George Weston Limited - Fourth Quarter and Fiscal Year Ended December 31, 2012(1).

TORONTO, Feb. 28, 2013 /CNW/ - George Weston Limited (TSX: WN) ("GWL") today announced its consolidated unaudited results for the 12 weeks ended December 31, 2012 and the release of its 2012 Annual Report.

George Weston Limited and its subsidiaries are together referred to as the "Company". The Company's 2012 Annual Report to Shareholders, including the Company's audited annual consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the fiscal year ended December 31, 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.

"2012 was a year of significant accomplishments for George Weston Limited. Loblaw focused on initiatives to build on its competitive position and Weston Foods delivered satisfactory results, as both segments operated in highly competitive sales environments", said W. Galen Weston, Executive Chairman, George Weston Limited.


CONSOLIDATED RESULTS OF OPERATIONS
                   
(unaudited)                                      
($ millions except where otherwise indicated)   12 Weeks Ended               52 Weeks Ended    
                             
For the periods ended as indicated   Dec. 31, 2012       Dec. 31, 2011     Change     Dec. 31, 2012   Dec. 31, 2011   Change
Sales   $ 7,727       $ 7,636     1.2 %       $ 32,742     $ 32,376     1.1 %
Operating income   $ 320       $ 352     (9.1) %       $ 1,392     $ 1,609     (13.5) %
Adjusted operating income(2)   $ 382       $ 373     2.4 %       $ 1,563     $ 1,700     (8.1) %
Adjusted operating margin(2)     4.9 %         4.9 %                 4.8 %       5.3 %        
Adjusted EBITDA(2)   $ 583       $ 558     4.5 %       $ 2,399     $ 2,459     (2.4) %
Adjusted EBITDA margin(2)     7.5 %         7.3 %                 7.3 %       7.6 %        
Net interest expense and other financing charges   $ 170       $ 108     57.4 %       $ 417     $ 366     13.9 %
Income taxes   $ 34       $ 71     (52.1) %       $ 249     $ 324     (23.1) %
Net earnings attributable to shareholders of the Company   $ 65       $ 109     (40.4) %       $ 486     $ 635     (23.5) %
Net earnings   $ 116       $ 173     (32.9) %       $ 726     $ 919     (21.0) %
Basic net earnings per common share ($)   $ 0.43       $ 0.77     (44.2) %       $ 3.45     $ 4.58     (24.7) %
Adjusted basic net earnings per common share(2) ($)   $ 1.02       $ 1.01     1.0 %       $ 4.46     $ 4.86     (8.2) %
Free cash flow(2)   $ 514       $ 497     3.4 %       $ 946     $ 1,051     (10.0) %
                                       

Pavi Binning, President, George Weston Limited, commented that "George Weston Limited's 2012 fourth quarter results came in as expected with both Loblaw and Weston Foods achieving underlying performance slightly better than last year's fourth quarter. Both Loblaw and Weston Foods are well positioned to meet anticipated challenges in 2013".

George Weston Limited's fourth quarter 2012 adjusted basic net earnings per common share(2) were $1.02 compared to $1.01 in the same period in 2011, an increase of $0.01. The increase was due to an improvement in the operating performance of the Company's two operating segments, Weston Foods and Loblaw Companies Limited ("Loblaw"), partially offset by a higher effective income tax rate(3) compared to the same period in 2011.

The Company's basic net earnings per common share were $0.43 compared to $0.77 in the same period in 2011, a decrease of $0.34. This decrease includes the year-over-year unfavourable net impact of certain items, primarily the impact of the forward sale agreement for 9.6 million Loblaw common shares and restructuring and other charges, partially offset by the impact of certain foreign currency translation which are excluded from adjusted basic net earnings per common share(2).

During the fourth quarter of 2012, Loblaw announced a plan that reduced the number of head office and administrative positions. Focused primarily on management and office positions, the plan affected approximately 700 positions, and Loblaw incurred a restructuring charge of $61 million associated with these reductions.

