million; and
the favourable impact of prior year pension annuities and buy-outs of $10 million;
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 31 Management’s Discussion and Analysis
◦
partially offset by,
◦
◦
the unfavourable impact of the reversal of certain prior period items recognized in 2019 of $22 million;
the unfavourable year-over-year impact of Loblaw’s fair value adjustment on non-operating properties of
$16 million;
the unfavourable year-over-year impact of the fair value adjustment of derivatives of $5 million; and
the unfavourable year-over-year impact of a net gain on sale of non-operating properties of $3 million.
◦
◦
ADJUSTED EBITDA(1) Loblaw adjusted EBITDA(1) in 2020 was $5,033 million, an increase of $129 million, or 2.6%, compared to
2019, which included the favourable impact of the 53rd week of $67 million. The increase was primarily due to the increase in
retail, partially offset by a decline in financial services.
Retail adjusted EBITDA(1) increased by $182 million, including the favourable impact of the consolidation of franchises of
$61 million, and was driven by an increase in retail gross profit, partially offset by an increase in retail SG&A.
•
•
Retail gross profit percentage of 29.5% decreased by 20 basis points compared to 2019. Excluding the consolidation of
franchises, retail gross profit percentage was 27.0%, a decrease of 60 basis points compared to the same period in 2019.
Food and drug retail margins were negatively impacted as a result of COVID-19 related changes in sales mix and
competitive pricing.
Excluding the consolidation of franchises, retail SG&A increased by $713 million and SG&A as a percentage of sales was
17.6%, a decrease of 10 basis points compared to the same period in 2019, driven by sales leverage from higher sales
volume and process and efficiency gains, partially offset by COVID-19 related costs and incremental e-commerce labour
costs as a result of higher online sales.
Financial services adjusted EBITDA(1) decreased by $53 million compared to 2019, primarily driven by lower revenue, as
described above and higher credit losses from the increase in expected credit losses attributable to the recessionary
environment, partially offset by loyalty program costs and lower customer acquisition costs.
Loblaw adjusted EBITDA(1) included no impact (2019 – gains of $7 million) related to the sale and leaseback of properties to
Choice Properties.
DEPRECIATION AND AMORTIZATION Loblaw’s depreciation and amortization in 2020 was $2,596 million, an increase of
$72 million compared to 2019. The increase in depreciation and amortization was primarily driven by the consolidation of
franchises and an increase in IT assets.
Depreciation and amortization in 2020 included $509 million (2019 – $508 million) of amortization of intangible assets related to
the acquisition of Shoppers Drug Mart.
LOBLAW OTHER BUSINESS MATTERS
Process and Efficiency In 2020, Loblaw recorded approximately $58 million of restructuring and other related costs, primarily
related to Process and Efficiency initiatives. Included in the restructuring charges were approximately $40 million of charges
related to the closure of the two distribution centres in Laval and Ottawa. Loblaw is investing to build a modern and efficient
expansion to its Cornwall distribution centre to serve its food and drug retail businesses in Ontario and Quebec. Volumes from
the distribution centres in Laval and Ottawa will be transferred to Cornwall. Loblaw expects to incur additional restructuring
costs throughout 2021 and through to 2022 related to these closures.
Consolidation of Franchises Loblaw has more than 500 franchise food retail stores in its network. As at the end of the first
quarter of 2020, Loblaw consolidated all of its remaining franchisees for accounting purposes under a simplified franchise
agreement implemented in 2015 (“Franchise Agreement”).
32 GEORGE WESTON LIMITED 2020 ANNUAL REPORT The following table provides the total impact of the consolidation of franchises included in the consolidated results of the
Company.
($ millions except where otherwise indicated)
(13 weeks)
(12 weeks)
(53 weeks)
(52 weeks)
Quarters Ended
Years Ended
Dec. 31, 2020
Dec. 31, 2019(4)
Dec. 31, 2020
Dec. 31, 2019(4)
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(i)
Sales
Operating income
Adjusted EBITDA(1)
Depreciation and amortization
Net earnings attributable to non-controlling
interests
$
526
—
526
439
45
69
24
46
$
444
26
470
318
11
32
21
9
470
56
526
$
1,866
$
111
215
104
84
400
70
470
1,354
75
154
79
50
(i)
The number of franchise stores disclosed elsewhere includes certain stores under buying arrangements which will not be subject to the
Franchise Agreement.
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.
2.2
Choice Properties Operating Results
($ millions except where otherwise indicated)
For the years ended as indicated
Revenue
Net interest expense and other financing charges(i)
Net income (loss)
Funds from Operations(1)(ii)
2020
2019
(52 weeks)
(52 weeks)
$ Change
% Change
$
$
$
$
1,271
173
451
652
$
$
$
$
1,289 $
(18)
1,472 $
(1,299)
(581) $
680 $
1,032
(28)
(1.4) %
(88.2) %
177.6%
(4.1) %
(i)
(ii)
Net interest expense and other financing charges includes a fair value adjustment on Exchangeable Units.
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 was $1,271 million in 2020, a decrease of $18 million, or 1.4%, compared to 2019 and included $724 million
(2019 – $750 million) generated from tenants within Loblaw retail. The decrease in revenue was primarily driven by:
•
foregone revenue from sold properties including those sold as part of the Choice Properties’ portfolio transaction in the
third quarter of 2019;
partially offset by,
•
additional revenue generated from properties acquired in 2019 and 2020 and from tenant openings in newly developed
leasable space.
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES Net interest expense and other financing charges in 2020 were
$173 million compared to $1,472 million in 2019. The decrease of $1,299 million was primarily driven by the favourable year-
over-year impact of the fair value adjustment on the Class B LP units (“Exchangeable Units”) of $1,286 million as a result of the
decrease in the unit price of Choice Properties in 2020, and reduced interest and financing charges as a result of a reduction in
indebtedness.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 33 Management’s Discussion and Analysis
NET INCOME (LOSS) Net income in 2020 was $451 million, compared to a net loss of $581 million in 2019. The increase of
$1,032 million was primarily driven by:
•
•
partially offset by,
•
•
•
the favourable impact of lower net interest expense and other financing charges described above; and
a favourable change in other fair value adjustments;
the unfavourable year-over-year impact of the fair value adjustment on investment properties;
an increase in expected credit loss provisions across the portfolio; and
a decrease in revenue as described above.
FUNDS FROM OPERATIONS(1) Funds from Operations(1) in 2020 was $652 million, a decrease of $28 million compared to 2019,
primarily driven by an increase in expected credit loss provisions partially offset by lower borrowing costs as a result of a
reduction in indebtedness.
CHOICE PROPERTIES OTHER BUSINESS MATTERS
Investment Property Transactions Subsequent to the end of 2020, Choice Properties completed the disposition of its 50%
equity accounted joint venture interest in land held for development for aggregate proceeds of $66 million, net of transaction
and estimated closing costs.
2.3 Weston Foods Operating Results
($ millions except where otherwise indicated)
For the years ended as indicated
2020
2019
(53 weeks)
(52 weeks)
$ Change
% Change
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
$
$
$
$
$
$
$
2,062
3
200
9.7%
$
$
$
2,155
72
223
10.3%
(93)
(69)
(23)
(4.3) %
(95.8) %
(10.3) %
175
$
147
$
28
19.0%
(i)
Depreciation and amortization in 2020 includes $30 million (2019 – $9 million) year-to-date of accelerated depreciation related to
restructuring and other related costs.
Unless otherwise indicated, Weston Foods’ operating results include the 53rd week and the impacts of COVID-19.
SALES Weston Foods sales in 2020 were $2,062 million, a decrease of $93 million, or 4.3%, compared to 2019. Sales included
the favourable impact of the 53rd week and foreign currency translation of approximately 1.3% and 0.4%, respectively. Excluding
the favourable impacts of the 53rd week and foreign currency translation, sales decreased by 6.0%. Sales were impacted by a
decrease in volumes in certain retail categories and foodservice channels as a result of the COVID-19 pandemic and the
unfavourable impact of product rationalization. The combined impact of pricing and changes in sales mix had a nominal
impact on sales when compared to the same period in 2019.
OPERATING INCOME Weston Foods operating income in 2020 was $3 million compared to $72 million in 2019, a decrease of
$69 million. The decrease was due to the decline in underlying operating performance of $30 million driven by the decline in
sales and COVID-19 related costs, and the unfavourable year-over-year impact of restructuring and other related costs of
$39 million. Weston Foods incurred $24 million of COVID-19 related costs to support colleagues in its bakeries and distribution
centres with temporary pay premiums, pay protection safeguards and by increasing health and safety measures at its facilities.
ADJUSTED EBITDA(1) Weston Foods adjusted EBITDA(1) in 2020 was $200 million compared to $223 million in 2019, a decrease
of $23 million, or 10.3%. Excluding the favourable impact of the 53rd week of $4 million, adjusted EBITDA(1) decreased by
$27 million, or 12.1%. The decrease was driven by the decline in sales, an increase in COVID-19 related expenses and higher
input costs, partially offset by productivity improvements, the net benefits realized from Weston Foods’ transformation program,
cost savings initiatives and a decrease in performance related compensation accruals.
Weston Foods adjusted EBITDA margin(1) decreased to 9.7% compared to 10.3% in 2019. The decline in adjusted EBITDA
margin(1) was driven by the factors described above.
DEPRECIATION AND AMORTIZATION Weston Foods depreciation and amortization in 2020 was $175 million, an increase of
$28 million compared to 2019. Depreciation and amortization included $30 million (2019 – $9 million) of accelerated
depreciation related to Weston Foods’ transformation program. Excluding this amount, depreciation and amortization increased
by $7 million due to capital investments.
34 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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 2020 and year-to-date, Weston Foods recorded restructuring and other related costs
of $13 million (2019 – net gain of $4 million) and $50 million (2019 – $11 million), respectively, which were primarily related to
Weston Foods’ transformation program.
Transaction between Weston Foods and Choice Properties In the fourth quarter of 2020, Weston Foods disposed of a portfolio
of six industrial properties to Choice Properties at an aggregate price of $79 million, excluding transaction costs, which was
satisfied in full through the issuance of 5,824,742 Class B LP Units of Choice Properties. These properties were leased back by
Weston Foods.
3.
Liquidity and Capital Resources
3.1
Cash Flows
($ millions)
For the years ended as indicated
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
2020
2019
(53 weeks)
(52 weeks)
$ Change
$
$
$
$
$
$
1,834
5,521
(1,738)
(3,035)
(1)
2,581
$
$
$
$
$
$
1,521 $
4,555 $
(1,492) $
(2,750) $
— $
1,834 $
313
966
(246)
(285)
(1)
747
CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities were $5,521 million in 2020, an increase of
$966 million compared to 2019. The increase in cash flows from operating activities was primarily due to a decrease in credit
card receivables as a result of reduced customer spending due to COVID-19 and higher payment rates compared to prior year,
lower income taxes paid and higher cash earnings.
CASH FLOWS USED IN INVESTING ACTIVITIES Cash flows used in investing activities were $1,738 million in 2020, an increase of
$246 million compared to 2019. The increase in cash flows used in investing activities was primarily driven by an increase in
short-term investments driven by higher cash earnings and preservation of liquidity, partially offset by higher proceeds from the
sale of assets.
The following table summarizes the Company’s capital investments by each of its reportable operating segments:
($ millions)
For the years ended as indicated
Loblaw
Choice Properties
Weston Foods
Other
Total capital investments
2020
2019(4)
(53 weeks)
(52 weeks)
$
1,224
$
1,206
263
162
9
163
194
8
$
1,658
$
1,571
CASH FLOWS USED IN FINANCING ACTIVITIES Cash flows used in financing activities were $3,035 million in 2020, an increase
of $285 million compared to 2019. The increase in cash flows used in financing activities was primarily driven by higher
issuances of Choice Properties’ units in the prior year, higher proceeds received from Choice Properties’ investment property
dispositions in the prior year, higher repurchases of the Company’s common shares under its NCIB and timing of the fourth
quarter of 2020 Loblaw dividend payment, partially offset by lower repurchases of Loblaw common shares from minority
shareholders under its NCIB and lower net repayments of long-term debt.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 35 Management’s Discussion and Analysis
The Company’s significant long-term debt transactions are set out in Section 3.3, “Components of Total Debt”.
FREE CASH FLOW(1)
($ millions)
For the years ended as indicated
Cash flows from operating activities
Less: Interest paid
Capital Investments(i)
Lease payments, net
Free cash flow(1)
2020
2019(4)
(53 weeks)
(52 weeks)
$ Change
$
5,521
$
4,555 $
883
1,658
852
891
1,571
726
$
2,128
$
1,367 $
966
(8)
87
126
761
(i)
During 2020, additions to fixed assets in Loblaw includes prepayments that were made in 2019 and transferred from other assets in 2020 of
$66 million. During 2019, additions to fixed assets in Loblaw includes prepayments that were made in 2018 and transferred from other assets
in 2019 of $13 million.
The increase in free cash flow(1) in 2020 was $761 million compared to 2019. The increase in free cash flow(1) was primarily due to
a decrease in credit card receivables as a result of reduced customer spending due to COVID-19, lower income taxes paid and
higher cash earnings, partially offset by an increase in lease payments.
3.2
Liquidity
The Company (excluding Loblaw and Choice Properties) expects that cash and cash equivalents, short-term investments and
future operating cash flows will enable it to finance its capital investment program and fund its ongoing business requirements,
including working capital, pension plan funding requirements and financial obligations, over the next 12 months. The Company
(excluding Loblaw and Choice Properties) does not foresee any impediments in obtaining financing to satisfy its long-term
obligations.
Loblaw expects that cash and cash equivalents, short-term investments, future operating cash flows and the amounts available
to be drawn against committed credit facilities will enable it to finance its capital investment program and fund its ongoing
business requirements over the next 12 months, including working capital, pension plan funding requirements and financial
obligations. President’s Choice Bank (“PC Bank”) expects to obtain long-term financing for its credit card portfolio through the
issuance of Eagle Credit Card Trust®
(“Eagle”) notes and Guaranteed Investment Certificates (“GICs”).
Choice Properties expects to obtain long-term financing for the acquisition of properties primarily through the issuance of
unsecured debentures and equity.
For details on the Company’s cash flows, see Section 3.1 “Cash Flows”, of this MD&A.
36 GEORGE WESTON LIMITED 2020 ANNUAL REPORT TOTAL DEBT The following table presents total debt, as monitored by management:
($ millions)
Loblaw
Choice
Properties
Weston
Foods
Other/
Intersegment
Bank indebtedness
$
86 $
— $
— $
— $
Total
86
Loblaw
Choice
Properties
Weston
Foods
Other/
Intersegment
$
18 $
— $
— $
— $
Total
18
As at
Dec. 31, 2020
Dec. 31, 2019
Demand deposits
from customer
Short-term debt
Long-term debt due
within one year
Long-term debt
Certain other
liabilities(i)
Fair value of financial
derivatives related
to the above debt
Total debt excluding
lease liabilities
Lease liabilities due
within one year(ii)
Lease liabilities(ii)
Total debt including
total lease
liabilities
24
575
—
—
597
327
6,449
6,155
71
666
—
—
—
—
—
—
24
760
1,335
—
775
—
—
—
924
1,127
715
915
13,519
5,971
5,826
—
737
65
435
—
—
—
—
—
—
714
—
1,489
—
1,842
915
12,712
—
500
—
—
—
(630)
(630)
—
—
—
(537)
(537)
$ 7,802 $ 7,148 $
— $
1,045 $ 15,995
$ 7,956 $ 6,976 $
— $
1,092 $ 16,024
$
1,379 $
1 $
15 $
(596) $
799
$
1,419 $
1 $
13 $
(576) $
857
$ 7,522 $
3 $
130 $ (3,449) $ 4,206
$ 7,691 $
6 $
60 $ (3,507) $ 4,250
$ 16,703 $ 7,152 $
145 $ (3,000) $ 21,000
$ 17,066 $ 6,983 $
73 $
(2,991) $ 21,131
(i)
(ii)
Includes financial liabilities of $666 million (2019 – $435 million) recorded primarily as a result of Choice Properties’ transactions as
described in Section 1.3 “Consolidated Other Business Matters”.
Lease liabilities due within one year of $3 million (2019 – $4 million) and lease liabilities of $8 million (2019 – $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 $1,056 million (2019 – $1,108 million) and cash and cash equivalents and short-term investments of
$1,013 million (2019 – $679 million), resulting in a net debt position of $43 million (2019 – $429 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 decreased compared to 2019 primarily due to an improvement in adjusted
EBITDA(1) and decrease in retail debt. Retail debt to retail adjusted EBITDA(1) was positively impacted by the 53rd week.
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 requirements as defined by the
Office of the Superintendent of Financial Institutions (“OSFI”).
Choice Properties targets maintaining credit metrics consistent with those of investment grade Real Estate Investment
Trusts (“REIT”). Choice Properties monitors metrics relevant to the REIT industry including targeting an appropriate debt to total
assets ratio.
COVENANTS AND REGULATORY REQUIREMENTS The Company, Loblaw and Choice Properties are required to comply with
certain financial covenants for various debt instruments. As at year end 2020 and throughout the year, the Company, Loblaw and
Choice Properties were in compliance with their respective covenants.
As at year end 2020 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 37 Management’s Discussion and Analysis
In 2019, Eagle filed a Short Form Base Shelf Prospectus, which allows for the potential issuance of up to $1.25 billion of notes
over a 25-month period.
3.3
Components of Total Debt
DEBENTURES The following table summarizes the debentures issued in the years ended as indicated:
($ millions)
Loblaw Companies Limited notes
Choice Properties senior unsecured debentures
– Series M
– Series N
– Series O
– Series P
Total debentures issued
Interest
Rate
2.28%
3.53%
2.98%
3.83%
2.85%
2020
2019
Maturity
Date
Principal
Amount
Principal
Amount
May 7, 2030(i)
$
350
$
—
June 11, 2029
March 4, 2030
March 4, 2050
May 21, 2027
—
400
100
500
750
—
—
—
$
1,350
$
750
(i)
In connection with this issuance, during 2020, $350 million of bond forward agreements were settled, resulting in a realized fair value loss of
$34 million before income taxes, which was cumulatively recorded in other comprehensive loss as unrealized prior to settlement. The loss will
be reclassified to the statements of earnings over the life of the May 7, 2030 notes. This settlement also resulted in a net effective interest rate
of 3.34% on the May 7, 2030 notes issued.
The following table summarizes the debentures and term loans repaid in the years ended as indicated:
($ millions)
Loblaw Companies Limited notes
Choice Properties senior unsecured debentures
– Series 7
– Series 8
– Series B-C
– Series C
– Series C-C
– Series E
Choice Properties - Term Loan
Choice Properties - Term Loan
Total debentures and term loans repaid
Interest
Rate
5.22%
3.00%
3.60%
4.32%
3.50%
2.56%
2.30%
Variable
Variable
Maturity
Date
2020
Principal
Amount
2019
Principal
Amount
June 18, 2020
$
350
$
—
September 20, 2019(i)
April 20, 2020
January 15, 2021
February 8, 2021
November 30, 2019(i)
September 14, 2020
May 4, 2022(ii)
May 4, 2023(iii)
—
300
100
250
—
250
—
—
200
—
—
—
100
—
175
625
$
1,250
$
1,100
(i) Choice Properties senior unsecured debentures Series 7 and Series C-C were redeemed on June 27, 2019.
(ii) 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.
(iii) 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.
COMMITTED CREDIT FACILITIES The components of the committed lines of credit available as at year end 2020 and 2019 were
as follows:
($ millions)
Loblaw committed credit facility
Choice Properties committed
syndicated credit facility
Total committed credit facilities
As at
Dec. 31, 2020
Dec. 31, 2019
Maturity
Date
Available
Credit
Drawn
Available
Credit
Drawn
October 7, 2023(i)
$
1,000 $
May 4, 2023
1,500
$
2,500 $
—
—
—
$
1,000
$
—
1,500
$
2,500
$
132
132
(i)
In 2020, Loblaw amended its committed credit facility and extended the maturity date from June 10, 2021 to October 7, 2023.
38 GEORGE WESTON LIMITED 2020 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, 2020
Dec. 31, 2019
$
$
1,050
$
575
1,625
$
1,000
775
1,775
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 2020
and throughout the year.
During 2020, Eagle issued $300 million (2019 – $250 million) of senior and subordinated term notes with a maturity date of
July 17, 2025 (2019 – July 17, 2024) at a weighted average interest rate of 1.34% (2019 – 2.28%). In connection with this
issuance, $200 million (2019 – $250 million) of bond forward agreements were settled, resulting in a realized fair value loss of
$11 million (2019 – $8 million) before income taxes, which was cumulatively recorded in other comprehensive loss as unrealized
prior to settlement. The loss will be reclassified to the statements of earnings over the life of the aforementioned Eagle notes.
This settlement also resulted in a net effective interest rate of 2.07% (2019 – 2.94%) on the Eagle notes issued.
During 2020, $250 million of the senior and subordinated term notes at a weighted average interest rate of 2.23% previously
issued by Eagle, matured and were repaid on September 17, 2020. As a result, there was a net change in the balances related to
Eagle notes of $50 million. There were no repayments of notes issued by Eagle in 2019.
INDEPENDENT FUNDING TRUSTS As at year end 2020, the independent funding trusts had drawn $512 million (2019 –
$505 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 2020, Loblaw has agreed to provide a credit enhancement of $64 million (2019 – $64 million) in the form of a
standby letter of credit for the benefit of the independent funding trusts representing not less than 10% (2019 – not less than
10%) of the principal amount of the loans outstanding.
The revolving committed credit facility relating to the independent funding trusts has a maturity date until May 27, 2022.
GUARANTEED INVESTMENT CERTIFICATES The following table summarizes PC Bank’s GIC activity, before commissions, for the
years ended as follows:
($ millions)
Balance, beginning of year
GICs issued
GICs matured
Balance, end of year
$
2020
1,311
410
(536)
1,185
$
$
$
2019
1,141
453
(283)
1,311
As at year end 2020, $597 million in GICs were recorded as long-term debt due within one year (2019 – $527 million).
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 39 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, 2020 the
forward rate was $128.30 (2019 – $123.64) and Series B liability was $766 million (2019 – $714 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 $22 million (2019 – $20 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, 2020
SERIES A AND B
DEBENTURES
SETTLEMENT ASSET
VALUE
$466 million
Series A Debentures (A)
$630 million
Fair value of equity forward
sale agreement (C)
$766 million
Series B Debentures(i) (B)
and accrued interest
$602 million
Net debt associated with
the equity forward sale
agreement(ii)
Recognized in financial statements
(i)
(ii)
Included the accrued interest of Series A Debenture and Series B Debenture of $6 million.
Calculated as the bid price of Loblaw of $62.77 multiplied by 9.6 million Loblaw common shares.
The following table summarizes the Company’s (excluding Loblaw and Choice Properties) debt in Other and Intersegment:
($ 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, 2020
Dec. 31, 2019
As at
2031
$
On demand
n/a
2024 - 2033
n/a
$
$
$
466
760
(630)
596
450
(1)
466
714
(537)
643
450
(1)
$
1,045
$
1,092
40 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Associate Guarantees Loblaw has arranged for its pharmacist owners of corporations licensed to operate retail drug stores at
specific location using Loblaw’s trademarks (“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 2020, Loblaw’s maximum obligation in respect of such guarantees was $580 million (2019 – $580 million) with an
aggregate amount of $470 million (2019 – $468 million) in available lines of credit allocated to the Associates by the various
banks. As at year end 2020, the Associates had drawn an aggregate amount of $86 million (2019 – $18 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)
As at
Dec. 31, 2020
Dec. 31, 2019
15.3%
10.8%
16.1%
10.3%
The adjusted return on average equity attributable to common shareholders of the Company(1) decreased as at year end 2020
compared to 2019 primarily due to a decline in adjusted net earnings available to common shareholders of the Company(1).
The adjusted return on capital(1) increased as at year end 2020 compared to 2019, primarily due to a decrease in total debt and
an increase in cash and cash equivalents. The adjusted return on capital(1) was positively impacted by the 53rd week.
3.5
Credit Ratings
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
During 2020, Dominion Bond Rating Service reaffirmed the credit ratings and trend of GWL, and Standard and Poor’s reaffirmed
the credit ratings and outlook of GWL.
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 (high)
BBB (high)
BBB (high)
Pfd-3 (high)
Stable
Stable
Stable
Stable
BBB
BBB
BBB
P-3 (high)
Stable
n/a
n/a
n/a
During 2020, Dominion Bond Rating Service upgraded the credit ratings of Loblaw from BBB (mid) to BBB (high) with a stable
trend, and Standard and Poor’s reaffirmed the credit ratings and outlook of Loblaw.
The following table sets out the current credit ratings of Choice Properties:
Credit Ratings (Canadian Standards)
Credit Rating
Trend
Credit Rating
Outlook
Issuer rating
Senior unsecured debentures
BBB (high)
BBB (high)
Stable
Stable
BBB
BBB
Stable
n/a
Dominion Bond Rating Service
Standard & Poor’s
During 2020, Dominion Bond Rating Service upgraded the credit ratings of Choice Properties from BBB (mid) to BBB (high) with
a stable trend, and Standard and Poor’s reaffirmed the credit ratings and outlook of Choice Properties.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 41 Management’s Discussion and Analysis
3.6
Share Capital
OUTSTANDING SHARE CAPITAL AND CAPITAL SECURITIES GWL’s outstanding share capital is comprised of common shares
and preferred shares. The following table details the authorized and outstanding common shares and preferred shares as at
December 31, 2020:
(number of common shares)
Common shares
Preferred shares – Series I
– Series II
– Series III
– Series IV
– Series V
Authorized
Outstanding
Unlimited
152,374,416
10,000,000
10,600,000
10,000,000
8,000,000
9,400,000
—
8,000,000
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, 2020 and December 31,
2019:
($ millions except where otherwise indicated)
Number of
Common
Shares
2020
Common
Share
Capital
Number of
Common
Shares
2019
Common
Share
Capital
Issued and outstanding, beginning of year
153,667,750 $
2,809
153,370,108
$
2,766
Issued for settlement of stock options
Purchased and cancelled
6,666
(1,300,000)
1
(24)
529,965
(232,323)
47
(4)
Issued and outstanding, end of year
152,374,416 $
2,786
153,667,750
$
2,809
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,
(88,832)
(229,000)
63,307
(254,525)
—
(4)
—
(4)
(120,305)
(60,000)
91,473
(88,832)
—
(1)
1
—
end of year
152,119,891
$
2,782
153,578,918 $
2,809
Weighted average outstanding, net of shares
held in trusts
153,406,800
153,537,411
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.
42 GEORGE WESTON LIMITED 2020 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. In the second quarter of 2019, the Board raised the quarterly common share dividend by $0.010
to $0.525 per share. In the fourth quarter of 2020, the Board raised the quarterly common share dividend by $0.025 to $0.550
per share. The Board declared dividends for the years ended as follows:
($)
Dividends declared per share(i):
Common share
Preferred share:
Series I
Series III
Series IV
Series V
2020
2.125
1.45
1.30
1.30
1.1875
$
$
$
$
$
2019
2.090
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, 2021 and
subsequently paid on January 4, 2021. Dividend declared on Preferred Shares, Series I was paid on December 15, 2020.
The following table summarizes the Company’s cash dividends declared subsequent to year end 2020:
($)
Dividends declared per share(i)
– Common share
– Preferred share:
Series I
Series III
Series IV
Series V
$
$
$
$
$
0.550
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, 2021. Dividends declared
on Preferred Shares, Series I are payable on March 15, 2021.
