George Weston Limited - 2012 Third Quarter Results(1).
TORONTO, Nov. 20, 2012 /CNW/ - George Weston Limited (TSX:
WN) ("GWL") today announced its consolidated unaudited results for
the 16 weeks ended October 6,
2012 and announced a quarterly common share dividend
increase to $0.38 per share,
representing an increase of $0.02 per
common share.
George Weston Limited and its subsidiaries are together referred
to as the "Company". The Company's Q3 2012 Quarterly Report to
Shareholders, including the Company's unaudited interim period
condensed consolidated financial statements and Management's
Discussion and Analysis ("MD&A") for the 16 and 40 weeks ended
October 6, 2012, is available in
the Investor Centre section of the Company's website at
www.weston.ca and has been filed with the System for Electronic
Document Analysis and Retrieval ("SEDAR") and will be available at
www.sedar.com.
CONSOLIDATED RESULTS OF OPERATIONS
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(unaudited) |
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($ millions except where otherwise
indicated) |
16 Weeks Ended |
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40 Weeks Ended
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For the
periods ended as indicated |
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Oct. 6, 2012 |
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Oct. 8, 2011 |
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Change |
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Oct. 6, 2012 |
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Oct. 8, 2011 |
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Change |
Sales |
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$ |
10,164 |
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|
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$ |
10,061 |
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1.0 % |
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|
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$ |
25,015 |
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$ |
24,740 |
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1.1 % |
Operating income |
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$ |
475 |
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|
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$ |
557 |
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(14.7) % |
|
|
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$ |
1,072 |
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$ |
1,257 |
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(14.7) % |
Adjusted operating
income(2) |
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$ |
506 |
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$ |
507 |
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(0.2) % |
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$ |
1,181 |
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$ |
1,327 |
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(11.0) % |
Adjusted operating
margin(2) |
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5.0
% |
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5.0 % |
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4.7
% |
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5.4 % |
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Net interest expense
and other financing charges |
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$ |
131 |
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$ |
94 |
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39.4 % |
|
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$ |
247 |
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$ |
258 |
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(4.3) % |
Income taxes |
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$ |
101 |
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$ |
112 |
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(9.8) % |
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$ |
215 |
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$ |
253 |
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(15.0) % |
Net earnings attributable to
shareholders of the Company |
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$ |
160 |
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$ |
264 |
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(39.4) % |
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$ |
421 |
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$ |
526 |
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(20.0) % |
Net earnings |
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$ |
243 |
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$ |
351 |
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(30.8) % |
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$ |
610 |
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$ |
746 |
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(18.2) % |
Basic net earnings per common
share
($) |
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$ |
1.14 |
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$ |
1.94 |
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(41.2) % |
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$ |
3.02 |
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$ |
3.81 |
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(20.7)% |
Adjusted basic net
earnings per common share(2) ($) |
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$ |
1.49 |
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$ |
1.44 |
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3.5 % |
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$ |
3.44 |
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$ |
3.85 |
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(10.6) % |
Adjusted EBITDA(2) |
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$ |
765 |
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$ |
743 |
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3.0 % |
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$ |
1,816 |
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$ |
1,901 |
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(4.5) % |
Adjusted
EBITDA margin(2) |
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7.5 % |
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7.4 % |
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7.3 % |
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7.7 % |
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George Weston Limited's third quarter 2012 adjusted basic net
earnings per common share(2) were $1.49 compared to $1.44 in the same period in 2011, an increase of
$0.05. The increase was primarily
attributable to an increase in operating performance at Weston
Foods and a decrease in income tax expense, partially offset by a
decline in the operating performance of Loblaw Companies Limited
("Loblaw"). The decline in the operating performance of Loblaw was
primarily due to an increase in labour and other operating costs
and incremental costs related to investments in information
technology ("IT") and supply chain(3), partially offset
by increases in gross profit and foreign exchange gains and higher
operating income from its Financial Services segment. Increased
labour costs included incremental investments in Loblaw's customer
proposition that were not covered by operations. Incremental
investments in shrink also partially offset the increase in gross
profit.
The Company's basic net earnings per common share were
$1.14 compared to $1.94 in the same period in 2011, a decrease of
$0.80. Adjusted basic net earnings
per common share(2) increased $0.05 and excluded the year-over-year
unfavourable net impact of certain items, primarily the impact of
certain foreign currency translation and the fair value adjustment
of the forward sale agreement for 9.6 million Loblaw common shares,
partially offset by the fair value adjustment of commodity
derivatives at Weston Foods.
Subsequent to the end of the third quarter of 2012, Loblaw
announced its plan to reduce a number of head office and
administrative positions. Focused primarily on management and
office positions, the plan is expected to affect approximately 700
jobs. Loblaw expects to take an estimated charge of $60 million in the fourth quarter of 2012,
reflecting the anticipated costs of the planned reductions.
The Company uses non-GAAP financial measures. See the "Non-GAAP
Financial Measures" section of this News Release for more
information on these non-GAAP financial measures.
