2022
Annual Report
Report to Shareholders
Fellow Shareholders,
Looking back on a year in which most of us settled into a new
post-pandemic reality, George Weston Limited and its businesses
continued to serve Canadians with a sense of pride and purpose.
At Loblaw, a focus on retail excellence contributed to another year of strong
performance as the business helped Canadians Live Life Well® while navigating
the challenges emerging from the pandemic. The acquisition of Lifemark, growing
adoption of PC Health, and a step change in the expanded scope of practice provided
by pharmacists all brought care closer to patients in their local communities. At
the same time, a commitment to providing value on everyday food and wellness
essentials supported customers during a period of global inflation. Underpinned by
the country’s leading loyalty program, rewarding no-fee financial services, and most
convenient e-commerce network, Loblaw enhanced its core businesses while driving
growth for the future.
Choice Properties also had an excellent year as it successfully navigated the
challenges of rising interest rates and post-pandemic uncertainty. Through an active
capital recycling program that drove $1.2 billion in transactions, Choice Properties
continued to increase the quality of its portfolio, all while maintaining an industry-
leading balance sheet. This included the strategic sale of six office properties in
1
GEORGE WESTON LIMITED 2022 ANNUAL REPORT the first half of the year and the ground breaking for a new 1.2 million square foot
distribution centre site as part of the Choice Eastway Industrial Centre. With strong
conviction in necessity-based retail, industrial, and residential – supported by
operational excellence and prudent balance sheet management – Choice Properties
delivered stability and growth in 2022, and remains well-positioned to generate
enduring value.
As we reflect upon 2022, we are proud of how our businesses performed and
the value that George Weston Limited provided through world-class shared
services across the group. Our success is the result of the hard work of remarkable
people across the country, and it is with their support that we will continue to
create value through market-leading businesses that serve their communities
and stakeholders well.
Our success is the
result of the hard work
of remarkable people
across the country,
and it is with their
support that we will
continue to create
value through market-
leading businesses.
Sincerely,
[signed]
[signed]
Galen Weston
Richard Dufresne
Chairman and Chief Executive Officer
President and Chief Financial Officer
Toronto, Canada
February 28, 2023
2
GEORGE WESTON LIMITED 2022 ANNUAL REPORT Table of Contents
4 At a Glance
5 Our Business
8 Key Performance Indicators
Operating Segments
12 Loblaw
14 Choice Properties
17 Financial Results
73 Outlook
74 Non-GAAP Financial Measures
88 Forward-Looking Statements
90 Additional Information
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 171 of this Annual Report. The Company’s audited annual
consolidated financial statements and the accompanying notes for the year ended
December 31, 2022 have been prepared in accordance with International Financial
Reporting Standards (“IFRS” or “GAAP”) as issued by the International Accounting
Standards Board (“IASB”). The audited annual consolidated financial statements
include the accounts of the Company and other entities that the Company
controls and are reported in Canadian dollars, except where otherwise noted.
Under GAAP, certain expenses and income must be recognized that are not
necessarily reflective of the Company’s underlying operating performance.
Non-GAAP financial measures exclude the impact of certain items and are used
internally when analyzing consolidated and segment underlying operating
performance. These non-GAAP financial measures are also helpful in assessing
underlying operating performance on a consistent basis. See Section 13,
“Non-GAAP Financial Measures”, of this MD&A for more information on the
Company’s non-GAAP financial measures.
The Company operates through its two reportable operating segments: Loblaw
Companies Limited (“Loblaw”) and Choice Properties Real Estate Investment Trust
(“Choice Properties”). 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. See note 35, “Segment
Information” in the Company’s audited annual consolidated financial statements and
the accompanying notes of this Annual Report for details.
In 2021, the Company completed the sale of the Weston Foods bakery business.
The impacts of the sale of Weston Foods and the results of Weston Foods, net
of intersegment eliminations, have been presented separately as discontinued
operations in the Company’s results. See note 7, “Discontinued Operations” in the
Company’s audited annual consolidated financial statements and the accompanying
notes of this Annual Report for details.
Unless otherwise indicated, all financial information in this MD&A represents the
Company’s results from continuing operations(5).
In this MD&A, unless otherwise indicated, “Consolidated” refers to the consolidated
results of GWL including its subsidiaries under continuing operations, 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.
The information in this MD&A is current to March 1, 2023, unless otherwise noted.
FOOTNOTE LEGEND
1 See Section 13, “Non-GAAP Financial Measures”, of the Company’s 2022 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 88.
4 For financial definitions and ratios refer to Glossary beginning on page 174.
5 In 2021, the Company completed the sale of the Weston Foods bakery business. The Company’s interest in Weston Foods is presented separately
as discontinued operations in the Company’s results. See note 7, “Discontinued Operations”.
3
GEORGE WESTON LIMITED 2022 ANNUAL REPORT
At a Glance
Key financial highlights
As at or for the year ended December 31, 2022
($ millions except where otherwise indicated)
Unless otherwise indicated, all financial information represents the Company’s results from continuing operations(5).
Consolidated
REVENUE
OPERATING INCOME
ADJUSTED EBITDA( 1)
ADJUSTED EBITDA MARGIN(1) (%)
$57,048
$4,553
$6,551
11.5%
+6.1%
vs. 2021
+13.1%
vs. 2021
+9.3%
vs. 2021
+30bps
vs. 2021
ADJUSTED NET EARNINGS
AVAILABLE TO COMMON
SHAREHOLDERS(1) FROM
CONTINUING OPERATIONS
$1,432
DILUTED NET EARNINGS
PER COMMON SHARE FROM
CONTINUING OPERATIONS ($)
ADJUSTED DILUTED NET EARNINGS
PER COMMON SHARE(1) FROM
CONTINUING OPERATIONS ($)
$12.20
$9.81
+16.2%
vs. 2021
+161.8%
vs. 2021
+20.5%
vs. 2021
NET EARNINGS AVAILABLE TO
COMMON SHAREHOLDERS FROM
CONTINUING OPERATIONS
$1,778
+150.8%
vs. 2021
GWL Corporate(2)
CASH FLOW FROM OPERATING
BUSINESSES(1) FROM
CONTINUING OPERATIONS
GWL CORPORATE(2) FREE
CASH FLOW(1) FROM
CONTINUING OPERATIONS
ANNUALIZED DIVIDENDS
DECLARED PER SHARE ($)
GWL CORPORATE(2) CASH
AND CASH EQUIVALENTS AND
SHORT-TERM INVESTMENTS
$602
+4.0%
vs. 2021
$893
-8.7%
vs. 2021
$2.64
+10.0%
vs. 2021
$818
-38.9%
vs. 2021
1 See Section 13, “Non-GAAP Financial Measures”, of the Company’s 2022 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.
5 In 2021, the Company completed the sale of the Weston Foods bakery business. The Company’s interest in Weston Foods is presented separately as
discontinued operations in the Company’s results. See note 7, “Discontinued Operations”.
4
GEORGE WESTON LIMITED 2022 ANNUAL REPORT Our Business
Our history as a family business
In 1882, a young Toronto bread salesman and former baker’s apprentice named George
Weston went into business for himself when he bought a bread route from his employer.
By the turn of the century, Weston’s Bread was known throughout the city and George
Weston had become Canada’s biggest baker.
In 1924, George’s eldest son, Garfield Weston, followed in his father’s footsteps and
became president of George Weston Limited. In spite of war and the depression, Garfield
transformed his father’s Toronto bakery into a commercial food empire with holdings on
several continents.
In 1953, George Weston Limited expanded its grocery business, acquiring majority control
of 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.
In 2021, George Weston Limited made the decision to sell its Weston Foods bakery
business. The business had been the foundation for the Weston Group in Canada since
its establishment in 1882. The sale of the business was completed at the end of 2021,
positioning the Company to focus on its market-leading retail and real estate businesses.
For more than a century and a quarter, thousands of employees of George Weston
Limited and its subsidiaries have built an enterprise that has persevered and prospered
through good times and bad to become one of Canada's most successful companies.
What we do
George Weston Limited is a Canadian public company, founded in 1882 and listed on
the Toronto Stock Exchange (TSX:WN) since January 1928. The Company owns two
businesses in retail and real estate.
52.6%
Loblaw
Loblaw (TSX: L) is Canada’s food and
pharmacy leader and the nation’s
largest retailer. Loblaw provides
Canadians with grocery, pharmacy
and healthcare services, health and
beauty products, apparel, general
merchandiseandfinancialservices,
through its grocery banners,
Shoppers Drug Mart, Joe Fresh
and President’s Choice Bank.
61.7%
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. The Choice Properties
portfolio is comprised of retail
properties, primarily leased to
necessity-based tenants, and high
quality industrial, mixed use and
residential assets, concentrated in
attractive markets across Canada.
5
GEORGE WESTON LIMITED 2022 ANNUAL REPORT Our Business
Our Operating and Value Creation Strategy
George Weston Limited’s mission is to build
generational value with actively managed
market-leading businesses in retail and
real estate 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 and real estate, with
market-leading brands in retail and coveted locations in real estate.
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 and real estate 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 of 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
and re-investing capital in its portfolio of companies, where it can further enhance
earnings capability.
6
GEORGE WESTON LIMITED 2022 ANNUAL REPORT Our Operating and Value Creation Strategy
Our Business
Built on what we have in common
Together, these four concepts unite our operating companies
and are core to our identity:
CORE VALUES
Our actions are shaped by a set of CORE Values,
which express a shared commitment to Care,
Ownership, Respect and Excellence across the
group of companies.
ETHICS & COMPLIANCE
Throughout our interactions, our decisions are
grounded in a strong sense of Ethics & Compliance.
BLUE CULTURE
Represents how our values come to life every
day in our interactions with our businesses,
each other and our customers.
SOCIAL RESPONSIBILITY
As a generational investor, long-term trends,
whether social, demographic, or environmental
matter and underpin the importance we place
on Social Responsibility.
RETAIL
REAL
ESTATE
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,
supporting operational excellence, investing in
strategic transactions and by distributions in
the form of dividends.
COLLEAGUES
Our talent is central to achieving our long-term
goals. Our focus on attracting and developing
exceptional leaders is a strategic imperative
and we 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 2022 ANNUAL REPORT
Key Performance Indicators
As at or for the unaudited quarters and audited years ended December 31
($ millions except where otherwise indicated)
Unless otherwise indicated, all financial information represents the Company’s results from continuing operations(5).
REVENUE
OPERATING INCOME
ADJUSTED EBITDA( 1)
ADJUSTED NET EARNINGS
AVAILABLE TO COMMON
SHAREHOLDERS(1) FROM
CONTINUING OPERATIONS
$60,000
$5,000
50,000
40,000
30,000
20,000
10,000
4,000
3,000
2,000
1,000
0
2022
2021
Q4
2022
Q4
2021
0
2022
2021
$7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
$1,500
1,200
900
600
300
0
Q4
2022
Q4
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
Q4 2022
57,048
53,748
14,142
Q4 2021
12,902
+6.1%
+9.6%
2022
2021
Q4 2022
Q4 2021
4,553
4,027
1,264
1,009
+13.1%
+25.3%
2022
2021
Q4 2022
Q4 2021
6,551
5,995
1,590
1,453
+9.3%
+9.4%
2022
2021
Q4 2022
Q4 2021
1,432
1,232
369
347
+16.2%
+6.3%
Performance in 2022
Performance in 2022
Performance in 2022
Performance in 2022
Revenue growth of $3,300 million
driven by Loblaw.
Operating income increased
by $526 million. The increase
was mainly attributable to
the underlying operating
performance of Loblaw and the
favourable year-over-year net
impact of adjusting items.
Adjusted EBITDA(1) increased by
$556 million, primarily driven by
an improvement in the underlying
operating performance of Loblaw.
ADJUSTED EBITDA MARGIN (1) (%)
11.5% +30bps
2022
vs. 2021
11.2% -10bps
Q4 2022
vs. Q4 2021
Adjusted net earnings
available to common
shareholders from continuing
operations(1) increased by
$200 million, due to an
increase in the underlying
operating performance of
Loblaw, and a decrease in
adjusted net interest expense
andotherfinancingcharges(1),
partially offset by an increase
in tax expense and the
unfavourable year-over-year
impact of asset impairments
recorded on consolidation.
ADJUSTED DILUTED NET
EARNINGS PER COMMON
SHARE(1) FROM CONTINUING
OPERATIONS ($)
$9.81 +20.5%
2022
vs. 2021
$2.59 +11.6%
Q4 2022
vs. Q4 2021
8
GEORGE WESTON LIMITED 2022 ANNUAL REPORT Key Performance Indicators
$700
600
500
400
300
200
100
0
GWL CORPORATE(2) CASH
FLOW FROM OPERATING
BUSINESSES(1) FROM
CONTINUING OPERATIONS
GWL CORPORATE(2) FREE
CASH FLOW(1) FROM
CONTINUING OPERATIONS
GWL CORPORATE ( 2)
DIVIDENDS PAID
GWL CORPORATE ( 2) CASH
AND CASH EQUIVALENTS AND
SHORT-TERM INVESTMENTS
$1,000
$400
800
600
400
200
0
350
300
250
200
150
100
50
0
$818 -38.9%
2022
vs. 2021
$1,338
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
2022
2021
Q4 2022
Q4 2021
602
579
151
146
+4.0%
+3.4%
2022
2021
Q4 2022
Q4 2021
893
978
201
213
-8.7%
-5.6%
2022
2021
367
342
+7.3%
Performance in 2022
Performance in 2022
Performance in 2022
Performance in 2022
GWL Corporate(2)cashflow
from operating businesses(1)
from continuing operations
were higher due to the
increase in dividends received
from Loblaw.
GWL Corporate(2) free cash
flow(1) from continuing
operations decreased, primarily
due to higher income taxes
paid, partially offset by an
increase in dividends received
from Loblaw.
See page 11 of this MD&A for
a calculation of this metric.
GWL Corporate(2) dividends
paid were higher due to an
increase in the dividend per
common share of 10.0% in the
third quarter of 2022.
See page 11 of this MD&A
for a history of GWL’s
dividend increases.
GWL Corporate(2) cash and
cash equivalents and short-
term investments included
the proceeds received from the
disposal of Weston Foods in
2021. The decrease since 2021
year end was primarily due
to the repurchase of shares
under the Company’s Normal
Course Issuer Bid, partially
offset by the proceeds from
GWL’s participation in Loblaw’s
Normal Course Issuer Bid.
See Section 3.2 “Liquidity”
of this MD&A for a calculation
of this metric.
1 See Section 13, “Non-GAAP Financial Measures”, of the Company’s 2022 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.
5 In 2021, the Company completed the sale of the Weston Foods bakery business. The Company’s interest in Weston Foods is presented separately as
discontinued operations in the Company’s results. See note 7, “Discontinued Operations”.
9
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 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, 2022 and 2021. There is no recourse to the
Company for debt incurred by its operating segments.
The consolidated debt for the group as at December 31, 2022 was $21.5 billion. Indebtedness
of Loblaw and Choice Properties is fully serviced by their respective operating cash flows.
Indebtedness of GWL Corporate(2)(i) is comprised of $450 million of senior unsecured debentures.
$21.5
$20.3
TOTAL DEBT
As at December 31
($ billions)
PC Financial
Loblaw Retail
0.5(i)
7.2
3.7
5.0
Lease Liabilities
5.1(i)
2022
2021
0.6(i)
6.9
2.9
5.0
4.9(i)
(i) In 2022, the Company recognized lease liabilities of $5.1 billion (2021 – $4.9 billion) on its consolidated balance sheet,
which was fully attributable to Loblaw. Lease liabilities are recognized primarily for leases of real estate, vehicles
and equipment.
10
GEORGE WESTON LIMITED 2022 ANNUAL REPORT Key Performance Indicators
GWL Corporate(2) Free Cash Flow(1)
from Continuing Operations
GWL Corporate(2) free cash flow(1) from continuing operations is generated from the dividends
received from Loblaw, distributions received from Choice Properties, and proceeds from participation
in Loblaw's Normal Course Issuer Bid, less corporate expenses, interest and income taxes paid.
For the quarters and years ended December 31
($ millions)
Dividends from Loblaw
Distributions from Choice Properties
GWL Corporate(2) cash flow from operating
businesses(1) from Continuing Operations
Proceeds from participation in Loblaw’s
Normal Course Issuer Bid
GWL Corporate(2), financing, and other costs(i)
Income taxes paid
GWL Corporate(2) free cash flow(1) from
Continuing Operations
Quarters ended
Years ended
2022
69
82
151
49
2
(1)
201
2021
64
82
146
89
14
(36)
213
2022
272
330
602
558
(114)
(153)
893
2021
249
330
579
563
(101)
(63)
978
(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 preferred share dividends.
Dividends
GWL increased its annualized dividend to $2.64 per common share in 2022. 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 2013, the dividend per common share has increased at a 4.7% CAGR.
$3.00
2.50
2.00
1.50
1.00
0.50
0.00
+4.7%
CAGR
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
1 See Section 13, “Non-GAAP Financial Measures”, of the Company’s 2022 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.
11
GEORGE WESTON LIMITED 2022 ANNUAL REPORT Loblaw
Loblaw (TSX: L) provides Canadians with grocery,
pharmacy and healthcare services, health and
beauty products, apparel, general merchandise
and financial services.
Strategy
Loblaw is driven by its purpose to help Canadians Live Life Well®
which guides its strategic framework. This framework centres
around a passion for customers and drives investments in three
key strategic priorities: Everyday Digital Retail, Payments and
Rewards, and Connected Healthcare. Enabling these investments
comes from a sharp focus on leveraging data driven insights
and process efficiency excellence to deliver strong financial
performance. The framework is supported by colleagues with a
shared set of CORE values and culture principles that encourages
colleagues to be authentic, build trust and make connections.
Loblaw strives to be the “best in food, health and beauty” and
with its focus on retail excellence, it is constantly improving its
retail operations to differentiate its customer offerings and deliver
scale through its national logistics infrastructure. Building for the
future, its purpose guides its investments in strategic growth
initiatives to further differentiate its portfolio of assets, generate
competitive advantages in products, services and price, improve
its operational efficiencies, and create new areas of growth.
Loblaw’s purpose-led approach to addressing environmental,
social and governance issues focuses on two priorities: Fighting
Climate Change and Advancing Social Equity. Environmental,
social and governance (“ESG”) considerations are central to
decisions made across Loblaw. By integrating consideration of
environmental and social risks and good governance practices
in its day-to-day business activities, implementing robust
compliance and ethics programs and supporting its colleagues
and the communities in which it operates, Loblaw aims to be
a leading contributor to Canadian society both today and for
generations to come.
Key highlights for the year
Loblaw continued to deliver strong and consistent financial and
operating results in retail and financial services in 2022. Global
inflationary pressures and a lessened impact from COVID-19
influenced consumer behaviours and positively impacted
retail sales. Loblaw’s portfolio of best in class assets was well
positioned to meet customer’s everyday needs across food,
health and wellness, further bolstered by its acquisition of
Lifemark Health Group (“Lifemark”) during the year. Loblaw’s
relentless focus on retail excellence leveraged these assets to
deliver strong sales growth, gross margin improvements, and
operating cost leverage.
12
Key performance indicators
As at or for the unaudited quarters and audited years ended December 31
($ millions except where otherwise indicated)
REVENUE
OPERATING INCOME
$60,000
50,000
40,000
30,000
20,000
10,000
0
2022
2021
$3,500
3,000
2,500
2,000
1,500
1,000
500
0
Q4
2022
Q4
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
56,504
53,170
Q4 2022
14,007
Q4 2021
12,757
+6.3%
+9.8%
2022
2021
Q4 2022
Q4 2021
3,334
2,929
869
703
+13.8%
+23.6%
Performance in 2022
Performance in 2022
Revenue increased by
$3,334 milliondrivenbyan
increase in retail sales and an
improvementinfinancialservices
revenue. The increase in retail
sales was primarily due to positive
same-store sales growth and
Lifemark revenue since the
date of acquisition.
Operating income increased by
$405 million compared to 2021.
The increase was driven by an
improvement in the underlying
operating performance of retail,
partially offset by a decline
infinancialservicesandthe
unfavourable year-over-year
impact of certain adjusting items.
Loblaw Offerings
DIVISIONS:
Discount
Market
TOP BRANDS:
President’s Choice
No Name
Shoppers Drug Mart
Farmer’s Market
PC Financial
Joe Fresh
T&T
Life Brand
PC Optimum
PC Money
GEORGE WESTON LIMITED 2022 ANNUAL REPORT Loblaw
$7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
ADJUSTED EBITDA( 1)
FREE CASH FLOW (1)(i)
FOOD RETAIL SAME-STORE
SALES GROWTH (i) (%)
DRUG RETAIL SAME-STORE
SALES GROWTH (i) (%)
$2000
10.0%
10.0%
1,600
1,200
800
400
0
8.0
6.0
4.0
2.0
0.0
8.0
6.0
4.0
2.0
0.0
2022
2021
Q4
2022
Q4
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
6,173
5,579
+10.6%
Q4 2022
1,491
Q4 2021
1,322
+12.8%
2022
2021
Q4 2022
Q4 2021
1,528
1,959
179
263
-22.0%
-31.9%
2022
2021
4.7%
0.3%
+440bps
Q4 2022
8.4%
Q4 2021
1.1%
+730bps
2022
2021
6.9%
5.0%
+190bps
Q4 2022
8.7%
Q4 2021
7.9%
+80bps
Performance in 2022
Performance in 2022
Performance in 2022
Performance in 2022
Adjusted EBITDA(1) increased by
$594 million compared to 2021,
primarily due to an increase in retail,
partially offset by a decrease in
financialservices.
Adjusted EBITDA margin(1) increased
due to an increase in retail adjusted
grossprofitpercentage(1) driven by
growth in higher margin drug retail
front store categories, and a decrease
in selling, general and administrative
expenses (“SG&A”) as a percentage
of sales due to operating leverage
gained from higher sales and
lower COVID-19 related expenses.
Comparedto2021,wheninflation
started to accelerate, food retail
grossmarginswereflat.
ADJUSTED EBITDA MARGIN ( 1) (%)
10.9% +40bps
2022
vs. 2021
10.6% +20bps
Q4 2022
vs. Q4 2021
Freecashflow(1)(i) decreased
primarily due to an unfavourable
change in non-cash working
capital, the growth in credit card
receivables from an increase in the
active customer base and a rise
in customer spending and higher
capital expenditures, partially offset
by higher cash earnings and lower
income taxes paid.
Food retail same-store sales
growth(i) was 4.7%, mainly due
tohigherthannormalinflation
levels.Foodretailtraffic
increased and basket size
decreased slightly.
Drug retail same-store sales
growth was 6.9%. Pharmacy and
healthcare services same-store
salesgrowthbenefitedfroman
increase in acute and chronic
prescription volumes from
the continued economic re-
opening. Front store same-store
salesgrowthbenefitedfrom
the economic re-opening and
higher consumer spending.
CAPITAL EXPENDITURES
1.6 billion +32.8%
2022
vs. 2021
RETAIL DEBT TO RETAIL
ADJUSTED EBITDA( 1)(i)
2.4x
2022
-0.2x
vs. 2021
1 See Section 13, “Non-GAAP Financial Measures”, of the Company’s 2022 Management’s Discussion and Analysis.
(i) For more information on these measures, see the 2022 Annual Report filed by Loblaw, which is available on
sedar.com or at loblaw.ca.
13
Loblaw Offerings
TOP BRANDS:
President’s Choice
No Name
Farmer’s Market
T&T
Life Brand
PC Optimum
PC Money
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 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
The combination of stability and growth is at the core of Choice
Properties’ commitment to creating enduring value for its
stakeholders and the communities in which it operates. Choice
Properties’ business strategy aims 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
2022 was another year of positive momentum for Choice
Properties demonstrated by its strong operating results,
stability of its portfolio, and the strength of its balance sheet.
In 2022, Choice Properties made the strategic decision to
exit office as an asset class, and significantly increased the
size and scale of its industrial development pipeline by
taking advantage of market opportunities. Choice Properties
continues to deliver operational excellence by remaining
focused on its best-in-class operating platform of managing
its income producing portfolio. In addition, Choice Properties
took steps to ensure it maintained an industry leading balance
sheet in a rising interest rate environment. Choice Properties
continues to lead the way in sustainability and made significant
advancements on its two pillars of Fighting Climate Change and
Advancing Social Equity. As part of its efforts, Choice Properties
built a pathway to net zero and a social equity framework to
guide their approach and drive impact in the years to come.
Top Retail tenants
1. Loblaw
2. Canadian Tire
3. TJX Companies
4. Dollarama
5. Goodlife
6. Staples
7. Lowe’s
8. Wal-Mart
9. Sobeys
10. Liquor Control Board
of Ontario (LCBO)
Top Industrial tenants
1. Loblaw
2. Amazon
4. Wonder Brands Inc.
5. Uline Canada Corporation
3. Canada Cartage
6. Canadian Tire
14
Key performance indicators
As at or for the unaudited quarters and audited years ended December 31
($ millions except where otherwise indicated)
REVENUE
NET INCOME (LOSS)
$1,500
1,200
900
600
300
0
$800
600
400
200
0
-200
-400
-600
2022
2021
Q4
2022
Q4
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
Q4 2022
Q4 2021
1,265
1,292
315
325
-2.1%
-3.1%
2022
2021
Q4 2022
Q4 2021
744
24
(579)
(162)
+3,000%
-257.4%
Performance in 2022
Performance in 2022
Revenue decreased by
$27 million,primarilydriven
by foregone revenue following
thedispositionofsixoffice
assets(the“OfficeAssetSale”)
to Allied Properties Real Estate
Investment Trust (“Allied”) in the
second quarter of 2022 , partially
offset by improved occupancy
and higher rental rates in the
retail and industrial portfolios,
and higher recoveries.
OCCUPANCY RATE
97.8% +70bps
vs. 2021
Net income increased by
$720 millioncomparedto2021
due to the favourable year-over-
year impact of the fair value
adjustment of its Class B LP
units (“Exchangeable Units”)
as a result of the decrease in
Choice Properties’ Trust Unit
price, partially offset by the
unfavourable impact of the fair
value adjustment on Choice
Properties’ investment in real
estate securities of Allied as a
result of a decrease in Allied’s
unit price since the close of the
OfficeAssetSaletotheend
of 2022, and the unfavourable
year-over-year impact of the
fair value adjustment of
investment properties.
GEORGE WESTON LIMITED 2022 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)
ADJUSTED 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
2022
2021
Q4
2022
Q4
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
Q4
2022
Q4
2021
2022
2021
2022
2021
Q4 2022
Q4 2021
698
690
174
175
+1.2%
-0.6%
2022
2021
Q4 2022
Q4 2021
582
587
127
119
-0.9%
+6.7%
2022
2021
Q4 2022
Q4 2021
894
861
227
219
+3.8%
+3.7%
2022
2021
40.6%
40.1%
+50bps
Performance in 2022
Performance in 2022
Performance in 2022
Performance in 2022
FFO(1) increased by $8 million
compared to 2021 primarily due
to increased rental revenue
from the retail and industrial
portfolios, partially offset
by increases in interest and
general and administrative
expenses and the impact of
theOfficeAssetSale.
AFFO(i) decreased by $5 million
primarily due to an increase in
capital spending, partially offset
by the increase in FFO(1).
Same-asset NOI, cash basis(i)
increased compared to 2021
mainly due to an increase
in revenue from improved
occupancy, contractual
rent steps, higher recovery
revenues, and a decrease in
expected credit loss provisions.
Adjusted debt to total assets(i)
increased due to an increase
in overall level of debt as
advances on the credit facility
and construction loans were
used to fund development
projects and acquisitions.
ADJUSTED DEBT
TO EBITDAFV(i)
DEBT SERVICE
COVERAGE (i)
7.5x
2022
+0.3x
vs. 2021
3.1x
2022
-0.2x
vs. 2021
1 See Section 13, “Non-GAAP Financial Measures”, of the Company’s 2022 Management’s Discussion and Analysis.
(i) For more information on these measures, see the 2022 Annual Report filed by Choice Properties, which is available on sedar.com or at choicereit.ca.
15
GEORGE WESTON LIMITED 2022 ANNUAL REPORT Financial Highlights(4)
As at or for the years ended December 31
($ millions except where otherwise indicated)
CONSOLIDATED OPERATING RESULTS
Revenue
Operating income
Adjusted EBITDA(ii)
Depreciation and amortization(iii)
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(ii)
Income taxes
Adjusted income taxes(ii)
Net earnings (loss)
Continuing operations
Discontinued operations
Net earnings attributable to shareholders of the Company(iv) from
continuing operations
Net earnings (loss) available to common shareholders of the Company
Continuing operations
Discontinued operations
Adjusted net earnings available to common shareholders of
the Company(ii) from continuing operations
GWL CORPORATE(v)
Cash flow from operating businesses(ii) from continuing operations
CONSOLIDATED FINANCIAL POSITION AND CASH FLOWS
Cash and cash equivalents, short-term investments and
security deposits
Cash flows from operating activities(i)(vi)
Capital investments from continuing operations
Free cash flow(i)(ii) from continuing operations
Total debt including lease liabilities
Total equity attributable to shareholders of the Company
Total equity
CONSOLIDATED PER COMMON SHARE ($)
Diluted net earnings (loss) per common share
Continuing operations
Discontinued operations
$
$
$
$
2022
2021
% Change
$
57,048
4,553
6,551
2,407
913
1,022
831
989
2,803
2,809
(6)
1,822
1,772
1,778
(6)
1,432
53,748
4,027
5,995
2,307
1,650
1,050
630
851
1,425
1,747
(322)
753
387
709
(322)
6.1%
13.1%
9.3%
4.3%
(44.7) %
(2.7) %
31.9%
16.2%
96.7%
60.8%
(98.1) %
142.0%
357.9%
150.8%
(98.1) %
1,232
16.2%
602
$
579
4.0%
2,852
$
4,877
1,893
1,417
21,523
6,841
13,180
3,938
5,119
1,381
2,090
20,309
6,959
13,137
$
12.16
12.20
(0.04)
2.52
4.66
(2.14)
(27.6) %
(4.7) %
37.1%
(32.2) %
6.0%
(1.7) %
0.3%
382.5%
161.8%
(98.1) %
Adjusted diluted net earnings per common share(ii) from continuing
operations
$
9.81
$
8.14
20.5%
CONSOLIDATED FINANCIAL MEASURES AND RATIOS
Adjusted EBITDA margin(ii) (%)
Adjusted return on average equity attributable to common
shareholders of the Company(ii) (%)
Adjusted return on capital(ii) (%)
REPORTABLE OPERATING SEGMENTS
Loblaw
Revenue
Operating income
Adjusted EBITDA(ii)
Adjusted EBITDA margin(ii) (%)
Depreciation and amortization(iii)
Choice Properties
Revenue
Net income
Funds from operations(ii)
11.5%
23.5%
13.8%
56,504
3,334
6,173
10.9%
2,795
1,265
744
698
$
$
11.2%
18.7%
12.6%
53,170
2,929
5,579
10.5%
2,664
1,292
24
690
$
$
6.3%
13.8%
10.6%
4.9%
(2.1) %
3,000.0%
1.2%
Certain comparative figures have been restated to conform with current year presentation.
See Section 13, “Non-GAAP Financial Measures”, of the Company’s 2022 Management’s Discussion and Analysis.
(i)
(ii)
(iii) Depreciation and amortization includes $497 million (2021 – $506 million) of amortization of intangible assets, acquired with Shoppers Drug Mart
Corporation and Lifemark Health Group, recorded by Loblaw.
Includes net earnings available to common shareholders of the Company from continuing operations and preferred dividends.
GWL Corporate refers to the non-consolidated financial results and metrics of GWL. GWL Corporate is a subset of Other and Intersegment.
Inclusive of discontinued operations.
(iv)
(v)
(vi)
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 17
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
Loblaw Operating Results
Choice Properties 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
Loblaw Fourth Quarter Operating Results
Choice Properties Fourth Quarter Operating Results
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Disclosure Controls and Procedures
Internal Control Over Financial Reporting
Enterprise Risks and Risk Management
8.1
8.2
Operating Risks and Risk Management
Financial Risks and Risk Management
Related Party Transactions
Critical Accounting Estimates and Judgments
Future Accounting Standard
Outlook
Non-GAAP Financial Measures
13.1
Non-GAAP Financial Measures - Selected Comparative Reconciliation
Forward-Looking Statements
Additional Information
18 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
19
19
25
29
30
30
33
34
34
36
37
39
40
41
44
45
46
46
47
54
54
56
57
57
58
59
68
70
71
73
73
74
84
88
90
1.
Overall Financial Performance
1.1
Consolidated Results of Operations
The Company’s results reflect 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 positively impacted when the Trust Unit price
declines and negatively impacted when the Trust Unit price increases.
In 2021, the Company completed the sale of the Weston Foods bakery business. The Company’s interest in Weston Foods is
presented separately as discontinued operations in the Company’s current and comparative results. Unless otherwise indicated,
all financial information reflects the Company’s results from continuing operations.
($ millions except where otherwise indicated)
For the years ended as 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 from continuing operations
Net earnings (loss) available to common shareholders
of the Company
Continuing operations
Discontinued operations
Adjusted net earnings available to common
shareholders of the Company(1) from continuing
operations
Diluted net earnings (loss) per common share ($)
Continuing operations
Discontinued operations
Adjusted diluted net earnings per common share(1)
from continuing operations ($)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2022
57,048
4,553
6,551
11.5%
2,407
913
1,022
831
989
27.3%
1,822
1,772
1,778
(6)
1,432
12.16
12.20
(0.04)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2021
53,748
4,027
5,995
11.2%
2,307
1,650
1,050
630
851
27.1%
$
$
$
$
$
$
$
$
$ Change
% Change
3,300
526
556
100
(737)
(28)
201
138
6.1%
13.1%
9.3%
4.3%
(44.7) %
(2.7) %
31.9%
16.2%
753
$
1,069
142.0%
387
709
$
$
(322) $
1,232
2.52
4.66
$
$
$
(2.14) $
1,385
1,069
316
200
9.64
7.54
2.10
357.9%
150.8%
98.1%
16.2%
382.5%
161.8%
98.1%
9.81
$
8.14
$
1.67
20.5%
(i) Depreciation and amortization includes $497 million (2021 – $506 million) of amortization of intangible assets, acquired with Shoppers Drug
Mart Corporation and Lifemark Health Group, recorded by Loblaw.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 19
Management’s Discussion and Analysis
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS OF THE COMPANY FROM CONTINUING OPERATIONS
Net earnings available to common shareholders of the Company from continuing operations in 2022 were $1,778 million
($12.20 per common share), an increase of $1,069 million ($7.54 per common share) compared to $709 million ($4.66 per
common share) in 2021. The increase was due to the favourable year-over-year net impact of adjusting items totaling
$869 million ($5.87 per common share) and an improvement in the Company’s consolidated underlying operating performance
of $200 million ($1.67 per common share) described below.
•
The favourable year-over-year net impact of adjusting items totaling $869 million ($5.87 per common share) was primarily
due to:
◦
◦
◦
◦
the favourable year-over-year impact of the fair value adjustment of the Trust Unit liability of $699 million ($4.68
per common share) as a result of the decrease in Choice Properties’ unit price during 2022;
the favourable year-over-year impact of the fair value adjustment on investment properties of $375 million ($2.65
per common share) driven by Choice Properties, net of consolidation adjustments in Other and Intersegment;
the favourable year-over-year impact of the prior year fair value adjustment of the forward sale agreement of
Loblaw common shares of $163 million ($1.09 per common share). The Company settled the net debt associated
with the forward sale agreement in the fourth quarter of 2021; and
the income tax recovery related to the remeasurement of deferred tax balances for the Choice Properties’
disposition of six office assets (the “Office Asset Sale”) to Allied Properties Real Estate Investment Trust (“Allied”) of
$46 million ($0.32 per common share). Refer to Section 2.2, “Choice Properties Operating Results” of this MD&A for
more information;
partially offset by,
◦
the unfavourable impact of the fair value adjustment on Choice Properties’ investment in real estate securities of
Allied of $228 million ($1.57 per common share) as a result of a decrease in Allied’s Class B Unit price since the
closing of the Office Asset Sale on March 31, 2022 to the end of 2022;
the unfavourable year-over-year impact of the prior year recovery related to a favourable Court ruling regarding a
Glenhuron Bank Limited (“Glenhuron”) matter at Loblaw of $142 million ($0.94 per common share); and
the unfavourable year-over-year impact of the charge related to the commodity tax matter at Loblaw of
$45 million ($0.31 per common share). Refer to Section 2.1, “Loblaw Operating Results” of this MD&A for more
information.
The improvement in the Company’s consolidated underlying operating performance of $200 million ($1.67 per common
share) was due to:
the favourable underlying operating performance of Loblaw; and
a decrease in adjusted net interest expense and other financing charges(1);
◦
◦
partially offset by,
◦
the unfavourable year-over-year impact of Other and Intersegment, primarily driven by the year-over-year impact
of asset impairments, net of recoveries recorded on consolidation of $18 million, net of tax; and
an increase in the adjusted effective tax rate(1) primarily attributable to an increase in tax expense as a result of
GWL’s participation in Loblaw's Normal Course Issuer Bid (“NCIB”) program.
◦
◦
◦
•
•
Diluted net earnings per common share from continuing operations also included the favourable impact of shares
purchased for cancellation over the last 12 months ($0.35 per common share) pursuant to the Company’s NCIB.
Adjusted net earnings available to common shareholders of the Company(1) from continuing operations in 2022 were
$1,432 million, an increase of $200 million, or 16.2%, compared to 2021. The increase was due to the improvement in the
Company’s consolidated underlying operating performance described above.
Adjusted diluted net earnings per common share(1) from continuing operations in 2022 were $9.81 per common share, an
increase of $1.67 per common share, or 20.5%, compared to 2021. The increase was due to the favourable performance in
adjusted net earnings available to common shareholders(1) from continuing operations and the favourable impact of share
repurchases.
20 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
REVENUE
($ millions except where otherwise indicated)
For the years ended as indicated
Loblaw
Choice Properties
Other and Intersegment(i)
Consolidated
2022
56,504
1,265
(721)
57,048
$
$
$
$
$
$
$
$
2021
$ Change
% Change
53,170 $
3,334
1,292 $
(27)
6.3%
(2.1) %
(714)
53,748 $
3,300
6.1%
(i) Other and Intersegment includes intercompany eliminations.
The Company’s 2022 consolidated revenue was $57,048 million, an increase of $3,300 million, or 6.1%, compared to 2021. The
Company’s consolidated revenue was impacted by each of the Company’s reportable operating segments as follows:
•
•
Positively by 6.2% due to revenue growth of 6.3% at Loblaw, primarily driven by an increase in retail sales of $3,223 million,
or 6.2%, and an improvement in financial services revenue of $156 million, or 13.2%. The increase in retail sales was due to
positive same-store sales growth and Lifemark Health Group (“Lifemark”) revenues of $279 million.
Negatively by a nominal amount due to decline in revenue of 2.1% at Choice Properties. The decrease of $27 million was
mainly due to foregone revenue following the Office Asset Sale, partially offset by an increase in rental revenues from the
retail and industrial portfolios driven by improved occupancy and higher rental rates and increased capital recoveries.
OPERATING INCOME
($ millions except where otherwise indicated)
For the years ended as indicated
Loblaw
Choice Properties
Other and Intersegment
Consolidated
2022
3,334
1,083
136
4,553
$
$
$
$
$
$
$
$
2021
$ Change
% Change
2,929 $
1,400 $
(302)
405
(317)
13.8%
(22.6) %
4,027 $
526
13.1%
The Company’s 2022 operating income was $4,553 million compared to $4,027 million in 2021, an increase of $526 million, or
13.1%. The increase was mainly attributable to the improvement in underlying operating performance of $447 million and the
favourable year-over-year net impact of adjusting items totaling $79 million, as described below:
•
the improvement in underlying operating performance of $447 million was due to:
◦
the favourable underlying operating performance of Loblaw due to the improvement in retail, partially offset by a
decline in financial services;
partially offset by,
◦
◦
◦
an increase in depreciation and amortization at Loblaw;
the unfavourable underlying operating performance at Choice Properties; and
the unfavourable year-over-year impact of Other and Intersegment, primarily due to the year-over-year impact of
asset impairments, net of recoveries recorded on consolidation of $25 million.
•
the favourable year-over-year net impact of adjusting items totaling $79 million was primarily due to:
◦
◦
the favourable year-over-year impact of the fair value adjustment of investment properties of $405 million driven
by Choice Properties, net of consolidation adjustments in Other and Intersegment; and
the favourable year-over-year impact from the gains on the sale of non-operating properties of $43 million mainly
at Loblaw;
partially offset by,
◦
the unfavourable impact of the fair value adjustment on Choice Properties’ investment in real estate securities of
Allied of $248 million; and
the unfavourable impact of the charge related to the commodity tax matter at Loblaw of $111 million.
◦
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 21
Management’s Discussion and Analysis
ADJUSTED EBITDA(1)
($ millions except where otherwise indicated)
For the years ended as indicated
Loblaw
Choice Properties
Other and Intersegment
Consolidated
2022
6,173
897
(519)
6,551
$
$
$
$
$
$
$
$
2021
$ Change
% Change
5,579 $
903 $
(487)
594
(6)
10.6%
(0.7) %
5,995 $
556
9.3%
The Company’s 2022 adjusted EBITDA(1) was $6,551 million compared to $5,995 million in 2021, an increase of $556 million, or
9.3%. The increase was impacted by each of the Company’s reportable operating segments as follows:
•
•
Positively by 9.9% due to growth of 10.6% in adjusted EBITDA(1) at Loblaw driven by an increase in Loblaw retail, partially
offset by a decrease in financial services. The increase in Loblaw retail adjusted EBITDA(1) was driven by an increase in retail
gross profit, partially offset by an increase in retail selling, general and administrative expenses (“SG&A”).