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 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
2020
229,000
33,325
1,300,000
2019
60,000
64,851
230,698
$
$
$
(21)
(3)
(123)
17
—
99
24
$
$
$
(6)
(6)
(25)
4
1
21
4
In the second quarter of 2020, GWL renewed its NCIB program to purchase on the Toronto Stock Exchange (“TSX”) or through
alternative trading systems up to 7,683,528 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 43 Management’s Discussion and Analysis
Pursuant to an exemption order granted by the Ontario Securities Commission, on December 21, 2020, the Company purchased
for cancellation 1,300,000 common shares from an entity controlled by Mr. W. Galen Weston (“Mr. Weston”), the then controlling
shareholder of the Company. The common shares were purchased at a price approved by the Ontario Securities Commission
and count towards the common shares the Company is entitled to purchase under its NCIB, for aggregate cash consideration of
$123 million.
As of December 31, 2020, 1,300,365 common shares were purchased under its current NCIB, including 1,300,000 common
shares purchased from Mr. Weston.
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, surety bond, securitization of
PC Bank’s credit card receivables and third-party financing made available to Loblaw’s franchisees. As at year end 2020, the
aggregate gross potential liability related to the Company’s letters of credit was approximately $626 million (2019 –
$646 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 2020, the guarantee on behalf of PC Bank to MasterCard® was U.S. dollars $190 million (2019 – 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 2020 subject to such guarantees, and therefore the
maximum exposure to credit risk, was $36 million (2019 – $37 million) with an estimated weighted average remaining term of
2.5 years (2019 – 3.5 years).
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 (2019 – $12 million). Additionally, Loblaw has
guaranteed lease obligations of a third-party distributor in the amount of $3 million (2019 – $2 million).
CASH COLLATERALIZATION As at year end 2020, GWL and Loblaw had agreements to cash collateralize certain uncommitted
credit facilities up to amounts of $52 million (2019 – $45 million) and $102 million (2019 – $103 million), respectively. As at year
end 2020, GWL and Loblaw had $52 million (2019 – $45 million) and a nominal amount (2019 – $1 million) deposited with major
financial institutions, respectively, and classified as security deposits on the consolidated balance sheets.
44 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 3.8
Contractual Obligations
The following table summarizes certain of the Company’s significant contractual obligations and other obligations as at year
end 2020:
SUMMARY OF CONTRACTUAL OBLIGATIONS
($ 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)
Payments due by year
2021
2022
2023
2024
2025
Thereafter
Total
$
2,941 $
2,274 $
2,359 $
2,090 $
1,510 $
8,946 $
20,120
399
43
804
248
464
28
41
684
115
171
—
45
660
87
109
—
45
560
50
61
—
49
487
—
51
—
245
1,849
2
10
427
468
5,044
502
866
Total contractual obligations
$
4,899 $
3,313 $
3,260 $
2,806 $
2,097 $
11,052 $
27,427
(i)
Includes short-term debt, bank indebtedness, demand deposits, 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 2020.
(ii) Represents the contractual payments that Loblaw is committed to related to the Choice Properties’ dispositions. See Section 1.3 “Other
(iii)
(iv)
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 2020, 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 45 Management’s Discussion and Analysis
4.
Quarterly Results of Operations
4.1
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. The years
ended December 31, 2020 and December 31, 2019 contained 53 weeks and 52 weeks, respectively. The 52-week reporting cycle
is divided into four quarters of 12 weeks each except for the third quarter, which is 16 weeks in duration. When a fiscal year
contains 53 weeks, the fourth quarter is 13 weeks in duration.
The following is a summary of selected consolidated financial information derived from the Company’s unaudited interim period
condensed consolidated financial statements for each of the eight most recently completed quarters.
SELECTED QUARTERLY INFORMATION
($ millions except where
otherwise indicated)
Revenue
Operating income
Adjusted EBITDA(1)
Depreciation and
amortization(i)
Net earnings (loss)
Net earnings (loss) attributable
to shareholders of the
Company
Net earnings (loss) available to
common shareholders of
the Company
Net earnings (loss) per
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2020
Total
(audited)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2019
Total
(audited)
(12 weeks)
(12 weeks)
(16 weeks)
(13 weeks)
(53 weeks)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks)
$ 12,333
$ 12,357
$ 16,209
$ 13,806
$ 54,705
$ 11,173
$ 11,603
$ 15,226
$ 12,107
$ 50,109
$
$
$
$
598
1,304
560
743
$
$
$
$
401
1,087
566
(172)
$
$
$
$
983
1,715
729
498
$
$
$
$
906
$ 2,888
1,501
$ 5,607
572
$ 2,427
513
$
1,582
$
$
$
$
586
1,158
$
$
770
1,313
535
$
(372) $
534
353
$
$
$
$
884
1,661
701
264
$
$
$
$
718
$ 2,958
1,351
$ 5,483
548
$ 2,318
578
$
823
$
592
$
(245) $
317
$
299
$
963
$
(478) $
194
$
83
$
443
$
242
$
582
$
(255) $
303
$
289
$
919
$
(488) $
184
$
69
$
433
$
198
common share ($) - basic
$
3.79
$
(1.66) $
1.98
$
1.89
$
5.99
$
(3.18) $
1.20
$ 0.45
$
2.82
$
1.29
Net earnings (loss) per
common share ($) - diluted
$
3.78
$
(1.66) $
1.96
$
1.88
$
5.96
$
(3.18) $
1.19
$ 0.44
$
2.81
$
1.26
Adjusted diluted net earnings
per common share(1) ($)
Loblaw’s food retail same-store
sales growth
Loblaw’s drug retail same-store
sales growth (decline)
Choice Properties’ Funds From
Operations per unit
- diluted
Choice Properties’ Net
Operating Income (cash
basis)
Weston Foods’ sales growth
(decline)
Weston Foods’ sales growth
(decline) excluding impact
of foreign currency
translation
$
1.55
$ 0.93
$
2.35
$
2.03
$
6.85
$
1.30
$
1.70
$
2.54
$
1.69
$
7.24
9.6%
10.0%
6.9%
8.6%
8.6%
2.0%
0.6%
0.1%
1.9%
1.1%
10.7%
(1.1) %
6.1%
3.7%
4.9%
2.2%
4.0%
4.1%
3.9%
3.6%
$ 0.244
$ 0.201
$ 0.238
$ 0.239
$ 0.922
$ 0.252
$ 0.248
$ 0.250
$ 0.237
$ 0.987
$
232
$
216
$
230
$
230
$
908
$
233
$
235
$
239
$
235
$
942
3.7%
(14.0) %
(7.2) %
0.2 %
(4.3) %
(0.2) %
2.4%
1.3%
3.0%
1.6%
3.7%
(15.7) %
(7.7) %
1.0 %
(4.7) %
(3.1) %
0.2%
0.6%
3.2%
0.2%
(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.
46 GEORGE WESTON LIMITED 2020 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, the timing of holidays and the
53rd week in the fourth quarter of fiscal year 2020. 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.
REVENUE Over the last eight quarters, consolidated revenue have been impacted by each of the Company’s reportable
operating segments as follows:
•
•
at Loblaw, revenue was unusually high due to COVID-19 in each quarter of 2020 compared to the same periods in 2019,
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 0.6 million square feet to 71.0 million square feet.
Choice Properties revenue was impacted by an increase in base rents and recovery of property operating costs from existing
properties and additional revenue generated from properties acquired in 2019 and 2020 and from tenant openings in
newly developed leasable space, and foregone revenue from sold properties in 2019 and 2020.
• Weston Foods sales were impacted by changes in volume, product rationalization and the impact of pricing and changes in
sales mix when compared to the same periods in the prior year; in the first and second quarter of 2019 sales were impacted
by the loss of sales from key customers; and in the second, third and fourth quarters of 2020 sales decreased in certain retail
categories and foodservice channels as a result of the COVID-19 pandemic.
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 2020 reflected changes in the underlying
operating performance of Loblaw retail due to COVID-19 with increased demand resulting in increased cost of inventories
sold and increased SG&A as a result of the incremental cost of COVID-19 related investments to benefit and protect
colleagues and customers; the impact of Loblaw’s store closure plan; cost savings and operating efficiencies from Process
and Efficiency initiatives and benefits from strategic initiatives; and the favourable impact of the repurchases of Loblaw
common shares for cancellation;
•
Choice Properties year-over-year quarterly underlying operating performance during 2020 was impacted by COVID-19
starting in the second quarter of 2020 resulting in an increase in expected credit losses;
• Weston Foods year-over-year quarterly underlying operating performance during 2020 reflected the decline in sales starting
in the second quarter of 2020 mainly due to the impact of COVID-19 and related costs, and higher input costs, partially
offset by productivity improvements, the net benefits realized from Weston Foods’ transformation program, cost savings
initiatives and a decrease in performance related compensation accruals;
•
•
•
certain one-time gains recorded on consolidation in Other and Intersegment related to Choice Properties’ transactions in
the third quarter of 2020, as described in Section 1.3 “Consolidated Other Business Matters”;
year-over year quarterly adjusted net interest and other financing charges(1) increased during 2020 due to higher interest
expense in Other and Intersegment adjustments, primarily related to interest expense on the financial liabilities recognized
on the Choice Properties’ transactions, as discussed in Section 1.3 “Consolidated Other Business Matters”; higher interest
expense in the Choice Properties segment including Other and Intersegment adjustments related to higher distributions
from newly issued Trust Units in the second quarter of 2019 and third quarter of 2020; and higher interest expense in
Loblaw financial services due to an increased holding in liquid asset portfolio; partially offset by a decrease in interest
expense in the Choice Properties segment primarily due to lower overall debt levels and the completion of refinancing
activity over the last year at lower interest rates and reduction in interest expense at Loblaw from lease liabilities;
year-over-year quarterly adjusted effective tax rate(1) was relatively flat in the first quarter of 2020 and increased in the
second quarter primarily due to the impact of certain non-deductible items, in the third quarter of 2020 the adjusted
effective tax rate(1) increased year-over-year due to the prior year impact of the non-taxable portion of the gain from the
Choice Properties’ portfolio transaction, and decreased in the fourth quarter of 2020 due to the impact of the non-taxable
portion of the gain from the Choice Properties’ transactions completed in the fourth quarter of 2020.
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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 47 Management’s Discussion and Analysis
4.2
Fourth Quarter Results
Loblaw delivered positive results with strong same-store and e-commerce sales growth in a quarter heavily impacted by
COVID-19. Costs remained elevated to ensure the safety and security of customers and colleagues. Loblaw continued to deliver
value in categories that mean the most to its customers and focused on accelerating its three strategic growth areas of Everyday
Digital Retail, Payments and Rewards, and Connected Healthcare Network.
Choice Properties generated solid results in the fourth quarter, reflecting stable earnings as it collected 98% of contractual rents.
This strong performance was underpinned by improvements to the overall quality of the portfolio through effective capital
recycling. In the fourth quarter, Choice Properties completed approximately $550 million of transactions, including four
acquisitions and five dispositions, and remained disciplined in its capital spending on development initiatives. Choice Properties
remains confident that this deliberate approach to financial and asset management will enable it to continue to manage the
risks and uncertainties associated with the COVID-19 pandemic and position it for long-term growth.
Weston Foods’ sales and earnings improved in the fourth quarter compared to the third quarter despite the negative impact of
COVID-19. The reintroduction of government-mandated closures of non-essential businesses, stay-at-home orders and
mandatory social distancing restrictions in several regions led to lower volumes, with the negative impact being more significant
in the second half of the quarter. These pressures were offset in part by the on-going cost savings and productivity
improvements and the benefits realized from Weston Foods’ transformation program, as well as better sales performance in
certain retail categories and foodservice channels. As a result, Weston Foods remains well-positioned to achieve long-term
growth through its strategic framework while delivering superior products and services to its customers and consumers.
48 GEORGE WESTON LIMITED 2020 ANNUAL REPORT The following is a summary of selected unaudited consolidated financial information for the fourth quarter. The analysis of the
data contained in the table focuses on the results of operations and changes in the financial condition and cash flows in the
fourth quarter.
Unless otherwise indicated, the Company’s results include the 53rd week in the fourth quarter of 2020 when compared to the
fourth quarter of 2019 as a result of the Company’s reporting calendar.
The Company’s results reflect the impact of COVID-19 and the year-over-year impact of the fair value adjustment of Trust Unit
liability.
(unaudited)
($ millions except where otherwise indicated)
Revenue
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 effective tax rate(1)
Net earnings attributable to shareholders
of the Company
Net earnings available to common shareholders
of the Company
Adjusted net earnings available to common
shareholders of the Company(1)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(1) ($)
Dividends declared per share ($):
Common shares
Preferred shares – Series I
Preferred shares – Series III
Preferred shares – Series IV
Preferred shares – Series V
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
$ Change
% Change
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13,806
906
1,501
10.9%
572
245
286
148
185
24.1%
299
289
312
1.88
2.03
0.550
0.3625
0.3250
0.3250
$ 0.296875
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12,107
718
1,351
11.2%
548
7
277
133
171
26.5%
1,699
188
150
14.0%
26.2%
11.1%
24
238
4.4%
3,400.0%
9
15
14
3.2%
11.3%
8.2%
443
$
(144)
(32.5) %
433
$
(144)
(33.3) %
262
2.81
1.69
$
$
$
50
(0.93)
0.34
19.1%
(33.1) %
20.1%
0.525
0.3625
0.3250
0.3250
0.296875
(i)
Depreciation and amortization includes $117 million (2019 – $116 million) of amortization of intangible assets, acquired with Shoppers Drug
Mart, recorded by Loblaw and $8 million (2019 – $3 million) of accelerated depreciation recorded by Weston Foods, related to restructuring
and other related costs.
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS OF THE COMPANY
In the fourth quarter of 2020, the Company recorded net earnings available to common shareholders of the Company of
$289 million ($1.88 per common share), a decrease of $144 million ($0.93 per common share) compared to the fourth quarter of
2019. The decrease was due to the unfavourable year-over-year net impact of adjusting items totaling $194 million ($1.27 per
common share), partially offset by an improvement of $50 million ($0.34 per common share) in the consolidated underlying
operating performance of the Company described below.
•
◦
The unfavourable year-over-year net impact of adjusting items totaling $194 million ($1.27 per common share) was due to:
the unfavourable year-over-year impact of the fair value adjustment of the Trust Unit liability of $223 million ($1.44
per common share) as a result of the increase in Choice Properties’ unit price in the fourth quarter of 2020; and
the unfavourable year-over-year impact of asset impairments, net of recoveries of $9 million ($0.08 per common
share);
◦
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 49 Management’s Discussion and Analysis
partially offset by,
◦
the favourable year-over-year impact of the fair value adjustment on investment properties of $38 million ($0.25
per common share).
•
The improvement in the Company’s consolidated underlying operating performance of $50 million ($0.34 per common
share) was due to:
◦
◦
◦
the favourable underlying operating performance of Loblaw including the impact of COVID-19 and related costs;
the favourable underlying operating performance of Weston Foods including the impact of COVID-19 and related
costs; and
the decrease in the adjusted effective tax rate(1) mainly due to the favourable impact of the non-taxable portion of
the gain from the Choice Properties’ transactions completed in the fourth quarter of 2020 and the year-over-year
impact of certain non-deductible tax items;
partially offset by,
◦
◦
an increase in adjusted net interest expense and other financing charges(1); and
an increase in depreciation and amortization.
Adjusted net earnings available to common shareholders of the Company(1) in the fourth quarter of 2020 were $312 million
($2.03 per common share), an increase of $50 million ($0.34 per common share), or 19.1%, compared to the fourth quarter of
2019 due to the improvement in the Company’s consolidated underlying operating performance described above. Excluding
the impact of the 53rd week of $21 million ($0.14 per common share), adjusted net earnings available to common shareholders
of the Company(1) increased by $29 million ($0.20 per common share), or 11.1%, compared to the same period in 2019.
REVENUE
(unaudited)
($ millions except where otherwise indicated)
Loblaw
Choice Properties
Weston Foods
Intersegment
Consolidated
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
$ Change
% Change
$
$
$
$
$
13,286
322
523
(325)
13,806
$
$
$
$
$
11,590 $
1,696
318 $
522 $
(323)
4
1
14.6%
1.3%
0.2%
12,107 $
1,699
14.0%
Revenue in the fourth quarter of 2020 was $13,806 million, an increase of $1,699 million, or 14.0%, compared to the fourth
quarter of 2019. The increase in revenue in the fourth quarter of 2020 was impacted by each of the Company’s reportable
operating segments as follows:
•
•
•
Positively by 14.0% due to revenue growth of 14.6% at Loblaw, The increase was primarily driven by retail sales, partially
offset by a decrease in financial services revenue. Retail sales increased by $1,722 million, or 15.2%, compared to the fourth
quarter of 2019. Excluding the consolidation of franchises, retail sales increased by $1,601 million, or 14.6%, which included
the impact of the 53rd week of $845 million. 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 8.6% for the quarter. Food retail same-store sales
growth was positively impacted by COVID-19. On a comparable week basis food retail basket size increased and traffic
decreased in the quarter. Loblaw’s food retail average article price was higher by 3.9% (2019 – 0.8%), which reflects the year-
over-year growth in food retail revenue over the average number of articles sold in Loblaw’s stores in the quarter. The
increase in average article price was due to sales mix. Drug retail same-store sales growth was 3.7% for the quarter.
Positively by a nominal amount due to growth in revenue of 1.3% at Choice Properties. The increase of $4 million was
primarily driven by development transfers and acquisitions, partially offset by the foregone revenue from sold properties.
Positively by nominal amount due to growth in sales of 0.2% at Weston Foods. Sales included the positive impact of the
53rd week of approximately 5.6% and the negative impact of foreign currency translation of approximately 0.8%. Excluding
the favourable impact of the 53rd week and the negative impact of foreign currency translation, sales decreased by 4.6%.
Sales were impacted by a decrease in volumes in certain retail categories and foodservice channels as a result of the
COVID-19 pandemic, the unfavourable impact of product rationalization and the combined negative impact of pricing and
changes in sales mix.
50 GEORGE WESTON LIMITED 2020 ANNUAL REPORT OPERATING INCOME
(unaudited)
($ millions except where otherwise indicated)
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
$ Change
% Change
$
$
$
$
$
700
332
35
(161)
906
$
$
$
$
$
539 $
220 $
27 $
(68)
161
112
8
29.9%
50.9%
29.6%
718 $
188
26.2%
Operating income in the fourth quarter of 2020 was $906 million compared to $718 million in the fourth quarter of 2019, an
increase of $188 million, or 26.2%. The increase was mainly attributable to the improvement in underlying operating
performance of $132 million which included the favourable impact of the 53rd week of $71 million, and the favourable year-
over-year net impact of adjusting items totaling $56 million described below:
•
•
the improvement in underlying operating performance of $132 million was due to:
the favourable underlying operating performance of Loblaw; and
the favourable underlying operating performance of Weston Foods.
◦
◦
the favourable year-over-year net impact of adjusting items totaling $56 million was primarily due to:
the favourable year-over-year impact of the fair value adjustment of investment properties of $42 million;
the favourable year-over-year impact of asset impairments, net of recoveries of $14 million; and
the favourable year-over-year impact of restructuring and other related costs of $7 million;
◦
◦
◦
partially offset by,
◦
the unfavourable year-over-year impact of Loblaw’s fair value adjustment on non-operating properties of
$13 million.
ADJUSTED EBITDA(1)
(unaudited)
($ millions except where otherwise indicated)
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
$ Change
% Change
$
$
$
$
$
1,330
226
79
(134)
1,501
$
$
$
$
$
1,203 $
225 $
56 $
(133)
127
1
23
10.6%
0.4 %
41.1%
1,351 $
150
11.1%
Adjusted EBITDA(1) in the fourth quarter of 2020 was $1,501 million compared to $1,351 million in the fourth quarter of 2019, an
increase of $150 million, or 11.1%. The increase in adjusted EBITDA(1) was impacted by each of the Company’s reportable
operating segments as follows:
•
•
•
Positively by 9.4% due to an increase of 10.6% in adjusted EBITDA(1) at Loblaw, primarily driven by improvements in Loblaw
retail, which included the impact of the 53rd week of $67 million, partially offset by a decline in Loblaw financial services.
The improvement in Loblaw retail adjusted EBITDA(1) was primarily driven by an increase in retail gross profit, partially offset
by an increase in retail SG&A.
Positively by a nominal amount due to an increase of 0.4% in adjusted EBITDA(1) at Choice Properties, primarily driven by
development transfers and acquisitions, partially offset by the foregone revenue from sold properties and an increase in
expected credit loss provisions related to tenant receivables.
Positively by 1.7% due to an increase of 41.1% in adjusted EBITDA(1) at Weston Foods. Excluding the favourable impact of
the 53rd week of $4 million, adjusted EBITDA(1) increased by $19 million, or 33.9%. The increase was driven by the net
benefits realized from Weston Foods’ transformation program, productivity improvements, cost savings initiatives, and a
decrease in performance related compensation accruals, partially offset by the decline in sales as described above and an
increase in COVID-19 related expenses.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 51 Management’s Discussion and Analysis
DEPRECIATION AND AMORTIZATION
(unaudited)
($ millions except where otherwise indicated)
Loblaw
Choice Properties
Weston Foods
Other and Intersegment
Consolidated
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
$ Change
% Change
$
$
$
$
$
609
1
41
(79)
572
$
$
$
$
$
589 $
— $
36 $
(77)
548 $
20
1
5
24
3.4%
100.0 %
13.9%
4.4%
Depreciation and amortization in the fourth quarter of 2020 was $572 million, an increase of $24 million compared to the fourth
quarter of 2019. Depreciation and amortization in the fourth quarter included $117 million (2019 – $116 million) of amortization
of intangible assets related to the acquisition of Shoppers Drug Mart recorded by Loblaw and $8 million (2019 – $3 million) of
accelerated depreciation recorded by Weston Foods, related to restructuring and other related costs. Excluding these amounts,
depreciation and amortization increased in the fourth quarter by $18 million driven by an increase in depreciation from the
consolidation of Loblaw franchises and an increase in Loblaw’s IT assets.
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
(unaudited)
($ millions except where otherwise indicated)
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
$ Change
% Change
Net interest expense and other financing charges
$
Add: Fair value adjustment of the Trust Unit liability
245
(20)
$
7 $
203
238
(223)
3,400.0%
(109.9) %
Fair value adjustment of the forward sale
agreement for 9.6 million Loblaw
common shares
Adjusted net interest expense and other
financing charges(1)
61
67
$
286
$
277 $
(6)
9
(9.0) %
3.2%
Net interest expense and other financing charges in the fourth quarter of 2020 were $245 million, an increase of $238 million
compared to the fourth quarter of 2019. The increase was primarily due to the unfavourable year-over-year impact of adjusting
items totaling $229 million, itemized in the table above, and an increase in adjusted net interest expense and other financing
charges(1) of $9 million. Included in the adjusting items was the unfavourable year-over-year fair value adjustment of the Trust
Unit liability of $223 million, as a result of the increase in Choice Properties’ unit price in the fourth quarter of 2020. 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.
Adjusted net interest expense and other financing charges(1) increased by $9 million which included the impact of the 53rd
week of $6 million. Excluding the impact of the 53rd week, adjusted net interest expense and other financing charges(1)
increased by $3 million primarily driven by:
•
•
higher interest expense in Other and Intersegment adjustments, primarily related to interest expense on the financial
liabilities recognized on the Choice Properties’ transactions, as discussed in Section 1.3 “Consolidated Other Business
Matters”; and
higher interest expense in the Choice Properties segment including Other and Intersegment adjustments, primarily related
to higher distributions from newly issued Trust Units in the third quarter of 2020;
partially offset by,
•
a reduction in interest expense at Loblaw from lease liabilities and lower interest expense from Loblaw financial services.
52 GEORGE WESTON LIMITED 2020 ANNUAL REPORT INCOME TAXES
(unaudited)
($ millions except where otherwise indicated)
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
$ Change
% Change
Income taxes
$
148
$
133
$
Add: Tax impact of items excluded from adjusted
earnings before taxes(i)
Remeasurement of deferred tax balances
Outside basis difference in certain
Loblaw shares
Statutory corporate income tax rate change
33
(2)
4
2
38
—
—
—
Adjusted income taxes(1)
$
185
$
171
$
Effective tax rate applicable to earnings before taxes
22.4%
18.7%
Adjusted effective tax rate applicable to adjusted
earnings before taxes(1)
24.1%
26.5%
15
(5)
(2)
4
2
14
11.3%
(13.2) %
(100.0) %
100.0%
100.0%
8.2%
(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 tax rate in the fourth quarter of 2020 was 22.4%, compared to 18.7% in the fourth quarter of 2019. The increase was
primarily attributable to a decrease in the non-taxable fair value adjustment of the Trust Unit liability, partially offset by the
impact of the non-taxable portion of the gain from the sale of properties by Choice Properties in the fourth quarter of 2020, as
described in Section 1.3 “Consolidated Other Business Matters”, and the impact of certain other non-deductible items.
The adjusted effective tax rate(1) for the fourth quarter of 2020 was 24.1%, compared to 26.5% in the fourth quarter of 2019. The
decrease was primarily attributable to the impact of the non-taxable portion of the gain from Choice Properties’ transactions,
and the impact of 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, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
Change
$
$
$
$
$
$
2,436
1,574
(649)
(779)
(1)
2,581
$
$
$
$
$
$
1,495 $
1,272 $
(505) $
(427) $
(1) $
1,834 $
941
302
(144)
(352)
—
747
CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities were $1,574 million in the fourth quarter of
2020, an increase of $302 million compared to the fourth quarter of 2019. The increase in cash flows from operating activities
was primarily due to a decrease in credit card receivables as a result of higher payment rates compared to prior year and higher
cash earnings.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 53 Management’s Discussion and Analysis
CASH FLOWS USED IN INVESTING ACTIVITIES Cash flows used in investing activities were $649 million in the fourth quarter of
2020, an increase of $144 million compared to the fourth quarter of 2019. The increase in cash flows used in investing activities
was primarily due to an increase in short-term investments.
The following table summarizes the Company’s capital investments by each of its reportable operating segments for the
quarters ended as indicated:
(unaudited)
($ millions)
Loblaw
Choice Properties
Weston Foods
Other
Total capital investments
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019(4)
(13 weeks)
(12 weeks)
$
$
418
161
53
3
$
635
$
426
55
70
5
556
CASH FLOWS USED IN FINANCING ACTIVITIES Cash flows used in financing activities were $779 million in the fourth quarter of
2020, an increase of $352 million compared to the fourth quarter of 2019. The increase is primarily due to higher net repayments
of debt in the current year, a decrease in short-term debt and higher repurchases of Loblaw common shares and the Company’s
common shares under their respective NCIB programs, partially offset by proceeds received from Choice Properties’ transactions
in the current year.
FREE CASH FLOW(1)
(unaudited)
($ millions)
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019(4)
(13 weeks)
(12 weeks)
Change
Cash flows from operating activities
$
1,574
$
1,272 $
Less:
Interest paid
Capital Investments(i)
Lease payments, net
Free cash flow(1)
180
635
192
567
$
181
556
131
$
404 $
302
(1)
79
61
163
(i)
During 2019, additions to fixed assets in Loblaw includes prepayments that were made in 2018 and transferred from other assets in 2019
of $3 million.
The year-over-year increase in free cash flow(1) in the fourth quarter of 2020 was $163 million, primarily due to a decrease in
credit card receivables as a result of higher payment rates compared to prior year and higher cash earnings.
54 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 5.
Fourth Quarter Results of Reportable Operating Segments
The following discussion provides details of the 2020 fourth quarter results of operations of each of the Company’s reportable
operating segments.
5.1
Loblaw Fourth Quarter Operating Results
(unaudited)
($ millions except where otherwise indicated)
Revenue
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
$ Change
% Change
$
$
$
$
13,286
700
1,330
10.0%
609
$
$
$
$
$
$
$
11,590
539
1,203
10.4%
1,696
161
127
14.6%
29.9%
10.6%
589
$
20
3.4%
(i)
Depreciation and amortization includes $117 million (2019 – $116 million) of amortization of intangible assets acquired with Shoppers
Drug Mart.
