IFRS Investor Conference March 3, 2011 Forward-Looking Information - - PDF document

IFRS Investor Conference

March 3, 2011

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Forward-Looking Information

This publication for Loblaw Companies Limited and George Weston Limited (the “Companies”) contains forward-looking statements about the Companies’ objectives, plans, goals, aspirations, strategies, financial condition, results of

• perations, cash flows, performance, prospects and opportunities. These forward-looking statements include preliminary

unaudited financial highlights for its fiscal year 2010 prepared in accordance with International Financial Reporting Standards (“IFRS”) Words such as “anticipate” “expect” “believe” “foresee” “could” “estimate” “goal” “intend” “plan” Standards ( IFRS ). 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 Companies and their management, are intended to identify forward-looking statements. These forward-looking statements are not historical facts but reflect the Companies’ current expectations concerning future results and events. These forward looking statements are subject to a number of risks and uncertainties that could cause actual results or 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. These and other risks and uncertainties are discussed in the Companies’ materials filed with the Canadian securities regulatory authorities from time to time, including the Risks and Risk Management section of the Companies’ Management’s Discussion and Analysis (“MD&A”). These forward-looking statements reflect management’s current assumptions regarding these risks and uncertainties and their respective impact on the Companies. impact on the Companies. Other risks and uncertainties not presently known to the Companies or that the Companies presently believe are not material could also cause actual results or events to differ materially from those expressed in its forward-looking

• statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the

Companies’ expectations only as of the date of this document. The Companies disclaim any intention or obligation to Companies expectations only as of the date of this document. The Companies disclaim 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.

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Preliminary Unaudited IFRS Transitional Adjustments

• These materials are intended to provide information on the significant changes

to Loblaw and George Weston Limited (“GWL”) that will arise from the transition to IFRS from Canadian Generally Accepted Accounting Principles (“CGAAP”)

• The significant impacts presented are preliminary unaudited and reflect certain

policy choices, elections and exemptions and are based on IFRS effective as at J 2 2011 January 2, 2011

• Loblaw and GWL will file their first unaudited interim period consolidated

financial statements for the first quarter of 2011 under IFRS and will file their first financial statements for the first quarter of 2011 under IFRS and will file their first audited annual consolidated financial statements under IFRS for the year ending December 31, 2011

• The International Accounting Standards Board (“IASB”) continues to develop

and issue proposed amendments to current standards and interpretations. As such the impact of first time adoption may change prior to the Company’s

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December 31, 2011 audited IFRS financial statements

IFRS vs. Canadian GAAP

• Some standards in IFRS differ considerably from Canadian GAAP (e.g.,

fixed asset impairments, securitization, consolidation model – no VIE’s, additional financial instruments) additional financial instruments)

• Applying IFRS requires further professional judgement as there are

dditi l ti li h i d l i t t ti id additional accounting policy choices and less interpretative guidance

• Within IFRS there are more potential differences in application /

Within IFRS there are more potential differences in application / interpretation IFRS i t i di l d ili ti fi t ti

• IFRS requires extensive disclosures and reconciliations on first time

adoption and enhanced disclosure for certain standards going forward

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Significant Optional Elections on Adoption (IFRS 1) for Loblaw

IAS 23 B i

• On adoption, IFRS permits the capitalization of borrowing

costs on a prospective basis with all previously capitalized interest costs being eliminated through opening retained

Borrowing Costs

interest costs being eliminated through opening retained earnings

• Impact on Loblaw – Assets & equity reduced for previously

capitalized borrowing costs

• On adoption, IFRS permits the recognition of all cumulative

unamortized actuarial gains and losses for all defined benefit plans through opening retained earnings

IAS 19 Employee

• Impact on Loblaw – Cumulative unamortized actuarial losses

recognized through equity

Benefits

• On adoption, IFRS permits prospective application of the

Business Combinations standard

• Impact on Loblaw – Business combinations occurring prior to

the transition to IFRS, such as T&T, will not be restated

IFRS 3 Business Combinations

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the transition to IFRS, such as T&T, will not be restated

Combinations

Significant Impacts on Adoption

IFRS Standard Major Difference

Property

• De-recognition of the carrying value
• f fixed assets replaced prior to the

Impact on Loblaw

• Transition: Assets and equity will

decrease to reflect the retrospective Property, Plant and Equipment IAS 16

• f fixed assets replaced prior to the

end of their useful lives

• Eligible expenditures – IFRS

prohibits capitalization of certain expenditures and requires it li ti f i t l t decrease to reflect the retrospective application of historical de-recognition

• Going forward: Net earnings may be

subject to certain volatility should fixed assets be replaced prior to the end of th i f l li

$58M

equity impact

capitalization of internal costs Leases

• Allocation of minimum lease

payments differs under IFRS for land and building leases their useful lives

• Transition: Assets and liabilities will

increase, with a decrease in equity as a result of recognizing additional Leases IAS 17 land and building leases

• Lease classification – no “bright

line” tests for determination of

• perating vs. finance (capital)

lease under IFRS; test focuses a result of recognizing additional finance leases

• Going forward: EBITDA will increase

and net earnings will decrease as a result of additional leases being

$27M

equity impact

more on substance over form

• Immediate recognition of certain

gains on sale leaseback transactions capitalized, such that rent expense decreases, but interest expense increases and depreciation expense increases

impact

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Significant Impacts on Adoption