In December 2012, Loblaw announced its intention to create a Real Estate Investment Trust ("REIT"), which will acquire a significant portion of Loblaw's real estate assets and sell units by way of an Initial Public Offering ("IPO"). The IPO of the REIT is expected to be completed by mid 2013, subject to prevailing market conditions and receipt of required regulatory approvals, including approval to list the units on the Toronto Stock Exchange.

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       52 Weeks Ended  
                       
($ millions except where otherwise indicated)   Dec. 31, 2012       Dec. 31, 2011         Dec. 31, 2012       Dec. 31, 2011  
Sales   $ 399       $ 410       $ 1,765       $ 1,772  
Operating income   $ 42       $ 57       $ 228       $ 208  
Adjusted operating income(2)   $ 57       $ 56       $ 275       $ 265  
Adjusted operating margin(2)     14.3 %         13.7 %         15.6 %         15.0 %  
Adjusted EBITDA(2)   $ 71       $ 71       $ 334       $ 325  
Adjusted EBITDA margin(2)     17.8 %         17.3 %         18.9 %         18.3 %  
                               

For the fourth quarter of 2012, Weston Foods sales of $399 million decreased 2.7% and volumes decreased 2.0% when compared to the same period in 2011. The loss of certain frozen distributed products that Weston Foods distributed on behalf of certain customers in 2012 negatively impacted sales growth and volume by approximately 2.3% and 1.0%, respectively, and foreign currency translation negatively impacted sales growth by approximately 1.3%. Excluding the impact of the loss of certain distributed product and foreign currency translation, sales increased 0.9% due to the positive impact of pricing and changes in sales mix across certain product categories of 1.9%, partially offset by a decrease in volume of 1.0%.

Weston Foods operating income was $42 million in the fourth quarter of 2012 compared to $57 million in the same period in 2011. The decrease was mainly due to the accrual of an incremental multi-employer pension plan ("MEPP") withdrawal liability, the change in the fair value adjustment of commodity derivatives, and the impact of a post-retirement plan change which had a combined year-over-year unfavourable net impact of $22 million, partially offset by an improvement in adjusted operating income(2) of $1 million as described below.

Weston Foods adjusted operating income(2) increased to $57 million in the fourth quarter of 2012 compared to $56 million in the same period in 2011. Adjusted operating margin(2) was 14.3% for the fourth quarter of 2012 compared to 13.7% in the same period in 2011. Adjusted operating income(2) in the fourth quarter of 2012 was positively impacted by higher pricing in certain product categories, the benefits realized from productivity improvements and other cost reduction initiatives, and lower commodity and other input costs, which were partially offset by lower sales volumes in the fourth quarter of 2012, when compared to the same period in 2011.


Loblaw
                             
(unaudited)   12 Weeks Ended       52 Weeks Ended  
                     
($ millions except where otherwise indicated)   Dec. 31, 2012       Dec. 31, 2011       Dec. 31, 2012       Dec. 31, 2011  
Sales   $ 7,465     $ 7,373       $ 31,604       $ 31,250  
Operating income   $ 260     $ 313       $ 1,188       $ 1,376  
Adjusted operating income(2)   $ 325     $ 317       $ 1,288       $ 1,435  
Adjusted operating margin(2)     4.4 %       4.3 %         4.1 %         4.6 %  
Adjusted EBITDA(2)   $ 512     $ 487       $ 2,065       $ 2,134  
Adjusted EBITDA margin(2)     6.9 %       6.6 %         6.5 %         6.8 %  
                               

2012 was a pivotal year for Loblaw; improving the customer proposition, driving the infrastructure program, and reducing costs. Despite challenges during the year, the team delivered on plan. Good performance metrics in the last quarter of 2012 and through the beginning of 2013 indicated that Loblaw's strategy is taking hold.