OPERATING SEGMENTS
Weston Foods |
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(unaudited) |
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16 Weeks Ended |
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40 Weeks Ended |
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($ millions) |
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Oct. 6, 2012 |
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Oct. 8, 2011 |
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Oct. 6, 2012 |
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Oct. 8, 2011 |
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Sales |
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$ |
541 |
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$ |
545 |
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$ |
1,366 |
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$ |
1,362 |
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Operating income |
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$ |
114 |
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$ |
77 |
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$ |
186 |
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$ |
151 |
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Adjusted operating income(2) |
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$ |
94 |
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$ |
87 |
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$ |
218 |
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$ |
209 |
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Adjusted operating margin(2) |
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17.4
% |
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16.0 % |
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16.0
% |
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15.3 % |
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Adjusted EBITDA(2) |
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$ |
112 |
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$ |
105 |
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$ |
263 |
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$ |
254 |
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Adjusted EBITDA
margin(2) |
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20.7 % |
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19.3 % |
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19.3 % |
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18.6 % |
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Weston Foods sales in the third quarter of 2012 decreased by
0.7% to $541 million from
$545 million in the same period in
2011. Foreign currency translation positively impacted sales by
approximately 0.4%. Excluding this impact, sales decreased 1.1%
mainly due to a decrease in volumes of 1.2% compared to the same
period in 2011.
Weston Foods operating income in the third quarter of 2012 was
$114 million compared to $77 million in the same period in 2011, an
increase of $37 million. The increase
was primarily due to the favourable impact of the change in the
fair value adjustment of commodity derivatives and share-based
compensation net of equity derivatives of $35 million and an improvement in adjusted
operating income(2) of $7
million as described below.
Weston Foods adjusted operating income(2) was
$94 million in the third quarter of
2012 compared to $87 million in the
same period in 2011. Weston Foods adjusted operating
margin(2) was 17.4% compared to 16.0% in the same period
in 2011. Adjusted operating income(2) in the third
quarter of 2012 was positively impacted by lower commodity and
other input costs and the benefits realized from productivity
improvements and other cost reduction initiatives. These benefits
were partially offset by lower sales volumes compared to the same
period in 2011.
Loblaw |
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(unaudited) |
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16 Weeks Ended |
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40 Weeks Ended |
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($ millions) |
|
Oct. 6, 2012 |
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|
|
Oct. 8, 2011 |
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Oct. 6, 2012 |
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Oct. 8, 2011 |
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Sales |
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$ |
9,827 |
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$ |
9,727 |
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$ |
24,139 |
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$ |
23,877 |
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Operating income |
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$ |
403 |
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$ |
419 |
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$ |
928 |
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$ |
1,063 |
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Adjusted operating income(2) |
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$ |
412 |
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$ |
420 |
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$ |
963 |
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$ |
1,118 |
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Adjusted operating margin(2) |
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|
4.2
% |
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4.3 % |
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4.0
% |
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4.7 % |
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Adjusted EBITDA(2) |
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$ |
653 |
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$ |
638 |
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$ |
1,553 |
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$ |
1,647 |
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Adjusted EBITDA
margin(2) |
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6.6 % |
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6.6 % |
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6.4 % |
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6.9 % |
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In the third quarter of 2012, the Loblaw team executed the plan.
Targeted investments in the customer proposition are delivering
clear results, the infrastructure program remains on track, and
planned efficiencies are beginning to come through. Loblaw is
pleased with the fundamental progress to date.
Loblaw sales in the third quarter of 2012 increased by 1.0% to
$9,827 million from $9,727 million in the same period in 2011. Retail
segment sales increased by 0.7% and same-store sales declined by
0.2% (2011 - increased by 1.3%). Sales growth in food,
drugstore and gas bar was modest, sales in general merchandise,
excluding apparel, declined moderately and sales in apparel were
flat. Loblaw experienced modest average quarterly internal food
price inflation during the third quarter of 2012 and moderate
average quarterly food price inflation during the third quarter of
2011, which were lower than the average quarterly national food
price inflation of 1.8% (2011 - 4.9%) as measured by "The Consumer
Price Index for Food Purchased from Stores". In the last twelve
months, Loblaw opened 19 corporate and franchise stores and closed
eight corporate and franchise stores, resulting in a net increase
of 0.3 million square feet, or 0.6%. Loblaw sales in the third
quarter of 2012 were also positively impacted by an increase in
revenue from its Financial Services segment, which includes
President's Choice Bank, a subsidiary of Loblaw. The increase in
Financial Services segment revenue was primarily driven by higher
PC Telecom revenues and higher interest and interchange fee
income when compared to the same period in 2011.
Loblaw operating income in the third quarter of 2012 was
$403 million compared to $419 million in the same period in 2011, a
decrease of $16 million. The decrease
was mainly due to the gain on sale of a portion of a Loblaw
property recorded in the third quarter of 2011 of $14 million and a decline in adjusted operating
income(2) of $8 million as
described below.
Loblaw adjusted operating income(2) was
$412 million in the third quarter of
2012 compared to $420 million in the
same period in 2011. Adjusted operating margin(2) was
4.2% compared to 4.3% in the same period in 2011. The decreases in
adjusted operating income(2) and adjusted operating
margin(2) were primarily attributable to an increase in
labour and other operating costs and incremental costs related to
investments in IT and supply chain(3), partially offset
by increases in gross profit and foreign exchange gains and higher
operating income from its Financial Services segment. Increased
labour costs included an estimated $10
million of incremental investments in Loblaw's customer
proposition that were not covered by operations. Incremental
investments in shrink also partially offset the increase in gross
profit by an estimated $5
million.
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
In the third quarter of 2012, net interest expense and other
financing charges increased by $37
million to $131 million
compared to the same period in 2011. Net interest expense and other
financing charges are impacted by the fair value adjustment of the
forward sale agreement for 9.6 million Loblaw common shares. This
fair value adjustment had an unfavourable year-over-year impact in
the third quarter of 2012 of $35
million. Excluding this impact, net interest expense and
other financing charges increased by $2
million compared to the same period in 2011.
INCOME TAXES
In the third quarter of 2012, income tax expense decreased to
$101 million from $112 million, and the effective income tax rate
increased to 29.4% from 24.2%, compared to the same period in 2011.