Unless otherwise indicated, Loblaw’s operating results include the 53rd week, the consolidation of franchises, and impacts of
COVID-19.
REVENUE Loblaw revenue in the fourth quarter of 2020 was $13,286 million, an increase of $1,696 million, or 14.6%, compared
to the fourth quarter of 2019. The increase was primarily driven by retail sales, partially offset by a decrease in financial services
revenue.
Retail sales increased by $1,722 million, or 15.2%, compared to the fourth quarter of 2019, which included the impact of the
53rd week of $878 million. Food retail sales were $9,302 million (2019 – $7,960 million) and drug retail sales were $3,741 million
(2019 – $3,361 million).
Excluding the consolidation of franchises, retail sales increased by $1,601 million, or 14.6%, which included the impact of the
53rd week of $845 million, primarily driven by the following factors:
•
•
•
food retail same-store sales growth was 8.6% for the quarter. Food retail same-store sales growth was positively impacted by
COVID-19. On a comparable week basis food retail basket size increased and traffic decreased in the quarter;
Loblaw’s food retail average article price was higher by 3.9% (2019 – 0.8%), which reflects the year-over-year growth in food
retail revenue over the average number of articles sold in Loblaw’s stores in the quarter. The increase in average article price
was due to sales mix; and
drug retail same-store sales growth was 3.7% for the quarter. Pharmacy same-store sales growth was 5.0% and front store
same-store sales growth was 2.8%.
In 2020, 19 food and drug stores were opened and 9 food and drug stores were closed, resulting in a net increase in retail square
footage of 0.2 million square feet, or 0.3%.
Financial services revenue in the fourth quarter of 2020 decreased by $17 million compared to the fourth quarter of 2019 mainly
due to lower interest income from lower volume of credit card receivables, and lower credit card related fees primarily driven by
lower customer spending. The decrease was partially offset by higher sales attributable to The Mobile Shop, and higher
interchange income due to prior year impact of a reclassification between revenue and expense of $19 million with no impact
to earnings before income tax.
OPERATING INCOME Loblaw operating income in the fourth quarter of 2020 was $700 million, an increase of $161 million
compared to the fourth quarter of 2019, which included the impact of the 53rd week of $67 million. The increase included an
improvement in underlying operating performance of $108 million and the favourable year-over-year net impact of adjusting
items totaling $53 million, as described below:
•
the improvement in underlying operating performance of $108 million was primarily due to an improvement in retail which
included the favourable contribution from the consolidation of franchises of $34 million. The improvement in the
underlying operating performance of retail was positively impacted by the 53rd week. This was partially offset by the
performance from financial services. In the fourth quarter of 2020, Loblaw incurred approximately $45 million in COVID-19
related costs in the quarter to ensure the safety and security of customers and colleagues.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 55 Management’s Discussion and Analysis
•
the favourable year-over-year net impact of adjusting items totaling $53 million was primarily due to the following:
the favourable year-over-year change in asset impairments, net of recoveries of $58 million; and
the favourable year-over-year impact of restructuring and other related costs of $14 million;
◦
◦
partially offset by,
◦
the unfavourable year-over-year impact of Loblaw’s fair value adjustment on non-operating properties of
$13 million; and
the unfavourable impact of reversal of certain prior period items in 2019 of $7 million.
◦
ADJUSTED EBITDA(1) Loblaw adjusted EBITDA(1) in the fourth quarter of 2020 was $1,330 million. When compared to the fourth
quarter of 2019, this represented an increase of $127 million, or 10.6%, which included the impact of the 53rd week of
$67 million. The increase was primarily due to the improved underlying operating performance in retail, partially offset by the
decline in financial services.
Retail adjusted EBITDA(1) in the fourth quarter of 2020 increased by $135 million, including the favourable impact of the
consolidation of franchises of $37 million and was driven by an increase in retail gross profit, partially offset by an increase in
retail SG&A.
•
•
Retail gross profit percentage of 29.4% decreased by 40 basis points compared to the fourth quarter of 2019. Excluding the
consolidation of franchises, retail gross profit percentage was 26.9%, a decrease of 80 basis points compared to the fourth
quarter of 2019. Food retail margins were negatively impacted as a result of COVID-19 related changes in sales mix and
competitive pricing. Drug retail margins were negatively impacted as a result of COVID-19 related changes in front store
sales mix. Excluding the 53rd week, retail gross profit percentage decreased by 70 basis points.
Excluding the consolidation of franchises, retail SG&A increased by $251 million and SG&A as a percentage of sales was
17.4%, a decrease of 20 basis points compared to the fourth quarter of 2019. The favourable decrease of 20 basis points was
primarily related to sales leverage as well as process and efficiency gains, which were partially offset by COVID-19 related
costs and incremental e-commerce labour costs as a result of increased online sales.
Financial services adjusted EBITDA(1) decreased by $8 million compared to the fourth quarter of 2019, primarily driven by lower
revenue as described above, partially offset by lower credit losses from the decrease in expected credit losses from an improving
economic outlook and lower contractual charge-off, and lower customer acquisitions costs.
Loblaw adjusted EBITDA(1) was not impacted by any sale and leaseback of properties to Choice Properties in the fourth quarter
of 2019 and 2020.
DEPRECIATION AND AMORTIZATION Loblaw’s depreciation and amortization in the fourth quarter of 2020 was $609 million,
an increase of $20 million compared to the fourth quarter of 2019. The increase in depreciation and amortization in the fourth
quarter of 2020 was primarily driven by the consolidation of franchises and an increase in IT assets.
Depreciation and amortization in the fourth quarter of 2020 included $117 million (2019 – $116 million) of amortization of
intangible assets related to the acquisition of Shoppers Drug Mart.
LOBLAW OTHER BUSINESS MATTERS
For details see Section 2.1, “Loblaw Operating Results”, of this MD&A.
56 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 5.2
Choice Properties Fourth Quarter Operating Results
(unaudited)
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019
($ millions except where otherwise indicated)
(12 weeks)
(12 weeks)
$ Change
% Change
Revenue
Net interest expense (income) and other financing
charges(i)
Net income
Funds from operations(1)(ii)
$
$
$
$
322
217
117
172
$
$
$
$
318 $
(74) $
294 $
166 $
4
291
(177)
6
1.3%
393.2%
(60.2) %
3.6%
(i)
(ii)
Net interest expense (income) and other financing charges includes a fair value adjustment on Exchangeable Units.
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 2020 was $322 million, an increase of $4 million, or 1.3%, compared to the fourth
quarter of 2019, and included $180 million (2019 – $178 million) generated from tenants within Loblaw retail. The increase was
primarily driven by development transfers and acquisitions, partially offset by the foregone revenue from sold properties.
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES Net interest expense and other financing charges in the fourth
quarter of 2020 were $217 million compared to net interest income and other financing charges of $74 million in the fourth
quarter of 2019. The increase of $291 million was primarily driven by the unfavourable year-over-year impact of the fair value
adjustment on Exchangeable Units of $294 million.
NET INCOME Net income in the fourth quarter of 2020 was $117 million, a decrease of $177 million compared to the fourth
quarter of 2019. The decrease was primarily driven by:
the unfavourable impact of higher net interest expense and other financing charges described above; and
an increase in expected credit loss provisions related to tenant receivables;
•
•
partially offset by,
•
the favourable year-over-year impact of the fair value adjustment on investment properties.
FUNDS FROM OPERATIONS(1) Funds from Operations(1) in the fourth quarter of 2020 was $172 million, an increase of $6 million
compared to the fourth quarter of 2019, primarily driven by non-recurring activity in the prior year related to a reimbursement to
Loblaw and lower borrowing and general and administrative costs, partially offset by an increase in expected credit loss
provisions related to tenant receivables.
CHOICE PROPERTIES OTHER BUSINESS MATTERS
For details see Section 2.2 “Choice Properties Operating Results”, of this MD&A.
5.3 Weston Foods Fourth Quarter Operating Results
(unaudited)
Quarters Ended
Dec. 31, 2020
Dec. 31, 2019
($ millions except where otherwise indicated)
(13 weeks)
(12 weeks)
$ Change
% Change
Sales
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
$
$
$
$
523
35
79
15.1%
41
$
$
$
$
522
27
56
$
$
$
10.7%
36
$
1
8
23
5
0.2%
29.6%
41.1%
13.9%
(i)
Depreciation and amortization includes $8 million (2019 – $3 million) of accelerated depreciation related to restructuring and other related
costs.
Unless otherwise indicated, Weston Foods’ operating results include the 53rd week and the impacts of COVID-19.
SALES Weston Foods sales in the fourth quarter of 2020 were $523 million, an increase of $1 million, or 0.2%, compared to the
fourth quarter of 2019. Sales included the positive impact of the 53rd week of approximately 5.6%, and the negative impact of
foreign exchange of approximately 0.8%. Excluding the favourable impact of the 53rd week and the negative impact of foreign
currency translation, sales decreased by 4.6%. Sales were impacted by a decrease in volumes in certain retail categories and
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 57 Management’s Discussion and Analysis
foodservice channels as a result of the COVID-19 pandemic, the unfavourable impact of product rationalization and the
combined negative impact of pricing and changes in sales mix.
OPERATING INCOME Weston Foods operating income in the fourth quarter of 2020 was $35 million, an increase of $8 million,
or 29.6%, compared to the fourth quarter of 2019, which included the positive impact of the 53rd week of $4 million. The
increase was due to the improvement in underlying operating performance of $23 million and the unfavourable year-over-year
net impact of adjusting items totaling $15 million. The year-over-year net impact of adjusting items included the following:
the unfavourable year-over-year impact of restructuring and other related costs of $17 million; and
the unfavourable year-over-year impact of the fair value adjustment of derivatives of $2 million;
•
•
partially offset by,
•
the favourable 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 2020 was $79 million compared to $56 million in
the fourth quarter of 2019, an increase of $23 million, or 41.1%. Excluding the favourable impact of the 53rd week of $4 million,
adjusted EBITDA(1) increased by $19 million, or 33.9%. The increase was driven by the net benefits realized from Weston Foods’
transformation program, productivity improvements, cost savings initiatives, and a decrease in performance related
compensation accruals, partially offset by the decline in sales as described above and an increase in COVID-19 related expenses.
Weston Foods adjusted EBITDA margin(1) in the fourth quarter of 2020 increased to 15.1% compared to 10.7% in fourth quarter
of 2019. The improvement in adjusted EBITDA margin(1) in the fourth quarter of 2020 was driven by the factors described above.
DEPRECIATION AND AMORTIZATION Weston Foods depreciation and amortization in the fourth quarter of 2020 was
$41 million, an increase of $5 million compared to the fourth quarter of 2019. Depreciation and amortization included
$8 million (2019 – $3 million) of accelerated depreciation related to Weston Foods’ transformation program. Excluding this
amount, depreciation and amortization was flat compared to the fourth quarter of 2019.
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, 2020.
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, 2020.
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 2020 that materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
58 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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. The
Company’s Enterprise Risk Management (“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 Statement and within approved risk tolerances. The Risk Appetite Statement articulates key aspects of the Company’s
businesses, values and brands, and provides directional guidance on risk taking.
(i)
Risks are assessed and evaluated based on the Company’s vulnerability to the risk and the potential impact that the underlying risks would
(ii)
have on the Company’s ability to execute on its strategies and achieve its objectives.
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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 59 Management’s Discussion and Analysis
8.1
COVID-19 Risks and Risk Management
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Since the onset of the pandemic, the
Company and its operating segments have taken and will continue to take actions to mitigate the effects of COVID-19 on day-
to-day business operations, with the best interests of its employees, customers, tenants, suppliers and other stakeholders at the
crux of every action taken.
The duration and full impact of the COVID-19 pandemic on the Company remains unknown at this time. As such, it is not
possible to reliably estimate the length and severity of COVID-19 related impacts on the future financial results and operations of
the Company. The Company continues to closely monitor the situation as it evolves day-to-day and may take further actions in
response to directives of government and public health authorities or that are in the best interests of its colleagues, customers,
suppliers or other stakeholders, as necessary.
Loblaw remains committed to keeping its grocery stores and pharmacies, including its Shoppers Drug Mart locations, open and
stocked, all while ensuring appropriate measures are in place to protect the health and safety of its frontline colleagues and
customers. A dedicated COVID-19 response team established by its management in the early stages of the pandemic is
coordinating the Loblaw’s crisis management response. Loblaw is also dedicated to promoting the health of the communities in
which it operates and has played an important role in asymptomatic COVID-19 testing in Canada.
Choice Properties introduced protocols to protect its employees, tenants and guests including mandating that employees work
from home to the full extent possible, increasing sanitation and health and safety measures at its properties and restricting
access to its office building. Choice Properties implemented additional safety measures at all of its properties, including
increased frequency in cleaning and disinfecting as well as physical distancing practices.
Weston Foods continues to take action to mitigate the effects of COVID-19 on its day-to-day business operations. Weston Foods
remains committed to delivering quality products to its foodservice and retail customers. The COVID-19 pandemic has created
volatility in consumer demand for certain categories of products in both the retail and foodservice channels, which requires
Weston Foods to carefully manage production planning and may, if required, result in temporary facility closures.
The COVID-19 pandemic has influenced and may continue to influence several of the risk factors set out in the “Operating Risks
and Risk Management” and “Financial Risks and Risk Management” sections below and in the AIF. Changes in the Company’s
operations in response to COVID-19 could materially impact financial results and may include temporary closures of facilities,
temporary or long-term labour shortages or disruptions, temporary or long-term impacts on supply chains and distribution
channels, temporary or long-term restrictions on cross-border commerce and travel including mandatory quarantine periods,
greater currency volatility, and increased risks to IT systems, networks and digital services. In addition, the COVID-19 pandemic
has changed consumer behaviours and accelerated the advancement of disruptive technologies and has resulted in a
significant increase in e-commerce competition. The Company’s inability to keep up with the pace of such behavioural changes
or technological advancements or with its competitors could adversely affect the Company’s operations or financial
performance. The Company’s performance may also be affected by the availability and efficacy of vaccines and the effectiveness
of plans to administer those vaccines across the country.
The spread of COVID-19 has caused an economic slowdown and increased volatility in financial markets. Governments and
central banks have responded with monetary and fiscal interventions intended to stabilize economic conditions. Although the
ultimate impact of COVID-19 on the global economy and its duration remains uncertain, disruptions caused by COVID-19 may
adversely affect the performance of the Company.
Uncertain economic conditions resulting from the COVID-19 pandemic may, in the short or long term, adversely impact
operations and the financial performance of the Company, including by adversely impacting demand for certain of the
Company’s products and services and/or the debt and equity markets. Governmental interventions aimed at containing
COVID-19 could also impact the Company’s available workforce, its supply chain and distribution channels, the products and
services it is able to offer and/or its ability to engage in cross-border commerce.
60 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 8.2
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, 2020, which is hereby incorporated by reference:
Cybersecurity, Privacy and Data Breaches
Inventory Management
Electronic Commerce and Disruptive Technologies
Governance, Change Management, Process and Efficiency
Competitive Environment and Strategy
Employee Attraction, Development and Succession Planning
Healthcare Reform
IT Systems Implementations and
Data Management
Distribution and Supply Chain
Labour Relations
Food, Drug and Product and Services Safety
Legal Proceedings
Property Valuation
Capitalization Rate Risk
Service Providers
Economic Conditions
Franchisee Relationships
Associate-owned Drug Store Network and Relationships
with Associates
Regulatory Compliance
Tenant Concentration
Commodity Prices
Execution of Strategic Initiatives
Property Development and Construction
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 and PC Money Account 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 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 or PC Money
Account 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 61 Management’s Discussion and Analysis
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, 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.
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
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 its strategic growth areas of Everyday Digital Retail,
Payments and Rewards and Connected Healthcare, which are all subject to competitive pressures. Failure to achieve these or
other strategic priorities could adversely affect the Company’s financial position and its competitiveness.
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 competes with other investors, developers, 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.
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.
62 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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. 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. These payers have pursued and continue to pursue measures to
manage the costs of their drug plans. Canada and each of the provinces 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. Additionally, the pan-Canadian Pharmaceutical
Alliance 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 and prescription drug pricing, legislative or otherwise, are expected to
continue to put downward pressure on the value of 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 and pharmacy services. 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, privacy and confidentiality
and interactions with provincial drug and eHealth systems, 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.
IT SYSTEMS IMPLEMENTATIONS AND DATA MANAGEMENT The operations of the Company are reliant on the continuous and
uninterrupted operations of critical technology systems. Any technology failure/outage pertaining to availability, capacity or
sustainability of the Company’s IT systems may result in disruptions impacting the Company’s customers or financial
performance, or may negatively impact the Company’s reputation. 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 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 in turn could 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 63 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. Moreover, lack of sensitive data classification,
protection and use case approval may result in operational or reputational risk.
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, public health 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.
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.
FOOD, DRUG AND PRODUCT AND SERVICES SAFETY 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.
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
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 plans. The Company has not recorded any amounts related to the potential civil liability associated with the class
action lawsuits in 2020 or prior on the basis that a reliable estimate of the liability cannot be determined at this time. The
Company and Loblaw will continue to assess whether a provision for civil liability associated with the class action lawsuits can be
64 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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. In February 2020, a further opioid-related class action
was commenced in British Columbia against a large group of defendants, including Sanis Health Inc., Shoppers Drug Mart Inc.
and Loblaw. The allegations in the Ontario, Quebec and the civil British Columbia class actions are similar to the allegations
against manufacturer defendants in the Province of British Columbia class action, except that these May 2019 and February
2020 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 matter was heard by the Federal Court of Appeal and on April 23, 2020, the Federal Court of Appeal
released its decision and reversed the decision of the Tax Court. On October 29, 2020, the Supreme Court granted the Crown
leave to appeal and on November 30, 2020, the Crown filed a Notice of Appeal with the Supreme Court. Subsequent to the end
of the year, the Supreme Court scheduled the hearing of the appeal for May 13, 2021. Loblaw has not reversed any portion of the
$367 million of charges recorded during the third quarter of 2018, of which $176 million was recorded in interest and
$191 million was recorded in income taxes.
PROPERTY VALUATION 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.
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.
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) changes in zoning and land use laws; (d) the ability to achieve an acceptable
level of occupancy upon completion; (e) the potential that Choice Properties may fail to recover expenses already incurred if it
abandons redevelopment opportunities after commencing to explore them; (f) the potential that Choice Properties may expend
funds on and devote management time to projects which are not completed; (g) 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; (h) 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; (i) the cost and timely completion of construction (including risks beyond
Choice Properties’ control, such as weather, labour conditions or material shortages); (j) contractor and subcontractor disputes,
strikes, labour disputes or supply disruptions; (k) occupancy rates and rents of a completed project may not be sufficient to make
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 65 Management’s Discussion and Analysis
the project profitable; (l) 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 (m) 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, 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 inventory 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.
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.
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 the Company’s administrative, store, manufacturing, and distribution network infrastructures, and other
organizational changes.
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 and
retain 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 businesses and execute its strategies, which in turn, could adversely affect the Company’s reputation, 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.
66 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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 and PC Money Account. 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.
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, pandemics,
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.
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.
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, 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 67 Management’s Discussion and Analysis
Loblaw is subject to 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 minimum common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of
8.5% and a total capital ratio of 10.5%. 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
regulations 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.
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. The future financial performance and operating results of Loblaw are subject to
inherent risks, uncertainties, and other factors. 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
68 GEORGE WESTON LIMITED 2020 ANNUAL REPORT opportunities or from the execution of the Company’s strategies. Finally, any acquisition or divestiture activities may present
unanticipated costs and managerial and operational risks, including the diversion of management’s time and attention from
day-to-day activities. If the Company’s strategies are not effectively developed and executed, it could negatively affect the
reputation, operations or financial performance of the Company.
CONSUMER AND RETAIL CUSTOMER TRENDS The North American bakery market continues to evolve as consumer preferences
and consumption patterns shift. As a result of evolving retail customer trends, 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.
8.3
Financial Risks and Risk Management
FINANCIAL RISKS The Company is exposed to a number of financial risks, including those associated with financial instruments,
which have the potential to affect its operating and financial performance. The Company uses over-the-counter derivative
instruments to offset certain of these risks. Policies and guidelines prohibit the use of any derivative instrument for trading or
speculative purposes. The fair value of derivative instruments is subject to changing market conditions which could adversely
affect the financial performance of the Company.
The following is a summary of the Company’s financial risks which are discussed in detail below:
Liquidity
Foreign Currency Exchange Rates
Credit
Common Share and Trust Unit Prices
Interest Rates
Credit Rating
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, which requires a reliable source of funding for its credit card business. PC Bank relies on its securitization programs,
demand deposits from customers 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, finance lease 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 69 Management’s Discussion and Analysis
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 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 $128.30 (2019 – $123.64) per Loblaw common share as at year end
2020. 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.
CREDIT RATING Credit ratings assigned to the Company and any of its securities may be changed at any time based on the
judgment of the credit rating agencies and may also be impacted by a change in the credit rating of Loblaw, Choice Properties
and their respective affiliates. In addition, the Company, Loblaw, Choice Properties and their respective affiliates may incur
additional indebtedness in the future, which could impact current and future credit ratings. A reduction in credit ratings could
materially adversely affect the market value of the Company’s outstanding securities and the Company’s access to and cost of
financing.
70 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 9.
Related Party Transactions
Galen G. Weston beneficially owns or controls, directly and indirectly, through Wittington Investments, Limited (“Wittington”), a
total of 78,647,040 of GWL’s common shares, representing approximately 51.6% of GWL’s outstanding common shares (2019 -
Mr. W Galen Weston owned or controlled approximately 53.2%).
In the ordinary course of business, the Company enters into various transactions with related parties. These transactions are
measured at the exchange amount, which is the amount of consideration established and agreed upon by the related parties.
Transactions between the Company and its consolidated entities have been eliminated on consolidation and are not disclosed
below.
In 2020, the Company made rental payments to Wittington in the amount of $3 million (2019 – $5 million). As at year end 2020
and 2019, there were no rental payments outstanding.
In 2020, inventory purchases from Associated British Foods plc, a related party by virtue of a common director of such entity’s
parent company and GWL’s parent company, amounted to $51 million (2019 – $38 million). As at year end 2020, $3 million
(2019 – $2 million) was included in trade payables and other liabilities relating to these inventory purchases.
TRANSACTION BETWEEN CHOICE PROPERTIES AND WITTINGTON
On July 31, 2020, Choice Properties acquired two real estate assets from Wittington Properties Limited, a subsidiary of
Wittington, for an aggregate purchase price of $209 million, excluding transaction costs, which was satisfied in full by the
issuance of 16.5 million Trust Units of Choice Properties.
The assets acquired included: (i) the Weston Centre, an office and retail property in Toronto, Ontario for $129 million and (ii) the
remaining 60% interest in a joint venture between Choice Properties and Wittington Properties Limited for $80 million, less a
cost-to-complete receivable of $16 million, giving Choice Properties 100% ownership of the joint venture.
Weston Centre The Company had multiple lease arrangements with Wittington, in addition to existing leases with Choice
Properties at the Weston Centre. Upon acquisition of the property, the Company recognized a gain of $6 million in operating
income from the derecognition of its net impact of lease obligations and right-of-use assets associated with the property and
will cease paying rents to Wittington. Due to continued tenancy on the property through its group of companies, $51 million
was recorded in fixed assets as own-use property and $78 million was recorded in investment properties.
Operating Lease Choice Properties entered into a ten-year lease for office space with Wittington that commenced in 2014.
Lease payments totaled $3 million over the term of the lease. As of the acquisition date, Choice Properties de-recognized its
right-of-use assets and lease liabilities with the office lease and will cease paying rents to Wittington.
Joint Venture In 2014, a joint venture, partnership known as West Block between Choice Properties and Wittington Properties
Limited, completed the acquisition of a parcel of land located on 500 Lakeshore Boulevard West in Toronto, Ontario from
Loblaw. Choice Properties used the equity method of accounting to record its 40% interest in the joint venture.
During the second quarter of 2020, Loblaw recognized $65 million of right-of-use assets and lease liabilities related to the leases
of retail stores and a corporate office with the joint venture.
During the third quarter of 2020, Choice Properties acquired the remaining 60% interest of the joint venture, after which the
investment was accounted for on a consolidated basis. As a result of the increase in ownership, the Company recorded a
$5 million fair value loss before income taxes in other comprehensive income, and a gain of $4 million in operating income from
the derecognition of its net impact of lease obligations and right-of-use assets associated with the property and will cease
paying rents to Wittington. Due to continued tenancy on the property through its group of companies, $95 million was recorded
in fixed assets as own-use property and $13 million was recorded in investment properties. Wittington will continue to act as the
development and construction manager for the commercial space until development is completed.
VENTURE FUND During the second quarter of 2020, GWL, Loblaw and a wholly-owned subsidiary of Wittington became limited
partners in a limited partnership formed by Wittington (“Venture Fund”). A wholly-owned subsidiary of Wittington is the general
partner of the Venture Fund, which hired an external fund manager to oversee the Venture Fund. The purpose of the Venture
Fund is to pursue venture capital investing in innovative businesses that are in technology-oriented companies at all stages of
the start-up life cycle that operate in commerce, healthcare, and food sectors and are based in North America. Each of the three
limited partners have a 33% interest in the Fund. The Company participates in the Fund’s Investment Committee which, among
other items, approves the initial investments. The Company uses the equity method of accounting to record its consolidated
66% interest in the Venture Fund. The Company has a consolidated capital commitment of $66 million over a 10-year period. In
2020, on a consolidated basis, the Company invested $13 million in the Venture Fund, which was recorded in other assets.
Subsequent to year-end 2020, on a consolidated basis, the Company invested an additional $5 million in the Venture Fund.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 71 Management’s Discussion and Analysis
POST-EMPLOYMENT BENEFIT PLANS The Company sponsors a number of post-employment plans, which are related parties.
Contributions made by the Company to these plans are disclosed in the notes to the consolidated financial statements.
INCOME TAX MATTERS From time to time, the Company and Wittington may enter into agreements to make elections that are
permitted or required under applicable income tax legislation with respect to affiliated corporations.
COMPENSATION OF KEY MANAGEMENT PERSONNEL The Company’s key management personnel is comprised of certain
members of the executive team of GWL, Loblaw, Weston Foods and Wittington, as well as members of the Boards of GWL,
Loblaw and Wittington to the extent that they have the authority and responsibility for planning, directing and controlling the
day-to-day activities of the Company.
Annual compensation of key management personnel that is directly attributable to the Company was as follows:
($ millions)
Salaries, director fees and other short-term employee benefits
Equity-based compensation
Total compensation
2020
12
11
23
$
$
$
$
2019
13
11
24
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, future cash flows, discount rates,
capitalization rates and terminal rates. The Company determines value in use by using estimates including projected future
72 GEORGE WESTON LIMITED 2020 ANNUAL REPORT revenues, earnings and capital investments consistent with strategic plans presented to the Board of Directors at GWL and
Loblaw, and discount rates 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 and Key Sources of Estimation 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 condition, namely the unemployment rate. Management uses unemployment rate forecasts
published by major Canadian Chartered Banks and the Conference Board of Canada to establish the base case scenario
and other representative ranges of possible forecast scenarios.
FAIR VALUE OF INCOME PRODUCING PROPERTIES
Key Sources of Estimation The fair value of income producing properties is dependent on future cash flows over the holding
period, terminal capitalization rates, and discount rates applicable to those assets. The review of future cash flows involves
assumptions relating to occupancy, rental rates, and residual value. In addition to reviewing future 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 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 consolidated balance sheets and statements 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
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 73 Management’s Discussion and Analysis
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.
11.