Loblaw sales in the fourth quarter of 2012 increased by 1.2% to $7.5 billion from $7.4 billion in the same period in 2011. Same-store sales were flat (2011 - growth of 2.5%), with an extra day of store operations having a positive impact on 2011 same-store sales estimated to be between 0.8% and 1.0%. Sales growth in both food and drugstore were modest, sales growth in gas bar was moderate, sales in general merchandise, excluding apparel, declined moderately and sales in apparel were flat. Loblaw's average quarterly internal food price index was flat during the fourth quarter of 2012 (2011 - moderate inflation), which was lower than the average quarterly national food price inflation of 1.5% (2011 - 5.2%) as measured by "The Consumer Price Index for Food Purchased from Stores". In the last 12 months, Loblaw opened 18 corporate and franchise stores and closed 11 corporate and franchise stores, resulting in a net increase of 0.3 million square feet, or 0.6%. Loblaw sales in the fourth quarter of 2012 were also positively impacted by an increase in Financial Services segment revenue.

Loblaw operating income decreased by $53 million to $260 million in the fourth quarter of 2012 compared to $313 million in the same period in 2011. The decrease was mainly due to restructuring and other charges including $61 million associated with the reduction in head office and administrative positions, partially offset by an improvement in adjusted operating income(2) of $8 million as described below.

Loblaw adjusted operating income(2) was $325 million in the fourth quarter of 2012 compared to $317 million in the same period in 2011. Adjusted operating margin(2) was 4.4% compared to 4.3% in the same period in 2011. The increases were mainly attributable to the improvement in operating performance of Loblaw's Financial Services segment, partially offset by the decline in operating performance of Loblaw's Retail segment. This decrease was driven by incremental costs related to investments in information technology ("IT") and supply chain(4), foreign exchange losses, higher fixed asset impairment charges net of recoveries and higher labour costs, partially offset by other operating cost efficiencies, lower costs related to the transition of certain Ontario conventional stores to the more cost effective and efficient operating terms of collective agreements ratified in the fourth quarter of 2010 and an increase in gross profit. Increased labour costs included an estimated $5 million of incremental investments in Loblaw's customer proposition that were not covered by operations. Incremental investments in shrink related to improved assortment in stores also partially offset the increase in gross profit by an estimated $10 million. Included in fourth quarter 2011 operating income were start up costs associated with the launch of Loblaw's Joe Fresh brand in the United States.

NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
Net interest expense and other financing charges in the fourth quarter of 2012 increased by $62 million to $170 million compared to the same period in 2011, due to the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares.

Excluding the impact of this fair value adjustment, net interest expense and other financing charges in the fourth quarter of 2012 was flat when compared to the same period in 2011.

INCOME TAXES
The fourth quarter 2012 effective income tax rate decreased to 22.7% from 29.1% in the same period in 2011. The decrease in the effective income tax rate when compared to 2011 was primarily due to further reductions in the federal and Ontario statutory income tax rates, a change in the proportion of taxable income earned across different tax jurisdictions and non-taxable foreign currency translation gains recorded in 2012 (2011 - non-deductible foreign currency translation losses), partially offset by the reversal of previously recognized current tax assets. The Company (excluding Loblaw) expensed current tax assets of $8 million in the fourth quarter of 2012 due to amendments to the Income Tax Act relating to the taxation of Canadian corporations with foreign affiliates.

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

For full year 2013, Weston Foods sales growth is expected to be moderate due to a combination of pricing and modest volume growth. Adjusted operating margins(2) are expected to remain in line with 2012 as Weston Foods invests in growth, marketing and innovation.  The benefits from these investments are expected to be realized increasingly over the course of the year, commencing in the second quarter of 2013.

In 2012, Loblaw strengthened its customer proposition and made significant progress with its IT infrastructure implementation. These initiatives will continue in 2013, with investments in price, assortment and labour expected to be offset by operating efficiencies. Investment in infrastructure programs will continue as the IT system is rolled out to distribution centres and stores, with associated expenses flat to 2012. Sales growth in 2013 will be moderated by a competitive environment characterized by ongoing square footage expansions, a new competitor's entry into the market and generic drug deflation. As a result, Loblaw expects modest growth in adjusted operating income(2) in 2013, excluding the impact of the $61 million restructuring charge recorded in the fourth quarter of 2012 and the impact of the previously announced plan to launch an IPO of a new REIT.

