George Weston Limited - Quarterly Report to Shareholders
Q3 2009 Quarterly Report to Shareholders
40 Weeks Ended
FORWARD-LOOKING STATEMENTS
This Quarterly Report for
These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the possibility that the Company's plans and objectives will not be achieved. These risks and uncertainties include, but are not limited to: changes in economic conditions including the rate of inflation; changes in consumer spending and preferences; heightened competition, whether from new competitors or current competitors; the availability and cost of raw materials and ingredients, fuels and utilities; changes in the Company's or its competitors' pricing strategies; failure of the Company's franchised stores to perform as expected; risks associated with the terms and conditions of financing programs offered to the Company's franchisees; failure of the Company to realize the anticipated benefits of business acquisitions or divestitures; failure to realize sales growth, anticipated cost savings or operating efficiencies from the Company's major initiatives, including investments in the Company's information technology systems, supply chain investments and other cost reduction initiatives; the inability of the Company's information technology infrastructure to support the requirements of the Company's business; the inability of the Company to manage inventory to minimize the impact of obsolete or excess issues and to control shrink; failure to execute successfully and in a timely manner the Company's major initiatives, including the introduction of innovative and reformulated products or new and renovated stores; unanticipated results associated with the Company's strategic initiatives, including the impact of acquisitions or dispositions of businesses on the Company's future revenues and earnings; the inability of the Company's supply chain to service the needs of the Company's stores; risks associated with product defects, food safety and product handling; deterioration in the Company's relationship with its employees, particularly through periods of change in the Company's business; failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements, which could lead to work stoppages; changes to the regulatory environment in which the Company operates; the adoption of new accounting standards and changes in the Company's use of accounting estimates including in relation to inventory valuation; fluctuations in the Company's earnings due to changes in the value of stock-based compensation and equity derivative contracts relating to GWL and Loblaw Companies Limited ("Loblaw") common shares; changes in the Company's tax liabilities including changes in tax laws or future assessments; detrimental reliance on the performance of third-party service providers; public health events; the inability of the Company to obtain external financing; changes in interest and currency exchange rates; the inability of the Company to collect on its credit card receivables; any requirement of the Company to make contributions to its funded defined benefit pension plans in excess of those currently contemplated; the inability of the Company to attract and retain key executives; and supply and quality control issues with vendors. These and other risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Enterprise Risks and Risk Management section of the MD&A included in GWL's 2008 Annual Report. These forward-looking statements contained herein and in particular in the Report to Shareholders and MD&A reflect management's current assumptions regarding these risks and uncertainties and their respective impact on the Company.
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. 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. The Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
CONSOLIDATED RESULTS OF OPERATIONS
Loblaw continues to progress in its turnaround efforts, focusing on food offering enhancements, product innovation, store renovations, infrastructure improvements and increasing customer value. Weston Foods brand and product development efforts continue, while its continuing focus on plant and distribution optimization along with other ongoing cost reduction initiatives continue to ensure a low cost operating structure.
As disclosed previously, the fresh bread and baked goods business in the
The results of Weston Foods' dairy and bottling operations, which were sold in the fourth quarter of 2008, are not reported as discontinued operations, in accordance with Canadian generally accepted accounting principles, due to Loblaw's continuing purchases of product from the dairy and bottling operations. Therefore, the results of the dairy and bottling operations up to the date of sale, are included in net earnings from continuing operations in the comparative period and are included in the discussion of continuing operating results below.
(unaudited) 16 Weeks Ended 40 Weeks Ended
($ millions except -------- --------
where otherwise Oct. 10, Oct. 4, Oct. 10, Oct. 4,
indicated) 2009 2008 Change 2009 2008 Change
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Sales $ 9,777 $ 9,879 (1.0)% $24,283 $24,038 1.0%
Operating income $ 333 $ 348 (4.3)% $ 722 $ 850 (15.1)%
Operating margin 3.4% 3.5% 3.0% 3.5%
Interest expense
and other
financing charges $ 80 $ 91 (12.1)% $ 264 $ 224 17.9%
Net earnings from
continuing
operations $ 71 $ 119 (40.3)% $ 48 $ 290 (83.4)%
Net earnings $ 86 $ 180 (52.2)% $ 953 $ 429 122.1%
Basic net earnings
per common share
from continuing
operations ($) $ 0.44 $ 0.81 (45.7)% $ 0.11 $ 1.96 (94.4)%
Basic net earnings
per common share
($) $ 0.56 $ 1.29 (56.6)% $ 7.12 $ 3.04 134.2%
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EBITDA(1) $ 530 $ 544 (2.6)% $ 1,212 $ 1,331 (8.9)%
EBITDA margin(1) 5.4% 5.5% 5.0% 5.5%
Net debt(1) $ 233 $ 3,967 (94.1)% $ 233 $ 3,967 (94.1)%
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-------- --------
Sales in the third quarter of 2009 were
Operating income for the third quarter of 2009 was
- a charge of $79 million (2008 - nil) related to unrealized foreign
exchange losses associated with the effect of foreign exchange on a
portion of the Company's (excluding Loblaw's) USD denominated cash
and short term investments. The effect on basic net earnings per
common share from continuing operations was a charge of $0.58
(2008 - nil);
- a charge of $11 million (2008 - income of $4 million) related to the
effect of stock-based compensation net of equity derivatives of both
GWL and Loblaw. The effect on basic net earnings per common share
from continuing operations was a charge of $0.08 (2008 - income of
$0.02);
- a charge of $17 million (2008 - $37 million) related to the
commodity derivatives fair value adjustment at Weston Foods. The
effect on basic net earnings per common share from continuing
operations was a charge of $0.10 (2008 - $0.19); and
- nil (2008 - income of $15 million) related to the income of Weston
Foods' dairy and bottling operations. The effect on basic net
earnings per common share from continuing operations was nil (2008 -
income of $0.08).
After the sale of the U.S. fresh bakery business on
Excluding the impact of the specific items noted above, operating income in the third quarter of 2009 was strong compared to the same period in 2008, with growth at both Loblaw and Weston Foods. Third quarter operating income at Loblaw was positively influenced by improved buying synergies, more disciplined vendor management, sales mix, lower fuel costs and the efficiency of Loblaw's transportation operations, as well as lower labour and supply chain costs. The positive impact of these factors was partially offset by investments in pricing and costs related to Loblaw's previously announced incremental investment in information technology and supply chain. Third quarter operating income at Weston Foods was positively impacted by lower input costs, lower fuel costs and the benefits realized from productivity improvements and other cost reduction initiatives.
Interest expense and other financing charges for the third quarter of 2009 decreased 12.1% to
The effective income tax rate increased to 41.5% in the third quarter of 2009 compared to 28.0% in the third quarter of 2008. The increase was mainly the result of the foreign exchange losses associated with the effect of foreign exchange on a portion of the Company's (excluding Loblaw's) USD denominated cash and short term investments for which a tax benefit has not been fully recognized.
Net Debt(1)
The Company's net debt(1) at
OPERATING SEGMENTS
Weston Foods
Weston Foods sales for the third quarter of 2009 of
Weston Foods operating income was
Loblaw
Loblaw sales for the third quarter of 2009 decreased 0.2% or
Loblaw operating income for the third quarter of 2009 was
On
OUTLOOK(2)
The consolidated results of
Weston Foods expects satisfactory operating performance for the remainder of 2009. To help offset economic pressures, the Company is continuing its efforts to reduce costs through improved efficiencies and productivity and by optimizing the product mix to meet changing consumer buying preferences.
As Loblaw progressed through its third quarter, sales were increasingly impacted by the significant decline in inflation and the ramp-up of pricing investments. Earnings benefited from cost containment and supply chain efficiencies. Loblaw expects that sales and margins will be challenged due to decreasing inflation, competitive intensity and ongoing renovation and infrastructure programs.
(signed)
W. Galen Weston Toronto, Canada
Chairman and President November 23, 2009
Management's Discussion and Analysis
The following MD&A for
The information in this MD&A is current to
CONSOLIDATED RESULTS OF OPERATIONS
In accordance with Canadian GAAP, the Company is required to report separately the results of continuing operations and those operations that meet the criteria under Canadian GAAP for presentation as discontinued operations.
As disclosed previously, the fresh bread and baked goods business in the
The results of Weston Foods' dairy and bottling operations, which were sold in the fourth quarter of 2008, are not reported as discontinued operations, in accordance with Canadian GAAP, due to Loblaw's continuing purchases of product from the dairy and bottling operations. Therefore, the results of the dairy and bottling operations up to the date of sale, are included in net earnings from continuing operations in the comparative period and are included in the discussion of continuing operating results below.
On
Sales
Sales for the third quarter of 2009 decreased 1.0% or
- Negatively by 1.8% as a result of a sales decrease of 26.0% at Weston
Foods. The sale of the dairy and bottling operations in the fourth
quarter of 2008 negatively impacted sales growth by approximately
25.6%, while foreign currency translation positively impacted sales
growth by approximately 1.5%. The combined effect of pricing across
key product categories and changes in sales mix was a negative impact
of 0.3% for the third quarter of 2009. Volume declined 42.7% for the
third quarter of 2009 when compared to the same period in 2008, of
which 41.1% was due to the sale of the dairy and bottling operations.
- Negatively by 0.2% as a result of a sales decrease of 0.2% at Loblaw.
Same-store sales in the quarter decreased 0.6%. Sales and same-store
sales were positively impacted in the quarter by approximately 0.5%
as a result of the shift of Thanksgiving holiday sales into the third
quarter of 2009 from the fourth quarter of 2008. Sales were
negatively impacted by 0.5% by the sale of the Loblaw's food service
business in the fourth quarter of 2008 and were positively impacted
by 0.2% by the acquisition of T&T. In the third quarter of 2009,
sales growth in food and drugstore was modest, sales growth in
apparel was moderate, sales of other general merchandise declined
significantly and gas bar sales declined significantly as a result of
lower retail gas prices, despite moderate volume growth.
Operating Income
Operating income for the third quarter of 2009 was
The year-over-year change in the following items influenced operating income for the third quarter of 2009 compared to the third quarter of 2008:
- a charge of $79 million (2008 - nil) related to unrealized foreign
exchange losses associated with the effect of foreign exchange on a
portion of the Company's (excluding Loblaw's) USD denominated cash
and short term investments;
- a charge of $11 million (2008 - income of $4 million) related to the
effect of stock-based compensation net of equity derivatives of both
GWL and Loblaw. The amount of net stock-based compensation cost
recorded in operating income is mainly dependent upon the number of
unexercised, vested stock options and restricted share units relative
to the number of underlying common shares on the equity derivatives
and the level of and the change in the market prices of the
underlying common shares;
- a charge of $17 million (2008 - $37 million) related to the commodity
derivatives fair value adjustment at Weston Foods. This commodity
derivatives fair value adjustment includes realized and unrealized
gains and losses related to future purchases of raw materials; and
- nil (2008 - income of $15 million) related to the income of Weston
Foods' dairy and bottling operations.