The increase in the effective income tax rate was primarily due to
non-deductible foreign currency translation losses recorded in the
third quarter of 2012 (2011 - non-taxable foreign currency
translation gains), partially offset by reductions in the federal
and Ontario statutory income tax
rates and a recovery on the revaluation of deferred tax assets on
the enactment of the revised Ontario corporate income tax rate.
OUTLOOK(1)
The Company is updating its fiscal 2012 outlook.
For the full year 2012, Weston Foods expects to deliver sales
slightly lower than 2011. Weston Foods expects full year adjusted
operating margin(2) to be consistent with the margin
experienced on a year-to-date basis.
For the fourth quarter of 2012, Loblaw estimates adjusted
operating income(2) to be generally in line with the
fourth quarter of 2011.
George Weston Limited anticipates full year adjusted basic net
earnings per common share(2) to be down year-over-year,
as Loblaw expects its full year earnings performance to be down
year-over-year.
FORWARD-LOOKING STATEMENTS
This News Release contains forward-looking statements about the
Company's objectives, plans, goals, aspirations, strategies,
financial condition, results of operations, cash flows,
performance, prospects and opportunities. These forward-looking
statements are typically identified by words such as "anticipate",
"expect", "believe", "foresee", "could", "estimate", "goal",
"intend", "plan", "seek", "strive", "will", "may" and "should" and
similar expressions, as they relate to the Company and its
management. In this News Release, forward-looking statements
include the Company's expectations that for the full year 2012:
For Weston Foods:
- sales will be slightly lower than 2011; and
- full year adjusted operating margin(2) will be
consistent with the margin experienced on a year-to-date
basis.
For Loblaw:
- there will be incremental costs related to investments in IT
and supply chain, as well as incremental investments in Loblaw's
customer proposition; and
- fourth quarter 2012 adjusted operating income(2) to
be generally in line with the fourth quarter 2011.
For the Company:
- full year adjusted basic net earnings per common
share(2) will be down year-over-year.
These forward-looking statements are not historical facts but
reflect the Company's current expectations concerning future
results and events. They also reflect management's current
assumptions regarding the risks and uncertainties referred to below
and their respective impact on the Company. In addition, the
Company's expectation with regard to Weston Foods' adjusted
operating margins(2) in 2012 is based in part on the
assumptions that there will be no significant unanticipated
increase in the price of commodities and other input costs that
Weston Foods will not be able to offset through pricing, improved
efficiencies and ongoing cost reduction initiatives. The Company's
expectation with regard to Loblaw's adjusted operating
income(2) in 2012 is based in part on the assumptions
that Loblaw achieves its plan to increase net retail square footage
by 1% and there are no unexpected adverse events or costs related
to Loblaw's investments in IT and supply chain. The Company's
expectation with regard to adjusted basic net earnings per common
share(2) in 2012 is based in part on the assumption that
interest rates, income tax rates and the Company's ownership
interest in Loblaw will be similar to those in 2011.
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, but not
limited to:
- failure to realize sales growth, anticipated cost savings or
operating efficiencies from the Company's major initiatives,
including investments in the Company's IT systems and the Company's
IT systems implementation, or unanticipated results from these
initiatives;
- the inability of the Company's IT infrastructure to support the
requirements of the Company's business;
- unanticipated results associated with the Company's strategic
initiatives and the impact of acquisitions or dispositions of
businesses on the Company's future revenues and earnings;
- heightened competition, whether from current competitors or new
entrants to the marketplace;
- the inability of the Company to realize anticipated cost
savings and efficiencies, including those resulting from
restructuring;
- changes in economic conditions including the rate of inflation
or deflation, changes in interest and foreign currency exchange
rates and changes in derivative and commodity prices;
- public health events;
- risks associated with product defects, food safety and product
handling;
- failure to achieve desired results in labour negotiations,
including the terms of future collective bargaining agreements
which could lead to work stoppages;
- the inability of the Company to manage inventory to minimize
the impact of obsolete or excess inventory and to control
shrink;
- failure by the Company to maintain appropriate records to
support its compliance with accounting, tax or legal rules,
regulations and policies;
- the availability and increased costs relating to raw materials,
ingredients and utilities, including electricity and fuel;
- failure of the Company's franchise stores to perform as
expected;
- reliance on the performance and retention of third-party
service providers including those associated with the Company's
supply chain and apparel business;
- supply and quality control issues with vendors;
- changes to or failure to comply with laws and regulations
affecting the Company and its businesses, including changes to the
regulation of generic prescription drug prices and the reduction of
reimbursement under public drug benefit plans and the elimination
or reduction of professional allowances paid by drug
manufacturers;
- changes in the Company's income, commodity, other tax and
regulatory liabilities including changes in tax laws, regulations
or future assessments;
- any requirement of the Company to make contributions to its
registered funded defined benefit pension plans or the
multi-employer pension plans ("MEPP") in which it participates in
excess of those currently contemplated;
- the risk that the Company would experience a financial loss if
its counterparties fail to meet their obligations in accordance
with the terms and conditions of their contracts with the Company;
and
- the inability of the Company to collect on its credit card
receivables.
This is not an exhaustive list of the factors that may affect
the Company's forward-looking statements. Other risks and
uncertainties not presently known to the Company or that the
Company presently believes are not material could also cause actual
results or events to differ materially from those expressed in its
forward-looking statements. Additional risks and uncertainties are
discussed in the Company's materials filed with the Canadian
securities regulatory authorities from time to time, including the
Enterprise Risks and Risk Management section of the MD&A
included in the Company's 2012 Third Quarter Report to Shareholders
and Section 12, "Enterprise Risks and Risk Management", of the
MD&A included in the Company's 2011 Annual Report. 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 News Release. 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.