Negatively by 0.1% due to a decrease of 0.7% in adjusted EBITDA(1) at Choice Properties, primarily driven by the decline in
revenue described above and higher general and administrative expenses, partially offset by distribution income from the
investment in real estate securities of Allied and a decline in expected credit loss provisions.
DEPRECIATION AND AMORTIZATION
($ millions except where otherwise indicated)
For the years ended as indicated
Loblaw
Choice Properties
Other and Intersegment
Consolidated
2022
2,795
3
(391)
2,407
$
$
$
$
$
$
$
$
2021
$ Change
% Change
2,664 $
3 $
(360)
131
—
4.9%
—%
2,307 $
100
4.3%
Depreciation and amortization in 2022 was $2,407 million, an increase of $100 million compared to 2021. Depreciation and
amortization in 2022 included $497 million (2021 – $506 million) of amortization of intangible assets related to the acquisition
of Shoppers Drug Mart Corporation (“Shoppers Drug Mart”) and Lifemark, recorded by Loblaw. Excluding these amounts,
depreciation and amortization increased by $109 million primarily driven by an increase in depreciation of information
technology (“IT”) and leased assets at Loblaw.
22 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
($ millions except where otherwise indicated)
For the years ended as indicated
2022
2021
$ Change
% Change
Net interest expense and other financing charges
$
913
$
1,650 $
(737)
(44.7) %
Add (deduct) impact of the following:
Fair value adjustment of the Trust Unit liability
Recovery related to Glenhuron
Fair value adjustment of the forward sale agreement
of Loblaw common shares
Adjusted net interest expense and other
financing charges(1)
98
11
—
(601)
189
(188)
699
(178)
116.3%
(94.2) %
188
100.0%
$
1,022
$
1,050 $
(28)
(2.7) %
Net interest expense and other financing charges in 2022 were $913 million, a decrease of $737 million compared to 2021. The
decrease was due to the favourable year-over-year net impact of adjusting items totaling $709 million, itemized in the table
above and a decrease in adjusted net interest expense and other financing charges(1) of $28 million. Included in the adjusting
items in 2022 was the favourable year-over-year fair value adjustment of the Trust Unit liability of $699 million, as a result of the
decrease in Choice Properties’ unit price during 2022. 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) in 2022 decreased by $28 million, primarily driven by:
•
an increase in interest income on certain short-term investments due to higher interest rates, and on mortgages and loans
receivable at Choice Properties due to a higher outstanding balance;
lower interest expense in Other and Intersegment adjustments, primarily due to the full settlement of the net debt
associated with the equity forward sale agreement in the fourth quarter of 2021; and
a reduction in interest expense from post-employment and other employee benefits;
•
an increase in interest expense at Loblaw and Choice Properties mainly due to higher interest rates and an increase in long-
term debt, including an early repayment premium of $7 million at Loblaw recorded in 2022.
•
partially offset by,
•
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 23
Management’s Discussion and Analysis
INCOME TAXES
($ millions except where otherwise indicated)
For the years ended as indicated
2022
2021
$ Change
% Change
Income taxes
$
831
$
630
$
201
31.9%
Add (deduct) impact of the following:
Tax impact of items excluded from adjusted earnings
before taxes(i)
Remeasurement of deferred tax balances
Recovery related to Glenhuron
Outside basis difference in certain Loblaw shares
83
46
33
(4)
99
—
128
(6)
Adjusted income taxes(1)
$
989
$
851
$
Effective tax rate applicable to earnings before taxes
22.8%
26.5%
Adjusted effective tax rate applicable to adjusted
earnings before taxes(1)
27.3%
27.1%
(16)
46
(95)
2
138
(16.2) %
100.0%
(74.2) %
33.3%
16.2%
(i)
See the adjusted EBITDA(1) table and the adjusted net interest expense and other financing charges(1) table included in Section 13, “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 2022 was 22.8%, compared to 26.5% in 2021. The decrease was primarily attributable to the year-over-
year impact of the non-taxable fair value adjustment of the Trust Unit liability, partially offset by the recovery of income taxes
related to Glenhuron in 2021 and the impact of the reversal of the non-deductible interest related to Glenhuron in 2021.
The adjusted effective tax rate(1) in 2022 was 27.3%, compared to 27.1% in 2021. The increase was primarily attributable to an
increase in current tax expense related to GWL’s participation in Loblaw’s NCIB, partially offset by the impact of certain recoveries
realized for prior taxation periods.
Between 2015 and 2019, Loblaw was 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. In the fourth quarter of 2021, the Supreme Court of Canada (“Supreme
Court”) ruled in favour of Loblaw on the Glenhuron matter and Loblaw reversed $301 million of previously recorded charges, of
which $173 million was recorded as interest income and $128 million was recorded as income tax recovery, and an additional
$16 million, before taxes, was also recorded in respect of interest income earned on expected cash tax refunds. As a result of
related reassessments received during the first quarter of 2022, Loblaw reversed another $35 million of previously recorded
charges, of which $2 million was recorded as interest income and $33 million was recorded as an income tax recovery, and an
additional $9 million, before taxes, was recorded in respect of interest income earned on expected cash tax refunds.
DISCONTINUED OPERATIONS Net loss available to common shareholders of the Company from discontinued operations in
2022 of $6 million ($0.04 per common share) pertains to final closing adjustments. For further details of the sale, refer to Note 7,
“Discontinued Operations” in the annual consolidated financial statements of this Annual Report.
24 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
1.2
Selected Annual Information
The selected information presented below has been derived from and should be read in conjunction with the annual
consolidated financial statements of the Company dated December 31, 2022, 2021 and 2020. The analysis of the data contained
in the table focuses on the trends and significant events or items affecting the results of operations and financial condition of the
Company over the latest three year period.
Unless otherwise indicated, all financial information represents the Company’s results from continuing operations.
For the years ended December 31
($ 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 (loss)
Continuing operations
Discontinued operations
Net earnings attributable to shareholders of the Company
Net earnings (loss) available to common shareholders of the Company
Continuing operations
Discontinued operations
Adjusted net earnings available to common shareholders
of the Company(1) from continuing operations
Net earnings (loss) per common share ($) - diluted
Continuing operations
Discontinued operations
Adjusted diluted net earnings per common share(1) from continuing
operations
Dividends declared per share ($):
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
2022
2021
2020
(52 weeks)
(52 weeks)
(53 weeks)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
57,048
4,553
6,551
11.5%
2,407
913
1,022
831
989
27.3%
2,803
2,809
(6)
1,816
1,772
1,778
(6)
1,432
12.16
12.20
(0.04)
9.81
2.580
1.45
1.30
1.30
1.1875
48,958
14,784
668
5,158
4,112
53,748
4,027
5,995
11.2%
2,307
1,650
1,050
630
851
27.1%
1,425
1,747
$
$
$
$
$
$
$
$
$
$
(322) $
431
387
709
$
$
$
(322) $
1,232
$
$
2.52
4.66
$
(2.14) $
53,270
2,875
5,356
10.1%
2,254
829
1,115
470
648
26.0%
1,582
1,576
6
963
919
913
6
993
5.96
5.92
0.04
8.14
$
6.44
$
$
$
$
$
$
$
2.300
1.45
1.30
1.30
1.1875
47,083
14,010
664
4,984
4,209
2.125
1.45
1.30
1.30
1.1875
48,078
14,443
666
5,005
3,600
23,714
Total long-term financial liabilities
$
24,722
$
23,867
$
(i) Depreciation and amortization includes $497 million (2021 – $506 million; 2020 – $509 million) of amortization of intangible assets, acquired
with Shoppers Drug Mart and Lifemark, recorded by Loblaw.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 25
Management’s Discussion and Analysis
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, impacts of global economic
uncertainties and regulatory environment over the last three years. In 2020, the COVID-19 pandemic had a significant
impact on Loblaw’s colleagues, customers, suppliers and other stakeholders. Loblaw experienced sales volatility and
changes in sales mix as the pandemic impacted consumer behaviour throughout the year. In 2021, COVID-19 continued to
have a significant impact on Loblaw, continuing to accelerate some long-term trends, enabling Loblaw to advance its
strategic growth areas of Everyday Digital Retail, Connected Healthcare and Payments and Rewards. In food retail, sales
remained strong as eat-at-home trends remained elevated even in a period where social restrictions loosened. In drug retail,
sales benefited from growth in pharmacy services as COVID-19 testing and vaccinations ramped up throughout the year.
Higher margin front-store categories within drug retail, that had previously negatively impacted earnings, increased sales
momentum as the economy opened up. In 2022, COVID-19 continued to impact retail sales through the first half of the
year. Food retail benefited from elevated eat-at-home trends, and drug retail from strong cosmetics and over-the-counter
(“OTC”) product sales, as customers returned to pre-pandemic activities, while COVID-19 related testing and vaccines
continued at elevated levels. Retail sales growth in second half of 2022 benefited from global inflationary pressures and
reflected continued strength in cosmetics and OTC sales in drug retail.
During 2020, 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
kiosks during the second quarter of 2020. Loblaw’s financial services also launched the PC Money Account in the third
quarter of 2020. In 2021, the underlying operating performance of Loblaw’s financial services improved as it benefited from
an increase in customer spending and higher sales attributable to The Mobile Shop kiosks. In 2022, Loblaw’s financial
services revenue continued to benefit from an increase in customer spending. Further, Loblaw financial services benefited
from growing credit card receivables in 2022 driven by growth in the active customer base.
Choice Properties revenue decreased in 2020 primarily due to the foregone 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. Choice Properties revenue increased in 2021
primarily due to the contribution from acquisition and development transfers completed in 2020 and 2021, partially offset
by foregone revenue from dispositions and vacancies in select office assets. In 2022, Choice Properties revenue declined due
to foregone revenue following the Office Asset Sale, partially offset by an increase in rental revenues from the retail and
industrial portfolios driven by improved occupancy and higher rental rates and increased capital recoveries.
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS OF THE COMPANY FROM CONTINUING OPERATIONS AND
DILUTED NET EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS Net earnings available to common
shareholders of the Company from continuing operations and diluted net earnings per common share from continuing
operations for the last three years were impacted by certain adjusting items as described in Section 13, “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 due to:
the impact of the 53rd week in fiscal year 2020;
changes in the underlying operating performance of Loblaw’s retail due to COVID-19. Loblaw’s financial results for
the years 2022 and 2021 had higher revenue and cost of sales when compared to 2020. In addition, SG&A
increased in 2020 as a result of the incremental cost of COVID-19 related investments to benefit and protect
colleagues and customers which stabilized in 2021 and 2022;
cost savings and operating efficiencies and investments in and benefits from strategic initiatives; and
fluctuations in the performance of Loblaw’s financial services segment driven by the impact of the increase in
customer spending, the reversal of certain commodity taxes accrued and year-over-year movement of the
expected credit loss provision.
◦
◦
26 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
•
changes in the underlying operating performance of Choice Properties due to:
◦
◦
◦
the impact of COVID-19 resulting in an increase in expected credit losses in 2020 which stabilized in 2021 and
2022;
fluctuations in rental income from the unfavourable impact of dispositions of properties in 2019, partially offset by
rental income generated from properties acquired in 2019 and 2020 and from tenant openings in newly
developed leasable space, and the favourable impact of contributions from acquisition and development transfers
completed in 2020 and 2021, which were partially offset by foregone rental income form dispositions and
vacancies in select office assets in 2021; and
in 2022, the underlying operating performance was unfavourably impacted by foregone rental income following
the Office Asset Sale and higher general and administrative expenses, which was partially offset by distribution
income from Choice Properties’ investment in real estate securities of Allied.
•
•
•
•
•
the impact of asset impairments, net of recoveries and certain one-time gains related to Choice Properties’ transactions
recorded on consolidation in Other and Intersegment;
changes in adjusted net interest and other financing charges(1) as follows:
◦
lower adjusted net interest and other financing charges(1) in 2022 due to:
•
•
•
an increase in interest income on certain short-term investments due to higher interest rates, and on
mortgages and loans receivable at Choice Properties due to a higher outstanding balance;
lower interest expense in Other and Intersegment adjustments, primarily due to the full settlement of the
net debt associated with the equity forward sale agreement in the fourth quarter of 2021; and
a reduction in interest expense from post-employment and other employee benefits;
partially offset by,
•
an increase in interest expense at Loblaw and Choice Properties mainly due to higher interest rates and
an increase in long-term debt, including an early repayment premium of $7 million at Loblaw recorded in
2022.
◦
lower adjusted net interest and other financing charges(1) in 2021 due to:
•
•
•
lower interest expense at Loblaw financial services;
a reduction in interest expense from lease liabilities at Loblaw, including Other and Intersegment
adjustments; and
a decrease in interest expense in Choice Properties, including Other and Intersegment adjustments,
primarily related to the special distribution in the fourth quarter of 2020, a decline in fees incurred on
early repayment of senior unsecured debentures, lower overall debt levels compared to the prior year and
the completion of refinancing activity over the past year at lower interest rates;
partially offset by,
•
higher interest expense in Other and Intersegment adjustments, primarily related to interest expense on
the financial liabilities recognized on Choice Properties’ dispositions.
◦
higher adjusted net interest expense and other financing charges(1) in 2020 due to:
•
•
an increase in interest expense 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 income taxes(1) primarily attributable to:
◦
◦
◦
◦
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 NCIB;
the unfavourable year-over-year impact of the non-taxable portion of the gain from Choice Properties’ transactions
in 2020 and 2021; and
the impact of certain other non-deductible items in 2020 and 2021;
in 2022, the increase was partially offset by the impact of certain recoveries realized for prior taxation periods.
in 2022 and 2021, diluted net earnings per common share included the favourable impact of shares purchased
for cancellation; and
an increase in GWL’s ownership interest in Loblaw in 2020 as a result of share repurchases at Loblaw. GWL’s ownership of
Loblaw has remained stable at approximately 52.6% as at the end of 2022, 2021 and 2020.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 27
Management’s Discussion and Analysis
TOTAL ASSETS AND LONG-TERM FINANCIAL LIABILITIES
In 2022, total assets of $48,958 million increased by 4.0% as compared to 2021. The increase was primarily driven by an increase
in inventory, credit card receivables, goodwill and equity accounted joint venture. This was partially offset by a decrease in cash
and cash equivalents and short-term investments, and a decrease in income tax recoverable due to collection of income tax
refunds from Glenhuron. Total long-term financial liabilities of $24,722 million increased by 3.6% compared to 2021 driven by
higher long-term debt due to an increase in guaranteed investment certificates (“GIC”) at Loblaw and debt drawn on Choice
Properties credit facility.
In 2021, total assets of $47,083 million decreased by 2.1% as compared to 2020. The decrease was primarily driven by the
decrease in fixed assets and intangible assets as a result of the disposal of the Weston Foods business, partially offset by higher
cash and cash equivalents and an increase in investment properties. Total long-term financial liabilities of $23,867 million
increased by 0.6% compared to 2020 driven by an increase in the Trust Unit liability as a result of the significant changes in
Choice Properties’ unit price, partially offset by a decrease in long-term debt driven by George Weston Series A debenture
repayments.
The Trust Unit liability is recognized at fair value on the consolidated balance sheets and fluctuates due to issuances and
changes in the fair value of Choice Properties’ Trust Units. As at December 31, 2022, 277,109,734 Units were held by unitholders
other than the Company (2021 – 276,927,432; 2020 – 276,280,248) and the Company held an approximate 61.7% (2021 – 61.7%;
2020 – 61.8%) effective ownership interest in Choice Properties.
28 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
1.3
Consolidated Other Business Matters
GWL CORPORATE(2) FINANCING ACTIVITIES The Company completed the following financing activities during the periods
indicated below. The cash impacts of these activities are set out below:
Quarters Ended
Years Ended
($ millions)
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
GWL’s NCIB – purchased and cancelled
$
(276)
$
(167)
$
(994)
$
GWL’s participation in Loblaw’s NCIB
GWL’s credit facility drawdown (repayment)
Settlement of net debt associated with equity
forward sale agreement
49
—
—
89
121
(275)
558
(121)
—
Net cash flow used in above activities
$
(227)
$
(232)
$
(557)
$
(744)
563
121
(790)
(850)
GWL’s NCIB - Purchased and Cancelled Shares In the fourth quarter and year-to-date 2022, the Company purchased and
cancelled 1.7 million shares (2021 – 1.0 million shares) and 6.4 million shares (2021 – 5.9 million shares), respectively, under its
NCIB. As at December 31, 2022, the Company had 140.6 million shares issued and outstanding, net of shares held in trusts
(December 31, 2021 – 146.6 million shares).
In the fourth quarter of 2022, the Company entered into an automatic share purchase plan (“ASPP”) with a broker in order to
facilitate the repurchase of the Company’s common shares under its NCIB. During the effective period of the ASPP, the
Company’s broker may purchase common shares at times when the Company would not be active in the market.
Refer to Section 3.6, “Share Capital” of this MD&A for more information.
GWL’s Participation in Loblaw’s NCIB The Company participates in Loblaw’s NCIB in order to maintain its proportionate
percentage ownership interest. During the fourth quarter and year-to-date 2022, GWL received proceeds of $49 million (2021 –
$89 million) and $558 million (2021 – $563 million), respectively, from the sale of Loblaw shares.
GWL’s Credit Facility In 2021, GWL entered into a $350 million revolving committed credit facility provided by a syndicate of
lenders with a maturity date of September 13, 2024. The credit facility contains certain financial covenants. As at December 31,
2021, $121 million was drawn on the facility which was repaid in the first quarter of 2022. As at December 31, 2022, no amounts
were drawn on the facility.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 29
Management’s Discussion and Analysis
2.
Results of Reportable Operating Segments
The following discussion provides details of the 2022 results of operations of each of the Company’s reportable operating
segments.
2.1
Loblaw Operating Results
($ millions except where otherwise indicated)
For the years ended as indicated
Revenue
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
2022
56,504
3,334
6,173
10.9%
$
$
$
2021
53,170
2,929
5,579
10.5%
$
$
$
$ Change
% Change
3,334
405
594
6.3%
13.8%
10.6%
2,795
$
2,664
$
131
4.9%
$
$
$
$
(i)
Depreciation and amortization includes $497 million (2021 – $506 million) of amortization of intangible assets acquired with Shoppers
Drug Mart and Lifemark.
REVENUE Loblaw revenue in 2022 was $56,504 million, an increase of $3,334 million, or 6.3%, compared to 2021, driven by an
increase in retail sales and an improvement in financial services revenue.
Retail sales were $55,492 million, an increase of $3,223 million, or 6.2%, compared to 2021.
•
•
food retail sales were $39,398 million (2021 – $37,481 million) and retail same-store sales growth was 4.7% (2021 – 0.3%).
◦
◦
the Consumer Price Index (“CPI”) as measured by The Consumer Price Index for Food Purchased from Stores was
9.7% (2021 – 2.2%), which was generally in line with Loblaw’s internal food inflation; and
food retail traffic increased and basket size decreased.
drug retail sales were $16,094 million (2021 – $14,788 million) and drug retail same-store sales growth was 6.9% (2021 –
5.0%);
◦
pharmacy same-store sales growth was 5.7% (2021 – 8.4%). Pharmacy and healthcare services same-store sales
growth benefited from an increase in acute and chronic prescription volumes from the economic re-opening. The
number of prescriptions dispensed increased by 2.5% (2021 – 0.9%). On a same-store basis, the number of
prescriptions dispensed increased by 2.6% (2021 – 2.7%) and the average prescription value increased by 2.4%
(2021 – 4.7%);
pharmacy and healthcare services sales included Lifemark revenue of $279 million. Lifemark revenues are
excluded from same-store sales; and
front store same-store sales growth was 8.2% (2021 – 2.1%). Front store same-store sales growth benefited from the
economic re-opening and higher consumer spending.
◦
◦
In 2022, 13 food and drug stores were opened, and 10 food and drug stores were closed, and net retail square footage has
remained constant at 71.2 million square feet.
Financial services revenue increased by $156 million, or 13.2%, compared to 2021, primarily driven by higher interest income
from growth in credit card receivables and higher interchange income and credit card related fees due to an increase in
customer spending. This was partially offset by lower sales attributable to The Mobile Shop.
30 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
◦
partially offset by,
◦
◦
OPERATING INCOME Loblaw operating income in 2022 was $3,334 million, an increase of $405 million, or 13.8%, compared to
2021. The increase was driven by an improvement in underlying operating performance of $454 million, partially offset by an
unfavourable year-over-year net impact of adjusting items totaling $49 million, as described below:
•
the improvement in underlying operating performance of $454 million was primarily due to the following:
◦
an improvement in the underlying operating performance of retail due to an increase in retail gross profit, partially
offset by an increase in SG&A and depreciation and amortization;
partially offset by,
◦
a decline in financial services primarily due to the year-over-year impact of the expected credit loss provision from
lapping a larger prior year release versus the current year increase and from lapping a prior year reversal of certain
commodity tax accrued.
•
the unfavourable year-over-year net impact of adjusting items totaling $49 million was primarily due to:
◦
the unfavourable year-over-year impact of the charge related to a President’s Choice Bank (“PC Bank”) commodity
tax matter of $111 million; and
the unfavourable year-over-year impact of the Lifemark transaction costs of $16 million;
the favourable year-over-year impact from the gains on the sale of non-operating properties of $45 million; and
the favourable year-over-year change in restructuring and other related costs of $28 million.
ADJUSTED EBITDA(1) Loblaw adjusted EBITDA(1) in 2022 was $6,173 million, an increase of $594 million, or 10.6%, compared to
2021. The increase was primarily due to an increase in retail of $617 million, partially offset by a decrease in financial services of
$23 million.
Retail adjusted EBITDA(1) increased by $617 million driven by an increase in retail gross profit of $1,124 million, partially offset by
an increase in retail SG&A of $507 million.
•
•
Retail gross profit percentage of 30.9% increased by 20 basis points compared to 2021, driven by growth in higher margin
drug retail front store categories. Compared to 2021, when inflation started to accelerate, food retail gross margins were flat.
Retail SG&A as a percentage of sales was 20.2%, a decrease of 30 basis points compared to 2021. The favourable decrease
was primarily due to operating leverage gained from higher sales and lower COVID-19 related expenses.
Financial services adjusted EBITDA(1) decreased by $23 million compared to 2021, primarily driven by higher loyalty program
costs, operating costs, and contractual charge-off from an increase in customer spending, the prior year reversal of certain
commodity tax accrued in the amount of $37 million, and the impact of the expected credit loss provision from lapping a larger
prior year release of $32 million versus the current year increase of $1 million. This decrease was partially offset by higher revenue
as described above.
DEPRECIATION AND AMORTIZATION Loblaw’s depreciation and amortization in 2022 was $2,795 million, an increase of
$131 million compared to 2021. The increase in depreciation and amortization in 2022 was primarily driven by an increase in IT
and leased assets, and accelerated depreciation of $24 million (2021 – nil) due to the reassessment of the estimated useful life of
certain IT assets. Depreciation and amortization in 2022 included $497 million (2021 – $506 million) of amortization of intangible
assets related to the acquisition of Shoppers Drug Mart and Lifemark.
CONSOLIDATION OF FRANCHISES Loblaw has more than 500 franchise food retail stores in its network. Non-controlling
interests at Loblaw represents the share of earnings that relates to Loblaw’s food retail franchisees and is impacted by the timing
of when profit sharing with franchisees is agreed and finalized under the terms of the agreements. Loblaw’s net earnings
attributable to non-controlling interests were $73 million in 2022. When compared to 2021, this represented a decrease of
$28 million or 27.7%. The decrease in non-controlling interests at Loblaw was primarily driven by the normalizing of franchisee
earnings after profit sharing.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 31
Management’s Discussion and Analysis
LOBLAW OTHER BUSINESS MATTERS
Lifemark Health Group On May 10, 2022, Loblaw acquired all of the outstanding common shares of Lifemark for total cash
purchase consideration of $829 million. Lifemark is the Canadian leading provider of outpatient physiotherapy, massage therapy,
occupational therapy, chiropractic, mental health, and other ancillary rehabilitation services through its more than 300 clinics
across Canada. The acquisition of Lifemark adds to Loblaw’s growing role as a healthcare service provider, with a network of
health and wellness solutions, accessible in-person and digitally. In the fourth quarter of 2022, revenue of $110 million and
nominal net earnings were contributed by Lifemark. Net earnings included amortization related to the acquired intangible
assets of $3 million in the fourth quarter of 2022. Year-to-date revenue of $279 million and nominal net earnings were
contributed by Lifemark from the date of acquisition. Year-to-date net earnings included amortization related to the acquired
intangible assets of $8 million.
PC Bank Commodity Tax Matter In July 2022, the Tax Court of Canada (“Tax Court”) released a decision relating to PC Bank, a
subsidiary of Loblaw. The Tax Court ruled that PC Bank is not entitled to claim notional input tax credits for certain payments it
made to Loblaws Inc. in respect of redemptions of loyalty points. On September 29th, 2022, PC Bank filed a Notice of Appeal
with the Federal Court of Appeal. Although, Loblaw believes in the merits of its position, it recorded a charge of $111 million,
inclusive of interest, in the second quarter of 2022. Loblaw believes that this provision is sufficient to cover its liability, if the
appeal is ultimately unsuccessful.
Network Optimization In the fourth quarter of 2022, Loblaw finalized network optimization plans that will result in banner
conversions and right-sizing of an additional 34 underperforming retail locations across a range of banners and formats. Charges
associated with network optimization will be recorded as incurred and are expected to include equipment, severance, lease
related and other costs, and will not be considered an adjusting item. Loblaw expects to realize approximately $40 million in
annualized EBITDA run-rate savings related to these plans. In the fourth quarter of 2022, Loblaw recorded charges of $11 million
as a result of this network optimization project and expects to record additional charges of approximately $50 million to
$60 million as they are incurred throughout 2023.
32 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
2.2
Choice Properties Operating Results
($ millions except where otherwise indicated)
For the years ended as indicated
Revenue
Net interest expense and other financing charges(i)
Net income
Funds from Operations(1)
2022
1,265
339
744
698
$
$
$
$
$
$
$
$
2021
$ Change
% Change
1,292 $
(27)
1,377 $
(1,038)
24 $
690 $
720
8
(2.1) %
(75.4) %
3,000.0%
1.2%
(i) Net interest expense and other financing charges includes a fair value adjustment on Exchangeable Units.
REVENUE Revenue was $1,265 million in 2022, a decrease of $27 million, or 2.1%, compared to 2021 and included $728 million
(2021 – $722 million) generated from tenants within Loblaw retail. The decrease in revenue was primarily driven by:
•
partially offset by,
•
foregone revenue following the Office Asset Sale as described below in Choice Properties Other Business Matters;
an increase in rental revenues from the retail and industrial portfolios driven by improved occupancy and higher rental
rates; and
higher recoveries.
•
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES Net interest expense and other financing charges in 2022 were
$339 million compared to $1,377 million in 2021. The decrease of $1,038 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 $1,033 million as a result of the
decrease in the unit price.
NET INCOME Net income in 2022 was $744 million, compared to $24 million in 2021. The increase of $720 million was primarily
driven by:
•
partially offset by,
•
lower net interest expense and other financing charges as described above;
the unfavourable change in the adjustment to fair value of investment properties, including those held within equity
accounted joint ventures, driven by capitalization rate expansion in the retail portfolio as a result of rising interest rates,
partially offset by achieved milestones in development and leasing and cash flow growth in the industrial portfolios;
the unfavourable change in the adjustment to fair value of investment in real estate securities as a result of a decrease in
Allied’s unit price; and
the decline in revenue described above.
•
•
FUNDS FROM OPERATIONS(1) Funds from Operations(1) in 2022 was $698 million, an increase of $8 million compared to 2021.
The increase was primarily due to an increase in rental revenues from the retail and industrial portfolios, which was partially
offset by increases in interest expense and general and administrative expenses and the impact of the Office Asset Sale. The
impact of the Office Asset Sale includes foregone rental income, partially offset by the distributions from Choice Properties’
investment in real estate securities of Allied and interest income from the consideration received in exchange for assets sold.
CHOICE PROPERTIES OTHER BUSINESS MATTERS
Strategic Disposition On March 31, 2022, Choice Properties completed the Office Asset Sale. The consideration received
consisted of 11,809,145 exchangeable Class B limited partnership units of Allied Properties Exchangeable Limited Partnership
(“Allied Class B Units”), an affiliated entity of Allied, with a fair value of $551 million on the transaction date, and a promissory
note with a fair value of $193 million (face value of $200 million). See note 21, “Other Assets” in the Company’s consolidated
financial statements and the accompanying notes of this Annual Report.
Subsequent Events On February 16, 2023, Choice Properties announced that it agreed to issue, on a private placement basis,
$550 million aggregate principal amount of series S senior unsecured debentures that will bear interest at a rate of 5.4% per
annum and will mature on March 1, 2033.
On February 15, 2023, Choice Properties announced an increase in the annual distribution by 1.4% to $0.75 per unit. The
increase will be effective for Choice Properties’ unitholders of record on March 31, 2023.
On January 18, 2023, Choice Properties paid in full upon maturity, at par, plus accrued and unpaid interest thereon, the
$125 million aggregate principal amount of the Series D-C senior unsecured debentures outstanding. The repayment of the
Series D-C senior unsecured debenture was funded by an advance on Choice Properties’ credit facility.
Subsequent to year end, Choice Properties entered into commitments for approximately $162 million of mortgage financing.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 33
Management’s Discussion and Analysis
3.
3.1
Liquidity and Capital Resources
Cash Flows
The following Cash Flow components are inclusive of continuing and discontinued operations.
($ 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
2022
2,984
4,877
(2,540)
(3,011)
3
2,313
$
$
$
$
$
$
$
$
$
$
$
$
2021(i)
$ Change
2,581 $
5,119 $
(291) $
(4,426) $
1 $
2,984 $
403
(242)
(2,249)
1,415
2
(671)
(i)
Certain comparative figures have been restated to conform with current year presentation.
CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities were $4,877 million in 2022, a decrease of
$242 million compared to 2021. The decrease in cash flows from operating activities was primarily driven by an unfavourable
change in non-cash working capital and growth in credit card receivables from a rise in customer spending, partially offset by
higher cash earnings and net lower income taxes paid due to the recovery of cash taxes related to Glenhuron.
CASH FLOWS USED IN INVESTING ACTIVITIES Cash flows used in investing activities were $2,540 million in 2022, an increase of
$2,249 million compared to 2021. The increase in cash flows used in investing activities was primarily due to the net
consideration from the disposal of Weston Foods business received in the prior year, the acquisition of Lifemark and higher
capital investments, partially offset by the decrease in short-term investments.
The following table summarizes the Company’s capital investments by each of its reportable operating segments:
($ millions)
For the years ended as indicated
Loblaw(i)
Choice Properties
Other and Intersegment
Capital investments from continuing operations
Discontinued operations
Total capital investments
$
2022
1,571
321
1
1,893
$
—
1,893
$
$
$
$
2021
1,183
196
2
1,381
76
1,457
(i)
During 2022, there were no additions to Loblaw fixed assets related to prepayments that were made in 2021 and transferred from other
assets. During 2021, additions to Loblaw fixed assets included prepayments that were made in 2020 and transferred from other assets of
$1 million.
34 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
CASH FLOWS USED IN FINANCING ACTIVITIES Cash flows used in financing activities were $3,011 million in 2022, a decrease of
$1,415 million compared to 2021. The decrease in cash flows used in financing activities was primarily driven by the higher net
issuances of long-term debt and an increase in short-term debt, the settlement of the net debt associated with the equity
forward sale agreement in the prior year, partially offset by higher GWL and Loblaw repurchases of common shares under their
respective NCIB programs.
The Company’s significant long-term debt transactions are set out in Section 3.3, “Components of Total Debt”.
FREE CASH FLOW(1)
($ millions)
For the years ended as indicated
Cash flows from operating activities
Less: Cash flows from operating activities from discontinued operations
Cash flows from operating activities from continuing operations
Less:
Interest paid
Capital Investments
Lease payments, net
2022
2021(i)
$ Change
$
$
4,877
$
5,119 $
—
—
4,877
$
5,119 $
818
1,893
749
853
1,381
795
(242)
—
(242)
(35)
512
(46)
Free cash flow(1) from continuing operations
$
1,417
$
2,090 $
(673)
(i)
Certain comparative figures have been restated to conform with current year presentation.
Free cash flow(1) from continuing operations in 2022 was $1,417 million, a decrease of $673 million compared to 2021. The
decrease in free cash flow(1) was primarily driven by growth in credit card receivables from an increase in the active customer
base and a rise in customer spending, an unfavourable change in non-cash working capital and higher capital investments,
partially offset by higher cash earnings and lower income taxes paid.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 35
Management’s Discussion and Analysis
3.2
Liquidity
The Company (excluding Loblaw and Choice Properties) expects that cash and cash equivalents, short-term investments, future
operating cash flows and the amounts available to be drawn against its committed credit facility will enable it to finance its
capital investment program and fund its ongoing business requirements, including working capital, pension plan funding
requirements and financial obligations, over the next 12 months. The Company (excluding Loblaw and Choice Properties) does
not foresee any impediments in obtaining financing to satisfy its long-term obligations.
Loblaw expects that cash and cash equivalents, short-term investments, future operating cash flows and the amounts available
to be drawn against committed credit facilities will enable it to finance its capital investment program and fund its ongoing
business requirements over the next 12 months, including working capital, pension plan funding requirements and financial
obligations. PC Bank expects to obtain long-term financing for its credit card portfolio through the issuance of Eagle notes and
Guaranteed Investment Certificates (“GICs”).
Choice Properties expects to obtain long-term financing for the acquisition of properties primarily through the issuance of
unsecured debentures and equity.
For details on the Company’s cash flows, see Section 3.1 “Cash Flows”, of this MD&A.
TOTAL DEBT The following table presents total debt, as monitored by management:
As at
Dec. 31, 2022
Dec. 31, 2021
($ millions)
Bank indebtedness
Loblaw
Choice
Properties
Other and
Intersegment
Total
Loblaw
Choice
Properties
Other and
Intersegment
$
8 $
— $
— $
8
$
52 $
— $
— $
Demand deposits from customer
Short-term debt
125
700
—
—
—
—
125
700
75
450
—
—
—
—
Total
52
75
450
Long-term debt due within one year
727
656
—
1,383
1,002
518
—
1,520
Long-term debt
Certain other liabilities(i)
7,056 5,896
449
13,401
6,211 5,709
570
12,490
80
668
—
748
74
664
—
738
Total debt excluding lease liabilities
$ 8,696 $ 7,220 $
449 $ 16,365
$ 7,864 $ 6,891 $
570 $ 15,325
Lease liabilities due within one year(ii)
Lease liabilities(ii)
$
1,401 $
2 $
(568) $
835
$
1,297 $
1 $
(556) $
742
$ 7,714 $
2 $ (3,393) $ 4,323
$ 7,542 $
1 $
(3,301) $ 4,242
Total debt including total lease liabilities
$ 17,811 $ 7,224 $ (3,512) $ 21,523
$ 16,703 $ 6,893 $ (3,287) $ 20,309
(i)
Includes financial liabilities of $668 million (December 31, 2021 – $664 million) recorded primarily as a result of Choice Properties’
transactions.
(ii) Lease liabilities due within one year of $2 million (December 31, 2021 – $2 million) and lease liabilities of $5 million (December 31, 2021 –
$7 million) relating to GWL Corporate are included in 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 $456 million (December 31, 2021 – $579 million) and cash and cash equivalents and short-term
investments of $818 million (December 31, 2021 – $1,338 million), resulting in a net cash position of $362 million (December 31,
2021 – net cash of $759 million).
Loblaw’s management is focused on managing its capital structure on a segmented basis to ensure that each of its operating
segments is employing a capital structure that is appropriate for the industry in which it operates.
•
•
Loblaw targets maintaining retail segment credit metrics consistent with those of investment grade retailers. Loblaw
monitors the retail segment’s debt to retail adjusted EBITDA(1) ratio as a measure of the leverage being employed. Loblaw
retail segment debt to adjusted EBITDA(1) ratio decreased compared to 2021 primarily due to an improvement in adjusted
EBITDA(1).
PC Bank’s capital management objectives are to maintain a consistently strong capital position while considering the
economic risks generated by its credit card receivables portfolio and to meet all regulatory requirements as defined by the
Office of the Superintendent of Financial Institutions.
Choice Properties targets maintaining credit metrics consistent with those of investment grade Real Estate Investment
Trusts (“REIT”). Choice Properties monitors metrics relevant to the REIT industry including targeting an appropriate debt to total
assets ratio.
36 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
COVENANTS AND REGULATORY REQUIREMENTS The Company, Loblaw and Choice Properties are required to comply with
certain financial covenants for various debt instruments. As at year end 2022 and throughout the year, the Company, Loblaw and
Choice Properties were in compliance with their respective covenants.
As at year end 2022 and throughout the year, PC Bank and Choice Properties met all applicable regulatory requirements.
3.3
Components of Total Debt
DEBENTURES The following table summarizes the debentures issued in the years ended as indicated:
($ millions)
Loblaw
– Senior unsecured note
– Senior unsecured note
Choice Properties senior unsecured debentures
– Series Q
– Series R
Total debentures issued
Interest
Rate
5.01%
5.34%
2.46%
6.00%
Maturity
Date
2022
Principal
Amount
2021
Principal
Amount
September 13, 2032
$
September 13, 2052
November 30, 2026
June 24, 2032
$
400
400
—
500
$
1,300
$
—
—
350
—
350
The following table summarizes the debentures repaid in the years ended as indicated:
($ millions)
George Weston debenture – Series A
Loblaw senior unsecured note
Choice Properties senior unsecured debentures
– Series 9
– Series 10
– Series I
Total debentures repaid
Interest
Rate
7.00%
4.86%
Maturity
Date
November 10, 2031(i)
September 12, 2023(ii)
$
3.60%
3.84%
3.01%
September 20, 2021
September 20, 2022(iii)
March 21, 2022
2022
Principal
Amount
2021
Principal
Amount
$
—
800
—
300
—
$
1,100
$
466
—
200
—
300
966
(i)
In 2021, the Company settled the net debt associated with the equity forward sale agreement. As a result, the 9.6 million Loblaw shares
securing the net debt were released from security and the Company’s economic interest in Loblaw is now equal to its voting interest. In
aggregate, $790 million was paid to settle the net debt, resulting in the extinguishment of the Series A Debentures ($466 million), Series B
Debentures ($784 million), plus accrued interest, and the settlement of the equity forward sale agreement ($464 million gain).
Loblaw senior unsecured debenture was redeemed on September 21, 2022.
(ii)
(iii) Choice Properties senior unsecured Series 10 debenture was redeemed on June 26, 2022.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 37
Management’s Discussion and Analysis
COMMITTED CREDIT FACILITIES The components of the committed lines of credit available as at year end 2022 and 2021 were
as follows:
($ millions)
George Weston
Loblaw
Choice Properties
Maturity
Date
Available
Credit
September 13, 2024
$
350
$
July 15, 2027
September 1, 2027
1,000
1,500
Total committed credit facilities
$
2,850 $
Drawn
—
—
260
260
Available
Credit
$
350 $
1,000
1,500
$
2,850 $
Drawn
121
—
—
121
As at
Dec. 31, 2022
Dec. 31, 2021
George Weston In 2021, GWL entered into a $350 million revolving committed credit facility provided by a syndicate of lenders
with a maturity date of September 13, 2024. As at December 31, 2021, $121 million was drawn on the facility which was repaid
in the first quarter of 2022. As at December 31, 2022, no amounts were drawn on the facility.
Loblaw Loblaw has a $1 billion committed credit facility with a maturity date of July 15, 2027, provided by a syndicate of
lenders. Loblaw extended the maturity date during 2022 with all other terms and conditions remaining substantially the same.
As at December 31, 2022, there were no amounts drawn under the facility (December 31, 2021 – no amounts were drawn).
Choice Properties Choice Properties has a $1.5 billion senior unsecured committed revolving credit facility maturing
September 1, 2027, provided by a syndicate of lenders. During 2022, the maturity date of the credit facility was extended to
September 1, 2027 with all other terms and conditions remaining substantially the same. As at December 31, 2022, $260 million
was drawn under the facility (December 31, 2021 – no amounts were drawn).
INDEPENDENT SECURITIZATION TRUSTS Loblaw, through PC Bank, participates in various securitization programs that provide
a source of funds for the operation of its credit card business. PC Bank maintains and monitors a co-ownership interest in credit
card receivables with independent securitization trusts, including Eagle and Other Independent Securitization Trusts, in
accordance with its financing requirements.
The following table summarizes the amounts securitized to independent securitization trusts:
($ 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, 2022
Dec. 31, 2021
$
$
1,350
$
700
2,050
$
1,350
450
1,800
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 2022
and throughout the year.
During 2022, Eagle filed a Short Form Base Shelf Prospectus, which allows for the issuance of up to $1.25 billion of notes over a
25-month period.
During 2022, Eagle issued $250 million (2021 – $300 million) of senior and subordinated term notes with a maturity date of
July 17, 2027 (2021 – June 17, 2026) at a weighted average interest rate of 4.89% (2021 - 1.61%). In connection with this
issuance, $140 million (2021 – $175 million) of bond forward agreements were settled, resulting in a realized fair value gain of
$8 million (2021 – loss of $1 million) before income taxes, which was cumulatively recorded in other comprehensive loss as
unrealized prior to the settlement of the agreement. The gain will be reclassified to the consolidated statements of earnings over
the life of the Eagle notes. This settlement resulted in a net effective interest rate of 4.24% (2021 – 1.65%) on the Eagle notes
issued.