Accounting Standards Implemented
NEW SIGNIFICANT ACCOUNTING POLICIES
Investments Accounted For Under The Equity Method Investments accounted for under the equity method represent an
investment in an entity (“investee”) in which the Company has significant influence, but not control, over the financial and
operating policies. The investment is initially recognized in the consolidated balance sheets at cost, which includes transaction
costs. Subsequent to the initial recognition, the investment is adjusted to recognize the Company's share of the profit or loss and
other comprehensive income of the investee, until the date on which significant influence ceases. The Company’s share of the
investee’s profit or loss is recognized in SG&A. An investment is considered to be impaired if there are objective evidences of
impairments, as a result of one or more events that occurred after the initial recognition, and those events have negative impacts
on the future cash flows of the investee that can be reliably estimated. The investment is reviewed at each balance sheet date to
determine whether there is any indication of impairment.
Demand Deposits from Customers Demand deposits from customers are comprised of balances in customers’ debit accounts
with PC Money Account and are measured at amortized cost.
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 reporting periods beginning on or after January 1, 2023 and is to be applied
retrospectively. 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 2021, the Company expects adjusted net earnings(1) to increase due to the results from its operating segments as described
below. Additionally, the Company expects to return capital to shareholders through share repurchases by allocating a portion of
the free cash flow received from its operating businesses and proceeds from participating in Loblaw’s normal course issuer bid.
Loblaw Loblaw cannot predict the precise impacts of COVID-19 on its 2021 financial results. However, Loblaw anticipates that
grocery sales will remain elevated in the first half due to continued impact of the pandemic, including the impact of lockdown
measures in many jurisdictions. As economies reopen, revenue growth will be challenged compared to elevated 2020 sales.
Loblaw expects that in 2021 costs will be lower compared to those incurred in 2020 as a result of COVID-19, and as Process &
Efficiencies and Data-Driven Insights programs continue to deliver benefits. Moderate levels of regulatory drug reform are
anticipated.
Loblaw expects:
•
•
•
•
•
its core retail business to grow earnings faster than sales;
growth in financial services profitability;
EPS growth in the low double digits, excluding the impact of the 53rd week;
to invest approximately $1.2 billion in capital expenditures, net of proceeds from property disposals; and
to return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.
In the four weeks following the end of the quarter, Loblaw’s food same-store sales growth remained elevated and drug same-
store sales growth slowed in front store while remaining consistent in pharmacy. For the balance of the first quarter, both food
and drug same-store sales will lap consumer stockpiling that began in the first quarter of 2020. COVID-19 related costs are
trending in the range of $40 to $50 million for the first quarter of 2021.
Choice Properties Choice Properties’ real estate platform is positioned to deliver both income stability and long-term growth for
its investors, underpinned by disciplined financial management.
Although the duration and longer-term impact of the COVID-19 pandemic cannot be predicted, Choice Properties remains
confident that its business model and disciplined approach to financial management will enable it to weather the impact of
COVID-19. Choice Properties’ diversified portfolio of office, retail and industrial properties is 97.1% occupied and leased to high-
74 GEORGE WESTON LIMITED 2020 ANNUAL REPORT quality tenants across Canada. Its retail portfolio is primarily leased to grocery stores, pharmacies and other necessity-based
tenants, which continue to perform well in this environment, and the diversification of income provided by Choice Properties’
industrial and office assets provides stability to Choice Properties’ overall portfolio.
Despite the ongoing impact of the pandemic, Choice Properties continues to advance its development initiatives, which provide
Choice Properties with the best opportunity to add high-quality real estate to its portfolio at a reasonable cost. Choice Properties
has a mix of development projects ranging in size, scale, and complexity, including retail intensification projects, which provide
incremental growth to its existing sites, to larger, more complex mixed-use developments which are expected to drive net asset
value growth in the future.
The majority of Choice Properties’ active development pipeline is focused on growing its rental residential portfolio. In addition
to ongoing residential development, Choice Properties continues to evaluate opportunities within its portfolio to redevelop and
transform grocery anchored retail projects into large scale major mixed-use projects.
In 2021, Choice Properties plans to continue improving its portfolio quality and seek out opportunities to strengthen its balance
sheet by extending debt maturities with longer term debt.
Weston Foods Weston Foods expects first quarter 2021 financial results to be challenged relative to the strong financial
performance in the fourth quarter of 2020 due to the impact of ongoing government-mandated lockdowns and social
distancing protocols in both Canada and United States associated with the COVID-19 pandemic. In the four weeks following the
end of the fourth quarter of 2020, the weekly run rate for incremental COVID-19 related costs incurred to protect its colleagues
was approximately $0.3 million.
The uncertainty associated with the pandemic makes it difficult to reliably estimate future sales trends and the overall financial
performance of the business. Weston Foods’ expectations for full year 2021 assume that stricter government-mandated
lockdowns implemented in many regions in the fourth quarter of 2020 will be relaxed by the end of the first quarter of 2021. On
that basis, Weston Foods expects:
•
sales to be modestly higher compared to 2020, after excluding the impact of foreign currency translation and the impact of
the 53rd week in fiscal 2020;
adjusted EBITDA(1) to be higher compared to 2020;
capital expenditures to decrease to approximately $145 million; and
depreciation to increase in the mid-single digits compared to 2020.
•
•
•
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 and 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 effective 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 materials 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.
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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 75 Management’s Discussion and Analysis
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
Weston
Foods
Other &
Intersegment
Consolidated
Quarters Ended
Dec. 31, 2020
(13 weeks)
Dec. 31, 2019(ii)
(12 weeks)
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
$
299
$
443
214
148
245
135
133
7
718
Operating income
$ 700 $ 332 $ 35 $
(161) $
906
$ 539 $
220 $
27 $
(68) $
Add impact of the following:
Amortization of intangible
assets acquired
with Shoppers Drug Mart
Fair value adjustment on
investment properties
Restructuring and other
related costs
Asset impairments, net of
recoveries
Fair value adjustment of non-
operating properties
Fair value adjustment of
derivatives
Gain on sale of non-operating
properties
Inventory loss, net of recoveries
Certain prior period items
Foreign currency translation and
other company level activities
$
117 $
— $
— $
— $
117
$
116 $
— $
— $
— $
116
—
(103)
—
100
(3)
—
10
17
9
(7)
(8)
—
—
—
—
—
—
—
—
—
—
(4)
13
—
—
(2)
—
—
—
—
—
6
—
—
—
—
—
—
23
23
9
(9)
(8)
—
—
(4)
24
75
(4)
(5)
(8)
—
(7)
—
5
—
—
—
—
—
—
—
—
—
(4)
—
—
(4)
—
4
—
—
34
10
(38)
—
—
—
—
7
(1)
39
30
37
(4)
(9)
(8)
4
—
(1)
Adjusting items
$ 138 $ (107) $
11 $
106 $
148
$
191 $
5 $
(4) $
12 $
204
Adjusted operating income (loss)
$ 838 $ 225 $ 46 $
(55) $
1,054
$ 730 $
225 $
23 $
(56) $
922
Depreciation and amortization
excluding the impact of the
above adjustments(i)
492
1
33
(79)
447
473
—
33
(77)
429
Adjusted EBITDA
$ 1,330 $ 226 $ 79 $
(134) $
1,501
$ 1,203 $
225 $
56 $
(133) $
1,351
(i)
(ii)
Depreciation and amortization for the calculation of adjusted EBITDA excludes $117 million (2019 – $116 million) of amortization of
intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $8 million (2019 – $3 million) of accelerated depreciation
recorded by Weston Foods, related to restructuring and other related costs.
Certain comparative figures have been restated to conform with current year presentation.
76 GEORGE WESTON LIMITED 2020 ANNUAL REPORT (unaudited)
($ millions)
Loblaw
Choice
Properties
Weston
Foods
Other &
Intersegment
Consolidated
Loblaw
Choice
Properties
Weston
Foods
Other &
Intersegment
Consolidated
Years Ended
Dec. 31, 2020
(53 weeks)
Dec. 31, 2019(ii)
(52 weeks)
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
$
963
$
242
619
475
831
581
431
1,704
Operating income
$ 2,357 $ 622 $
3 $
(94) $ 2,888
$ 2,262 $ 890 $
72 $
(266) $ 2,958
Add impact of the following:
Amortization of intangible
assets acquired
with Shoppers Drug Mart
Fair value adjustment on
investment properties
Restructuring and other
related costs
Asset impairments, net of
recoveries
Fair value adjustment on non-
operating properties
Fair value adjustment of
derivatives
Acquisition transaction costs
and other related costs
Gain on sale of non-operating
properties
Pension annuities and buy-outs
Inventory loss, net of recoveries
Loblaw’s spin-out of Choice
Properties
Certain prior period items
Foreign currency translation and
other company level activities
$ 509 $
— $
— $
— $
509
$ 508 $
— $
— $
— $
508
—
257
—
(72)
185
—
15
58
17
9
5
—
(9)
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
(5)
50
—
—
2
—
—
—
—
—
—
—
—
6
—
—
—
—
—
—
—
—
2
108
23
9
7
2
(9)
—
—
—
—
74
75
(7)
—
—
(12)
10
—
—
(22)
(3)
—
—
—
—
—
8
—
—
—
—
—
—
—
11
—
—
—
—
—
—
2
—
—
—
85
100
10
95
(38)
37
—
—
—
—
—
—
1
7
(7)
—
8
(12)
10
2
1
(15)
(3)
(3)
Adjusting items
$ 589 $ 254 $ 52 $
(64) $
831
$ 626 $
23 $
13 $
62 $
724
Adjusted operating income
$ 2,946 $ 876 $ 55 $
(158) $ 3,719
$ 2,888 $ 913 $ 85 $
(204) $ 3,682
Depreciation and amortization
excluding the impact of the
above adjustments(i)
2,087
3
145
(347)
1,888
2,016
1
138
(354)
1,801
Adjusted EBITDA
$ 5,033 $ 879 $ 200 $
(505) $ 5,607
$ 4,904 $ 914 $ 223 $
(558) $ 5,483
(i)
(ii)
Depreciation and amortization for the calculation of adjusted EBITDA excludes $509 million (2019 – $508 million) of amortization of
intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $30 million (2019 – $9 million) of accelerated depreciation
recorded by Weston Foods, related to restructuring and other related costs.
Certain comparative figures have been restated to conform with current year presentation.
The following items impacted adjusted EBITDA(1) in 2020 and 2019:
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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 77 Management’s Discussion and Analysis
Fair value adjustment on investment properties The Company measures investment properties at fair value. 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.
Fair value adjustment on non-operating properties Loblaw measures non-operating properties, which are investment
properties and assets held for sale that were transferred from investment properties, at fair value. Under the fair value model,
non-operating properties are initially measured at cost and subsequently measured at fair value. Fair value using the income
approach include assumptions as to market rental rates for properties of similar size and condition located within the same
geographical areas, recoverable operating costs for leases with tenants, non-recoverable operating costs, vacancy periods, tenant
inducements and terminal capitalization rates. Gains and losses arising from changes in the fair value are recognized in
operating income in the period in which they arise.
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.
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.
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.
Acquisition transaction costs and other related costs Choice Properties recorded transaction and other related costs in
connection with the acquisition of Canadian Real Estate Investment Trust.
Gain on sale of non-operating properties In 2020, Loblaw disposed of a non-operating property to a third party and recorded a
gain of $9 million (2019 - gain of $12 million).
Pension annuities and buy-outs The Company has undertaken 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.
Inventory loss, net of recoveries In 2019, Weston Foods recorded damaged inventory of $4 million that was written off and was
recorded in SG&A, partially offset by proceeds from insurance claims related to previous year losses.
Loblaw’s spin-out of Choice Properties In the second quarter of 2019, the Company recorded transaction and other related
costs in connection with the spin-out of Loblaw’s interest in Choice Properties.
Certain prior period items In the second quarter of 2019, Loblaw revised its estimate of the amount owed associated with a
prior period regulatory matter.
Foreign currency translation and other company level activities The Company’s consolidated financial statements are
expressed in Canadian dollars. A portion of the Company’s (excluding Loblaw’s) net assets are denominated in U.S. dollars and as
a result, the Company is exposed to foreign currency translation gains and losses. The impact of foreign currency translation on a
portion of the U.S. dollar denominated net assets, primarily cash and cash equivalents and short-term investments held by
foreign operations, is recorded in SG&A and the associated tax, if any, is recorded in income taxes. Other company level activities
include fair value adjustments related to investments and certain financial assets and liabilities held by the Company.
78 GEORGE WESTON LIMITED 2020 ANNUAL REPORT ADJUSTED NET INTEREST EXPENSE AND OTHER FINANCING CHARGES The Company believes adjusted net interest expense
and other financing charges is useful in assessing the ongoing net financing costs of the Company.
The following table reconciles adjusted net interest expense and other financing charges to GAAP net interest expense and
other financing charges reported for the periods ended as indicated.
(unaudited)
($ millions)
Quarters Ended
Years Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
(53 weeks)
(52 weeks)
Net interest expense and other financing charges
$
245
$
7
$
831
$
Add: Fair value adjustment of the Trust Unit liability
(20)
203
239
Fair value adjustment of the forward sale
agreement for 9.6 million Loblaw
common shares
Choice Properties issuance costs
Adjusted net interest expense and other
financing charges
61
—
67
—
47
—
$
286
$
277
$
1,117
$
1,071
1,704
(550)
(69)
(14)
In addition to certain items described in the “Adjusted EBITDA” section above, the following items impacted net interest
expense and other financing charges in the fourth quarters and year-to-date of 2020 and 2019:
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 $14 million related to the offering of Trust Units
in 2019.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 79 Management’s Discussion and Analysis
ADJUSTED INCOME TAXES AND ADJUSTED EFFECTIVE TAX RATE The Company believes the adjusted effective tax rate
applicable to adjusted earnings before taxes is useful in assessing the underlying operating performance of its business.
The following table reconciles the effective tax rate applicable to adjusted earnings before taxes to the GAAP effective tax rate
applicable to earnings before taxes as reported for the periods ended as indicated.
(unaudited)
($ 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
Outside basis difference in certain
Loblaw shares
Reserve release related to 2014 tax audit
Quarters Ended
Years Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
(53 weeks)
(52 weeks)
$
1,054
$
922
$
3,719
$
3,682
286
768
148
$
$
$
$
35
(2)
—
4
—
277
645
133
38
—
—
—
—
1,117
2,602
475
$
$
$
$
197
7
2
(2)
—
1,071
2,611
431
189
15
10
—
8
653
34.4%
Adjusted income taxes
$
185
$
171
$
679
$
Effective tax rate applicable to earnings before taxes
22.4%
18.7%
23.1%
Adjusted effective tax rate applicable to adjusted
earnings before taxes
24.1%
26.5%
26.1%
25.0%
(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 tax rate in the fourth quarters and year-
to-date of 2020 and 2019:
Remeasurement of deferred tax balances In the third quarter of 2020, as a result of Choice Properties issuing Trust Units to a
related party, the Company recorded a tax recovery of $9 million related to the remeasurement of certain deferred income tax
balances resulting from the dilution of its interest in Choice Properties. In the fourth quarter of 2020, as a result of Choice
Properties issuing Class B partnership units to the Company, the Company recorded a tax expense of $2 million related to the
remeasurement of certain deferred income tax balances resulting from the change in its interest in Choice Properties.
As a result of the remeasurement of certain deferred income tax balances in the second quarter of 2019, the Company recorded
a tax recovery of $15 million related to the remeasurement of certain deferred income tax balances resulting from the dilution of
its interest in Choice Properties.
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 first quarter of 2020, the Government of Nova Scotia substantively enacted a decrease in the provincial statutory corporate
income tax rate from 16% to 14% effective April 1, 2020. The Company recorded a tax recovery of $2 million in the first quarter
of 2020 related to the remeasurement of its deferred income tax balances.
In the second quarter of 2019, the Government of Alberta announced and substantively enacted a gradual decrease in the
provincial statutory corporate income tax rate from 12% to 8% by 2022. The Company recorded a tax recovery of $10 million in
the second quarter of 2019 related to the remeasurement of its deferred income tax balances.
80 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Outside basis difference in certain Loblaw shares The Company recorded a deferred tax recovery of $4 million in the fourth
quarter of 2020 and deferred tax expense of $2 million year-to-date on temporary differences in respect of GWL’s investment in
certain Loblaw shares that are expected to reverse in the foreseeable future as a result of GWL’s participation in Loblaw’s NCIB
program.
Reserve release related to 2014 tax audit In the third quarter of 2019, Loblaw reversed certain tax reserves following the
completion of a tax audit that included a review of the Shoppers Drug Mart acquisition costs incurred in 2014.
ADJUSTED NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS AND ADJUSTED DILUTED NET EARNINGS PER
COMMON SHARE The Company believes that adjusted net earnings available to common shareholders and adjusted diluted
net earnings per common share are useful in assessing the Company’s underlying operating performance and in making
decisions regarding the ongoing operations of its business.
The following table reconciles adjusted net earnings available to common shareholders of the Company and adjusted net
earnings attributable to shareholders of the Company to net earnings attributable to shareholders of the Company and then to
net earnings available to common shareholders of the Company reported for the periods ended as indicated.
(unaudited)
($ millions except where otherwise indicated)
Net earnings attributable to shareholders of
the Company
Less: Prescribed dividends on preferred shares in
Quarters Ended
Years Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
(13 weeks)
(12 weeks)
(53 weeks)
(52 weeks)
$
299
$
443
$
963
$
242
share capital
(10)
(10)
(44)
(44)
Net earnings available to common shareholders
of the Company
$
289
$
433
$
919
$
198
Less: Reduction in net earnings due to dilution
at Loblaw
(1)
(1)
(4)
(4)
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
$
$
$
288
$
432
$
915
$
194
299
$
443
$
963
$
23
(171)
136
242
919
322
$
272
$
1,099
$
1,161
share capital
(10)
(10)
(44)
(44)
Adjusted net earnings available to common
shareholders of the Company
Less: Reduction in net earnings due to dilution
$
312
$
262
$
1,055
$
1,117
at Loblaw
(1)
(1)
(4)
(4)
Adjusted net earnings available to common
shareholders for diluted earnings per share
Diluted weighted average common shares
outstanding (in millions)
$
311
$
261
$
1,051
$
1,113
153.3
154.0
153.5
153.7
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 81 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, 2020
(13 weeks)
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)
Dec. 31, 2019(ii)
(12 weeks)
Diluted
Net
Earnings
Per
Common
Share
289 $
1.88
$
433 $
2.81
45 $
0.29
$
44 $
$
$
(unaudited)
($ except where otherwise indicated)
As reported
Add (deduct) impact of the following(i):
Amortization of intangible assets acquired
with Shoppers Drug Mart
Fair value adjustment on investment properties
Restructuring and other related costs
Asset impairments, net of recoveries
Fair value adjustment of non-operating properties
Fair value adjustment of derivatives
Gain on sale of non-operating properties
Inventory loss, net of recoveries
Certain prior period items
Fair value adjustment of the Trust Unit liability
Fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares
Outside basis difference in certain Loblaw shares
Statutory corporate income tax rate change
Remeasurement of deferred tax balances
Foreign currency translation and other company
level activities
Adjusting items
Adjusted
(3)
14
11
4
(5)
(3)
—
—
20
(53)
(4)
(1)
2
(4)
$
$
23 $
312 $
(0.02)
0.09
0.08
0.03
(0.03)
(0.02)
—
—
0.13
(0.34)
(0.03)
(0.01)
0.01
(0.03)
0.15
2.03
35
16
2
(2)
(5)
(3)
2
2
(203)
0.29
0.23
0.10
—
(0.01)
(0.03)
(0.02)
0.01
0.01
(1.31)
(58)
(0.38)
—
—
—
(1)
$
$
(171) $
262 $
—
—
—
(0.01)
(1.12)
1.69
(i)
(ii)
Net of income taxes and non-controlling interests, as applicable.
Certain comparative figures have been restated to conform with current year presentation.
82 GEORGE WESTON LIMITED 2020 ANNUAL REPORT
Years Ended
Dec. 31, 2020
(53 weeks)
Net
Earnings
Available to
Common
Shareholders of
the Company
($ millions)
Diluted
Net
Earnings
Per
Common
Share
Net (Loss)
Earnings
Available to
Common
Shareholders of
the Company
($ millions)
Dec. 31, 2019(ii)
(52 weeks)
Diluted
Net (Loss)
Earnings
Per
Common
Share
919 $
5.96
$
198 $
1.26
$
$
(unaudited)
($ except where otherwise indicated)
As reported
Add (deduct) impact of the following(i):
Amortization of intangible assets acquired
with Shoppers Drug Mart
Fair value adjustment on investment properties
Restructuring and other related costs
Asset impairments, net of recoveries
Fair value adjustment on non-operating properties
Fair value adjustment of derivatives
Acquisition transaction costs and other related costs
Gain on sale of non-operating properties
Pension annuities and buy-outs
Inventory loss, net of recoveries
Loblaw’s spin-out of Choice Properties
Certain prior period items
195 $
155
60
11
4
3
2
(4)
—
—
—
—
1.28
1.02
0.38
0.08
0.03
0.02
0.01
(0.03)
—
—
—
—
Fair value adjustment of the Trust Unit liability
(239)
(1.56)
Fair value adjustment of the forward sale agreement
for 9.6 million Loblaw common shares
Outside basis difference in certain Loblaw shares
Statutory corporate income tax rate change
Remeasurement of deferred tax balances
Choice Properties issuance costs
Reserve release related to 2014 tax audit
Foreign currency translation and other company
level activities
Adjusting items
Adjusted
(41)
2
(2)
(7)
—
—
(3)
$
$
136 $
1,055 $
(0.27)
0.01
(0.01)
(0.05)
—
—
(0.02)
0.89
6.85
(i)
(ii)
Net of income taxes and non-controlling interests, as applicable.
Certain comparative figures have been restated to conform with current year presentation.
$
192 $
86
44
2
(3)
—
7
(5)
4
1
1
(4)
550
60
—
(8)
(15)
14
(4)
(3)
$
$
919 $
1,117 $
1.25
0.57
0.28
0.01
(0.02)
—
0.04
(0.03)
0.03
0.01
0.01
(0.03)
3.58
0.39
—
(0.05)
(0.10)
0.09
(0.03)
(0.02)
5.98
7.24
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 83
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 following table reconciles free cash flow to GAAP measures reported for the periods ended as indicated.
(unaudited)
($ millions)
Quarters Ended
Years Ended
Dec. 31, 2020
Dec. 31, 2019(4)
Dec. 31, 2020 Dec. 31, 2019(4)
(13 weeks)
(12 weeks)
$ Change
(53 weeks)
(52 weeks)
$ Change
Cash flows from operating activities
$
1,574
$
1,272 $
302
$
5,521
$
4,555 $
966
Less:
Interest paid
Capital Investments
Lease payments, net
Free cash flow(1)
180
635
192
181
556
131
(1)
79
61
883
1,658
852
891
1,571
726
$
567
$
404 $
163
$
2,128
$
1,367 $
(8)
87
126
761
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 its performance.
The following table reconciles Choice Properties’ Funds from Operations to net income for the periods ended as indicated.
(unaudited)
($ millions)
Net income (loss)
Add (deduct) impact of the following:
Fair value adjustment on Exchangeable Units
Unit distributions on Exchangeable Units
Fair value adjustment on investment properties
Fair value adjustment on investment property held
in equity accounted joint ventures
Internal expenses for leasing
Capitalized interest on equity accounted
joint ventures
Acquisition transaction costs and other related costs
Amortization of intangible assets
Foreign exchange gain
Other fair value gains (losses), net
Income taxes
Funds from Operations
Quarters Ended
Years Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
$
117
$
294
$
451
$
(581)
87
73
(104)
—
2
1
—
—
—
(2)
(2)
(207)
73
(8)
13
1
2
—
—
—
(2)
—
(354)
289
220
37
7
5
2
1
(1)
(3)
(2)
$
172
$
166
$
652
$
932
289
4
11
6
5
8
—
—
7
(1)
680
84 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 14.1
Non-GAAP Financial Measures Policy Change Commencing Fiscal 2021
In 2020, management undertook a review of historical adjusting items as part of an effort to reduce the number of non-GAAP
items it adjusts for in its financial reporting. Management concluded that, in order to present adjusting items in a manner more
consistent with that of its Canadian and U.S. peers, the Company will no longer adjust for asset impairments (net of recoveries),
certain restructuring and other related costs, pension settlement costs, statutory corporate income tax rate changes or other
items.
Starting in the first quarter of 2021, restructuring and other related costs will be considered an adjusting item only if significant
and if part of a publicly announced restructuring plan. Other unusual items will be assessed on a case by case basis based on
their nature, magnitude and propensity to re-occur. This change will take effect in the first quarter of 2021 with restatement of
comparative periods at that time.
The below summaries are presented for informational purposes and reconciles the non-GAAP financial measures as previously
reported in 2020 to those which will be reported under the new policy beginning in 2021.
Adjusted Operating Income and Adjusted EBITDA:
Quarters Ended
March 21, 2020
(12 weeks)
June 13, 2020
(12 weeks)
October 3, 2020
(16 weeks)
(unaudited)
($ millions)
Loblaw
Choice
Properties
Weston
Foods
Other
Consoli-
dated
Loblaw
Choice
Properties
Weston
Foods
Other
Consoli-
dated
Loblaw
Choice
Properties
Weston
Foods
Other
Consoli-
dated
Adjusted Operating
income -
previously
reported
Add (deduct)
impact of the
following:
Asset Impairments,
net of recoveries
Restructuring
and other related
costs
Adjusting Items
Adjusted operating
$ 692 $ 226 $
18 $ (64) $ 872 $ 534 $
201 $ (27) $ (59) $ 649 $ 882 $ 224 $
18 $ 20 $ 1,144
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4)
—
—
—
(4)
(8)
—
—
—
(8)
(6)
—
—
—
(6)
$
(4) $
— $ — $ — $
(4) $
(8) $
— $ — $ — $
(8) $
(6) $
— $ — $ — $
(6)
income - Restated $ 688 $ 226 $
18 $ (64) $ 868 $ 526 $
201 $ (27) $ (59) $ 641 $ 876 $ 224 $
18 $ 20 $ 1,138
Depreciation and
amortization
Less: Amortization
of intangible
assets acquired
with Shoppers
Drug Mart
Less: Accelerated
Depreciation
Adjusted EBITDA -
Restated
594
1
43
(78)
560
598
—
44
(76)
566
795
1
47
(114)
729
(119)
—
—
—
—
(9)
—
—
(119)
(118)
—
—
(9)
—
—
(10)
—
—
(118)
(155)
(10)
—
—
—
—
(3)
—
—
(155)
(3)
$ 1,163 $ 227 $ 52 $ (142) $ 1,300 $ 1,006 $
201 $
7 $ (135) $ 1,079 $ 1,516 $ 225 $ 62 $ (94) $ 1,709
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 85 Management’s Discussion and Analysis
(unaudited)
($ millions)
Loblaw
Choice
Properties
Weston
Foods
Other Consolidated
Loblaw
Choice
Properties
Weston
Foods
Other Consolidated
Quarter Ended
December 31, 2020
(13 weeks)
Year Ended
December 31, 2020
(53 weeks)
$ 838 $
225 $
46 $
(55) $
1,054 $ 2,946 $
876 $
55 $
(158) $
3,719
Adjusted Operating income -
previously reported
Add (deduct) impact of the
following:
Asset Impairments, net of
recoveries
Restructuring and other
related costs
(17)
—
—
—
—
—
(6)
—
(23)
(17)
—
(18)
—
—
—
—
(6)
—
(23)
(18)
(41)
Adjusting Items
$
(17) $
— $
— $
(6) $
(23) $
(35) $
— $
— $
(6) $
Adjusted operating income -
Restated
Depreciation and
amortization
Less: Amortization of
intangible assets acquired
with Shoppers Drug Mart
Less: Accelerated
Depreciation
$
821 $
225 $
46 $
(61) $
1,031 $ 2,911 $
876 $
55 $
(164) $
3,678
609
(117)
—
1
—
—
41
(79)
572
2,596
—
(8)
—
—
(117)
(509)
(8)
—
3
—
—
175
(347) $
2,427
—
(30)
—
—
(509)
(30)
Adjusted EBITDA - Restated
$ 1,313 $
226 $
79 $
(140) $
1,478 $ 4,998 $
879 $ 200 $
(511) $
5,566
86 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Adjusted Net Earnings Available to Common Shareholders and Adjusted Diluted Net earnings per Common Share are presented
below:
Quarters Ended
Year Ended
March 21, 2020
June 13, 2020
October 3, 2020
December 31, 2020
December 31, 2020
(12 weeks)
(12 weeks)
(16 weeks)
(13 weeks)
(53 weeks)
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
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
Net Earnings
Available to
Common
Shareholders
of the
Company
($ millions)
Diluted
Net
Earnings
Per
Common
Share
$
239 $
1.55 $
142 $ 0.93 $
362 $ 2.35 $
312 $ 2.03 $
1,055 $ 6.85
$
— $
— $
— $
— $
— $
— $
(11) $ (0.08) $
(11) $ (0.08)
(2)
(0.01)
(3)
(0.02)
(2)
(0.01)
—
—
(7)
(0.04)
(unaudited)
($ except where
otherwise indicated)
Adjusted -
As previously
reported
Add (deduct)
impact of the
following:
Asset
impairments,
net of recoveries
Restructuring and
other related
costs
Statutory
corporate
income tax rate
change
Adjusting items
Adjusted -
Restated
$
$
2
0.01
—
—
(1)
(0.01)
1
0.01
2
0.01
— $
— $
(3) $ (0.02) $
(3) $ (0.02) $
(10) $ (0.07) $
(16) $
(0.11)
239 $
1.55 $
139 $ 0.91 $
359 $ 2.33 $
302 $
1.96 $
1,039 $ 6.74
There were no impacts to previously reported adjusted net interest expense and other financing charges as a result of this
change as reported in the Company’s 2020 annual and interim MD&A.