(1) |
This News Release contains forward-looking information. See
Forward-Looking Statements for a discussion of material factors
that could cause actual results to differ materially from the
conclusions, forecasts and projections herein and of the material
factors and assumptions that were applied in presenting the
conclusions, forecasts and projections presented herein. This News
Release must be read in conjunction with George Weston Limited's
filings with securities regulators made from time to time, all of
which can be found at www.weston.ca and www.sedar.com. |
(2) |
See non-GAAP financial measures.. |
(3) |
Incremental costs related to investments in IT and supply chain
include IT costs, depreciation and amortization and supply chain
project costs. |
NON-GAAP FINANCIAL MEASURES
The Company uses the following non-GAAP financial measures:
adjusted operating income and adjusted operating margin, adjusted
EBITDA and adjusted EBITDA margin and adjusted basic net earnings
per common share. The Company believes these non-GAAP
financial measures provide useful information to both management
and investors in measuring the financial performance of the Company
for the reasons outlined below.
Certain expenses and income that must be recognized under GAAP
are not necessarily reflective of the Company's underlying
operating performance. For this reason, management uses certain
non-GAAP financial measures to exclude the impact of these items
when analyzing consolidated and segment underlying operating
performance. These non-GAAP financial measures are also helpful in
assessing underlying operating performance on a consistent
basis.
From time to time, the Company may exclude additional items if
it believes doing so would result in a more effective analysis of
underlying operating performance. The exclusion of certain items
does not imply that they are non-recurring. Loblaw does not report
its results of operations on an adjusted basis, however the Company
excludes the impact of certain Loblaw items, as applicable, when
reporting its consolidated and segment results.
These non-GAAP financial measures do not have a standardized
meaning prescribed by GAAP and therefore they may not be comparable
to similarly titled measures presented by other publicly traded
companies, and they should not be construed as an alternative to
other financial measures determined in accordance with GAAP.
Adjusted Operating Income and Adjusted EBITDA
The Company believes adjusted operating income is useful in
assessing the Company's underlying operating performance and in
making decisions regarding the ongoing operations of its business.
The Company believes adjusted EBITDA is also useful in assessing
the underlying operating performance of the Company's ongoing
operations and in assessing the Company's ability to generate cash
flows to fund its cash requirements, including its capital
investment program.
The following tables reconcile adjusted operating income and
adjusted EBITDA to GAAP net earnings attributable to shareholders
of the Company reported for the periods ended as indicated.
|
16 Weeks Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct. 6, 2012 |
|
|
|
|
Oct. 8, 2011 |
(unaudited)
($ millions) |
Weston
Foods |
Loblaw |
Other(1) |
Consolidated |
|
|
Weston
Foods |
Loblaw |
Other(1) |
Consolidated |
Net earnings attributable to
shareholders of the Company |
|
|
|
$ |
160 |
|
|
|
|
|
$ |
264 |
Add impact of the following: |
|
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
|
|
83 |
|
|
|
|
|
87 |
Income taxes |
|
|
|
101 |
|
|
|
|
|
112 |
Net interest
expense and other financing charges |
|
|
|
131 |
|
|
|
|
|
94 |
Operating income (loss) |
$ |
114 |
$ |
403 |
$ |
(42) |
$ |
475 |
|
|
$ |
77 |
$ |
419 |
$ |
61 |
$ |
557 |
Add (deduct) impact of the
following: |
|
|
|
|
|
|
|
|
|
|
Restructuring and other
charges(2) |
3 |
|
|
3 |
|
|
2 |
|
|
2 |
Fair value adjustment of commodity
derivatives |
|
at Weston Foods |
(20) |
|
|
(20) |
|
|
4 |
|
|
4 |
Share-based compensation net
of |
|
equity derivatives |
(2) |
9 |
|
7 |
|
|
9 |
15 |
|
24 |
MEPP withdrawal liability
incurred |
|
by Weston Foods |
(1) |
|
|
(1) |
|
|
|
|
|
|
Net Weston Foods insurance
proceeds |
|
|
|
|
|
|
(5) |
|
|
(5) |
Gain on sale of a portion of a Loblaw
property |
|
|
|
|
|
|
|
(14) |
|
(14) |
Foreign
currency translation loss (gain) |
|
|
42 |
42 |
|
|
|
|
(61) |
(61) |
Adjusted operating income |
$ |
94 |
$ |
412 |
$ |
$ |
506 |
|
|
$ |
87 |
$ |
420 |
$ |
$ |
507 |
Depreciation
and amortization |
18 |
241 |
|
259 |
|
|
18 |
218 |
|
236 |
Adjusted
EBITDA |
$ |
112 |
$ |
653 |
$ |
$ |
765 |
|
|
$ |
105 |
$ |
638 |
$ |
$ |
743 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
Operating income in the third quarter of 2012 included a loss
of $42 million (2011 - gain of $61 million) related to the effect
of foreign currency translation on a portion of the U.S. dollar
denominated cash and short term investments held by foreign
operations. |
(2) |
Restructuring and other charges included $2 million (2011 -
nil) of accelerated depreciation incurred by Weston Foods. |
|
40 Weeks Ended |
|
|
|
|
|
|
|
|
Oct. 6, 2012 |
|
|
|
|
Oct. 8, 2011 |
(unaudited)
($ millions) |
Weston
Foods |
Loblaw |
Other(1) |
Consolidated |
|
|
Weston
Foods |
Loblaw |
Other(1) |
Consolidated |
Net earnings
attributable to shareholders |
|
of the Company |