During 2022, $250 million of senior and subordinated term notes at weighted average interest rate of 2.71%, previously issued by
Eagle, matured and were repaid on October 17, 2022. As a result, during 2022, there was no net change in the balances related
to Eagle notes.
There were no repayments of notes issued by Eagle in 2021.
38 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
INDEPENDENT FUNDING TRUSTS As at year end 2022, the independent funding trusts had drawn $574 million (2021 –
$570 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 2022, Loblaw has agreed to provide a credit enhancement of $64 million (2021 – $64 million) in the form of a
standby letter of credit for the benefit of the independent funding trusts representing not less than 10% (2021 – not less than
10%) of the principal amount of the loans outstanding.
Loblaw has a $700 million revolving committed credit facility that is the source of funding to the independent funding trusts
that has a maturity date of April 14, 2025. Loblaw extended the maturity date during 2022 with all other terms and conditions
remaining substantially the same.
GUARANTEED INVESTMENT CERTIFICATES The following table summarizes PC Bank’s GIC activity, before commissions, for the
years ended as indicated:
($ millions)
Balance, beginning of year
GICs issued
GICs matured
Balance, end of year
$
$
2022
996
764
(193)
$
1,567
$
2021
1,185
414
(603)
996
As at year end 2022, $477 million in GICs were recorded as long-term debt due within one year (2021 – $182 million).
The following table summarizes the Company’s (excluding Loblaw and Choice Properties) debt in Other and Intersegment:
($ millions)
Debentures
George Weston credit facility
Transaction costs and other
Other and Intersegment debt
As at
Maturity Date
Dec. 31, 2022
Dec. 31, 2021
2024 - 2033
$
450
$
2024
n/a
—
(1)
$
449
$
450
121
(1)
570
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 2022, Loblaw’s maximum obligation in respect of such guarantees was $580 million (2021 – $580 million) with an
aggregate amount of $473 million (2021 – $469 million) in available lines of credit allocated to the Associates by the various
banks. As at year end 2022, the Associates had drawn an aggregate amount of $8 million (2021 – $52 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, 2022
Dec. 31, 2021
23.5%
13.8%
18.7%
12.6%
The adjusted return on average equity attributable to common shareholders of the Company(1) increased as at year end 2022
compared to 2021, primarily due to an increase in adjusted net earnings available to common shareholders of the Company(1)
from continuing operations and a decrease in average equity attributable to common shareholders of the Company(1).
The adjusted return on capital(1) increased as at year end 2022 compared to 2021, primarily due to an increase in adjusted
operating income(1) as a result of an improvement in the Company’s consolidated underlying performance.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 39
Management’s Discussion and Analysis
3.5
Credit Ratings
The following table sets out the current credit ratings of GWL:
DBRS
S&P
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 2022, S&P Global Ratings (“S&P”) confirmed the above ratings and outlook of GWL, and Dominion Bond Rating Service
Morningstar (“DBRS”) confirmed the above ratings and trend of GWL.
The following table sets out the current credit ratings of Loblaw:
DBRS
S&P
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 2022, S&P confirmed the above ratings and outlook of Loblaw, and DBRS confirmed the above ratings and trend 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
DBRS
S&P
During 2022, S&P confirmed the above ratings and outlook of Choice Properties, and DBRS confirmed the above ratings and
trend of Choice Properties.
40 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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, 2022:
(number of common shares)
Common shares
Preferred shares – Series I
– Series II
– Series III
– Series IV
– Series V
Authorized
Outstanding
Unlimited
140,737,942
10,000,000
9,400,000
10,600,000
—
10,000,000
8,000,000
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, 2022 and December 31,
2021:
($ millions except where otherwise indicated)
Number of
Common
Shares
Issued and outstanding, beginning of year
146,789,503 $
Issued for settlement of stock options
Purchased and cancelled(i)(ii)
337,615
(6,389,176)
2022
Common
Share
Capital
2,714
41
(136)
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,
(141,106) $
(99,000)
79,641
(160,465) $
(2)
(2)
1
(3)
Number of
Common
Shares
2021
Common
Share
Capital
152,374,416
$
2,786
323,461
(5,908,374)
$
$
(254,525)
—
113,419
(141,106)
$
36
(108)
2,714
(4)
—
2
(2)
Issued and outstanding, end of year
140,737,942 $
2,619
146,789,503
end of year
140,577,477
$
2,616
146,648,397 $
2,712
Weighted average outstanding, net of shares
held in trusts
144,244,034
149,893,834
(i)
Number of common shares repurchased and cancelled as at December 31, 2022 does not include shares that may be repurchased
subsequent to year end under the ASPP as described below.
(ii)
Includes 1,930 shares cancelled during 2021 in a private transaction and are excluded from the Company’s Normal Course Issuer Bid.
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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 41
Management’s Discussion and Analysis
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 2022 and in the third quarter of 2021, the Board raised the quarterly
common share dividend by $0.060 to $0.66 and $0.050 to $0.60 per share, respectively. The Board declared dividends for the
years ended as follows:
($)
Dividends declared per share(i):
Common share
Preferred share:
Series I
Series III
Series IV
Series V
2022
2.58
1.45
1.30
1.30
1.1875
$
$
$
$
$
2021
2.30
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 paid on January 1, 2023. Dividends
declared on Preferred Shares, Series I were paid on December 15, 2022.
The following table summarizes the Company’s cash dividends declared subsequent to year end 2022:
($)
Dividends declared per share(i)
– Common share
– Preferred share:
Series I
Series III
Series IV
Series V
$
$
$
$
$
0.660
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, 2023. Dividends declared
on Preferred Shares, Series I are payable on March 15, 2023.
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.
42 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
NORMAL COURSE ISSUER BID PROGRAM The following table summarizes the Company’s activity under its NCIB 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(i)
Premium charged to retained earnings
Purchased and held in trusts
Purchased and settled
Purchased and cancelled(ii)
Reduction in share capital(iii)
2022
99,000
15,716
2021
—
10,862
6,389,176
5,906,444
$
$
$
$
$
(14)
(2)
(994)
12
1
1,002
136
$
—
—
(744)
—
—
642
108
(i)
(ii)
(iii)
Included in 2022 is a net cash timing adjustment of $6 million (2021 – $(6) million) of common shares repurchased under the NCIB for
cancellation.
Includes $133 million (2021 – nil) related to the ASPP, as described below.
Includes $17 million (2021 – nil) related to the ASPP, as described below.
In 2022, GWL renewed its NCIB to purchase on the TSX or through alternative trading systems up to 7,304,927 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.
From time to time, the Company participates in an ASPP with a broker in order to facilitate the purchase of the Company’s
common shares under its NCIB. During the effective period of the ASPP, the Company’s broker may purchase common shares at
times when the Company would not be active in the market. As at December 31, 2022, an obligation to repurchase shares of
$150 million was recognized under the ASPP in trade payables and other liabilities.
As of December 31, 2022, 4,786,792 common shares were purchased under the Company’s current NCIB.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 43
Management’s Discussion and Analysis
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 other performance guarantees, surety bond, securitization of
PC Bank’s credit card receivables, letters of credit and third-party financing made available to Loblaw’s franchisees. As at year
end 2022, the aggregate gross potential liability related to the Company’s letters of credit was approximately $551 million
(2021 – $629 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 2022, the guarantee on behalf of PC Bank to MasterCard® was U.S. dollars $190 million (2021 – U.S.
dollars $190 million).
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. Loblaw has guaranteed lease obligations of a third-party distributor in the amount of $4 million (2021 –
$2 million).
CASH COLLATERALIZATION As at year end 2022, GWL had no agreements to cash collateralize uncommitted credit facilities
(2021 – $45 million) and had no deposits with major financial institutions (2021 – $45 million) and classified as security deposits
on the consolidated balance sheets. As at year end 2022, Loblaw had agreements to cash collateralize certain uncommitted
credit facilities up to amounts of $93 million (2021 – $93 million), of which a nominal amount (2021 – nominal) was deposited
with major financial institutions and classified as security deposits on the consolidated balance sheets.
44 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
3.8
Contractual Obligations
The following table summarizes certain of the Company’s significant contractual obligations and other obligations as at year
end 2022:
SUMMARY OF CONTRACTUAL OBLIGATIONS
($ 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
2023
2024
2025
2026
2027
Thereafter
Total
$
2,802 $
2,786 $
2,301 $
1,341 $
1,536 $
9,197 $
19,963
543
49
850
157
50
782
—
54
716
561
900
180
707
137
554
—
49
565
40
523
—
47
—
174
467
1,930
157
16
47
16
700
423
5,310
1,122
2,716
Total contractual obligations
$
5,705 $
4,662 $
3,762 $
2,518 $
2,223 $
11,364 $
30,234
(i)
Includes short-term debt, bank indebtedness, demand deposits, and Loblaw’s certain other liabilities. 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 2022.
(iv)
(ii) Represents the contractual payments that Loblaw is committed to related to the Choice Properties’ dispositions.
(iii)
Includes agreements for the purchase of real property and capital commitments for construction, expansion and renovation of buildings.
These agreements may contain conditions that may or may not be satisfied. If the conditions are not satisfied, it is possible the Company will
no longer have the obligation to proceed with the underlying transactions.
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 relatively insignificant cost or liability to the
Company.
As at year end 2022, 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 2022 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. Each of the
years ended December 31, 2022 and December 31, 2021 contained 52 weeks. The 52-week reporting cycle is divided into four
quarters of 12 weeks each except for the third quarter, which is 16 weeks in duration. When a fiscal year contains 53 weeks, the
fourth quarter is 13 weeks in duration.
Unless otherwise indicated, all financial information represents the Company’s results from continuing operations.
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.
($ millions except where
otherwise indicated)
Revenue
Operating income
Adjusted EBITDA(1)
Depreciation and
amortization(i)
Net earnings from continuing
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2022
Total
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2021
Total
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks)
$ 12,407
$ 12,979
$ 17,520
$ 14,142
$ 57,048
$ 12,017
$ 12,637
$ 16,192
$ 12,902
$ 53,748
$
$
1,166
1,422
$
$
649
1,588
$
$
1,474
$
1,264
$ 4,553
$
828
$ 1,065
$
1,125
1,951
$ 1,590
$ 6,551
$ 1,300
$
1,462
$ 1,780
$
$
1,009
$ 4,027
1,453
$ 5,995
$
549
$
552
$
729
$
577
$ 2,407
$
525
$
541
$
704
$
537
$ 2,307
operations
$
615
$
874
$
1,185
$
135
$ 2,809
$
118
$
361
$
513
$
755
$
1,747
Net earnings (loss) attributable
to shareholders of the
Company from continuing
operations
Net earnings (loss) available to
common shareholders of
the Company
Continuing operations
Discontinued operations
Net earnings (loss) per
common share ($) - basic
Continuing operations
Discontinued operations
Net earnings (loss) per
common share ($) - diluted
Continuing operations
Discontinued operations
Adjusted diluted net earnings
per common share(1) from
continuing operations ($)
$
373
$
650
$
903
$
(104) $
1,822
$
(52) $
125
$
252
$
428
$
753
$
$
$
$
$
$
$
$
$
363
363
—
2.47
2.47
—
2.45
2.45
—
$
$
$
$
$
$
$
$
$
634
640
$
$
(6) $
889
889
—
4.35
4.39
$
$
(0.04) $
6.20
6.20
—
4.32
4.36
$
$
(0.04) $
6.14
6.14
—
$
$
$
$
$
$
$
$
$
(114) $
1,772
(114) $
1,778
—
$
(6)
(0.81) $
12.29
(0.81) $
12.33
—
$
(0.04)
(0.83) $
12.16
(0.83) $
12.20
—
$
(0.04)
$
$
$
$
$
$
$
$
$
(62) $
(62) $
108
115
$
$
124
238
$
$
217
418
$
$
387
709
—
$
(7) $
(114) $
(201) $
(322)
(0.41) $ 0.71
$ 0.83
(0.41) $ 0.75
$
1.59
$
$
1.48
$ 2.59
2.84
$
4.73
—
$
(0.04) $
(0.76) $
(1.36) $
(2.14)
(0.41) $ 0.70
$ 0.82
(0.41) $ 0.74
$
1.58
$
$
1.44
2.80
$
$
2.52
4.66
—
$
(0.04) $
(0.76) $
(1.36) $
(2.14)
$
1.90
$
2.23
$
3.12
$
2.59
$
9.81
$
1.60
$
1.80
$
2.43
$
2.32
$
8.14
(i)
Depreciation and amortization includes amortization of intangible assets acquired with Shoppers Drug Mart and Lifemark, recorded by
Loblaw.
REVENUE Over the last eight quarters, consolidated revenue was impacted by each of the Company’s reportable operating
segments as follows:
•
Loblaw’s revenue was impacted by various factors including the following:
COVID-19 pandemic related impacts;
seasonality, which was greatest in the fourth quarter and least in the first quarter;
the timing of holidays;
◦
◦
◦
◦ macro-economic conditions impacting food and drug retail prices; and
◦
changes in net retail square footage. Over the past eight quarters, net retail square footage has increased by
0.2 million square feet to 71.2 million square feet.
46 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
•
Choice Properties revenue was impacted by the following:
◦
◦
◦
◦
◦
◦
foregone revenue from dispositions;
increased capital recoveries;
higher rental rates on renewals in the retail and industrial portfolio;
contribution from acquisitions, and development transfers;
vacancies in select office assets; and
increase in lease surrender revenue.
NET EARNINGS (LOSS) AVAILABLE TO COMMON SHAREHOLDERS OF THE COMPANY FROM CONTINUING OPERATIONS AND
DILUTED NET EARNINGS (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS Net earnings (loss) available to
common shareholders of the Company from continuing operations and diluted net earnings (loss) per common share from
continuing operations 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 as described in Section 13.1, “Non-GAAP Financial
Measures - Selected Comparative Reconciliation”, of this MD&A.
The Company’s underlying operating performance for the last eight quarters included the following:
•
change in Loblaw’s underlying operating performance was driven by:
◦
◦
◦
◦
◦
COVID-19 pandemic related impacts;
seasonality, which was greatest in the fourth quarter and least in the first quarter;
the timing of holidays;
cost savings, operating efficiencies and benefits from strategic initiatives; and
the 2021 reversal of certain commodity taxes accrued.
•
•
•
change in Choice Properties’ underlying operating performance was driven by:
◦
◦
◦
distributions from the investment in real estate securities of Allied;
the change in revenue as described above; and
a decline in expected credit loss provisions.
the impact of asset impairments, net of recoveries and certain one-time gains related to Choice Properties’ transactions
recorded on consolidation in Other and Intersegment;
diluted net earnings (loss) per common share included the favourable impact of shares purchased for cancellation.
4.2
Fourth Quarter Results
Loblaw continued to deliver strong financial and operating results in the fourth quarter. Retail sales grew 9.7% reflecting strong
growth in both food and drug businesses. Drug retail sales growth was driven by continued strong demand for cough and cold
products and strength in high margin beauty and cosmetics categories. Food retail sales reflected Loblaw’s efforts to provide
value to its customers. Loblaw’s discount stores outperformed, benefiting from an increased consumer focus on price. Market
stores extended strong performance relative to peers with impactful promotional strategies. Gross margins were slightly lower
largely related to the no name® price freeze and increased commitment to promotional activity, partially offset by continued
strength in higher margin front-store sales in the drug business. Higher sales and leverage from focused cost control measures
drove earnings growth in the quarter.
Choice Properties delivered solid operating and financial results in the fourth quarter. Choice Properties’ performance was driven
by the strength of its grocery anchored and necessity-based retail portfolio, the realization of embedded rent growth in its well
located generic industrial portfolio and its growing mixed-use and residential platform. In addition to its strong results, Choice
Properties continued to focus on improving the quality of its portfolio and driving growth through development. In 2022, Choice
Properties completed over $1.2 billion of real estate transactions and made significant advances in its industrial and mixed-use
development pipelines. Subsequent to the end of the quarter, Choice Properties announced a distribution increase which
reflects the confidence it has in its portfolio to continue to deliver steady and growing cash flows, and its strong financial
position.
The following is a summary of selected consolidated unaudited financial information for the fourth quarter. The analysis of the
data contained in the table focuses on the results of operations and changes in the financial condition and cash flows in the
fourth quarter.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 47
Management’s Discussion and Analysis
Unless otherwise indicated, all financial information represents the Company’s results from continuing operations.
The Company’s results reflect the year-over-year impact of the fair value adjustment of Trust Unit liability.
($ millions except where otherwise indicated)
Dec. 31, 2022
Dec. 31, 2021
$ Change
% Change
Quarters Ended
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 (loss) earnings attributable to shareholders
of the Company from continuing operations
Net (loss) earnings available to common shareholders
of the Company
Continuing operations
Discontinued operations
Adjusted net earnings available to common
shareholders of the Company(1) from continuing
operations
Diluted net (loss) earnings per common share ($)
Continuing operations
Discontinued operations
Adjusted diluted net earnings per
common share(1) from continuing operations ($)
Dividends declared per share ($):
Common shares
Preferred shares – Series I
Preferred shares – Series III
Preferred shares – Series IV
Preferred shares – Series V
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
14,142
1,264
1,590
11.2%
577
916
254
213
235
$
$
$
$
$
$
$
$
12,902
1,009
1,453
11.3%
537
190
253
64
204
$
$
$
$
$
$
$
$
26.9%
26.2%
1,240
255
137
40
726
1
149
31
9.6%
25.3%
9.4%
7.4%
382.1%
0.4%
232.8%
15.2%
(104)
$
428
$
(532)
(124.3) %
(114)
(114)
—
369
(0.83)
(0.83)
—
2.59
0.660
0.3625
0.3250
0.3250
$
$
$
$
$
$
$
$
$
$
$
$
$
217
418
$
$
(201) $
347
1.44
2.80
$
$
$
(1.36) $
(331)
(532)
201
22
(2.27)
(3.63)
1.36
(152.5) %
(127.3) %
100.0%
6.3%
(157.6) %
(129.6) %
100.0%
2.32
$
0.27
11.6%
0.600
0.3625
0.3250
0.3250
0.296875
$ 0.296875
(i)
Depreciation and amortization includes $115 million (2021 – $117 million) of amortization of intangible assets, acquired with Shoppers Drug
Mart and Lifemark, recorded by Loblaw.
48 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
•
•
•
◦
partially offset by,
◦
NET (LOSS) EARNINGS AVAILABLE TO COMMON SHAREHOLDERS OF THE COMPANY FROM CONTINUING OPERATIONS
In the fourth quarter of 2022, the Company recorded net loss available to common shareholders of the Company from
continuing operations of $114 million ($0.83 per common share), a decrease of $532 million ($3.63 per common share)
compared to the same period in 2021. The decrease was due to the unfavourable year-over-year net impact of adjusting items
totaling $554 million ($3.90 per common share), partially offset by an improvement of $22 million ($0.27 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 $554 million ($3.90 per common share) was
primarily due to:
◦
◦
◦
the unfavourable year-over-year impact of the fair value adjustment of the Trust Unit liability of $540 million ($3.86
per common share) as a result of the increase in Choice Properties’ unit price in the fourth quarter of 2022;
the unfavourable impact of the prior year recovery related to a favourable Court ruling regarding a Glenhuron
matter at Loblaw of $165 million ($1.12 per common share); and
the unfavourable impact of the fair value adjustment on Choice Properties’ investment in real estate securities of
Allied of $18 million ($0.13 per common share) as a result of a decrease in Allied’s Class B Unit price in the fourth
quarter of 2022;
partially offset by,
◦
the favourable year-over-year impact of the fair value adjustment on investment properties of $153 million ($1.12
per common share) driven by Choice Properties, net of consolidation adjustments in Other and Intersegment; and
the favourable year-over-year impact from the gains on the sale of non-operating properties at Loblaw of
$17 million ($0.12 per common share).
◦
The improvement in the Company’s consolidated underlying operating performance of $22 million ($0.27 per common
share) was primarily due to:
the favourable underlying operating performance of Loblaw;
the unfavourable year-over-year impact of Other and Intersegment, primarily driven by the year-over-year impact
of asset impairments, net of recoveries recorded on consolidation of $18 million, net of tax.
Diluted net loss per common share from continuing operations also included the favourable impact of shares purchased for
cancellation over the last 12 months ($0.11 per common share) pursuant to the Company’s NCIB.
Adjusted net earnings available to common shareholders of the Company(1) from continuing operations in the fourth quarter of
2022 were $369 million, an increase of $22 million, or 6.3%, compared to the same period in 2021 due to the improvement in
the Company’s consolidated underlying operating performance described above.
Adjusted diluted net earnings per common share(1) from continuing operations were $2.59 per common share in the fourth
quarter of 2022, an increase of $0.27 per common share, or 11.6%, compared to the same period in 2021. The increase was due
to the favourable performance in adjusted net earnings available to common shareholders(1) from continuing operations and the
favourable impact of share repurchases.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 49
Management’s Discussion and Analysis
REVENUE
($ millions except where otherwise indicated)
Dec. 31, 2022
Dec. 31, 2021
$ Change
% Change
Quarters Ended
Loblaw
Choice Properties
Other and Intersegment(i)
Consolidated
$
$
$
$
14,007
315
(180)
14,142
$
$
$
$
12,757 $
325 $
(180)
1,250
(10)
9.8%
(3.1) %
12,902 $
1,240
9.6%
(i) Other and Intersegment includes intercompany eliminations.
Revenue in the fourth quarter of 2022 was $14,142 million, an increase of $1,240 million, or 9.6%, compared to the same period
in 2021. The increase in revenue in the fourth quarter of 2022 was impacted by each of its reportable operating segments as
follows:
•
•
Positively by 9.7% due to revenue growth of 9.8% at Loblaw, primarily driven by an increase in retail sales of $1,208 million,
or 9.7%, and an improvement in financial services revenue of $57 million. The increase in retail sales was due to positive
same-store sales growth and Lifemark revenues of $110 million.
Negatively by 0.1% due to a decline in revenue of 3.1% at Choice Properties. The decrease of $10 million was mainly due to
foregone revenue following the Office Asset Sale, partially offset by an increase in rental revenues from the retail and
industrial portfolios driven by improved occupancy and higher rental rates, and higher recoveries.
OPERATING INCOME
($ millions except where otherwise indicated)
Dec. 31, 2022
Dec. 31, 2021
$ Change
% Change
Quarters Ended
Loblaw
Choice Properties
Other and Intersegment
Consolidated
$
$
$
$
869
404
(9)
1,264
$
$
$
$
703 $
336 $
(30)
166
68
23.6%
20.2%
1,009 $
255
25.3%
Operating income in the fourth quarter of 2022 was $1,264 million compared to $1,009 million in the same period in 2021, an
increase of $255 million, or 25.3%. The increase was mainly attributable to the favourable year-over-year net impact of adjusting
items totaling $160 million and the improvement in underlying operating performance of $95 million described below:
•
the favourable year-over-year net impact of adjusting items totaling $160 million was primarily due to:
◦
the favourable year-over-year impact of the fair value adjustment of investment properties of $139 million driven
by Choice Properties, net of consolidation adjustments in Other and Intersegment; and
the favourable year-over-year impact from the gains on the sale of non-operating properties of $48 million;
the unfavourable impact of the fair value adjustment on Choice Properties’ investment in real estate securities of
Allied of $20 million.
•
the improvement in underlying operating performance of $95 million was due to:
the favourable underlying operating performance of Loblaw due to the improvement in retail;
an increase in depreciation and amortization at Loblaw;
the unfavourable underlying operating performance of Choice Properties; and
the unfavourable year-over-year impact of Other and Intersegment, primarily due to the year-over-year impact of
asset impairments, net of recoveries recorded on consolidation of $25 million.
◦
partially offset by,
◦
◦
partially offset by,
◦
◦
◦
50 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
ADJUSTED EBITDA(1)
($ millions except where otherwise indicated)
Dec. 31, 2022
Dec. 31, 2021
$ Change
% Change
Quarters Ended
Loblaw
Choice Properties
Other and Intersegment
Consolidated
$
$
$
$
1,491
223
(124)
1,590
$
$
$
$
1,322 $
229 $
(98)
169
(6)
12.8%
(2.6) %
1,453 $
137
9.4%
Adjusted EBITDA(1) in the fourth quarter of 2022 was $1,590 million compared to $1,453 million in the same period in 2021, an
increase of $137 million, or 9.4%. The increase was impacted by each of the Company’s reportable operating segments as
follows:
•
•
Positively by 11.6% due to an increase of 12.8% in adjusted EBITDA(1) at Loblaw, primarily driven by improvements in Loblaw
retail, partially offset by a decline in Loblaw financial services. The improvements in Loblaw retail were driven by an increase
in retail gross profit, partially offset by an unfavourable increase in retail SG&A.
Negatively by 0.4% due to a decrease of 2.6% in adjusted EBITDA(1) at Choice Properties, primarily driven by the decline in
revenue described above and higher general and administrative expenses, partially offset by distribution income from the
investment in real estate securities of Allied.
DEPRECIATION AND AMORTIZATION
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2022
Dec. 31, 2021
$ Change
% Change
Loblaw
Choice Properties
Other and Intersegment
Consolidated
$
$
$
$
667
1
(91)
577
$
$
$
$
623 $
— $
(86)
537 $
44
1
40
7.1%
100.0%
7.4%
Depreciation and amortization in the fourth quarter of 2022 was $577 million, an increase of $40 million compared to the same
period in 2021. Depreciation and amortization in the fourth quarter included $115 million (2021 – $117 million) of amortization
of intangible assets related to the acquisition of Shoppers Drug Mart and Lifemark, recorded by Loblaw. Excluding these
amounts, depreciation and amortization increased by $42 million primarily driven by an increase in depreciation of IT and leased
assets at Loblaw.
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2022
Dec. 31, 2021
$ Change
% Change
Net interest expense and other financing charges
$
916
$
190 $
726
382.1%
(Deduct) add impact of the following:
Fair value adjustment of the Trust Unit liability
Recovery related to Glenhuron
Fair value adjustment of the forward sale agreement
for Loblaw common shares
Adjusted net interest expense and other
financing charges(1)
(662)
—
—
(122)
189
(4)
$
254
$
253 $
(540)
(189)
(442.6) %
(100.0) %
4
1
100.0%
0.4%
Net interest expense and other financing charges in the fourth quarter of 2022 were $916 million, an increase of $726 million
compared to the same period in 2021. The increase was primarily due to the unfavourable year-over-year impact of adjusting
items totaling $725 million. Included in the adjusting items was the unfavourable year-over-year fair value adjustment of the
Trust Unit liability of $540 million, as a result of the increase in Choice Properties’ unit price during the fourth quarter of 2022
and the unfavourable year-over-year recovery of interest expense related to Glenhuron of $189 million.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 51
Management’s Discussion and Analysis
In the fourth quarter of 2022, adjusted net interest expense and other financing charges(1) increased by $1 million primarily
driven by:
•
an increase in interest expense at Loblaw and Choice Properties mainly due to higher interest rates and an increase in long-
term debt;
partially offset by,
•
an increase in interest income on certain short-term investments due to higher interest rates, and on mortgages and loans
receivable at Choice Properties’ due to a higher outstanding balance; and
a reduction in interest expense from post-employment and other employee benefits.
•
INCOME TAXES
Quarters Ended
($ millions except where otherwise indicated)
Dec. 31, 2022
Dec. 31, 2021
$ Change
% Change
Income taxes
Add (deduct) impact of the following:
$
213
$
64
$
149
232.8%
Tax impact of items excluded from adjusted earnings
before taxes(i)
Recovery related to Glenhuron
Outside basis difference in certain Loblaw shares
25
—
(3)
11
128
1
Adjusted income taxes(1)
$
235
$
204
$
Effective tax rate applicable to earnings before taxes
61.2%
7.8%
Adjusted effective tax rate applicable to adjusted
earnings before taxes(1)
26.9%
26.2%
14
(128)
(4)
31
127.3%
(100.0) %
(400.0) %
15.2%
(i)
See the adjusted EBITDA(1) table and the adjusted net interest expense and other financing charges(1) table included in Section 13, “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 2022 was 61.2%, compared to 7.8% in the same period in 2021. The increase was
primarily attributable to the year-over-year impact of the non-taxable fair value adjustment of the Trust Unit liability, the recovery
of income taxes related to Glenhuron in 2021 and the impact of the non-deductible interest related to Glenhuron in 2021.
The adjusted effective tax rate(1) for the fourth quarter of 2022 was 26.9%, compared to 26.2% in the same period in 2021. The
increase was primarily attributable to the impact of certain non-deductible items.
Between 2015 and 2019, Loblaw was 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. In the fourth quarter of 2021, the Supreme Court ruled in favour of Loblaw
on the Glenhuron matter and Loblaw reversed $301 million of previously recorded charges, of which $173 million was recorded
as interest income and $128 million was recorded as income tax recovery, and an additional $16 million, before taxes, was also
recorded in respect of interest income earned on expected cash tax refunds.
CASH FLOWS The following Cash Flow components are inclusive of continuing and discontinued operations.
($ millions)
Cash and cash equivalents, beginning of period
Cash flows from operating activities
Cash flows (used in) from 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, 2022
Dec. 31, 2021(i)
Change
$
$
$
$
$
$
2,078
1,268
(444)
(592)
3
2,313
$
$
$
$
$
$
2,013 $
1,146 $
65
122
696 $
(1,140)
(872) $
280
1 $
2,984 $
2
(671)
(i)
Certain comparative figures have been restated to conform with current year presentation.
52 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities were $1,268 million in the fourth quarter of
2022, an increase of $122 million compared to the fourth quarter of 2021. The increase in cash flows from operating activities
was primarily due to higher cash earnings and lower income taxes paid, partially offset by an unfavourable change in non-cash
working capital.
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES Cash flows used in investing activities were $444 million in the fourth
quarter of 2022 compared to cash flows from investing activities of $696 million in the fourth quarter of 2021. The change of
$1,140 million in cash flows used in investing activities was primarily due to the net consideration from the disposal of the
Weston Foods business received in the prior year and higher capital investments in the current year, partially offset by the release
of $250 million in security deposits to repay Eagle notes maturing in the fourth quarter of 2022 and a decrease in short-term
investments.
The following table summarizes the Company’s capital investments by each of its reportable operating segments for the
quarters ended as indicated:
($ millions)
Loblaw
Choice Properties
Capital Investments from continuing operations
Quarters Ended
Dec. 31, 2022
Dec. 31, 2021
$
$
$
651
149
800
$
392
95
487
CASH FLOWS USED IN FINANCING ACTIVITIES Cash flows used in financing activities were $592 million in the fourth quarter of
2022, a decrease of $280 million compared to the fourth quarter of 2021. The decrease in cash flows used in financing activities
was primarily driven by the settlement of net debt associated with the equity forward sale agreement in the prior year, lower
repayment of bank indebtedness and higher net issuances of long-term debt, partially offset by higher repurchases of the
Company’s common shares under its NCIB.
FREE CASH FLOW(1)
($ millions)
Cash flows from operating activities
Less: Cash flows from operating activities from discontinued
operations
Cash flows from operating activities from continuing operations
Less:
Interest paid
Capital Investments
Lease payments, net
Free cash flow(1) from continuing operations
$
$
$
Quarters Ended
Dec. 31, 2022
Dec. 31, 2021(i)
Change
1,268
$
1,146 $
122
—
12
1,268
$
1,134 $
195
800
139
134
173
487
202
$
272 $
(12)
134
22
313
(63)
(138)
(i)
Certain comparative figures have been restated to conform with current year presentation.
Free cash flow(1) from continuing operations in the fourth quarter of 2022 was $134 million, a decrease of $138 million
compared to the fourth quarter of 2021. The decrease in free cash flow(1) is primarily due to an increase in capital investments
and an unfavourable change in non-cash working capital, partially offset by higher cash earnings and lower net lease
payments.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 53
Management’s Discussion and Analysis
5.
Fourth Quarter Results of Reportable Operating Segments
The following discussion provides details of the 2022 fourth quarter results of operations of each of the Company’s reportable
operating segments.
5.1
Loblaw Fourth Quarter Operating Results
($ millions except where otherwise indicated)
Dec. 31, 2022
Dec. 31, 2021
$ Change
% Change
Quarters Ended
Revenue
Operating income
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Depreciation and amortization(i)
$
$
$
$
14,007
869
1,491
10.6%
667
$
$
$
$
$
$
$
12,757
703
1,322
10.4%
1,250
166
169
9.8%
23.6%
12.8%
623
$
44
7.1%
(i) Depreciation and amortization includes $115 million (2021 – $117 million) of amortization of intangible assets acquired with Shoppers
Drug Mart and Lifemark.
REVENUE Loblaw revenue in the fourth quarter of 2022 was $14,007 million, an increase of $1,250 million, or 9.8%, compared
to the same period in 2021, driven by an increase in retail sales and an improvement in financial services revenue.
Retail sales in the fourth quarter of 2022 were $13,694 million, an increase of $1,208 million, or 9.7%, compared to the same
period in 2021. The increase was primarily driven by the following factors:
•
•
food retail sales were $9,514 million (2021 – $8,742 million) and food retail same-store sales grew by 8.4% (2021 – 1.1%) for
the quarter;
◦
the CPI as measured by The Consumer Price Index for Food Purchased from Stores was 11.2% (2021 – 4.8%) which
was generally in line with Loblaw’s internal food inflation; and
food retail traffic increased and basket size decreased slightly.
◦
drug retail sales were $4,180 million (2021 – $3,744 million) and drug retail same-store sales grew by 8.7% (2021 – 7.9%) for
the quarter;
◦
◦
◦
pharmacy and healthcare services same-store sales growth was 5.4% (2021 – 10.2%), benefiting from an increase in
prescription volumes from the economic re-opening. The number of prescriptions dispensed increased by 2.0%
(2021 – decreased by 0.5%). On a same-store basis, the number of prescriptions dispensed increased by 2.2%
(2021 – 8.8%) and the average prescription value increased by 2.3% (2021 – 1.1%);
pharmacy and healthcare services sales included Lifemark revenues of $110 million. Lifemark revenues are
excluded from same-store sales; and
front store same-store sales increased by 11.5% (2021 – 6.1%), benefiting from the economic re-opening and
higher consumer spending.
Financial services revenue in the fourth quarter of 2022 increased by $57 million compared to the same period in 2021. The
increase was primarily driven by higher interest income from growth in credit card receivables and higher interchange income
and credit card related fees from an increase in customer spending.
OPERATING INCOME Loblaw operating income in the fourth quarter of 2022 was $869 million, an increase of $166 million, or
23.6%, compared to the same period in 2021. The increase included improvements in the underlying operating performance of
$123 million and the favourable year-over-year net impact of adjusting items totaling $43 million, as described below:
•
•
the improvements in underlying operating performance of $123 million was primarily due to an increase in retail gross
profit, partially offset by an increase in retail SG&A and depreciation and amortization;
the favourable year-over-year net impact of adjusting items totaling $43 million was primarily due to:
the favourable impact of the net gain on sale of non-operating properties of $50 million;
◦
partially offset by,
◦
the unfavourable impact of prior year restructuring and other related recoveries of $8 million.
54 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
ADJUSTED EBITDA(1) Loblaw adjusted EBITDA(1) in the fourth quarter of 2022 was $1,491 million, an increase of $169 million, or
12.8%, compared to the same period in 2021. The increase was primarily due to an increase in retail of $174 million, partially
offset by a decrease in financial services of $5 million.
Retail adjusted EBITDA(1) in the fourth quarter of 2022 increased by $174 million driven by an increase in retail gross profit of
$329 million, partially offset by an unfavourable increase in retail SG&A of $155 million.
•
•
Retail gross profit percentage of 30.6% decreased by 30 basis points (2021 – increased by 150 basis points) compared to the
same period in 2021, primarily driven by a decrease in food retail margin, partially offset by growth in higher margin drug
retail front store categories.
Retail SG&A as a percentage of sales was 20.2%, a favourable decrease of 70 basis points compared to the same period in
2021. The favourable decrease was primarily due to operating leverage from higher sales.
Financial services adjusted EBITDA(1) decreased by $5 million compared to the same period in 2021, primarily driven by higher
loyalty program costs, operating costs and contractual charge-off from an increase in consumer spending and the prior year
reversal of certain commodity tax accrued in the amount of $27 million, partially offset by higher revenue as described above.
DEPRECIATION AND AMORTIZATION Loblaw depreciation and amortization in the fourth quarter of 2022 was $667 million, an
increase of $44 million compared to the same period in 2021. The increase in depreciation and amortization in the fourth
quarter of 2022 was primarily driven by an increase in IT and leased assets, and accelerated depreciation of $10 million (2021 –
nil) due to the reassessment of the estimated useful life of certain IT assets. Depreciation and amortization in the fourth quarter
of 2022 included the amortization of intangible assets related to the acquisitions of Shoppers Drug Mart and Lifemark of
$115 million (2021 – $117 million).
CONSOLIDATION OF FRANCHISES Loblaw’s net loss attributable to non-controlling interests was $14 million in the fourth
quarter of 2022, a decrease of $14 million, or 50.0% when compared to net loss attributable to non-controlling interests of
$28 million in the same period in 2021. The change in non-controlling interests were primarily driven by the normalizing of
franchisee earnings after profit sharing.
LOBLAW OTHER BUSINESS MATTERS
For details see Section 2.1, “Loblaw Operating Results”, of this MD&A.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 55
Management’s Discussion and Analysis
5.2
Choice Properties Fourth Quarter Operating Results
($ millions except where otherwise indicated)
Dec. 31, 2022
Dec. 31, 2021
$ Change
% Change
Revenue
Net interest expense and other financing charges(i)
Net (loss) income
Funds from Operations(1)
$
$
$
$
315
983
(579)
174
$
$
$
$
325 $
499 $
(162) $
175 $
(10)
484
(417)
(1)
(3.1) %
97.0%
(257.4) %
(0.6) %
Quarters Ended
(i) Net interest expense and other financing charges includes a fair value adjustment on Exchangeable Units.
REVENUE Revenue in the fourth quarter of 2022 was $315 million, a decrease of $10 million, or 3.1%, compared to the same
period in 2021. Revenue included $181 million (2021 – $183 million) generated from tenants within Loblaw. The decrease in
revenue was primarily driven by:
foregone revenue following the Office Asset Sale;
•
partially offset by,
•
an increase in rental revenues from the retail and industrial portfolios driven by improved occupancy and higher rental
rates; and
higher recoveries.
•
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES Net interest expense and other financing charges in the fourth
quarter of 2022 were $983 million compared to $499 million in the same period in 2021. The increase of $484 million was
primarily driven by the unfavourable year-over-year impact of the fair value adjustment on the Class B LP units (“Exchangeable
Units”) of $487 million as a result of the increase in the unit price.
NET LOSS Net loss in the fourth quarter of 2022 was $579 million, compared to net loss of $162 million in the same period in
2021. The change of $417 million was primarily driven by:
•
•
higher net interest expense and other financing charges as described above; and
the unfavourable change in the adjustment to fair value of investment in real estate securities as a result of the decrease in
Allied’s unit price;
partially offset by,
•
the favourable change in the adjustment to fair value of investment properties, including those held within equity
accounted joint ventures, primarily driven by leasing and cash flow growth in the industrial portfolio.
FUNDS FROM OPERATIONS(1) Funds from Operations(1) in the fourth quarter of 2022 declined slightly by $1 million to
$174 million compared to the same period in 2021. Increases in rental revenue from the retail and industrial portfolios were
largely offset by an increase in interest expense, higher general and administrative expenses and the impact of the Office Asset
Sale. The impact of the Office Asset Sale includes foregone rental income, partially offset by the distributions from Choice
Properties’ investment in real estate securities of Allied and interest income from the consideration received in exchange for
assets sold. In addition, a non-recurring gain recognized in the prior year due to the reversal of an expected credit loss related to
a specific mortgage receivable contributed to the decline in Funds from Operations(1).
CHOICE PROPERTIES OTHER BUSINESS MATTERS
For details see Section 2.2, “Choice Properties Operating Results”, of this MD&A.
56 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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, 2022.
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, 2022.
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 2022 that materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 57
Management’s Discussion and Analysis
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
have on the Company’s ability to execute on its strategies and achieve its objectives.
(ii) Any of the key risks have the potential to negatively affect the Company and its financial performance. The Company has risk management
strategies in place for key risks. However, there can be no assurance that the risks will be mitigated or will not materialize or that events or
circumstances will not occur that could adversely affect the reputation, operations or financial condition or performance of the Company.
58 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
8.1
Operating Risks and Risk Management
OPERATING RISKS The following discussion of risks identifies significant factors that could have a material adverse effect on the
Company’s business, operations, financial condition or future financial performance. The COVID-19 pandemic may continue to
affect the operations and financial performance of the Company and its operating segments, including as a result of uncertain
economic conditions, volatile debt and equity markets, and impacts to its workforce, supply chain, and distribution channels
that affect the products and services it is able to offer and/or its ability to engage in cross-border commerce.