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 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”, “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 2021 is based on
certain assumptions, including assumptions about the COVID-19 pandemic, 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, including the COVID-19 pandemic 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 the “Enterprise Risks and Risk Management” of the
Company’s 2020 Annual Report and the Company’s AIF for the year ended December 31, 2020. Such risks and uncertainties
include:
•
the duration and impact of the COVID-19 pandemic on the business, operations and financial condition of the Company, as
well as on vendor operations, consumer behaviour and the economy in general;
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 87 Management’s Discussion and Analysis
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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;
failure to execute the Company’s e-commerce initiatives or to adapt its business model to the shifts in the retail landscape
caused by digital advances;
failure to effectively respond to consumer trends or heightened competition, whether from current competitors or new
entrants to the marketplace;
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 realize benefits from investments in the Company’s new IT systems;
failure to maintain an effective supply chain and consequently an appropriate assortment of available product at store level;
failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements;
public health events including those related to food and drug safety;
errors made through medication dispensing or errors related to patient services or consultation;
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 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;
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 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;
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.
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, 2020, as well as COVID-19 related risks as described in Section 8, “Enterprise Risks and Risk
Management”, of this MD&A, which include discussion of COVID-19 related risks. 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 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 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
March 1, 2021
88 GEORGE WESTON LIMITED 2020 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.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Nature and Description of the Reporting Entity
Significant Accounting Policies
Critical Accounting Estimates and Judgments
Future Accounting Standard
Subsidiaries
Business Acquisitions
Net Interest Expense and Other Financing Charges
Income Taxes
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
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
Note 39.
Subsequent Events
Three Year Summary
Glossary
90
91
94
94
94
95
96
97
98
98
98
111
113
113
114
114
115
116
117
118
118
120
120
121
123
124
125
127
128
128
129
130
131
134
135
138
139
140
146
151
152
155
158
160
161
163
165
167
168
170
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 89 Management’s Statement of Responsibility for Financial Reporting
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
March 1, 2021
[signed]
Richard Dufresne
President and
Chief Financial Officer
90 GEORGE WESTON LIMITED 2020 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:
•
•
•
•
•
• and notes to the consolidated financial statements, including a summary of significant accounting policies
the consolidated balance sheets as at December 31, 2020 and December 31, 2019
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
(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, 2020 and December 31, 2019, 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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report.
Evaluation of Impairment of Certain Non-Financial Assets for Food Retail Locations
Description of the matter
We draw attention to Notes 2, 3, 15 and 32 to the financial statements. At each balance sheet date, the Entity reviews the
carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication
exists, the asset is then tested for impairment by comparing its recoverable amount to its carrying value. Fixed assets and right-
of-use assets are $11,943 and $4,043 million, respectively. The Entity has determined that each retail location is a separate cash
generating unit (CGU) for purposes of impairment testing of non-financial assets for food retail locations. The recoverable
amount of a CGU is the higher of its value-in-use and its fair value less cost to sell. In determining the recoverable amount various
estimates are employed. The Entity’s estimates in evaluating the impairment of certain non-financial assets for food retail
locations include:
• Discount rate, projected future revenues, and earnings for value-in-use
• Discount rate, capitalization rates, terminal capitalization rates, future cash flows over the holding period and market rental
rates for fair value less cost to sell.
Why the matter is a key audit matter
We identified the evaluation of impairment of certain non-financial assets, specifically fixed assets and right-of-use assets, for
food retail locations as a key audit matter. Food retail assets comprised the largest portion of the Loblaw operating segment
tested for impairment. This matter represented an area of significant risk of material misstatement due to the magnitude of the
balance and the high degree of estimation uncertainty in determining the recoverable amount. Significant auditor judgment
and the involvement of professionals with specialized skills and knowledge was required to evaluate the evidence supporting
the Entity’s estimates due to the sensitivity of the recoverable amount to minor changes in those estimates.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We evaluated the design and tested the operating effectiveness of the control over the Entity’s review of estimates used to
determine the recoverable amount of the CGU. This control included the review of estimates used to determine the recoverable
amount.
For a selection of food retail locations, where value-in-use was used in the evaluation of impairment, we evaluated the
appropriateness of the:
• Projected future revenues and earnings estimates by comparing to the actual historical revenues and earnings generated by
the food retail location. We took into account changes in conditions and events affecting the retail location to assess the
adjustments or lack of adjustments made in arriving at the projected future revenues and earnings estimates
• Discount rate by involving valuations professionals with specialized skills and knowledge by comparing it against a discount
rate range that was independently developed using publicly available market data for comparable entities.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 91 Independent Auditors’ Report
For a selection of food retail locations, where fair value less cost to sell was used in the evaluation of impairment, we evaluated
the appropriateness of the:
• Future cash flows over the holding period based on representative leases. We took into account the changes in conditions and
events affecting those future cash flows to assess the adjustments, or lack of adjustments, made by the Entity.
• Terminal capitalization rates and discount rates on a portfolio basis by involving valuations professionals with specialized skills
and knowledge. These rates were evaluated by comparing them to published reports of real estate industry commentators
and considering the various characteristics of the portfolio.
• Capitalization rates and market rental rates by comparing to external information such as industry reports and commercial
real estate property listings.
Evaluation of the fair value of income producing properties
Description of the matter
We draw attention to Note 2, 3, and Note 16 of the financial statements. The income producing properties are measured at fair
value using the fair value model. The Entity has recorded income producing properties at fair value for an amount of
$4,832 million. The Entity’s significant assumptions in evaluating the fair value of income producing properties include:
•
•
future cash flows over the holding period
terminal capitalization rates and discount rates applied to these cash flows.
Why the matter is a key audit matter
We identified the evaluation of the fair value of income producing properties as a key audit matter. This matter represented an
area of significant risk of material misstatement given the magnitude of income producing properties and the high degree of
estimation uncertainty in determining the fair value of income producing properties. Significant auditor judgment and
involvement of professionals with specialized skills and knowledge was required to evaluate the results of our audit procedures
due to the sensitivity of the fair value of income producing properties to minor changes in certain significant assumptions.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
For a selection of income producing properties, we assessed the Entity’s ability to accurately forecast by comparing the Entity’s
future cash flows over the holding period used in the prior year’s fair value of income producing properties to actual results.
For a selection of income producing properties, we compared the future cash flows over the holding period to the actual
historical cash flows generated by the income producing properties. We took into account the changes in conditions and events
affecting the income producing properties to assess the adjustments, or lack of adjustments, made by the Entity in arriving at
those future cash flows.
For a selection of income producing properties, we involved valuations professionals with specialized skills and knowledge, who
assisted in evaluating the terminal capitalization rates and discount rates. These rates were evaluated by comparing them to
published reports of real estate industry commentators and considering the features of the specific income producing property.
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 “2020
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 “2020 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.
92 GEORGE WESTON LIMITED 2020 ANNUAL 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.
• 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.
• Determine, from the matters communicated with those charged with governance, those matters that were of most
significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe
these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our auditors’ report because the
adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Sebastian Distefano.
Toronto, Canada
March 1, 2021
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 93 Consolidated Statements of Earnings
For the years ended December 31
(millions of Canadian dollars except where otherwise indicated)
Revenue
Operating Expenses
Cost of inventories sold (note 13)
Selling, general and administrative expenses
Operating Income
Net Interest Expense and Other Financing Charges (note 7)
Earnings Before Income Taxes
Income Taxes (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
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, net of taxes
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 (losses) gains (note 29)
Adjustment to fair value of investment properties (note 16)
Other comprehensive loss
Comprehensive Income
Attributable to:
Shareholders of the Company
Non-Controlling Interests
Comprehensive Income
See accompanying notes to the consolidated financial statements.
2020
2019
$
54,705
$
50,109
37,583
14,234
51,817
2,888
831
2,057
475
1,582
963
619
$
$
$
1,582
$
5.99
5.96
$
$
34,166
12,985
47,151
2,958
1,704
1,254
431
823
242
581
823
1.29
1.26
2020
$
1,582
$
2019
823
(28)
(31)
(43)
17
(85)
1,497
910
587
$
1,497
$
(49)
(7)
1
10
(45)
778
202
576
778
94 GEORGE WESTON LIMITED 2020 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
Demand deposits from customers
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). Subsequent events (note 39).
See accompanying notes to the consolidated financial statements.
2020
2019(i)
$
2,581
$
575
1,192
3,109
5,385
304
108
13,254
11,943
4,043
4,930
573
7,032
4,772
139
75
—
1,314
$
$
48,075
$
86
$
6,011
194
109
128
24
1,335
924
799
349
9,959
117
13,519
4,206
3,600
2,059
1,197
34,657
3,599
5,226
(1,180)
166
7,811
5,607
13,418
$
48,075
$
1,834
229
1,295
3,518
5,270
336
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
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 95 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
Adjustment to
Fair Value on
Transfer of
Investment
Properties
Total
Accumulated
Other
Comprehensive
Income
Cash
Flow
Hedges
Non-
Controlling
Interests
Total
Equity
Balance as at Dec. 31, 2019
$ 2,809 $
817 $ 3,626 $
4,766 $
(979) $
182 $
(4) $
18 $
196 $
5,566 $
13,175
Net earnings
Other comprehensive (loss)
income(i)
—
—
—
—
—
—
963
(23)
—
—
—
—
(29)
(18)
—
17
—
619
1,582
(30)
(32)
(85)
Comprehensive income (loss)
$
— $
— $
— $
940 $
— $
(29) $
(18) $
17 $
(30) $
587 $
1,497
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 ($)
– $2.125
Per preferred share ($)
– Series I – $1.45
– Series III – $1.30
– Series IV – $1.30
– Series V – $1.1875
1
(24)
(4)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
(1)
(24)
(99)
(4)
(11)
12
—
—
—
—
—
—
—
—
—
(213)
(326)
(13)
(10)
(10)
(10)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4
—
—
16
(123)
(15)
(550)
(763)
—
—
—
—
—
(326)
(13)
(10)
(10)
(10)
Balance as at Dec. 31, 2020
$ 2,782 $
817 $ 3,599 $
5,226 $
(1,180) $
153 $
(22) $
$
(27) $
— $
(27) $
(480) $
(201) $
— $
— $
— $
35 $
— $
(546) $
(1,254)
166 $
5,607 $
13,418
(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
—
—
—
(115)
—
—
—
—
—
(394)
(509)
Restated balance as at
Jan. 1, 2019
Net earnings
Other comprehensive income
(loss)(i)
$ 2,766 $
817 $ 3,583 $
4,902 $
(799) $
231 $
— $
8 $
239 $
5,770 $
13,695
—
—
—
—
—
—
242
3
—
—
—
—
(49)
(4)
—
10
—
581
823
(43)
(5)
(45)
Comprehensive income (loss)
$
— $
— $
— $
245 $
— $
(49) $
(4) $
10 $
(43) $
576 $
778
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
47
(4)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
47
(1)
(10)
(4)
(21)
—
—
—
—
—
—
—
5
—
(321)
(13)
(10)
(10)
(10)
—
—
(170)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3)
33
—
—
(25)
5
(777)
(947)
—
—
—
—
—
(321)
(13)
(10)
(10)
(10)
Balance as at Dec 31, 2019
$ 2,809 $
817 $ 3,626 $
4,766 $
(979) $
182 $
(4) $
$
43 $
— $
43 $
(381) $
(180) $
— $
— $
— $
18 $
— $
(780) $
(1,298)
196 $
5,566 $
13,175
(i)
Other comprehensive (loss) income includes actuarial loss of $43 million (2019 – gain of $1 million), $23 million (2019 – gain of $3 million) of which is presented above
in retained earnings, and $20 million (2019 – loss of $2 million) in non-controlling interests. Also included in non-controlling interests is foreign currency translation
gain of $1 million (2019 – nil) and unrealized loss on cash flow hedges of $13 million (2019 – $3 million).
See accompanying notes to the consolidated financial statements.
96 GEORGE WESTON LIMITED 2020 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 and assets held for sale (notes 14 and 16)
Change in allowance for credit card receivables (note 12)
Change in provisions (note 22)
Change in gross 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)
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)
Change in demand deposits from customers
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)
Dividends – To common shareholders
– Issuance Costs
– 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.
2020
2019(i)
$
1,582
$
823
831
475
2,427
39
194
41
(6)
5,583
368
(57)
(448)
25
3
47
5,521
(1,235)
(357)
14
301
5
(346)
—
(120)
(1,738)
68
(154)
24
231
(883)
2,492
(2,598)
(207)
(650)
1
(21)
(123)
30
(10)
(552)
—
—
(328)
(44)
(284)
(27)
(3,035)
(1)
747
1,834
2,581
$
1,704
431
2,318
46
93
29
(54)
5,390
(238)
(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
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 97 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”).
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. 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.
Loblaw has two reportable operating segments, retail and financial services. Loblaw’s retail segment consists primarily of food
retail and drug retail. 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, cookies, cakes, pies, cones and wafers, artisan
baked goods and more.
Since the first quarter of 2020, the COVID-19 pandemic has had a significant impact on the Company. The Company’s financial
results for the year ended 2020 show increased revenue, driven by increased demands for the Company’s products, as well as
increased cost of inventories sold. In addition, starting in the second quarter of 2020 selling, general and administrative expenses
(“SG&A”) also increased as the Company increased its spending on temporary pay premiums, pay protection safeguards, security,
customer convenience and health and safety measures to protect colleagues, customers, tenants and other stakeholders,
incurring incremental COVID-19 related costs.
Note 2. Significant Accounting Policies
STATEMENT OF COMPLIANCE The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS” or “GAAP”) as issued by the International Accounting Standards Board (“IASB”) and using
the accounting policies described herein.
These consolidated financial statements were authorized for issuance by the Company’s Board of Directors (“Board”) on
March 1, 2021.
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 years presented.
The consolidated financial statements are presented in Canadian dollars.
FISCAL YEAR The Company’s year end is December 31. Activities are reported on a fiscal year ending on the Saturday closest to
December 31.
As a result, the Company’s fiscal year is usually 52 weeks in duration but includes a 53rd week every five to six years. The years
ended December 31, 2020 and December 31, 2019 contained 53 weeks and 52 weeks, respectively.
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 2020 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 Associates as well as the franchisees of its food retail stores that are subject to a simplified franchise
agreement implemented in 2015 (“Franchise Agreement”). An “Associate” is a pharmacist-owner of a corporation that is licensed
to operate a retail drug store at a specific location using Shoppers Drug Mart Corporation (“Shoppers Drug Mart”) trademarks.
The consolidation of Associates and 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 Inc. (or an affiliate thereof) 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, 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 99 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 2020 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 and reversals 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 adjusted through the use of allowance accounts.
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.
PC Bank participates in a single seller revolving co-ownership securitization program with Eagle
Eagle Credit Card Trust®
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. Inventories are measured at weighted average cost.
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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 101 Notes to the Consolidated Financial Statements
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 that were previously
classified as investment properties are measured using the fair value model consistent with properties classified as investment
properties.
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 SG&A.
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 relate 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
up to 10 years
Lesser of term of the lease and useful life up to 25 years(i)
10 to 40 years
2 to 16 years
(i)
If it is reasonably certain that the Company will obtain ownership of the leased asset by the end of the lease term, the 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 2020 ANNUAL REPORT LEASES
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 in accordance with IFRS 15, 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. If the transfer of the asset is not a sale in accordance with IFRS 15, the
Company will continue to account for the asset under IAS 16, “Property, Plant and Equipment” and recognize the proceeds
received as financial liabilities.
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 include income producing properties and properties under development
that are owned by the Company and held to either earn rental income, 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.
Income producing properties 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 future cash flows over the holding period, generally over a minimum term of ten years, including a terminal value
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 103 Notes to the Consolidated Financial Statements
of the investment properties based on a terminal 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 operating income 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 operating income. All subsequent changes in fair value of the property are recognized in operating income. Upon sale of an
investment property that was previously classified as fixed assets, amounts included in the revaluation reserve are transferred to
retained earnings.
When an investment property carried at fair value changes to own use, the property is recognized in fixed assets at the fair value
at the date of change in use. The property is subsequently accounted for under the significant accounting policies for fixed
assets.
Properties under development include specifically identifiable costs incurred in the period before construction is complete, and
are transferred to income producing properties at their fair value upon practical completion.
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.
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.
104 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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 or reversals 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.
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.
Impairment losses and reversals are recognized in SG&A.
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
(“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.
•
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 105 Notes to the Consolidated Financial Statements
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. A financial liability is classified
as FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities
at FVTPL are measured at fair value and net gains and losses are recognized in profit or loss. Other financial liabilities are
subsequently measured at amortized cost using the effective interest method.
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
Classification / Measurement
Cash and cash equivalents
Short-term investments
Accounts receivable
Credit card receivables
Security deposits
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Franchise loans receivable
Amortized cost
Certain other assets
Amortized cost / fair value through profit and loss
Certain long-term investments
Fair value through other comprehensive income
Bank indebtedness
Trade payables and other liabilities
Demand deposits from customers
Short-term debt
Long-term debt
Trust Unit liability
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Certain other liabilities
Amortized cost
Derivatives
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.
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”.
106 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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.
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, Demand deposits from other
customers 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.
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
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 107 Notes to the Consolidated Financial Statements
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 requires 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 and reversals are recorded in SG&A with the carrying amount of the financial asset or group of financial assets
adjusted through the use of allowance accounts.
FOREIGN CURRENCY TRANSLATION The functional currency of the Company is the Canadian dollar.
Transactions in foreign currencies are translated into the functional currency at the foreign currency exchange rates that
approximate the rates in effect at the dates when such items are transacted. Monetary assets and liabilities denominated in
foreign currencies are translated into the functional currency at the exchange rate at the balance sheet date. Non-monetary
items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the
transaction. Foreign currency differences are recognized in operating income.
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 the functional currency 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.
SHORT-TERM EMPLOYEE BENEFITS Short-term employee benefits include wages, salaries, compensated absences, profit-
sharing and bonuses. Short-term employee benefit obligations are measured on an undiscounted basis and are recognized in
operating income as the related service is provided or capitalized if the service rendered is in connection with the creation of a
tangible or intangible asset. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-
sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service
provided by the employee, and the obligation can be estimated reliably.
DEFINED BENEFIT POST-EMPLOYMENT PLANS The Company has a number of contributory and non-contributory defined
benefit post-employment plans providing pension and other benefits to eligible employees. The defined benefit pension plans
provide a pension based on length of service and eligible pay. The other defined benefits include health care, life insurance and
dental benefits provided to eligible employees who retire at certain ages having met certain service requirements. The
Company’s net defined benefit plan obligations (assets) for each plan are actuarially calculated by a qualified actuary at the end
of each annual reporting period using the projected unit credit method pro-rated based on service and management’s best
estimate of the discount rate, the rate of compensation increase, retirement rates, termination rates, mortality rates and
expected growth rate of health care costs. The discount rate used to value the defined benefit plan obligation for accounting
purposes is based on high quality corporate bonds denominated in the same currency with cash flows that match the terms of
the defined benefit plan obligations. Past service costs (credits) arising from plan amendments are recognized in operating
income in the year that they arise. The actuarially determined net interest costs on the net defined benefit plan obligation are
recognized in net interest expense and other financing charges.
The fair values of plan assets are deducted from the defined benefit plan obligations to arrive at the net defined benefit plan
obligations (assets). For plans that result in a net defined benefit asset, the recognized asset is limited to the present value of
economic benefits available in the form of future refunds from the plan or reductions in future contributions to the plan (“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.
108 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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.
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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 109 Notes to the Consolidated Financial Statements
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 Choice Properties unit price 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 employee’s discretion 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.
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.
NEW SIGNIFICANT ACCOUNTING POLICIES
Investments Accounted For Under The Equity Method Investments accounted for under the equity method represent an
investment in an entity (“investee”) in which the Company has significant influence, but not control, over the financial and
operating policies. The investment is initially recognized in the consolidated balance sheets at cost, which includes transaction
costs. Subsequent to the initial recognition, the investment is adjusted to recognize the Company's share of the profit or loss and
other comprehensive income of the investee, until the date on which significant influence ceases. The Company’s share of the
investee’s profit or loss is recognized in SG&A. An investment is considered to be impaired if there are objective evidences of
impairments, as a result of one or more events that occurred after the initial recognition, and those events have negative impacts
on the future cash flows of the investee that can be reliably estimated. The investment is reviewed at each balance sheet date to
determine whether there is any indication of impairment. Refer to the Impairment of Non-Financial Assets policy.
Demand Deposits from Customers Demand deposits from customers are comprised of balances in customers’ debit accounts
with PC Money Account and are measured at amortized cost.
110 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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.
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, future cash flows, discount rates,
capitalization rates and terminal rates. The Company determines value in use by using estimates including projected future
revenues, earnings and capital investments consistent with strategic plans presented to the Board of Directors at GWL and
Loblaw, and discount rates 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 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.
program is determined based on the
®
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 111 Notes to the Consolidated Financial Statements
IMPAIRMENT OF CREDIT CARD RECEIVABLES
Judgments Made in Relation to Accounting Policies Applied and Key Sources of Estimation 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 condition, namely the unemployment rate. Management uses unemployment rate forecasts
published by major Canadian Chartered Banks and the Conference Board of Canada to establish the base case scenario
and other representative ranges of possible forecast scenarios.
FAIR VALUE OF INCOME PRODUCING PROPERTIES
Key Sources of Estimation The fair value of income producing properties is dependent on future cash flows over the holding
period, terminal capitalization rates, and discount rates applicable to those assets. The review of future cash flows involves
assumptions relating to occupancy, rental rates, and residual value. In addition to reviewing future 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 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 consolidated balance sheets and statements 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.
112 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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 reporting periods beginning on or after January 1, 2023 and is to be applied
retrospectively. 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 Loblaw and Choice Properties is impacted by changes in Loblaw’s common
share equity and Choice Properties’ trust units, respectively.
Loblaw
Common shares(i)
Class B LP Units(ii)(iii)
Number
of shares /
units held
182,874,456
395,786,525
Trust Units
50,661,415
As at
Dec. 31, 2020
Dec. 31, 2019
Ownership
interest
Number
of shares /
units held
Ownership
interest
52.6%
187,815,136
52.2%
n/a
n/a
389,961,783
50,661,415
n/a
n/a
Choice Properties
446,447,940
61.8%
440,623,198
62.9%
(i)
(ii)
Includes 9.6 million Loblaw common shares pledged under the equity forward sale agreement (see note 33). Additionally, commencing in the
first quarter of 2020, GWL participated in Loblaw’s Normal Course Issuer Bid (“NCIB”) program, in order to maintain its proportionate
percentage ownership (see note 27).
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.
(iii) During the fourth quarter of 2020, Choice Properties acquired six properties from Weston Foods and issued 5,824,742 Exchangeable Units as
consideration.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 113 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.
Loblaw has more than 500 franchise food retail stores in its network. As at the end of the first quarter of 2020, Loblaw
consolidated all of its remaining franchisees for accounting purposes under the Franchise Agreement.
The following table summarizes the amounts recognized for the assets acquired, liabilities assumed and 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
2020
2019
$
$
14
42
44
(54)
(30)
(16)
$
—
$
20
51
67
(48)
(73)
(17)
—
(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.
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
Borrowings related to credit card receivables
Trust Unit distributions
Choice Properties issuance costs
Independent funding trusts
Post-employment and other long-term employee benefits (note 29)
Bank indebtedness
Financial liabilities (note 25)
Capitalized interest (capitalization rate 3.7% (2019 - 4.0%)) (notes 15 & 18)
Interest income:
Accretion income
Short-term interest income
Forward sale agreement(i)
Fair value adjustment of the Trust Unit liability (note 33)
Net interest expense and other financing charges
2020
2019
$
638
207
48
223
—
14
9
4
31
(4)
644
214
45
203
14
19
9
6
7
(4)
1,170
$
1,157
(5) $
(24)
(29) $
(71) $
(239)
831
$
(9)
(33)
(42)
39
550
1,704
$
$
$
$
$
$
(i)
Included income of $47 million (2019 – charge of $69 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 $46 million (2019 – $50 million), and the
forward fee of $22 million (2019 – $20 million), associated with the forward sale agreement.
114 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Note 8. Income Taxes
The components of income taxes recognized in the consolidated statements of earnings were as follows:
($ millions)
Current income taxes
Current period
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
Settlement of bond forward
Total income tax recognized in other comprehensive income
2020
$
546
$
(18)
(63)
(3)
13
$
475
$
2019
534
8
(80)
(10)
(21)
431
2020
2019
$
$
(15)
$
3
(10)
(22)
$
1
2
—
3
The effective 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
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
2020
26.6%
2019
26.7%
—
(0.1)
(3.1)
(0.2)
(0.1)
—
(0.7)
(1.2)
11.7
(0.8)
(0.8)
(0.5)
Effective tax rate applicable to earnings before income taxes
23.1%
34.4%
Loblaw has been reassessed by the Canada Revenue Agency and the Ontario Ministry of Finance on the basis that certain
income earned by Glenhuron Bank Limited (“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 of Canada (“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. During the second quarter, on April 23, 2020, the Federal Court of Appeal released its decision in the Glenhuron
case in favour of Loblaw and reversed the decision of the Tax Court. During the fourth quarter, on October 29, 2020, the Supreme
Court granted the Crown leave to appeal and on November 30, 2020, the Crown filed a Notice of Appeal with the Supreme
Court. Subsequent to the end of the year, the Supreme Court scheduled the hearing of the appeal for May 13, 2021. Loblaw has
not reversed any portion of the $367 million of charges recorded during the third quarter of 2018, of which $176 million was
recorded in interest and $191 million was recorded in income taxes.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 115 Notes to the Consolidated Financial Statements
Deferred income tax assets which were not recognized on the consolidated balance sheets were as follows:
($ millions)
Deductible temporary differences
Income tax losses and credits
Unrecognized deferred income tax assets
As at
Dec. 31, 2020
Dec. 31, 2019
$
$
$
15
171
186
$
19
185
204
The portion of the income tax losses and credits which have a limited carry-forward period expire in the years 2026 to 2040. 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 2040)
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, 2020
Dec. 31, 2019
$
$
$
$
$
$
$
$
$
$
82
372
1,301
(1,153)
(1,064)
(1,559)
97
19
(15)
92
141
1,160
(1,037)
(902)
(1,674)
155
32
38
(1,920)
$
(1,995)
139
$
(2,059)
(1,920)
$
250
(2,245)
(1,995)
2020
963
$
(44)
919
$
(4)
915
$
153.4
0.1
153.5
5.99
5.96
$
$
2019
242
(44)
198
(4)
194
153.5
0.2
153.7
1.29
1.26
(i)
Excluded from the computation of diluted net earnings per common share were 1.4 million (2019 – 1.0 million) potentially dilutive
instruments, as they were anti-dilutive.