|
|
|
$ |
421 |
|
|
|
|
|
$ |
526 |
Add impact of the
following: |
|
|
|
|
|
|
|
|
|
|
Non-controlling
interests |
|
|
|
189 |
|
|
|
|
|
220 |
Income taxes |
|
|
|
215 |
|
|
|
|
|
253 |
Net interest expense and other financing charges |
|
|
|
247 |
|
|
|
|
|
258 |
Operating income
(loss) |
$ |
186 |
$ |
928 |
$ |
(42) |
$ |
1,072 |
|
|
$ |
151 |
$ |
1,063 |
$ |
43 |
$ |
1,257 |
Add (deduct) impact of
the following: |
|
|
|
|
|
|
|
|
|
|
Restructuring and
other charges(2) |
9 |
9 |
|
18 |
|
|
8 |
31 |
|
39 |
Fair value adjustment of commodity
derivatives
at Weston Foods |
(16) |
|
|
(16) |
|
|
32 |
|
|
32 |
Share-based
compensation net of equity |
|
|
derivatives |
5 |
26 |
|
31 |
|
|
23 |
23 |
|
46 |
MEPP withdrawal
liability incurred |
|
by Weston Foods |
34 |
|
|
34 |
|
|
|
|
|
|
Certain prior years'
commodity tax matters |
|
at Loblaw |
|
|
|
|
|
|
|
15 |
|
15 |
Net Weston Foods
insurance proceeds |
|
|
|
|
|
|
(5) |
|
|
(5) |
Gain on sale of a
portion of a Loblaw property |
|
|
|
|
|
|
|
(14) |
|
(14) |
Foreign currency translation loss (gain) |
|
|
42 |
42 |
|
|
|
|
(43) |
(43) |
Adjusted operating
income |
$ |
218 |
$ |
963 |
$ |
$ |
1,181 |
|
|
$ |
209 |
$ |
1,118 |
$ |
$ |
1,327 |
Depreciation and amortization |
45 |
590 |
|
635 |
|
|
45 |
529 |
|
574 |
Adjusted EBITDA |
$ |
263 |
$ |
1,553 |
$ |
$ |
1,816 |
|
|
$ |
254 |
$ |
1,647 |
$ |
$ |
1,901 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
Year-to-date operating income included a loss of $42 million
(2011 - gain of $43 million) related to the effect of foreign
currency translation on a portion of the U.S. dollar denominated
cash and short term investments held by foreign operations. |
(2) |
Year-to-date other charges at Loblaw included $9 million (2011
- $23 million) related to changes in Loblaw's distribution network.
Other charges in 2011 also included a charge of $8 million related
to an internal realignment of Loblaw's business centered around its
two primary store formats, conventional and discount. Restructuring
and other charges included $3 million (2011 - nil) of accelerated
depreciation incurred by Weston Foods.
|
The year-over-year changes in the following items influenced
operating income in the third quarter of 2012:
Restructuring and other charges The
Company continuously evaluates strategic and cost reduction
initiatives related to its store infrastructure, manufacturing
assets, distribution networks and administrative infrastructure
with the objective of ensuring a low cost operating structure.
Restructuring activities related to these initiatives are ongoing.
The details of restructuring and other charges are included in the
"Reportable Operating Segments" section of the MD&A included in
the Company's Q3 2012 Quarterly Report to Shareholders.
Fair value adjustment of commodity derivatives at Weston
Foods 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. Hedge accounting is not applied to these
commodity derivatives and as a result, changes in their fair value,
which include realized and unrealized gains and losses related to
future purchases of raw materials, are recorded in operating
income. In the third quarter of 2012, Weston Foods recorded income
of $20 million (2011 - a charge of
$4 million) related to the fair value
adjustment of exchange traded commodity derivatives. Despite the
impact of accounting for these commodity derivatives on the
Company's reported results, the derivatives have the economic
impact of largely mitigating the associated risks arising from
price fluctuations in the underlying commodities during the period
that the commodity derivatives are held.
Share-based compensation net of equity
derivatives GWL and Glenhuron Bank Limited
have entered into equity derivatives. These derivatives partially
hedge the impact of increases in the value of GWL and Loblaw common
shares on share-based compensation cost. The amount of net
share-based compensation cost recorded in operating income is
mainly dependent upon changes in the value of GWL and Loblaw common
shares and the number and vesting of outstanding restricted share
units ("RSU") and performance share units ("PSU") relative to the
number of common shares underlying the equity derivatives. The
Company assesses its stock option plan, RSU plan, PSU plan and
equity derivative impacts on a net basis and therefore the impact
of stock options is also excluded from operating income when
management reviews consolidated and segment operating performance.
In the third quarter of 2012, a charge of $7
million (2011 - $24 million)
was recorded related to share-based compensation net of equity
derivatives.
Multi-employer pension plan withdrawal liability incurred
by Weston Foods In
the second quarter of 2012, Weston Foods withdrew from one of the
United States MEPPs in which it participated and recorded a
withdrawal liability. In the third quarter of 2012, the Company
paid its withdrawal liability.
Net Weston Foods insurance proceeds During
the third quarter of 2011, Weston Foods received net insurance
proceeds of $5 million representing
insurance proceeds related to the loss of a Quebec facility, net of charges incurred.
Gain on sale of a portion of a Loblaw
property During the third quarter of 2011, Loblaw
recorded a gain of $14 million
related to the sale of a portion of a property in North Vancouver, British Columbia.