Year-to-date operating income for 2009 was
The year-over-year change in the following items influenced operating income for year-to-date 2009 compared to 2008:
- a charge of $34 million (2008 - nil) related to the reversal of the
cumulative foreign currency translation loss associated with Dunedin
Holdings S.à r.l. ("Dunedin"), a subsidiary of GWL, and certain of
its affiliates;
- a charge of $231 million (2008 - nil) related to foreign exchange
losses associated with the effect of foreign exchange on a portion of
the Company's (excluding Loblaw's) USD denominated cash and short
term investments;
- a charge of $73 million (2008 - nil) related to the non-cash goodwill
impairment in Weston Foods' biscuits, cookies, cones and wafers
business;
- a charge of $23 million (2008 - $21 million) related to the effect of
stock-based compensation net of equity derivatives of both GWL and
Loblaw;
- income of $12 million (2008 - charge of $41 million) related to the
commodity derivatives fair value adjustment at Weston Foods;
- nil (2008 - income of $38 million) related to the income of Weston
Foods' dairy and bottling operations; and
- nil (2008 - income of $7 million) related to the redemption of the
remaining outstanding GWL 3% Exchangeable Debentures and the sale of
the Domtar (Canada) Paper Inc. shares.
After the sale of the U.S. fresh bakery business on
Excluding the impact of these items, operating income for both the third quarter and year-to-date 2009 was strong compared to 2008.
EBITDA(1) decreased by
Interest Expense and Other Financing Charges
Interest expense and other financing charges for the third quarter of 2009 decreased by
- non-cash income of $29 million compared to $17 million in 2008 which
was recorded in other financing charges, representing the fair value
adjustment of GWL's forward sale agreement for 9.6 million Loblaw
common shares. The fair value adjustment of the forward contract is a
non-cash item resulting from fluctuations in the market price of the
underlying Loblaw common shares that GWL owns. GWL does not record
any change in the market price associated with the Loblaw common
shares it owns. Any cash paid under the forward contract could be
offset by the sale of the Loblaw common shares;
- dividends on capital securities of $4 million compared to $9 million
in 2008, primarily as a result of the redemption of capital
securities by GWL in the second quarter of 2009; and
- a loss of $8 million on the redemption of the GWL 12.7% Promissory
Notes.
Year-to-date interest expense and other financing charges increased by
Income Taxes
The effective income tax rate increased to 41.5% in the third quarter of 2009 compared to 28.0% in the third quarter of 2008 and year-to-date 2009 increased to 48.0% compared to 30.5% in 2008. The increase in the third quarter of 2009 and year-to-date when compared to the same periods in 2008 was mainly the result of the foreign exchange losses associated with the effect of foreign exchange on a portion of the Company's (excluding Loblaw's) USD denominated cash and short term investments for which a tax benefit has not been fully recognized. The year-to-date 2009 increase in the effective income tax rate when compared to the same period in 2008 was also impacted by the non-deductible reversal of the cumulative foreign currency translation loss associated with Dunedin and certain of its affiliates.
Net Earnings from Continuing Operations
Net earnings from continuing operations for the third quarter of 2009 were
Basic net earnings per common share from continuing operations were affected in the third quarter of 2009 compared to the third quarter of 2008 by the following factors:
- a $0.58 per common share charge (2008 - nil) related to unrealized
foreign exchange losses associated with the effect of foreign
exchange on a portion of the Company's (excluding Loblaw's) USD
denominated cash and short term investments;
- a $0.08 per common share charge (2008 - income of $0.02) related to
the effect of stock-based compensation net of equity derivatives of
both GWL and Loblaw;
- a $0.10 per common share charge (2008 - $0.19) related to the
commodity derivatives fair value adjustment at Weston Foods;
- $0.17 per common share non-cash income (2008 - $0.10) related to the
accounting for GWL's forward sale agreement for 9.6 million Loblaw
common shares;
- a $0.01 per common share charge (2008 - nil) related to the
redemption of the GWL 12.7% Promissory Notes; and
- nil per common share (2008 - $0.08 per common share income) related
to the income of Weston Foods' dairy and bottling operations.
The 2009 year-to-date basic net earnings per common share from continuing operations were affected when compared to 2008 by the following factors:
- a $0.26 per common share charge (2008 - nil) related to the reversal
of the cumulative foreign currency translation loss associated with
Dunedin and certain of its affiliates;
- a $1.60 per common share charge (2008 - nil) related to foreign
exchange losses associated with the effect of foreign exchange on a
portion of the Company's (excluding Loblaw's) USD denominated cash
and short term investments;
- a $0.29 per common share charge (2008 - nil) related to the
redemption of the GWL 12.7% Promissory Notes;
- a $0.38 per common share charge (2008 - nil) related to the non-cash
goodwill impairment in Weston Foods' biscuits, cookies, cones and
wafers business;
- a $0.15 per common share charge (2008 - $0.14) related to the effect
of stock-based compensation net of equity derivatives of both GWL and
Loblaw;
- $0.05 per common share income (2008 - $0.21 per common share charge)
related to the commodity derivatives fair value adjustment at Weston
Foods;
- $0.21 per common share non-cash income (2008 - $0.24) related to the
accounting for GWL's forward sale agreement for 9.6 million Loblaw
common shares;
- nil per common share (2008 - $0.03 per common share charge) related
to the income tax effect of the fair value adjustment of the Domtar
(Canada) Paper Inc. shares, net of the re-measurement of the GWL 3%
Exchangeable Debentures;
- nil per common share (2008 - $0.04 per common share income) related
to the redemption of the remaining outstanding GWL 3% Exchangeable
Debentures and the sale of the Domtar (Canada) Paper Inc. shares; and
- nil per common share (2008 - $0.20 per common share income) related
to the income of Weston Foods' dairy and bottling operations.
Discontinued Operations
Net earnings from discontinued operations for the third quarter of 2009 were
Net Earnings
Net earnings for the third quarter of 2009 were
REPORTABLE OPERATING SEGMENTS
Weston Foods
Sales
Weston Foods sales for the third quarter of 2009 of
On a year-to-date basis, sales of
The following sales analysis excludes the impact of foreign currency translation and the results of the dairy and bottling operations.
Fresh bakery sales decreased approximately 3.0% in the third quarter of 2009 compared to the same period in 2008. On a year-to-date basis, sales increased 0.3% compared to the same period in 2008, mainly due to price increases in key product categories combined with changes in sales mix. Volumes decreased slightly in the third quarter of 2009 and year-to-date mainly due to declines in certain categories offset by growth in the Gadoua and Country Harvest brands and private label products. Sales growth in whole grain and whole wheat products exceeded the sales growth of white flour based products. The introduction of new products such as Country Harvest Vitality, Gadoua MultiGo, D'Italiano Thintini and the recently launched Wonder Invisibles contributed positively to branded sales during the third quarter and year-to-date 2009.
Frozen bakery sales decreased approximately 1.7% in the third quarter of 2009 compared to the same period in 2008. On a year-to-date basis sales increased 1.5% compared to the same period in 2008, mainly due to price increases combined with changes in sales mix. Overall, volume in the third quarter and year-to-date decreased compared to the same periods in 2008, partially due to the timing of customer orders.
Biscuit sales, principally wafers, ice-cream cones, cookies and crackers, increased approximately 0.9% in the third quarter of 2009 and 3.5% year-to-date compared to the same periods in 2008 driven by price increases combined with changes in sales mix. Overall, volume in the third quarter and year-to-date decreased compared to the same periods in 2008, with growth in certain categories being more than offset by declines in other categories.
Operating Income
Weston Foods operating income was
The year-over-year change in the following items influenced operating income for the third quarter of 2009 compared to the third quarter of 2008:
- a charge of $6 million (2008 - income of $13 million) related to the
effect of stock-based compensation net of equity derivatives;
- a charge of $17 million (2008 - $37 million) related to the commodity
derivatives fair value adjustment; and
- nil (2008 - income of $15 million) related to the income of Weston
Foods' dairy and bottling operations.
On a year-to-date basis, Weston Foods operating income decreased 47.6% to
The year-over-year change in the following items influenced operating income for year-to-date 2009 compared to 2008:
- a charge of $73 million (2008 - nil) related to the non-cash goodwill
impairment in Weston Foods' biscuits, cookies, cones and wafers
business;
- a charge of $6 million (2008 - income of $3 million) related to the
effect of stock-based compensation net of equity derivatives;
- income of $12 million (2008 - charge of $41 million) related to the
commodity derivatives fair value adjustment;
- nil (2008 - income of $38 million) related to the income of Weston
Foods' dairy and bottling operations; and
- nil (2008 - income of $7 million) related to the redemption of the
remaining GWL 3% Exchangeable Debentures and the sale of the Domtar
(Canada) Paper Inc. shares.
Weston Foods is exposed to commodity price fluctuations primarily as a result of purchases of certain raw materials, fuels and utilities. In accordance with the Company's risk management strategy, Weston Foods enters into commodity derivatives to reduce the impact of price fluctuations in forecasted raw material purchases over a specified period of time. These commodity derivatives are not acquired for trading or speculative purposes. Certain of these derivatives are not designated for financial reporting purposes as cash flow hedges of anticipated future raw material purchases, and accordingly hedge accounting does not apply. As a result, changes in the fair value of these derivatives, which include realized and unrealized gains and losses related to future purchases of raw materials, are recorded in operating income. Weston Foods recorded a charge of
Subsequent to the disposition of its U.S. fresh bakery business on
During the fourth quarter of 2008, the Company sold the net assets of its dairy and bottling operations. The results of the dairy and bottling operations are not reported as discontinued operations, in accordance with Canadian GAAP, due to Loblaw's continuing purchases of product from the dairy and bottling operations. Therefore, the results of the dairy and bottling operations up to the date of sale are included in net earnings from continuing operations for 2008. During the third quarter of 2008 and on a year-to-date basis, the dairy and bottling operations generated sales of
Weston Foods operating income for the third quarter and year-to-date 2009 were impacted by changes in the following items when compared to the same periods in 2008: the effect of stock-based compensation net of equity derivatives; the commodity derivatives fair value adjustment; and income of Weston Foods' dairy and bottling operations. Operating income on a year-to-date basis was negatively impacted by the non-cash goodwill impairment in Weston Foods' biscuits, cookies, cones and wafers business and income in 2008 related to the redemption of the remaining GWL 3% Exchangeable Debentures and the sale of the Domtar (
Gross margin increased in the third quarter of 2009 and on a year-to-date basis compared to the same period in 2008, mainly as a result of the sale of the dairy and bottling operations and the positive impact of the commodity derivatives fair value adjustment. Excluding the results of the dairy and bottling operations in 2008 and the impact of the commodity derivatives fair value adjustment, gross margin increased in the third quarter and was relatively flat on a year-to-date basis when compared to the same periods in 2008.
