George Weston Limited - 2012 Second Quarter Results(1).

TORONTO, July 31, 2012 /CNW/ - George Weston Limited (TSX: WN) ("GWL") and its subsidiaries (collectively the "Company") today is announcing its unaudited results for the 12 weeks ended June 16, 2012.

The Company's Q2 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 12 and 24 weeks ended June 16, 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
George Weston Limited's second quarter 2012 adjusted basic net earnings per common share(2) were $1.06 compared to $1.34 in the same period in 2011, a decrease of $0.28. The decrease was primarily attributable to 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, incremental costs related to investments in information technology ("IT") and supply chain(3), a decline in gross profit and a charge related to the transition of certain Ontario conventional stores to the more cost effective and efficient operating terms of collective agreements ratified in the third quarter of 2010. Increased labour costs and the decline in gross profit included incremental investments in Loblaw's customer proposition that were not covered by operations.

(unaudited)                     
($ millions except where otherwise indicated)  12 Weeks Ended   24 Weeks Ended  
                     
As at or for the periods ended as indicated   Jun. 16, 2012   Jun. 18, 2011       Change   Jun. 16, 2012   Jun. 18, 2011       Change 
Sales $  7,627 $  7,531       1.3% $  14,851 $  14,679 1.2%
Operating income $  323 $  397       (18.6)% $  597 $  700 (14.7)%
Adjusted operating income(2) $  364 $  440       (17.3)% $  675 $  820 (17.7)%
Adjusted operating margin(2)         4.8%         5.8%                 4.5%         5.6%  
Net interest expense and other financing charges $  72 $  98       (26.5)% $  116 $  164 (29.3)%
Income taxes $  55 $  69       (20.3)% $  114 $  141 (19.1)%
Net earnings attributable to shareholders of the Company $  137 $  157       (12.7)% $  261 $  262 (0.4)%
Net earnings $  196 $  230       (14.8)% $  367 $  395 (7.1)%
Basic net earnings per common share ($) $  0.99 $  1.13       (12.4)% $  1.88 $  1.87 0.5%
Adjusted basic net earnings per common share(2) ($) $  1.06 $  1.34       (20.9)% $  1.95 $  2.41 (19.1)%
Adjusted EBITDA(2) $  556 $  612       (9.2)% $  1,051 1,158 (9.2)%
Adjusted EBITDA margin(2)         7.3%         8.1%                 7.1%         7.9%  
                     

The Company's basic net earnings per common share were $0.99 compared to $1.13 in the same period in 2011, a decrease of $0.14, or 12.4%. Adjusted basic net earnings per common share(2) declined $0.28 and excluded the year-over-year favourable net impact of certain items, primarily certain foreign currency translation gains and the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares, partially offset by the accrual of a multi-employer pension plan ("MEPP") withdrawal liability incurred by Weston Foods in the second quarter of 2012.

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

(unaudited) 12 Weeks Ended 24 Weeks Ended
                 
($ millions)   Jun. 16, 2012   Jun. 18, 2011   Jun. 16, 2012   Jun. 18, 2011
Sales $ 400 $ 407 $ 825 $ 817
Operating income $ 12 $ 55 $ 72 $ 74
Adjusted operating income(2) $ 65 $ 65 $ 124 $ 122
Adjusted operating margin(2)   16.3%   16.0%   15.0%   14.9%
Adjusted EBITDA(2) $ 78 $ 78 $  151 $  149
Adjusted EBITDA margin(2)    19.5%   19.2%   18.3%   18.2%
                 

Weston Foods sales in the second quarter of 2012 decreased by 1.7% to $400 million from $407 million in the same period in 2011. Foreign currency translation positively impacted sales by approximately 1.6%. Excluding this impact, sales decreased 3.3% mainly due to a decrease in volumes of 3.9% compared to the same period in 2011. Pricing across certain product categories contributed positively to sales growth by 0.6%.

Weston Foods operating income in the second quarter of 2012 was $12 million compared to $55 million in the same period in 2011, a decrease of $43 million. The decrease was mainly due to the accrual of a MEPP withdrawal liability of $35 million recorded in the second quarter of 2012.