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, 2022, which is hereby incorporated by reference:
Economic Conditions
Legal Proceedings
Colleague Attraction, Development and Succession Planning
Competitive Environment and Strategy
Cybersecurity, Privacy and Data Breaches
Electronic Commerce and Disruptive Technologies
Distribution and Supply Chain
Healthcare Reform
Regulatory Compliance
Property Development and Construction
Property Valuation
Capitalization Rate Risk
Business Continuity
Food, Drug, Product and Services Safety
Environmental and Social
Labour Relations
Change Management, Process and Efficiency
IT Systems Implementations and
Data Management
Inventory Management
Service Providers
Franchisee Relationships
Associate-owned Drug Store Network and Relationships
with Associates
Tenant Concentration
Execution of Strategic Initiatives
ECONOMIC CONDITIONS The Company’s revenue and profitability are impacted by general economic conditions. These
economic conditions include inflation, levels of employment, costs of borrowing, household debt, political uncertainty and
government regulation, the impact of natural disasters, war or acts of terrorism, pandemics, changes in interest rates, tax rates, or
exchange rates and access to consumer credit. A number of these conditions could negatively impact consumer spending. As a
result, these economic conditions may adversely impact demand for the Company’s products and services which could
adversely affect the Company’s operations or financial performance.
COLLEAGUE ATTRACTION, DEVELOPMENT AND SUCCESSION PLANNING The Company’s operations and continued growth
are dependent on its ability to hire, retain and develop colleagues, including leaders. Any failure to effectively attract and retain
colleagues and leaders, including those with scarce and/or specialized skills, and to establish adequate leadership succession
planning, could result in a lack of requisite knowledge, skill and experience. This could erode the Company’s competitive
position or result in increased costs due to the competition for, or high turn-over of, colleagues. Any of the foregoing could
negatively affect the Company’s ability to operate its business, which in turn, could adversely affect the Company’s reputation,
operations or financial performance.
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 (“Confidential Information”), including payment card industry data and personal health and financial 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.
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Management’s Discussion and Analysis
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 its 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, patient, 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.
DISTRIBUTION AND SUPPLY CHAIN Loblaw’s ability to satisfy its customers’ demands and achieve its cost objectives depends
on its ability to maintain key logistic and transport arrangements. Loblaw’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 transportation 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 the store and
digital retail level. If not effectively managed or remedied, these events could negatively impact customer experience and
Loblaw’s ability to attract and retain customers, and could adversely affect the Company’s operations or 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.
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
60 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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.
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.
Loblaw is subject to 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 target 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.
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 rising construction costs and development charges and shortages of experienced labour in certain
construction related trades, 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
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 61
Management’s Discussion and Analysis
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 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.
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.
BUSINESS CONTINUITY The Company’s ability to continue critical operations and processes could be negatively impacted by
adverse events resulting from various incidents, including severe weather, work stoppages, prolonged IT systems failure, terrorist
activity, power failures, border closures or a pandemic or other national or international catastrophe. The Company has business
continuity plans in place to manage any such events. Despite this, ineffective contingency planning, business interruptions, crises
or potential disasters could adversely affect the reputation, operations or financial performance of the Company.
FOOD, DRUG, PRODUCT AND SERVICES SAFETY Loblaw’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. Loblaw cannot be certain 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. Loblaw 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 could
affect Loblaw’s ability to be effective in a recall situation. Loblaw is also subject to risk associated with the distribution of drug
products, errors related to medication dispensing or compounding, injections, patient services or consultation. The occurrence of
such events or incidents, as well as any failure to maintain the cleanliness and health standards at Loblaw’s store level, could
result in harm to customers and negative publicity, could adversely affect the Company’s brands, reputation, operations or
financial performance and could lead to unforeseen liabilities from legal claims or otherwise.
ENVIRONMENTAL AND SOCIAL The Company and its operating segments are committed to creating positive environmental
and social change by focusing on issues that matter most to the Company’s customers, employees, communities and other
stakeholders, with a particular focus on combatting climate change and advancing social equity. Any failure or perceived failure
to advance the environmental or social priorities of the Company or its stakeholders may negatively affect the Company’s
reputation, operations or financial performance.
Environmental
The Company and its operating segments face environmental risks that could, directly or indirectly, negatively impact the
Company’s reputation, operations or performance over the short or long-term.
62 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
In particular, the Company and its operating segments are confronted with issues relating to climate change. The Company has
the opportunity to make a significant positive impact on the environment. To address this opportunity, the Company and its
operating segments are focused on several strategic initiatives, including reducing emissions, food and plastic waste. Federal
and provincial governments are also striving to combat climate change, including through the consideration and/or
implementation of carbon reduction targets and financial mechanisms to reduce carbon emissions, such as carbon taxes,
carbon pricing and caps and trade. In addition to its own initiatives, the Company and its operating segments may be required
to make operational changes and/or incur significant financial costs to comply with the various governmental reforms, which
may differ across jurisdictions. Additionally, certain global climate change patterns (e.g. rising sea levels, changing rain fall) may
impact sourcing of food and food ingredients. Any failure to meet its strategic objectives, adhere to climate change reforms or to
adapt to the impacts of climate change, such as failure to reduce emissions, eliminate food and plastic waste or mitigate
sourcing and supply chain disruptions, could result in fines or could adversely affect the Company’s reputation, operations or
financial performance.
The Company and its operating segments maintain a portfolio of real estate and other facilities and are subject to environmental
risks associated with the contamination of such properties and facilities, whether by previous owners or occupants,
neighbouring properties or by the Company itself. In particular, Loblaw has a number of underground fuel storage tanks, the
majority of which are used for its supply chain transport fleets. Contamination resulting from leaks from these tanks is possible.
Additional environmental issues relating to matters or sites may require the Company to incur significant additional costs.
Loblaw also operates refrigeration equipment in its stores and distribution centres to preserve perishable products as they pass
through the supply chain and ultimately to consumers. These systems contain refrigerant gases which could be released if
equipment fails or leaks. A release of these gases could have adverse effects on the environment. Failure to properly manage any
of these environmental risks could adversely affect the reputation, operations or financial performance of the Company.
Loblaw is subject to legislation that imposes liabilities on retailers, brand owners and importers for costs associated with
recycling and disposal of consumer goods packaging and printed materials distributed to consumers. There is a risk that the
Company will be subject to increased costs associated with these laws. In addition, the Company could be subject to increased
or unexpected costs associated with environmental incidents and the related remediation activities, including litigation and
regulatory related costs, all of which could adversely affect the reputation or financial performance of the Company.
Social
The Company and its operating segments face risks associated with social issues and have established certain priorities in
response, including achieving adequate representation of traditionally under-represented groups in management positions and
the colleague population as a whole, building a culture of inclusion and investing in communities, particularly by supporting
women’s and children’s health. In the event that the Company is not perceived to have robust diversity and inclusion programs,
its ability to attract, develop and retain colleagues could be compromised. The Company recognizes its responsibility to respect
and protect the human rights of all people who support and intersect with the business, and is committed to not tolerating
abuse, discrimination or harassment in any form. Ineffective action or inaction in response to social matters, including a failure or
perceived failure to adequately address its priorities, could adversely affect the Company’s reputation or financial performance.
LABOUR RELATIONS Loblaw’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 and changes to business operations 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 Loblaw and the
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.
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, patients, Associates, franchisees, regulators, tax authorities or
other persons. The potential outcome of legal proceedings and claims is uncertain.
Shoppers Drug Mart was previously 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. The class action comprises all of
Shoppers Drug Mart’s current and former licensed Associates residing in Canada, other than in Québec, who were 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. A summary judgment trial of the matter was held in December 2022 and on
February 17, 2023, the Superior Court released its decision in relation to those summary judgment motions (the “Decision”).
The Superior Court dismissed the plaintiffs’ claims on the majority of the issues including a request for damages at this stage
of proceedings. The Court also held that Shoppers Drug Mart breached the 2002 form of Associate Agreement when it did
not remit certain amounts that it received from generic drug manufacturers to Associates. Loblaw is still assessing the
Decision and has not yet determined whether it plans to appeal any aspect of it. Accordingly, Loblaw has not recorded any
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 63
Management’s Discussion and Analysis
amounts related to the potential liability associated with this lawsuit. Loblaw does not believe that the ultimate resolution of
this matter will have a material adverse impact on its financial condition or prospects.
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. 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 and Loblaw’s cash balances far exceed
any realistic damages scenario and therefore the Company and Loblaw do not anticipate any impacts on the Company’s or
Loblaw’s dividend, dividend policy or share buyback plan. The Company and Loblaw have not recorded any amounts related to
the potential civil liability associated with the class action lawsuits in 2022 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 unquantified damages for the
expenses incurred by the federal government, provinces, and territories of Canada in paying for opioid prescriptions and other
healthcare costs related to opioid addiction and abuse in Canada. During the second quarter of 2021, the claim against Loblaw
Companies Limited was discontinued. 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 2022, the plaintiff and Sanis Health Inc.
agreed to settle the Quebec action for a nominal amount, with no admission of liability and for the express purpose of avoiding
the delays, disruption, and expenses associated with the litigation. The settlement has been approved by the court and is now
final. In December 2019, 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 December 2019 claims seek recovery of damages on behalf of opioid users directly.
In April 2021, Loblaw, Shoppers Drug Mart Inc., and Sanis Health Inc. were served with another opioid-related class action that
was started in Alberta against multiple defendants. The claim seeks damages on behalf of municipalities and local governments
in relation to public safety, social service, and criminal justice costs allegedly incurred due to the opioid crisis. In September
2021, Loblaw, Shoppers Drug Mart Inc. and Sanis Health Inc. were served with a class action started in Saskatchewan by Peter
Ballantyne Cree Nation and Lac La Ronge Indian Band on behalf of all Indigenous, Metis, First Nation and Inuit communities and
governments in Canada to recover costs they have incurred as a result of the opioid crisis, including healthcare costs, policing
costs and societal costs. 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.
Between 2015 and 2019, Loblaw was 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. In the fourth quarter of 2021, the Supreme Court ruled in favour of Loblaw
on the Glenhuron matter and Loblaw reversed $301 million of previously recorded charges, of which $173 million was recorded
as interest income and $128 million was recorded as income tax recovery, and an additional $16 million, before taxes, was also
recorded in respect of interest income earned on expected cash tax refunds. As a result of related reassessments received during
the first quarter of 2022, Loblaw reversed another $35 million of previously recorded charges, of which $2 million was recorded
as interest income and $33 million was recorded as an income tax recovery, and an additional $9 million, before taxes, was
recorded in respect of interest income earned on expected cash tax refunds.
In July 2022, the Tax Court released a decision relating to PC Bank, a subsidiary of Loblaw. The Tax Court ruled that PC Bank is
not entitled to claim notional input tax credits for certain payments it made to Loblaws Inc. in respect of redemptions of loyalty
points. On September 29, 2022, PC Bank filed a Notice of Appeal with the Federal Court of Appeal. Although Loblaw believes in
the merits of its position, Loblaw recorded a charge of $111 million, inclusive of interest, in the second quarter of 2022. Loblaw
believes that this provision is sufficient to cover its liability, if the appeal is ultimately unsuccessful.
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 offer a selection of food, drug and general
64 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
merchandise, while 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 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.
Failure by Loblaw or Choice Properties to sustain their competitive position could adversely affect the Company’s financial
performance.
ELECTRONIC COMMERCE AND DISRUPTIVE TECHNOLOGIES Loblaw’s e-commerce strategy is a growing business initiative.
Customers expect innovative concepts and a positive customer experience, including a user-friendly website, 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 and related processes do not function effectively, or if Loblaw is unable to identify
and adapt to technological efficiencies, such as artificial/cognitive intelligence or automation in a timely manner, 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.
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.
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, and distribution network infrastructures.
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.
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 the 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 make investments in new IT
systems to improve the operating effectiveness of the organization. Failure to successfully migrate from legacy systems to 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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 65
Management’s Discussion and Analysis
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 new IT systems could adversely affect the reputation, operations or financial
performance of the Company.
The Company also depends on relevant and reliable information to operate its business. As the volume of data being generated
and reported continues to increase across the Company, data accuracy, quality and governance are required for effective
decision making. Failure by the Company to leverage data, including customer data, in a timely manner may adversely affect the
Company’s ability to execute its strategy and therefore its financial performance. Moreover, lack of sensitive data classification,
protection and use case approval may result in operational or reputational risk.
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 implement 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.
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, including those related to ethical sourcing, 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.
Loblaw relies on service providers including transport carriers or other delivery service providers, logistic service providers and
operators of warehouses and distribution facilities. Ineffective selection, contractual terms or relationship management could
impact Loblaw’s ability to source products (both national brand and control brand 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 or customers, which in turn could adversely affect the operations or financial performance
of the Company.
PC Bank uses third party service providers to process credit card transactions, operate call centres and operationalize certain risk
management strategies for the President’s Choice Financial Mastercard 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.
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.
66 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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.
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.
EXECUTION OF STRATEGIC INITIATIVES The Company undertakes from time to time acquisitions and dispositions that meet its
strategic objectives. The Company holds cash and short-term investments and is continuing to evaluate strategic opportunities
for the use or deployment of these funds. The use or deployment of the funds and the execution of the Company’s capital plans
could pose a risk if they do not align with the Company’s strategic objectives or if the Company experiences integration
difficulties on the acquisition of any businesses. Execution of the strategic plan requires prudent operational planning,
availability and attention of key personnel, timely implementation and effective change management. In addition, the Company
may not be able to realize upon the synergies, business opportunities and growth prospects expected from any such investment
opportunities or from the execution of the Company’s strategies. Finally, any acquisition or divestiture activities may present
unanticipated costs and managerial and operational risks, including the diversion of management’s time and attention from
day-to-day activities. If the Company’s strategies are not effectively developed and executed, it could negatively affect the
reputation, operations or financial performance of the Company.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 67
Management’s Discussion and Analysis
8.2
Financial Risks and Risk Management
FINANCIAL RISKS The Company is exposed to a number of financial risks, including those associated with financial instruments,
which have the potential to affect its operating and financial performance. The Company uses OTC 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
Commodity Prices
Currency Exchange Rates
Credit
Trust Unit Prices
Interest Rates
Credit Ratings
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.
COMMODITY PRICES Loblaw is exposed to increases in the prices of commodities in operating its stores and distribution
networks, as well as to the indirect effect of changing commodity prices on the price of consumer products. Rising commodity
prices could adversely affect the financial performance of Loblaw. To manage a portion of this exposure, Loblaw uses purchase
commitments and derivative instruments in the form of exchange traded futures contracts and forward contracts to minimize
cost volatility related to commodities.
CURRENCY EXCHANGE RATES The Company is exposed to foreign currency exchange rate variability, primarily on its U.S. dollar
denominated purchases in trade payables and other liabilities. A depreciating Canadian dollar relative to the U.S. dollar will have
a negative impact on year-over-year changes in reported operating income and net earnings, while an appreciating Canadian
dollar relative to the U.S. dollar will have the opposite impact. To manage a portion of this exposure, the Company uses
derivative instruments in the form of futures contracts and forward contracts to minimize cost volatility related to foreign
exchange.
CREDIT The Company is exposed to credit risk resulting from the possibility that counterparties could default on their financial
obligations to the Company, including derivative instruments, cash and cash equivalents, short-term investments, security
deposits, PC Bank’s credit card receivables, Loblaw’s finance lease receivable, pension assets held in the Company’s defined
benefit plans, and Loblaw’s accounts receivable, including amounts due from government and third-party drug plans arising
from prescription drug sales, independent accounts and amounts owed from vendors. 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.
68 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Loblaw’s finance lease receivable and Loblaw’s accounts receivable including amounts due from government and third-party
drug plans arising from prescription drug sales, independent accounts and amounts owed from vendors and tenants, 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.
TRUST UNIT PRICES 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. An increase in interest rates could adversely affect the operations or
financial performance of the Company. 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 RATINGS 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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 69
Management’s Discussion and Analysis
9.
Related Party Transactions
Galen G. Weston beneficially owns or controls, directly and indirectly, through Wittington Investments, Limited (“Wittington”),
a total of 78,650,662 of GWL’s common shares, representing approximately 55.9% of GWL’s outstanding common shares
(2021 – 53.6%).
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 2022, 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 $39 million (2021 – $42 million). As at year end 2022, $6 million
(2021 – $1 million) was included in trade payables and other liabilities relating to these inventory purchases.
TRANSACTION BETWEEN LOBLAW AND CHOICE PROPERTIES In the second quarter of 2022, Loblaw announced that it
intends to build an industrial facility on part of a property in East Gwillimbury, Ontario owned by a joint venture in which Choice
Properties has an ownership interest. Loblaw expects to bring the industrial facility into its operations in the first quarter of 2024.
For the first phase of the development, Loblaw entered into a 25-year land lease with the joint venture. Loblaw took possession
of the land on October 1, 2022, and as a result recorded a right-of-use asset and lease liability of $120 million. The land lease
includes a 15-month construction period with lease payments commencing in 2024.
VENTURE FUNDS 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 I”). A wholly owned subsidiary of Wittington is the
general partner of Venture Fund I, which hired an external fund manager to oversee it. The purpose of Venture Fund I 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 Venture Fund I. The Company has a consolidated capital commitment of $66 million over a 10-
year period. To date, the Company has invested $45 million in the Venture Fund I, of which $14 million was invested in 2022
(2021 – $18 million) and recorded in Other Assets.
During the third quarter of 2022, Loblaw became a limited partner in another limited partnership formed by Wittington
(“Venture Fund II”). A wholly owned subsidiary of Wittington is also the general partner of Venture Fund II, and the general
purpose of Venture Fund II is consistent with Venture Fund I. Loblaw has a 50% interest in Venture Fund II and has a total capital
commitment of $60 million over a 10-year period. To date, Loblaw has invested nil in Venture Fund II.
POST-EMPLOYMENT BENEFIT PLANS The Company sponsors a number of post-employment plans, which are related parties.
Contributions made by the Company to these plans are disclosed in the notes to the consolidated financial statements.
INCOME TAX MATTERS From time to time, the Company and Wittington may enter into agreements to make elections that are
permitted or required under applicable income tax legislation with respect to affiliated corporations.
COMPENSATION OF KEY MANAGEMENT PERSONNEL The Company’s key management personnel is comprised of certain
members of the executive team of GWL, Loblaw and Wittington, as well as members of the Boards of GWL, Loblaw and
Wittington to the extent that they have the authority and responsibility for planning, directing and controlling the day-to-day
activities of the Company.
Annual compensation of key management personnel that is directly attributable to the Company was as follows:
($ millions)
Salaries, director fees and other short-term employee benefits
Equity-based compensation
Total compensation
2022
12
6
18
$
$
$
$
2021
14
12
26
70 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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 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).
BUSINESS COMBINATIONS - VALUATION OF INTANGIBLE ASSETS
Key Estimations The Company applies significant judgment in estimating the fair value of intangible assets. In determining the
fair value of customer relationships and brands, various valuation techniques are used. Specifically, the Company used the multi-
period excess earnings method to fair value customer relationships and the royalty relief method to fair value brands using a
discounted cash flow model. Under these valuation approaches, the Company developed assumptions related to revenue and
gross margin forecasts, attrition rate, royalty rate and discount rates.
INVENTORIES
Key Estimations 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 The Company uses judgment in determining cash generating
units (“CGUs”) for the purpose of testing fixed assets, right-of-use assets and intangible assets for impairment. Judgment is also
used to determine the goodwill CGUs for the purpose of testing goodwill for impairment. The Company has determined that
each retail location is a separate CGU. Intangible assets are allocated to the CGUs (or groups of CGUs) to which they relate.
Goodwill is allocated to CGUs (or groups of CGUs) based on the level at which management monitors goodwill, which cannot be
higher than an operating segment. The allocation of goodwill is made to CGUs (or groups of CGUs) that are expected to benefit
from the synergies and future growth of the business combination from which they arose. In addition, judgment is used to
determine whether a triggering event has occurred requiring an impairment test to be completed. In applying this judgment
management considers profitability of the CGU and other qualitative factors. If the company cannot estimate the recoverable
amount of an individual tangible or intangible asset because it does not generate independent cash inflows, the Company is
required to test the entire CGU to which it belongs for impairment.
Key Estimations 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, discount
rates and capitalization rates. The Company determines value in use by using estimates including projected future sales and
earnings, and discount rates consistent with external industry information reflecting the risk associated with the specific cash
flows.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 71
Management’s Discussion and Analysis
IMPAIRMENT OF CREDIT CARD RECEIVABLES
Judgments Made in Relation to Accounting Policies Applied and Key Estimations In each stage of the expected credit loss
(“ECL”) 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. 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 risk based on changes in probability of default over the expected life of the
instrument relative to initial recognition; and
Forecasts of future economic conditions, namely the unemployment rate. Management uses an average of 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 Estimations 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 including expectations about future operating results, the timing and reversal of
temporary differences, and the interpretation of tax rules in jurisdictions where the Company performs activities. Where the
amount of tax payable or recoverable is uncertain, the Company establishes provisions based on the most likely amount of the
liability or recovery.
PROVISIONS
Judgments made in Relation to Accounting Policies Applied and Key Estimations 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 Estimations 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.
72 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
11.
Future Accounting Standard
IFRS 17 In 2017, the IASB issued IFRS 17, “Insurance Contracts” (“IFRS 17”) replacing IFRS 4. 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. The
Company has assessed the impact of the standard on its consolidated financial statements and determined that the impact will
not be material.
12.
Outlook(3)
For 2023, the Company expects adjusted net earnings(1) from continuing operations to increase due to the results from its
operating segments, and to use excess cash to repurchase shares.
Loblaw Loblaw will continue to execute on retail excellence while advancing its growth initiatives in 2023. Loblaw’s businesses
remain well placed to service the everyday needs of Canadians. However, Loblaw cannot predict the precise impacts of global
economic uncertainties, including the inflationary environment, on its 2023 financial results.
For the full year 2023, Loblaw expects:
•
•
•
its retail business to grow earnings faster than sales;
adjusted net earnings per common share(1) growth in the low double digits;
to increase investments in its store network and distribution centres by investing a net amount of $1.6 billion in capital
expenditures, which reflects gross capital investments of approximately $2.1 billion offset by approximately $500 million of
proceeds from real estate dispositions; and
to return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.
•
Choice Properties Choice Properties is focused on capital preservation, delivering stable and growing cash flows and net asset
value appreciation, all with a long-term focus. Choice Properties’ high-quality portfolio is primarily leased to necessity-based
tenants and logistics providers, who are less sensitive to economic volatility and therefore provide stability to its overall portfolio.
Choice Properties continues to experience positive leasing momentum across its portfolio and is well positioned to handle its
2023 lease renewal exposure. Choice Properties also continues to advance its development program, with a focus on industrial
opportunities, which provides it with the best opportunity to add high-quality real estate to its portfolio at a reasonable cost and
drive net asset value appreciation over time.
Choice Properties is confident that its business model, stable tenant base, strong balance sheet and disciplined approach to
financial management will continue to position it well for future success. However, Choice Properties cannot predict the precise
impacts of the broader economic environment on its 2023 financial results. In 2023, Choice Properties will continue to focus on
its core business of essential retail and industrial, its growing residential platform and its robust development pipeline, and is
targeting:
•
•
•
stable occupancy across the portfolio, resulting in 2-3% year-over-year growth in Same-Asset NOI, Cash Basis(i);
annual FFO(1) per Unit Diluted(i) in a range of $0.98 to $0.99, reflecting 2-3% year-over-year growth; and
stable leverage metrics, targeting Adjusted Debt to EBITDAFV(i) of approximately 7.5x.
(i)
For more information on these measures, see the 2022 Annual Report filed by Choice Properties, which is available on sedar.com or at choicereit.ca.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 73
Management’s Discussion and Analysis
13.
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures and ratios 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, adjusted return on average equity attributable
to common shareholders of the Company, adjusted return on capital, GWL Corporate free cash flow, 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 earnings before income taxes, adjusted income taxes and adjusted effective tax rate. The
Company believes these non-GAAP financial measures and ratios 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 adjusts for these 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. Unless otherwise indicated, all financial information represents the
Company’s results from continuing operations.
74 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
ADJUSTED EBITDA The Company believes adjusted EBITDA is useful in assessing and making decisions regarding the
underlying operating performance of the Company’s ongoing operations and in assessing the Company’s ability to generate
cash flows to fund its cash requirements, including its capital investment program.
The following table reconciles adjusted EBITDA to operating income, which is reconciled to GAAP net earnings attributable to
shareholders of the Company from continuing operations reported for the periods ended as indicated.
($ millions)
Net (loss) earnings attributable to shareholders
of the Company from continuing operations
Add (deduct) impact of the following:
Non-controlling interests
Income taxes
Net interest expense and other financing charges
Quarters Ended
Dec. 31, 2022
Dec. 31, 2021
Loblaw
Choice
Properties
Other &
Intersegment
Consolidated
Loblaw
Choice
Properties
Other &
Intersegment
Consolidated
$
(104)
$
428
239
213
916
327
64
190
Operating income
$ 869 $ 404 $
(9) $
1,264
$ 703 $
336 $
(30) $
1,009
Add (deduct) impact of the following:
Amortization of intangible assets acquired
with Shoppers Drug Mart
$
111 $
— $
— $
111
$
117 $
— $
— $
117
Amortization of intangible assets acquired
with Lifemark
Fair value adjustment of investment in real estate
securities
Restructuring and other related recoveries
4
—
—
—
20
—
—
—
—
20
—
Fair value adjustment on investment properties
—
(202)
(24)
(226)
Gain on sale of non-operating properties
Fair value adjustment on non-operating
properties
Fair value adjustment of derivatives
(50)
(6)
11
—
—
—
—
—
—
(50)
(6)
11
4
—
—
—
—
—
(8)
—
—
(2)
6
—
—
(107)
—
—
—
—
—
20
(2)
—
—
—
(8)
(87)
(2)
(2)
6
Adjusting items
$ 70 $ (182) $
(24) $
(136) $
113 $
(107) $
18 $
24
Adjusted operating income
$ 939 $ 222 $
(33) $
1,128
$ 816 $
229 $
(12) $
1,033
Depreciation and amortization excluding the
impact of the above adjustments(i)
552
1
(91)
462
506
—
(86)
420
Adjusted EBITDA
$ 1,491 $ 223 $
(124) $
1,590
$ 1,322 $
229 $
(98) $
1,453
(i)
Depreciation and amortization for the calculation of adjusted EBITDA excludes $115 million (2021 – $117 million) of amortization of
intangible assets, acquired with Shoppers Drug Mart and Lifemark, recorded by Loblaw.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 75
Management’s Discussion and Analysis
($ millions)
Net earnings attributable to shareholders of the
Company from continuing operations
Add (deduct) impact of the following:
Non-controlling interests
Income taxes
Net interest expense and other financing charges
Years Ended
Dec. 31, 2022
Dec. 31, 2021
Loblaw
Choice
Properties
Other &
Intersegment
Consolidated
Loblaw
Choice
Properties
Other &
Intersegment
Consolidated
$
1,822
$
753
987
831
913
994
630
1,650
Operating income
$ 3,334 $ 1,083 $
136 $ 4,553
$ 2,929 $ 1,400 $
(302) $ 4,027
Add (deduct) impact of the following:
Amortization of intangible assets acquired
with Shoppers Drug Mart
$ 486 $
— $
— $
486
$ 506 $
— $
— $
506
Amortization of intangible assets acquired with
Lifemark
Fair value adjustment of investment in real estate
securities
Charge related to PC Bank commodity tax
matter
Transaction costs and other related expenses
Restructuring and other related (recoveries) costs
11
—
—
248
111
16
(15)
—
5
—
—
—
—
—
19
11
—
—
—
248
—
—
—
111
21
4
—
—
13
—
—
—
—
—
—
—
—
—
—
13
Fair value adjustment on investment properties
—
(442)
(286)
(728)
—
(500)
177
(323)
Gain on sale of non-operating properties
Fair value adjustment on non-operating
properties
Fair value adjustment of derivatives
Foreign currency translation and other company
level activities
Adjusting items
(57)
(6)
(5)
—
—
—
—
—
—
—
—
3
(57)
(12)
—
(2)
(14)
(6)
(5)
3
(2)
(13)
—
—
—
—
(2)
(13)
—
—
—
—
$
541 $ (189) $
(264) $
88
$ 492 $ (500) $
175 $
167
Adjusted operating income
$ 3,875 $ 894 $
(128) $ 4,641
$ 3,421 $ 900 $
(127) $
4,194
Depreciation and amortization excluding the
impact of the above adjustments(i)
2,298
3
(391)
1,910
2,158
3
(360)
1,801
Adjusted EBITDA
$ 6,173 $ 897 $
(519) $ 6,551
$ 5,579 $ 903 $
(487) $ 5,995
(i)
Depreciation and amortization for the calculation of adjusted EBITDA excludes $497 million (2021 – $506 million) of amortization of
intangible assets, acquired with Shoppers Drug Mart and Lifemark, recorded by Loblaw.
The following items impacted adjusted EBITDA in 2022 and 2021:
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.
Amortization of intangible assets acquired with Lifemark The acquisition of Lifemark in the second quarter of 2022 included
approximately $299 million of definite life intangible assets, which are being amortized over their estimated useful lives.
Fair value adjustment of investment in real estate securities Choice Properties received Allied Class B Units as part of the
consideration for the Office Asset Sale on March 31, 2022. Choice Properties recognized these units as investments in real estate
securities. The investment in real estate securities is exposed to market price fluctuations of Allied trust units. An increase
(decrease) in the market price of Allied trust units results in income (a charge) to operating income.
Charge related to PC Bank commodity tax matter In the second quarter of 2022, Loblaw recorded a charge of $111 million,
inclusive of interest. On July 19, 2022, the Tax Court released its decision and ruled that PC Bank is not entitled to claim notional
input tax credits for certain payments it made to Loblaws Inc. in respect of redemptions of loyalty points. On September 29,
2022, PC Bank filed a Notice of Appeal with the Federal Court of Appeal.
76 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Transaction costs and other related expenses In connection with the acquisition of Lifemark, Loblaw recorded acquisition
costs of $16 million in operating income during 2022.
During the first quarter of 2022, Choice Properties recorded advisory, legal, personnel, and other costs related to the Office Asset
Sale totaling $5 million.
Restructuring and other related (recoveries) costs The Company continuously evaluates strategic and cost reduction initiatives
related to its store infrastructure, distribution networks and administrative infrastructure with the objective of ensuring a low
cost operating structure. Only restructuring activities that are publicly announced related to these initiatives are considered
adjusting items.
In the fourth quarter of 2022, Loblaw did not record any restructuring and other related recoveries or charges (2021 – recovery of
$8 million). Year-to-date, Loblaw recorded approximately $15 million (2021 – charges of $13 million) of restructuring and other
related recoveries mainly in connection to the previously announced closure of two distribution centres in Laval and Ottawa. In
the first quarter of 2022, Loblaw disposed of one of the distribution centres for proceeds of $26 million and recognized a gain of
$19 million, which was partially offset by $4 million of restructuring and other related charges. Loblaw invested to build a
modern and efficient expansion to its Cornwall distribution centre to serve its food and drug retail businesses in Ontario and
Quebec and volumes have been transferred.
Included in Loblaw’s restructuring and other related recoveries was a gain of $19 million related to the disposition of a property
to Choice Properties. On consolidation, the $19 million recovery recorded by Loblaw was reversed as it was an intercompany
transaction.
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.
Gain on sale of non-operating properties In the fourth quarter of 2022, Loblaw recorded a gain related to the sale of non-
operating properties of $50 million (2021 – nil). Year-to-date, Loblaw disposed of non-operating properties and recorded a gain
of $57 million (2021 – $12 million).
During 2021, Choice Properties disposed of properties and incurred a gain or loss for each property which was recognized in fair
value adjustment of investment properties. On consolidation, the Company recorded these properties as fixed assets and were
recognized at cost less accumulated depreciation. As a result, during 2021, on consolidation, a net gain of $2 million was
recognized in Other and Intersegment.
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.
Fair value adjustment of derivatives Loblaw is exposed to commodity price and U.S. dollar exchange rate fluctuations. In
accordance with Loblaw’s commodity risk management policy, Loblaw enters into exchange traded futures contracts and
forward contracts to minimize cost volatility related to fuel prices and the U.S. dollar exchange rate. These derivatives are not
acquired for trading or speculative purposes. Pursuant to Loblaw’s derivative instruments accounting policy, changes in the fair
value of these instruments, which include realized and unrealized gains and losses, are recorded in operating income. Despite
the impact of accounting for these commodity and foreign currency derivatives on Loblaw’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.
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 certain investments and certain financial assets and liabilities held by the Company.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 77
Management’s Discussion and Analysis
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.
($ millions)
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
Net interest expense and other financing charges
$
916
$
190
$
913
$
1,650
Quarters Ended
Years Ended
(Deduct) add impact of the following:
Fair value adjustment of the Trust Unit liability
Recovery related to Glenhuron
Fair value adjustment of the forward sale agreement
for Loblaw common shares
Adjusted net interest expense and other
financing charges
(662)
—
—
(122)
189
(4)
98
11
—
(601)
189
(188)
$
254
$
253
$
1,022
$
1,050
In addition to certain items described in the “Adjusted EBITDA” section above, the following items impacted adjusted net
interest expense and other financing charges in 2022 and 2021:
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.
Recovery related to Glenhuron Between 2015 and 2019, Loblaw was 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. In the fourth quarter of 2021, the
Supreme Court ruled in favour of Loblaw on the Glenhuron matter and Loblaw reversed $301 million of previously recorded
charges, of which $173 million was recorded as interest income and $128 million was recorded as income tax recovery, and an
additional $16 million, before taxes, was also recorded in respect of interest income earned on expected cash tax refunds. As a
result of related reassessments received during the first quarter of 2022, Loblaw reversed another $35 million of previously
recorded charges, of which $2 million was recorded as interest income and $33 million was recorded as an income tax recovery,
and an additional $9 million, before taxes, was recorded in respect of interest income earned on expected cash tax refunds.
Fair value adjustment of the forward sale agreement for Loblaw common shares The fair value adjustment of the forward sale
agreement for Loblaw common shares is included in net interest expense and other financing charges. The adjustment is
determined by changes in the value of the underlying Loblaw common shares. An increase (decrease) in the market price of
Loblaw common shares results in a charge (income) to net interest expense and other financing charges. The Company settled
the net debt associated with the forward sale agreement in the fourth quarter of 2021.
78 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
ADJUSTED INCOME TAXES AND ADJUSTED EFFECTIVE TAX RATE The Company believes the adjusted effective tax rate
applicable to adjusted earnings before taxes is useful in assessing the underlying operating performance of its business.
The following table reconciles the effective tax rate applicable to adjusted earnings before taxes to the GAAP effective tax rate
applicable to earnings before taxes as reported for the periods ended as indicated.
($ 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 (deduct) impact of the following:
$
$
$
Tax impact of items excluded from adjusted
earnings before taxes(ii)
Remeasurement of deferred tax balances
Recovery related to Glenhuron
Outside basis difference in certain Loblaw shares
Quarters Ended
Years Ended
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
1,128
$
1,033
$
4,641
$
4,194
254
874
213
$
$
253
780
64
$
$
1,022
3,619
831
$
$
1,050
3,144
630
25
—
—
(3)
11
—
128
1
83
46
33
(4)
99
—
128
(6)
851
Adjusted income taxes
$
235
$
204
$
989
$
Effective tax rate applicable to earnings before taxes
61.2%
7.8%
22.8%
26.5%
Adjusted effective tax rate applicable to adjusted
earnings before taxes
26.9%
26.2%
27.3%
27.1%
(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 adjusted income taxes and the adjusted effective tax rate in 2022
and 2021:
Remeasurement of deferred tax balances In the second quarter of 2022, the Company revalued certain deferred tax balances
as a result of the Office Asset Sale which resulted in an income tax recovery of $46 million.
Recovery related to Glenhuron In the fourth quarter of 2021, as a result of the Supreme Court ruling in favour of Loblaw on the
Glenhuron matter, Loblaw reversed $301 million of previously recorded charges, of which $173 million was recorded as interest
income and $128 million was recorded as income tax recovery, and an additional $16 million, before taxes, was also recorded in
respect of interest income earned on expected cash tax refunds. As a result of related reassessments received during the first
quarter of 2022, Loblaw reversed another $35 million of previously recorded charges, of which $2 million was recorded as
interest income and $33 million was recorded as an income tax recovery, and an additional $9 million, before taxes, was
recorded in respect of interest income earned on expected cash tax refunds.
Outside basis difference in certain Loblaw shares The Company recorded deferred tax expense of $3 million in the fourth
quarter of 2022 (2021 – $1 million recovery) and deferred tax expense of $4 million in 2022 (2021 – $6 million) on temporary
differences in respect of GWL’s investment in certain Loblaw shares that are expected to reverse in the foreseeable future as a
result of GWL’s participation in Loblaw’s NCIB.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 79
Management’s Discussion and Analysis
ADJUSTED NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS FROM CONTINUING OPERATIONS AND ADJUSTED
DILUTED NET EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS The Company believes that adjusted net
earnings available to common shareholders from continuing operations and adjusted diluted net earnings per common share
from continuing operations are useful in assessing the Company’s underlying operating performance and in making decisions
regarding the ongoing operations of its business.
The following table reconciles adjusted net earnings available to common shareholders of the Company from continuing
operations and adjusted net earnings attributable to shareholders of the Company from continuing operations to net (loss)
earnings attributable to shareholders of the Company and then to net (loss) earnings available to common shareholders of the
Company from continuing operations reported for the periods ended as indicated.
($ millions except where otherwise indicated)
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
Quarters Ended
Years Ended
Net (loss) earnings attributable to shareholders of
the Company
Less: Net loss from discontinued operations
Net (loss) earnings attributable to shareholders of
the Company from continuing operations
Less: Prescribed dividends on preferred shares in
$
$
(104) $
227
$
1,816
$
—
(201)
(6)
431
(322)
(104) $
428
$
1,822
$
753
share capital
(10)
(10)
(44)
(44)
Net (loss) earnings available to common shareholders
of the Company from continuing operations
$
(114) $
418
$
1,778
$
709
Less: Reduction in net earnings due to dilution
at Loblaw
(3)
(5)
(11)
(9)
Net (loss) earnings available to common shareholders
from continuing operations for diluted earnings
per share
Net (loss) earnings attributable to shareholders of
the Company from continuing operations
Adjusting items (refer to the following table)
Adjusted net earnings attributable to shareholders
of the from continuing operations
Less: Prescribed dividends on preferred shares in
$
$
$
(117) $
413
$
1,767
$
700
(104) $
428
$
1,822
$
483
(71)
(346)
753
523
379
$
357
$
1,476
$
1,276
share capital
(10)
(10)
(44)
(44)
Adjusted net earnings available to common
shareholders of the Company from continuing
operations
Less: Reduction in net earnings due to dilution
$
369
$
347
$
1,432
$
1,232
at Loblaw
(3)
(5)
(11)
(9)
Adjusted net earnings available to common
shareholders for diluted earnings per share from
continuing operations
Diluted weighted average common shares
outstanding (in millions)
$
366
$
342
$
1,421
$
1,223
141.3
147.6
144.8
150.2
80 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
The following table reconciles adjusted net earnings available to common shareholders of the Company from continuing
operations and adjusted diluted net earnings per common share from continuing operations to GAAP net (loss) earnings
available to common shareholders of the Company from continuing operations and diluted net (loss) earnings per common
share from continuing operations as reported for the periods ended as indicated.
Quarters Ended
Dec. 31, 2022
Dec. 31, 2021
Net (Loss)
Earnings
Available to
Common
Shareholders of
the Company
($ millions)
Diluted
Net
(Loss) Earnings
Per
Common
Share
Net
Earnings
Available to
Common
Shareholders of
the Company
($ millions)
Diluted
Net
Earnings
Per
Common
Share
$
$
(114) $
(0.83) $
418 $
2.80
40 $
0.28
$
47 $
0.31
($ except where otherwise indicated)
Continuing Operations
Add (deduct) impact of the following(i):
Amortization of intangible assets acquired
with Shoppers Drug Mart
Amortization of intangible assets acquired with
Lifemark
Fair value adjustment of investment in real estate
securities
Restructuring and other related recoveries
Fair value adjustment on investment properties
Gain on sale of non-operating properties
Fair value adjustment of non-operating properties
Fair value adjustment of derivatives
Fair value adjustment of the Trust Unit liability
Recovery related to Glenhuron
Fair value adjustment of the forward sale agreement for
Loblaw common shares
Outside basis difference in certain Loblaw shares
1
18
—
(225)
(19)
(2)
5
662
—
—
3
Adjusting items Continuing Operations
Adjusted Continuing Operations
$
$
483 $
369 $
(i)
Net of income taxes and non-controlling interests, as applicable.
0.01
0.13
—
(1.60)
(0.13)
(0.01)
0.03
4.69
—
—
0.02
3.42
2.59
$
$
—
—
(4)
(72)
(2)
—
1
122
(165)
3
(1)
(71) $
347 $
—
—
(0.03)
(0.48)
(0.01)
—
0.01
0.83
(1.12)
0.02
(0.01)
(0.48)
2.32
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 81
Management’s Discussion and Analysis
Years Ended
Dec. 31, 2022
Dec. 31, 2021
$
$
($ except where otherwise indicated)
Continuing Operations
Add (deduct) impact of the following(i):
Amortization of intangible assets acquired
with Shoppers Drug Mart
Amortization of intangible assets acquired with
Lifemark
Fair value adjustment of investment in real estate
securities
Charge related to PC Bank commodity tax matter
Transaction costs and other related expenses
Restructuring and other related costs
Fair value adjustment on investment properties
Gain on sale of non-operating properties
Fair value adjustment on non-operating properties
Fair value adjustment of derivatives
Fair value adjustment of the Trust Unit liability
Recovery related to Glenhuron
Fair value adjustment of the forward sale agreement
for Loblaw common shares
Remeasurement of deferred tax balances
Outside basis difference in certain Loblaw shares
Foreign currency translation and other company
level activities
Adjusting items Continuing Operations
Adjusted Continuing Operations
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)
1,778 $
12.20
$
709 $
Diluted
Net
Earnings
Per
Common
Share
4.66
187 $
1.29
$
196 $
1.30
4
228
45
12
10
(645)
(22)
(2)
(2)
(98)
(23)
—
(46)
4
2
0.03
1.57
0.31
0.08
0.07
(4.45)
(0.15)
(0.01)
(0.01)
(0.68)
(0.16)
—
(0.32)
0.03
0.01
—
—
—
—
5
(270)
(7)
—
(6)
601
(165)
163
—
6
—
$
$
(346) $
(2.39) $
523 $
1,432 $
9.81
$
1,232 $
—
—
—
—
0.03
(1.80)
(0.04)
—
(0.04)
4.00
(1.10)
1.09
—
0.04
—
3.48
8.14
(i)
Net of income taxes and non-controlling interests, as applicable.