Weston Foods continuously evaluates strategic and cost reduction initiatives related to its manufacturing assets, distribution networks and administrative infrastructure with the objective of ensuring a low cost operating structure, and restructuring activities related to these initiatives are ongoing. In the third quarter of 2009, a charge of
EBITDA(1) decreased by
Loblaw
Sales
Sales for the third quarter decreased by 0.2% to
The following factors explain the major components that influenced sales for the third quarter of 2009 compared to the same period in 2008:
- same-store sales declined by 0.6%;
- T&T sales positively impacted Loblaw's sales by 0.2%;
- the shift of Thanksgiving holiday sales in the third quarter of 2009
from the fourth quarter of 2008 resulted in higher sales and
same-store sales of approximately 0.5%;
- sales were negatively impacted by 0.5% by the sale of Loblaw's food
service business in the fourth quarter of 2008;
- sales growth in food and drugstore was modest;
- sales growth in apparel was moderate while sales of other general
merchandise declined significantly due to lower discretionary
consumer spending and reductions in assortment and square footage;
- gas bar sales declined significantly as a result of lower retail gas
prices, despite moderate volume growth;
- internal retail food price inflation was below the national food
price inflation of 4.2% as measured by "The Consumer Price Index for
Food Purchased from Stores" ("CPI") and significantly lower than the
second quarter of 2009. In the third quarter of 2008, Loblaw
experienced moderate internal retail food price inflation. CPI does
not necessarily reflect the effect of inflation on the specific mix
of goods sold in Loblaw stores; and
- during the third quarter of 2009, 27 corporate and franchised stores
were opened, including 17 acquired T&T stores, and 10 corporate and
franchised stores were closed, resulting in a net increase of
0.8 million square feet or 1.6%. During the last four quarters, 50
corporate and franchised stores were opened, including 17 acquired
T&T stores, and 33 corporate and franchised stores were closed,
resulting in a net increase of 1.0 million square feet, or 2.0%.
On a year-to-date basis, sales increased by 1.6%, to
- same-store sales growth of 1.1%;
- sales growth was negatively impacted by 0.5% due to the sale of
Loblaw's food service business in the fourth quarter of 2008;
- an additional selling day in the first week of 2009, due to New
Year's Day occurring in the fourth quarter of 2008, resulted in
higher sales and same-store sales growth of approximately 0.1%; and
- sales and same-store sales growth were negatively impacted by 0.2%
due to a strike in certain Maxi stores in Quebec. These stores
reopened in the first quarter of 2009, except for two stores that
were permanently closed.
Operating Income
Operating income was
Gross profit increased by
The increase in operating income was primarily due to the increases in gross profit and gross profit as a percentage of sales. Included in operating income was a charge of
Cost reduction initiatives throughout Loblaw contributed to the improvement in operating income in the first three quarters of 2009 compared to the prior year. Specifically, labour and supply chain costs decreased as a result of continued labour productivity improvements and efficiency enhancements at distribution centres.
EBITDA(1) increased by
Year-to-date gross profit increased by
Year-to-date operating income for 2009 increased by
Included in 2009 year-to-date operating income is a charge of
Year-to-date EBITDA(1) increased by
CONSOLIDATED FINANCIAL CONDITION
Financial Ratios
The Company's net debt(1) to equity ratio at the end of the third quarter of 2009 was 0.03:1 compared to 0.73:1 at the end of the same period in 2008 and to 0.53:1 at year end 2008. Equity for the purpose of calculating the net debt(1) to equity ratio is defined by the Company as capital securities and shareholders' equity. The improvement in this ratio at the end of the third quarter of 2009 compared to the end of the third quarter of 2008 and year end 2008 was primarily due to the reduction in net debt as discussed in the net debt (excluding Exchangeable Debentures)(1) section below and an increase in shareholders' equity resulting mainly from the gain on the sale of the U.S. fresh bakery business. In addition, this ratio was positively impacted compared to the third quarter of 2008 by a decrease in short term borrowings, funded by the proceeds from the sale of Weston Foods' dairy and bottling operations in the fourth quarter of 2008.
The interest coverage ratio in the third quarter of 2009 increased to 3.9 times compared to 3.6 times in the third quarter of 2008. On a year-to-date basis the interest coverage decreased to 2.6 times in 2009 compared to 3.6 times in 2008. The increase in the ratio in the third quarter of 2009 was primarily due to the higher non-cash income resulting from the fair value adjustment of GWL's forward sale agreement for 9.6 million Loblaw common shares, partially offset by the loss on the redemption of the GWL 12.7% Promissory Notes. The year-to-date 2009 decrease in the ratio was mainly due to the lower non-cash income resulting from the fair value adjustment of GWL's forward sale agreement and the loss on the redemption of the GWL 12.7% Promissory Notes.
The Company's rolling year return on average net assets(1) at the end of the third quarter of 2009 was 10.0% compared to 9.1% at the end of the same period in 2008 and 11.2% at year end 2008. The Company's rolling year return on average common shareholders' equity was 6.9% at the end of the third quarter of 2009 compared to 8.7% at the end of the third quarter of 2008 and 13.4% for the year end 2008 return.
Capital Securities
On
Of the 12.0 million Loblaw second preferred shares, Series A that are authorized, 9.0 million were outstanding at the end of the third quarter of 2009.
The Loblaw second preferred shares, Series A, and the GWL preferred shares, Series II, up to the date of redemption, are presented as capital securities and are included in liabilities. Dividends on these preferred shares are presented in interest expense and other financing charges in the consolidated statements of earnings.
Outstanding Share Capital
GWL's outstanding share capital is comprised of common shares and preferred shares. An unlimited number of common shares are authorized and 129.1 million common shares were outstanding at the end of the third quarter of 2009. Ten million preferred shares, Series I, are authorized and 9.4 million were outstanding, 10.0 million preferred shares, Series III, are authorized and 8.0 million were outstanding and 8.0 million preferred shares, Series IV and Series V, are authorized and were outstanding, in each case, at the end of the third quarter of 2009.
During the second quarter of 2009, GWL renewed its Normal Course Issuer Bid to purchase on the
Further information on the Company's capital securities and outstanding share capital is provided in note 16 to the unaudited interim period consolidated financial statements.
Dividends
On
Subsequent to the end of the third quarter of 2009, common share dividends of
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities of Continuing Operations
Third quarter 2009 cash flows from operating activities of continuing operations were
Cash Flows (used in) from Investing Activities of Continuing Operations
Third quarter 2009 cash flows used in investing activities of continuing operations were
Cash Flows used in Financing Activities of Continuing Operations
Third quarter 2009 cash flows used in financing activities of continuing operations were
During the first quarter of 2009, Loblaw repaid its
During the second quarter of 2009, Loblaw issued
During the second quarter of 2009, Loblaw commenced a Dividend Reinvestment Plan ("DRIP"). Under the terms of the DRIP, eligible holders of common shares may elect to automatically reinvest their regular quarterly dividends in additional common shares of Loblaw without incurring any commissions, service charges or brokerage fees. The Company has elected to participate in the DRIP with respect to approximately 160 million Loblaw common shares owned by the Company. As a result of the common shares issued under the DRIP, the Company's proportional ownership of Loblaw has changed and is 62.1% at the end of the third quarter of 2009 compared to 61.9% at the end of the third quarter of 2008 and at year end 2008. On
Also during the second quarter of 2009, GWL entered into an agreement to repurchase a portion of the 12.7% Promissory Notes, due 2030. During the third quarter of 2009, GWL repurchased these and all of the remaining notes, pursuant to the terms of the notes, for an aggregate purchase price of
Net Debt (excluding Exchangeable Debentures)(1)
In the first quarter of 2009, the Company revised its definition of net debt(1) to include the fair value of financial derivative assets and liabilities, other than those related to commodities, as the Company believes the measure should contain all interest bearing financing arrangements. Net debt(1) decreased to
During the first three quarters of 2009, net debt(1) decreased by
Sources of Liquidity
From time to time, PC Bank, securitizes credit card receivables through the sale of a portion of the total interest in these receivables to independent trusts. The independent trusts' recourse to PC Bank's assets is limited to PC Bank's retained interests and is further supported by Loblaw through a standby letter of credit (2009 -
Loblaw expects that cash and cash equivalents, short term investments, future operating cash flows and the amounts available to be drawn against Loblaw's existing
Loblaw has traditionally obtained its long term financing primarily through a medium term notes program. Loblaw may refinance maturing long term debt with medium term notes if market conditions are appropriate or it may consider other alternatives.
During the third quarter of 2009, Dominion Bond Rating Service ("DBRS") revised the trend on Loblaw's long term ratings and Standard & Poor's ("S&P") revised the outlook on its Loblaw ratings to stable from negative.
Loblaw's ability to obtain funding from external sources may be restricted by downgrades in its current credit ratings, should its financial performance and condition deteriorate. In addition, credit and capital markets are subject to inherent global risks that may negatively affect Loblaw's access and ability to fund its short term and long term debt requirements. Loblaw mitigates these risks by maintaining appropriate levels of cash and cash equivalents and short term investments, actively monitoring market conditions and diversifying its sources of funding and the maturity profile of its funding sources.
During the second quarter of 2008, GWL entered into a
Following the sale of the U.S. fresh bakery business, the Company holds significant cash and short term investments denominated in Canadian and
The Company (excluding Loblaw) expects that cash and cash equivalents, short term investments and future operating cash flows will enable it to finance its capital investment program and fund the ongoing business requirements of its continuing operations, including working capital and pension plan funding over the next 12 months. The Company (excluding Loblaw) does not foresee any impediments in satisfying its long term obligations at this time.
During the first quarter of 2009, Dominion DBRS affirmed GWL's long term corporate credit, commercial paper and preferred share ratings at "BBB", "R-2 (high)" and "Pfd-3", respectively. DBRS revised the trend on GWL's commercial paper, notes and debentures, and preferred shares ratings to "Stable" from "Under Review with Developing Implications", where GWL's ratings were placed following the
Also during the first quarter of 2009, S&P affirmed GWL's long term corporate credit, commercial paper and preferred share ratings at "BBB", "A-2" and "P-3 (high)", respectively. GWL was removed from "CreditWatch with Negative Implications", and the ratings outlook was changed to "Stable". GWL was placed on "CreditWatch with Negative Implications" by S&P on
GWL's ability to obtain funding from external sources may be restricted by downgrades in its current credit ratings, should its financial performance and condition deteriorate. In addition, credit and capital markets are subject to inherent global risks that may negatively affect GWL's access and ability to fund its short term and long term debt requirements. The Company (excluding Loblaw) mitigates these risks by maintaining appropriate levels of cash and cash equivalents and short term investments, actively monitoring market conditions and diversifying its sources of funding and the maturity profile of its funding sources. Given its significant holdings of cash and short term investments following the sale of the U.S. fresh bakery business, the Company (excluding Loblaw) currently does not foresee any impediments in funding its short term and long term debt requirements.
Independent Funding Trusts
Certain independent franchisees of Loblaw obtain financing through a structure involving independent trusts, which were created to provide loans to the independent franchisees to facilitate their purchase of inventory and fixed assets, consisting mainly of fixtures and equipment. These trusts are administered by a major Canadian chartered bank.
The gross principal amount of loans issued to Loblaw's independent franchisees by the independent trusts at the end of the third quarter of 2009 was
During the second quarter of 2009, the
Equity Forward Contracts
During the second quarter of 2009, Loblaw paid
Employee Future Benefit Contributions
During the third quarter of 2009, the Company contributed
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of selected consolidated financial information derived from the Company's unaudited interim period consolidated financial statements for each of the eight most recently completed quarters. This information was prepared in accordance with Canadian GAAP. Each of the quarters presented is 12 weeks in duration except for the third quarter, which is 16 weeks in duration. Every five years the fourth quarter is 13 weeks in duration, which occurred in fiscal 2008 and will reoccur in fiscal 2013.