Foreign currency translation losses and
gains The Company's consolidated financial statements
are expressed in Canadian dollars. A portion of the Company's
(excluding Loblaw's) net assets are denominated in U.S. dollars and
as a result, the Company is exposed to foreign currency translation
losses and gains. The impact of foreign currency translation on a
portion of the U.S. dollar denominated net assets, primarily cash
and short term investments, held by foreign operations is recorded
in operating income. In the third quarter of 2012, a foreign
currency translation loss of $42
million (2011 - gain of $61
million) was recorded in operating income as a result of the
appreciation (2011 - depreciation) of the Canadian dollar.
Adjusted Basic Net Earnings per Common Share
The Company believes adjusted basic net earnings per common share
is useful in assessing the Company's underlying operating
performance and in making decisions regarding the ongoing
operations of its business.
The following table reconciles adjusted basic net earnings per
common share to GAAP basic net earnings per common share reported
for the periods ended as indicated.
(unaudited) |
|
16 Weeks Ended |
|
|
40 Weeks Ended |
|
|
|
|
|
|
|
|
|
|
|
|
($) |
|
Oct. 6, 2012 |
|
|
Oct. 8,
2011 |
|
|
Oct. 6,
2012 |
|
|
Oct. 8, 2011 |
Basic net earnings per
common share |
|
$ |
1.14 |
|
|
$ |
1.94 |
|
|
$ |
3.02 |
|
|
$ |
3.81 |
Add (Deduct) impact of
the following(1): |
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment
of the forward sale agreement |
|
for 9.6 million Loblaw common shares |
|
0.10 |
|
|
(0.11) |
|
|
(0.24) |
|
|
(0.19) |
Restructuring and
other charges |
|
0.02 |
|
|
0.02 |
|
|
0.09 |
|
|
0.16 |
Fair
value adjustment of commodity derivatives at Weston Foods |
|
(0.11) |
|
|
0.03 |
|
|
(0.09) |
|
|
0.18 |
Share-based
compensation net of equity derivatives |
|
0.02 |
|
|
0.12 |
|
|
0.17 |
|
|
0.26 |
MEPP withdrawal
liability incurred by Weston Foods |
|
(0.01) |
|
|
|
|
|
0.16 |
|
|
|
Certain prior years' commodity tax matters at Loblaw |
|
|
|
|
|
|
|
|
|
|
0.05 |
Net Weston Foods
insurance proceeds |
|
|
|
|
(0.03) |
|
|
|
|
|
(0.03) |
Gain on sale of a
portion of a Loblaw property |
|
|
|
|
(0.06) |
|
|
|
|
|
(0.06) |
Foreign currency translation loss (gain) |
|
0.33 |
|
|
(0.47) |
|
|
0.33 |
|
|
(0.33) |
Adjusted basic net earnings per common share |
|
$ |
1.49 |
|
|
$ |
1.44 |
|
|
$ |
3.44 |
|
|
$ |
3.85 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Net of interest, income taxes and non-controlling interests, as
applicable. |
In addition to the items described in the "Adjusted Operating
Income and Adjusted EBITDA" section above, the year-over-year
changes in the following item also influenced basic net earnings
per common share in the third quarter of 2012:
Fair value adjustment of the forward sale agreement for
9.6 million Loblaw common shares The fair
value adjustment of the forward sale agreement for 9.6 million
Loblaw common shares is non-cash and is included in consolidated
net interest expense and other financing charges. The adjustment is
determined by changes in the value of the underlying Loblaw shares.
At maturity, any cash paid under the forward sale agreement could
be offset by the sale of the underlying Loblaw common shares. In
the third quarter of 2012, a charge of $0.10 (2011 - income of $0.11) was recorded in net interest expense and
other financing charges as a result of the increase (2011 -
decrease) in the market price of Loblaw common shares.
SELECTED FINANCIAL INFORMATION
The following includes selected quarterly financial information
which is prepared by management in accordance with International
Financial Reporting Standards ("IFRS") and is based on the
Company's 2012 Third Quarter Report to Shareholders. This financial
information does not contain all disclosures required by IFRS, and
accordingly, this financial information should be read in
conjunction with the Company's 2011 Annual Report and 2012 Third
Quarter Report to Shareholders available in the Investor Centre
section of the Company's website at www.weston.ca.