FREE CASH FLOW FROM CONTINUING OPERATIONS 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.
Quarters Ended
Years Ended
($ millions)
Cash flows from operating activities
Less: Cash flows from operating activities from
discontinued operations
Cash flows from operating activities from continuing
operations
Less: Interest paid
Capital investments(ii)
Lease payments, net
Dec. 31, 2022
1,268
$
Dec. 31, 2021(i) Dec. 31, 2022
4,877
1,146
$
$
Dec. 31, 2021(i)
$
5,119
—
12
—
$
1,268
$
1,134
$
4,877
$
195
800
139
134
$
173
487
202
272
818
1,893
749
—
5,119
853
1,381
795
Free cash flow from continuing operations
$
$
1,417
$
2,090
Certain comparative figures have been restated to conform with current year presentation.
(i)
(ii) During 2022, there were no additions to Loblaw fixed assets related to prepayments that were made in 2021 and transferred from other
assets. During 2021, additions to Loblaw fixed assets included prepayments that were made in 2020 and transferred from other assets of
$1 million.
82 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
ADJUSTED RETURN ON AVERAGE EQUITY ATTRIBUTABLE TO COMMON SHAREHOLDERS OF THE COMPANY AND ADJUSTED
RETURN ON CAPITAL The Company uses the following metrics to measure its leverage and profitability. The definitions of these
ratios are presented below.
Adjusted Return on Average Equity Attributable to Common Shareholders of The Company Adjusted net earnings available
to common shareholders of the Company for the last four quarters divided by average total equity attributable to common
shareholders of the Company. Refer to Section 3.4, “Financial Condition”, of this MD&A.
Adjusted Return on Capital Tax-effected adjusted operating income for the last four quarters divided by average capital where
capital is defined as total debt, plus equity attributable to shareholders of the Company, less cash and cash equivalents, and
short term investments. Refer to Section, 3.4 “Financial Condition”, of this MD&A.
CHOICE PROPERTIES’ FUNDS FROM OPERATIONS Choice Properties considers Funds from Operations to be a useful measure
of operating performance as it adjusts for items included in net income that do not arise from operating activities or do not
necessarily provide an accurate depiction of its performance.
Funds from Operations is calculated in accordance with the Real Property Association of Canada’s Funds from Operations &
Adjusted Funds from Operations for IFRS issued in January 2022.
The following table reconciles Choice Properties’ Funds from Operations to net income for the periods ended as indicated.
($ millions)
Net (Loss) Income
Add (deduct) impact of the following:
Amortization of intangible assets
Transaction costs and other related expenses
Other fair value losses (gains), net
Fair value adjustment on Exchangeable Units
Fair value adjustment on investment properties
Fair value adjustment on investment property held
in equity accounted joint ventures
Fair value adjustment of investment in real estate
securities
Capitalized interest on equity accounted
joint ventures
Unit distributions on Exchangeable Units
Internal expenses for leasing
Income tax recovery
Funds from Operations
Quarters Ended
Years Ended
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
$
(579) $
(162) $
744
$
24
—
—
2
859
(193)
(14)
21
3
73
2
—
—
—
(1)
372
(96)
(13)
—
—
73
3
(1)
1
5
1
(170)
(113)
(329)
248
9
293
9
—
1
—
1
863
(459)
(43)
—
3
293
8
(1)
$
174
$
175
$
698
$
690
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 83
Management’s Discussion and Analysis
13.1
Non-GAAP Financial Measures - Selected Comparative Reconciliation
ADJUSTED EBITDA The following table provides a reconciliation of adjusted EBITDA to operating income, which is reconciled to
GAAP net earnings attributable to shareholders of the Company from continuing operations reported for the periods ended as
indicated.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Total
2022
2021
2020
($ millions)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks) (53 weeks)
Net earnings (loss)
attributable to
shareholders of the
Company from continuing
operations
Add (deduct) impact of the
following:
Non-controlling interests
Income taxes
Net interest expense
(income) and other
financing charges
Operating income
Add (deduct) impact of the
following:
Amortization of intangible
assets acquired with
Shoppers Drug Mart
Amortization of intangible
assets acquired with
Lifemark
Fair value adjustment of
investment in real estate
securities
Charge related to PC Bank
commodity tax matter
Transaction costs and other
related expenses
Restructuring and other
related costs (recoveries)
Fair value adjustment on
investment properties
Gain on sale of non-
operating properties
Fair value adjustment on
non-operating properties
Fair value adjustment of
derivatives
Foreign currency
translation and other
company level activities
$
373 $
650 $
903 $
(104) $
1,822 $
(52) $
125 $
252 $
428 $
753 $
957
$
$
$
$
242 $
224 $
282 $
239 $
987 $
170 $
236 $
261 $
327 $
994 $
619
229 $
113 $
276 $
213 $
831 $
165 $
201 $
200 $
64 $
630 $
470
322 $
(338) $
13 $
916 $
913 $
545 $
503 $
412 $
190 $
1,650 $
829
1,166 $
649 $
1,474 $
1,264 $
4,553 $
828 $
1,065 $
1,125 $
1,009 $ 4,027 $ 2,875
$
117 $
111 $
147 $
111 $
486 $
117 $
117 $
155 $
117 $
506 $
509
—
—
—
8
4
3
4
4
11
159
69
20
248
111
13
—
—
—
—
—
—
—
111
21
4
—
—
—
—
4
—
—
—
—
8
—
—
—
—
9
—
—
—
—
—
—
—
—
—
—
—
2
(8)
13
38
(291)
102
(313)
(226)
(728)
(46)
(149)
(41)
(87)
(323)
185
—
—
(14)
—
—
4
2
(4)
(3)
(50)
(57)
(3)
(9)
(2)
(14)
(9)
—
(6)
(6)
11
(6)
(5)
—
—
(2)
(2)
(8)
(3)
(8)
(13)
9
5
—
—
6
—
1
—
3
—
—
—
—
(3)
Adjusting items
Adjusted operating income
Depreciation and
amortization excluding the
impact of the above
adjustments(i)
Adjusted EBITDA
$
$
$
$
(176) $
501 $
(101) $
(136) $
88 $
64 $
(27) $
106 $
24 $
167 $
736
990 $
1,150 $
1,373 $
1,128 $
4,641 $
892 $
1,038 $
1,231 $
1,033 $
4,194 $
3,611
432 $
438 $
578 $
462 $
1,910 $
408 $
424 $
549 $
420 $
1,801 $
1,745
1,422 $
1,588 $
1,951 $
1,590 $
6,551 $
1,300 $
1,462 $
1,780 $
1,453 $ 5,995 $
5,356
(i)
Depreciation and amortization for the calculation of adjusted EBITDA excludes the amortization of intangible assets, acquired with Shoppers
Drug Mart and Lifemark, recorded by Loblaw.
84 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
ADJUSTED NET INTEREST EXPENSE AND OTHER FINANCING CHARGES 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.
($ millions)
Years Ended
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2020
(52 weeks)
(52 weeks)
(53 weeks)
Net interest expense and other financing charges
$
913
$
1,650
$
829
Add (deduct) impact of the following:
Fair value adjustment of the Trust Unit liability
Recovery related to Glenhuron
Fair value adjustment of the forward sale agreement for Loblaw
common shares
98
11
—
(601)
189
(188)
Adjusted net interest expense and other financing charges
$
1,022
$
1,050
$
239
—
47
1,115
ADJUSTED INCOME TAXES AND ADJUSTED EFFECTIVE TAX RATE 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.
Years Ended
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2020
(52 weeks)
(52 weeks)
(53 weeks)
($ 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 (deduct) impact of the following:
Tax impact of items excluded from adjusted earnings before taxes(ii)
Remeasurement of deferred tax balances
Recovery related to Glenhuron
Outside basis difference in certain Loblaw shares
$
$
$
4,641
$
4,194
$
1,022
3,619
831
$
$
1,050
3,144
630
$
$
83
46
33
(4)
99
—
128
(6)
Adjusted income taxes
$
989
$
851
$
Effective tax rate applicable to earnings before taxes
Adjusted effective tax rate applicable to adjusted earnings before taxes
22.8%
27.3%
26.5%
27.1%
3,611
1,115
2,496
470
173
7
—
(2)
648
23.0%
26.0%
(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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 85
Management’s Discussion and Analysis
ADJUSTED NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS FROM CONTINUING OPERATIONS AND ADJUSTED
DILUTED NET EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS The following tables reconcile adjusted net
earnings available to common shareholders of the Company from continuing operations and adjusted diluted net earnings per
common share from continuing operations to GAAP net earnings available to common shareholders of the Company from
continuing operations and diluted net earnings per common share from continuing operations as reported for the periods
ended as indicated.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2022
Total
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Total
2021
2020
($ millions)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks) (53 weeks)
Continuing Operations
$
363 $
640 $
889 $
(114) $
1,778 $
(62) $
115 $
238 $
418 $
709 $
913
Add (deduct) impact of the
following(i):
Amortization of intangible
assets acquired
with Shoppers Drug Mart
Amortization of intangible
assets acquired with
Lifemark
Fair value adjustment of
investment in real estate
securities
Charge related to PC Bank
commodity tax matter
Transaction costs and other
related expenses
Restructuring and other
related costs (recoveries)
Fair value adjustment on
investment properties
Gain on sale of non-
operating properties
Fair value adjustment on
non-operating properties
Fair value adjustment of
derivatives
Fair value adjustment of the
Trust Unit liability
Recovery related to
Glenhuron
Fair value adjustment of the
forward sale agreement for
Loblaw common shares
Remeasurement of deferred
tax balances
Outside basis difference in
certain Loblaw shares
Foreign currency translation
and other company level
activities
Adjusting items Continuing
Operations
Adjusted Continuing
Operations
$
46 $
43 $
58 $
40 $
187 $
45 $
46 $
58 $
47 $
196 $
195
—
—
—
5
10
1
2
1
4
146
64
18
228
45
7
—
—
—
—
—
—
—
45
12
10
—
—
—
—
2
—
—
—
—
2
—
—
—
—
5
—
—
—
—
(4)
—
—
—
—
5
—
—
—
2
14
(243)
85
(262)
(225)
(645)
(38)
(125)
(35)
(72)
(270)
155
—
—
(6)
(2)
(1)
(19)
(22)
—
2
—
(2)
(3)
5
(2)
(2)
—
—
—
—
—
(3)
(1)
(3)
(5)
(2)
(7)
(4)
—
1
—
(6)
4
2
93
(576)
(277)
662
(98)
239
188
52
122
601
(239)
(23)
—
—
—
—
(46)
—
—
—
37
(18)
(18)
—
1
1
—
—
—
3
—
(23)
—
—
—
(165)
(165)
—
—
(46)
4
2
46
—
16
—
50
—
—
—
64
—
3
—
(9)
(1)
—
—
163
(41)
—
6
—
(7)
2
(3)
$
(81) $
(312) $
(436) $
483 $
(346) $
307 $
160 $
127 $
(71) $
523 $
80
$
282 $
328 $
453 $
369 $
1,432 $
245 $
275 $
365 $
347 $
1,232 $
993
86 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2022
Total
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Total
2021
2020
($)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks)
(12 weeks)
(12 weeks)
(16 weeks)
(12 weeks)
(52 weeks) (53 weeks)
Continuing Operations
$
2.45 $
4.36 $
6.14 $
(0.83) $
12.20 $
(0.41) $
0.74 $
1.58 $
2.80 $
4.66 $
5.92
Add (deduct) impact of the
following(i):
Amortization of intangible
assets acquired
with Shoppers Drug Mart
Amortization of intangible
assets acquired with
Lifemark
Fair value adjustment of
investment in real estate
securities
Charge related to PC Bank
commodity tax matter
Transaction costs and other
related expenses
Restructuring and other
related costs
Fair value adjustment on
investment properties
Gain on sale of non-
operating properties
Fair value adjustment on
non-operating properties
Fair value adjustment of
derivatives
Fair value adjustment of the
Trust Unit liability
Recovery related to
Glenhuron
Fair value adjustment of the
forward sale agreement for
Loblaw common shares
Remeasurement of deferred
tax balances
Outside basis difference in
certain Loblaw shares
Foreign currency translation
and other company level
activities
Adjusting items Continuing
Operations
Adjusted Continuing
Operations
Diluted weighted common
shares (in millions)
$
0.31 $
0.30 $
0.41 $
0.28 $
1.29 $
0.29 $
0.30 $
0.39 $
0.31 $
1.30 $
1.28
—
0.01
0.01
0.01
0.03
0.99
0.45
0.13
1.57
—
—
0.31
0.03
0.05
0.08
—
—
—
—
—
—
—
0.31
0.08
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.01
0.07
0.01
0.01
0.03
(0.03)
0.03
0.09
(1.65)
0.58
(1.82)
(1.60)
(4.45)
(0.25)
(0.81)
(0.24)
(0.48)
(1.80)
1.02
—
—
(0.02)
(0.01)
(0.13)
(0.15)
—
—
(0.01)
(0.01)
—
—
—
—
(0.03)
(0.01)
(0.04)
(0.03)
—
—
—
0.03
(0.04)
0.01
(0.02)
0.03
(0.01)
(0.02)
(0.01)
(0.02)
0.01
(0.04)
0.01
0.63
(3.94)
(1.92)
4.69
(0.68)
1.57
1.24
0.35
0.83
4.00
(1.56)
—
(0.16)
—
—
—
(1.12)
(1.10)
—
(0.16)
—
—
—
—
(0.31)
—
—
—
—
0.30
0.33
0.43
0.02
1.09
(0.27)
—
—
(0.32)
—
—
—
—
—
—
—
(0.05)
(0.06)
(0.01)
0.04
0.01
—
—
—
(0.02)
0.25
(0.12)
(0.13)
0.02
0.03
0.11
—
0.01
0.01
—
0.01
—
$
(0.55) $
(2.13) $
(3.02) $
3.42 $
(2.39) $ — $
2.01 $
1.06 $
0.85 $
(0.48) $
3.48 $ 0.52
$
1.90 $
2.23 $
3.12 $
2.59 $
9.81 $
1.60 $
1.80 $
2.43 $
2.32 $
8.14 $
6.44
147.3
146.3
144.1
141.3
144.8
152.1
151.8
149.7
147.6
150.2
153.5
(i)
Net of income taxes and non-controlling interests, as applicable.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 87
Management’s Discussion and Analysis
14.
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 Quarterly Report including, without
limitation, in Section 3, “Liquidity and Capital Resources”, Section 8, “Enterprise Risks and Risk Management”, Section 12,
“Outlook”, and Section 13, “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 estimates, beliefs and assumptions are inherently subject to significant
business, economic, competitive and other uncertainties and contingencies regarding future events, and as such, are subject to
change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.
Numerous risks and uncertainties could cause the Company’s actual results to differ materially from those expressed, implied or
projected in the forward-looking statements, including those described in the “Enterprise Risks and Risk Management” of the
Company’s 2022 Annual Report and the Company’s AIF for the year ended December 31, 2022. Such risks and uncertainties
include:
•
changes in economic conditions, including inflation, levels of employment, costs of borrowing, household debt, political
uncertainty and government regulation, the impact of natural disasters, war or acts of terrorism, pandemics, changes in
interest rates, tax rates, or exchange rates, and access to consumer credit;
failure to attract and retain colleagues may impact the Company’s ability to effectively operate and achieve financial
performance goals;
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 maintain an effective supply chain and consequently an appropriate assortment of available product at the store
and digital retail level;
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;
changes to any of the laws, rules, regulations or policies applicable to the Company’s business;
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
and the timelines and costs related to such initiatives;
public health events including those related to food and drug safety;
errors made through medication dispensing or errors related to patient services or consultation;
failure to adapt to environmental and social risks, including failure to execute against the Company’s climate change and
social equity initiatives;
failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements;
adverse outcomes of legal and regulatory proceedings and related matters;
failure to effectively respond to consumer trends or heightened competition, whether from current competitors or new
entrants to the marketplace;
failure to execute the Company’s e-commerce initiatives or to adapt its business model to shifts in the retail landscape
caused by digital advances;
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 realize benefits from investments in the Company’s new IT systems and related processes;
inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory or control shrink;
reliance on the performance and retention of third party service providers, including those associated with the Company’s
supply chain and apparel business and located in both advanced and developing markets; and
the inability of the Company to effectively develop and execute its strategy.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
88 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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, 2022. 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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 89
Management’s Discussion and Analysis
15.
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
February 28, 2023
90 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Financial Results
Management’s Statement of Responsibility for Financial Reporting
Independent Auditor's Report
Consolidated Financial Statements
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Note 1.
Nature and Description of the Reporting Entity
Note 2.
Significant Accounting Policies
Note 3.
Critical Accounting Estimates and Judgments
Note 4.
Future Accounting Standard
Note 5.
Subsidiaries
Note 6.
Business Acquisitions
Note 7.
Discontinued Operations
Note 8.
Net Interest Expense and Other Financing Charges
Note 9.
Income Taxes
Note 10.
Basic and Diluted Net Earnings per Common Share
Note 11.
Cash and Cash Equivalents, Short-Term Investments and Security Deposits
Note 12.
Accounts Receivable
Note 13.
Credit Card Receivables
Note 14.
Inventories
Note 15.
Assets Held for Sale
Note 16.
Fixed Assets
Note 17.
Investment Properties
Note 18.
Equity Accounted Joint Ventures
Note 19.
Intangible Assets
Note 20.
Goodwill
Note 21. Other Assets
Note 22.
Provisions
Note 23.
Long-Term Debt
Note 24. Other Liabilities
Note 25.
Share Capital
Note 26.
Capital Management
Note 27.
Post-Employment and Other Long-Term Employee Benefits
Note 28.
Equity-Based Compensation
Note 29.
Employee Costs
Note 30.
Leases
Note 31.
Financial Instruments
Note 32.
Financial Risk Management
Note 33.
Contingent Liabilities
Note 34.
Financial Guarantees
Note 35.
Segment Information
Note 36.
Related Party Transactions
Note 37.
Subsequent Events
Three Year Summary
Glossary
92
93
98
98
98
99
100
101
102
102
102
115
117
117
118
119
120
121
123
124
125
126
128
128
128
130
131
131
133
134
135
136
139
140
142
144
150
155
156
159
162
164
166
167
170
171
172
174
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 91
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.
PricewaterhouseCoopers 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, are responsible
for determining that management fulfills its responsibilities in the preparation of the consolidated financial statements and
the financial control of operations. The Audit Committee recommends the independent auditors for appointment by the
shareholders. The Audit Committee meets regularly with senior and financial management, internal auditors and the
independent auditors to discuss internal controls, auditing activities and financial reporting matters. The independent auditors
and internal auditors have unrestricted access to the Audit Committee. These consolidated financial statements and
Management’s Discussion and Analysis have been approved by the Board of Directors for inclusion in the Annual Report based
on the review and recommendation of the Audit Committee.
[signed]
Galen G. Weston
Chairman and
Chief Executive Officer
Toronto, Canada
February 28, 2023
[signed]
Richard Dufresne
President and
Chief Financial Officer
92 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Independent Auditor’s Report
To the Shareholders of George Weston Limited
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position
of George Weston Limited and its subsidiaries (together, the Company) as at December 31, 2022 and its financial performance
and its cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
•
•
•
•
•
•
the consolidated statement of earnings for the year ended December 31, 2022;
the consolidated statement of comprehensive income for the year ended December 31, 2022;
the consolidated balance sheet as at December 31, 2022;
the consolidated statement of changes in equity for the year ended December 31, 2022;
the consolidated statement of cash flows for the year ended December 31, 2022; and
the notes to the consolidated financial statements, which include significant accounting policies and other explanatory
information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section
of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these
requirements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements for the year ended December 31, 2022. These matters were addressed in the context of our
audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Impairment assessment of fixed assets and right-of-use assets for retail locations
Refer to note 2 – Significant Accounting Policies, note 3 – Critical Accounting Estimates and Judgments, note 16 – Fixed
Assets and note 30 – Leases to the consolidated financial statements.
As at December 31, 2022, the Company had fixed assets of $11,130 million and right-of-use assets of $4,208 million. At each
balance sheet date, management reviews the carrying amounts of its fixed assets and right-of-use assets at the Cash Generating
Unit (CGU) level to determine whether there is any indication of impairment. Judgment is used to determine whether an
indication of impairment exists; if any such indication exists, the CGU is then tested for impairment. In applying this judgment,
management considers profitability of the CGU and other qualitative factors. Management determined that each retail location
is a separate CGU for purposes of fixed asset and right-of-use asset impairment testing. The fixed assets and right-of-use assets
related to the retail location CGUs represent a significant portion of the Company’s fixed assets and right-of-use assets.
Management identified indications of impairment for certain retail location CGUs and therefore an impairment test was
performed for these CGUs. An impairment loss is recognized for the amount by which the CGU’s carrying value exceeds its
recoverable amount.
The recoverable amount of each CGU is the higher of its value in use and its fair value less costs to sell (FVLCTS). Value in use is
based on the estimated future cash flows from the CGU discounted to their present value using a pre-tax discount rate
(discounted cash flow model). The FVLCTS reflects the amount that could be obtained from the disposal of the CGU in an arm's
length transaction between knowledgeable and willing parties, net of estimates of the costs of disposal.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 93
Independent Auditor’s Report
Assumptions utilized by management to determine the recoverable amount based on value in use include discount rates,
projected future sales and earnings. Assumptions utilized by management to determine the recoverable amount based on
FVLCTS include market rental rates, discount rates and capitalization rates.
For the year ended December 31, 2022, the Company recorded $21 million of impairment losses on fixed assets and $8 million
of impairment losses on right-of-use assets in respect of 15 retail location CGUs.
We considered this a key audit matter due to the judgments made by management in assessing the indications of impairment
and developing the assumptions to determine the recoverable amounts of the retail location CGUs. This resulted in significant
audit effort and subjectivity in performing procedures to assess the indications of impairment and to test the recoverable
amounts of the retail location CGUs. In addition, the audit effort involved the use of professionals with specialized skill and
knowledge in the field of valuation.
Our approach to addressing the matter included the following procedures, among others:
•
Evaluated management’s assessment of indications of impairment, which included the following:
◦
◦
◦
◦
Assessed the reasonableness of the profitability of the CGUs on a sample basis by considering the actual historical
performance of the CGUs.
Assessed other qualitative factors by considering evidence obtained in other areas of the audit.
Tested the underlying data used in the indications of impairment assessment on a sample basis by tracing to
supporting documentation and testing the mathematical accuracy.
Performed a sensitivity analysis over indications of impairment.
•
•
Tested how management determined the recoverable amounts for a sample of retail location CGUs that had indications of
impairment, which included the following:
◦
◦
◦
◦
Evaluated the appropriateness of the methods used by management.
Tested underlying data used in the recoverable amount calculations and tested the mathematical accuracy.
Evaluated the reasonableness of the projected future sales and earnings used in the discounted cash flow models by
(i) comparing to actual historical sales and earnings generated by the retail location CGUs; and (ii) considering
management’s budget and strategic plans.
Professionals with specialized skill and knowledge in the field of valuation assisted in assessing the reasonableness of
the discount rates, the market rental rates and capitalization rates.
Tested the disclosures made in the consolidated financial statements with regards to the impairment assessments of the
retail location CGUs.
Valuation of customer relationships and brands acquired in the Lifemark Health Group business combination
Refer to note 2 – Significant Accounting Policies, note 3 – Critical Accounting Estimates and Judgments and note 6 –
Business Acquisitions to the consolidated financial statements.
The Company acquired Lifemark Health Group (“Lifemark”) for a total consideration of $829 million during 2022. The fair value of
the identifiable assets acquired included $564 million of intangible assets, which included customer relationships and brands.
Management applied significant judgment in estimating the fair value of the customer relationships and brands. Management
used the multi-period excess earnings method to fair value customer relationships and the royalty relief method to fair value
brands using discounted cash flow models. Management developed assumptions which included revenue and gross margin
forecasts, royalty rate and discount rates.
We considered this a key audit matter due to the significant judgment by management in estimating the fair value of the
customer relationships and brands, including the development of assumptions. This in turn led to a high degree of auditor
judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the assumptions used by
management. The audit effort involved the use of professionals with specialized skill and knowledge in the field of valuation.
94 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Our approach to addressing the matter included the following procedures, among others:
•
Tested how management estimated the fair value of the acquired customer relationships and brands, which included the
following:
◦
◦
◦
◦
◦
Read the purchase agreement.
Tested the underlying data used by management in the multi-period excess earnings and royalty relief discounted
cash flow models.
Evaluated the reasonableness of the revenue and gross margin forecasts by considering the past performance of
Lifemark, as well as economic and industry data.
Professionals with specialized skill and knowledge in the field of valuation assisted in evaluating the appropriateness of
the multi-period excess earnings and royalty relief methods, as well as the reasonableness of certain assumptions such
as the royalty rate and discount rates.
Tested the mathematical accuracy of the discounted cash flow models.
Valuation of investment properties
Refer to note 2 – Significant Accounting Policies, note 3 – Critical Accounting Estimates and Judgments and note 17 –
Investment Properties to the consolidated financial statements.
The Company measures its income producing properties at fair value and, as at December 31, 2022, these assets were valued at
$4,981 million. The fair values of these assets are prepared by the Company’s internal valuations team and reviewed by
management. As part of management's internal valuation program, the Company 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. Income producing properties are valued primarily using the discounted cash
flow method. The assumptions under this method include the discount rates and terminal capitalization rates applicable to
those assets.
We considered this a key audit matter due to: i) significant audit effort required to assess the fair values of income producing
properties; ii) critical judgments by management when determining the fair values of the income producing properties
including the development of the assumptions; and iii) a high degree of complexity in assessing audit evidence related to the
assumptions developed by management. In addition, the audit effort involved the use of professionals with specialized skill and
knowledge in the field of real estate valuations.
Our approach to addressing the matter included the following procedures, among others:
•
•
Developed a point estimate of the fair value of each individual income producing property using external market data and
compared each independent point estimate to management’s estimate of each property to evaluate the reasonableness of
management’s estimate.
For the individual estimates that fell outside of the expected range established from the point estimate, we tested how
management determined the fair value estimate of the income producing property which included the following:
◦
◦
◦
Evaluated the appropriateness of the valuation methodology used.
Evaluated the reasonableness of the discount rates and terminal capitalization rates by comparing to externally
available market data. For certain properties, professionals with specialized skill and knowledge in the field of real
estate valuations assisted in evaluating the reasonableness of the discount rates and terminal capitalization rates.
Tested the underlying data used in the discounted cash flow method.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 95
Independent Auditor’s Report
Comparative information
The consolidated financial statements of the Company for the year ended December 31, 2021 were audited by another auditor
who expressed an unmodified opinion on those statements on March 1, 2022.
Other information
Management is responsible for the other information. The other information comprises the Management’s Discussion and
Analysis and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the
annual report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated financial
statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’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 Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
96 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date
of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going
concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within
the Company to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when,
in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Anita McOuat.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 28, 2023
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 97
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 14)
Selling, general and administrative expenses
Operating Income
Net Interest Expense and Other Financing Charges (note 8)
Earnings Before Income Taxes
Income Taxes (note 9)
Net Earnings from Continuing Operations
Net Loss from Discontinued Operations (note 7)
Net Earnings
Attributable to:
Shareholders of the Company (note 10)
Non-Controlling Interests
Net Earnings
Net Earnings (Loss) per Common Share - Basic ($) (note 10)
Continuing Operations
Discontinued Operations
Net Earnings (Loss) per Common Share - Diluted ($) (note 10)
Continuing Operations
Discontinued Operations
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 from Continuing Operations
Other comprehensive income (loss), net of taxes
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation adjustment (note 31)
Gains on cash flow hedges (note 31)
Items that will not be reclassified to profit or loss:
Net defined benefit plan actuarial (losses) gains (note 27)
Adjustment to fair value of investment properties
Other comprehensive (loss) income from continuing operations
Comprehensive Income from Continuing Operations
Net Loss from Discontinued Operations (note 7)
Other comprehensive loss from discontinued operations
Comprehensive Loss from Discontinued Operations
Total Comprehensive Income
Attributable to:
Shareholders of the Company
Non-Controlling Interests
Total Comprehensive Income
See accompanying notes to the consolidated financial statements.
98 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
2022
2021
$
57,048
$
53,748
38,528
13,967
52,495
4,553
913
3,640
831
2,809
(6)
2,803
1,816
987
2,803
12.29
12.33
(0.04)
12.16
12.20
(0.04)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2022
$
2,809
$
3
26
(236)
91
(116)
2,693
(6)
—
(6)
2,687
1,799
888
$
2,687
$
36,435
13,286
49,721
4,027
1,650
2,377
630
1,747
(322)
1,425
431
994
1,425
2.59
4.73
(2.14)
2.52
4.66
(2.14)
2021
1,747
3
9
293
50
355
2,102
(322)
(130)
(452)
1,650
521
1,129
1,650
Consolidated Balance Sheets
As at December 31
(millions of Canadian dollars)
ASSETS
Current Assets
Cash and cash equivalents (note 11)
Short-term investments (note 11)
Accounts receivable (note 12)
Credit card receivables (note 13)
Income taxes recoverable
Inventories (note 14)
Prepaid expenses and other assets
Assets held for sale (note 15)
Total Current Assets
Fixed Assets (note 16)
Right-of-Use Assets (note 30)
Investment Properties (note 17)
Equity Accounted Joint Ventures (note 18)
Intangible Assets (note 19)
Goodwill (note 20)
Deferred Income Taxes (note 9)
Security Deposits (note 11)
Other Assets (note 21)
Total Assets
LIABILITIES
Current Liabilities
Bank indebtedness (note 34)
Trade payables and other liabilities
Loyalty liability
Provisions (note 22)
Income taxes payable
Demand deposits from customers
Short-term debt (note 13)
Long-term debt due within one year (note 23)
Lease liabilities due within one year (note 30)
Associate interest
Total Current Liabilities
Provisions (note 22)
Long-Term Debt (note 23)
Lease Liabilities (note 30)
Trust Unit Liability (note 31)
Deferred Income Taxes (note 9)
Other Liabilities (note 24)
Total Liabilities
EQUITY
Share Capital (note 25)
Retained Earnings
Contributed Surplus
Accumulated Other Comprehensive Income
Total Equity Attributable to Shareholders of the Company
Non-Controlling Interests
Total Equity
Total Liabilities and Equity
Contingent liabilities (note 33). Subsequent events (note 37).
See accompanying notes to the consolidated financial statements.
2022
2021
$
2,313
$
503
1,273
3,954
—
5,855
675
80
14,653
11,130
4,208
5,144
996
6,527
4,853
98
36
1,313
$
$
48,958
$
8
$
6,730
180
116
246
125
700
1,383
835
434
10,757
84
13,401
4,323
4,112
2,007
1,094
35,778
3,433
5,075
(1,864)
197
6,841
6,339
13,180
2,984
879
1,010
3,443
301
5,166
348
91
14,222
10,782
4,059
5,344
564
6,430
4,479
113
75
1,015
47,083
52
5,923
190
119
269
75
450
1,520
742
433
9,773
90
12,490
4,242
4,209
2,003
1,139
33,946
3,529
4,808
(1,462)
84
6,959
6,178
13,137
$
48,958
$
47,083
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 99
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, 2021
$ 2,712 $
817 $ 3,529 $
4,808 $
(1,462) $
25 $
(14) $
73 $
84 $
6,178 $
13,137
Net earnings
Other comprehensive income
(loss)(i)
—
—
—
—
—
—
1,816
(130)
—
—
—
3
—
19
—
91
—
987
2,803
113
(99)
(116)
Comprehensive income (loss)
$
— $
— $
— $
1,686 $
— $
3 $
19 $
91 $
113 $
888 $
2,687
Effect of equity-based
compensation (notes 25 & 28)
41
Shares purchased and
cancelled (note 25)
Net effect of shares held in
trusts (notes 25 & 28)
Loblaw capital transactions and
dividends
Dividends declared
Per common share ($) (note 25)
– $2.58
Per preferred share ($) (note 25)
– Series I – $1.45
– Series III – $1.30
– Series IV – $1.30
– Series V – $1.1875
(136)
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
41
(1)
(136)
(1,002)
(1)
(2)
4
—
—
—
—
—
—
—
—
—
(406)
(371)
(13)
(10)
(10)
(10)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3
—
—
47
(1,138)
(3)
(730)
(1,136)
—
—
—
—
—
(371)
(13)
(10)
(10)
(10)
Balance as at Dec. 31, 2022
$ 2,616 $
817 $ 3,433 $
5,075 $
(1,864) $
28 $
$
(96) $
— $
(96) $
(1,419) $
(402) $
— $
— $
5 $
— $
— $
(727) $
(2,644)
164 $
197 $
6,339 $
13,180
(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, 2020
$ 2,782 $
817 $ 3,599 $
5,226 $
(1,180) $
153 $
(22) $
35 $
166 $
5,607 $
13,418
Net earnings
Other comprehensive income
(loss)(i)
—
—
—
—
—
—
431
160
—
—
—
(128)
—
8
—
50
—
994
1,425
(70)
135
225
Comprehensive income (loss)
$
— $
— $
— $
591 $
— $
(128) $
8 $
50 $
(70) $
1,129 $
1,650
Effect of equity-based
compensation (notes 25 & 28)
36
Shares purchased and
cancelled (note 25)
Net effect of shares held in
trusts (notes 25 & 28)
Loblaw capital transactions
and dividends
Transfer of remeasurement gain
on sale of investment properties
Dividends declared
Per common share ($) (note 25)
– $2.30
Per preferred share ($) (note 25)
– Series I – $1.45
– Series III – $1.30
– Series IV – $1.30
– Series V – $1.1875
(108)
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
36
—
(108)
(642)
2
—
—
—
—
—
—
—
9
—
12
(345)
(13)
(10)
(10)
(10)
6
—
—
(288)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance as at Dec. 31, 2021
$ 2,712 $
817 $ 3,529 $
4,808 $
(1,462) $
25 $
(14) $
$
(70) $
— $
(70) $
(1,009) $
(282) $
— $
— $
—
—
—
—
—
—
—
—
3
—
—
45
(750)
11
(561)
(849)
(12)
(12)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(345)
(13)
(10)
(10)
(10)
(12) $
73 $
(12) $
(558) $
(1,931)
84 $
6,178 $
13,137
(i)
Other comprehensive income (loss) includes an actuarial loss of $236 million (2021 – gain of $293 million), of which $130 million (2021 – gain of $160 million) is
presented in retained earnings, and $106 million (2021 – gain of $133 million) in non-controlling interests. Also included in non-controlling interests was a nominal
gain on foreign currency translation adjustments (2021 – gain of $1 million) and a gain of $7 million on cash flow hedges (2021 – gain of $1 million).
See accompanying notes to the consolidated financial statements.
100 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Consolidated Statements of Cash Flows
For the years ended December 31
(millions of Canadian dollars)
Operating Activities
Net earnings
Add (deduct):
Net interest expense and other financing charges (note 8)
Income taxes (note 9)
Depreciation and amortization
Loss on sale of discontinued operations, after income taxes (note 7)
Asset impairments, net of recoveries
Adjustment to fair value of investment properties and assets held for sale (notes 15 & 17)
Adjustment to fair value of investment in real estate securities (note 31)
Change in allowance for credit card receivables (note 13)
Change in provisions (note 22)
Change in gross credit card receivables (note 13)
Change in non-cash working capital
Income taxes paid
Interest received
Interest received from finance leases (note 30)
Other
Cash Flows from Operating Activities
Investing Activities
Fixed asset and investment properties purchases (notes 16 & 17)
Intangible asset additions (note 19)
Acquisition of Lifemark, net of cash acquired (note 6)
Proceeds from disposal of assets
Net consideration from disposal of discontinued operations (note 7)
Lease payments received from finance leases
Proceeds from sale (purchase) of short-term investments (note 11)
Release of security deposits (note 11)
Purchase of long-term securities (note 21)
(Advances) repayments of mortgages, notes and loans receivable (note 21)
Other
Cash Flows used in Investing Activities
Financing Activities
Decrease in bank indebtedness (note 34)
Increase (decrease) in short-term debt
Change in demand deposits from customers
Change in other financing (note 24)
Interest paid
Settlement of net debt associated with equity forward sale agreement (note 23)
Long-term debt – Issued (note 23)
– Repayments (note 23)
Cash rent paid on lease liabilities – Interest (notes 8 & 30)
Cash rent paid on lease liabilities – Principal (note 30)
Share capital – Issued (notes 25 & 28)
– Purchased and held in trusts (note 25)
– Purchased and cancelled (note 25)
Loblaw common share capital – Issued (note 28)
– Purchased and held in trusts
– Purchased and cancelled
Dividends – To common shareholders
– To preferred shareholders
– To non-controlling interests
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.
See note 7. Discontinued Operations for additional cash flow information.
2022
2021(i)
$
2,803
$
1,425
913
831
2,407
6
30
(734)
248
1
(9)
(512)
(580)
(592)
63
3
(1)
4,877
(1,474)
(419)
(813)
239
—
12
376
41
(180)
(134)
(188)
(2,540)
(44)
250
50
4
(818)
—
2,609
(1,817)
(185)
(576)
36
(14)
(994)
88
(138)
(700)
(367)
(44)
(256)
(95)
(3,011)
3
(671)
2,984
$
2,313
$
1,651
629
2,419
317
25
(325)
—
(32)
10
(302)
25
(706)
18
3
(38)
5,119
(1,056)
(400)
—
334
1,207
10
(272)
—
—
(12)
(102)
(291)
(34)
(101)
51
(2)
(853)
(790)
1,440
(1,408)
(191)
(620)
32
—
(744)
102
(50)
(637)
(342)
(44)
(235)
—
(4,426)
1
403
2,581
2,984
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 101
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 two reportable operating segments, Loblaw Companies Limited (“Loblaw”) and Choice
Properties Real Estate Investment Trust (“Choice Properties”). 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 and healthcare services, health and beauty products,
apparel, general merchandise and financial services.
Choice Properties owns, manages and develops a high-quality portfolio of commercial and residential properties across Canada.
In December 2021, the Company completed the sale of the Weston Foods bakery business. Refer to note 7, “Discontinued
Operations” for details.
Note 2. Significant Accounting Policies
STATEMENT OF COMPLIANCE The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS” or “GAAP”) as issued by the International Accounting Standards Board (“IASB”) and using
the accounting policies described herein.
These consolidated financial statements were authorized for issuance by the Company’s Board of Directors (“Board”) on
February 28, 2023.
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 17;
defined benefit pension plan assets with the obligations related to these pension plans measured at their discounted
present value as described in note 27;
amounts recognized for cash-settled equity-based compensation arrangements as described in note 28; and
certain financial instruments as described in note 31.
The significant accounting policies set out below have been applied consistently in the preparation of the consolidated financial
statements for all 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, 2022 and December 31, 2021 contained 52 weeks.
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).
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.
102 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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 Loblaw’s 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.
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 classified as held for
sale are measured at the lower of the carrying amount or fair value less cost to sell and are not depreciated. The fair value
measurement of assets held for sale is categorized within Level 2 of fair value hierarchy. Assets that were previously classified as
investment properties are measured using the fair value model consistent with properties classified as investment properties.
DISCONTINUED OPERATIONS A discontinued operation is a component of the Company’s business, the operations and cash
flows of which can be clearly distinguished from the rest of the Company and which: represents a separate major line of
business or geographical area of operations; is part of a single coordinated plan to dispose of a separate major line of business or
geographic areas of operations; or is a subsidiary acquired exclusively with a view to resale. Classification as discontinued
operations occurs at the earlier of disposal or when the operation meets the criteria to be classified as held for sale or
distribution.
When an operation is classified as a discontinued operation, the comparative statements of earnings and comprehensive
income are re-presented as if the operation has been discontinued from the start of the comparative year.
The Company’s discontinued operations are excluded from the results of continuing operations and are presented as a single
amount, after income taxes, as net earnings from discontinued operations in the consolidated statements of earnings. The
consolidated statements of cash flows include cash flows of the discontinued operations, and has not been restated to reflect
discontinued operations. The details of the cash flows from discontinued operations are presented in the notes to the financial
statements. The consolidated balance sheets have not been restated to reflect discontinued operations.
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, franchise-owned retail food and
Associate-owned drug stores, which includes in-store pharmacies, health care services and other health and beauty products,
apparel and other general merchandise. Revenue is measured at the amount of consideration to which the Company expects to
be entitled to, net of estimated returns and sales incentives. The Company recognizes revenue made through corporate,
franchise and Associate stores at the time the point of sale is made or when service is delivered to the customers. The Company
recognizes revenue made through independent wholesale customers at the time of delivery of inventory and when
administrative and management services are rendered.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 103
Notes to the Consolidated Financial Statements
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 loyalty program 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 deferred revenue is recognized when redemptions occur.
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.
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.
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 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.