Quarterly Financial Information (unaudited)
($ millions except Third Quarter Second Quarter
where otherwise indicated) 2009 2008 2009 2008
-------------------------------------------------------------------------
Sales $ 9,777 $ 9,879 $ 7,484 $ 7,324
Net earnings (loss) from
continuing operations(1) $ 71 $ 119 $ 4 $ 87
Net earnings $ 86 $ 180 $ 4 $ 118
-------------------------------------------------------------------------
Net earnings (loss) per
common share from
continuing operations ($)
Basic and diluted(1) $ 0.44 $ 0.81 $ (0.05) $ 0.60
-------------------------------------------------------------------------
Net earnings (loss) per
common share ($)
Basic and diluted(1) $ 0.56 $ 1.29 $ (0.05) $ 0.84
-------------------------------------------------------------------------
($ millions except First Quarter Fourth Quarter
where otherwise indicated) 2009 2008 2008 2007
-------------------------------------------------------------------------
Sales $ 7,022 $ 6,835 $ 8,050 $ 7,228
Net earnings (loss) from
continuing operations(1) $ (27) $ 84 $ 357 $ 112
Net earnings $ 863 $ 131 $ 405 $ 153
-------------------------------------------------------------------------
Net earnings (loss) per
common share from
continuing operations ($)
Basic and diluted(1) $ (0.28) $ 0.55 $ 2.69 $ 0.76
-------------------------------------------------------------------------
Net earnings (loss) per
common share ($)
Basic and diluted(1) $ 6.61 $ 0.91 $ 3.06 $ 1.08
-------------------------------------------------------------------------
(1) Certain prior period amounts have been restated as a result of the
implementation of new accounting standards in the first quarter of
2009 on a retroactive basis. See note 2 to the unaudited interim
period consolidated financial statements.
Consolidated sales growth decreased in the third quarter of 2009 compared to the third quarter of 2008 due to decreases at both Weston Foods and Loblaw. In the fourth quarter of 2008 and the first three quarters of 2009, Weston Foods quarterly sales growth has been negatively impacted by the sale of the dairy and bottling operations in the fourth quarter of 2008.
Quarterly net earnings for the last eight quarters were impacted by the following significant items:
- restructuring and other charges incurred by Weston Foods and Loblaw;
- fluctuations in stock-based compensation, net of the impact of the
associated equity derivatives, as a result of changes in the market
prices of GWL's and Loblaw's common shares;
- the commodity derivatives fair value adjustment at Weston Foods;
- accounting for GWL's forward sale agreement of 9.6 million Loblaw
common shares;
- the fair value adjustment and the income tax effect of the fair value
adjustment of the Domtar (Canada) Paper Inc. shares, net of the
re-measurement of the GWL 3% Exchangeable Debentures;
- the gain on the redemption of the remaining outstanding GWL 3%
Exchangeable Debentures and the sale of the Domtar (Canada) Paper
Inc. shares in the second quarter of 2008;
- the gain on sale of Weston Foods' Canadian dairy and bottling
operations, and Loblaw's food service business in the fourth quarter
of 2008;
- the non-cash goodwill impairment charge in Weston Foods' biscuits,
cookies, cones and wafers business in the first quarter of 2009;
- the gain on sale of Weston Foods' U.S. fresh bakery business in the
first quarter of 2009;
- the reversal of the cumulative foreign currency translation loss
associated with Dunedin and certain of its affiliates in the first
quarter of 2009;
- foreign exchange losses associated with the effect of foreign
exchange on a portion of the Company's (excluding Loblaw's) USD
denominated cash and short term investments, beginning in the first
quarter of 2009; and
- the loss on the redemption of the GWL 12.7% Promissory Notes in the
second and third quarters of 2009.
INTERNAL CONTROL OVER FINANCIAL REPORTING
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.
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 financial statements for external purposes in accordance with Canadian GAAP.
In designing such controls, it should be recognized that due to inherent limitations, any controls, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and may not prevent or detect misstatements. Additionally, management is necessarily required to use judgment in evaluating controls and procedures.
Management has evaluated whether there were changes in the Company's internal controls over financial reporting that occurred during the sixteen weeks ended
ENTERPRISE RISKS AND RISK MANAGEMENT
Detailed descriptions of the operating and financial risks and risk management strategies are included in the Enterprise Risks and Risk Management Section on page 33 of the annual MD&A as well as note 29 to the Consolidated Financial Statements, included in the Company's 2008 Annual Report. The following is an update to those enterprise risks and risk management strategies:
Economic Environment
Although the economic conditions in
SUBSEQUENT EVENT
Subsequent to the end of the third quarter of 2009, due to an internal reorganization, the Company reduced its net investment in self-sustaining foreign operations. As a result, a cumulative foreign currency translation loss of approximately
ACCOUNTING STANDARDS IMPLEMENTED IN 2009
Goodwill and Intangible Assets
In
Credit Risk and the Fair Value of Financial Assets and Financial Liabilities
On
FUTURE ACCOUNTING STANDARDS
Financial Instruments - Disclosures
In
Business Combinations
In
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The Canadian Accounting Standards Board ("AcSB") will require all public companies to adopt International Financial Reporting Standards ("IFRS") for interim and annual financial statements relating to fiscal years beginning on or after
The Company has established a project structure including an IFRS team led by the Chief Financial Officer to ensure the timely and appropriate implementation of IFRS. The IFRS team consists of dedicated resources as well as consultants and other employees on an as needed basis. This team reports regularly to a steering committee comprised of senior management, as well as to the audit committee.
The Company has developed an IFRS conversion project plan consisting of three main phases:
Phase One: Diagnostic Impact Assessment
This phase consists of a high-level impact assessment that identified the key areas of accounting differences between Canadian GAAP and IFRS that are likely to impact the Company. The diagnostic impact assessment was completed in 2008 and resulted in the ranking of accounting differences as high, medium, or low priority for further analysis.
Phase Two: Detailed Assessment
This phase involves a comprehensive assessment of the differences between IFRS and the Company's current accounting policies and included reviews of the differences with the various finance groups and business process owners to further understand the impact of these differences. The detailed assessment was completed in
Phase Three: Implementation
This phase includes two components: implementation development and implementation transition.
The implementation development phase is currently in progress, and involves an analysis of policy alternatives under IFRS, including certain exemptions and elections available on transition. In addition, during this phase the design and development of the required changes to supporting information systems and business activities, including the budget and planning process, financial covenants, key performance indicators, compensation arrangements that rely on financial statement indicators and contractual agreements, are being examined.
The implementation transition phase will involve the final approval of accounting policies, including transitional elections, the execution of changes to business processes and supporting information systems, and the training of finance, operational and other staff. For all accounting policy changes identified, an assessment of the design and effectiveness implications on Internal Controls over Financial Reporting and Disclosure Controls and Procedures will be completed. This phase will result in the compilation of IFRS transitional adjustments, as required, as well as IFRS financial statements with required reconciliations to Canadian GAAP.
The International Accounting Standards Board ("IASB") work plan anticipates the completion of several projects during 2010 and 2011 that could affect the differences between Canadian GAAP and IFRS and the impact on the Company's financial statements in future years. At this time, the Company cannot quantify the impact that the future adoption of IFRS will have on the Company's financial statements and operating performance measures.
OUTLOOK(2)
The consolidated results of
Weston Foods expects satisfactory operating performance for the remainder of 2009. To help offset economic pressures, the Company is continuing its efforts to reduce costs through improved efficiencies and productivity and by optimizing the product mix to meet changing consumer buying preferences.
As Loblaw progressed through its third quarter, sales were increasingly impacted by the significant decline in inflation and the ramp-up of pricing investments. Earnings benefited from cost containment and supply chain efficiencies. Loblaw expects that sales and margins will be challenged due to decreasing inflation, competitive intensity and ongoing renovation and infrastructure programs.
ADDITIONAL INFORMATION
Additional information about the Company has been filed electronically with various securities regulators in
This Quarterly Report includes selected information on Loblaw Companies Limited, a 62%-owned public reporting company with shares trading on the
--------------------------
(1) See non-GAAP financial measures.
(2) To be read in conjunction with "Forward-Looking Statements".
NON-GAAP FINANCIAL MEASURES
The Company uses the following non-GAAP measures: EBITDA and EBITDA margin, net debt, net debt to equity, and rolling year return on net assets. Historically, the Company utilized free cash flow and rolling year return on average total assets as non-GAAP financial measures. Management believes rolling year return on average net assets is a more complete measure of the return on productive assets. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by Canadian GAAP, and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with Canadian GAAP.
EBITDA and EBITDA Margin
The following table reconciles earnings before interest, income taxes, depreciation and amortization ("EBITDA") to Canadian GAAP net earnings reported in the unaudited interim period consolidated statements of earnings for the sixteen and forty week periods ended as indicated. For each of its reportable operating segments, segment EBITDA is reconciled to segment operating income. EBITDA is useful to management in assessing the performance of the Company's ongoing operations and its ability to generate cash flows to fund cash requirements, including the Company's capital investment program.
EBITDA margin is calculated as EBITDA divided by sales.
16 Weeks Ended
-------------------------------------------
Oct. 10, 2009
Weston Consoli-
($ millions) Foods Loblaw Other(2) dated
-------------------------------------------------------------------------
Net earnings from continuing
operations $ 71
Add impact of the following:
Minority interest 77
Income taxes 105
Interest expense and other
financing charges 80
-------------------------------------------------------------------------
Operating income (loss) $ 36 $ 376 $ (79) $ 333
Depreciation and
amortization(1) 18 179 197
-------------------------------------------------------------------------
EBITDA $ 54 $ 555 $ (79) $ 530
-------------------------------------------------------------------------
-------------------------------------------
16 Weeks Ended
--------------------------------
Oct. 4, 2008
Weston Consoli-
($ millions) Foods Loblaw dated
--------------------------------------------------------------
Net earnings from continuing
operations $ 119
Add impact of the following:
Minority interest 66
Income taxes 72
Interest expense and other
financing charges 91
--------------------------------------------------------------
Operating income (loss) $ 38 $ 310 $ 348
Depreciation and
amortization(1) 18 178 196
--------------------------------------------------------------
EBITDA $ 56 $ 488 $ 544
--------------------------------------------------------------
--------------------------------
(1) Includes depreciation of $13 million (2008 - $13 million) included in
cost of inventories sold.
(2) After the sale of the U.S. fresh bakery business on January 21, 2009,
Dunedin and certain of its affiliates became "integrated" foreign
subsidiaries for accounting purposes. Subsequent to January 21, 2009,
gains and losses arising from the translation of the USD denominated
assets of these integrated foreign subsidiaries are included in net
earnings. As a result, operating income for the third quarter of 2009
included $79 million (2008 - nil) of foreign exchange losses
associated with the effect of foreign exchange on a portion of the
Company's (excluding Loblaw's) USD denominated cash and short term
investments held in integrated foreign subsidiaries.