Weston Foods adjusted operating income(2) remained flat at $65 million in the second quarter of 2012 compared to the same period in 2011. Weston Foods adjusted operating margin(2) was 16.3% compared to 16.0% in the same period in 2011. Adjusted operating income(2) in the second quarter of 2012 was positively impacted by the benefits realized from productivity improvements and other cost reduction initiatives. These benefits were offset by higher commodity and other input costs and lower sales volumes compared to the same period in 2011.

Loblaw

(unaudited)       12 Weeks Ended       24 Weeks Ended
         
($ millions) Jun. 16, 2012 Jun. 18, 2011 Jun. 16, 2012 Jun. 18, 2011
Sales $ 7,375 $ 7,278 $ 14,312 $ 14,150
Operating income $ 288 $ 343 $ 525 $ 644
Adjusted operating income(2) $ 299 $ 375 $ 551 $ 698
Adjusted operating margin(2)   4.1%   5.2%   3.8%   4.9%
Adjusted EBITDA(2) $ 478 $ 534 $ 900 $ 1,009
Adjusted EBITDA margin(2)   6.5%   7.3%   6.3%   7.1%
         

In the second quarter of 2012, Loblaw continued to execute on its plan. Loblaw began to gain traction on sales, particularly in its core food and drug businesses, as it continued its disciplined approach to improving its customer proposition.

Loblaw sales in the second quarter of 2012 increased by 1.3% to $7,375 million from $7,278 million in the same period in 2011. Retail segment sales increased by 1.1% and same-store sales growth was 0.2% (2011 - 0.4% decline). Sales growth in food was moderate, sales growth in drugstore was modest, gas bar sales declined marginally, 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 second quarter of 2012 and moderate average quarterly food price inflation during the second quarter of 2011, lower than the average quarterly national food price inflation of 2.5% (2011 - 4.0%) as measured by "The Consumer Price Index for Food Purchased from Stores". In the last twelve months, Loblaw opened 22 corporate and franchise stores and closed seven corporate and franchise stores, resulting in a net increase of 0.4 million square feet, or 0.8%. Loblaw sales in the second 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 interchange fee income, interest income and PC Telecom revenues when compared to the same period in 2011.

Loblaw operating income in the second quarter of 2012 was $288 million compared to $343 million in the same period in 2011, a decrease of $55 million. The decrease was mainly due to a decline in adjusted operating income(2) of $76 million, partially offset by the effect of certain prior years' commodity tax matters of $15 million recorded in the second quarter of 2011.

Loblaw adjusted operating income(2) was $299 million in the second quarter of 2012 compared to $375 million in the same period in 2011, a decrease of $76 million. Loblaw adjusted operating margin(2) was 4.1% compared to 5.2% 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, incremental costs related to investments in IT and supply chain(3), a decline in gross profit, a decrease in foreign exchange gains and a charge related to the transition of certain Ontario conventional stores to the more cost effective and efficient operating terms of collective agreements ratified in the third quarter of 2010, partially offset by changes in the value of Loblaw's investments in its franchise business. Increased labour costs and the decline in gross profit included an estimated $5 million and $10 million, respectively, of incremental investments in Loblaw's customer proposition that were not covered by operations.

NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
In the second quarter of 2012, net interest expense and other financing charges decreased by $26 million to $72 million compared to the same period in 2011. The decrease was mainly due to an increase of $22 million in non-cash income related to the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares. Excluding this impact, net interest expense and other financing charges decreased by $4 million compared to the same period in 2011, mainly due to GWL's refinancing of certain long term debt through the issuance of new Medium Term Notes in the fourth quarter of 2011 which resulted in lower overall interest rates.

INCOME TAXES
In the second quarter of 2012, income tax expense decreased to $55 million from $69 million, and the effective income tax rate decreased to 21.9% from 23.1%, compared to the same period in 2011. The decreases were primarily due to non-taxable foreign currency translation gains recorded in the second quarter of 2012, reductions in the federal and Ontario statutory income tax rates and a decrease in income tax expense related to certain prior year income tax matters. The effective income tax rate in the second quarter of 2011 was also impacted by the utilization of realized foreign currency losses.

OUTLOOK(1)
This outlook reflects the underlying operating performance of the Company's operating segments as discussed below.