104 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
SHORT-TERM INVESTMENTS Short-term investments are investments in highly liquid and rated certificates of deposit,
commercial paper or other securities, primarily Canadian and United States government securities and notes of other
creditworthy parties, with an original term to maturity of more than 90 days and remaining term to maturity of less than one
year from the date of acquisition.
SECURITY DEPOSITS Security deposits consist of cash and cash equivalents and short-term investments. Security deposits also
include amounts which are required to be placed with counterparties as collateral to enter into and maintain certain
outstanding letters of credit and certain financial derivative contracts.
ACCOUNTS RECEIVABLE Accounts receivable consists primarily of receivables from government and third-party drug plans
arising from prescription drug sales, independent accounts and amounts owed from vendors, 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 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.
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 2022 ANNUAL REPORT 105
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 and services, and are recognized as a reduction in the cost of sales 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.
FIXED ASSETS Fixed assets are recognized and subsequently measured at cost less accumulated depreciation and any net
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 performance obligation under 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 10 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.
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 sales and SG&A expenses on the
most systematic basis.
106 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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, net 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
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 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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 107
Notes to the Consolidated Financial Statements
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 policy 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.
The Company’s 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 or loss 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.
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 the Company. 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.
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 is objective evidence 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.
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
and are adjusted for prospectively, if appropriate. Amortization expense for intangible assets is recognized in SG&A expenses.
Indefinite life intangible assets are measured at cost less any accumulated impairment losses. These intangible assets are tested
for impairment on an annual basis or more frequently if there are indicators that intangible assets may be impaired as described
in the Impairment of Non-Financial Assets policy.
IMPAIRMENT OF NON-FINANCIAL ASSETS At each balance sheet date, the Company reviews the carrying amounts of its non-
financial assets at the cash generating unit level (“CGU”), 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.
108 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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 CGU. Loblaw has determined that each retail location is a separate CGU for purposes of
impairment testing.
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 business combination from which the goodwill arose.
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 in a discounted cash flow model 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 reflects 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.
CUSTOMER LOYALTY AWARDS PROGRAMS 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. The majority of Loblaw’s loyalty
liability, which is contract liability, is expected to be redeemed and recognized as revenue within one year of issuance.
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.
DEMAND DEPOSITS FROM CUSTOMERS Demand deposits from customers are comprised of balances in customers’ PC Money
Account.
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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 109
Notes to the Consolidated Financial Statements
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as FVTPL:
•
The financial asset is held within a business model whose objective is to hold assets in order to collect contractual cash
flows; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
•
A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
•
The financial asset is held within a business model in which assets are managed to achieve a particular objective by both
collecting contractual cash flows and selling financial assets; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
•
A financial asset shall be measured at FVTPL unless it is measured at amortized cost or at FVOCI.
Financial assets are not reclassified subsequent to their initial recognition unless the Company identifies changes in its business
model in managing financial assets.
Financial liabilities are classified and measured based on two categories: amortized cost or FVTPL. 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
Amortized cost
Short-term investments
Accounts receivable
Credit card receivables
Security deposits
Certain other assets
Long-term securities
Bank indebtedness
Trade payables and other liabilities
Demand deposits from customers
Short-term debt
Long-term debt
Trust Unit liability
Amortized cost / fair value through other comprehensive income
Amortized cost
Amortized cost
Fair value through profit and loss
Amortized cost / fair value through profit and loss
Fair value through other comprehensive income
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.
110 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
The Company has cash flow hedges which are used to manage exposure to fluctuations in foreign currency exchange and
interest rates. The effective portion of the change in fair value of the hedging item is recorded in other comprehensive income. If
the change in fair value of the hedging item is not completely offset by the change in fair value of the hedged item, the
ineffective portion of the hedging relationship is recorded in net earnings. Amounts accumulated in other comprehensive
income are reclassified to net earnings when the hedged item is recognized in net earnings. The Company ensures that the
hedge accounting relationships are aligned with the Company’s risk management objectives and strategy and applies a more
qualitative and forward-looking approach to assessing hedge effectiveness. The Company’s risk management strategy and
hedging activities are disclosed in Note 31 “Financial Instruments” and Note 32 “Financial Risk Management”.
Fair Value The Company measures financial assets and financial liabilities under the following fair value hierarchy. The different
levels have been defined as follows:
•
•
•
Fair Value Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Fair Value Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Fair Value Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Determination of fair value and the resulting hierarchy requires the use of observable market data whenever available. The
classification of a financial instrument in the hierarchy is based upon the lowest level of input that is significant to the
measurement of fair value.
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
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.
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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 111
Notes to the Consolidated Financial Statements
Impairment of Financial Assets The Company applies a forward-looking ECL model at each balance sheet date to financial
assets measured at amortized cost or those measured at FVOCI, except for investments in equity instruments.
The ECL model outlines a three-stage approach to reflect the increase in credit risks of a financial instrument:
•
•
•
Stage 1 is comprised of all financial instruments that have not had a significant increase in credit risks since initial
recognition or that have low credit risk at the reporting date. The Company is required to recognize impairment for Stage 1
financial instruments based on the expected losses over the expected life of the instrument arising from loss events that
could occur during the 12 months following the reporting date.
Stage 2 is comprised of all financial instruments that have had a significant increase in credit risks since initial recognition
but that do not have objective evidence of a credit loss event. For Stage 2 financial instruments the impairment is
recognized based on the expected losses over the expected life of the instrument arising from loss events that could occur
over the expected life. The Company is required to recognize a lifetime ECL for Stage 2 financial instruments.
Stage 3 is comprised of all financial instruments that have objective evidence of impairment at the reporting date. The
Company is required to recognize impairment based on a lifetime ECL for Stage 3 financial instruments.
The ECL model applied to financial assets 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. Revenues and expenses of foreign operations are translated into Canadian
dollars at the foreign currency exchange rates that approximate the rates in effect at the dates when such items are transacted.
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
112 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
considering minimum funding requirements, the net defined benefit asset is reduced to the amount of the asset ceiling. When
the payment in the future of minimum funding requirements related to past service would result in a net defined benefit
surplus or an increase in a surplus, the minimum funding requirements are recognized as a liability to the extent that the surplus
would not be fully available as a refund or a reduction in future contributions.
Remeasurements including actuarial gains and losses, the effect of the asset ceiling (if applicable) and the impact of any
minimum funding requirements are recognized through other comprehensive income and subsequently reclassified from
accumulated other comprehensive income to retained earnings.
OTHER LONG-TERM EMPLOYEE BENEFIT PLANS The Company offers other long-term employee benefits including
contributory long-term disability benefits and non-contributory continuation of health care and dental benefits to employees
who are on long-term disability leave. As the amount of the long-term disability benefit does not depend on length of service,
the obligation is recognized when an event occurs that gives rise to an obligation to make payments. The accounting for other
long-term employee benefit plans is similar to the method used for defined benefit plans except that all actuarial gains and
losses are recognized in operating income.
DEFINED CONTRIBUTION PLANS The Company maintains a number of defined contribution pension plans for employees in
which the Company pays fixed contributions for eligible employees into a registered plan and has no further significant
obligation to pay any further amounts. The costs of benefits for defined contribution plans are expensed as employees have
rendered service.
MULTI-EMPLOYER PENSION PLANS The Company participates in multi-employer pension plans (“MEPPs”) 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 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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 113
Notes to the Consolidated Financial Statements
Members of GWL’s, Loblaw’s and Choice Properties’ Board, who are not management, may elect to receive a portion of
their annual retainers and fees in the form of DSUs. Eligible executives of the Company may elect to defer up to 100% of the
Short-Term Incentive Plan earned in any year into the EDSU plan. Dividends paid earn fractional DSUs and EDSUs, respectively
and are treated as capital transactions. DSUs and EDSUs vest upon grant.
The compensation expense for equity-settled plans is prorated over the vesting or performance period, with a corresponding
increase to contributed surplus. Forfeitures are estimated at the grant date and are revised to reflect changes in expected or
actual forfeitures.
Upon exercise of options, the amount accumulated in contributed surplus for the award plus the cash received upon exercise is
recognized as an increase in share capital. Upon settlement of RSUs and PSUs, the amount accumulated in contributed surplus
for the award is reclassified to share capital, with any premium or discount applied to retained earnings.
CASH-SETTLED EQUITY-BASED COMPENSATION PLANS Unit Options, Restricted Units (“RUs”), Performance Units (“PUs”),
Trustee Deferred Units (“DUs”), and Unit-Settled Restricted Units (“URUs”) issued by Choice Properties, and certain DSUs 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.
114 GEORGE WESTON LIMITED 2022 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 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).
BUSINESS COMBINATIONS - VALUATION OF INTANGIBLE ASSETS
Key Estimations The Company applies significant judgment in estimating the fair value of intangible assets. In determining the
fair value of customer relationships and brands, various valuation techniques are used. Specifically, the Company used the multi-
period excess earnings method to fair value customer relationships and the royalty relief method to fair value brands using a
discounted cash flow model. Under these valuation approaches, the Company developed assumptions related to revenue and
gross margin forecasts, attrition rate, royalty rate and discount rates.
INVENTORIES
Key Estimations 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 The Company uses judgment in determining CGUs for the
purpose of testing fixed assets, right-of-use assets and intangible assets for impairment. Judgment is also used to determine the
goodwill CGUs for the purpose of testing goodwill for impairment. The Company has determined that each retail location is a
separate CGU. Intangible assets are allocated to the CGUs (or groups of CGUs) to which they relate. Goodwill is allocated to CGUs
(or groups of CGUs) based on the level at which management monitors goodwill, which cannot be higher than an operating
segment. The allocation of goodwill is made to CGUs (or groups of CGUs) that are expected to benefit from the synergies and
future growth of the business combination from which they arose. In addition, judgment is used to determine whether a
triggering event has occurred requiring an impairment test to be completed. In applying this judgment management considers
profitability of the CGU and other qualitative factors. If the company cannot estimate the recoverable amount of an individual
tangible or intangible asset because it does not generate independent cash inflows, the Company is required to test the entire
CGU to which it belongs for impairment.
Key Estimations 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, discount
rates and capitalization rates. The Company determines value in use by using estimates including projected future sales and
earnings, and discount rates consistent with external industry information reflecting the risk associated with the specific cash
flows.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 115
Notes to the Consolidated Financial Statements
IMPAIRMENT OF CREDIT CARD RECEIVABLES
Judgments Made in Relation to Accounting Policies Applied and Key Estimations In each stage of the ECL 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. 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 risk based on changes in probability of default over the expected life of the
instrument relative to initial recognition; and
Forecasts of future economic conditions, namely the unemployment rate. Management uses an average of 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 Estimations 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 including expectations about future operating results, the timing and reversal of
temporary differences, and the interpretation of tax rules in jurisdictions where the Company performs activities. Where the
amount of tax payable or recoverable is uncertain, the Company establishes provisions based on the most likely amount of the
liability or recovery.
PROVISIONS
Judgments made in Relation to Accounting Policies Applied and Key Estimations 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 Estimations 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.
116 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 4. Future Accounting Standard
IFRS 17 In 2017, the IASB issued IFRS 17, “Insurance Contracts” (“IFRS 17”) replacing IFRS 4. 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. The
Company has assessed the impact of the standard on its consolidated financial statements and determined that the impact will
not be material.
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.
As at
Dec. 31, 2022
Dec. 31, 2021
Loblaw
Number
of shares /
units held
Ownership
interest
Number
of shares /
units held
Common shares(i)
Class B LP Units(ii)
170,606,070
395,786,525
52.6%
175,475,019
n/a
395,786,525
Trust Units
50,661,415
n/a
50,661,415
Choice Properties
446,447,940
61.7%
446,447,940
Ownership
interest
52.6%
n/a
n/a
61.7%
(i)
(ii)
GWL participates in Loblaw’s Normal Course Issuer Bid (“NCIB”) program, in order to maintain its proportionate percentage ownership.
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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 117
Notes to the Consolidated Financial Statements
Note 6. Business Acquisitions
ACQUISITION OF LIFEMARK HEALTH GROUP On May 10, 2022, Loblaw acquired all of the outstanding common shares of
Lifemark Health Group (“Lifemark”) for total cash purchase consideration of $829 million. Lifemark is the Canadian leading
provider of outpatient physiotherapy, massage therapy, occupational therapy, chiropractic, mental health, and other ancillary
rehabilitation services through its more than 300 clinics across Canada. The acquisition of Lifemark adds to Loblaw’s growing role
as a healthcare service provider, with a network of health and wellness solutions, accessible in-person and digitally.
The Lifemark acquisition was accounted for using the acquisition method in accordance with IFRS 3, “Business Combinations”,
with the results of operations consolidated with those of Loblaw effective May 10, 2022.
In the third quarter of 2022, Loblaw finalized the purchase price allocation which is summarized as follows:
($ millions)
Net Assets Acquired:
Cash and cash equivalents
Accounts receivable(i)
Prepaid expenses and other assets
Fixed assets
Right-of-use assets
Intangible assets
Goodwill
Trade payables and other liabilities
Lease liabilities
Deferred income tax liabilities
Other liabilities
Total Net Assets Acquired
$
$
15
54
2
16
75
564
365
(38)
(75)
(145)
(4)
829
(i)
Trade and other receivables is net of a loss allowance of $2 million.
Goodwill is attributable to expected growth in customers and expansion of the Lifemark footprint. The goodwill arising from this
acquisition is not deductible for tax purposes.
Intangible assets are comprised of the following:
($ millions)
Intangible Assets:
Brand
Customer Relationships
Computer Software
Total Intangible Assets
Estimated Useful Life
Indefinite
10-20 years
3 years
$
$
265
295
4
564
Year-to-date selling, general and administrative expense includes $16 million of transaction costs related to the acquisition.
Included in the consolidated statement of earnings for the year ended December 31, 2022 is $279 million of revenue and
nominal net earnings contributed by Lifemark since the date of acquisition. Net earnings includes amortization related to the
acquired intangible assets of $8 million. On a combined pro forma basis, Loblaw’s revenue and net earnings available to
common shareholders would have amounted to $56,657 million and $1,909 million, respectively. This pro forma information
incorporates the effect of the final purchase price equation as if Lifemark had been acquired on January 2, 2022. Included in
the pro forma net earnings is the amortization related to the acquired intangible assets of $16 million.
118 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 7. Discontinued Operations
WESTON FOODS On December 10, 2021, the Company completed the sale of Weston Foods’ fresh and frozen bakery business
to FGF Brands Inc. and on December 29, 2021, the Company completed the sale of Weston Foods’ ambient business to affiliated
entities of Hearthside Foods Solution, LLC. In the second quarter of 2022, final closing adjustments of $6 million, after income
taxes, were recorded in discontinued operations within the consolidated statement of earnings.
Unless otherwise specified, all other notes to the consolidated financial statements include amounts from both continuing and
discontinued operations.
The results of Discontinued Operations presented in the consolidated statements of earnings is as follows:
Years Ended
Dec. 31, 2022
Dec. 31, 2021
Weston
Foods
Intersegment
Eliminations
Discontinued
Operations
Weston
Foods
Intersegment
Eliminations
Discontinued
Operations
$
— $
— $
—
$
1,868 $
(552) $
1,316
($ millions)
Revenue
Operating Expenses
Cost of inventories sold
Selling, general and administrative expenses
Operating Loss
Net interest expense and other financing charges
Loss before Income Taxes
Income tax recovery
Net Loss after Income Taxes
Loss on sale after income taxes
Net Loss from Discontinued Operations
—
—
—
—
$
— $
— $
$
$
$
$
The net cash flows used in Discontinued Operations are as follows:
($ millions)
Cash flows used in operating activities
Cash flows used in investing activities
Cash flows used in financing activities
Effect of foreign currency rate changes on cash and cash equivalents
Cash flows used in Discontinued Operations
—
—
—
—
—
—
—
—
(6)
(6)
$
$
$
$
$
1,389
(541)
491
(18)
848
473
$
1,880 $
(559) $
1,321
$
$
$
(5)
1
(6)
(1)
(5)
(317)
$
(322)
Years Ended
Dec. 31, 2022
Dec. 31, 2021
—
—
—
—
—
$
$
$
$
$
—
(122)
(6)
2
(126)
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 119
Notes to the Consolidated Financial Statements
Note 8. Net Interest Expense and Other Financing Charges
The components of net interest expense and other financing charges from continuing operations were as follows:
($ millions)
Interest expense:
Long-term debt
Lease liabilities (note 30)
Borrowings related to credit card receivables
Trust Unit distributions
Independent funding trusts
Post-employment and other long-term employee benefits (note 27)
Bank indebtedness
Financial liabilities (note 24)
Capitalized interest (capitalization rate 3.7% (2021 – 3.6%) (notes 16 & 19)
Interest income:
Accretion income
Interest income
Post-employment and other long-term employee benefits (note 27)
Fair value adjustment of the Trust Unit liability (note 31)
Recovery related to Glenhuron Bank Limited (note 9)
Forward sale agreement(i)
Net interest expense and other financing charges from Continuing Operations
$
2022
577
185
52
205
22
—
1
43
(3)
2021
580
191
37
205
13
9
4
46
(3)
1,082
$
1,082
(6)
$
(50)
(4)
(60)
(98)
(11)
—
$
$
(6)
(18)
—
(24)
601
(189)
180
913
$
1,650
$
$
$
$
$
$
(i)
In 2021, the Company settled the net debt associated with the equity forward sale agreement. Included in 2021 is a charge of $188 million
related to the fair value adjustment of the forward sale agreement for the Loblaw common shares, forward accretion income of $24 million,
and the forward fee of $16 million, associated with the forward sale agreement.
120 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 9. Income Taxes
The components of income taxes recognized in the consolidated statements of earnings from continuing operations were as
follows:
($ millions)
Current income taxes
Current period
Recovery related to Glenhuron Bank Limited
Adjustment in respect of prior periods
Deferred income taxes
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Income taxes from Continuing Operations
2022
2021
$
930
$
(33)
(4)
(53)
(9)
$
831
$
791
(128)
10
(37)
(6)
630
Between 2015 and 2019, Loblaw was 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. In the fourth quarter of 2021, the Supreme Court of
Canada (“Supreme Court”) ruled in favour of Loblaw on the Glenhuron matter and Loblaw reversed $301 million of previously
recorded charges, of which $173 million was recorded as interest income and $128 million was recorded as income tax recovery,
and an additional $16 million, before taxes, was also recorded in respect of interest income earned on expected cash tax
refunds. As a result of related reassessments received during the first quarter of 2022, Loblaw reversed another $35 million of
previously recorded charges, of which $2 million was recorded as interest income and $33 million was recorded as an income
tax recovery, and an additional $9 million, before taxes, was recorded in respect of interest income earned on expected cash tax
refunds (see note 33).
Income tax (recovery) expense recognized in other comprehensive income from continuing operations was as follows:
($ millions)
Net defined benefit plan actuarial (losses) gains (note 27)
Adjustment to fair value on transfer of investment properties
Gains on cash flow hedges (note 31)
Total income tax (recovery) expense recognized in other comprehensive income
$
$
2022
(87)
$
18
5
(64)
$
2021
104
10
1
115
The effective tax rate in the consolidated statements of earnings from continuing operations 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 differentials
Recovery related to Glenhuron
Non-deductible and non-taxable items
Impact of fair value adjustment of Trust Unit liability
Adjustments in respect of prior periods
Other
2022
26.5%
2021
26.5%
—
(0.9)
(2.7)
(0.7)
(0.4)
1.0
(0.1)
(5.4)
(2.3)
6.7
0.2
0.9
Effective tax rate applicable to earnings before income taxes
22.8%
26.5%
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 121
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, 2022
Dec. 31, 2021
$
$
15
$
363
378
$
12
166
178
The portion of the income tax losses and credits which have a limited carry-forward period expire in the years 2026 to 2042. 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 2042)
Capital losses carried forward
Other
Net deferred income tax liabilities
Recorded on the consolidated balance sheets as follows:
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax liabilities
As at
Dec. 31, 2022
Dec. 31, 2021
$
$
$
$
$
89
347
1,372
(1,311)
(1,125)
(1,346)
43
14
8
80
261
1,296
(1,225)
(1,049)
(1,336)
48
14
21
(1,909)
$
(1,890)
98
$
(2,007)
(1,909)
$
113
(2,003)
(1,890)
122 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 10. Basic and Diluted Net Earnings per Common Share
($ millions except where otherwise indicated)
Net earnings attributable to shareholders of the Company
Less: Discontinued Operations (note 7)
Net earnings from continuing operations attributable to shareholders of the Company
Prescribed dividends on preferred shares in share capital
Net earnings from continuing operations available to common shareholders of the
Company
Reduction in net earnings due to dilution at Loblaw
Net earnings from continuing operations available to common shareholders
for diluted earnings per share
Weighted average common shares outstanding (in millions) (note 25)
Dilutive effect of equity-based compensation(i)
(in millions)
Diluted weighted average common shares outstanding (in millions)
Net earnings (loss) per common share – Basic ($)
Continuing Operations
Discontinued Operations
Net earnings (loss) per common share – Diluted ($)
Continuing Operations
Discontinued Operations
$
$
2022
1,816
$
(6)
1,822
$
(44)
$
1,778
$
(11)
$
1,767
$
144.2
0.6
144.8
12.33
(0.04)
12.20
(0.04)
$
$
$
$
$
$
$
$
2021
431
(322)
753
(44)
709
(9)
700
149.9
0.3
150.2
4.73
(2.14)
4.66
(2.14)
(i)
In 2022, nominal (2021 – nominal) potentially dilutive instruments were excluded from the computation of diluted net earnings (loss) per
common share as they were anti-dilutive.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 123
Notes to the Consolidated Financial Statements
Note 11. 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:
As at
Dec. 31, 2022
Dec. 31, 2021
$
1,531
$
1,255
406
370
—
6
632
1,073
21
3
$
2,313
$
2,984
As at
Dec. 31, 2022
Dec. 31, 2021
$
457
$
22
21
3
776
97
5
1
$
503
$
879
As at
Dec. 31, 2022
Dec. 31, 2021
$
$
7
29
36
$
$
46
29
75
CASH AND CASH EQUIVALENTS
($ millions)
Cash
Cash equivalents:
Government treasury bills
Bankers’ acceptances
Guaranteed investment certificates
Other
Cash and cash equivalents
SHORT-TERM INVESTMENTS
($ millions)
Government treasury bills
Bankers’ acceptances
Guaranteed Investment Certificates
Other
Short-term investments
SECURITY DEPOSITS
($ millions)
Cash
Government treasury bills
Security deposits
124 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 12. 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, net
$
1,172 $
20 $
81 $
1,273 $
909 $
60 $
41 $
1,010
As at
Dec. 31, 2022
Dec. 31, 2021
The following are continuities of the Company’s allowances for uncollectible accounts receivable:
($ millions)
Allowance, beginning of year
Transfer to assets held for sale (note 7)
Net additions
Allowance, end of year
$
$
2022
(23)
$
—
(8)
(31)
$
2021
(31)
11
(3)
(23)
Credit risk associated with accounts receivable is discussed in note 32.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 125
Notes to the Consolidated Financial Statements
Note 13. 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 23)
Securitized to Other Independent Securitization Trusts
Total securitized to independent securitization trusts
As at
Dec. 31, 2022
Dec. 31, 2021
$
$
$
$
4,160
$
(206)
3,954
$
1,350
$
700
2,050
$
3,648
(205)
3,443
1,350
450
1,800
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 Other Independent Securitization Trusts, in accordance with its financing
requirements.
The associated liability of Eagle is recorded in long-term debt (see note 23). The associated liabilities of credit card receivables
securitized to the Other Independent Securitization Trusts are recorded in short-term debt.
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 2021, with their respective maturity dates extended to 2025 and
with all other terms and conditions remaining substantially the same.
As at December 31, 2022, PC Bank recorded a $250 million net increase of co-ownership interest in the securitized receivables
held with the Other Independent Securitization Trusts as a result of growth in the credit card portfolio.
The undrawn commitments on facilities available from the Other Independent Securitization Trusts as at year end 2022 were
$250 million (2021 – $250 million).
Loblaw has arranged letters of credit on behalf of PC Bank for the benefit of the independent securitization trusts (see note 34).
Under its securitization programs, PC Bank is required to maintain, at all times, a credit card receivable pool balance equal to a
minimum of 107% of the outstanding securitized liability. PC Bank was in compliance with this requirement as at year end 2022
and throughout the year.
The following table provides gross carrying amounts of credit card receivables by internal risk ratings for credit risk management
purposes:
12-month ECL
(Stage 1)
Lifetime ECL-
not credit
impaired
(Stage 2)
Lifetime ECL-
credit
impaired
(Stage 3)
$
2,113 $
13 $
1,163
424
35
370
3,700 $
418 $
(79)
(92)
$
$
3,621 $
326
$
7
$
Dec. 31, 2022
Total
2,126
1,198
836
4,160
(206)
3,954
$
$
—
—
42
42
(35)
($ millions)
Low risk
Moderate risk
High risk
Total gross carrying amount
ECL allowance
Net carrying amount
126 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
($ millions)
Low risk
Moderate risk
High risk
Total gross carrying amount
ECL allowance
Net carrying amount
12-month ECL
(Stage 1)
Lifetime ECL-
not credit
impaired
(Stage 2)
Lifetime ECL-
credit
impaired
(Stage 3)
$
1,877 $
11 $
985
332
35
371
3,194 $
417 $
(75)
(98)
$
$
3,119 $
319 $
5
$
Dec. 31, 2021
$
$
—
—
37
37
(32)
Total
1,888
1,020
740
3,648
(205)
3,443
The following are continuities of Loblaw’s allowances for credit card receivables for the years ended December 31, 2022 and
December 31, 2021:
($ millions)
Balance, beginning of the year
Increase / (Decrease) during the year:
Stage 1
Stage 2
Stage 3
$
75
$
98 $
32
$
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
22
(5)
(2)
13
(24)
—
—
(22)
7
(15)
8
16
—
—
$
79 $
92
$
—
(2)
17
5
81
(127)
29
35
$
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 remeasurements includes the impact from changes in loan balances, model enhancements and credit quality during the year.
($ millions)
Stage 1
Stage 2
Stage 3
Balance, beginning of the year
$
90 $
116 $
31
$
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
44
(5)
(1)
7
(60)
—
—
(44)
7
(18)
14
23
—
—
$
75 $
98 $
—
(2)
19
2
65
(108)
25
32
$
2022
Total
205
—
—
—
26
73
(127)
29
206
2021
Total
237
—
—
—
23
28
(108)
25
205
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 remeasurements includes the impact from changes in loan balances, model enhancements, and credit quality during the year.
The allowances for credit card receivables recorded in 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 2022 ANNUAL REPORT 127
Notes to the Consolidated Financial Statements
Note 14. Inventories
For inventories recorded as at year end 2022, Loblaw has an inventory provision of $43 million (December 31, 2021 – $67 million)
for the write-down of inventories below cost to net realizable value. The write-down was included in cost of inventories sold.
There were no reversals of previously recorded write-downs of inventories during 2022 and 2021.
Note 15. Assets Held for Sale
The components of assets held for sale, net of intercompany transactions were as follows:
($ millions)
Loblaw(i)
Choice Properties
Assets Held for Sale
As at
Dec. 31, 2022
Dec. 31, 2021
$
$
30
50
80
$
$
91
—
91
(i)
In 2022, Loblaw recorded a net gain of $76 million (2021 – net gain of $12 million) from the sale of these assets. On consolidation, $19 million
was reversed as it related to an intercompany transaction.
Note 16. Fixed Assets
The following is a continuity of the cost and accumulated depreciation and impairment losses of fixed assets for the year ended
December 31, 2022:
Buildings
($ millions)
Cost, beginning of year
Additions
Disposals
Transfer to assets held for sale
Net transfer to investment properties (note 17)
Transfer from assets under construction
Business acquisitions(i)
Land
building
improvements
and
Equipment
and
fixtures
Leasehold
improvements
Assets
under
construction
Total
$ 2,011 $
9,120 $
9,371 $
2,463 $
406 $ 23,371
—
(1)
(6)
(13)
—
—
62
(28)
—
(20)
223
—
148
(104)
—
—
563
6
55
(38)
—
—
125
10
1,043
1,308
—
—
(7)
(911)
—
(171)
(6)
(40)
—
16
Cost, end of year
$
1,991 $
9,357 $
9,984 $
2,615 $
531 $ 24,478
Accumulated depreciation and impairment
losses, beginning of year
$
3 $
3,901 $
7,076 $
1,606 $
3 $ 12,589
Depreciation
Impairment losses
Reversal of impairment losses
Disposals
Accumulated depreciation and impairment
losses, end of year
Carrying amount as at:
December 31, 2022
—
3
—
—
211
528
—
(1)
9
(4)
(23)
(104)
164
16
(2)
(38)
—
—
—
—
903
28
(7)
(165)
$
6 $
4,088 $
7,505 $
1,746 $
3 $ 13,348
$
1,985 $
5,269 $
2,479 $
869 $
528 $ 11,130
(i)
Includes $16 million related to the acquisition of Lifemark (see note 6).
128 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
The following is a continuity of the cost and accumulated depreciation and impairment losses of fixed assets for the year ended
December 31, 2021:
Buildings
($ millions)
Cost, beginning of year
Additions(i)
Disposals
Transfer to assets held for sale
Net transfer from investment properties
(note 17)
Transfer from assets under construction
Impact of foreign currency translation
Land
building
improvements
and
Equipment
and
fixtures
Leasehold
improvements
Assets
under
construction
Total
$ 2,082 $
9,394 $
10,391 $
2,393 $
649 $ 24,909
9
(47)
(25)
(22)
14
—
16
(22)
28
(93)
(384)
(1,627)
(93)
214
(5)
—
681
(9)
17
(14)
(35)
899
(3)
969
(179)
(124)
(2,195)
—
(1)
(116)
102
(1,011)
—
(3)
—
(17)
Cost, end of year
$
2,011 $
9,120 $
9,371 $
2,463 $
406 $ 23,371
Accumulated depreciation and impairment
losses, beginning of year
$
3 $
3,897 $
7,566 $
1,497 $
3 $ 12,966
Depreciation
Impairment losses
Reversal of impairment losses
Disposals
Transfer to assets held for sale
Net transfer to investment properties (note 17)
Impact of foreign currency translation
Accumulated depreciation and impairment
losses, end of year
Carrying amount as at:
December 31, 2021
—
—
—
—
—
—
—
234
585
—
(9)
(11)
29
(7)
(91)
(148)
(996)
(59)
(3)
—
(10)
152
4
(4)
(14)
(29)
—
—
—
—
—
—
—
—
—
971
33
(20)
(116)
(1,173)
(59)
(13)
$
3 $
3,901 $
7,076 $
1,606 $
3 $ 12,589
$ 2,008 $
5,219 $
2,295 $
857 $
403 $ 10,782
(i)
Additions to fixed assets in Loblaw includes $1 million prepayment that was made in 2020. The balance was transferred from other assets
in 2021.
SECURITY AND ASSETS PLEDGED As at year end 2022, the Company had fixed assets with a carrying amount of $162 million
(2021 – $51 million) which were encumbered by mortgages of $155 million (2021 – $37 million) (see note 23).
FIXED ASSET COMMITMENTS As at year end 2022, the Company had entered into commitments of $1,122 million (2021 –
$1,176 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 Management identified indications of
impairment for certain retail location CGUs and therefore an impairment test was performed for these CGUs. For the year ended
December 31, 2022, the Company recorded $21 million (2021 – $18 million) of impairment losses on fixed assets and $8 million
(2021 – $6 million) of impairment losses on right-of-use assets (see note 30) in respect of 15 CGUs (2021 – 10 CGUs). Of the total
CGUs, 1 CGU (2021 – 1 CGU) was impaired on the basis of their carrying values exceeding their fair value less costs to sell.
Remaining 14 CGUs (2021 – 9 CGUs) had carrying values greater than their value in use.
For the year ended December 31, 2022, the Company recorded $7 million (2021 – $20 million) of impairment reversals on fixed
assets and $4 million (2021 – $8 million) of impairment reversals on right-of-use assets (see note 30) in respect to 6 CGUs (2021 –
14 CGUs). Impairment reversals are recorded where the recoverable amount of the retail location exceeds its carrying values.
No CGUs (2021 – 2 CGUs) with impairment reversals had fair value less costs to sell greater than their carrying values. All CGUs
(2021 – 12 CGUs) with impairment reversals had value in use 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 8.4% to 9.1% at the end of 2022 (2021 – 7.9% to 8.4%).
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 129
Notes to the Consolidated Financial Statements
Additional impairment losses on fixed assets of $7 million (2021 – $15 million) were incurred related to Loblaw’s store closures,
renovations, conversions of retail locations and restructuring activities. No impairment losses (2021 – nil) were recognized on
right-of-use assets (see note 30) related to restructuring activities.
Note 17. Investment Properties
The following are continuities of investment properties for the years ended December 31, 2022 and December 31, 2021:
($ millions)
Balance, beginning of the year
Adjustment to fair value of investment properties
Additions
Disposals
Net transfer from fixed assets(i) (note 16)
Net transfer to other assets
Net transfer to assets held for sale(ii)
Net transfer from equity accounted joint ventures
Other
Balance, end of the year(iii)
2022
$
5,344
$
405
159
(881)
130
—
(27)
—
14
2021
4,930
283
88
(193)
117
(10)
(18)
143
4
$
5,144
$
5,344
(i)
(ii)
(iii)
Includes the fair value gain of $90 million (2021 – $60 million) recognized in other comprehensive income related to transfer of fixed assets to
investment properties.
Includes the fair value gain of $19 million recognized in other comprehensive income related to the transfer of assets held for sale to
investment properties.
Includes $4,981 million (2021 – $5,183 million) of income producing properties and $163 million (2021 – $161 million) of properties under
development.
During 2022, the Company recognized in operating income $392 million (2021 – $426 million) of rental revenue and incurred
direct operating costs of $137 million (2021 – $144 million) related to its investment properties. In addition, the Company
recognized nominal direct operating costs (2021 – $2 million) related to its investment properties for which no rental revenue
was earned.
INTERNAL APPRAISALS
Investment properties are measured at fair value, which was primarily determined by using the discounted cash flow method.
Management reviews the valuation process and results prepared by the internal valuation team at least once per quarter. The
valuations exclude any portfolio premium or value for the management platform and reflect the highest and best use for each
of the Company’s investment properties. As part of management’s internal valuation process, the Company 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.
130 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 18. Equity Accounted Joint Ventures
The Company 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 the Company’s investment,
through Choice Properties, in joint ventures.
Retail
Industrial
Mixed-Use, Residential & Other
Land, held for development
Total equity accounted joint ventures
Investment in equity accounted joint
ventures ($ millions)
As at
Dec. 31, 2022
Dec. 31, 2021
Number of
joint
ventures
15
1
3
3
22
Ownership
interest
25% - 75%
50%
50%
50% - 85%
Number of
joint
ventures
15
1
3
2
21
Ownership
interest
25% - 75%
50%
47% - 50%
50% - 85%
$
996
$
564
During 2022, the Company’s’ share of net income and comprehensive income from the joint ventures was $354 million
(2021 – $67 million).
Note 19. Intangible Assets
The following is a continuity of the cost and accumulated amortization and impairment losses of intangible assets for the year
ended December 31, 2022:
($ millions)
Cost, beginning of year
Additions
Business acquisitions(i)
Disposal
Cost, end of year
Accumulated amortization and impairment losses, beginning of year
Amortization
Impairment losses
Accumulated amortization and impairment losses, end of year
Carrying amount as at:
December 31, 2022
Indefinite
life
intangible
assets
Software
Other
definite
life
intangible
assets(ii)
Total
$
3,491 $
3,821 $
5,922 $
13,234
—
265
—
418
—
—
1
311
(6)
419
576
(6)
3,756 $
4,239 $
6,228 $
14,223
— $
2,764 $
4,040 $
6,804
—
—
381
5
506
—
887
5
— $
3,150 $
4,546 $
7,696
$
$
$
$
3,756 $
1,089 $
1,682 $
6,527
Includes $564 million related to the acquisition of Lifemark (see note 6).
(i)
(ii) Other definite life intangible assets includes prescription files with a net book value of $1,009 million related to the acquisition of Shoppers
Drug Mart in 2014 which will be fully amortized by 2025.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 131
Notes to the Consolidated Financial Statements
The following is a continuity of the cost and accumulated amortization and impairment losses of intangible assets for the year
ended December 31, 2021:
($ millions)
Cost, beginning of year(i)
Additions
Business acquisitions
Impact of foreign currency translation
Transfer to assets held for sale (note 7)
Cost, end of year
Accumulated amortization and impairment losses, beginning of year(i)
Amortization
Impairment losses
Impact of foreign currency translation
Transfer to assets held for sale (note 7)
Indefinite
life
intangible
assets
Software
Other
definite
life
intangible
assets
Total
$
3,491 $
3,533 $
6,065 $
13,089
—
—
—
—
393
—
—
7
1
(1)
400
1
(1)
(105)
(150)
(255)
$
3,491 $
3,821 $
5,922 $
13,234
—
—
—
—
—
2,445
3,612
6,057
351
13
—
(45)
505
856
—
(1)
13
(1)
(76)
(121)
Accumulated amortization and impairment losses, end of year
$
— $
2,764 $
4,040 $
6,804
Carrying amount as at:
December 31, 2021
$
3,491 $
1,057 $
1,882 $
6,430
(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 Corporation (“Shoppers Drug Mart”), Lifemark, 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, the Company has assigned these
intangible assets indefinite useful lives.
SOFTWARE Software is comprised of software purchases and development costs. There were no capitalized borrowing costs
included in 2022 and 2021.
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.
132 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 20. Goodwill
The following are continuities of the cost and accumulated impairment losses of goodwill for the years ended December 31,
2022 and December 31, 2021:
($ millions)
Cost, beginning of year
Business acquisitions(i)
Transfer to assets held for sale (note 7)
Impact of foreign currency translation
Cost, end of year
Accumulated impairment losses
Carrying amount as at:
December 31
2022
$
5,546
$
374
—
—
5,920
1,067
$
$
$
$
$
2021
5,839
1
(290)
(4)
5,546
1,067
4,853
$
4,479
(i)
Includes $365 million related to the acquisition of Lifemark (see note 6).
The carrying amount of goodwill attributed to each CGU was as follows:
($ millions)
Shoppers Drug Mart
Market
Discount
Lifemark
T&T Supermarket Inc.
Other
As at
Dec. 31, 2022
Dec. 31, 2021
$
2,981
$
2,976
376
461
369
129
537
376
461
—
129
537
Carrying amount of goodwill, as at the end of year
$
4,853
$
4,479
IMPAIRMENT TESTING OF GOODWILL AND INDEFINITE LIFE INTANGIBLES
The Company tests goodwill and indefinite-life intangible assets for impairment annually or more frequently if indicators of
impairment are identified.
The key assumptions used to calculate the fair value less costs to sell are revenue and gross margin forecasts, growth/attrition
rates, discount rates, 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% (2021 – 7.1% to 7.9%) and is 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 publicly traded companies.
Cash flow projections have been discounted using a rate derived from an after-tax weighted average cost of capital. As at year
end 2022, the after-tax discount rate used in the recoverable amount calculations was 7.1% to 9.3% (2021 – 7.1% to 7.9%). The
pre-tax discount rate was 9.7% to 12.7% (2021 – 9.7% to 10.8%).
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% (2021 – 2.0%). The budgeted
EBITDA growth was based on the Company’s three year strategic plan approved by the Board.
The Company completed its annual impairment tests for goodwill and indefinite life intangible assets and concluded there was
no impairment.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 133
Notes to the Consolidated Financial Statements
Note 21. Other Assets
The components of other assets were as follows:
($ millions)
Investment in real estate securities
Sundry investments and other receivables(ii)
Net accrued benefit plan asset (note 27)
Finance lease receivable
Mortgages, loans and notes receivable
Long-term securities
Other
Total Other Assets
Current portion of mortgages, loans, note and finance lease receivable(iii)
Other Assets
As at
Dec. 31, 2022
Dec. 31, 2021(i)
$
$
$
$
302
281
65
63
510
246
154
1,621
$
(308)
1,313
$
—
206
495
70
187
66
71
1,095
(80)
1,015
Certain comparative figures have been restated to conform with current year presentation.
(i)
(ii) During 2022, Loblaw agreed to invest a total of $42 million in Rapid Retail Canada Inc. (“Rapid”) in exchange for a minority interest. Rapid will
provide on-demand grocery and convenience items to customers in Canada. As at December 31, 2022, Loblaw had invested $18 million.
(iii) Current portion of mortgages, loans, note and finance lease receivable is included in prepaid expenses and other assets in the consolidated
balance sheets.
INVESTMENT IN REAL ESTATE SECURITIES In the second quarter of 2022, on March 31, 2022, Choice Properties disposed of its
interests in a portfolio of six office assets to Allied Properties Real Estate Investment Trust (“Allied”). The consideration received
consisted of 11,809,145 exchangeable Class B limited partnership units of Allied Properties Exchangeable Limited Partnership
(“Allied Class B Units”), an affiliated entity of Allied, with a fair value of $551 million on the transaction date, and a promissory
note with a fair value of $193 million (face value of $200 million). Following the transaction, Choice Properties holds
approximately an 8.5% effective interest in Allied through its ownership of the Allied Class B Units. Choice Properties does not
have significant influence over Allied.
The Allied Class B Units are exchangeable into, and are economically equivalent to, the publicly traded trust units of Allied
(“Allied Units”), and were accompanied by a corresponding number of special voting units of Allied. There are no restrictions on
the exchange of Allied Class B Units into Allied Units, but the Allied Units (if exchanged) are subject to a lock-up from the closing
of the transaction, such that 25% of the Allied Class B Units or Allied Units, as applicable, will be released from lock up every
three months following the first anniversary of closing of the transaction. As a holder of the Allied Class B Units, Choice Properties
is entitled to distributions paid by Allied.