40 Weeks Ended
-------------------------------------------
Oct. 10, 2009
Weston Consoli-
($ millions) Foods Loblaw Other(2) dated
-------------------------------------------------------------------------
Net earnings from
continuing operations $ 48
Add impact of the following:
Minority interest 190
Income taxes 220
Interest expense and other
financing charges 264
-------------------------------------------------------------------------
Operating income (loss) $ 65 $ 922 $ (265) $ 722
Depreciation and
amortization(1) 44 446 490
-------------------------------------------------------------------------
EBITDA $ 109 $ 1,368 $ (265) $ 1,212
-------------------------------------------------------------------------
-------------------------------------------
--------------------------------
Oct. 4, 2008
Weston Consoli-
($ millions) Foods Loblaw dated
--------------------------------------------------------------
Net earnings from
continuing operations $ 290
Add impact of the following:
Minority interest 145
Income taxes 191
Interest expense and other
financing charges 224
--------------------------------------------------------------
Operating income (loss) $ 124 $ 726 $ 850
Depreciation and
amortization(1) 45 436 481
--------------------------------------------------------------
EBITDA $ 169 $ 1,162 $ 1,331
--------------------------------------------------------------
--------------------------------
(1) Includes depreciation of $34 million (2008 - $33 million) included in
cost of inventories sold.
(2) After the sale of the U.S. fresh bakery business on January 21, 2009,
Dunedin and certain of its affiliates became "integrated" foreign
subsidiaries for accounting purposes. On the date of the sale, the
cumulative foreign currency translation loss of $34 million
associated with Dunedin and certain of its affiliates, which was
previously reflected in accumulated other comprehensive loss, was
reversed and included in operating income. Subsequent to January 21,
2009, gains and losses arising from the translation of the USD
denominated assets of these integrated foreign subsidiaries are
included in net earnings. As a result, year-to-date 2009 operating
income included $231 million (2008 - nil) of foreign exchange losses
associated with the effect of foreign exchange on a portion of the
Company's (excluding Loblaw's) USD denominated cash and short term
investments held in integrated foreign subsidiaries.
Net Debt
The following table reconciles net debt used in the net debt to equity ratio to Canadian GAAP measures reported as at the periods ended as indicated. In the first quarter of 2009, the Company revised its definition of net debt to include the fair value of financial derivative assets and liabilities, other than those related to commodities, as the Company believes the measure should include all interest bearing financing arrangements.
The Company calculates net debt as the sum of bank indebtedness, short term debt, long term debt and the fair value of financial derivative liabilities less cash and cash equivalents, short term investments, security deposits and the fair value of financial derivative assets. The fair value of financial derivative assets and liabilities are presented on a net basis in the following table. The Company believes this measure is useful in assessing the amount of financial leverage employed. The Company calculates net debt (excluding Exchangeable Debentures) as net debt (as calculated above) less Exchangeable Debentures and believes this measure is also useful in evaluating the amount of leverage employed by the Company as the Exchangeable Debentures could have been settled by using the Company's investment in Domtar (
----------
Oct. 10, Oct. 4, Dec. 31, Dec. 31,
($ millions) 2009 2008 2008 2007
-------------------------------------------------------------------------
Bank indebtedness $ 6 $ 133 $ 93 $ 36
Short term debt 291 826 453 859
Long term debt due
within one year 342 413 415 432
Long term debt 5,271 5,277 5,308 5,494
Other liabilities 36
Fair value of financial
derivative assets (491) (400) (318) (441)
-------------------------------------------------------------------------
5,455 6,249 5,951 6,380
Less: Cash and cash equivalents 3,452 1,121 1,446 1,052
Short term investments 1,397 696 694 461
Security deposits 373 465 560 419
-------------------------------------------------------------------------
Net debt 233 3,967 3,251 4,448
Less: Exchangeable
Debentures 157
-------------------------------------------------------------------------
Net debt (excluding
Exchangeable Debentures) $ 233 $ 3,967 $ 3,251 $ 4,291
-------------------------------------------------------------------------
----------
Capital securities are excluded from the calculation of net debt because the Company at its option can convert the capital securities into common shares. Fair value of financial derivatives is not credit value adjusted in accordance with EIC 173. See note 2 to the unaudited interim period consolidated financial statements.
Net Assets
The following table reconciles net assets used in the rolling year return on average net assets ratio to Canadian GAAP measures reported as at the periods ended as indicated. Historically, the Company utilized the rolling year return on average total assets as a non-GAAP financial measure. Management believes the rolling year return on average net assets is a more complete measure of the return on productive assets.
Net assets is calculated as total assets less cash and cash equivalents, short term investments, the Domtar (
----------
Oct. 10, Oct. 4,
($ millions) 2009 2008
-------------------------------------------------------------------------
Canadian GAAP total assets $ 19,769 $ 18,753
Less: Cash and cash equivalents 3,452 1,121
Short term investments 1,397 696
Security deposits 373 465
Current assets of operations held for sale 307
Fair value of GWL forward sale agreement
for 9.6 million Loblaw shares 461 439
Long term assets of operations held for sale 2,039
Accounts payable and accrued liabilities 3,428 2,904
-------------------------------------------------------------------------
Net assets $ 10,658 $ 10,782
-------------------------------------------------------------------------
----------
Consolidated Statements of Earnings
(unaudited)
16 Weeks Ended 40 Weeks Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4,
2009 2008 2009 2008
($ millions except where (restated (restated
otherwise indicated) (1)) (1))
-------------------------------------------------------------------------
Sales $ 9,777 $ 9,879 $ 24,283 $ 24,038
Operating Expenses
Cost of inventories sold
(note 11) 7,442 7,614 18,331 18,399
Selling, administrative
and other expenses 1,818 1,734 4,701 4,341
Depreciation and amortization
(note 11) 184 183 456 448
Goodwill impairment (note 12) 73
-------------------------------------------------------------------------
9,444 9,531 23,561 23,188
-------------------------------------------------------------------------
Operating Income 333 348 722 850
Interest Expense and Other
Financing Charges (note 5) 80 91 264 224
Earnings from Continuing
Operations Before the
Following: 253 257 458 626
Income Taxes (note 6) 105 72 220 191
-------------------------------------------------------------------------
148 185 238 435
Minority Interest 77 66 190 145
-------------------------------------------------------------------------
Net Earnings from Continuing
Operations 71 119 48 290
Discontinued Operations (note 4) 15 61 905 139
-------------------------------------------------------------------------
Net Earnings $ 86 $ 180 $ 953 $ 429
-------------------------------------------------------------------------
Net Earnings per Common Share -
Basic and Diluted ($)
Continuing Operations
(note 7) $ 0.44 $ 0.81 $ 0.11 $ 1.96
Discontinued Operations $ 0.12 $ 0.48 $ 7.01 $ 1.08
Net Earnings $ 0.56 $ 1.29 $ 7.12 $ 3.04
-------------------------------------------------------------------------
---------- ----------
See accompanying notes to the unaudited interim period consolidated
financial statements.
(1) See note 2 to the unaudited interim period consolidated financial
statements.
Consolidated Statements of Changes in Shareholders' Equity
(unaudited)
40 Weeks Ended
----------
Oct. 10, Oct. 4,
2009 2008
(restated
($ millions except where otherwise indicated) (1))
-------------------------------------------------------------------------
Share Capital
Preferred Shares $ 817 $ 817
Common Shares 133 133
-------------------------------------------------------------------------
Total Share Capital, Beginning and End of Period $ 950 $ 950
-------------------------------------------------------------------------
Retained Earnings, Beginning of Period (restated(1)) $ 5,282 $ 4,699
Cumulative impact of implementing
new accounting standards (note 2) (4) (22)
Net earnings 953 429
Dividends declared
Per common share ($)
- $1.08 (2008 - $1.08) (139) (139)
Per preferred share ($)
- Series I - $1.09 (2008 - $1.09) (10) (10)
- Series II - $0.32 (2008 - $0.97) (notes 5 & 16) (3)
- Series III - $0.97 (2008 - $0.97) (8) (8)
- Series IV - $0.97 (2008 - $0.97) (7) (7)
- Series V - $0.89 (2008 - $0.89) (7) (7)
-------------------------------------------------------------------------
Retained Earnings, End of Period $ 6,060 $ 4,932
-------------------------------------------------------------------------
Accumulated Other Comprehensive Loss,
Beginning of Period $ (322) $ (999)
Cumulative impact of implementing new
accounting standards (note 2) (1)
Other comprehensive income 166 293
-------------------------------------------------------------------------
Accumulated Other Comprehensive Loss,
End of Period (note 17) $ (157) $ (706)
-------------------------------------------------------------------------
Total Shareholders' Equity $ 6,853 $ 5,176
-------------------------------------------------------------------------
----------
See accompanying notes to the unaudited interim period consolidated
financial statements.
(1) See note 2 to the unaudited interim period consolidated financial
statements.
Consolidated Statements of Comprehensive Income
(unaudited)
16 Weeks Ended 40 Weeks Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4,
2009 2008 2009 2008
(restated (restated
($ millions) (1)) (1))
-------------------------------------------------------------------------
Net earnings $ 86 $ 180 $ 953 $ 429
Other comprehensive (loss)
income net of income taxes
and minority interest
Foreign currency translation
adjustment (59) 163 24 303
Reclassification of
cumulative foreign
currency translation
loss to net earnings 144
-------------------------------------------------------------------------
(59) 163 168 303
-------------------------------------------------------------------------
Net unrealized (loss) gain
on available-for-sale
financial assets (7) 6 (14) 20
Reclassification of loss
(gain) on available-for-
sale financial assets to
net earnings 10 (5) (5) (6)
-------------------------------------------------------------------------
3 1 (19) 14
-------------------------------------------------------------------------
Net (loss) gain on
derivatives designated
as cash flow hedges (1) (4) 1 (10)
Reclassification of (gain)
loss on derivatives
designated as cash flow
hedges to net earnings (1) (2) 16 (14)
-------------------------------------------------------------------------
(2) (6) 17 (24)
-------------------------------------------------------------------------
Other comprehensive
(loss) income (58) 158 166 293
-------------------------------------------------------------------------
Total Comprehensive Income $ 28 $ 338 $ 1,119 $ 722
-------------------------------------------------------------------------
---------- ----------
See accompanying notes to the unaudited interim period consolidated
financial statements.
(1) See note 2 to the unaudited interim period consolidated financial
statements.