Over the long term, Loblaw still expects positive same store sales, a decline in IT and supply chain costs, and a moderation of capital expenditures. This should result in growth in adjusted operating income(2), adjusted EBITDA(2) and an increase in free cash flow(2).

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. Specific statements with respect to anticipated future results are included in the Outlook section of this News Release. Forward-looking statements are typically identified by words such as "expect", "anticipate", "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.

Forward-looking statements reflect the Company's current estimates, beliefs and assumptions, which are based on management's perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Company's expectation of operating and financial performance in 2013 is based on certain assumptions including assumptions about revenue growth, anticipated cost savings and operating efficiencies, no unanticipated changes in the effective income tax rates, no unexpected adverse events or costs related to Loblaw's investments in IT and supply chain, and no significant unanticipated increase in the price of commodities and other input costs at Weston Foods that it will not be able to offset. The Company's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.

Numerous risks and uncertainties could cause the Company's actual results to differ materially from the estimates, beliefs and assumptions expressed or implied in the forward-looking statements, including, but not limited to:

  • failure to realize anticipated results, including revenue growth, anticipated cost savings or operating efficiencies from the Company's major initiatives, including those from restructuring;
  • failure to realize benefits from investments in the Company's IT systems, including the Company's 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;
  • the impact of potential environmental liabilities;
  • failure to respond to changes in consumer tastes and buying patterns;
  • 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 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 MEPPs 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;
  • the inability of Loblaw to collect on its credit card receivables; and
  • failure to execute the IPO of Loblaw's proposed REIT.

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 Section 13, "Enterprise Risks and Risk Management" of the MD&A included in the Company's 2012 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. Except as required by law, the Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

(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, estimates, beliefs 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) Effective income tax rate excludes the tax impact of items excluded from adjusted basic net earnings per common share(2).
(4) 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, adjusted basic net earnings per common share and free cash flow. 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
       
      Dec. 31, 2012         Dec. 31, 2011
(unaudited)
($ millions)
Weston
Foods
Loblaw Other(1) Consolidated     Weston
Foods 
Loblaw Other(1)  Consolidated 
Net earnings attributable to shareholders of the Company             $ 65                 $ 109
Add impact of the following:                                    
Non-controlling interests               51                   64
Income taxes               34                   71
Net interest expense and other financing charges               170                   108
Operating income (loss) $ 42 $ 260 $ 18 $ 320       $ 57 $ 313 $ (18) $ 352
Add (deduct) impact of the following:                                  
Restructuring and other charges(2)   3   63       66       5           5
Fair value adjustment of commodity derivatives at Weston Foods   10           10       (1)           (1)
Share-based compensation net of equity derivatives   (4)   2       (2)     (3)   4       1
MEPP withdrawal liability incurred by Weston Foods   17           17                    
Post-retirement plan change at Weston Foods   (6)           (6)                  
Weston Foods insurance proceeds   (5)           (5)     (2)           (2)
Foreign currency translation (gain) loss           (18)   (18)             18   18
Adjusted operating income $ 57 $ 325   $   $ 382       $ 56 $ 317 $   $ 373
Depreciation and amortization   14   187       201       15   170       185
Adjusted EBITDA $ 71 $ 512   $   $ 583       $ 71 $ 487 $   $ 558
                     

(1) Operating income in the fourth quarter of 2012 included a gain of $18 million (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) Restructuring and other charges at Loblaw included a $61 million charge (2011 - nil) associated with the reduction in head office and administrative positions and $2 million (2011 - nil) related to changes in Loblaw's distribution network. Restructuring and other charges included $1 million (2011 - $3 million) of accelerated depreciation incurred by Weston Foods.