The Allied Class B Units are recorded at their fair value based on market trading prices of Allied’s publicly traded trust units. As at
December 31, 2022, Choice Properties held 11,809,145 Allied Class B Units with a fair value of $302 million, which are included
in investment in real estate securities in the table above.
The promissory note is secured by the six office assets and bore interest at a rate of 1% during 2022 and bears 2% subsequently
until its maturity on December 31, 2023. The promissory note is included in mortgages, loans and notes receivables in the table
above.
134 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 22. Provisions
The following are continuities of provisions for the years ended December 31, 2022 and December 31, 2021:
($ millions)
Provisions, beginning of year
Additions
Payments
Reversals
Reclasses
Impact of foreign currency translation
Transfer to assets held for sale (note 7)
Provisions, end of year
($ millions)
Carrying amount of provisions recorded in:
Current provisions
Non-current provisions
Provisions
$
$
2022
209
190
(195)
(5)
—
1
—
$
200
$
2021
214
74
(57)
(11)
(1)
—
(10)
209
As at
Dec. 31, 2022
Dec. 31, 2021
$
$
$
116
84
200
$
119
90
209
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 charge related to PC Bank
commodity tax matter.
The Company’s accrued insurance liabilities were $94 million (2021 – $91 million), of which $49 million (2021 – $46 million) was
included in non-current provisions and $45 million (2021 – $45 million) in current provisions. Included in total accrued insurance
liabilities were $16 million (2021 – $17 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 2022 U.S. workers’ compensation cost and liability was 2.0% (2021 – 2.0%). The total
workers’ compensation liability is equal to the ultimate actuarial loss estimate less any actual losses paid to date. Any change in
the workers’ compensation liability is recognized immediately in operating income.
The U.S. workers’ compensation cost associated with the worker’s compensation liabilities was $3 million in 2021.
RESTRUCTURING AND OTHER RELATED COSTS The Company continuously evaluates strategic and cost reduction initiatives
that focus on improving processes and generating efficiencies across administrative, store, manufacturing and distribution
network infrastructure with the objective of ensuring a low cost operating structure. Restructuring activities related to these
initiatives are ongoing. As at December 31, 2022, the provision related to restructuring and other related costs was $26 million
(2021 – $56 million).
CHARGE RELATED TO PC BANK COMMODITY TAX MATTER In July 2022, the Tax Court of Canada (“Tax Court”) released a
decision relating to PC Bank, a subsidiary of Loblaw. The Tax Court ruled that PC Bank is not entitled to claim notional input tax
credits for certain payments it made to Loblaws Inc. in respect of redemptions of loyalty points. On September 29, 2022,
PC Bank filed a Notice of Appeal with the Federal Court of Appeal. Although Loblaw believes in the merits of its position, Loblaw
recorded a charge of $111 million, inclusive of interest, in the second quarter of 2022. Loblaw believes that this provision is
sufficient to cover its liability, if the appeal is ultimately unsuccessful. As at December 31, 2022, the provision has substantially
been settled.
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, 2022,
the Loblaw Card Program liability is $15 million (2021 – $15 million). Loblaw expects that Loblaw Cards issued to customers will
be an offset against civil liability. The charge recorded for the Loblaw Card Program should not be viewed as an estimate of
damages (see note 33).
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 135
Notes to the Consolidated Financial Statements
Note 23. Long-Term Debt
The components of long-term debt were as follows:
($ millions)
Debentures
George Weston Limited Notes
Loblaw Companies Limited Notes
Choice Properties Debentures
Long-Term Debt Secured by Mortgage
4.12%, due 2024
7.10%, due 2032
6.69%, due 2033
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
5.01%, due 2032
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
5.34%, due 2052
Series B 4.90%, due 2023
Series D 4.29%, due 2024
Series F 4.06%, due 2025
Series G 3.20%, due 2023
Series H 5.27%, due 2046
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 Q 2.46%, due 2026
Series R 6.00%, due 2032
Series 10 3.84%, due 2022
Series D-C 3.30%, due 2023
2.04% - 6.48%, due 2023 - 2038 (note 16)
Guaranteed Investment Certificates
0.40% - 5.36%, due 2023 - 2027
2.71%, due 2022
3.10%, due 2023
2.28%, due 2024
1.34%, due 2025
1.61%, due 2026
4.78%, due 2027
5.63%, due 2027
6.83%, due 2027
Independent Securitization Trust (note 13)
Independent Funding Trusts
George Weston Limited Credit Facility
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
136 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
As at
Dec. 31, 2022
Dec. 31, 2021
$
$
200
150
100
—
400
100
200
400
175
350
151
30
400
200
200
200
200
200
300
200
150
55
400
200
200
200
250
100
350
550
750
750
400
100
500
350
500
—
125
949
1,567
—
250
250
300
300
232
9
9
574
—
260
39
(41)
14,784
1,383
13,401
$
$
$
$
200
150
100
800
400
100
200
400
175
350
151
32
—
200
200
200
200
200
300
200
150
55
—
200
200
200
250
100
350
550
750
750
400
100
500
350
—
300
125
1,112
996
250
250
250
300
300
—
—
—
570
121
—
13
(40)
14,010
1,520
12,490
Significant long-term debt transactions are described below:
DEBENTURES The following table summarizes the debentures issued in the years ended as indicated:
($ millions)
Loblaw
– Senior unsecured note
– Senior unsecured note
Choice Properties senior unsecured debentures
– Series Q
– Series R
Total debentures issued
Interest
Rate
5.01%
5.34%
2.46%
6.00%
Maturity
Date
2022
Principal
Amount
2021
Principal
Amount
September 13, 2032
$
September 13, 2052
November 30, 2026
June 24, 2032
$
400
400
—
500
$
1,300
$
—
—
350
—
350
The following table summarizes the debentures repaid in the years ended as indicated:
($ millions)
George Weston debenture – Series A
Loblaw senior unsecured note
Choice Properties senior unsecured debentures
– Series 9
– Series 10
– Series I
Interest
Rate
7.00%
4.86%
Maturity
Date
November 10, 2031(i)
September 12, 2023(ii)
3.60%
3.84%
3.01%
September 20, 2021
September 20, 2022(iii)
March 21, 2022
2022
Principal
Amount
2021
Principal
Amount
$
—
$
800
—
300
—
466
—
200
—
300
966
Total debentures repaid
$
1,100
$
(i)
In 2021, the Company settled the net debt associated with the equity forward sale agreement. As a result, the 9.6 million Loblaw shares
securing the net debt were released from security and the Company’s economic interest in Loblaw is now equal to its voting interest. In
aggregate, $790 million was paid to settle the net debt, resulting in the extinguishment of the Series A Debentures ($466 million), Series B
Debentures ($784 million), plus accrued interest, and the settlement of the equity forward sale agreement ($464 million gain).
Loblaw senior unsecured debenture was redeemed on September 21, 2022.
(ii)
(iii) Choice Properties senior unsecured Series 10 debenture was redeemed on June 26, 2022.
GUARANTEED INVESTMENT CERTIFICATES (“GICs”) The following table summarizes PC Bank’s GIC activity, before
commissions, for the years ended as indicated:
($ millions)
Balance, beginning of year
GICs issued
GICs matured
Balance, end of year
$
$
2022
996
764
(193)
$
1,567
$
2021
1,185
414
(603)
996
INDEPENDENT SECURITIZATION TRUST The notes issued by Eagle are debentures, which are collateralized by PC Bank’s credit
card receivables (see note 13).
During 2022, Eagle filed a Short Form Base Shelf Prospectus, which allows for the issuance of up to $1.25 billion of notes over a
25-month period.
During 2022, Eagle issued $250 million (2021 – $300 million) of senior and subordinated term notes with a maturity date of
July 17, 2027 (2021 – June 17, 2026) at a weighted average interest rate of 4.89% (2021 - 1.61%). In connection with this
issuance, $140 million (2021 – $175 million) of bond forward agreements were settled, resulting in a realized fair value gain of
$8 million (2021 – loss of $1 million) before income taxes, which was cumulatively recorded in other comprehensive loss as
unrealized prior to the settlement of the agreement. The gain will be reclassified to the consolidated statements of earnings over
the life of the Eagle notes. This settlement resulted in a net effective interest rate of 4.24% (2021 – 1.65%) on the Eagle notes
issued (see note 31).
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 137
Notes to the Consolidated Financial Statements
During 2022, $250 million of senior and subordinated term notes at weighted average interest rate of 2.71%, previously issued by
Eagle, matured and were repaid on October 17, 2022. As a result, during 2022, there was no net change in the balances related
to Eagle notes.
There were no repayments of notes issued by Eagle in 2021.
INDEPENDENT FUNDING TRUSTS As at year end 2022, the independent funding trusts had drawn $574 million (2021 –
$570 million) from the revolving committed credit facility that is the source of funding to the independent funding trusts.
Loblaw has a $700 million revolving committed credit facility that is the source of funding to the independent funding trusts
that has a maturity date of April 14, 2025. Loblaw extended the maturity date during 2022 with all other terms and conditions
remaining substantially the same.
COMMITTED CREDIT FACILITIES The components of the committed lines of credit available as at year end 2022 and 2021 were
as follows:
($ millions)
George Weston
Loblaw
Choice Properties
Maturity
Date
Available
Credit
September 13, 2024
$
350
$
July 15, 2027
September 1, 2027
1,000
1,500
Total committed credit facilities
$
2,850 $
Drawn
—
—
260
260
Available
Credit
$
350
$
1,000
1,500
$
2,850
$
Drawn
121
—
—
121
As at
Dec. 31, 2022
Dec. 31, 2021
These facilities contain certain financial covenants (see note 26).
George Weston In 2021, GWL entered into a $350 million revolving committed credit facility provided by a syndicate of lenders
with a maturity date of September 13, 2024. As at December 31, 2021, $121 million was drawn on the facility which was repaid
in the first quarter of 2022. As at December 31, 2022, no amounts were drawn on the facility.
Loblaw Loblaw has a $1 billion committed credit facility with a maturity date of July 15, 2027, provided by a syndicate of
lenders. Loblaw extended the maturity date during 2022 with all other terms and conditions remaining substantially the same.
As at December 31, 2022, there were no amounts drawn under the facility (December 31, 2021 – no amounts were drawn).
Choice Properties Choice Properties has a $1.5 billion senior unsecured committed revolving credit facility maturing
September 1, 2027, provided by a syndicate of lenders. During 2022, the maturity date of the credit facility was extended to
September 1, 2027 with all other terms and conditions remaining substantially the same. As at December 31, 2022, $260 million
was drawn under the facility (December 31, 2021 – no amounts were drawn).
LONG-TERM DEBT DUE WITHIN ONE YEAR The components of long-term debt due within one year were as follows:
($ millions)
Debentures
GICs
Independent Securitization Trust
Independent funding trusts
Long-term debt secured by mortgage
Construction Loans
Long-term debt due within one year
As at
Dec. 31, 2022
Dec. 31, 2021
$
$
571
477
250
—
80
5
296
182
250
570
217
5
$
1,383
$
1,520
138 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
SCHEDULE OF REPAYMENTS The schedule of repayment of long-term debt, based on maturity is as follows:
($ millions)
2023
2024
2025
2026
2027
Thereafter
Long-term debt (excludes transaction costs)
See note 31 for the fair value of long-term debt.
$
Dec. 31, 2022
1,645
2,257
1,842
909
1,126
7,046
$
14,825
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
Long-term debt issuances(i)
Long-term debt repayments(ii)
Total cash flow from (used in) long-term debt financing activities
Other non-cash changes
Total long-term debt, end of year
2022
$
14,010
$
2,609
(1,817)
792
(18)
2021
14,443
1,440
(1,874)
(434)
1
$
14,784
$
14,010
(i)
(ii)
Includes net movements from the independent funding trust, which are revolving debt instruments.
Includes George Weston Series A debenture repayments of $466 million in 2021 which are presented within the line “Settlement of net debt
associated with equity forward sale agreement” in the consolidated statements of cash flows.
Note 24. Other Liabilities
The components of other liabilities were as follows:
($ millions)
Financial liabilities(i)
Net defined benefit plan obligation (note 27)
Other long-term employee benefit obligation
Equity-based compensation liability (note 28)
Other
Other liabilities
As at
Dec. 31, 2022
Dec. 31, 2021
$
$
663
279
107
8
37
660
340
115
6
18
$
1,094
$
1,139
(i)
Financial liabilities represent land and buildings disposed or partially disposed of by Choice Properties to third parties. 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, 2022, $5 million (December 31, 2021 – $4 million) was recorded in trade payables
and other liabilities and $663 million (December 31, 2021 – $660 million) was recorded in other liabilities.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 139
Notes to the Consolidated Financial Statements
Note 25. Share Capital
The components of share capital were as follows:
($ 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, 2022
Dec. 31, 2021
$
2,616
$
2,712
228
196
197
196
228
196
197
196
$
3,433
$
3,529
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, 2022 and December 31, 2021:
($ millions except where otherwise indicated)
2022
Number of
Common
Shares
Common
Share
Capital
Number of
Common
Shares
Issued and outstanding, beginning of year
146,789,503 $
2,714
152,374,416 $
Issued for settlement of stock options (note 28)
Purchased and cancelled(i)(ii)
337,615
(6,389,176)
41
(136)
323,461
(5,908,374)
Issued and outstanding, end of year
140,737,942 $
2,619
146,789,503 $
Shares held in trusts, beginning of year
(141,106) $
Purchased for future settlement of RSUs and PSUs
(99,000)
Released for settlement of RSUs and PSUs (note 28)
79,641
Shares held in trusts, end of year
(160,465) $
(2)
(2)
1
(3)
(254,525) $
—
113,419
(141,106) $
2021
Common
Share
Capital
2,786
36
(108)
2,714
(4)
—
2
(2)
Issued and outstanding, net of shares held in trusts,
end of year
140,577,477
$
2,616
146,648,397
$
2,712
Weighted average outstanding, net of shares held
in trusts
144,244,034
149,893,834
(i)
Number of common shares repurchased and cancelled as at December 31, 2022, does not include shares that may be repurchased
subsequent to year end under the automatic share purchase plan (“ASPP”), as described below.
(ii)
Includes 1,930 shares cancelled during 2021 in a private transaction and are excluded from the Company’s Normal Course Issuer Bid.
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.
140 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Preferred Shares, Series IV (authorized – 8.0 million) GWL has 8.0 million 5.20% non-voting Preferred Shares, Series IV
outstanding, with a face value of $200 million, which entitle the holders to a fixed cumulative preferred cash dividend of $1.30
per share per annum which will, if declared, be payable quarterly. GWL may, at its option, redeem for cash, in whole or in part,
these outstanding preferred shares at $25.00 per share, together with all accrued and unpaid dividends to the redemption date.
At any time after issuance, GWL may, at its option, give the holders of these preferred shares the right, at the option of the
holders, to convert their preferred shares into preferred shares of a further series designated by GWL on a share-for-share basis on
a date specified by GWL.
Preferred Shares, Series V (authorized – 8.0 million) GWL has 8.0 million 4.75% non-voting Preferred Shares, Series V
outstanding, with a face value of $200 million, which entitle the holders to a fixed cumulative preferred cash dividend of $1.1875
per share per annum which will, if declared, be payable quarterly. GWL may, at its option, redeem for cash, in whole or in part,
these outstanding preferred shares at $25.00 per share, together with all accrued and unpaid dividends to the redemption date.
At any time after issuance, GWL may, at its option, give the holders of these preferred shares the right, at the option of the
holders, to convert their preferred shares into preferred shares of a further series designated by GWL on a share-for-share basis on
a date specified by GWL.
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 2022 and in the third quarter of 2021, the Board raised the quarterly common share dividend
by $0.060 to $0.66 and $0.050 to $0.60 per share, respectively. The Board declared dividends for the years ended as follows:
($)
Dividends declared per share(i):
Common share
Preferred share:
Series I
Series III
Series IV
Series V
2022
2021
2.58
$
2.30
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 paid on January 1, 2023. Dividends
declared on Preferred Shares, Series I were paid on December 15, 2022.
The following table summarizes the Company’s cash dividends declared subsequent to year end 2022:
($)
Dividends declared per share(i)
– Common share
– Preferred share:
Series I
Series III
Series IV
Series V
$
$
$
$
$
0.660
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, 2023. Dividends declared
on Preferred Shares, Series I are payable on March 15, 2023.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 141
Notes to the Consolidated Financial Statements
NORMAL COURSE ISSUER BID PROGRAM The following table summarizes the Company’s activity under its NCIB 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(i)
Premium charged to retained earnings
Purchased and held in trusts
Purchased and settled
Purchased and cancelled(ii)
Reduction in share capital(iii)
2022
99,000
15,716
2021
—
10,862
6,389,176
5,906,444
$
$
$
$
$
(14)
(2)
(994)
12
1
1,002
136
$
—
—
(744)
—
—
642
108
(i)
(ii)
(iii)
Included in 2022 is a net cash timing adjustment of $6 million (2021 – $(6) million) of common shares repurchased under the NCIB for
cancellation.
Includes $133 million (2021 – nil) related to the ASPP, as described below.
Includes $17 million (2021 – nil) related to the ASPP, as described below.
In 2022, GWL renewed its NCIB to purchase on the Toronto Stock Exchange (“TSX”) or through alternative trading systems up to
7,304,927 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.
From time to time, the Company participates in an ASPP with a broker in order to facilitate the purchase of the Company’s
common shares under its NCIB. During the effective period of the ASPP, the Company’s broker may purchase common shares at
times when the Company would not be active in the market. As at December 31, 2022, an obligation to repurchase shares of
$150 million was recognized under the ASPP in trade payables and other liabilities.
As of December 31, 2022, 4,786,792 common shares were purchased under the Company’s current NCIB.
Note 26. Capital Management
In order to manage its capital structure, the Company may, among other activities, adjust the amount of dividends paid to
shareholders, purchase shares for cancellation pursuant to its NCIB, issue new shares or issue or repay long-term debt with the
objective of:
•
• maintaining financial capacity and flexibility through access to capital to support future development of the business;
• minimizing the after-tax cost of its capital while taking into consideration current and future industry, market and
ensuring sufficient liquidity is available to support its financial obligations and to execute its operating and strategic plans;
economic risks and conditions;
utilizing short-term funding sources to manage its working capital requirements and long-term funding sources to manage
the long-term capital investments of the business; and
targeting an appropriate leverage and capital structure for the Company and each of its reportable operating segments.
•
•
The Company has policies in place which govern debt financing plans and risk management strategies for liquidity, interest
rates and foreign exchange. These policies outline measures and targets for managing capital, including a range for leverage
consistent with the desired credit rating. Management and the Audit Committee regularly review the Company’s compliance
with, and performance against, these policies. In addition, management regularly reviews these policies to ensure they remain
consistent with the risk tolerance acceptable to the Company.
142 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
The following table summarizes the Company’s total capital under management:
($ millions)
Bank indebtedness
Demand deposits from customer
Short-term debt
Long-term debt due within one year
Long-term debt
Certain other liabilities(i)
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, 2022
Dec. 31, 2021
$
8
$
125
700
1,383
13,401
748
16,365
835
4,323
21,523
6,841
$
$
$
$
52
75
450
1,520
12,490
738
15,325
742
4,242
20,309
6,959
28,364
$
27,268
$
$
$
$
$
(i)
Includes financial liabilities of $668 million (December 31, 2021 – $666 million) recorded primarily as a result of Choice Properties’
transactions.
COVENANTS AND REGULATORY REQUIREMENTS The Company and Loblaw are subject to certain key financial and non-
financial covenants under their existing credit facilities, certain debentures and letters of credit. These covenants, which
include interest coverage and leverage ratios, as defined in the respective agreements, are measured by the Company and
Loblaw on a quarterly basis to ensure compliance with these agreements. As at year end 2022 and throughout the year, the
Company and Loblaw were in compliance with each of their covenants under their agreements.
Loblaw is subject to externally imposed capital requirements from the 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 target 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 2022 and throughout the year, PC Bank has met all applicable regulatory
requirements.
Choice Properties has certain key financial covenants in its debentures and committed credit facility. They key financial
covenants 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 2022 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 2022.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 143
Notes to the Consolidated Financial Statements
Note 27. Post-Employment and Other Long-Term Employee Benefits
POST-EMPLOYMENT BENEFITS The Company sponsors a number of pension plans, including registered defined benefit
pension plans, registered defined contribution pension plans and supplemental unfunded arrangements providing pension
benefits in excess of statutory limits. Certain obligations of the Company under these supplemental pension arrangements are
secured by a standby letter of credit issued by a major Canadian chartered bank.
The Loblaw Pension Committee and the GWL Governance, Human Resource, Nominating and Compensation Committee
(collectively, the “Committees”) oversee the Company’s and GWL’s pension plans. The Committees are responsible for assisting
Loblaw’s and GWL’s Boards in fulfilling their general oversight responsibilities for the plans.
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 regulatory going concern
and solvency valuations 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 2023 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.
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:
As at
Dec. 31, 2022
Dec. 31, 2021
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
(1,299) $
—
$
(1,740) $
—
(147)
(119)
(187)
(149)
(149)
—
($ millions)
Present value of funded obligations
Present value of unfunded obligations
Total present value of defined benefit obligations
$
(1,446) $
(119)
$
(1,927) $
Fair value of plan assets
1,616
—
2,232
Total funded status of surpluses (obligations)
$
170 $
(119)
$
305 $
(149)
Assets not recognized due to asset ceiling
Total net defined benefit plan (obligations) surpluses
Recorded on the consolidated balance sheets as follows:
Other assets (note 21)
Other liabilities (note 24)
(265)
—
(1)
—
(95) $
(119)
$
304 $
(149)
65 $
—
(160) $
(119)
$
$
495 $
—
(191) $
(149)
$
$
$
144 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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 (losses) gains in other comprehensive
income
Other
Settlement related to sale of Weston Foods
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 (gains) in other comprehensive income
Curtailment gain(i)
Settlement related to sale of Weston Foods
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2022
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2021
Total
$
2,232 $
— $
2,232
$
2,207 $
— $
2,207
2
3
(57)
73
(626)
(4)
(7)
—
—
—
—
—
—
—
2
3
(57)
73
(626)
(4)
(7)
27
3
(51)
55
34
(4)
(39)
—
—
—
—
—
—
—
27
3
(51)
55
34
(4)
(39)
$
1,616 $
— $
1,616
$
2,232 $
— $
2,232
$
1,927 $
149 $ 2,076
$
2,234 $
168 $
2,402
63
61
(66)
3
(535)
—
(7)
3
5
(5)
—
(33)
—
—
66
66
(71)
3
(568)
—
(7)
73
57
(63)
3
(338)
(2)
(37)
5
4
(5)
—
(23)
—
—
78
61
(68)
3
(361)
(2)
(37)
Balance, end of year
Total funded status of surpluses (obligations)
$
$
1,446 $
119 $
1,565
170 $
(119) $
51
$
$
1,927 $
149 $
2,076
305 $
(149) $
156
Assets not recognized due to asset ceiling
(265)
—
(265)
(1)
—
(1)
Total net defined benefit plan (obligations)
surpluses
$
(95) $
(119) $
(214)
$
304 $
(149) $
155
(i)
Curtailment gain relates to the sale of Weston Foods and was remeasured as at November 30, 2021 using a discount rate of 3.50%.
For the year ended 2022, the actual loss on plan assets was $553 million (2021 – return of $89 million).
The net defined benefit obligation can be allocated to the plans’ participants as follows:
•
•
•
Active plan participants – 57% (2021 – 60%)
Deferred plan participants – 12% (2021 – 12%)
Retirees – 31% (2021 – 28%)
During 2023, the Company expects to contribute approximately $46 million (2022 – contributed $2 million) to its registered
defined benefit pension plans. The actual amount of contributions may vary from the estimate depending on the funded
positions of the plans, filing of any actuarial valuations, any new regulatory requirements or other factors.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 145
Notes to the Consolidated Financial Statements
The net cost recognized in net earnings before income taxes from continuing operations for the Company’s defined benefit
pension plans and other defined benefit plans was as follows:
($ millions)
Current service cost
Net interest (income) cost on net defined benefit
plan (assets) obligations
Settlement charges(i)
Curtailment gain(ii)
Other
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2022
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
$
63 $
3 $
66
$
73 $
5 $
(12)
—
—
4
5
—
—
—
(7)
—
—
4
2
2
(2)
4
4
—
—
—
2021
Total
78
6
2
(2)
4
Net post-employment defined benefit costs
$
55 $
8 $
63
$
79 $
9 $
88
(i)
(ii)
Relates to annuity purchases.
Curtailment gain relates to the sale of Weston Foods and was remeasured as at November 30, 2021 using a discount rate of 3.50%.
The actuarial losses (gains) recognized in other comprehensive income from continuing operations for defined benefit plans
were as follows:
($ millions)
Loss (return) on plan assets excluding amounts
included in interest income
Experience adjustments
Actuarial gains from change in
demographic assumptions
Actuarial (gains) from change in financial
assumptions(i)
Change in liability arising from change in asset
ceiling(i)
Total net actuarial losses (gains) recognized in other
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2022
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2021
Total
$
626 $
— $
626
$
3
—
(3)
6
—
6
(34) $
(45)
— $
(8)
(34)
(53)
—
—
—
(538)
(36)
(574)
(293)
(15)
(308)
265
—
265
(2)
—
(2)
comprehensive income before income taxes
$
356 $
(33) $
323
$
(374) $
(23) $
(397)
Income tax (recoveries) expenses on actuarial losses
(gains) (note 9)
(95)
8
(87)
98
6
104
Actuarial losses (gains) net of income tax (recoveries)
expenses
$
261 $
(25) $
236
$
(276) $
(17) $
(293)
(i)
The actuarial gains and the change in liability arising from change in asset ceiling were primarily driven by an increase in discount rates.
146 GEORGE WESTON LIMITED 2022 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
2022
Total
Defined
Benefit
Pension
Plans
Other
Defined
Benefit
Plans
2021
Total
Cumulative amount, beginning of year
$
(385) $
(94) $
(479)
$
(11) $
(71) $
(82)
Net actuarial losses (gains) recognized in
the year before income taxes
356
(33)
323
(374)
(23)
(397)
Cumulative amount, end of year
$
(29) $
(127) $
(156)
$
(385) $
(94) $
(479)
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, 2022
Dec. 31, 2021
As at
Equity securities
Canadian – pooled funds
Foreign
– pooled funds
Total equity securities
Debt securities
$
$
24
847
871
2%
$
47
52%
54%
1,172
$
1,219
Fixed income securities – government
$
424
26%
$
– corporate
Total debt securities
Other investments
Cash and cash equivalents
Total
81
505
205
35
5%
31%
13%
2%
1,616
100%
$
$
$
$
$
$
$
$
731
81
812
158
43
2%
53%
55%
33%
3%
36%
7%
2%
2,232
100%
As at year end 2022 and 2021, 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 2022 ANNUAL REPORT 147
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 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)
Defined
Benefit
Pension
Plans
5.30%
4% for 2022 and 2023
and 3% thereafter
2022
Other
Defined
Benefit
Plans
5.30%
n/a
Defined
Benefit
Pension
Plans
3.30%
3.00%
2021
Other
Defined
Benefit
Plans
3.20%
n/a
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
Generational
Generational
Generational
Generational
3.30%
3.00%
3.20%
n/a
2.50%
3.00%
2.50%
n/a
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
CPM-RPP2014Pub/Priv CPM-RPP2014Pub/Priv
Generational
Generational
Generational
Generational
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 2022 is 14.1 years (2021 – 17.0 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 2022 was estimated at 4.60% and is expected to increase to 4.90% as at year end 2023.
SENSITIVITY OF KEY ACTUARIAL ASSUMPTIONS The following table outlines the key assumptions for 2022 (expressed as
weighted averages) and the sensitivity of these assumptions on the defined benefit plan obligations.
The sensitivity analysis provided in the table is hypothetical and should be used with caution. The sensitivities of each key
assumption have been calculated independently of any changes in other key assumptions. Actual experience may result in
changes in a number of key assumptions simultaneously. Changes in one factor may result in changes in another, which could
amplify or reduce the impact of such assumptions.
Defined Benefit Pension Plans
Other Defined Benefit Plans
Increase (Decrease)
($ millions)
Discount rate
Impact of:
1% increase
1% decrease
Expected growth rate of health care costs
Impact of:
Mortality rates
Impact of:
n/a – not applicable
1% increase
1% decrease
One year increase in life expectancy
One year decrease in life expectancy
Defined
Benefit
Plan
Obligations
5.30%
(185)
230
n/a
n/a
25
(23)
$
$
$
$
Defined
Benefit
Plan
Obligations
5.30%
$
$
$
$
$
$
(13)
16
4.60%
11
(9)
2
(2)
148 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
MULTI-EMPLOYER PENSION PLANS During 2022, the Company recognized an expense of $70 million (2021 – $73 million) in
operating income from continuing operations, which represents the contributions made in connection with MEPPs. During
2023, 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 57,000 (2021 – 56,000) employees as members. Included in the 2022 expense described
above are contributions of $69 million (2021 – $72 million) to CCWIPP.
POST-EMPLOYMENT AND OTHER LONG-TERM EMPLOYEE BENEFIT COSTS The net cost recognized in net earnings before
income taxes from continuing operations for the Company’s post-employment and other long-term employee benefit plans was
as follows:
($ millions)
Net post-employment defined benefit cost(i)
Defined contribution costs(ii)
Multi-employer pension plan costs(iii)
Total net post-employment benefit costs
Other long-term employee benefit costs(iv)
Net post-employment and other long-term employee benefit costs
Recorded on the consolidated statements of earnings as follows:
Operating income (note 29)
Net interest expense and other financing charges (note 8)
Net post-employment and other long-term employee benefits costs
$
$
$
$
$
2022
63
33
70
166
25
191
195
(4)
$
$
$
$
191
$
2021
88
30
73
191
31
222
213
9
222
(i)
In 2021, includes $2 million settlement charge related to annuity purchases and $2 million curtailment gain related to the sale of
Weston Foods.
(ii) Amounts represent the Company’s contributions made in connection with defined contribution plans.
(iii) Amounts represent the Company’s contributions made in connection with MEPPs.
(iv) Other long-term employee benefit costs include $3 million (2021 – $3 million) of net interest expense and other financing charges.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 149
Notes to the Consolidated Financial Statements
Note 28. 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 2022 were $90 million (2021 – $78 million).
The following table presents the carrying amount of the Company’s equity-based compensation arrangements:
($ millions)
Trade payables and other liabilities
Other liabilities (note 24)
Contributed surplus
As at
Dec. 31, 2022
Dec. 31, 2021
$
$
$
11
8
135
$
$
$
11
6
131
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 table is a summary of GWL’s stock option plan activity:
Outstanding options, beginning of year
Granted
Exercised (note 25)
Forfeited/cancelled
Outstanding options, end of year
Options exercisable, end of year
2022
Weighted
Average
Exercise
Price/ Share
101.89
152.95
105.83
109.98
106.38
101.23
Options
(number
of shares)
1,817,548
171,497
(337,615)
(2,664)
1,648,766
634,989
$
$
$
$
$
$
Options
(number
of shares)
1,746,483
397,956
(323,461)
(3,430)
1,817,548
640,091
$
$
$
$
$
$
The following table summarizes information about GWL’s outstanding stock options:
2021
Weighted
Average
Exercise
Price/Share
101.44
100.92
98.18
109.75
101.89
103.63
2022
Range of Exercise Prices ($)
$93.17 - $97.02
$97.03 - $104.48
$104.49 - $152.97
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price/Share
Number of
Exercisable
Options
Weighted
Average
Exercise
Price/Share
3
5
4
$
$
$
$
93.17
102.71
127.63
106.38
210,045
251,020
173,924
634,989
$
$
$
$
93.17
103.24
108.08
101.23
Number of
Options
Outstanding
377,424
883,962
387,380
1,648,766
During 2022, GWL issued common shares on the exercise of stock options with a weighted average market share price of
$158.33 (2021 – $129.12) per common share and received cash consideration of $36 million (2021 – $32 million).
150 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
The fair value of stock options granted by GWL during 2022 was $5 million (2021 – $6 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
2022
1.6%
2021
2.2%
19.0% - 20.6%
18.8% - 19.4%
1.6% - 2.9%
0.9% - 1.1%
4.9 - 6.6 years
4.9 - 6.7 years
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture rate applied as at
year end 2022 was 1.3% (2021 – 1.4%).
The following table is a summary of Loblaw’s stock option plan activity:
Outstanding options, beginning of year
Granted
Exercised
Forfeited/cancelled
Outstanding options, end of year
Options exercisable, end of year
Options
(number
of shares)
6,431,449
1,162,625
(1,487,377)
(324,082)
5,782,615
2,100,204
$
$
$
$
$
$
2022
Weighted
Average
Exercise
Price/Share
63.15
100.05
59.47
71.04
71.07
62.26
Options
(number
of shares)
7,259,645
1,926,951
(1,829,170)
(925,977)
6,431,449
2,285,608
$
$
$
$
$
$
The following table summarizes information about Loblaw’s outstanding stock options:
2021
Weighted
Average
Exercise
Price/Share
61.19
64.27
56.02
64.22
63.15
59.79
2022
Range of Exercise Prices ($)
$55.18 - $64.07
$64.08 - $70.13
$70.14 - $117.67
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price/Share
3
4
6
$
$
$
$
59.67
68.23
96.67
71.07
Number of
Exercisable
Options
1,235,700
824,882
39,622
2,100,204
Weighted
Average
Exercise
Price/Share
$
$
$
$
58.11
67.76
77.36
62.26
Number of
Options
Outstanding
2,412,999
2,065,927
1,303,689
5,782,615
During 2022, Loblaw issued common shares on the exercise of stock options with a weighted average market share price of
$114.22 (2021 – $81.97) per common share and received cash consideration of $88 million (2021 – $102 million).
The fair value of stock options granted by Loblaw during 2022 was $21 million (2021 – $17 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
2022
1.4%
2021
1.7%
18.4% - 22.2%
18.3% - 20.6%
1.6% - 3.5%
0.6% - 1.6%
3.7 - 6.2 years
3.8 - 6.2 years
Estimated forfeiture rates are incorporated into the measurement of stock option plan expense. The forfeiture rate applied as at
year end 2022 was 11.0% (2021 – 9.0%).
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 151
Notes to the Consolidated Financial Statements
RESTRICTED SHARE UNIT PLANS The following table 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
2022
29,777
7,451
513
(9,184)
(3,058)
25,499
2021
133,038
32,444
2,364
(99,471)
(38,598)
29,777
2022
799,345
244,686
10,105
(294,115)
(43,194)
716,827
2021
894,272
372,015
14,835
(371,474)
(110,303)
799,345
The fair value of GWL’s and Loblaw’s RSUs granted during 2022 was $1 million (2021 – $3 million) and $26 million (2021 –
$25 million), respectively.
PERFORMANCE SHARE UNIT PLANS The following table 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
2022
183,841
28,131
2,576
(70,457)
(8)
144,083
2021
151,058
58,335
3,455
(23,606)
(5,401)
183,841
2022
616,417
310,100
8,570
(258,411)
(28,477)
648,199
2021
666,400
281,099
11,177
(231,952)
(110,307)
616,417
The fair value of GWL’s and Loblaw’s PSUs granted during 2022 was $4 million (2021 – $6 million) and $26 million (2021 –
$18 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 25)
2022
79,641
79,641
2021
123,077
113,419
During 2022, the settlement of awards from shares held in trusts resulted in a $7 million increase (2021 – $9 million) in retained
earnings and a $1 million increase (2021 – $2 million) in share capital.
DIRECTOR DEFERRED SHARE UNIT PLANS The following table 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
2022
168,303
11,367
2,635
(21,098)
161,207
2021
149,537
15,902
2,864
—
168,303
2022
361,316
21,744
4,532
(62,361)
325,231
2021
380,481
32,829
6,162
(58,156)
361,316
The fair value of GWL’s and Loblaw’s DSUs granted during 2022 was $2 million (2021 – $2 million) and $2 million (2021 –
$2 million), respectively.
152 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
EXECUTIVE DEFERRED SHARE UNIT PLANS The following table is a summary of GWL’s and Loblaw’s EDSU plan activity:
(Number of awards)
Outstanding EDSUs, beginning of year
Granted
Reinvested
Settled
Outstanding EDSUs, end of year
GWL
Loblaw
2022
44,527
—
746
—
45,273
2021
44,911
—
820
(1,204)
44,527
2022
62,473
7,719
914
(5,608)
65,498
2021
56,856
5,399
1,066
(848)
62,473
There were no GWL EDSUs granted in 2022 and 2021. The fair value of Loblaw’s EDSUs granted during 2022 was $1 million
(2021 – 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 table is a summary of Choice Properties’ Unit Option plan activity:
Outstanding Unit Options, beginning of year
Exercised
Outstanding Unit Options, end of year
Unit Options exercisable, end of year
2022
Weighted
average
exercise
price/unit
12.84
13.98
12.01
12.01
Number of
awards
435,456
(182,302)
253,154
253,154
$
$
$
$
Number of
awards
1,082,640
(647,184)
435,456
292,592
$
$
$
$
The assumptions used to measure the fair value of the Unit Options under the Black-Scholes model were as follows:
2021
Weighted
average
exercise
price/ unit
12.54
12.34
12.84
13.13
2021
5.0%
2022
4.9%
13.7% - 20.9%
13.4% - 21.5%
0.05% - 4.4%
0.001% - 0.8%
0.1 - 0.7 years
0.1 - 1.7 years
Expected distribution yield
Expected Unit price volatility
Risk-free interest rate
Expected 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 in length. 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 2022 and 2021.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 153
Notes to the Consolidated Financial Statements
The following table is a summary of Choice Properties’ RU plan activity:
(Number of awards)
Outstanding RUs, beginning of year
Granted
Reinvested
Exercised
Cancelled
Expired
Outstanding RUs, end of year
2022
439,574
94,355
16,329
2021
405,713
119,134
22,014
(257,604)
(104,563)
(21,499)
(8)
(2,724)
—
271,147
439,574
UNIT-SETTLED RESTRICTED UNIT PLAN Under the terms of the URU plan, certain employees are granted URUs, which are
subject to vesting conditions and disposition restrictions. Typically, full vesting of the URUs would not occur until the employee
has remained with Choice Properties for three or five years from the date of grant. Depending on the nature of the grant, the
URUs are subject to a six or seven-year holding period during which the Units cannot be disposed. There were 1,217,340 URUs
vested, but still subject to disposition restrictions as at year end 2022 (2021 – 996,896).
The following table is a summary of Choice Properties’ URU plan activity for units not yet vested:
(Number of awards)
Outstanding URUs, beginning of year
Granted
Cancelled
Vested
Outstanding URUs, end of year
2022
600,919
230,682
(1,989)
(162,893)
666,719
2021
588,534
189,887
—
(177,502)
600,919
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 2022 and 2021.
The following table 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
2022
197,609
85,221
12,081
(67,397)
(5,069)
15,973
238,418
2021
135,695
82,847
9,403
(30,336)
—
—
197,609
154 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
TRUSTEE DEFERRED UNIT PLAN Non-management members of the Choice Properties’ Board of Trustees 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 table is a summary of Choice Properties’ DU plan activity:
(Number of awards)
Outstanding Trustee DUs, beginning of year
Granted
Reinvested
Exercised
Outstanding Trustee DUs, end of year
2022
389,462
95,099
21,995
—
506,556
2021
368,290
82,969
18,942
(80,739)
389,462
Note 29. Employee Costs
Included in operating income were the following employee costs from continuing operations:
($ millions)
Wages, salaries and other short-term employee benefits
2022
$
7,314
$
Post-employment benefits (note 27)
Other long-term employee benefits (note 27)
Equity-based compensation
Capitalized to fixed assets and intangible assets
Employee costs
2021
7,065
185
28
69
(112)
173
22
81
(129)
$
7,461
$
7,235
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 155
Notes to the Consolidated Financial Statements
Note 30. Leases
The Company leases certain of Loblaw’s retail stores 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, 2022:
($ 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 reversals, net of losses (note 16)
Balance, end of year
Carrying amount as at December 31, 2022
$
$
$
$
$
Property
Other
2022
Total
5,717 $
99 $
5,816
293
446
21
11
314
457
6,456 $
131 $
6,587
1,695 $
598
4
2,297 $
4,159 $
63
19
—
82 $
49 $
$
1,758
617
4
2,379
4,208
The following is a continuity of the cost and accumulated depreciation of right-of-use assets for the year ended December 31,
2021:
($ millions)
Cost
Balance, beginning of year
Lease additions, net of terminations
Lease extensions and other items
Transfers to assets held for sale
Balance, end of year
Accumulated depreciation
Balance, beginning of year
Depreciation
Impairment losses, net of reversals (note 16)
Transfers to assets held for sale
Balance, end of year
Carrying amount as at December 31, 2021
Property
Other
2021
Total
$
5,139 $
87 $
5,226
121
499
(42)
—
12
—
121
511
(42)
5,717 $
99 $
5,816
1,138 $
45 $
574
(2)
(16)
1,694 $
4,023 $
18
—
—
63 $
36 $
1,183
592
(2)
(16)
1,757
4,059
$
$
$
$
156 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Lease Liabilities The following is the continuity of lease liabilities for the year ended December 31, 2022 and December 31,
2021:
($ millions)
Balance, beginning of year
Lease additions, net of terminations
Lease extensions and other items
Lease payments
Interest expense on lease liabilities (note 8)
Transfers to liabilities held for sale
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:
2021
5,005
128
500
(811)
191
(29)
4,984
742
4,242
4,984
2022
$
4,984
$
$
$
$
297
453
(761)
185
—
5,158
835
4,323
$
$
5,158
$
As at
($ millions)
2023
2024
2025
2026
2027
Thereafter
Total
Lease payments
$ 850 $ 782 $
716 $ 565 $ 467 $
1,930
$
5,310
$
Total
5,040
Payments due by year
Dec. 31, 2022
Dec. 31, 2021
As at December 31, 2022, the Company also had commitments of $566 million (December 31, 2021 – $827 million) related to
leases not yet commenced.