116 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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:
Government treasury bills
Bankers’ acceptances
Corporate commercial paper
Guaranteed investment certificates
Other
Cash and cash equivalents
SHORT-TERM INVESTMENTS
($ millions)
Government treasury bills
Bankers’ acceptances
Corporate commercial paper
Guaranteed Investment Certificates
Other
Short-term investments
SECURITY DEPOSITS
($ millions)
Cash
Government treasury bills
Security deposits
As at
Dec. 31, 2020
Dec. 31, 2019
$
1,228
$
775
758
570
—
22
3
262
557
240
—
—
$
2,581
$
1,834
As at
Dec. 31, 2020
Dec. 31, 2019
$
485
$
81
1
7
1
$
575
$
61
32
136
—
—
229
As at
Dec. 31, 2020
Dec. 31, 2019
$
$
52
23
75
$
$
46
30
76
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 117 Notes to the Consolidated Financial Statements
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
Total
Accounts receivable
$
1,036 $
108 $
48 $
1,192 $
1,180 $
38 $
77 $
1,295
As at
Dec. 31, 2020
Dec. 31, 2019(i)
(i)
Certain comparative figures have been restated to conform with current year presentation.
The following are continuities of the Company’s allowances for uncollectible accounts receivable:
($ millions)
Allowance, beginning of year
Net write-offs
Allowance, end of year
Credit risk associated with accounts receivable is discussed in note 34.
Note 12. Credit Card Receivables
The components of credit card receivables were as follows:
($ millions)
Gross credit card receivables
Allowance for credit card receivables
Credit card receivables
Securitized to independent securitization trusts:
Securitized to Eagle Credit Card Trust ® (note 24)
Securitized to Other Independent Securitization Trusts (note 23)
Total securitized to independent securitization trusts
$
$
2020
(34)
$
3
(31)
$
2019
(34)
—
(34)
As at
Dec. 31, 2020
Dec. 31, 2019
$
$
$
$
3,346
$
(237)
3,109
$
1,050
$
575
1,625
$
3,714
(196)
3,518
1,000
775
1,775
Loblaw, through PC Bank, participates in various securitization programs that provide a source of funds for the operation of its
credit card business. PC Bank maintains and monitors the co-ownership interest in credit card receivables with independent
securitization trusts, including Eagle and the Other Independent Securitization Trusts, in accordance with its financing
requirements.
The associated liability of Eagle is recorded in long-term debt (see note 24). The associated liabilities of credit card receivables
securitized to the Other Independent Securitization Trusts are recorded in short-term debt.
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 2020, with their respective maturity dates extended to 2022 and
with all other terms and conditions remaining substantially the same.
On a year-to-date basis in 2020, PC Bank recorded a $200 million net decrease of co-ownership interest in the securitized
receivables held with the Other Independent Securitization Trusts as a result of a decline in the volume of credit card
receivables.
The undrawn commitments on facilities available from the Other Independent Securitization Trusts at year end 2020 were
$400 million (2019 – $125 million).
Loblaw has arranged letters of credit on behalf of PC Bank for the benefit of the Independent Securitization Trusts (see note 36).
Under its securitization programs, PC Bank is required to maintain, at all times, a credit card receivable pool balance equal to a
minimum of 107% of the outstanding securitized liability. PC Bank was in compliance with this requirement as at year end 2020
and throughout the year.
118 GEORGE WESTON LIMITED 2020 ANNUAL REPORT The following is an aging of gross credit card receivables:
As at
Dec. 31, 2020
Dec. 31, 2019
1-90 days > 90 days
1-90 days > 90 days
($ millions)
Current
past due past due
Total
Current
past due
past due
Total
Gross credit card receivables
$
3,169 $
150 $
27 $ 3,346
$
3,504 $
176 $
34 $
3,714
The following are continuities of Loblaw’s allowances for credit card receivables for the years ended December 31, 2020 and
December 31, 2019:
($ millions)
Stage 1
Stage 2
Stage 3
Balance, beginning of the year
$
72
$
92
$
32
$
Increase / (Decrease) during the year:
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
33
(5)
(1)
7
(16)
—
—
(33)
7
(18)
16
52
—
—
$
90
$
116 $
—
(2)
19
1
93
(138)
26
31
$
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)
Stage 1
Stage 2
Stage 3
Balance, beginning of the year
$
62 $
80 $
25
$
Increase / (Decrease) during the year:
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
$
2020
Total
196
—
—
—
24
129
(138)
26
237
2019
Total
167
—
—
—
25
121
(139)
22
196
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.
The allowances for credit card receivables recorded on the consolidated balance sheets are maintained at a level which is
considered adequate to endure credit-related losses on credit card receivables.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 119
Notes to the Consolidated Financial Statements
Note 13. Inventories
The components of inventories were as follows:
($ millions)
Raw materials and supplies
Finished goods
Inventories
As at
Dec. 31, 2020
Dec. 31, 2019
$
$
71
$
5,314
5,385
$
70
5,200
5,270
As at year end 2020, Loblaw recorded an inventory provision of $34 million (December 31, 2019 – $33 million), for the write-
down of inventories below cost to net realizable value. The write-down was included in cost of inventories sold. There were no
reversals of previously recorded write-downs of inventories during December 31, 2020 and December 31, 2019.
Note 14. Assets Held for Sale
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 either originally used in Loblaw’s retail business segment or held in investment properties. In 2020,
Loblaw recorded a net gain of $9 million (2019 – net gain of $12 million) from the sale of these assets. Net fair value write-down
of $20 million (2019 – $8 million) was recognized on assets held for sale in 2020.
120 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Note 15. Fixed Assets
The following is a continuity of the cost and accumulated depreciation and impairment losses of fixed assets for the year ended
December 31, 2020:
($ millions)
Cost, beginning of year
Additions(i)
Disposals
Transfer to assets held for sale
Net transfer from 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
Equipment
and
fixtures
Land
Leasehold
improvements
Finance
leases -
land,
buildings,
equipment
and fixtures
Assets
under
construction
Total
$ 2,071 $
9,062 $
9,648 $
2,347 $
— $
713 $ 23,841
1
(2)
(29)
11
—
30
—
—
2
(43)
—
42
—
340
—
145
(63)
—
—
—
640
44
(9)
(23)
32
(26)
—
—
—
40
—
—
—
—
—
—
—
—
—
—
920
1,100
(7)
—
(141)
(29)
75
128
—
(1,050)
—
—
—
44
(2)
(34)
Cost, end of year
$ 2,082 $
9,394 $
10,391 $
2,393 $
— $
649 $ 24,909
Accumulated depreciation and
impairment losses, 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:
$
2 $
3,680 $
7,000 $
1,383 $
— $
3 $ 12,068
—
1
—
—
—
—
—
268
6
(9)
(22)
—
(23)
632
12
(2)
(63)
—
—
(3)
(13)
134
9
(4)
(25)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,034
28
(15)
(110)
—
(23)
(16)
$
3 $
3,897 $
7,566 $
1,497 $
— $
3 $ 12,966
December 31, 2020
$ 2,079 $
5,497 $
2,825 $
896 $
— $
646 $ 11,943
(i)
Additions to fixed assets in Loblaw includes $66 million prepayment that was made in 2019. The balance was transferred from other assets
in 2020.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 121 Notes to the Consolidated Financial Statements
The following is a continuity of the cost and accumulated depreciation and impairment losses of fixed assets for the year ended
December 31, 2019:
($ millions)
Buildings
and
building
improvements
Equipment
and
fixtures
Land
Leasehold
improvements
Finance
leases -
land,
buildings,
equipment
and fixtures
Assets
under
construction
Total
Cost, beginning of year
$ 2,050 $
8,895 $
9,164 $
2,217 $
951 $
747 $ 24,024
IFRS 16 Adjustments
—
—
(42)
—
(951)
—
(993)
Restated balance, beginning
of year
Additions(i)
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
Impact of foreign currency
translation
Cost, end of year
Accumulated depreciation
and impairment losses,
beginning of year
IFRS 16 Adjustments
Restated balance, beginning
of year
Depreciation
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:
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
23,031
852
—
—
(1)
—
(879)
—
(6)
1,108
(248)
(13)
(49)
(8)
—
67
(47)
$ 2,071 $
9,062 $
9,648 $
2,347 $
— $
713 $ 23,841
$
2 $
3,499 $
6,659 $
1,220 $
540 $
3 $
11,923
—
2
—
—
—
—
—
—
—
—
(18)
—
(540)
3,499
227
7
(18)
(18)
(1)
(12)
(4)
6,641
1,220
561
20
(5)
(198)
—
—
(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
December 31, 2019
$ 2,069 $
5,382 $
2,648 $
964 $
— $
710 $
11,773
(i)
Additions to fixed assets in Loblaw includes $13 million prepayment that was made in 2018. The balance was transferred from other assets
in 2019.
ASSETS UNDER CONSTRUCTION The cost of additions to properties under construction for 2020 was $920 million (2019 –
$852 million). Included in this amount were capitalized borrowing costs of $4 million (2019 – $4 million) with a weighted
average capitalization rate of 3.7% (2019 – 4.0%) (see note 7).
SECURITY AND ASSETS PLEDGED As at year end 2020, the Company had fixed assets with a carrying amount of $52 million
(2019 - $66 million) which were encumbered by mortgages of $38 million (2019 - $44 million) (see note 24).
122 GEORGE WESTON LIMITED 2020 ANNUAL REPORT FIXED ASSET COMMITMENTS As at year end 2020, the Company had entered into commitments of $502 million (2019 –
$773 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 2020, the Company recorded
$20 million (2019 – $41 million) of impairment losses on fixed assets and $20 million (2019 - $16 million) of impairment losses
on right-of-use assets (note 32) in respect of 23 CGUs (2019 – 32 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 13% (2019 – 6%) of impaired CGUs had carrying values which
were $5 million (2019 – $3 million) greater than their fair value less costs to sell. The remaining 87% (2019 – 94%) of impaired
CGUs had carrying values which were $35 million (2019 – $54 million) greater than their value in use.
In 2020, the Company recorded $15 million (2019 – $27 million) of impairment reversals on fixed assets and $2 million (2019 –
nil) of impairment reversals on right-of-use assets (see note 32) in respect to 10 CGUs (2019 – 10 CGUs). Impairment reversals are
recorded where the recoverable amount of the retail location exceeds its carrying values. Approximately 50% (2019 – 30%) of
CGUs with impairment reversals had fair value less costs to sell greater than their carrying values of $8 million (2019 –
$12 million). The remaining 50% (2019 – 70%) of CGUs with impairment reversals had value in use of $9 million (2019 –
$15 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. Projected future sales and earnings 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 2020 (2019 – 8.0% to 8.5%).
Additional impairment losses of $8 million (2019 – $4 million) were incurred related to Loblaw’s store closures, renovations,
conversions of retail locations and restructuring activities. Additional impairment losses on right-of-use assets (see note 32) of
$3 million (2019 – nil) were related to restructuring activities.
Note 16. Investment Properties
The following are continuities of investment properties for the years ended December 31, 2020 and December 31, 2019:
($ millions)
Balance, beginning of the year
Adjustment to fair value of investment properties
Additions(i)
Disposals
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(iii)
2020
$
4,888
$
(138)
444
(159)
(125)
(25)
43
2
2019
4,847
(74)
85
(34)
49
(174)
182
7
$
4,930
$
4,888
(i)
(ii)
(iii)
Additions to investment properties includes $243 million (2019 – $25 million) of non-cash consideration.
Includes the fair value gain of $20 million (2019 – $12 million) recognized in other comprehensive income related to transfer of fixed assets to
investment properties.
Includes $4,832 million (2019 - $4,822 million) of income producing properties and $98 million (2019 - $66 million) of properties under
development.
During 2020, the Company recognized in operating income $394 million (2019 – $400 million) of rental revenue and incurred
direct operating costs of $137 million (2019 – $123 million) related to its investment properties. In addition, the Company
recognized direct operating costs of $2 million (2019 – $2 million) related to its investment properties for which no rental
revenue was earned.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 123 Notes to the Consolidated Financial Statements
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.
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. Where warranted, adjustments will be made to the internal valuations to
reflect the assumptions contained in the external valuations. The Company will record the internal value in its 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
Residential
Mixed-use
Land, held development
Total equity accounted joint ventures
Investment in equity accounted joint
ventures ($ millions)
As at
Dec. 31, 2020
Ownership
interest
25% - 75%
50%
47% - 50%
—%
50%
Dec. 31, 2019
Ownership
interest
25% - 75%
50%
47% - 50%
40%
—%
Number of
joint
ventures
16
2
3
1
—
22
Number of
joint
ventures
16
2
3
—
1
22
$
573
$
605
124 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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, 2020:
($ millions)
Cost, beginning of year(i)
Additions
Business acquisitions
Impact of foreign currency translation
Cost, end of year
Accumulated amortization and impairment
losses, beginning of year
$
$
Amortization
Impairment losses
Impact of foreign currency translation
Accumulated amortization and impairment
Indefinite
life
intangible
assets
Definite life
internally
generated
intangible
assets
Definite
life
trademarks
and brand
names
Software
Other
definite
life
intangible
assets
Total
$
3,490 $
20 $
20 $
3,186 $
6,018 $
12,734
—
1
—
—
—
—
—
—
—
350
—
(1)
7
2
(3)
357
3
(4)
3,491 $
20 $
20 $
3,535 $
6,024 $
13,090
— $
20 $
11 $
2,142 $
3,073 $
5,246
—
—
—
—
—
—
1
—
—
304
—
—
510
1
(4)
815
1
(4)
losses, end of year
Carrying amount as at:
December 31, 2020
$
— $
20 $
12 $
2,446 $
3,580 $
6,058
$
3,491 $
— $
8 $
1,089 $
2,444 $
7,032
(i)
Certain comparative figures have been restated to conform with current year presentation.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 125 Notes to the Consolidated Financial Statements
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(i)
IFRS 16 adjustments
Restated balance, beginning of year
Additions
Business acquisitions
Disposal
Write-off cost of fully amortized assets
Impact of foreign currency translation
Indefinite
life
intangible
assets
Definite life
internally
generated
intangible
assets
Definite
life
trademarks
and brand
names
Other
definite
life
intangible
assets
Software
Total
$
3,489 $
20 $
20 $
2,789 $
6,204 $
12,522
—
3,489
1
—
—
—
—
—
20
—
—
—
—
—
—
20
—
—
—
—
—
—
2,789
397
—
—
—
—
(207)
5,997
5
23
(1)
(1)
(5)
(207)
12,315
403
23
(1)
(1)
(5)
Cost, end of year
$
3,490 $
20 $
20 $
3,186 $
6,018 $
12,734
Accumulated amortization and impairment
losses, beginning of year
$
— $
20 $
10 $
1,852 $
2,682 $
4,564
IFRS 16 adjustments
Restated balance, 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, 2019
—
—
—
—
—
—
—
—
20
—
—
—
—
—
—
10
1
—
—
—
—
—
1,852
290
—
—
—
—
(125)
2,557
508
12
(1)
(1)
(2)
(125)
4,439
799
12
(1)
(1)
(2)
$
— $
20 $
11 $
2,142 $
3,073 $
5,246
$
3,490 $
— $
9 $
1,044 $
2,945 $
7,488
(i)
Certain comparative figures have been restated to conform with current year presentation.
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 cash flow forecasts,
growth rates, discount rates, and terminal rate. 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 2020 (2019 – 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.
126 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Note 19. Goodwill
The following are continuities of the cost and accumulated impairment losses of goodwill for the years ended December 31,
2020 and December 31, 2019:
($ millions)
Cost, beginning of year
Business acquisitions
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
The carrying amount of goodwill attributed to each CGU was as follows:
($ millions)
Weston Foods
Shoppers Drug Mart
Market
Discount
T&T Supermarket Inc.
Other
2019
5,848
4
(1)
(9)
5,842
1,067
—
2020
$
5,842
$
2
—
(5)
$
$
5,839
1,067
—
$
$
$
$
1,067
$
1,067
4,772
$
4,775
As at
Dec. 31, 2020
Dec. 31, 2019
$
298
$
2,976
375
461
129
533
303
2,974
375
461
129
533
Carrying amount of goodwill
$
4,772
$
4,775
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 cash flow forecasts, growth rates,
discount rate, and terminal rate. 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% (2019 – 7.1% 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 an after-tax weighted average cost of capital. As at year end
2020, the after-tax discount rate used in the recoverable amount calculations was 7.1% to 9.3% (2019 – 7.1% to 9.3%). The pre-
tax discount rate was 9.7% to 12.7% (2019 – 9.7% to 12.7%).
The Company included a minimum of three years of cash flows in its discounted cash flow models. The cash flow forecasts were
extrapolated beyond the three year period using an estimated long-term growth rate of 2.0% (2019 – 2.0%). The budgeted
adjusted EBITDA(i) growth was based on the strategic plans approved by GWL’s and Loblaw’s Board of Directors.
(i)
Excludes certain items and is used internally by management when analyzing segment underlying operating performance.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 127 Notes to the Consolidated Financial Statements
Note 20. Other Assets
The components of other assets were as follows:
($ millions)
Fair value of equity forward (note 33)
Sundry investments and other receivables(i)
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(ii)
Other Assets
As at
Dec. 31, 2020
Dec. 31, 2019
$
630
$
145
184
77
168
159
$
$
1,363
$
(49)
1,314
$
537
43
249
73
188
177
1,267
(87)
1,180
(i)
(ii)
In 2020, Shoppers Drug Mart Inc. agreed to invest a total of $75 million in Maple Corporation (“Maple”), the leading virtual care provider in
Canada, in exchange for a significant minority stake. The investment will be made in two tranches. As at December 31, 2020, tranche one had
been executed and the Company invested $61 million in exchange for approximately 24% of the ownership interest in Maple. The tranche
two investment is expected to be executed in the third quarter of 2021.
Current portion of mortgages, loans and note receivable are included in prepaid expenses and other assets in the consolidated balance
sheets.
Note 21. Customer Loyalty Awards Program Liability
The carrying amount of the liability associated with Loblaw’s customer loyalty awards programs (“loyalty liability”) was as follows:
($ millions)
Loyalty liability
As at
Dec. 31, 2020
Dec. 31, 2019
$
194
$
191
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.
128 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Note 22. Provisions
The following are continuities of provisions for the years ended December 31, 2020 and December 31, 2019:
($ millions)
Provisions, beginning of year
IFRS 16 adjustment
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
$
$
2020
237
$
$
—
237
106
(98)
(19)
—
$
226
$
2019
372
(80)
292
104
(142)
(16)
(1)
237
As at
Dec. 31, 2020
Dec. 31, 2019
$
$
109
117
226
$
$
147
90
237
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 $86 million (2019 – $79 million), of which $47 million (2019 – $44 million) was
included in non-current provisions and $39 million (2019 – $35 million) in current provisions. Included in total accrued insurance
liabilities were $19 million (2019 – $20 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 2020 U.S. workers’ compensation cost and liability was 2.0% (2019 – 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 2020, the U.S. workers’ compensation cost associated with the worker’s compensation liabilities was $4 million (2019 –
$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, 2020,
the Loblaw Card Program liability is $15 million (2019 – $17 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, 2020,
the provision related to restructuring and other related costs was $71 million (2019 – $79 million).
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 129 Notes to the Consolidated Financial Statements
Note 23. Short-Term Debt
The components of short-term debt were as follows:
($ millions)
Other Independent Securitization Trusts
Series B Debentures(i)
(note 12)
Short-term debt
As at
Dec. 31, 2020
Dec. 31, 2019
$
$
$
575
760
775
714
1,335
$
1,489
(i)
Series B Debentures issued by GWL are due on demand and pay a current weighted average interest rate of 1.55% (2019 – 2.55%). 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).
130 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Note 24. Long-Term Debt
The components of long-term debt were as follows:
Series A, 7.00%, due 2031(i)
4.12%, due 2024
7.10%, due 2032
6.69%, due 2033
5.22%, due 2020
4.86%, due 2023
3.92% due 2024
6.65%, due 2027
6.45%, due 2028
4.49%, due 2028
6.50%, due 2029
2.28%, due 2030
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
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 N 2.98%, due 2030
Series O 3.83%, due 2050
Series P 2.85%, due 2027
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 D-C 2.95%, due 2023
2.30% - 5.60%, due 2021 - 2038 (note 15)
0.20% - 3.78%, due 2021 - 2025
2.23%, due 2020
2.71%, due 2022
3.10%, due 2023
2.28%, due 2024
1.34%, due 2025
($ millions)
Debentures
George Weston Limited Notes
Loblaw Companies Limited Notes
Choice Properties Debentures
Long-Term Debt Secured by Mortgage
Guaranteed Investment Certificates
Independent Securitization Trust (note 12)
Independent Funding Trusts
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
As at
Dec. 31, 2020
Dec. 31, 2019
$
$
466
200
150
100
—
800
400
100
200
400
175
350
151
33
200
200
200
200
200
300
200
150
55
200
—
200
—
200
250
100
300
350
550
750
750
400
100
500
—
200
300
—
125
1,207
1,185
—
250
250
250
300
512
—
25
(41)
$
$
14,443
924
13,519
$
$
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
(37)
14,554
1,842
12,712
(i)
The Series A, 7.00% and Series B Debentures (see note 23) are secured by a pledge of 9.6 million Loblaw common shares.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 131 Notes to the Consolidated Financial Statements
Significant long-term debt transactions are described below:
DEBENTURES The following table summarizes the debentures issued in the years ended as indicated:
($ millions)
Loblaw Companies Limited notes
Choice Properties senior unsecured debentures
– Series M
– Series N
– Series O
– Series P
Total debentures issued
Interest
Rate
2.28%
3.53%
2.98%
3.83%
2.85%
Maturity
Date
2020
Principal
Amount
2019
Principal
Amount
May 7, 2030(i)
$
350
$
—
June 11, 2029
March 4, 2030
March 4, 2050
May 21, 2027
—
400
100
500
750
—
—
—
$
1,350
$
750
(i)
In connection with this issuance, during 2020, $350 million of bond forward agreements were settled, resulting in a realized fair value loss of
$34 million before income taxes, which was cumulatively recorded in other comprehensive loss as unrealized prior to settlement. The loss will
be reclassified to the statements of earnings over the life of the May 7, 2030 notes. This settlement also resulted in a net effective interest rate
of 3.34% on the May 7, 2030 notes issued.
The following table summarizes the debentures and term loans repaid in the years ended as indicated:
($ millions)
Loblaw Companies Limited notes
Choice Properties senior unsecured debentures
– Series 7
– Series 8
– Series B-C
– Series C
– Series C-C
– Series E
Choice Properties - Term Loan
Choice Properties - Term Loan
Interest
Rate
5.22%
3.00%
3.60%
4.32%
3.50%
2.56%
2.30%
Variable
Variable
Maturity
Date
2020
Principal
Amount
2019
Principal
Amount
June 18, 2020
$
350
$
—
September 20, 2019(i)
April 20, 2020
January 15, 2021
February 8, 2021
November 30, 2019(i)
September 14, 2020
May 4, 2022(ii)
May 4, 2023(iii)
—
300
100
250
—
250
—
—
200
—
—
—
100
—
175
625
Total debentures and term loans repaid
$
1,250
$
1,100
(i)
(ii)
Choice Properties senior unsecured debentures Series 7 and Series C-C were redeemed on June 27, 2019.
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.
(iii) 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.
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
2020
$
1,311
$
410
(536)
$
1,185
$
2019
1,141
453
(283)
1,311
132 GEORGE WESTON LIMITED 2020 ANNUAL REPORT INDEPENDENT SECURITIZATION TRUST The notes issued by Eagle are debentures, which are collateralized by PC Bank’s credit
card receivables (see note 12).
During 2020, Eagle issued $300 million (2019 – $250 million) of senior and subordinated term notes with a maturity date of
July 17, 2025 (2019 – July 17, 2024) at a weighted average interest rate of 1.34% (2019 – 2.28%). In connection with this
issuance, $200 million (2019 – $250 million) of bond forward agreements were settled, resulting in a realized fair value loss of
$11 million (2019 – $8 million) before income taxes, which was cumulatively recorded in other comprehensive loss as unrealized
prior to settlement. The loss will be reclassified to the statements of earnings over the life of the aforementioned Eagle notes.
This settlement also resulted in a net effective interest rate of 2.07% (2019 – 2.94%) on the Eagle notes issued. (see note 33).
During 2020, $250 million of the senior and subordinated term notes at a weighted average interest rate of 2.23% previously
issued by Eagle, matured and were repaid on September 17, 2020. As a result, there was a net change in the balances related to
Eagle notes of $50 million. There were no repayments of notes issued by Eagle in 2019.
INDEPENDENT FUNDING TRUSTS As at year end 2020, the independent funding trusts had drawn $512 million (2019 –
$505 million) from the revolving committed credit facility that is the source of funding to the independent funding trusts.
The revolving committed credit facility relating to the independent funding trusts has a maturity date until May 27, 2022.
COMMITTED CREDIT FACILITIES The components of the committed lines of credit available as at year end 2020 and 2019 were
as follows:
($ millions)
Maturity
Date
Available
Credit
Drawn
Available
Credit
Drawn
Loblaw committed credit facility
October 7, 2023(i)
$
1,000 $
—
$
1,000
$
—
Choice Properties committed syndicated
credit facility
May 4, 2023
1,500
Total committed credit facilities
$
2,500 $
—
—
1,500
$
2,500
$
132
132
As at
Dec. 31, 2020
Dec. 31, 2019
(i)
In 2020, Loblaw amended its committed credit facility and extended the maturity date from June 10, 2021 to October 7, 2023.
These facilities contain certain financial covenants (see note 28).
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
Long-term debt secured by mortgage
Construction Loans
Long-term debt due within one year
As at
Dec. 31, 2020
Dec. 31, 2019
$
$
196
597
—
106
25
897
527
250
156
12
$
924
$
1,842
SCHEDULE OF REPAYMENTS The schedule of repayment of long-term debt, based on maturity is as follows:
($ millions)
2021
2022
2023
2024
2025
Thereafter
Long-Term Debt (excludes transaction costs)
See note 33 for the fair value of long-term debt.
Dec. 31, 2020
$
$
929
1,736
1,870
1,889
1,165
6,895
14,484
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 133 Notes to the Consolidated Financial Statements
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
Restated balance, beginning of year
Long-term debt issuances(i)
Long-term debt repayments
Total cash flow (used in) from long-term debt financing activities
Other non-cash changes
Total non-cash long-term debt activities
Total long-term debt, end of year
(i)
Includes net movements from the independent funding trust, which are revolving debt instruments.