For the full year 2012, Weston Foods expects to deliver sales in line with 2011. Weston Foods will continue its efforts to reduce costs through improved efficiencies and ongoing cost reduction initiatives in an effort to achieve full year operating margins in line with those in 2011.

For the full year 2012, Loblaw estimates operating income to be down year-over-year, with more pressure in the first half of the year, as it does not expect its operations to cover incremental costs related to investments in IT and supply chain and the ongoing investments in its customer proposition.

For the full year 2012, George Weston Limited anticipates adjusted basic net earnings per common share(2) to be down year-over-year, primarily due to the impact of the incremental costs and ongoing customer proposition investments at Loblaw.

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 continued expectations that for the full year 2012:

For Weston Foods:

  • sales will be in line with 2011; and
  • efforts will be made to achieve full year operating margins in line with those in 2011.

For Loblaw Companies Limited ("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
  • operating income will be down year-over-year, with more pressure in the first half of the year, as a result of Loblaw's expectation that its operations will not cover the incremental costs related to the investments in IT and supply chain and its customer proposition.

For the Company:

  • 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' operating margins 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 operating income 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;
  • 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 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 Second 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
In this News Release 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.

  12 Weeks Ended
     
  Jun. 16, 2012 Jun. 18, 2011 
(unaudited)
($ millions)
  Weston
Foods
  Loblaw   Other(1)    Consolidated   Weston
Foods 
  Loblaw   Other(1)     Consolidated 
Net earnings attributable to shareholders of the Company             $  137             $  157
Add impact of the following:                                
Non-controlling interests               59               73
Income taxes               55               69
Net interest expense and other financing charges               72               98
Operating income (loss) $  12 $  288 $  23 $  323 $  55 $  343 $  (1) $  397
Add (deduct) impact of the following:                                
Restructuring and other charges(2)   5   6       11       2       2
Fair value adjustment of commodity derivatives at Weston Foods   7              7   12           12
Share-based compensation net of equity derivatives   6   5       11   (2)   15       13
MEPP withdrawal liability incurred by Weston Foods   35           35                
Certain prior year's commodity tax matters at Loblaw                       15       15
Foreign currency translation (gain) loss           (23)   (23)           1   1
Adjusted operating income $  65 $  299 $   $  364 $  65 $  375 $   $  440
Depreciation and amortization   13   179       192   13   159             172
Adjusted EBITDA $  78 $  478 $     $  556 $  78 $  534 $   $  612
   

(1)      Operating income in the second quarter of 2012 included a gain of $23 million (2011 - loss of $1 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)      Other charges at Loblaw in the second quarter of 2012 included $6 million (2011 - $2 million) related to changes in Loblaw's distribution network. Restructuring and other charges included $1 million (2011 - nil) of accelerated depreciation incurred by Weston Foods.
  24 Weeks Ended
     
  Jun. 16, 2012 Jun. 18, 2011 
(unaudited)
($ millions)
  Weston
Foods
  Loblaw   Other(1)    Consolidated   Weston
Foods 
  Loblaw   Other(1)     Consolidated 
Net earnings attributable to shareholders of the Company             $  261             $  262
Add impact of the following:                                
Non-controlling interests               106               133
Income taxes                 114               141
Net interest expense and other financing charges               116               164
Operating income (loss) $  72 $  525 $   $  597 $  74 $  644 $  (18) $  700
Add (deduct) impact of the following:                                
Restructuring and other charges(2)   6   9       15   6   31       37
Fair value adjustment of commodity derivatives at Weston Foods   4              4   28           28
Share-based compensation net of equity derivatives   7   17       24   14   8       22
MEPP withdrawal liability incurred by Weston Foods   35           35                
Certain prior year's commodity tax matters at Loblaw                       15       15
Foreign currency translation (gain) loss                           18   18
Adjusted operating income $  124 $  551 $   $  675 $  122 $  698 $   $  820
Depreciation and amortization   27   349       376   27   311             338
Adjusted EBITDA $  151 $  900 $   $  1,051 149 $ 1,009 $   $  1,158
   

(1)      Year-to-date operating income included a nominal gain (2011 - loss of $18 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 $1 million (2011 - nil) of accelerated depreciation incurred by Weston Foods.