Consolidated Balance Sheets
As at
------------
Oct. 10, Oct. 4, Dec. 31,
2009 2008 2008
(restated (restated
(1)) (1))
($ millions) (unaudited) (unaudited)
-------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents
(note 8) $ 3,452 $ 1,121 $ 1,446
Short term investments 1,397 696 694
Accounts receivable (note 9) 666 817 958
Inventories (note 11) 2,266 2,331 2,307
Income taxes 34
Future income taxes 66 85 69
Prepaid expenses and other assets 104 72 75
Current assets of operations
held for sale (note 4) 307 2,588
-------------------------------------------------------------------------
Total Current Assets 7,951 5,463 8,137
Fixed Assets 8,744 8,390 8,542
Goodwill and Intangible
Assets (note 12) 1,250 1,138 1,134
Future Income Taxes 93 29 36
Other Assets 1,731 1,694 1,714
Long Term Assets of Operations
Held for Sale (note 4) 2,039
-------------------------------------------------------------------------
Total Assets $ 19,769 $ 18,753 $ 19,563
-------------------------------------------------------------------------
LIABILITIES
Current Liabilities
Bank indebtedness $ 6 $ 133 $ 93
Accounts payable and accrued
liabilities 3,428 2,904 3,121
Income taxes 38 38
Short term debt (note 14) 291 826 453
Long term debt due within
one year (note 15) 342 413 415
Capital securities (note 16) 263 264
Current liabilities of
operations held for sale
(note 4) 388 620
-------------------------------------------------------------------------
Total Current Liabilities 4,105 4,927 5,004
Long Term Debt (note 15) 5,271 5,277 5,308
Future Income Taxes 322 278 273
Other Liabilities 633 524 615
Capital Securities (note 16) 219 219 219
Minority Interest 2,366 2,173 2,234
Long Term Liabilities of Operations
Held for Sale (note 4) 179
-------------------------------------------------------------------------
Total Liabilities 12,916 13,577 13,653
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share Capital (note 16) 950 950 950
Retained Earnings 6,060 4,932 5,282
Accumulated Other Comprehensive
Loss (note 17) (157) (706) (322)
-------------------------------------------------------------------------
Total Shareholders' Equity 6,853 5,176 5,910
-------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $ 19,769 $ 18,753 $ 19,563
-------------------------------------------------------------------------
------------
Contingencies, commitments and guarantees (note 19).
Subsequent event (note 22).
See accompanying notes to the unaudited interim period consolidated
financial statements.
(1) See note 2 to the unaudited interim period consolidated financial
statements.
Consolidated Cash Flow Statements
16 Weeks Ended 40 Weeks Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4,
2009 2008 2009 2008
(restated (restated
($ millions) (1)) (1))
-------------------------------------------------------------------------
Operating Activities
Net earnings from continuing
operations before minority
interest $ 148 $ 185 $ 238 $ 435
Depreciation and amortization 197 196 490 481
Goodwill impairment (note 12) 73
Foreign exchange losses
(note 21) 79 265
Loss on redemption of debt
(notes 5 & 15) 8 49
Settlement of equity forward
contracts (note 18) (38)
Future income taxes (16) (19) (45) (29)
Fair value adjustment of
GWL's forward sale agreement
(note 5) (29) (17) (36) (41)
Change in non-cash working
capital 490 (6) 375 (519)
Other 2 (14) (22) 35
-------------------------------------------------------------------------
Cash Flows from Operating
Activities of Continuing
Operations 879 325 1,349 362
-------------------------------------------------------------------------
Investing Activities
Fixed asset purchases (293) (212) (640) (424)
Short term investments 294 (5) (801) (177)
Proceeds from fixed asset sales 4 48 10 62
Business acquisition - net
of cash acquired (note 3) (194) (194) (10)
Domtar investment 144
Credit card receivables, after
securitization (note 9) 28 200 236 232
Franchise investments and
other receivables 5 1 (4) (19)
Security deposits and other (8) (8) 82 (33)
-------------------------------------------------------------------------
Cash Flows (used in) from
Investing Activities of
Continuing Operations (164) 24 (1,311) (225)
-------------------------------------------------------------------------
Financing Activities
Bank indebtedness 3 49 (89) 97
Short term debt (note 14) 9 (471) (162) (33)
Long term debt
- Issued (note 15) 10 370 301
- Retired (note 15) (91) (13) (480) (561)
Capital securities
- Issued 218 218
- Retired (note 16) (265)
Dividends
- To common shareholders (92) (93) (139) (186)
- To preferred shareholders (19) (22) (33) (44)
- To minority shareholders (33) (44) (55) (88)
-------------------------------------------------------------------------
Cash Flows used in Financing
Activities of Continuing
Operations (213) (376) (853) (296)
-------------------------------------------------------------------------
Effect of Foreign Currency
Exchange Rate Changes on
Cash and Cash Equivalents (124) 53 (196) 98
-------------------------------------------------------------------------
Cash Flows from (used in)
Continuing Operations 378 26 (1,011) (61)
Cash Flows from Discontinued
Operations (note 4) 15 90 3,017 130
-------------------------------------------------------------------------
Change in Cash and
Cash Equivalents 393 116 2,006 69
Cash and Cash Equivalents,
Beginning of Period 3,059 1,005 1,446 1,052
-------------------------------------------------------------------------
Cash and Cash Equivalents,
End of Period $ 3,452 $ 1,121 $ 3,452 $ 1,121
-------------------------------------------------------------------------
---------- ----------
See accompanying notes to the unaudited interim period consolidated
financial statements.
(1) See note 2 to the unaudited interim period consolidated financial
statements.
Notes to the Unaudited Interim Period Consolidated Financial Statements
1. Summary of Significant Accounting Principles
Basis of Presentation
The unaudited interim period consolidated financial statements were prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and follow the same accounting policies and methods of application as those used in the preparation of the audited annual consolidated financial statements for the year ended
Basis of Consolidation
The unaudited interim period consolidated financial statements include the accounts of
Inventories
The Company values inventories at the lower of cost and net realizable value. Costs include the costs of purchase net of vendor allowances plus other costs, such as transportation and shrink, that are directly incurred to bring inventories to their present location and condition.
Use of Estimates and Assumptions
The preparation of the unaudited interim period consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures made in the unaudited interim period consolidated financial statements and accompanying notes. These estimates and assumptions are based on management's historical experience, best knowledge of current events and conditions and activities that may be undertaken in the future. Actual results could differ from these estimates.
Certain estimates, such as those related to valuation of inventories, goodwill, indefinite life intangible assets, income taxes, Goods and Services Tax, provincial sales taxes, employee future benefits and impairment of fixed assets, depend upon subjective or complex judgments about matters that may be uncertain, and changes in those estimates could materially impact the consolidated financial statements. Illiquid credit markets, volatile equity, foreign currency, energy markets and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Future Accounting Standards
Financial Instruments - Disclosures
In
Business Combinations
In
2. Implementation of New Accounting Standards
Accounting Standards Implemented in 2009
Goodwill and Intangible Assets
In
Credit Risk and the Fair Value of Financial Assets and Financial Liabilities
On
Accounting Standards Implemented in 2008
Capital Disclosures and Financial Instruments - Disclosure and Presentation
In
Inventories
Effective
See note 2 of the annual consolidated financial statements for the year ended
3. Business Acquisitions
On
The preferred shares are classified as other liabilities on the consolidated balance sheet as at
Management expects to finalize the purchase price allocation prior to the end of fiscal 2009. As a result, the actual amount allocated to each of the identifiable net assets may vary from preliminary amounts.
The preliminary purchase price allocation, based on management's current assessment of fair value is as follows:
-------------------------------------------------------------------------
Net assets acquired:
Inventory $ 39
Other current assets 11
Fixed assets 70
Goodwill and other indefinite life intangible assets 180
Other long term assets 14
Current liabilities (69)
Other liabilities (36)
Future income taxes (18)
-------------------------------------------------------------------------
Cash consideration $ 191
-------------------------------------------------------------------------
In connection with the acquisition of T&T, Loblaw also acquired certain net assets for
During the second quarter of 2009, Loblaw commenced a Dividend Reinvestment Plan ("the DRIP"). Under the terms of the DRIP, eligible holders of common shares may elect to automatically reinvest their regular quarterly dividends in additional common shares of Loblaw without incurring any commissions, service charges or brokerage fees. The Company has elected to participate in the DRIP with respect to approximately 160 million Loblaw common shares owned by the Company. As a result of the common shares issued under the DRIP during the third quarter of 2009, the Company's proportional ownership of Loblaw changed and was accounted for as a step acquisition of Loblaw by the Company, resulting in an increase to goodwill of
4. Discontinued Operations
On
As part of the sale transaction and typical of the normal process of selling a business, Dunedin agreed to indemnify Grupo Bimbo in the event of inaccuracies in representations and warranties or if it fails to perform agreements and covenants provided for in the agreement of purchase and sale. The terms of the indemnification provisions vary in duration and may extend for an unlimited period of time. The indemnification provisions could result in future cash outflows and statement of earnings charges. The Company is unable to reasonably estimate its total maximum potential liability as certain indemnification provisions do not provide for a maximum potential amount and the amounts are dependent on the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time.
Certain financial information has been reclassified in the period ended
The results of discontinued operations presented in the consolidated statements of earnings were as follows:
16 Weeks Ended 40 Weeks Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4,
($ millions) 2009 2008 2009(1) 2008
-------------------------------------------------------------------------
Sales $ 732 $ 145 $ 1,757
-------------------------------------------------------------------------
Operating income 66 9 158
Gain on disposal(2) $ 15 936
Interest income(3) (4) (1) (8)
-------------------------------------------------------------------------
Earnings before the following: 15 70 946 166
Income taxes 9 41 27
-------------------------------------------------------------------------
Earnings from discontinued
operations $ 15 $ 61 $ 905 $ 139
-------------------------------------------------------------------------
---------- ----------
(1) Reflects results of the U.S. fresh bakery business up to the date of
sale, January 21, 2009 and the gain on disposal.
(2) Net of the reclassification of cumulative foreign currency
translation loss of $110 million, which was recorded in the first
quarter of 2009, associated with the U.S. fresh bakery business that
was previously reflected in accumulated other comprehensive loss (see
note 17).
(3) In calculating earnings from discontinued operations, no general
interest expense has been allocated to these operations.
The assets held for sale and related liabilities as at
As at
Oct. 4, Dec. 31,
($ millions) 2008 2008
-------------------------------------------------------------------------
Current assets of operations held for sale
Accounts receivable $ 209 $ 219
Inventories 37 40
Prepaid expenses and other assets 8 211
Fixed assets 618
Goodwill and intangible assets 1,364
Future income taxes 53 136
-------------------------------------------------------------------------
$ 307 $ 2,588
-------------------------------------------------------------------------
Long term assets of operations held for sale
Fixed assets $ 550
Goodwill and intangible assets 1,226
Future income taxes 83
Other assets 180
-------------------------------------------------------------------------
$ 2,039
-------------------------------------------------------------------------
Current liabilities of operations held for sale
Bank indebtedness $ 20 $ 22
Accounts payable and accrued liabilities 322 354
Income taxes 46 52
Future income taxes 2
Other liabilities 190
-------------------------------------------------------------------------
$ 388 $ 620
-------------------------------------------------------------------------
Long term liabilities of operations held for sale
Future income taxes $ 2
Other liabilities 177
-------------------------------------------------------------------------
$ 179
-------------------------------------------------------------------------
The cash flows from discontinued operations were as follows:
16 Weeks Ended 40 Weeks Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4,
($ millions) 2009 2008 2009(1) 2008
-------------------------------------------------------------------------
Cash flows from (used in)
operations $ 111 $ (105) $ 171
Cash flows from (used in)
investing $ 15 (13) 3,107 (34)
Cash flows (used in)
from financing (8) 15 (7)
-------------------------------------------------------------------------
Cash flows from discontinued
operations $ 15 $ 90 $ 3,017 $ 130
-------------------------------------------------------------------------
---------- ----------
(1) Reflects the proceeds received on the sale and the cash flows of the
U.S. fresh bakery business up to the date of sale, January 21, 2009.