  52 Weeks Ended
       
      Dec. 31, 2012         Dec. 31, 2011
(unaudited)
($ millions)
Weston
Foods
Loblaw Other(1) Consolidated     Weston
Foods 
Loblaw Other(1)  Consolidated 
Net earnings attributable to shareholders
    of the Company
            $ 486                     $ 635
Add impact of the following:                                  
Non-controlling interests               240                 284
Income taxes               249                 324
Net interest expense and other financing charges               417                 366
Operating income (loss) $ 228 $ 1,188 $ (24) $ 1,392   $ 208 $ 1,376 $ 25 $ 1,609
Add (deduct) impact of the following:                                  
Restructuring and other charges(2)   12   72       84       13   31       44
Fair value adjustment of commodity derivatives at Weston Foods   (6)           (6)     31               31
Share-based compensation net of equity derivatives   1   28       29       20   27       47
MEPP withdrawal liability incurred by Weston Foods   51           51                  
Post-retirement plan change at Weston Foods   (6)           (6)                  
Weston Foods insurance proceeds   (5)           (5)     (7)           (7)
Certain prior years' commodity tax matters at Loblaw                         15       15
Gain on sale of a portion of a Loblaw property                         (14)       (14)
Foreign currency translation loss (gain)           24   24             (25)   (25)
Adjusted operating income $ 275 $ 1,288 $   $ 1,563       $ 265 $ 1,435 $   $ 1,700
Depreciation and amortization   59   777       836       60   699       759
Adjusted EBITDA $ 334 $ 2,065   $   $ 2,399       $ 325 $ 2,134 $   $ 2,459
                     

(1) Year-to-date operating income included a loss of $24 million (2011 - gain of $25 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 restructuring and other charges at Loblaw included a $61 million charge (2011 - nil) associated with the reduction in head office and administrative positions and $11 million (2011 - $23 million) related to changes in Loblaw's distribution network. In 2011, other charges 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 $4 million  (2011 - $3 million) of accelerated depreciation incurred by Weston Foods.

The year-over-year changes in the following items influenced operating income in the fourth 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 "Results of Reportable Operating Segments" and "Fourth Quarter Results" sections of the MD&A included in the Company's 2012 Annual Report.

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 commodity risk management policy, 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 the fair value, which include realized and unrealized gains and losses related to future purchases of raw materials, are recorded in operating income. In the fourth quarter of 2012, Weston Foods recorded a charge of $10 million (2011 - income of $1 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 Restricted Share Units ("RSUs") and Performance Share Units ("PSUs") 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 fourth quarter of 2012, income of $2 million (2011 - a charge of $1 million) was recorded related to share-based compensation net of equity derivatives.

Multi-employer pension plan withdrawal liability incurred by Weston Foods  During 2012, Weston Foods withdrew from one of the United States MEPPs in which it participated and as a result, paid a withdrawal liability of $34 million. During the fourth quarter of 2012, another participating employer withdrew from the plan and a mass withdrawal was triggered. As a result of the mass withdrawal, the Company is subject to an incremental withdrawal liability. Management's estimate of the incremental withdrawal liability is approximately $17 million which was recorded in the fourth quarter of 2012.

Post-retirement plan change at Weston Foods  During the fourth quarter of 2012, Weston Foods negotiated the elimination of certain post-retirement benefits. As a result, a net gain of $6 million was recorded in operating income.

Weston Foods insurance proceeds  In the fourth quarter of 2012, Weston Foods recorded insurance proceeds of $5 million (2011 - net proceeds of $2 million), related to the loss of a Quebec facility in 2010.

Foreign currency translation gains and losses  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 fourth quarter of 2012, a foreign currency translation gain of $18 million (2011 - loss of $18 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     52 Weeks Ended  
                 