The year-over-year changes in the following items influenced operating income in the second 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 Q2 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 second quarter of 2012, Weston Foods recorded a charge of $7 million (2011 - $12 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  Both GWL and Glenhuron Bank Limited have entered into equity derivatives to partially hedge their exposure to 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 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 second quarter of 2012, a charge of $11 million (2011 - $13 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 recorded a charge of $35 million related to its withdrawal from a United States MEPP in which it participated.

Certain prior years' commodity tax matters at Loblaw  In the second quarter of 2011, Loblaw recorded a charge of $15 million related to certain prior years' commodity tax matters.

Foreign currency translation gain and loss  The Company's consolidated financial statements are expressed in Canadian dollars. A portion of the Company's (excluding Loblaw's) net assets are denominated in U.S. dollars and as a result, the Company is exposed to foreign currency translation gains and losses. The impact of foreign currency translation on a portion of the U.S. dollar denominated net assets, primarily cash and short term investments, held by foreign operations is recorded in operating income. In the second quarter of 2012, a foreign currency translation gain of $23 million (2011 - loss of $1 million) was recorded in operating income as a result of the depreciation (2011 - appreciation) 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) 12 Weeks Ended 24 Weeks Ended
         
($)         Jun. 16, 2012         Jun. 18, 2011         Jun. 16, 2012         Jun. 18, 2011
Basic net earnings per common share $  0.99 $  1.13 $  1.88 $  1.87
(Deduct) Add impact of the following(1):                
Fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares   (0.09)         0.04   (0.34)         (0.08)
Restructuring and other charges   0.05         0.01   0.07         0.14
Fair value adjustment of commodity derivatives at Weston Foods   0.04         0.06   0.02         0.15
Share-based compensation net of equity derivatives   0.08         0.04   0.15         0.14
MEPP withdrawal liability incurred by Weston Foods   0.17             0.17          
Certain prior years' commodity tax matters at Loblaw             0.05             0.05
Foreign currency translation (gain) loss   (0.18)         0.01             0.14
Adjusted basic net earnings per common share $  1.06 $  1.34 $  1.95 $  2.41
         
 

(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 change in the following item also influenced basic net earnings per common share in the second 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 second quarter of 2012, income of $0.09 (2011 - charge of $0.04) was recorded in net interest expense and other financing charges as a result of the decrease (2011 - increase) 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 Second 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 Second 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) 12 Weeks Ended 24 Weeks Ended
(millions of Canadian dollars        
except where otherwise indicated)         Jun. 16, 2012         Jun. 18, 2011   Jun. 16, 2012   Jun. 18, 2011
Revenue $  7,627 $  7,531 $  14,851 $  14,679
Operating Expenses                
       Cost of inventories sold   5,751   5,646   11,173   10,987
     Selling, general and administrative expenses   1,553   1,488   3,081   2,992
                 7,304   7,134   14,254   13,979
Operating Income   323   397   597   700
Net Interest Expense and Other Financing Charges   72   98   116   164
Earnings Before Income Taxes   251   299   481   536
Income Taxes   55   69   114   141
Net Earnings   196   230   367   395
Attributable to:                
     Shareholders of the Company   137   157   261   262
    Non-Controlling Interests   59   73   106   133
Net Earnings $  196 $  230 $  367 $  395
Net Earnings per Common Share ($)                
Basic $  0.99 $  1.13 $  1.88 $  1.87
Diluted $  0.98 $  1.08 $  1.87 $  1.86
                 
 