5. Interest Expense and Other Financing Charges
16 Weeks Ended 40 Weeks Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4,
($ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Interest on long term debt $ 115 $ 118 $ 285 $ 300
Loss on redemption of debt
(note 15) 8 49
Interest expense on financial
derivative instruments 1 3 1
Other financing charges(1) (36) (25) (52) (61)
Net short term interest income (4) (3) (16) (6)
Interest income on
security deposits (1) (3) (4) (9)
Dividends on capital
securities 4 9 15 14
Capitalized to fixed assets (6) (6) (16) (15)
-------------------------------------------------------------------------
Interest expense and other
financing charges $ 80 $ 91 $ 264 $ 224
-------------------------------------------------------------------------
---------- ----------
(1) Other financing charges for the third quarter and year-to-date 2009
includes non-cash income of $29 million (2008 - $17 million) and
non-cash income of $36 million (2008 - $41 million), respectively,
related to the fair value adjustment of GWL's forward sale agreement
for 9.6 million Loblaw common shares. The fair value adjustment of
the forward contract is a non-cash item resulting from fluctuations
in the market price of the underlying Loblaw common shares that GWL
owns. GWL does not record any change in the market price associated
with the Loblaw common shares it owns. Any cash paid under the
forward contract could be offset by the sale of the Loblaw common
shares. Also included in other financing charges for the third
quarter and year-to-date 2009 is forward accretion income of
$11 million and $28 million (2008 - $13 million and $33 million),
respectively, net of the forward fee of $4 million and $12 million
(2008 - $5 million and $13 million), respectively, associated with
GWL's forward sale agreement.
During the third quarter and year-to-date 2009, net interest expense and other financing charges of
Interest on debt and dividends on capital securities paid in the third quarter and year-to-date 2009 were
6. Income Taxes
The effective income tax rate increased to 41.5% in the third quarter of 2009 compared to 28.0% in the third quarter of 2008 and year-to-date 2009 increased to 48.0% compared to 30.5% in 2008. The increase in the third quarter of 2009 and year-to-date when compared to the same periods in 2008 was mainly the result of the foreign exchange losses associated with the effect of foreign exchange on a portion of the Company's (excluding Loblaw's) USD denominated cash and cash equivalents and short term investments for which a tax benefit has not been fully recognized. The year-to-date 2009 increase in the effective income tax rate when compared to the same period in 2008 was also impacted by the non-deductible reversal of the cumulative foreign currency translation loss associated with Dunedin and certain of its affiliates.
Net income taxes paid in the third quarter were
7. Basic and Diluted Net Earnings per Common Share from Continuing Operations
16 Weeks Ended 40 Weeks Ended
---------- ----------
($ millions except where Oct. 10, Oct. 4, Oct. 10, Oct. 4,
otherwise indicated) 2009 2008 2009 2008
-------------------------------------------------------------------------
Net earnings from continuing
operations $ 71 $ 119 $ 48 $ 290
Prescribed dividends on
preferred shares in
share capital (14) (14) (34) (37)
-------------------------------------------------------------------------
Net earnings from continuing
operations available to
common shareholders $ 57 $ 105 $ 14 $ 253
-------------------------------------------------------------------------
Weighted average common shares
outstanding (in millions) 129.1 129.1 129.1 129.1
Dilutive effect of stock-based
compensation(1) (in millions)
-------------------------------------------------------------------------
Diluted weighted average
common shares outstanding
(in millions) 129.1 129.1 129.1 129.1
-------------------------------------------------------------------------
Basic and diluted net earnings
per common share from
continuing operations ($) $ 0.44 $ 0.81 $ 0.11 $ 1.96
-------------------------------------------------------------------------
---------- ----------
(1) Stock options outstanding with an exercise price greater than the
quarter and year-to-date average market prices of GWL's common shares
are not included in the computation of diluted net earnings per
common share from continuing operations. Accordingly, for the third
quarter and year-to-date 2009, 1,476,502 (2008 - 1,321,928) stock
options, with a weighted average exercise price of $81.91 (2008 -
$86.58) per common share, were excluded from the computation of
diluted net earnings per common share from continuing operations.
8. Cash and Cash Equivalents
The components of cash and cash equivalents as at
As at
----------
Oct. 10, Oct. 4, Dec. 31,
($ millions) 2009 2008 2008
-------------------------------------------------------------------------
Cash $ 124 $ 72 $ 85
Cash equivalents - short term investments
with a maturity date of 90 days or less:
Bank term deposits 1,004 35 101
Government treasury bills 1,694 458 656
Government-sponsored debt securities 231 289 107
Corporate commercial paper 399 267 450
Foreign bonds 47
-------------------------------------------------------------------------
Cash and cash equivalents $ 3,452 $ 1,121 $ 1,446
-------------------------------------------------------------------------
----------
As at
In the third quarter of 2009, the Company recognized an unrealized foreign exchange loss of
Year-to-date 2009, the Company recognized an unrealized foreign exchange loss of
The Loblaw loss (2008 - gain) on cash and cash equivalents, short term investments and security deposits, is offset in operating income and other comprehensive (loss) income by the unrealized foreign currency exchange gain of
9. Accounts Receivable
From time to time, President's Choice Bank ("PC Bank"), a wholly owned subsidiary of Loblaw, securitizes credit card receivables through the sale of a portion of the total interest in these receivables to independent trusts. A portion of the securitized receivables held by an independent trust facility was renewed for a 364-day term during the third quarter of 2009. The independent trusts' recourse to PC Bank's assets is limited to PC Bank's retained interests and is further supported by Loblaw through a standby letter of credit for
As at
----------
Oct. 10, Oct. 4, Dec. 31,
($ millions) 2009 2008 2008
-------------------------------------------------------------------------
Credit card receivables $ 1,955 $ 2,065 $ 2,206
Amount securitized (1,775) (1,775) (1,775)
-------------------------------------------------------------------------
Net credit card receivables 180 290 431
Other receivables 486 527 527
-------------------------------------------------------------------------
Accounts receivable $ 666 $ 817 $ 958
-------------------------------------------------------------------------
----------
Credit card receivables that were past due of
10. Allowances for Receivables
The allowance for receivables recorded in the consolidated balance sheet is maintained at a level which is considered adequate to absorb credit related losses on credit card receivables and losses on other receivables. The receivables for PC Bank credit card, Loblaw associated stores and independent accounts and Weston Foods customers are presented net of allowances on the consolidated balance sheet. The allowance for Loblaw receivables from independent franchisees is recorded in accounts payable and accrued liabilities on the consolidated balance sheet. A continuity of the Company's allowances for receivables is as follows:
Credit Card Receivables
16 Weeks Ended 40 Weeks Ended Year Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4, Dec. 31,
($ millions) 2009 2008 2009 2008 2008
-------------------------------------------------------------------------
Allowances at
beginning of
period $ (15) $ (13) $ (15) $ (13) $ (13)
Provision for losses (7) (14) (15) (26) (35)
Recoveries (4) (5) (7) (9) (14)
Write-offs 11 19 22 35 47
-------------------------------------------------------------------------
Allowances at end
of period $ (15) $ (13) $ (15) $ (13) $ (15)
-------------------------------------------------------------------------
---------- ----------
Other Receivables
16 Weeks Ended 40 Weeks Ended Year Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4, Dec. 31,
($ millions) 2009 2008 2009 2008 2008
-------------------------------------------------------------------------
Allowances at
beginning of
period $ (35) $ (44) $ (32) $ (44) $ (44)
Provision for losses (41) (30) (76) (58) (84)
Write-offs 38 37 70 65 96
-------------------------------------------------------------------------
Allowances at end
of period $ (38) $ (37) $ (38) $ (37) $ (32)
-------------------------------------------------------------------------
---------- ----------
11. Inventories
As at
----------
Oct. 10, Oct. 4, Dec. 31,
($ millions) 2009 2008 2008
-------------------------------------------------------------------------
Raw materials and supplies $ 34 $ 42 $ 41
Finished goods 2,232 2,289 2,266
-------------------------------------------------------------------------
Inventories $ 2,266 $ 2,331 $ 2,307
-------------------------------------------------------------------------
----------
Cost of inventories sold includes
For inventories recorded as at
12. Goodwill and Intangible Assets
As at
--------------------------------
Oct. 10, Oct. 4, Dec. 31,
Weston 2009 2008 2008
($ millions) Foods Loblaw Total
-------------------------------------------------------------------------
Goodwill, beginning
of period $ 169 $ 947 $ 1,116 $ 1,103 $ 1,103
Goodwill, acquired
during the period 193 193 1 1
Business disposition (11)
Goodwill impairment(1) (73) (73)
Impact of foreign
currency translation (5) (5) 10 23
-------------------------------------------------------------------------
Goodwill, end of
period 91 1,140 1,231 1,114 1,116
Trademarks and
brand names(2) 14 14 13 13
Other intangible
assets 5 5 11 5
-------------------------------------------------------------------------
Goodwill and
intangible assets $ 110 $ 1,140 $ 1,250 $ 1,138 $ 1,134
-------------------------------------------------------------------------
--------------------------------
(1) Weston Foods reorganized its remaining operations subsequent to the
disposition of the U.S. fresh bakery business (see note 4). The
reorganization changed the composition of Weston Foods' reporting
units for the purpose of goodwill impairment testing. As a result of
this change, Weston Foods recorded a write-down of goodwill related
to the biscuits, cookies, cones and wafers business in the first
quarter of 2009.
(2) The balance includes amortization of $1 million (2008 - $1 million).
In connection with Loblaw's acquisition of T&T, Loblaw acquired goodwill and other indefinite life intangible assets of
Due to the Company's participation in the Loblaw DRIP and the resulting step acquisition of Loblaw, goodwill of
13. Employee Future Benefits
The Company's total net benefit plan cost recognized in operating income was
14. Short Term Debt
During 2008, GWL entered into a
As described in note 18 of the annual consolidated financial statements for the year ended
Also included in short term debt are GWL's Series B debentures, due on demand, of
15. Long Term Debt
During the second quarter of 2009, GWL entered into an agreement to repurchase a portion of the 12.7% Promissory Notes, due 2030. During the third quarter of 2009, GWL repurchased these and all of the remaining notes, pursuant to the terms of the notes, for an aggregate purchase price of
During the second quarter of 2009, Loblaw issued
As at
During the first quarter of 2009, GWL's
16. Capital Management
Capital Securities
On
Outstanding Share Capital
GWL's outstanding share capital is comprised of common shares and preferred shares. An unlimited number of common shares are authorized and 129.1 million common shares were outstanding at the end of the third quarter of 2009. Ten million preferred shares, Series I, are authorized and 9.4 million were outstanding, 10.0 million preferred shares, Series III, are authorized and 8.0 million were outstanding and 8.0 million preferred shares, Series IV and Series V, are authorized and were outstanding, in each case, at the end of the third quarter of 2009.