Condensed Consolidated Statements of Earnings
(unaudited) |
16 Weeks Ended |
40 Weeks Ended |
|
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars except where otherwise
indicated) |
Oct. 6, 2012 |
|
Oct.8,
2011 |
|
Oct. 6,
2012 |
|
Oct. 8,
2011 |
Revenue |
|
$ |
10,164 |
|
|
|
$ |
10,061 |
|
|
|
$ |
25,015 |
|
|
|
$ |
24,740 |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of inventories sold |
|
7,657 |
|
|
|
7,640 |
|
|
|
18,830 |
|
|
|
18,627 |
|
Selling, general and
administrative expenses |
|
2,032 |
|
|
|
1,864 |
|
|
|
5,113 |
|
|
|
4,856 |
|
|
9,689 |
|
|
|
9,504 |
|
|
|
23,943 |
|
|
|
23,483 |
Operating Income |
|
475 |
|
|
|
557 |
|
|
|
1,072 |
|
|
|
1,257 |
Net Interest
Expense and Other Financing Charges |
|
131 |
|
|
|
94 |
|
|
|
247 |
|
|
|
258 |
Earnings Before Income
Taxes |
|
344 |
|
|
|
463 |
|
|
|
825 |
|
|
|
999 |
Income
Taxes |
|
101 |
|
|
|
112 |
|
|
|
215 |
|
|
|
253 |
Net Earnings |
|
243 |
|
|
|
351 |
|
|
|
610 |
|
|
|
746 |
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of the Company |
|
160 |
|
|
|
264 |
|
|
|
421 |
|
|
|
526 |
|
Non-Controlling
Interests |
|
83 |
|
|
|
87 |
|
|
|
189 |
|
|
|
220 |
Net
Earnings |
|
$ |
243 |
|
|
|
$ |
351 |
|
|
|
$ |
610 |
|
|
|
$ |
746 |
Net Earnings per Common Share
($) |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.14 |
|
|
|
$ |
1.94 |
|
|
|
$ |
3.02 |
|
|
|
$ |
3.81 |
Diluted |
|
$ |
1.07 |
|
|
|
$ |
1.93 |
|
|
|
$ |
3.00 |
|
|
|
$ |
3.78 |
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets
(unaudited) |
As
at |
(millions of
Canadian dollars) |
Oct. 6,
2012 |
|
Oct. 8,
2011 |
|
Dec. 31,
2011 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,067 |
|
|
|
$ |
1,399 |
|
|
|
$ |
1,372 |
|
|
|
Short term investments |
|
2,407 |
|
|
|
2,445 |
|
|
|
2,362 |
|
|
|
Accounts receivable |
|
597 |
|
|
|
511 |
|
|
|
559 |
|
|
|
Credit card receivables |
|
2,073 |
|
|
|
1,911 |
|
|
|
2,101 |
|
|
|
Inventories |
|
2,076 |
|
|
|
2,149 |
|
|
|
2,147 |
|
|
|
Income taxes recoverable |
|
49 |
|
|
|
21 |
|
|
|
37 |
|
|
|
Prepaid expenses and other assets |
|
116 |
|
|
|
158 |
|
|
|
122 |
|
|
|
Assets held for sale |
|
30 |
|
|
|
30 |
|
|
|
32 |
|
|
Total Current Assets |
|
8,415 |
|
|
|
8,624 |
|
|
|
8,732 |
|
|
Fixed Assets |
|
9,260 |
|
|
|
8,938 |
|
|
|
9,172 |
|
|
Investment Properties |
|
97 |
|
|
|
75 |
|
|
|
82 |
|
|
Goodwill and Intangible Assets |
|
1,573 |
|
|
|
1,554 |
|
|
|
1,555 |
|
|
Deferred Income Taxes |
|
311 |
|
|
|
307 |
|
|
|
295 |
|
|
Security Deposits |
|
340 |
|
|
|
248 |
|
|
|
367 |
|
|
Franchise Loans Receivable |
|
365 |
|
|
|
316 |
|
|
|
331 |
|
|
Other Assets |
|
854 |
|
|
|
763 |
|
|
|
789 |
|
|
Total Assets |
|
$ |
21,215 |
|
|
|
$ |
20,825 |
|
|
|
$ |
21,323 |
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
|
$ |
1 |
|
|
|
$ |
8 |
|
|
|
$ |
3 |
|
|
|
Trade and other payables |
|
3,498 |
|
|
|
3,540 |
|
|
|
3,940 |
|
|
|
Provisions |
|
69 |
|
|
|
80 |
|
|
|
67 |
|
|
|
Short term debt |
|
1,309 |
|
|
|
1,270 |
|
|
|
1,280 |
|
|
|
Long term debt due within one year |
|
219 |
|
|
|
386 |
|
|
|
87 |
|
|
Total Current Liabilities |
|
5,096 |
|
|
|
5,284 |
|
|
|
5,377 |
|
|
Provisions |
|
83 |
|
|
|
99 |
|
|
|
94 |
|
|
Long Term Debt |
|
6,637 |
|
|
|
6,380 |
|
|
|
6,757 |
|
|
Deferred Income Taxes |
|
181 |
|
|
|
161 |
|
|
|
160 |
|
|
Other Liabilities |
|
999 |
|
|
|
962 |
|
|
|
1,033 |
|
|
Capital Securities |
|
222 |
|
|
|
221 |
|
|
|
222 |
|
|
Total
Liabilities |
|
13,218 |
|
|
|
13,107 |
|
|
|
13,643 |
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
Share Capital |
|
951 |
|
|
|
951 |
|
|
|
950 |
|
|
Contributed Surplus |
|
26 |
|
|
|
27 |
|
|
|
24 |
|
|
Retained Earnings |
|
4,719 |
|
|
|
4,536 |
|
|
|
4,496 |
|
|
Accumulated Other Comprehensive
Loss |
|
(35) |
|
|
|
(1) |
|
|
|
(11) |
|
Total Equity Attributable to
Shareholders of the Company |
|
5,661 |
|
|
|
5,513 |
|
|
|
5,459 |
|
|
Non-Controlling Interests |
|
2,336 |
|
|
|
2,205 |
|
|
|
2,221 |
|
|
Total Equity |
|
7,997 |
|
|
|
7,718 |
|
|
|
7,680 |
|
|
Total Liabilities and
Equity |
|
$ |
21,215 |
|
|
|
$ |
20,825 |
|
|
|
$ |
21,323 |
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flow
(unaudited) |
16 Weeks Ended |
|
40 Weeks Ended |
|
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars) |
Oct. 6, 2012 |
|
Oct. 8, 2011 |
|
|
Oct. 6, 2012 |
|
Oct. 8, 2011 |
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
243 |
|
|
|
$ |
351 |
|
|
$ |
610 |
|
|
$ |
746 |
|
Income taxes |
|
101 |
|
|
|
112 |
|
|