Note 25. Other Liabilities
The components of other liabilities were as follows:
($ millions)
Financial liabilities(i)
Net defined benefit plan obligation (note 29)
Other long-term employee benefit obligation
Equity-based compensation liability (note 30)
Other
Other liabilities
2020
$
14,554
$
—
14,554
2,492
(2,598)
(106)
(5)
(5)
2019
15,318
(535)
14,783
1,438
(1,690)
(252)
23
23
$
14,443
$
14,554
As at
Dec. 31, 2020
Dec. 31, 2019
$
$
661
382
129
7
18
$
1,197
$
431
375
128
7
16
957
(i)
In 2020, Choice Properties disposed or partially disposed of 17 properties (2019 – 31 properties) to third parties for aggregate consideration of
$233 million (2019 – $435 million). On consolidation, these transactions were not recognized as a sale of assets as under the terms of the
leases, the Company did not relinquish control of the properties for purposes of IFRS 16 “Leases” and IFRS 15 “Revenue from Contracts with
Customers”. Instead, the proceeds from the transactions were recognized as financial liabilities and as at December 31, 2020, $5 million
(December 31, 2019 – $4 million) was recorded in trade payables and other liabilities and $661 million (December 31, 2019 – $431 million)
was recorded in other liabilities.
134 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Note 26. Share Capital
The components of share capital were as follows:
($ 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, 2020
Dec. 31, 2019
$
2,782
$
2,809
228
196
197
196
228
196
197
196
$
3,599
$
3,626
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, 2020 and December 31, 2019:
($ millions except where otherwise indicated)
Number of
Common
Shares
2020
Common
Share
Capital
Number of
Common
Shares
2019
Common
Share
Capital
Issued and outstanding, beginning of year
153,667,750 $
2,809
153,370,108 $
2,766
Issued for settlement of stock options (note 30)
Purchased and cancelled
6,666
(1,300,000)
1
(24)
529,965
(232,323)
47
(4)
Issued and outstanding, end of year
152,374,416 $
2,786
153,667,750 $
2,809
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,
(88,832)
(229,000)
63,307
(254,525)
—
(4)
—
(4)
(120,305)
(60,000)
91,473
(88,832)
—
(1)
1
—
end of year
152,119,891
$
2,782
153,578,918
$
2,809
Weighted average outstanding, net of shares held
in trusts
153,406,800
153,537,411
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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 135 Notes to the Consolidated Financial Statements
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.
DIVIDENDS The declaration and payment of dividends on the Company’s common shares and the amount thereof are at the
discretion of the Company’s Board which takes into account the Company’s financial results, capital requirements, available
cash flow, future prospects of the Company’s business and other factors considered relevant from time to time. Over time, it is
the Company’s intention to increase the amount of the dividend while retaining appropriate free cash flow to finance future
growth. In the second quarter of 2019, the Board raised the quarterly common share dividend by $0.010 to $0.525 per share. In
the fourth quarter of 2020, the Board raised the quarterly common share dividend by $0.025 to $0.550 per share. The Board
declared dividends for the years ended as follows:
($)
Dividends declared per share(i):
Common share
Preferred share:
Series I
Series III
Series IV
Series V
2020
2019
$
$
$
$
$
2.125
$
2.090
1.45
1.30
1.30
1.1875
$
$
$
$
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, 2021 and
subsequently paid on January 4, 2021. Dividend declared on Preferred Shares, Series I was paid on December 15, 2020.
The following table summarizes the Company’s cash dividends declared subsequent to year end 2020:
($)
Dividends declared per share(i)
– Common share
– Preferred share:
Series I
Series III
Series IV
Series V
$
$
$
$
$
0.550
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, 2021. Dividends declared
on Preferred Shares, Series I are payable on March 15, 2021.
136 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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
2020
229,000
33,325
1,300,000
2019
60,000
64,851
230,698
$
$
$
(21)
(3)
(123)
17
—
99
24
$
$
$
(6)
(6)
(25)
4
1
21
4
In the second quarter of 2020, GWL renewed its NCIB program to purchase on the Toronto Stock Exchange (“TSX”) or through
alternative trading systems up to 7,683,528 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.
Pursuant to an exemption order granted by the Ontario Securities Commission, on December 21, 2020, the Company purchased
for cancellation 1,300,000 common shares from an entity controlled by Mr. W. Galen Weston (“Mr. Weston”), the then controlling
shareholder of the Company. The common shares were purchased at a price approved by the Ontario Securities Commission
and count towards the common shares the Company is entitled to purchase under its NCIB, for aggregate cash consideration of
$123 million.
As of December 31, 2020, 1,300,365 common shares were purchased under its current NCIB, including 1,300,000 common
shares purchased from Mr. Weston.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 137 Notes to the Consolidated Financial Statements
Note 27. Loblaw Capital Transactions
LOBLAW PREFERRED SHARES As at year end of 2020, 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 condensed consolidated balance sheet. In 2020, Loblaw declared dividends of $12 million (2019 –
$12 million) related to the Second Preferred Shares, Series B.
LOBLAW COMMON SHARES The following table summarizes Loblaw’s common share activity under its equity-based
compensation arrangements and NCIB program, and includes the impact on the Company’s consolidated financial statements
for the years ended as indicated:
($ millions except where otherwise indicated)
Issued (number of shares)
Purchased and held in trusts (number of shares)
Purchased and cancelled
(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
2020
1,187,274
(145,000)
2019
2,408,158
(900,000)
(13,304,751)
(13,613,225)
(12,262,477)
(12,105,067)
$
$
$
$
$
30
(10)
(888)
(868)
$
$
16
(3)
(226)
(213)
$
82
(62)
(937)
(917)
25
(19)
(176)
(170)
NORMAL COURSE ISSUER BID During 2020, the TSX accepted an amendment to Loblaw’s NCIB. The amendment permitted
Loblaw to purchase its common shares from GWL under Loblaw’s NCIB, pursuant to an automatic disposition plan agreement
among Loblaw’s broker, Loblaw and GWL, in order for GWL to maintain its proportionate ownership interest in Loblaw. Pursuant
to an exemption order granted by the Ontario Securities Commission, on December 21, 2020, Loblaw purchased for cancellation
3,269,208 common shares from an entity controlled by Mr. Weston, the then controlling shareholder of GWL (see note 37). The
common shares were purchased at a price approved by the Ontario Securities Commission and count towards the common
shares Loblaw is entitled to purchase under its NCIB.
During the second quarter of 2020, Loblaw renewed its NCIB to purchase on the TSX or through alternative trading systems up
to 17,888,888 of Loblaw’s common shares, representing approximately 5% of issued and outstanding common shares. In
accordance with the rules of the TSX, Loblaw may purchase its common shares from time to time at the then market price of
such shares. As at December 31, 2020, Loblaw had purchased 10,547,174 common shares for cancellation under its
current NCIB.
During the year ended 2020, 4,940,680 Loblaw common shares were purchased from GWL under the Loblaw NCIB for
cancellation, for aggregate cash consideration of $336 million, and 3,269,208 common shares purchased from an entity
controlled by Mr. Weston, for aggregate cash consideration of $205 million.
138 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Note 28. Capital Management
In order to manage its capital structure, the Company may, among other activities, adjust the amount of dividends paid to
shareholders, purchase shares for cancellation pursuant to its NCIB program, issue new shares or issue or repay long-term debt
with the objective of:
•
• maintaining financial capacity and flexibility through access to capital to support future development of the business;
• minimizing the after-tax cost of its capital while taking into consideration current and future industry, market and
ensuring sufficient liquidity is available to support its financial obligations and to execute its operating and strategic plans;
economic risks and conditions;
utilizing short-term funding sources to manage its working capital requirements and long-term funding sources to manage
the long-term capital investments of the business; and
targeting an appropriate leverage and capital structure for the Company and each of its reportable operating segments.
•
•
The Company has policies in place which govern debt financing plans and risk management strategies for liquidity, interest
rates and foreign exchange. These policies outline measures and targets for managing capital, including a range for leverage
consistent with the desired credit rating. Management and the Audit Committee regularly review the Company’s compliance
with, and performance against, these policies. In addition, management regularly reviews these policies to ensure they remain
consistent with the risk tolerance acceptable to the Company.
The following table summarizes the Company’s total capital under management:
($ millions)
Bank indebtedness
Demand deposits from customer
Short-term debt
Long-term debt due within one year
Long-term debt
Certain other liabilities(i)
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, 2020
Dec. 31, 2019
$
$
86
24
1,335
924
13,519
737
(630)
18
—
1,489
1,842
12,712
500
(537)
$
15,995
$
16,024
799
4,206
21,000
$
7,811
857
4,250
21,131
7,609
28,811
$
28,740
$
$
(i)
Includes financial liabilities of $666 million (2019 – $435 million) recorded primarily as a result of Choice Properties’ transactions.
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.
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 2020 and throughout the year, Loblaw was in compliance with each of the covenants under these
agreements.
Loblaw is subject to externally imposed capital requirements from the Office of the Superintendent of Financial Institutions
(“OSFI”), the primary regulator of PC Bank. PC Bank’s capital management objectives are to maintain a consistently strong capital
position while considering the economic risks generated by its credit card receivables portfolio and to meet all regulatory capital
requirements as defined by OSFI. PC Bank uses Basel III as its regulatory capital management framework, which includes a
common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5% and a total capital ratio of 10.5%. 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 2020 and throughout the year, PC Bank has met all
applicable regulatory requirements.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 139 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 2020 and throughout the year, Choice Properties was
in compliance with each of the key financial covenants under these agreements.
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 2020.
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 2021 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.
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.
140 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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
As at
Dec. 31, 2020
Dec. 31, 2019
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$ (2,026) $
—
$
(1,670) $
(208)
(168)
(196)
—
(156)
Total present value of defined benefit obligations
$ (2,234) $
(168)
$
(1,866) $
(156)
Fair value of plan assets
2,207
—
1,899
—
Total funded status of (obligations) surpluses
$
(27) $
(168)
$
33 $
(156)
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)
(3)
—
(3)
—
$
(30) $
(168)
$
30 $
(156)
$
$
184 $
—
(214) $
(168)
$
$
249 $
—
(219) $
(156)
The following are the continuities of the fair value of plan assets and the present value of the defined benefit plan obligations:
($ millions)
Changes in the fair value of plan assets
Fair value, beginning of year
Employer contributions
Employee contributions
Benefits paid
Interest income
Actuarial gains 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 in other comprehensive income
Settlements(i)
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2020
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2019
Total
$
1,899 $
— $
1,899
$
1,802 $
— $
1,802
47
4
(52)
62
252
(1)
(4)
—
—
—
—
—
—
—
47
4
(52)
62
252
(1)
(4)
47
3
(58)
64
231
(187)
(3)
—
—
—
—
—
—
—
47
3
(58)
64
231
(187)
(3)
$ 2,207 $
— $ 2,207
$
1,899 $
— $
1,899
$
1,866 $
156 $ 2,022
$
1,742 $
152 $
1,894
67
62
(64)
4
300
(1)
4
5
(7)
—
10
—
71
67
(71)
4
310
(1)
61
64
(73)
3
246
(177)
5
5
(8)
—
2
—
66
69
(81)
3
248
(177)
Balance, end of year
$
2,234 $
168 $ 2,402
$
1,866 $
156 $
2,022
(i)
Settlements relate to annuity purchases.
In 2020 and 2019, the Company completed 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 $1 million (2019 – $187 million) from the impacted plans’ assets to settle $1 million (2019 –
$177 million) of pension obligations and recorded settlement nominal charge (2019 – $10 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 141
Notes to the Consolidated Financial Statements
For the year ended 2020, the actual return on plan assets was $314 million (2019 – $295 million).
The net defined benefit obligation can be allocated to the plans’ participants as follows:
•
•
•
Active plan participants – 63% (2019 – 63%)
Deferred plan participants – 12% (2019 – 14%)
Retirees – 25% (2019 – 23%)
During 2021, the Company expects to contribute approximately $45 million (2020 – 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
$
67 $
4 $
—
—
4
5
—
—
2020
Total
71
5
—
4
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
61 $
5 $
—
10
3
5
—
—
Net post-employment defined benefit costs
$
71 $
9 $
80
$
74 $
10 $
(i)
Relates to annuity purchases.
The actuarial losses (gains) recognized in other comprehensive income for defined benefit plans were as follows:
($ millions)
Return on plan assets excluding amounts included
in interest income
Experience adjustments
Actuarial losses from change in financial
assumptions
Change in liability arising from asset ceiling
Total net actuarial losses (gains) losses recognized
in other comprehensive income before
income taxes
Income tax expenses on actuarial (gains)
losses (note 8)
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2020
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
(252) $
— $
(252)
$
(231) $
— $
(231)
—
300
—
(3)
13
—
(3)
313
—
3
(21)
(18)
243
(19)
23
—
266
(19)
$
48 $
10 $
58
$
(4) $
2 $
(2)
Actuarial losses (gains) net of income tax expenses
$
35 $
8 $
43
$
(3) $
2 $
(13)
(2)
(15)
1
—
1
(1)
2019
Total
66
5
10
3
84
2019
Total
142 GEORGE WESTON LIMITED 2020 ANNUAL REPORT The cumulative actuarial (gains) losses before income taxes recognized in equity for the Company’s defined benefit plans were
as follows:
($ millions)
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2020
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2019
Total
Cumulative amount, beginning of year
$
(57) $
(81) $
(138)
$
(53) $
(83) $
(136)
Net actuarial losses (gains) recognized in
the year before income taxes
48
10
58
(4)
2
(2)
Cumulative amount, end of year
$
(9) $
(71) $
(80)
$
(57) $
(81) $
(138)
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, 2020
Dec. 31, 2019
As at
Equity securities
Canadian – pooled funds
Foreign
– pooled funds
Total equity securities
Debt securities
$
13
1%
$
1,195
$
1,208
53%
54%
$
Fixed income securities – government
$
743
34%
$
Fixed income pooled funds(i) – government
– corporate
– corporate
Total debt securities
Other investments
Cash and cash equivalents
Total
79
—
—
822
125
52
$
$
$
4%
—%
—%
38%
6%
2%
$ 2,207
100%
$
$
$
$
66
575
641
865
200
36
14
1,115
125
18
4%
30%
34%
45%
10%
2%
1%
58%
7%
1%
1,899
100%
(i)
Both government and corporate securities may be included within the same fixed income pooled fund.
As at year end 2020 and 2019, 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 143 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
2.50%
3.00%
2020
Other
Defined
Benefit
Plans
2.50%
n/a
Defined
Benefit
Pension
Plans
3.25%
3.00%
2019
Other
Defined
Benefit
Plans
3.00%
n/a
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
Generational
Generational
Generational
Generational
3.25%
3.00%
3.00%
n/a
4.00%
3.00%
4.00%
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 2020 is 19.1 years (2019 – 18.5 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 2020 was estimated at 4.50% and is expected to remain at 4.50% as at year end 2021.
SENSITIVITY OF KEY ACTUARIAL ASSUMPTIONS The following table outlines the key assumptions for 2020 (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)
2.50%
(390)
475
$
$
$
$
3.25%
(27)
26
n/a
n/a
n/a
n/a
2.50%
3.00%
$
$
$
$
(22)
29
16
(13)
$
$
$
$
—
—
1
(1)
(i)
Discount rate and expected growth rate of health care costs sensitivity is for current service and interest costs only.
144 GEORGE WESTON LIMITED 2020 ANNUAL REPORT MULTI-EMPLOYER PENSION PLANS During 2020, the Company recognized an expense of $75 million (2019 – $66 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 60,000 (2019 – 55,000) employees as members. Included in the 2020 expense described
above are contributions of $73 million (2019 – $64 million) to CCWIPP.
POST-EMPLOYMENT AND OTHER LONG-TERM EMPLOYEE BENEFIT COSTS The net cost recognized in net earnings before
income taxes for the Company’s post-employment and other long-term employee benefit plans was as follows:
($ 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
$
$
$
$
$
2020
80
36
75
191
33
224
215
9
$
$
$
$
224
$
2019
84
34
66
184
43
227
218
9
227
Includes nominal settlement charge (2019 – $10 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 (2019 – $4 million) of net interest expense and other financing charges.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 145 Notes to the Consolidated Financial Statements
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 2020 were $67 million (2019 – $69 million).
The following is the carrying amount of the Company’s equity-based compensation arrangements:
($ millions)
Trade payables and other liabilities
Other liabilities (note 25)
Contributed surplus
As at
Dec. 31, 2020
Dec. 31, 2019
$
$
$
9
7
125
$
$
$
8
7
113
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.
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
2020
Weighted
Average
Exercise
Price/ Share
100.22
104.15
84.20
103.33
—
101.44
101.41
Options
(number
of shares)
1,246,718
548,868
(6,666)
(42,437)
—
1,746,483
674,386
$
$
$
$
$
$
$
Options
(number
of shares)
1,548,044
427,523
(595,496)
(53,096)
(80,257)
1,246,718
455,884
$
$
$
$
$
$
$
(i)
During 2019, GWL settled 65,531 stock options in cash.
The following table summarizes information about GWL’s outstanding stock options:
2019
Weighted
Average
Exercise
Price/Share
90.82
93.17
75.09
107.45
62.96
100.22
101.07
2020
Range of Exercise Prices ($)
$81.92 - $96.88
$96.89 - $104.48
$104.49 - $123.73
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price/Share
Number of
Exercisable
Options
Weighted
Average
Exercise
Price/Share
4
5
3
$
$
$
$
91.17
103.16
109.27
101.44
174,196
204,607
295,583
674,386
$
$
$
$
87.33
100.61
110.25
101.41
Number of
Options
Outstanding
508,963
729,955
507,565
1,746,483
During 2020, GWL issued common shares on the exercise of stock options with a weighted average market share price of $93.05
(2019 – $102.67) per common share and received cash consideration of $1 million (2019 – $40 million).
146 GEORGE WESTON LIMITED 2020 ANNUAL REPORT During 2020, GWL granted stock options with a weighted average exercise price of $104.15 (2019 – $93.17) per common share
and a fair value of $6 million (2019 – $5 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
2020
2.0%
2019
2.2%
14.3% - 14.9%
14.9% - 15.4%
0.9%
1.7% - 1.8%
4.9 - 6.7 years
4.8 - 6.7 years
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture rate applied as at
year end 2020 was 1.4% (2019 – 0.8%).
The following is a summary of Loblaw’s stock option plan activity:
Outstanding options, beginning of year
Granted
Exercised(i)
Forfeited/cancelled
Outstanding options, end of year
Options exercisable, end of year
Options
(number
of shares)
6,317,922
1,851,415
(601,756)
(307,936)
7,259,645
2,758,738
$
$
$
$
$
$
2020
Weighted
Average
Exercise
Price/Share
57.57
70.03
50.32
61.28
61.19
55.99
Options
(number
of shares)
7,509,631
1,552,458
(2,345,820)
(398,347)
6,317,922
2,117,144
$
$
$
$
$
$
(i)
During 2019, Loblaw settled 459,087 stock options in cash.
The following table summarizes information about Loblaw’s outstanding stock options:
2019
Weighted
Average
Exercise
Price/Share
51.60
65.66
43.82
57.88
57.57
52.79
2020
Range of Exercise Prices ($)
$39.97 - $57.38
$57.84 - $65.57
$65.58 - $70.19
Outstanding Options
Exercisable Options
Number of
Options
Outstanding
2,352,828
2,998,885
1,907,932
7,259,645
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price/Share
3
4
6
$
$
$
$
53.66
61.55
69.91
61.19
Number of
Exercisable
Options
1,415,505
1,325,775
17,458
2,758,738
Weighted
Average
Exercise
Price/Share
$
$
$
$
52.27
59.82
67.46
55.99
During 2020, Loblaw issued common shares on the exercise of stock options with a weighted average market share price of
$68.22 (2019 – $69.21) per common share and received cash consideration of $30 million (2019 – $82 million).
During 2020, Loblaw granted stock options with a weighted average exercise price of $70.03 (2019 – $65.66) per common share
and a fair value of $13 million (2019 – $12 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
2020
1.9%
2019
1.8%
13.5 - 20.1%
0.3 - 1.2%
13.7 - 15.7%
1.4% - 1.8%
3.7 - 6.2 years
3.7 - 6.2 years
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 147 Notes to the Consolidated Financial Statements
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture rate applied as at
year end 2020 and 2019 was 9.0%.
RESTRICTED SHARE UNIT PLANS The following is a summary of GWL’s and Loblaw’s RSU plan activity:
(Number of awards)
Outstanding RSUs, beginning of year
Granted
Reinvested
Settled
Forfeited
Outstanding RSUs, end of year
GWL
Loblaw
2020
136,788
47,957
2,741
(48,291)
(6,157)
133,038
2019
2020
2019
166,034
1,032,832
1,024,275
37,264
2,749
(54,774)
(14,485)
136,788
242,797
23,666
(367,020)
(38,003)
894,272
355,311
17,125
(274,335)
(89,544)
1,032,832
The fair value of GWL’s and Loblaw’s RSUs granted during 2020 was $5 million (2019 – $4 million) and $17 million (2019 –
$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
Reinvested
Settled
Forfeited
Outstanding PSUs, end of year
GWL
Loblaw
2020
114,473
58,555
3,026
(20,425)
(4,571)
151,058
2019
89,656
69,951
2,074
(40,341)
(6,867)
114,473
2020
662,695
237,391
16,301
(218,955)
(31,032)
666,400
2019
674,945
258,261
11,264
(235,881)
(45,894)
662,695
The fair value of GWL’s and Loblaw’s PSUs granted during 2020 was $6 million (2019 – $6 million) and $17 million (2019 –
$16 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)
2020
68,716
63,307
2019
95,115
91,473
During 2020, the settlement of awards from shares held in trusts resulted in $6 million increase (2019 – $9 million) in retained
earnings and a nominal increase (2019 – $1 million) in share capital.
DIRECTOR DEFERRED SHARE UNIT PLANS The following is a summary of GWL’s and Loblaw’s DSU plan activity:
(Number of awards)
Outstanding DSUs, beginning of year
Granted
Reinvested
Settled
Outstanding DSUs, end of year
GWL
Loblaw
2020
155,418
22,878
3,111
(31,870)
149,537
2019
186,600
22,937
3,116
(57,235)
155,418
2020
336,897
35,008
8,576
—
2019
296,329
34,895
5,673
—
380,481
336,897
The fair value of GWL’s and Loblaw’s DSUs granted during 2020 was $2 million (2019 – $2 million) and $2 million (2019 –
$2 million), respectively.
148 GEORGE WESTON LIMITED 2020 ANNUAL REPORT EXECUTIVE DEFERRED SHARE UNIT PLANS The following is a summary of GWL’s and Loblaw’s EDSU plan activity:
GWL
Loblaw
(Number of awards)
Outstanding EDSUs, beginning of year
Granted
Reinvested
Settled
2020
43,947
—
964
—
2019
43,065
—
882
—
Outstanding EDSUs, end of year
44,911
43,947
2020
45,258
10,310
1,288
—
56,856
2019
45,473
4,796
846
(5,857)
45,258
There were no GWL EDSUs granted in 2020 and 2019. The fair value of Loblaw’s EDSUs granted during 2020 was $1 million
(2019 – 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 19,744,697 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
Exercised
Cancelled
Expired
Outstanding Unit Options, end of year
Unit Options exercisable, end of year
2020
Weighted
average
exercise
price/unit
12.51
12.09
13.15
13.93
12.54
12.56
Number of
awards
1,287,314
(148,794)
(54,414)
(1,466)
1,082,640
706,804
$
$
$
$
$
$
Number of
awards
3,764,107
(2,048,060)
(417,439)
(11,294)
1,287,314
561,779
$
$
$
$
$
$
The assumptions used to measure the fair value of the Unit Options under the Black-Scholes model were as follows:
2019
Weighted
average
exercise
price/ unit
11.66
11.04
11.96
14.21
12.51
12.27
2019
5.4%
2020
5.5%
15.6% - 35.0%
13.9% - 18.3%
0.01% - 2.7%
0.02% - 1.7%
0.1 - 2.7 years
0.1 - 3.6 years
Expected average distribution yield
Expected average Unit price volatility
Average risk-free interest rate
Expected average life of options
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 2020 and 2019.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 149 Notes to the Consolidated Financial Statements
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
2020
484,544
69,227
24,451
(161,044)
(11,465)
405,713
2019
446,341
239,483
26,547
(106,355)
(121,472)
484,544
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 764,385 URUs
vested, but still subject to disposition restrictions as at year end 2020 (2019 – 1,147,753).
The following is a summary of Choice Properties’ URU plan activity for units not yet vested:
(Number of awards)
Outstanding URUs, beginning of year
Granted
Forfeited
Vested
Outstanding URUs, end of year
2020
624,419
159,083
—
(194,968)
588,534
2019
717,815
155,946
(40,796)
(208,546)
624,419
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 2020 and 2019.
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
2020
103,868
59,273
7,241
(40,205)
(3,543)
9,061
135,695
2019
104,449
50,686
5,867
(58,282)
(21,471)
22,619
103,868
150 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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
Note 31. Employee Costs
Included in operating income were the following employee costs:
2020
277,139
76,632
17,338
—
(2,819)
368,290
2019
302,589
68,123
17,046
(185)
(110,434)
277,139
($ millions)
Wages, salaries and other short-term employee benefits
2020
$
7,450
$
Post-employment benefits (note 29)
Other long-term employee benefits (note 29)
Equity-based compensation
Capitalized to fixed assets and intangible assets
Employee costs
2019
6,620
179
39
56
(63)
186
29
61
(69)
$
7,657
$
6,831
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 151 Notes to the Consolidated Financial Statements
Note 32. Leases
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, 2020:
($ millions)
Cost
Balance, beginning of year
Lease additions, net of terminations
Lease extensions and other items
Balance, end of year
Accumulated depreciation
Balance, beginning of year
Depreciation
Impairment losses, net of reversals (note 15)
Balance, end of year
Carrying amount as at December 31, 2020
Property
Other
2020
Total
$
4,588 $
70
$
4,658
165
386
—
17
165
403
5,139 $
87 $
5,226
560
$
24 $
557
21
1,138 $
4,001 $
21
—
45 $
42 $
584
578
21
1,183
4,043
$
$
$
$
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
152 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Lease Liabilities The following is the continuity of lease liabilities for the year ended December 31, 2020 and December 31,
2019:
($ millions)
Balance, beginning of year
Lease additions, net of terminations
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
Liquidity The future undiscounted contractual lease payments are as follows:
2019
5,086
178
363
(734)
214
5,005
857
4,250
5,107
2020
$
5,107
$
$
$
$
161
387
(857)
207
5,005
799
4,206
$
$
5,005
$
As at
($ millions)
2021
2022
2023
2024
2025
Thereafter
Total
Lease payments
$ 804 $ 684 $ 660 $ 560 $ 487 $
1,849
$
5,044
$
Total
5,303
Payments due by year
Dec. 31, 2020
Dec. 31, 2019
As at December 31, 2020, the Company had a future undiscounted cash flow of $270 million (December 31, 2019 – $208 million)
related to leases not yet commenced but committed to.
Short-Term Leases The Company has short-term leases that are primarily related to trailer rentals and certain properties. During
2020, $25 million (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 2020, $235 million (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, 2020, approximately 15% (December 31, 2019 – 14%) of the lease liabilities are related to extension options that
were deemed reasonably certain to be exercised.
As at December 31, 2020, approximately $6 billion (December 31, 2019 – $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 2020, Loblaw disposed of and leased back one office property, and recognized a loss
of $1 million (2019 – nominal gain) in SG&A.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 153 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 2020, the Company recognized finance interest income of $3 million (2019 – $4 million) and impairment losses of $5
million (2019 – nil). The future finance lease payments to be received by the Company relating to properties that are subleased
to third parties are as follows:
($ millions)
2021
2022
2023
2024
2025
Thereafter
Total
Total
Payments to be received by year
Dec. 31, 2020
Dec. 31, 2019
Finance lease payments
to be received
$
15 $
14 $
15 $
9 $
6 $
273
$
332
$
Less: unearned finance
interest income
(4)
(3)
(3)
(2)
(2)
(238)
(252)
Total finance lease
receivable (note 20)
$
11 $
11 $
12 $
7 $
4 $
35
$
80
82
(9)
73
As at
Operating Leases During 2020, the Company recognized operating lease income of $373 million (2019 – $371 million), of which
$20 million (2019 – $23 million) is related to subleases of right-of-use assets.