Further information on GWL's outstanding share capital is provided in note 23 to the annual consolidated financial statements for the year ended
During the second quarter of 2009, GWL renewed its Normal Course Issuer Bid ("NCIB") to purchase on the
Dividends
The declaration and payment of dividends 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 and other factors the Board of Directors considers relevant from time to time. Over the long term, GWL's objective is for its common dividend payment ratio to be in the range of 20% to 25% of the prior year's basic net earnings per common share from continuing operations, adjusted as appropriate for items which are not regarded to be reflective of ongoing operations, giving consideration to the year end cash position, future cash flow requirements and investment opportunities. The Board of Directors has declared dividends as follows:
16 Weeks Ended 40 Weeks Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4,
($) 2009 2008 2009 2008
-------------------------------------------------------------------------
Common shares $ 0.36 $ 0.36 $ 1.08 $ 1.08
Preferred shares - Series I $ 0.36 $ 0.36 $ 1.09 $ 1.09
- Series II $ 0.33 $ 0.32 $ 0.97
- Series III $ 0.32 $ 0.32 $ 0.97 $ 0.97
- Series IV $ 0.32 $ 0.32 $ 0.97 $ 0.97
- Series V $ 0.30 $ 0.30 $ 0.89 $ 0.89
-------------------------------------------------------------------------
---------- ----------
Dividends on the GWL preferred shares, Series II are presented in interest expense and other financing charges in the consolidated statements of earnings in the second quarter of 2008 and onwards.
17. Accumulated Other Comprehensive Loss
The following tables provide further detail regarding the composition of accumulated other comprehensive loss:
40 Weeks Ended
Oct. 10, 2009
------------------------------------------------
Foreign
currency Available-
translation for-sale Cash flow
($ millions) adjustment assets hedges Total
-------------------------------------------------------------------------
Balance, beginning
of period $ (334) $ 10 $ 2 $ (322)
Cumulative impact of
implementing new
accounting standards(1) (1) (1)
Foreign currency
translation adjustment 24 24
Reclassification of
cumulative foreign
currency translation
loss to net earnings 144 144
Net unrealized losses
on available-for-sale
financial assets(2) (14) (14)
Reclassification of gain
on available-for-sale
financial assets(3) (5) (5)
Net gain on derivatives
designated as cash
flow hedges(4) 1 1
Reclassification of loss
on derivatives designated
as cash flow hedges(5) 16 16
-------------------------------------------------------------------------
Balance, end of period $ (166) $ (9) $ 18 $ (157)
-------------------------------------------------------------------------
------------------------------------------------
(1) Net of income taxes recovered of $1 million and minority interest of
$1 million.
(2) Net of income taxes recovered of $1 million and minority interest of
$9 million.
(3) Net of income taxes recovered of $3 million and minority interest of
$3 million.
(4) Net of income taxes of $7 million and minority interest of
$2 million.
(5) Net of income taxes recovered of $10 million and minority interest of
$5 million.
40 Weeks Ended
Oct. 4, 2008
------------------------------------------------
Foreign
currency Available-
translation for-sale Cash flow
($ millions) adjustment assets hedges Total
-------------------------------------------------------------------------
Balance, beginning
of period $ (1,011) $ (2) $ 14 $ (999)
Foreign currency
translation adjustment 303 303
Net unrealized gain on
available-for-sale
financial assets(1) 20 20
Reclassification of gain
on available-for-sale
financial assets(2) (6) (6)
Net loss on derivatives
designated as cash
flow hedges(3) (10) (10)
Reclassification of gain
on derivatives designated
as cash flow hedges(4) (14) (14)
-------------------------------------------------------------------------
Balance, end of period $ (708) $ 12 $ (10) $ (706)
-------------------------------------------------------------------------
------------------------------------------------
(1) Net of income taxes of $1 million and minority interest of
$13 million.
(2) Net of income taxes of $5 million and minority interest of
$3 million.
(3) Net of income taxes of $7 million and minority interest of
$3 million.
(4) Net of income taxes of a nominal amount and minority interest of
$8 million.
See note 26 of the annual consolidated financial statements for the year ended
An estimated gain of
During the first three quarters of 2009, the foreign currency translation adjustment included in accumulated other comprehensive loss decreased by
The Company recognized
18. Stock-Based Compensation
The following table summarizes the Company's cost recognized in operating income related to its stock-based compensation plans, equity derivatives and restricted share unit plans:
16 Weeks Ended 40 Weeks Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4,
($ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Stock option plans/share
appreciation right plan
(income) expense $ (5) $ (1) $ (2) $ 1
Equity derivatives loss (gain) 13 (6) 16 13
Restricted share unit
plan expense 3 3 9 7
-------------------------------------------------------------------------
Net stock-based compensation
expense (income) $ 11 $ (4) $ 23 $ 21
-------------------------------------------------------------------------
---------- ----------
Stock Option Plan
During the second quarter of 2009, GWL granted nil (2008 - 3,013 at an exercise price of
During the third quarter of 2009, Loblaw granted 44,032 (2008 - 82,204) stock options with an exercise price of
At the end of the third quarter of 2009, a total of 1,757,807 (2008 - 1,633,677) GWL stock options and share appreciation rights were outstanding, 1,665,807 (2008 - 1,539,677) of which were stock options that represented approximately 1.3% (2008 - 1.2%) of GWL's issued and outstanding common shares. The stock options were within GWL's guideline of 5% of the total number of outstanding common shares.
Restricted Share Units ("RSU") Plan
Under its existing RSU plan, GWL granted nil (2008 - 30,447) RSUs in the second quarter of 2009 and 61,677 (2008 - 27,732) RSUs in the first quarter of 2009. In addition, 2,497 (2008 - 5,932) RSUs were cancelled and 59,423 (2008 - 62,697) RSUs were settled in cash in the amount of
Under its existing RSU plan, Loblaw granted 13,373 (2008 - 13,526) RSUs in the third quarter of 2009, 3,994 (2008 - 45,321) RSUs in the second quarter of 2009 and 425,093 (2008 - 352,268) RSUs in the first quarter of 2009. In addition, 94,070 (2008 - 87,995) RSUs were cancelled and 199,920 (2008 - 246,785) RSUs were settled in cash for
At the end of the third quarter of 2009, a total of 151,526 (2008 - 159,543) GWL and 977,869 (2008 - 845,022) Loblaw RSUs were outstanding.
Equity Forwards
During the second quarter of 2009, Loblaw and a counterparty agreed to terminate a portion of the equity forwards, representing 1.6 million Loblaw shares, for
19. Contingencies, Commitments and Guarantees
Guarantees - Independent Funding Trusts
Certain independent franchisees of Loblaw obtain financing through a structure involving independent trusts, which were created to provide loans to the independent franchisees to facilitate their purchase of inventory and fixed assets, consisting mainly of fixtures and equipment. These trusts are administered by a major Canadian chartered bank.
The gross principal amount of loans issued to Loblaw's independent franchisees outstanding at the end of the third quarter of 2009 was
During the second quarter of 2009, the
Guarantee and Indemnity Agreements
In the normal course, the Company executes agreements that provide for guarantees and indemnifications in favour of third parties in connection with transactions such as business dispositions, business acquisitions and financing transactions.
Legal Proceedings
In 2008, the trustees of a multi-employer pension plan in which Loblaw's employees and those of its independent franchises participate became involved in proceedings brought by the Financial Services Commission of Ontario whereby it has been alleged that the trustees violated certain provisions of the Pension Benefits Act (Ontario) in their management of the plan's funds. One of the trustees, an officer of Loblaw, is entitled to indemnification from Loblaw. The trustees each pled not guilty to the charges. A decision by the court is expected by the end of the year.
The Company is the subject of various legal proceedings and claims that arise in the ordinary course of business. The outcome of all of these proceedings and claims is uncertain. However, based on information currently available, these proceedings and claims, individually and in the aggregate, are not expected to have a material impact on the Company.
20. Comparative Information
Certain prior year's information was reclassified to conform with the current year presentation. In addition, results of the U.S. fresh bakery business have been reclassified to discontinued operations (see note 4).
The Company's unrealized equity derivatives liability, which was previously presented as other long term liabilities on the consolidated balance sheet, is now included in accounts payable and accrued liabilities. The comparative balances as at
Included in the cost of inventories sold is an allocation of depreciation on GWL's fixed assets which was previously included in depreciation and amortization in the consolidated statements of earnings. The amounts previously included in depreciation and amortization for the third quarter and year-to-date 2008 of
21. Segment Information
The Company has two reportable operating segments: Weston Foods and Loblaw. The accounting policies of the reportable operating segments are the same as those described herein and in the Company's 2008 Annual Report, except as described in note 2. The Company measures each reportable operating segment's performance based on operating income. Neither reportable operating segment is reliant on any single external customer.
16 Weeks Ended 40 Weeks Ended
---------- ----------
Oct. 10, Oct. 4, Oct. 10, Oct. 4,
($ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Sales
Weston Foods $ 502 $ 678 $ 1,334 $ 1,690
Loblaw 9,473 9,493 23,424 23,057
Intersegment (198) (292) (475) (709)
-------------------------------------------------------------------------
Consolidated $ 9,777 $ 9,879 $ 24,283 $ 24,038
-------------------------------------------------------------------------
Operating Income
Weston Foods $ 36 $ 38 $ 65 $ 124
Loblaw(1) 376 310 922 726
Other(2) (79) (265)
-------------------------------------------------------------------------
Consolidated $ 333 $ 348 $ 722 $ 850
-------------------------------------------------------------------------
Total Assets
Weston Foods $ 1,886 $ 2,744 $ 1,886 $ 2,744
Loblaw 14,818 13,663 14,818 13,663
Other(3) 3,065 3,065
Discontinued operations 2,346 2,346
-------------------------------------------------------------------------
Consolidated $ 19,769 $ 18,753 $ 19,769 $ 18,753
-------------------------------------------------------------------------
---------- ----------
(1) Operating income for the period ended October 4, 2008 was restated
(see note 2).
(2) After the sale of the U.S. fresh bakery business on January 21, 2009,
Dunedin and certain of its affiliates became "integrated" foreign
subsidiaries for accounting purposes. On the date of the sale, the
cumulative foreign currency translation loss of $34 million
associated with Dunedin and certain of its affiliates, which was
previously reflected in accumulated other comprehensive loss, was
reversed and included in operating income. Subsequent to January 21,
2009, gains and losses arising from the translation of the USD
denominated assets of these integrated foreign subsidiaries are
included in net earnings. As a result, operating income for the third
quarter and year-to-date 2009 included $79 million (2008 - nil) and
$231 million (2008 - nil), respectively, of foreign exchange losses
associated with the effect of foreign exchange on a portion of the
Company's (excluding Loblaw's) USD denominated cash and cash
equivalents and short term investments held in integrated foreign
subsidiaries.
(3) Other includes cash and cash equivalents and short term investments
held by GWL's integrated foreign subsidiaries.
22. Subsequent Event
Subsequent to the end of the third quarter of 2009, due to an internal reorganization, the Company reduced its net investment in self-sustaining foreign operations. As a result, a cumulative foreign currency translation loss of approximately
Corporate Profile
Trademarks
Shareholder Information
Registrar and Transfer Agent
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Computershare Investor Services Inc.
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Additional financial information has been filed electronically with various securities regulators in
This Quarterly Report includes selected information on Loblaw Companies Limited, a 62%-owned public reporting subsidiary company with shares trading on the
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