215 |
|
|
253 |
|
Net interest expense and other
financing charges |
|
131 |
|
|
|
94 |
|
|
247 |
|
|
258 |
|
Depreciation and amortization |
|
|
261 |
|
|
|
236 |
|
|
638 |
|
|
574 |
|
Foreign currency translation loss
(gain) |
|
42 |
|
|
|
(61) |
|
|
42 |
|
|
(43) |
|
Income taxes paid |
|
(73) |
|
|
(72) |
|
|
(209) |
|
|
(216) |
|
Interest received |
|
9 |
|
|
|
10 |
|
|
43 |
|
|
56 |
|
Change in credit card receivables |
|
(15) |
|
|
63 |
|
|
28 |
|
|
86 |
|
Change in non-cash working
capital |
|
(138) |
|
|
59 |
|
|
|
(426) |
|
|
(387) |
|
Fixed assets and other related
impairments |
|
4 |
|
|
|
|
|
7 |
|
|
9 |
|
Gain on disposal of assets |
|
(1) |
|
|
(12) |
|
|
(3) |
|
|
(11) |
|
Other |
|
(17) |
|
|
(9) |
|
|
(20) |
|
|
(20) |
Cash Flows from Operating
Activities |
|
547 |
|
|
|
771 |
|
|
1,172 |
|
|
1,305 |
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset purchases |
|
(314) |
|
|
(333) |
|
|
(712) |
|
|
(665) |
|
Change in short term investments |
|
(439) |
|
|
(359) |
|
|
(119) |
|
|
880 |
|
Business acquisition - net
of cash acquired |
|
|
|
|
|
|
|
|
|
(12) |
|
Proceeds from fixed asset sales |
|
19 |
|
|
45 |
|
|
35 |
|
|
51 |
|
Change in franchise investments and
other receivables |
|
(4) |
|
|
(19) |
|
|
(1) |
|
|
9 |
|
Change in security deposits |
|
(7) |
|
|
13 |
|
|
19 |
|
|
197 |
|
Goodwill and intangible asset
additions |
|
(3) |
|
|
(1) |
|
|
(44) |
|
|
(6) |
Cash Flows (used in) from Investing
Activities |
|
(748) |
|
|
(654) |
|
|
(822) |
|
|
454 |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Change in bank indebtedness |
|
|
|
|
6 |
|
|
(3) |
|
|
(3) |
|
Change in short term debt |
|
10 |
|
|
10 |
|
|
29 |
|
|
399 |
|
Long term debt |
- Issued |
|
12 |
|
|
104 |
|
|
49 |
|
|
320 |
|
|
- Retired |
|
(24) |
|
|
(28) |
|
|
(97) |
|
|
(893) |
|
Share capital |
- Issued |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
- Retired |
|
|
|
|
(1) |
|
|
|
|
|
(1) |
|
Subsidiary share
capital |
- Issued |
|
3 |
|
|
|
|
|
7 |
|
|
19 |
|
|
- Retired |
|
(2) |
|
|
(19) |
|
|
(6) |
|
|
(22) |
|
Interest paid |
|
(122) |
|
|
(94) |
|
|
(331) |
|
|
(360) |
|
Dividends |
- To common shareholders |
|
(93) |
|
|
(93) |
|
|
(185) |
|
|
(1,186) |
|
|
- To preferred shareholders |
|
(19) |
|
|
(19) |
|
|
(41) |
|
|
(41) |
|
|
- To minority shareholders |
|
(43) |
|
|
(43) |
|
|
(65) |
|
|
(57) |
Cash Flows used in Financing
Activities |
|
(278) |
|
|
(177) |
|
|
(643) |
|
|
(1,824) |
Effect of foreign currency exchange
rate changes on |
|
cash and cash equivalents |
|
(13) |
|
|
13 |
|
|
(12) |
|
|
11 |
Change in Cash and Cash
Equivalents |
|
(492) |
|
|
(47) |
|
|
(305) |
|
|
(54) |
Cash and Cash Equivalents, Beginning
of Period |
|
1,559 |
|
|
|
1,446 |
|
|
1,372 |
|
|
1,453 |
Cash and Cash Equivalents, End of
Period |
|
$ |
1,067 |
|
|
|
$ |
1,399 |
|
|
$ |
1,067 |
|
|
$ |
1,399 |
|
|
|
|
|
|
|
|
|
|
|
|
2012 THIRD QUARTER REPORT TO SHAREHOLDERS
The Company's 2011 Annual Report and 2012 Third Quarter Report to
Shareholders are available in the Investor Centre section of the
Company's website at www.weston.ca and have been filed with SEDAR
and will be available at www.sedar.com.
INVESTOR RELATIONS
Shareholders, security analysts and investment professionals should
direct their requests to Mr. Geoffrey H.
Wilson, Senior Vice President, Financial Control and
Investor Relations, at the Company's Executive Office or by e-mail
at investor@weston.ca.
Additional financial information has been filed electronically
with the Canadian securities regulatory authorities in Canada through SEDAR. This News Release
includes selected information on Loblaw Companies Limited, a
63.0%-owned public reporting subsidiary company with shares trading
on the Toronto Stock Exchange. For information regarding Loblaw,
readers should also refer to the materials filed by Loblaw with the
Canadian securities regulatory authorities from time to time. These
filings are also maintained at Loblaw's corporate website at
www.loblaw.ca.
CONFERENCE CALL AND WEBCAST PRESENTATION
George Weston Limited will host a conference call as well as an
audio webcast on Tuesday, November 20,
2012 at 11:00 a.m. (EST). To
access via tele-conference, please dial (647) 427-7450. The
playback will be available two hours after the event at (416)
849-0833, passcode: 43697887#. To access via audio webcast, please
visit the Investor Centre section of www.weston.ca.
Pre-registration will be available.
SOURCE George Weston Limited