($)   Dec. 31, 2012   Dec. 31, 2011   Dec. 31, 2012   Dec. 31, 2011  
Basic net earnings per common share   $ 0.43       $ 0.77       $ 3.45       $ 4.58
Add (deduct) impact of the following(1):                          
Fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares     0.44         0.09       0.20         (0.10)
Restructuring and other charges     0.24       0.02       0.33         0.18
Fair value adjustment of commodity derivatives at Weston Foods     0.06       (0.01)       (0.03)       0.17
Share-based compensation net of equity derivatives     (0.03)       0.01       0.14       0.27
MEPP withdrawal liability incurred by Weston Foods     0.08               0.24          
Post-retirement plan change at Weston Foods     (0.03)               (0.03)        
Weston Foods insurance proceeds     (0.03)       (0.01)       (0.03)     (0.04)
Certain prior years' commodity tax matters at Loblaw                             0.05
Gain on sale of a portion of a Loblaw property                           (0.06)
Foreign currency translation (gain) loss     (0.14)       0.14       0.19       (0.19)
Adjusted basic net earnings per common share   $ 1.02       $ 1.01       $ 4.46       $ 4.86
                         

(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 items also influenced basic net earnings per common share in the fourth 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 common 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 fourth quarter of 2012, a charge of $0.44 (2011 - $0.09) per common share was recorded in net interest expense and other financing charges as a result of the increase in the market price of Loblaw common shares.

Free Cash Flow
The Company believes that free cash flow is useful in assessing the Company's cash available for additional funding and investing activities.

The following table reconciles free cash flow to GAAP measures reported for the periods ended as indicated.

(unaudited)   12 Weeks Ended     52 Weeks Ended  
                 
($ millions)   Dec. 31, 2012   Dec. 31, 2011   Dec. 31, 2012   Dec. 31, 2011  
Cash flows from operating activities   $ 680       $ 669       $ 1,852       $ 1,974    
Change in credit card receivables     232       190       204       104    
Less:   Fixed asset purchases     398       362       1,110       1,027    
Free cash flow   $ 514       $ 497       $ 946       $ 1,051    
                           

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 audited annual consolidated financial statements for the year ended December 31, 2012. 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 audited annual consolidated financial statements and MD&A for the year ended December 31, 2012 which is contained in the Company's 2012 Annual Report available in the Investor Centre section of the Company's website at www.weston.ca.

Consolidated Statements of Earnings

  12 Weeks Ended 52 Weeks Ended
                     
(millions of Canadian dollars except where otherwise indicated)   Dec. 31, 2012   Dec. 31, 2011     Dec. 31, 2012     Dec. 31, 2011  
Revenue   $ 7,727       $ 7,636       $ 32,742       $ 32,376    
Operating Expenses                        
  Cost of inventories sold   5,870       5,794       24,700       24,421    
Selling, general and administrative expenses   1,537       1,490       6,650       6,346    
    7,407       7,284       31,350       30,767    
Operating Income   320       352       1,392       1,609    
Net Interest Expense and Other Financing Charges   170       108       417       366    
Earnings Before Income Taxes   150       244       975       1,243    
Income Taxes   34       71       249       324    
Net Earnings   116       173       726       919    
Attributable to:                        
  Shareholders of the Company   65       109       486       635    
  Non-Controlling Interests   51       64       240       284    
Net Earnings   $ 116       $ 173       $ 726       $ 919    
Net Earnings per Common Share ($)                        
Basic   $ 0.43       $ 0.77       $ 3.45       $ 4.58    
Diluted   $ 0.34       $ 0.72       $ 3.38       $ 4.55    
                         