Condensed Consolidated Balance Sheets

(unaudited) As at
           
(millions of Canadian dollars)         Jun. 16, 2012         Jun. 18, 2011         Dec. 31, 2011
ASSETS            
Current Assets            
  Cash and cash equivalents $  1,559 $  1,446 $  1,372
  Short term investments   2,042   1,982   2,362
  Accounts receivable   557   510   559
  Credit card receivables   2,058   1,974   2,101
  Inventories   1,996   2,060   2,147
  Income taxes recoverable   53   46   37
  Prepaid expenses and other assets   154   146   122
  Assets held for sale   23   66   32
Total Current Assets   8,442   8,230   8,732
Fixed Assets   9,219   8,861   9,172
Investment Properties   95   73   82
Goodwill and Intangible Assets   1,587   1,546   1,555
Deferred Income Taxes   335   277   295
Security Deposits   341   246   367
Franchise Loans Receivable   358   313   331
Other Assets   822   809   789
Total Assets $  21,199 $  20,355 $  21,323
LIABILITIES            
Current Liabilities            
  Bank indebtedness                    $  2 $  3
  Trade and other payables $  3,587   3,510   3,940
  Provisions   71   107   67
  Short term debt   1,299   1,260   1,280
  Long term debt due within one year   226   381   87
Total Current Liabilities   5,183   5,260   5,377
Provisions   88   98   94
Long Term Debt   6,633   6,279   6,757
Deferred Income Taxes   167   157   160
Other Liabilities   1,091   802   1,033
Capital Securities   222   221   222
Total Liabilities    13,384   12,817   13,643
EQUITY            
Share Capital   950   951   950
Contributed Surplus   21   25   24
Retained Earnings   4,593   4,409   4,496
Accumulated Other Comprehensive Loss   (10)   (34)   (11)
Total Equity Attributable to Shareholders of the Company   5,554   5,351   5,459
Non-Controlling Interests   2,261   2,187   2,221
Total Equity   7,815   7,538   7,680
Total Liabilities and Equity $  21,199 $  20,355 $  21,323
         
   

Condensed Consolidated Statements of Cash Flow

(unaudited) 12 Weeks Ended 24 Weeks Ended
         
(millions of Canadian dollars)   Jun. 16, 2012         Jun. 18, 2011         Jun. 16, 2012         Jun. 18, 2011
Operating Activities                
  Net earnings $  196 $  230 $  367 $  395
  Income taxes   55   69   114   141
  Net interest expense and other financing charges   72   98   116   164
  Depreciation and amortization   193   172   377   338
  Foreign currency translation (gain) loss   (23)   1       18
  Income taxes paid   (63)   (66)   (136)   (144)
  Interest received   25   29   34   46
  Change in credit card receivables   (71)   (87)   43   23
  Change in non-cash working capital   292   95   (288)   (446)
  Fixed assets and other related impairments       5   3   9
  (Gain) loss on disposal of assets   (2)   1   (2)   1
  Other   (11)   (7)   (3)   (11)
Cash Flows from Operating Activities   663   540   625   534
Investing Activities                
  Fixed asset purchases   (254)   (170)   (398)   (332)
  Change in short term investments   217   338   320   1,239
  Business acquisition  - net of cash acquired               (12)
  Proceeds from fixed asset sales   15   1   16   6
  Change in franchise investments and other receivables   20   28   3   28
  Change in security deposits   12   1   26   184
  Intangible asset additions   (41)   (4)   (41)   (5)
  Other       7        
Cash Flows (used in) from Investing Activities   (31)   201   (74)   1,108
Financing Activities                
  Change in bank indebtedness   1   2   (3)   (9)
  Change in short term debt   9   9   19   389
  Long term debt - Issued   14   159   37   216
    - Retired   (44)   (7)   (73)   (865)
  Share capital issued       1       1
  Subsidiary share capital  - Issued   2   16   4   19
    - Retired   (2)   (3)   (4)   (3)
  Interest paid   (117)   (155)   (209)   (266)
  Dividends  - To common shareholders   (46)   (47)   (92)   (1,093)
    - To preferred shareholders   (11)   (11)   (22)   (22)
    - To minority shareholders   (22)   (14)   (22)   (14)
Cash Flows used in Financing Activities   (216)   (50)   (365)   (1,647)
Effect of foreign currency exchange rate changes on cash and cash equivalents   9   1   1   (2)
Change in Cash and Cash Equivalents   425   692   187   (7)
Cash and Cash Equivalents, Beginning of Period   1,134   754   1,372   1,453
Cash and Cash Equivalents, End of Period $  1,559 $  1,446 $  1,559 $  1,446
         
 

2012 SECOND QUARTER REPORT TO SHAREHOLDERS
The Company's 2011 Annual Report and 2012 Second 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, July 31, 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: 94021980#. To access via audio webcast, please visit the Investor Centre section of www.weston.ca. Pre-registration will be available.

SOURCE George Weston Limited



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