The future undiscounted operating lease payments to be received by the Company are as follows:
($ millions)
2021
2022
2023
2024
2025
Thereafter
Total
Operating lease income
$ 388 $
351 $
312 $ 269 $ 228 $
599
$
2,147
$
Total
2,474
Payments to be received by year
Dec. 31, 2020
Dec. 31, 2019
As at
The Company has certain owned land and buildings that it leases to third parties, which as at December 31, 2020 had a net
carrying amount of $1 billion (2019 – $1 billion).
154 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Note 33. Financial Instruments
The following table presents the fair value and fair value hierarchy of the Company’s financial instruments and excludes financial
instruments measured at amortized cost that are short-term in nature. The carrying values of the Company’s financial
instruments approximate their fair values except for long-term debt.
($ millions)
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)
Fair value through profit and loss:
Security deposits
Certain other assets(ii)
Certain long-term investments and
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:
As at
Dec. 31, 2020
Dec. 31, 2019(i)
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$
— $
— $
— $
— $
— $
— $
19 $
—
—
113
113
—
—
116
19
116
—
117
50
—
—
—
20
(2)
—
630
—
79
—
—
3
—
75
79
20
1
3
630
16,389
—
16,389
—
668
668
117
75
—
—
3
—
—
—
—
—
76
—
—
1
5
—
—
—
—
—
—
21
2
—
537
—
50
—
86
—
—
1
—
76
86
21
3
6
537
15,839
—
15,839
—
444
444
2
—
8
—
2
—
3,601
—
8
Trust Unit liability
3,600
Derivatives included in trade payables and
other liabilities
4
14
—
18
—
—
—
—
—
—
—
3,600
3,601
(i)
(ii)
Certain comparative figures have been restated to conform with current year presentation.
Certain other assets, certain other long-term investments and other assets, 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 the periods presented.
During 2020, a loss of $2 million (2019 – loss of $3 million) was recognized in operating income on financial instruments
designated as amortized cost. In addition, a net gain of $268 million (2019 – net gain of $614 million) was recognized in earnings
before income taxes on financial instruments required to be classified as fair value through profit or loss.
Cash and Cash Equivalents, Short-Term Investments and Security Deposits As at the end of 2020, the Company had cash and
cash equivalents, short-term investments and security deposits of $3,231 million (2019 – $2,139 million), including U.S. dollars of
$199 million (2019 – $68 million).
During 2020, a loss of $28 million (2019 – loss of $49 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 155 Notes to the Consolidated Financial Statements
Franchise Loans Receivable As at year end 2020, the value of Loblaw franchise loans receivable is nil (2019 – $19 million). In
2020, Loblaw recorded nil (2019 – gain of $1 million) in operating income related to these loans receivable.
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 2020, a gain of $2 million (2019 – gain of $4 million) was recognized in operating income related to these derivatives. In
addition, as at year end 2020, a corresponding $3 million asset was included in prepaid expenses and other assets (2019 –
$1 million asset). As at year end 2020, 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 2020, 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 2020, the forward rate was $128.30 (2019 – $123.64) per Loblaw common share. In 2020, a fair
value gain of $47 million (2019 – loss of $69 million) was recorded in net interest expense and other financing charges related to
this agreement (see note 7).
Trust Unit Liability In 2020, a fair value gain of $239 million (2019 – loss of $550 million) was recorded in net interest expense
and other financing charges (see note 7).
156 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Other Derivatives The Company uses bond forwards and interest rate swaps, to manage its anticipated exposure to fluctuations
in interest rates on future debt issuances. The Company also uses futures, options and forward contracts to manage its
anticipated exposure to fluctuations in commodity prices and exchange rates in its underlying operations. The following is a
summary of the fair values recognized in the consolidated balance sheet and the net realized and unrealized gains (losses)
before income taxes related to the Company’s other derivatives:
($ millions)
Derivatives designated as cash flow hedges
Interest Rate Risk - Bond Forwards(i)
Interest Rate Risk - Interest Rate Swaps(ii)
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, 2020
Net
asset
(liability)
fair value
Gain/
(loss)
recorded
in OCI
Gain/(loss)
recorded in
operating
income
$
$
$
$
$
— $
(40) $
7
(3)
7 $
(43) $
(6) $
— $
(4)
—
(10) $
— $
(3) $
(43) $
(5)
(4)
(9)
(4)
(20)
(24)
(33)
(i)
PC Bank uses bond forwards, with a notional value of $25 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. During 2020, PC Bank settled $200 million of bond forward and the
Company issued and settled $350 million of bond forward. The Company has concluded that these hedges were effective as at their
respective settlement date.
(ii)
PC Bank uses interest rate swaps, with a notional value of $225 million, to manage its interest risk related to future debt issuances. The fair
value of the derivatives is included in trade payables and other liabilities.
($ 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 $5 million USD, 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 $300 million, to manage its interest risk related to future debt issuances. The fair
value of the derivatives is included in trade payables and other liabilities.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 157 Notes to the Consolidated Financial Statements
Note 34. Financial Risk Management
As a result of holding and issuing financial instruments, the Company is exposed to certain risks. The following is a description
of those risks and how the exposures are managed:
LIQUIDITY RISK Liquidity risk is the risk that the Company is unable to generate or obtain sufficient cash or its equivalents in a
cost effective manner to fund its obligations as they come due. The Company is exposed to liquidity risk through, among other
areas, PC Bank, which requires a reliable source of funding for its credit card business. PC Bank relies on its securitization
programs, demand deposits from customers and the acceptance of GIC deposits to fund the receivables of its credit cards. The
Company would experience liquidity risks if it fails to maintain appropriate levels of cash and short-term investments, is unable
to access sources of funding or fails to appropriately diversify sources of funding. If any of these events were to occur, they could
adversely affect the financial performance of the Company.
Liquidity risk is mitigated by maintaining appropriate levels of cash and cash equivalents and short-term investments, actively
monitoring market conditions, and by diversifying sources of funding, including the Company’s committed credit facilities, and
maintaining a well diversified maturity profile of debt and capital obligations.
Maturity Analysis The following are the undiscounted contractual maturities of significant financial liabilities as at
December 31, 2020:
($ millions)
Long-term debt including
interest payments(i)
Foreign exchange forward contracts
Short-term debt (note 23)
Financial liabilities(iii)
Bank indebtedness
Demand deposits from customers
Certain other liabilities
Total
2021
2022
2023
2024
2025 Thereafter
Total(ii)
$
1,493 $
2,274 $
2,359 $
2,090 $
1,510 $
8,946 $
18,672
399
1,335
43
86
24
3
28
—
41
—
—
—
—
—
45
—
—
—
—
—
45
—
—
—
—
—
49
—
—
—
—
—
245
—
—
—
427
1,335
468
86
24
3
$
3,383 $
2,343 $
2,404 $
2,135 $
1,559 $
9,191 $
21,015
(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 2020.
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’ dispositions (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 2020, 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, finance lease receivable, pension assets held in the Company’s defined
158 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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 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 $276 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 $19 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 2020, a 10% decrease in relevant commodity
prices, with all other variables held constant, would result in a net loss of $9 million in earnings before income taxes. This amount
excludes the offsetting impact of the commodity price risk inherent in the transactions being hedged.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 159 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 plans. The Company has not recorded any amounts related to the
potential civil liability associated with the class action lawsuits in 2020 or prior on the basis that a reliable estimate of the
liability cannot be determined at this time. The Company and Loblaw will continue to assess whether a provision for civil
liability associated with the class action lawsuits can be reliably estimated and will record an amount in the period 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. In February 2020, a further opioid-related class action
was commenced in British Columbia against a large group of defendants, including Sanis Health Inc., Shoppers Drug Mart Inc.
and Loblaw. The allegations in the Ontario, Quebec and the civil British Columbia class actions are similar to the allegations
against manufacturer defendants in the Province of British Columbia class action, except that these May 2019 and February
2020 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.
160 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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 matter was heard by the Federal Court of Appeal and on April 23, 2020, the Federal Court of Appeal
released its decision and reversed the decision of the Tax Court. On October 29, 2020, the Supreme Court granted the Crown
leave to appeal and on November 30, 2020, the Crown filed a Notice of Appeal with the Supreme Court. Subsequent to the end
of the year, the Supreme Court scheduled the hearing of the appeal for May 13, 2021. Loblaw has not reversed any portion of the
$367 million of charges recorded during the third quarter of 2018, of which $176 million was recorded in interest and
$191 million was recorded in income taxes.
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 $413 million (2019 –
$416 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 2020, Loblaw’s maximum obligation in respect of such guarantees was $580 million (2019 – $580 million)
with an aggregate amount of $470 million (2019 – $468 million) in available lines of credit allocated to the Associates by the
various banks. As at year end 2020, the Associates had drawn an aggregate amount of $86 million (2019 – $18 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 2020, Loblaw has agreed to provide a credit
enhancement of $64 million (2019 – $64 million) in the form of a standby letter of credit for the benefit of the independent
funding trusts representing not less than 10% (2019 – not less than 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 (2019 – $12 million). Additionally, Loblaw has
guaranteed lease obligations of a third-party distributor in the amount of $3 million (2019 – $2 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 35), 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 $52 million (2019 – $49 million).
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 161 Notes to the Consolidated Financial Statements
CASH COLLATERALIZATION As at year end 2020, GWL and Loblaw had agreements to cash collateralize certain uncommitted
credit facilities up to amounts of $52 million (2019 – $45 million) and $102 million (2019 – $103 million), respectively. As at year
end 2020, GWL and Loblaw had $52 million (2019 – $45 million) and a nominal amount (2019 – $1 million) deposited with major
financial institutions, respectively, and classified as security deposits on the consolidated balance sheets.
FINANCIAL SERVICES Loblaw has provided a guarantee on behalf of PC Bank to MasterCard® International Incorporated
(“MasterCard®”) for accepting PC Bank as a card member and licensee of MasterCard®
behalf of PC Bank to MasterCard® was U.S. dollars $190 million (2019 – U.S. dollars $190 million).
As at year end 2020, 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 (2019 – $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 $52 million (2019 – $70 million), which represented approximately 9% (2019 – 10%)
of the securitized credit card receivables amount (see note 12).
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 2020, the aggregate gross
potential liability related to these letters of credit totaled $34 million (2019 – $36 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 2020 subject to such guarantees, and therefore the
maximum exposure to credit risk, was $36 million (2019 – $37 million) with an estimated weighted average remaining term of
2.5 years (2019 – 3.5 years).
162 GEORGE WESTON LIMITED 2020 ANNUAL REPORT Note 37. Related Party Transactions
Galen G. Weston beneficially owns or controls, directly and indirectly, through Wittington, a total of 78,647,040 of GWL’s common
shares, representing approximately 51.6% of GWL’s outstanding common shares (2019 - Mr. W Galen Weston owned or
controlled approximately 53.2%).
In the ordinary course of business, the Company enters into various transactions with related parties. These transactions are
measured at the exchange amount, which is the amount of consideration established and agreed upon by the related parties.
Transactions between the Company and its consolidated entities have been eliminated on consolidation and are not disclosed
in this note.
In 2020, the Company made rental payments to Wittington in the amount of $3 million (2019 – $5 million). As at year end 2020
and 2019, there were no rental payments outstanding.
In 2020, inventory purchases from Associated British Foods plc, a related party by virtue of a common director of such entity’s
parent company and GWL’s parent company, amounted to $51 million (2019 – $38 million). As at year end 2020, $3 million
(2019 – $2 million) was included in trade payables and other liabilities relating to these inventory purchases.
TRANSACTION BETWEEN CHOICE PROPERTIES AND WITTINGTON
On July 31, 2020, Choice Properties acquired two real estate assets from Wittington Properties Limited, a subsidiary of
Wittington, for an aggregate purchase price of $209 million, excluding transaction costs, which was satisfied in full by the
issuance of 16.5 million Trust Units of Choice Properties.
The assets acquired included: (i) the Weston Centre, an office and retail property in Toronto, Ontario for $129 million and (ii) the
remaining 60% interest in a joint venture between Choice Properties and Wittington Properties Limited for $80 million, less a
cost-to-complete receivable of $16 million, giving Choice Properties 100% ownership of the joint venture.
Weston Centre The Company had multiple lease arrangements with Wittington, in addition to existing leases with Choice
Properties at the Weston Centre. Upon acquisition of the property, the Company recognized a gain of $6 million in operating
income from the derecognition of its net impact of lease obligations and right-of-use assets associated with the property and
will cease paying rents to Wittington. Due to continued tenancy on the property through its group of companies, $51 million
was recorded in fixed assets as own-use property and $78 million was recorded in investment properties.
Operating Lease Choice Properties entered into a ten-year lease for office space with Wittington that commenced in 2014.
Lease payments totaled $3 million over the term of the lease. As of the acquisition date, Choice Properties de-recognized its
right-of-use assets and lease liabilities with the office lease and will cease paying rents to Wittington.
Joint Venture In 2014, a joint venture, partnership known as West Block between Choice Properties and Wittington Properties
Limited, completed the acquisition of a parcel of land located on 500 Lakeshore Boulevard West in Toronto, Ontario from
Loblaw. Choice Properties used the equity method of accounting to record its 40% interest in the joint venture.
During the second quarter of 2020, Loblaw recognized $65 million of right-of-use assets and lease liabilities related to the leases
of retail stores and a corporate office with the joint venture.
During the third quarter of 2020, Choice Properties acquired the remaining 60% interest of the joint venture, after which the
investment was accounted for on a consolidated basis. As a result of the increase in ownership, the Company recorded a
$5 million fair value loss before income taxes in other comprehensive income, and a gain of $4 million in operating income from
the derecognition of its net impact of lease obligations and right-of-use assets associated with the property and will cease
paying rents to Wittington. Due to continued tenancy on the property through its group of companies, $95 million was recorded
in fixed assets as own-use property and $13 million was recorded in investment properties. Wittington will continue to act as the
development and construction manager for the commercial space until development is completed.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 163 Notes to the Consolidated Financial Statements
VENTURE FUND During the second quarter of 2020, GWL, Loblaw and a wholly-owned subsidiary of Wittington became limited
partners in a limited partnership formed by Wittington (“Venture Fund”). A wholly-owned subsidiary of Wittington is the general
partner of the Venture Fund, which hired an external fund manager to oversee the Venture Fund. The purpose of the Venture
Fund is to pursue venture capital investing in innovative businesses that are in technology-oriented companies at all stages of
the start-up life cycle that operate in commerce, healthcare, and food sectors and are based in North America. Each of the three
limited partners have a 33% interest in the Fund. The Company participates in the Fund’s Investment Committee which, among
other items, approves the initial investments. The Company uses the equity method of accounting to record its consolidated
66% interest in the Venture Fund. The Company has a consolidated capital commitment of $66 million over a 10-year period. In
2020, on a consolidated basis, the Company invested $13 million in the Venture Fund, which was recorded in other assets.
Subsequent to year-end 2020, on a consolidated basis, the Company invested an additional $5 million in the Venture Fund.
POST-EMPLOYMENT BENEFIT PLANS The Company sponsors a number of post-employment plans, which are related parties.
Contributions made by the Company to these plans are disclosed in note 29.
INCOME TAX MATTERS From time to time, the Company and Wittington may enter into agreements to make elections that are
permitted or required under applicable income tax legislation with respect to affiliated corporations.
COMPENSATION OF KEY MANAGEMENT PERSONNEL The Company’s key management personnel is comprised of certain
members of the executive team of GWL, Loblaw, Weston Foods and Wittington, as well as members of the Boards of GWL,
Loblaw and Wittington to the extent that they have the authority and responsibility for planning, directing and controlling the
day-to-day activities of the Company.
Annual compensation of key management personnel that is directly attributable to the Company was as follows:
($ millions)
Salaries, director fees and other short-term employee benefits
Equity-based compensation
Total compensation
$
$
2020
12
11
23
$
$
2019
13
11
24
164 GEORGE WESTON LIMITED 2020 ANNUAL REPORT 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 the 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(i) and adjusted operating income(i). No reportable operating segment is reliant on any single external customer.
($ millions)
Revenue
Loblaw
Choice
Properties
Weston
Foods
Other and
Intersegment
Total
Loblaw
Choice
Properties
Weston
Foods
Other and
Intersegment
2020
2019
Total
$ 52,714 $ 1,271 $ 2,062 $
(1,342) $ 54,705
$ 48,037 $ 1,289 $ 2,155 $
(1,372) $ 50,109
Operating income (loss)
$ 2,357 $
622 $
3 $
(94) $ 2,888
$ 2,262 $ 890 $
72 $
(266) $ 2,958
Net interest expense
(income) and other
financing charges
Earnings (loss) before
742
173
(1)
(83)
831
747
1,472
1
(516)
1,704
income taxes
$
1,615 $
449 $
Operating income (loss)
$ 2,357 $ 622 $
4 $
3 $
(11) $ 2,057
$
1,515 $
(582) $
71 $
250 $
1,254
(94) $ 2,888
$ 2,262 $ 890 $
72 $
(266) $ 2,958
Depreciation and
amortization
Adjusting items(i)
Adjusted EBITDA(i)
Depreciation and
amortization(ii)
Adjusted operating
income (loss)(i)
2,596
80
3
254
175
22
(347)
(64)
2,427
292
2,524
118
1
23
147
4
(354)
62
2,318
207
$ 5,033 $
879 $ 200 $
(505) $ 5,607
$ 4,904 $
914 $
223 $
(558) $ 5,483
2,087
3
145
(347)
1,888
2,016
1
138
(354)
1,801
$ 2,946 $ 876 $
55 $
(158) $ 3,719
$ 2,888 $
913 $
85 $
(204) $ 3,682
(i)
(ii)
Certain items are excluded from operating income (loss) to derive adjusted EBITDA(1). Adjusted EBITDA(1) is used internally by management
when analyzing segment underlying operating performance.
Excludes $509 million (2019 – $508 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by Loblaw and
$30 million (2019 – $9 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and other related costs.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 165 Notes to the Consolidated Financial Statements
Other and Intersegment includes the following items:
($ millions)
Revenue
Operating
Income
2020
Net Interest
Expense
and Other
Financing
Charges
2019
Net Interest
Expense
and Other
Financing
Charges
Revenue
Operating
Income
Elimination of internal lease arrangements
$
(512) $
(96) $
(134) $
(531) $
(148) $
(170)
Elimination of cost recovery
Elimination of lease surrender
Loblaw’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
Elimination of fair value adjustment on Choice Properties’
Exchangeable Units
Fair value adjustment on Trust Unit liability
Elimination of unit distributions on Exchangeable Units
paid by Choice Properties to GWL
Unit distributions on Trust Units paid by Choice
Properties, excluding amounts paid to GWL
(202)
(5)
—
—
—
—
—
—
—
Elimination of intercompany sales
(623)
Fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares
Choice Properties issuance costs
Asset impairments, net of recoveries
Gain on sale of a property
Other
Total Consolidated
—
—
—
—
—
—
—
—
(45)
72
—
—
—
—
—
—
—
(6)
15
(34)
—
—
—
—
—
354
(239)
(289)
223
—
(47)
—
—
—
49
(209)
(3)
—
—
—
—
—
—
—
(629)
—
—
—
—
—
—
—
(7)
(37)
(85)
—
—
—
—
—
—
—
38
—
(27)
—
—
—
—
(932)
550
(289)
203
—
69
14
—
—
39
$
(1,342) $
(94) $
(83) $
(1,372) $
(266) $
(516)
166 GEORGE WESTON LIMITED 2020 ANNUAL REPORT
($ millions)
Total Assets
Loblaw
Choice Properties
Weston Foods
Other(i)
Intersegment
Consolidated
(i)
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(i)
Choice Properties(ii)
Weston Foods
Other
Consolidated
As at
Dec. 31, 2020
Dec. 31, 2019
$
36,018
$
15,647
4,540
31
(8,161)
$
48,075
$
36,451
15,575
4,261
28
(8,502)
47,813
2020
2019
$
1,224
$
1,206
506
162
9
163
194
8
$
1,901
$
1,571
(i)
During 2020, additions to fixed assets in Loblaw includes prepayments that were made in 2019 and transferred from other assets in 2020 of
$66 million. During 2019, additions to fixed assets in Loblaw includes prepayments that were made in 2018 and transferred from other assets
in 2019 of $13 million.
(ii) During 2020, additions to investment properties in Choice Properties includes non-cash consideration of $243 million (2019 - $25 million).
The Company operates primarily in Canada and United States.
($ millions)
Revenue (excluding intersegment)
Canada
United States
Consolidated
($ millions)
Fixed Assets, Goodwill and Intangible Assets
Canada
United States
Consolidated
Note 39. Subsequent Events
2020
2019
53,534
$
48,897
1,171
1,212
54,705
$
50,109
As at
2020
2019
22,862
$
885
23,127
909
23,747
$
24,036
$
$
$
$
Investment Property Transactions Subsequent to the end of 2020, Choice Properties completed the disposition of its 50%
equity accounted joint venture interest in land held for development for aggregate proceeds of $66 million, net of transaction
and estimated closing costs.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 167 Three Year Summary
CONSOLIDATED INFORMATION(i)
As at or for the years ended December 31
2020
2019(ii)
2018
($ millions except where otherwise indicated)
(53 weeks)
(52 weeks)
(52 weeks)
Operating Results
Revenue
Operating income
Adjusted EBITDA(iii)
Depreciation and amortization(iv)
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(iii)
Income taxes
Adjusted income taxes(iii)
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(iii)
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(iii)
Per Common Share ($)
Diluted net earnings
Adjusted diluted net earnings(ii)
Financial Measures and Ratios
Adjusted EBITDA margin(iii) (%)
Adjusted return on average equity attributable to common
shareholders of the company(iii) (%)
Adjusted return on capital(iii) (%)
54,705
2,888
5,607
2,427
831
1,117
475
679
1,582
963
919
1,055
11,943
11,804
48,075
3,231
21,000
7,811
13,418
5,521
1,658
2,128
5.96
6.85
10.2
15.3
10.8
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
1,571
1,367
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
For financial definitions and ratios refer to the Glossary beginning on page 170.
Certain comparative figures have been restated to conform with current year presentation.
(i)
(ii)
(iii) See non-GAAP financial measures beginning on page 75.
(iv)
Includes $509 million (2019 – $508 million; 2018 – $521 million) of amortization of intangible assets, acquired with Shoppers Drug Mart
Corporation, recorded by Loblaw and $30 million (2019 – $9 million; 2018 – $9 million) of accelerated depreciation recorded by Weston Foods,
related to restructuring and other related costs.
168 GEORGE WESTON LIMITED 2020 ANNUAL REPORT SEGMENT INFORMATION(i)
As at or for the years ended December 31
($ 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
Capital Expenditures
Choice Properties
Weston Foods
Other & Intersegment
Consolidated
Loblaw
Choice Properties
Weston Foods
Other(v)
Intersegment
Consolidated
Loblaw
Choice Properties
Weston Foods
Other & Intersegment
Consolidated
2020
2019
2018(ii)
(53 weeks)
(52 weeks)
(52 weeks)
52,714
1,271
2,062
(1,342)
54,705
2,357
622
3
(94)
2,888
5,033
879
200
(505)
5,607
9.6
9.7
10.2
2,596
3
175
(347)
2,427
36,018
15,647
4,540
31
(8,161)
48,075
1,224
263
162
9
1,658
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
163
194
8
1,571
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
For financial definitions and ratios refer to the Glossary beginning on page 170.
Certain comparative figures have been restated to conform with current year presentation.
(i)
(ii)
(iii) See non-GAAP financial measures beginning on page 75.
(iv)
Includes $509 million (2019 – $508 million; 2018 – $521 million) of amortization of intangible assets, acquired with Shoppers Drug Mart
Corporation, recorded by Loblaw and $30 million (2019 – $9 million; 2018 – $9 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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 169
Glossary
Term
Adjusted diluted net earnings per common share
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted income taxes
Adjusted effective tax rate
Adjusted net earnings attributable to shareholders of
the Company
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 available to common
shareholders of the Company
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).
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
Average article price
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).
The year over year growth in Loblaw food retail revenue over the average number of
article sold in Loblaw’s stores in the quarter. Average Article Price is calculated by
dividing Sales in Scope by Article Count for the timeframe chosen.
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.
170GEORGE WESTON LIMITED 2020 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.
Loblaw 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
Total equity less non-controlling interests.
the 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. The years ended December 31, 2020
and December 31, 2019 contained 53 weeks and 52 weeks, respectively.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 171 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; Chairman,
Wittington Investments, Limited; Chairman,
Choice Properties Real Estate Investment
Trust; Director, Selfridges Group Limited;
President, W. Garfield Weston 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;
Chair, New Zealand Trade and Enterprise;
former Chief Executive Officer of Fonterra
Co-operative Group Limited; former President
and Chief Executive Officer, GSW Inc.; former
Director, Orion Health Group Limited and
Bunge Limited.
(1) Audit Committee
(2) Weston Foods Committee
(3) Governance, Human Resource,
Nominating and Compensation
Committee
(4) Pension Committee
*
Chair of the Committee
Nancy H.O. Lockhart, O. Ont.(3, 4)
Corporate Director; Trustee, Choice
Properties Real Estate Investment Trust;
Chair of Alignvest Student Housing; 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., Barrick Gold Corporation,
Canada Deposit Insurance Corporation,
Centre for Addiction and Mental Health
Foundation, and the Loran Scholars
Foundation.
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.
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
Rashid Wasti
Executive Vice President,
Chief Talent Officer
Khush Dadyburjor
Chief Strategy Officer
Jeff Gobeil
Group Head, Tax
Wendy Mizuno
Group Head,
Pensions & Benefits
J. Robert S. Prichard, O.C., O.Ont., LL.B., M.B.A.,
LL.M., LL.D.(3*, 4)
Non-Executive Chair, Torys LLP; former 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 Executive Vice
President and 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
Partners International; 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., former Executive Vice-President
and Chief Financial Officer, BMO Capital
Markets; former Partner, Ernst & Young LLP;
Director, Canadian Institute for Advanced
Research; A Vice Chair, University Health
Network; Director, Advisory Council for the Ivey
Institute for Leadership.
Lina Taglieri
Group Head, Controller
John Williams
Group Treasurer and
Head of Corporate Finance
Andrew Bunston
Vice President,
General Counsel and Secretary
Anemona Turcu
Vice President,
Chief Risk Officer
172 GEORGE WESTON LIMITED 2020 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 2020, there were 152,374,416 common shares issued
and outstanding.
The average 2020 daily trading volume of the Company’s common
shares was 219,796.
Preferred Shares
As at year end 2020, 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 2020 daily trading volume of the Company’s preferred
shares was:
Series I:
Series III:
Series IV:
Series V:
5,989
8,399
6,136
4,362
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 2021 are:
Series I
Record Date
Payment Date
Feb. 28
May 31
Aug. 31
Nov. 30
March 15
June 15
Sept. 15
Dec. 15
Series III, Series IV and Series V
Record Date
Payment Date
March 15
June 15
Sept. 15
Dec. 15
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 2021 are:
Record Date
Payment Date
March 15
June 15
Sept. 15
Dec. 15
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 2021 Annual Meeting of Shareholders of George Weston
Limited will be held virtually via a live webcast on Tuesday,
May 11, 2021, at 11:00 a.m. (EDT).
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.
GEORGE WESTON LIMITED 2020 ANNUAL REPORT 173 GEORGE WESTON LIMITED
22 St Clair Ave E,
Toronto, ON M4T 2S5
Tel: (416) 922-2500
www.weston.ca