Consolidated Balance Sheets

    As at  
         
(millions of Canadian dollars) Dec. 31, 2012   Dec. 31, 2011  
ASSETS            
Current Assets            
  Cash and cash equivalents   $ 1,589       $ 1,372    
  Short term investments   2,138       2,362    
  Accounts receivable   559       559    
  Credit card receivables   2,305       2,101    
  Inventories   2,132       2,147    
  Income taxes recoverable   37       37    
  Prepaid expenses and other assets   83       122    
  Assets held for sale   30       32    
Total Current Assets   8,873       8,732    
Fixed Assets   9,452       9,172    
Investment Properties   100       82    
Goodwill and Intangible Assets   1,571       1,555    
Deferred Income Taxes   316       295    
Security Deposits   348       367    
Franchise Loans Receivable   363       331    
Other Assets   781       789    
Total Assets   $ 21,804       $ 21,323    
LIABILITIES            
Current Liabilities            
  Bank indebtedness           $ 3    
  Trade and other payables   $ 3,937       3,940    
  Provisions   123       67    
  Short term debt   1,319       1,280    
  Long term debt due within one year   672       87    
Total Current Liabilities   6,051       5,377    
Provisions   94       94    
Long Term Debt   6,261       6,757    
Deferred Income Taxes   160       160    
Other Liabilities   945       1,033    
Capital Securities   223       222    
Total Liabilities     13,734       13,643    
EQUITY            
Share Capital   953       950    
Contributed Surplus   28       24    
Retained Earnings   4,735       4,496    
Accumulated Other Comprehensive Loss   (24)       (11)    
Total Equity Attributable to Shareholders of the Company   5,692       5,459    
Non-Controlling Interests   2,378       2,221    
Total Equity   8,070       7,680    
Total Liabilities and Equity   $ 21,804       $ 21,323    
             

Consolidated Statements of Cash Flow

  12 Weeks Ended   52 Weeks Ended          
                 
(millions of Canadian dollars) Dec. 31, 2012   Dec. 31, 2011   Dec. 31, 2012   Dec. 31, 2011  
Operating Activities                        
  Net earnings   $ 116       $ 173       $ 726       $ 919    
  Income taxes   34       71       249       324    
  Net interest expense and other financing charges    170       108       417       366    
  Depreciation and amortization   202       188       840       762    
  Foreign currency translation (gain) loss   (18)       18       24       (25)    
  Income taxes paid   (52)       (61)       (261)       (277)    
  Interest received   22       20       65       76    
  Settlement of equity derivative contracts         (22)             (22)    
  Change in credit card receivables   (232)       (190)       (204)       (104)    
  Change in non-cash working capital   469       351       43       (36)    
  Fixed assets and other related impairments   12       (2)       19       7    
  Gain on disposal of assets   (11)       (7)       (14)       (18)    
  Other   (32)       22       (52)       2    
Cash Flows from Operating Activities   680       669       1,852       1,974    
Investing Activities                        
  Fixed asset purchases   (398)       (362)       (1,110)       (1,027)    
  Change in short term investments   300       49       181       929    
  Business acquisition  -  net of cash acquired                     (12)    
  Proceeds from fixed asset sales   29       6       64       57    
  Change in franchise investments and other receivables   (21)       (27)       (22)       (18)    
  Change in security deposits   (5)       (123)       14       74    
  Goodwill and intangible asset additions   1       (7)       (43)       (13)    
  Other         (5)             (5)    
Cash Flows used in Investing Activities   (94)       (469)       (916)       (15)    
Financing Activities                        
  Change in bank indebtedness         (5)       (3)       (8)    
  Change in short term debt   10       10       39       409    
  Long term debt  - Issued   62       352       111       635    
    - Retired   (18)       (353)       (115)       (1,209)    
  Share capital       - Issued   2             2       1    
    - Retired   (1)       (60)       (1)       (61)    
  Subsidiary share capital  - Issued   15       2       22       21    
    - Retired   (10)       (17)       (16)       (39)    
  Interest paid   (125)       (129)       (456)       (489)    
  Dividends   - To common shareholders               (185)       (1,186)    
    - To preferred shareholders   (3)       (3)       (44)       (44)    
    - To minority shareholders         (22)       (65)       (79)    
Cash Flows used in Financing Activities   (68)       (225)       (711)       (2,049)    
Effect of foreign currency exchange rate changes on cash and cash equivalents   4       (2)       (8)       9    
Change in Cash and Cash Equivalents   522       (27)       217       (81)    
Cash and Cash Equivalents, Beginning of Period   1,067       1,399       1,372       1,453    
Cash and Cash Equivalents, End of Period   $ 1,589       $ 1,372       $ 1,589       $ 1,372    
                         

2012 ANNUAL AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company's annual audited consolidated financial statements and MD&A for the year ended December 31, 2012 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 62.9%-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 Thursday, February 28, 2013 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: 91622805#. 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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