Short-Term Leases The Company has short-term leases that are primarily related to trailer rentals and certain properties. During
2022, $27 million (2021 – $26 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 2022, $233 million (2021 – $238 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, 2022, approximately 15% (December 31, 2021 – 14%) of the lease liabilities are related to extension options that
were deemed reasonably certain to be exercised.
As at December 31, 2022, approximately $7 billion (December 31, 2021 – $6 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 2022, the Company disposed of and leased back one retail property (2021 – four retail
properties), and recognized a loss of $1 million (2021 – gain of $8 million) in SG&A.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 157
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 21).
During 2022, the Company recognized finance interest income of $3 million (2021 – $3 million) and nil impairment losses
(2021 – nil). The future finance lease payments to be received by the Company relating to properties that are subleased to third
parties are as follows:
($ millions)
2023
2024
2025
2026
2027
Thereafter
Total
Total
Payments to be received by year
Dec. 31, 2022
Dec. 31, 2021
Finance lease payments
to be received
$
19 $
7 $
7 $
7 $
4 $
265
$
309
$
318
Less: unearned finance
interest income
(3)
(2)
(2)
(2)
(2)
(235)
(246)
(248)
Total finance lease
receivable (note 21)
$
16 $
5 $
5 $
5 $
2 $
30
$
63
$
70
As at
Operating Leases During 2022, the Company recognized operating lease income of $375 million (2021 – $383 million), of which
$19 million (2021 – $20 million) is related to subleases of right-of-use assets.
The future undiscounted operating lease payments to be received by the Company are as follows:
($ millions)
2023
2024
2025
2026
2027
Thereafter
Total
Operating lease income
$ 398 $ 374 $ 339 $ 293 $ 236 $
952
$
2,592
$
Total
1,991
Payments to be received by year
Dec. 31, 2022
Dec. 31, 2021
As at
The Company has certain owned land and buildings that it leases to third parties, which as at December 31, 2022 had a net
carrying amount of $863 million (2021 – $1 billion).
158 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 31. Financial Instruments
The following table presents the fair value and fair value hierarchy of the Company’s financial instruments and excludes financial
instruments measured at amortized cost that are short-term in nature. The carrying values of the Company’s financial
instruments approximate their fair values except for long-term debt.
($ millions)
Financial assets
Amortized cost:
Mortgages, loans and notes receivable(ii)
Fair value through other comprehensive income:
Long-term securities(ii)
Derivatives included in prepaid expenses and other assets
Fair value through profit and loss:
Security deposits
Mortgages, loans and notes receivable(ii)
Investment in real estate securities(ii)
Certain other assets(ii)
Derivatives included in prepaid expenses and other assets
Financial liabilities
Amortized cost:
Long-term debt
Financial liabilities(ii)
Fair value through other comprehensive income:
Derivatives included in trade payables and other liabilities
Fair value through profit and loss:
Trust Unit liability
As at
Dec. 31, 2022
Dec. 31, 2021(i)
Level 1 Level 2 Level 3
Total
Level 1 Level 2 Level 3
Total
$
— $
— $ 342 $ 342
$
— $
— $
89 $
89
246
—
36
—
—
—
1
—
6
—
—
—
—
246
6
—
163
36
163
302
—
302
19
26
132
—
151
27
96
—
75
—
—
—
3
—
1
—
—
—
—
—
—
97
—
96
1
75
97
—
20
80
100
5
—
8
—
8,592
5,947
14,539
— 8,643 6,527 15,170
—
—
4,112
—
677
677
—
—
668
668
—
—
—
—
—
—
1
—
1
—
4,112
4,209
3
3
—
—
2
— 4,209
1
3
Derivatives included in trade payables and other liabilities
—
(i)
(ii)
Certain comparative figures have been restated to conform with current year presentation.
Included in the consolidated balance sheets in Other Assets and Other Liabilities.
There were no transfers between the levels of the fair value hierarchy during the periods presented.
During 2022, a gain of $4 million (2021 – loss of $1 million) was recognized in operating income on financial instruments
designated as amortized cost. In addition, a net loss of $83 million (2021 – net loss of $774 million) was recognized in earnings
before income taxes from continuing operations 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 2022, the Company had cash and
cash equivalents, short-term investments and security deposits of $2,852 million (2021 – $3,938 million), including U.S. dollars of
$126 million (2021 – $221 million).
During 2022, a gain of $3 million (2021 – gain of $3 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.
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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 159
Notes to the Consolidated Financial Statements
During 2022, a loss of $2 million (2021 – loss of $3 million) was recorded in operating income related to these derivatives.
In addition, as at the year end 2022, a corresponding liability of $3 million was included in trade payables and other liabilities
(2021 – $1 million liability included in trade payables and other liabilities). As at year end 2022, a 1% increase (decrease) in
foreign currency exchange rates would result in a gain (loss) in fair value of $1 million.
Investments in Real Estate Securities The Allied Class B Units are recorded at their fair value based on market trading prices of
Allied’s publicly traded units, and included in the balance certain long-term investments and other assets in the table above. As
at year end 2022, Choice Properties, held 11,809,145 Allied Class B Units with a value of $302 million. In 2022, a fair value loss of
$248 million (2021 – nil) was recorded in SG&A (2021 – nil) (see note 21).
Trust Unit Liability In 2022, a fair value gain of $98 million (2021 – loss of $601 million) was recorded in net interest expense and
other financing charges (see note 8).
Other Derivatives The Company uses bond forwards, interest rate swaps and foreign exchange forwards to mitigate the impact
of increases in interest rates and manage its anticipated exposure to exchange rates on its underlying operations and
anticipated fixed asset purchases. The Company also uses futures, options and forward contracts to manage its anticipated
exposure to fluctuations in commodity prices and exchange rates in its underlying operations. The following is a summary of the
fair values recognized in the consolidated balance sheet and the net realized and unrealized gains (losses) before income taxes
from continuing operations related to the Company’s other derivatives:
($ millions)
Derivatives designated as cash flow hedges
Foreign Exchange Forwards(i)
Bond Forwards(ii)
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
Net asset
(liability)
fair value
Gain/loss)
recorded
in OCI
2022
Gain/(loss)
recorded in
operating
income
$
$
$
$
$
4 $
4 $
1
14
18
11
19 $
33 $
13 $
— $
1
—
14 $
— $
33 $
33 $
2
(5)
4
1
32
24
56
57
(i)
(ii)
PC Bank uses foreign exchange forwards, with a notional amount of $37 million USD, to manage its foreign exchange risk related to certain
U.S. payables. The fair value of the derivatives is included in trade payables and other liabilities. During the first quarter of 2022, Loblaw
entered into foreign exchange forwards, as described below.
PC Bank uses bond forwards, with 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 2022, PC Bank settled $140 million of bond forwards (see note 23).
(iii) PC Bank uses interest rate swaps, with notional value of $180 million, to mitigate the impact of increases in interest rate. The fair value of the
derivatives is included in prepaid expenses and other assets. Choice Properties uses interest rate swaps, with a notional value of $158 million,
to manage its interest risk related to variable rate mortgages. The fair value of the derivatives are included in other assets.
In the first quarter of 2022, Loblaw entered into foreign exchange forwards. The purpose of these forward exchange forwards
was to hedge the risk that the future cash flows of an anticipated fixed asset purchase transaction will fluctuate because of
changes in foreign exchange rates. Loblaw concluded that these hedges were effective and accordingly, the gains or losses on
these foreign exchange forwards are recognized in other comprehensive income, Upon settlement of these foreign exchange
forwards, the accumulated other comprehensive income will be included in the initial cost of the fixed asset.
160 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
($ millions)
Derivatives designated as cash flow hedges
Foreign Exchange Forwards(i)
Bond Forwards(ii)
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
Net asset
(liability)
fair value
Gain/(loss)
recorded
in OCI
2021
Gain/(loss)
recorded in
operating
income
$
— $
— $
(1)
2
6
7
1 $
13 $
2 $
— $
3
5 $
6 $
—
— $
13 $
$
$
$
$
(1)
(7)
—
(8)
1
18
19
11
(i)
PC Bank uses foreign exchange forwards, with a notional amount of $19 million USD, to manage its foreign exchange risk related to certain
U.S. payables. The fair value of the derivatives is included in trade payables and other liabilities.
PC Bank uses bond forwards with a notional value of $120 million, to manage interest risk related to future debt issuances. The fair value of
the derivatives is included in trade payables and other liabilities. During 2021, PC bank settled $175 million of bond forward (see note 23).
(iii) 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
(ii)
value of the derivatives is included in prepaid expenses and other assets. Choice Properties uses interest rate swaps, with a notional value of
$62 million, to manage its interest risk related to variable rate mortgages. The fair value of the derivatives is included in other assets or other
liabilities.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 161
Notes to the Consolidated Financial Statements
Note 32. Financial Risk Management
As a result of holding and issuing financial instruments, the Company is exposed to certain risks. The following is a description
of those risks and how the exposures are managed:
LIQUIDITY RISK Liquidity risk is the risk that the Company is unable to generate or obtain sufficient cash or its equivalents in a
cost effective manner to fund its obligations as they come due. The Company is exposed to liquidity risk through, among other
areas, PC Bank, which requires a reliable source of funding for its credit card business. PC Bank relies on its securitization
programs, demand deposits from customers and the acceptance of GIC deposits to fund the receivables of its credit cards. The
Company would experience liquidity risks if it fails to maintain appropriate levels of cash and short-term investments, is unable
to access sources of funding or fails to appropriately diversify sources of funding. If any of these events were to occur, they could
adversely affect the financial performance of the Company.
Liquidity risk is mitigated by maintaining appropriate levels of cash and cash equivalents and short-term investments, actively
monitoring market conditions, and by diversifying sources of funding, including the Company’s committed credit facilities, and
maintaining a well-diversified maturity profile of debt and capital obligations.
Maturity Analysis The following are the undiscounted contractual maturities of significant financial liabilities as at
December 31, 2022:
($ millions)
Long-term debt including
interest payments(i)
Foreign exchange forward contracts
Short-term debt
Financial liabilities(iii)
Bank indebtedness
Demand deposits from customers
Certain other liabilities
Total
2023
2024
2025
2026
2027 Thereafter
Total(ii)
$
1,967 $
2,786 $
2,301 $
1,341 $
1,536 $
9,197 $
19,128
543
700
49
8
125
2
157
—
50
—
—
—
—
—
54
—
—
—
—
—
49
—
—
—
—
—
47
—
—
—
—
—
174
—
—
—
700
700
423
8
125
2
$
3,394 $
2,993 $
2,355 $
1,390 $
1,583 $
9,371 $ 21,086
(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 2022.
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 24).
CURRENCY EXCHANGE RATE RISK The Company is exposed to foreign currency exchange rate variability, primarily on its U.S.
dollar denominated purchases in trade payables and other liabilities. A depreciating Canadian dollar relative to the U.S. dollar
will have a negative impact on year-over-year changes in reported operating income and net earnings, while an appreciating
Canadian dollar relative to the U.S. dollar will have the opposite impact. To manage a portion of this exposure, the Company uses
derivative instruments in the form of futures contracts and forward contracts to minimize cost volatility related to foreign
exchange.
CREDIT RISK The Company is exposed to credit risk resulting from the possibility that counterparties could default on their
financial obligations to the Company, including derivative instruments, cash and cash equivalents, short-term investments,
security deposits, PC Bank’s credit card receivables, Loblaw’s finance lease receivable, pension assets held in the Company’s
defined benefit plans, and Loblaw’s accounts receivable, including amounts due from government and third-party drug plans
arising from prescription drug sales, independent accounts and amounts owed from vendors. 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
162 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
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 government and third-party
drug plans arising from prescription drug sales, independent accounts and amounts owed from vendors and tenants, are
actively monitored on an ongoing basis and settled on a frequent basis in accordance with the terms specified in the applicable
agreements.
The Company’s maximum exposure to credit risk as it relates to derivative instruments is approximated by the positive fair
market value of the derivatives on the consolidated balance sheets (see note 31).
Refer to notes 12 and 13 for additional information on the credit quality performance of Loblaw’s credit card receivables and
other receivables, mentioned above, of Loblaw.
TRUST UNIT PRICE RISK 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 $277 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. An increase in interest rates could adversely affect the operations or
financial performance of the Company. 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 1% increase
(decrease) in short-term interest rates, with all other variables held constant, would result in a decrease (increase) of $14 million
in net interest expense and other financing charges.
COMMODITY PRICE RISK Loblaw is exposed to increases in the prices of commodities in operating its stores and distribution
networks, as well as to the indirect effect of changing commodity prices on the price of consumer products. Rising commodity
prices could adversely affect the financial performance of Loblaw. To manage a portion of this exposure, Loblaw uses purchase
commitments and derivative instruments in the form of exchange traded futures contracts and forward contracts to minimize
cost volatility related to commodities. Loblaw estimates that based on the outstanding derivative contracts held as at year end
2022, a 10% decrease in relevant commodity prices, with all other variables held constant, would result in a net loss of $2 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 2022 ANNUAL REPORT 163
Notes to the Consolidated Financial Statements
Note 33. Contingent Liabilities
In the ordinary course of business, the Company is involved in and potentially subject to, legal actions and proceedings. In
addition, the Company is subject to tax audits from various tax authorities on an ongoing basis. As a result, from time to time, tax
authorities may disagree with the positions and conclusions taken by the Company in its tax filings or legislation could be
amended or interpretations of current legislation could change, any of 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 was previously 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. The class action comprises all of
Shoppers Drug Mart’s current and former licensed Associates residing in Canada, other than in Québec, who were 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. A summary judgment trial of the matter was held in December 2022 and on
February 17, 2023, the Superior Court released its decision in relation to those summary judgment motions (the “Decision”).
The Superior Court dismissed the plaintiffs’ claims on the majority of the issues including a request for damages at this stage
of proceedings. The Court also held that Shoppers Drug Mart breached the 2002 form of Associate Agreement when it did
not remit certain amounts that it received from generic drug manufacturers to Associates. Loblaw is still assessing the
Decision and has not yet determined whether it plans to appeal any aspect of it. Accordingly, Loblaw has not recorded any
amounts related to the potential liability associated with this lawsuit. Loblaw does not believe that the ultimate resolution of
this matter will have a material adverse impact on its financial condition or prospects.
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. 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 and
Loblaw’s cash balances far exceed any realistic damages scenario and therefore the Company and Loblaw do not anticipate
any impacts on the Company’s or Loblaw’s dividend, dividend policy or share buyback plan. The Company and Loblaw have
not recorded any amounts related to the potential civil liability associated with the class action lawsuits in 2022 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 unquantified damages for the
expenses incurred by the federal government, provinces, and territories of Canada in paying for opioid prescriptions and
other healthcare costs related to opioid addiction and abuse in Canada. During the second quarter of 2021, the claim against
Loblaw Companies Limited was discontinued. 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 2022, the plaintiff
and Sanis Health Inc. agreed to settle the Quebec action for a nominal amount, with no admission of liability and for the
express purpose of avoiding the delays, disruption, and expenses associated with the litigation. The settlement has been
approved by the court and is now final. In December 2019, 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 December 2019
claims seek recovery of damages on behalf of opioid users directly. In April 2021, Loblaw, Shoppers Drug Mart Inc., and Sanis
Health Inc. were served with another opioid-related class action that was started in Alberta against multiple defendants. The
claim seeks damages on behalf of municipalities and local governments in relation to public safety, social service, and
criminal justice costs allegedly incurred due to the opioid crisis. In September 2021, Loblaw, Shoppers Drug Mart Inc. and
164 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Sanis Health Inc. were served with a class action started in Saskatchewan by Peter Ballantyne Cree Nation and Lac La Ronge
Indian Band on behalf of all Indigenous, Metis, First Nation and Inuit communities and governments in Canada to recover
costs they have incurred as a result of the opioid crisis, including healthcare costs, policing costs and societal costs. 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.
Between 2015 and 2019, Loblaw was 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. In the fourth quarter of 2021, the Supreme Court ruled in favour of Loblaw
on the Glenhuron matter and Loblaw reversed $301 million of previously recorded charges, of which $173 million was recorded
as interest income and $128 million was recorded as income tax recovery, and an additional $16 million, before taxes, was also
recorded in respect of interest income earned on expected cash tax refunds. As a result of related reassessments received during
the first quarter of 2022, Loblaw reversed another $35 million of previously recorded charges, of which $2 million was recorded
as interest income and $33 million was recorded as an income tax recovery, and an additional $9 million, before taxes, was
recorded in respect of interest income earned on expected cash tax refunds.
In July 2022, the Tax Court released a decision relating to PC Bank, a subsidiary of Loblaw. The Tax Court ruled that PC Bank is
not entitled to claim notional input tax credits for certain payments it made to Loblaws Inc. in respect of redemptions of loyalty
points. On September 29, 2022, PC Bank filed a Notice of Appeal with the Federal Court of Appeal. Although Loblaw believes in
the merits of its position, Loblaw recorded a charge of $111 million, inclusive of interest, in the second quarter of 2022. Loblaw
believes that this provision is sufficient to cover its liability, if the appeal is ultimately unsuccessful.
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.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 165
Notes to the Consolidated Financial Statements
Note 34. Financial Guarantees
The Company established letters of credit used in connection with certain obligations mainly related to real estate transactions,
benefit programs, purchase orders and guarantees with a gross potential liability of approximately $385 million (2021 –
$424 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 2022, Loblaw’s maximum obligation in respect of such guarantees was $580 million (2021 – $580 million)
with an aggregate amount of $473 million (2021 – $469 million) in available lines of credit allocated to the Associates by the
various banks. As at year end 2022, the Associates had drawn an aggregate amount of $8 million (2021 – $52 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 23). As at year end 2022, Loblaw has agreed to provide a credit
enhancement of $64 million (2021 – $64 million) in the form of a standby letter of credit for the benefit of the independent
funding trusts representing not less than 10% (2021 – 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. Loblaw has guaranteed lease obligations of a third-party distributor in the amount of $4 million (2021 –
$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 33), Loblaw arranged for a surety bond to the Ministry of Finance in order to
appeal the reassessments. As at year end 2021, the amount of the surety bond was $56 million. During 2022, the surety bond
was released as a result of the favourable decision of the Supreme Court (see note 33).
CASH COLLATERALIZATION As at year end 2022, GWL had no agreements to cash collateralize uncommitted credit facilities
(2021 – $45 million) and had no deposits with major financial institutions (2021 – $45 million) and classified as security deposits
on the consolidated balance sheets. As at year end 2022, Loblaw had agreements to cash collateralize certain uncommitted
credit facilities up to amounts of $93 million (2021 – $93 million), of which a nominal amount (2021 – nominal) was deposited
with major financial institutions 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 (2021 – U.S. dollars $190 million).
As at year end 2022, 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 (2021 – $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 $63 million (2021 – $41 million), which represented approximately 9% (2021 – 9%)
of the securitized credit card receivables amount (see note 13).
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 2022, the aggregate gross
potential liability related to these letters of credit totaled $33 million (2021 – $33 million). Choice Properties’ credit facility and
debentures are guaranteed by each of the General Partner, the Partnership and any other person that becomes a subsidiary of
Choice Properties (with certain exceptions). In the case of default by Choice Properties, the indenture trustee will be entitled to
seek redress from the guarantors for the guaranteed obligations in the same manner and upon the same terms that it may seek
to enforce the obligations of Choice Properties. These guarantees are intended to eliminate structural subordination, which
would otherwise arise as a consequence of Choice Properties’ assets being primarily held in its various subsidiaries.
166 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 35. Segment Information
The Company has two reportable operating segments: Loblaw and Choice Properties. Other and Intersegment includes
eliminations, intersegment adjustments related to the consolidation, cash and short-term investments held by the Company
and all other company level activities that are not allocated to the reportable operating segments, as further illustrated below.
The accounting policies of the reportable operating segments are the same as those described in the Company’s summary of
significant accounting policies (see note 2). The Company measures each reportable operating segment’s performance based on
adjusted operating income before depreciation and amortization (“Adjusted EBITDA”) and adjusted operating income. No
reportable operating segment is reliant on any single external customer.
($ millions)
Revenue
Loblaw
Choice
Properties
Other and
Inter-
segment
Total
Segment
Measure
Elim-
inations
Total
Loblaw
Choice
Properties
Other and
Inter-
segment
Total
Segment
Measure
Elim-
inations
2022
2021
Total
$ 56,504 $ 1,265 $
12 $ 57,781 $ (733) $ 57,048
$ 53,170 $ 1,292 $
12 $ 54,474 $ (726) $ 53,748
Operating income
$ 3,334 $ 1,083 $
136 $ 4,553 $
— $ 4,553
$ 2,929 $ 1,400 $ (302) $ 4,027 $
— $ 4,027
Net interest
expense and
other financing
charges
Earnings before
income taxes
from continuing
operations
683
339
(109)
913
—
913
495
1,377
(222)
1,650
—
1,650
$ 2,651 $ 744 $ 245 $ 3,640 $
— $ 3,640
$ 2,434 $
23 $
(80) $ 2,377 $
— $ 2,377
Operating income
$ 3,334 $ 1,083 $
136 $ 4,553 $
— $ 4,553
$ 2,929 $ 1,400 $ (302) $ 4,027 $
— $ 4,027
Depreciation and
amortization
Adjusting items(i)
Adjusted EBITDA(i)
Depreciation and
amortization(ii)
Adjusted operating
income(i)
2,795
3
(391) 2,407
2,664
3
(360) 2,307
44
(189)
(264)
(409)
(14)
(500)
175
(339)
$ 6,173 $ 897 $
(519) $ 6,551
$ 5,579 $ 903 $ (487) $ 5,995
2,298
3
(391)
1,910
2,158
3
(360)
1,801
$ 3,875 $ 894 $ (128) $ 4,641
$ 3,421 $ 900 $
(127) $ 4,194
(i)
(ii)
Certain items are excluded from operating income to derive adjusted EBITDA. Adjusted EBITDA is used internally by management when
analyzing segment underlying operating performance.
Excludes $497 million (2021 – $506 million) of amortization of intangible assets acquired with Shoppers Drug Mart and Lifemark, recorded
by Loblaw.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 167
Notes to the Consolidated Financial Statements
Other and Intersegment includes the following items:
($ millions)
Internal lease arrangements
Recognition of depreciation on Choice Properties’
investment properties classified as fixed assets by the
Company and measured at cost
Fair value adjustment on investment properties
Fair value adjustment on Choice Properties’
Exchangeable Units
Fair value adjustment on Trust Unit liability
Unit distributions on Exchangeable Units paid by Choice
Properties to GWL
Unit distributions on Trust Units paid by Choice
Properties, excluding amounts paid to GWL
Fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares
Asset impairments, net of recoveries
Gain on sale of a property
Other
Total
2022
Net Interest
Expense
and Other
Financing
Charges
Revenue
Operating
Income
2021(i)
Net Interest
Expense
and Other
Financing
Charges
Revenue
Operating
Income
$
— $
(95) $
(106) $
— $
(89) $
(108)
—
—
—
—
—
—
—
—
—
12
(13)
286
—
—
—
—
—
4
(19)
(27)
—
1
170
(98)
(293)
205
—
—
—
12
—
—
—
—
—
—
—
—
—
12
(40)
(177)
—
2
—
—
(863)
601
—
(293)
—
205
—
29
—
(25)
188
—
—
46
$
12 $
136 $
(109) $
12 $
(302) $
(222)
Elimination of intercompany rental revenue
(733)
—
—
(726)
—
—
Total including Eliminations
$
(721) $
136 $
(109) $
(714) $
(302) $
(222)
(i)
Certain comparative figures have been restated to conform with current year presentation.
168 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
($ millions)
Total Assets
Loblaw
Choice Properties
Other and Intersegment
Consolidated
(i)
Certain comparative figures have been restated to conform with current year presentation.
($ millions)
Additions to Fixed Assets, Investment Properties and Intangible Assets
Loblaw(i)
Choice Properties
Other and Intersegment
Discontinued Operations
Consolidated
As at
Dec. 31, 2022
Dec. 31, 2021(i)
$
38,147
$
16,820
(6,009)
36,614
16,173
(5,704)
$
48,958
$
47,083
2022
$
1,571
$
321
1
—
2021
1,183
196
2
76
$
1,893
$
1,457
(i)
During 2022, there were no additions to Loblaw fixed assets related to prepayments that were made in 2021 and transferred from other
assets. During 2021, additions to Loblaw fixed assets included prepayments that were made in 2020 and transferred from other assets of
$1 million.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 169
Notes to the Consolidated Financial Statements
Note 36. Related Party Transactions
Galen G. Weston beneficially owns or controls, directly and indirectly, through Wittington, a total of 78,650,662 of GWL’s common
shares, representing approximately 55.9% of GWL’s outstanding common shares (2021 – 53.6%).
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 2022, 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 $39 million (2021 – $42 million). As at year end 2022, $6 million
(2021 – $1 million) was included in trade payables and other liabilities relating to these inventory purchases.
TRANSACTION BETWEEN LOBLAW AND CHOICE PROPERTIES In the second quarter of 2022, Loblaw announced that it
intends to build an industrial facility on part of a property in East Gwillimbury, Ontario owned by a joint venture in which Choice
Properties has an ownership interest. Loblaw expects to bring the industrial facility into its operations in the first quarter of 2024.
For the first phase of the development, Loblaw entered into a 25-year land lease with the joint venture. Loblaw took possession
of the land on October 1, 2022, and as a result recorded a right-of-use asset and lease liability of $120 million. The land lease
includes a 15-month construction period with lease payments commencing in 2024.
VENTURE FUNDS 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 I”). A wholly owned subsidiary of Wittington is the
general partner of Venture Fund I, which hired an external fund manager to oversee it. The purpose of Venture Fund I 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 Venture Fund I. The Company has a consolidated capital commitment of $66 million over a 10-
year period. To date, the Company has invested $45 million in the Venture Fund I, of which $14 million was invested in 2022
(2021 – $18 million) and recorded in Other Assets.
During the third quarter of 2022, Loblaw became a limited partner in another limited partnership formed by Wittington
(“Venture Fund II”). A wholly owned subsidiary of Wittington is also the general partner of Venture Fund II, and the general
purpose of Venture Fund II is consistent with Venture Fund I. Loblaw has a 50% interest in Venture Fund II and has a total capital
commitment of $60 million over a 10-year period. To date, Loblaw has invested nil in Venture Fund II.
POST-EMPLOYMENT BENEFIT PLANS The Company sponsors a number of post-employment plans, which are related parties.
Contributions made by the Company to these plans are disclosed in note 27.
INCOME TAX MATTERS From time to time, the Company and Wittington may enter into agreements to make elections that are
permitted or required under applicable income tax legislation with respect to affiliated corporations.
COMPENSATION OF KEY MANAGEMENT PERSONNEL The Company’s key management personnel is comprised of certain
members of the executive team of GWL, Loblaw and Wittington, as well as members of the Boards of GWL, Loblaw and
Wittington to the extent that they have the authority and responsibility for planning, directing and controlling the day-to-day
activities of the Company.
Annual compensation of key management personnel that is directly attributable to the Company was as follows:
($ millions)
Salaries, director fees and other short-term employee benefits
Equity-based compensation
Total compensation
$
$
2022
12
6
18
$
$
2021
14
12
26
170 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Note 37. Subsequent Events
CHOICE PROPERTIES On February 16, 2023, Choice Properties announced that it agreed to issue, on a private placement basis,
$550 million aggregate principal amount of series S senior unsecured debentures that will bear interest at a rate of 5.4% per
annum and will mature on March 1, 2033.
On February 15, 2023, Choice Properties announced an increase in the annual distribution by 1.4% to $0.75 per unit. The
increase will be effective for Choice Properties’ unitholders of record on March 31, 2023.
On January 18, 2023, Choice Properties paid in full upon maturity, at par, plus accrued and unpaid interest thereon, the
$125 million aggregate principal amount of the Series D-C senior unsecured debentures outstanding. The repayment of the
Series D-C senior unsecured debenture was funded by an advance on Choice Properties’ credit facility.
Subsequent to year end, Choice Properties entered into commitments for approximately $162 million of mortgage financing.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 171
Three Year Summary
The Company’s interest in Weston Foods is presented separately as discontinued operations in the Company’s current and
comparative results. Unless otherwise indicated, all financial information represents the Company’s results from continuing
operations.
CONSOLIDATED INFORMATION(i)
As at or for the years ended December 31
($ millions except where otherwise indicated)
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 (loss)
Continuing operations
Discontinued operations
Net earnings attributable to shareholders of the Company from
continuing operations
Net earnings (loss) available to common shareholders of the Company
Continuing operations
Discontinued operations
Adjusted net earnings available to common shareholders of
the Company(iii) from continuing operations
Financial Position(v)
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(v)
Cash Flows from operating activities(ii)
Capital Investments
Consolidated Per Common Share ($)
Diluted net earnings (loss) per common share
Continuing operations
Discontinued operations
Adjusted diluted net earnings per common share(iii) from continuing
operations
Consolidated 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) (%)
2022
(52 weeks)
2021
2020
(52 weeks)
(53 weeks)
57,048
4,553
6,551
2,407
913
1,022
831
989
2,803
2,809
(6)
1,822
1,772
1,778
(6)
1,432
11,130
11,380
48,958
2,852
21,523
6,841
13,180
4,877
1,893
12.16
12.20
(0.04)
9.81
11.5
23.5
13.8
53,748
4,027
5,995
2,307
1,650
1,050
630
851
1,425
1,747
(322)
753
387
709
(322)
1,232
10,782
10,909
47,083
3,938
20,309
6,959
13,137
5,119
1,457
2.52
4.66
(2.14)
8.14
11.2
18.7
12.6
53,270
2,875
5,356
2,254
829
1,115
470
648
1,582
1,576
6
957
919
913
6
993
11,943
11,804
48,078
3,231
21,000
7,811
13,418
5,521
1,658
5.96
5.92
0.04
6.44
10.1
15.2
10.7
For financial definitions and ratios refer to the Glossary beginning on page 174.
Certain comparative figures have been restated to conform with current year presentation.
(i)
(ii)
(iii) See Section 13. “Non-GAAP Financial Measures” of the Company’s 2022 Management’s Discussion and Analysis. Certain comparative figures
have been restated due to a non-GAAP policy change.
(iv) Depreciation and amortization for the calculation of EBITDA excludes $497 million (2021 – $506 million; 2020 - $509 million) of amortization
of intangible assets, acquired with Shoppers Drug Mart Corporation and Lifemark Health Group, recorded by Loblaw.
Inclusive of Discontinued Operations.
(v)
172 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
SEGMENT INFORMATION(i)
As at or for the years ended December 31
($ millions except where otherwise indicated)
OPERATING RESULTS
Revenue
Operating income
Adjusted EBITDA(iii)
Adjusted EBITDA Margin (%)(iii)
Depreciation and Amortization(iv)
FINANCIAL POSITION
Total Assets
CASH FLOWS
Capital Expenditures
Loblaw
Choice Properties
Other & Intersegment
Consolidated
Loblaw
Choice Properties
Other & Intersegment
Consolidated
Loblaw
Choice Properties
Other & Intersegment
Consolidated
Loblaw
Loblaw
Choice Properties
Other & Intersegment
Consolidated
Loblaw
Choice Properties
Other & Intersegment(v)
Consolidated
Loblaw
Choice Properties
Other & Intersegment
Consolidated
2022
2021(ii)
2020(ii)
(52 weeks)
(52 weeks)
(53 weeks)
56,504
1,265
(721)
57,048
3,334
1,083
136
4,553
6,173
897
(519)
6,551
10.9
2,795
3
(391)
2,407
38,147
16,820
(6,009)
48,958
1,571
321
1
1,893
53,170
1,292
(714)
53,748
2,929
1,400
(302)
4,027
5,579
903
(487)
5,995
10.5
2,664
3
(360)
2,307
36,614
16,173
(5,704)
47,083
1,183
196
2
1,381
52,714
1,271
(715)
53,270
2,357
622
(104)
2,875
4,996
879
(519)
5,356
9.5
2,596
3
(345)
2,254
36,021
15,647
(3,590)
48,078
1,224
263
9
1,496
For financial definitions and ratios refer to the Glossary beginning on page 174.
Certain comparative figures have been restated to conform with current year presentation.
(i)
(ii)
(iii) See Section 13. “Non-GAAP Financial Measures” of the Company’s 2022 Management’s Discussion and Analysis (“MD&A”). Certain comparative
(iv)
figures have been restated due to a non-GAAP policy change.
Includes $497 million (2021 – $506 million; 2020 – $509 million) of amortization of intangible assets, acquired with Shoppers Drug Mart
Corporation and Lifemark, recorded by Loblaw.
(v) Other includes cash and cash equivalents and short-term investments held by foreign operations.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 173
Glossary
Term
Adjusted diluted net earnings per common share
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted earnings before income taxes
Adjusted effective tax rate
Adjusted income taxes
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 13, “Non-GAAP Financial Measures”, of the Company’s
Management’s Discussion and Analysis).
Adjusted operating income before depreciation and amortization (see Section 13,
“Non-GAAP Financial Measures”, of the Company’s Management’s Discussion and
Analysis).
Adjusted EBITDA divided by revenue (see Section 13, “Non-GAAP Financial
Measures”, of the Company’s Management’s Discussion and Analysis).
Adjusted operating income less adjusted net interest and other financing charges
(see Section 13, “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 13, “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 13,
“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 13, “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 13, “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
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 13,
“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 13, “Non-GAAP Financial
Measures”, of the Company’s Management’s Discussion and Analysis).
Adjusted net earnings available to common shareholders of the Company for the
last four quarters divided by average total equity attributable to common
shareholders of the Company (see Section 3.4, “Financial Condition” and Section 13,
“Non-GAAP Financial Measures”, of the Company’s Management’s Discussion and
Analysis).
Tax-effected adjusted operating income for the last four quarters divided by average
capital where capital is defined as total debt, plus equity attributable to
shareholders of the Company, less cash and cash equivalents, and short-term
investments (see Section 3.4, “Financial Condition” and Section 13, “Non-GAAP
Financial Measures”, of the Company’s Management’s Discussion and Analysis).
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 under management
Total debt plus total equity attributable to shareholders of the Company.
Capital investments
Choice Properties’ Funds from Operations
Fixed asset additions and intangible asset additions (see notes 16 and 19 of the
Company’s Consolidated Financial Statements).
Choice Properties’ net income (loss) adjusted for items that are not necessarily
reflective of Choice Properties’ underlying operating performance capital (see
Section 13, “Non-GAAP Financial Measures”, of the Company’s Management’s
Discussion and Analysis).
174 GEORGE WESTON LIMITED 2022 ANNUAL REPORT
Term
Compound Average Growth Rate
Control brand
Conversion
Diluted net earnings per common share
Definition
Measure of annualized growth over a period longer than one year. It is the mean
annual growth rate over a two year period, 2020 to 2022.
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.
Diluted weighted average common shares
outstanding
Weighted average number of common shares outstanding including the effects of
all dilutive instruments.
Food retail basket size
The dollar value of products sold in a single Loblaw retail transaction.
Food retail traffic
Free cash flow
The number of customers entering stores across all Loblaw banners.
Cash flows from operating activities less intangible asset additions, fixed asset and
investment properties purchases, interest paid, and net lease payments (see
Section 13, “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
Retail debt to retail adjusted EBITDA
Retail gross profit percentage
Retail gross profit
Retail square footage
Same-store sales
Net earnings before net interest expense and other financing charges and
income taxes.
Loblaw retail total debt divided by Loblaw retail adjusted EBITDA for the last four
quarters.
Loblaw retail segment gross profit divided by Loblaw retail segment revenue (see
Section 13 “Non-GAAP Financial Measures” of the Company’s Management’s
Discussion and Analysis).
Loblaw retail segment revenue less cost of merchandise inventories sold (see
Section 13 “Non-GAAP Financial Measures” of the Company’s Management’s
Discussion and Analysis).
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. Each of the years ended December
31, 2022 and December 31, 2021 contained 52 weeks.
GEORGE WESTON LIMITED 2022 ANNUAL REPORT 175
Corporate Directory
Board of Directors
Galen G. Weston, B.A., M.B.A.
Chairman and Chief Executive Officer of the
Corporation; Chairman and President, Loblaw
Companies Limited; Chairman, Wittington
Investments, Limited; Chairman, President’s
Choice Bank; President, Weston Family
Foundation; former Chair and Trustee of
Choice Properties Real Estate Investment
Trust.
M. Marianne Harris, B.Sc., J.D., M.B.A. (1, 2)
Corporate Director; Former Managing
Director and President, Corporate and
Investment Banking, Merrill Lynch Canada
Inc., Former Head of Financial Institutions
Group Americas, Merrill Lynch Pierce Fenner
& Smith; Director, Loblaw Companies Limited;
Director, Sun Life Financial Inc.; Director,
Public Sector Pension Investment Board;
Former Director, Hydro One Inc./ Hydro One
Limited; Former Chair, Investment Industry
Regulatory Organization of Canada (IIROC);
Member of Dean’s Advisory Council, Schulich
School of Business; Advisory Council, Hennick
Centre for Business and Law.
(1) Audit Committee
(2) Governance, Human Resource,
Nominating and Compensation
Committee
* Chair of the Committee
Nancy H.O. Lockhart, O. Ont.(2)
Corporate Director; Trustee, Choice
Properties Real Estate Investment Trust;
Chair of Alignvest Student Housing; Director,
Atrium Mortgage Investment Corporation,
and The Royal Conservatory of Music; 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, 2)
Appointed to the Senate of Canada; former
Vice-Chairman and Chief Operating Officer of
The Bank of Nova Scotia; Director, Cineplex
Inc.; Director, ONEX Ltd.; 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.(2*)
Corporate Director; Chair, BCE Inc. and
Director, BlackRock, Inc.; former President and
Chief Executive Officer, Royal Bank of Canada;
Advisory Board, KingSett Canadian Real Estate
Income Fund L.P.; Trustee, Art Gallery of
Ontario.
Barbara G. Stymiest, C.M., F.C.P.A.(1*,2)
Corporate Director; 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;
former Director, Blackberry Limited.
Cornell Wright, J.D., M.B.A.
President and Director of Wittington
Investments, Limited; Trustee, Choice
Properties Real Estate Investment Trust;
Director, Loblaw Companies Limited; Director,
BCE Inc., Chair, National Ballet of Canada;
Trustee, University Health Network; Executive
in Residence, University of Toronto’s Rotman
School of Management.
Corporate Officers
Galen G. Weston
Khush Dadyburjor
Jeff Gobeil
Chairman and Chief Executive Officer
Chief Strategy Officer
Group Head, Tax
Richard Dufresne
John Williams
Anemona Turcu
President
and Chief Financial Officer
Group Treasurer and
Head of Corporate Finance
Group Chief Risk Officer
Gordon A.M. Currie
Executive Vice President
and Chief Legal Officer
Rashid Wasti
Executive Vice President
and Chief Talent Officer
Lina Taglieri
Group Head, Controller
Andrew Bunston
Vice President,
General Counsel and Secretary
176 GEORGE WESTON LIMITED 2022 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 2022, there were 140,737,942 common shares issued
and outstanding.
The average 2022 daily trading volume of the Company’s common
shares was 171,535.
Preferred Shares
As at year end 2022, 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 2022 daily trading volume of the Company’s preferred
shares was:
Series I:
Series III:
Series IV:
Series V:
5,714
8,507
7,580
6,734
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 2023 are:
Series I
Record Date
Feb. 28
May 31
Aug. 31
Nov. 30
Payment Date
March 15
June 15
Sept. 15
Dec. 15
Series III, Series IV and Series V
Record Date
March 15
June 15
Sept. 15
Dec. 15
Payment Date
April 1
July 1
Oct. 1
Jan. 1
Common Dividend Policy
The declaration and payment of dividends on the Company’s
common shares and the amount thereof are at the discretion of the
Board of Directors which takes into account the Company’s
financial results, capital requirements, available cash flow, future
prospects of the Company’s business and other factors considered
relevant from time to time. Over time, it is the Company’s intention
to increase the amount of the dividend while retaining appropriate
free cash flow to finance future growth.
Common Dividend Dates
The declaration and payment of quarterly common dividends are
made subject to approval by the Board of Directors. The anticipated
record and payment dates for 2023 are:
Record Date
Payment Date
March 15
June 15
Sept. 15
Dec. 15
April 1
July 1
Oct. 1
Jan. 1
Design: q30 design inc Printing: TC Transcontinental
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.
Annual Meeting
The 2023 Annual Meeting of Shareholders of George Weston
Limited will be held on Tuesday, May 9, 2023 at 11:00 a.m. (EDT) at
The Royal Conservatory, TELUS Centre for Performance and
Learning, Koerner Hall, 273 Bloor Street West, Toronto, Ontario,
Canada and virtually via a live webcast.
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 Roy MacDonald, Group Vice-President,
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 2022 ANNUAL REPORT 177
GEORGE WESTON LIMITED
22 St Clair Ave E,
Toronto, ON M4T 2S5
Tel: (416) 922-2500
www.weston.ca