IFRS Standard Major Difference

E l

• IFRS 1 election discussed above

Measurement date plans are

Impact on Loblaw

• Transition: Equity will decrease,

primaril as a res lt of the IFRS 1 Employee Benefits IAS 19

• Measurement date – plans are

valued as at year-end date

• Limits on defined benefit assets and

minimum funding requirements

• Policy choice: going forward will

primarily as a result of the IFRS 1 election to recognize cumulative unamortized actuarial losses on transition

• Going forward: EBITDA will increase,

$305M

equity

recognize actuarial gains/losses in

• ther comprehensive income

(“OCI”)

• Policy choice: presentation of

interest and expected returns on primarily as a result of the election to recognize actuarial gains and losses immediately through OCI

equity impact

p plan assets within interest expense Consolidation

• Consolidation is assessed under the

IFRS Control Model for all entities including Special Purpose Entities

• Transition: Assets and liabilities will

increase, equity will decrease as a result

• f the Company consolidating certain

$

IAS 27 (SPEs)

• The concept of control is

determined based on the “power to govern” SPEs that were not consolidated under CGAAP, partially offset by certain other entities no longer being consolidated under IFRS

• Going forward: Net earnings will likely

$98M

equity impact

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g g y increase as a result of the deconsolidation of VIE stores

Significant Impacts on Adoption

IFRS Standard Major Difference

Impairment of

• Fixed asset impairment testing to

be performed at a lower level than

Impact on Loblaw

• Transition: Assets and equity will

decrease as a result of incremental Impairment of Assets IAS 36 be performed at a lower level than CGAAP

• IFRS uses one-step test using

discounted cash flows vs. two-step test with undiscounted cash flows d CGAAP fixed asset impairment

• Going forward: Net earnings will be

subject to additional volatility depending on the performance of the Company’s fixed assets

$187M

equity i t

under CGAAP

• Impairment losses can be reversed

for tangible and limited life intangible assets C id ti i d l t d t Company s fixed assets

• Transition: Assets and liabilities will

impact

Revenue IAS 18 & Financial

• Consideration received related to

franchise relationships is required to be recorded at fair value

• Franchise relationship is accounted

for as a multi-element arrangement

• Transition: Assets and liabilities will

increase, equity will decrease as a result of the recognition of additional financial assets and liabilities at fair value

$331M

Instruments: Recognition and Measurement IAS 39 g

• Requirements for off-balance sheet

treatment of credit card securitizations not met

• All financial assets were tested for

impairment

• Going forward: Net earnings will likely

be subject to volatility resulting from potential impairment and reversals of

$331M

equity impact

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IAS 39 potential impairment and reversals of financial assets

Summary of Immaterial Impacts on Adoption

IFRS Standard Major Difference

IFRS 2

• Cash settled stock based

compensation measured at

Impact on Loblaw

• Transition: Increase in liabilities, decrease in

equity on transition as a result of the use of

IFRS 2 Share Based Payments

compensation measured at fair value instead of intrinsic value q y fair value

• Going Forward: Impact is indeterminate as

fair value will depend on changes in multiple assumptions

$6M

equity impact

IFRIC 13 Customer Loyalty

• Fair value of loyalty

programmes recognized as a component of the initial sales transaction

• Transition: Increase in liabilities, decrease in

equity as a result of deferral of a portion of the initial sales transaction

• Going forward: Net earnings will be relatively

$58M $14M

Loyalty Programmes

• Recognition of incremental

liabilities related to onerous g g y neutral

• Transition: Increase in liabilities, decrease in

equity as a result of the recognition of

equity impact equity impact

IAS 37 Provisions

liabilities related to onerous contracts

• Timing of recognition of

certain restructuring costs equity as a result of the recognition of

• nerous leases
• Going forward: Net earnings will be subject to

volatility resulting from the potential earlier recognition of certain liabilities

$58M

equity impact

$18M

equity impact

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impact p

Segment Reporting

• As a result of the impacts of Consolidations and

Financial Instruments Loblaw will now have two distinct reportable operating segments:

• Grocery Retailing

Grocery Retailing

• Financial Products and Services
• Commencing Q1 2011 the Company will disclose
• Commencing Q1 2011 the Company will disclose

Revenue, Operating Income, Depreciation and Amortization by segment Amortization by segment

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Opening Balance Sheet Impact

Loblaw Companies Limited Summary of Preliminary IFRS Adjustments on Opening Balance Sheet (unaudited) As at January 3, 2010 ($ millions, preliminary unaudited) Shareholders' Equity Liabilities Assets Canadian GAAP 6,273 $ 8,718 $ 14,991 $ Differences (decreasing) increasing Reclassifications

• (50)

(50) ( ) ( ) Borrowing costs (199) (21) (220) Property, plant & equipment (58) (2) (60) Leases(1) (27) 139 112 Employee future benefits(1) (305) 77 (228) Consolidations(1) (98) 856 758 Consolidations(1) (98) 856 758 Impairment of assets (187) (29) (216) Revenue & financial instruments (331) 1,290 959 Share-based payments (6) 9 3 Customer loyalty programs (14) 19 5 Provisions (18) 22 4 Subtotal of adjustments (1,243) 2,310 1,067 Change in presentation of minority interest 31 (31) IFRS 5,061 $ 10,997 $ 16,058 $

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(1) Includes the effect of certain immaterial prior period adjustments as noted in the Company's 2010 Annual MD&A

2010 Quarterly IFRS Net Earnings Impact

Loblaw Companies Limited 2010 Quarterly IFRS Net Earnings Impact (preliminary unaudited, unless otherwise indicated) Canadian GAAP IFRS Canadian GAAP IFRS Canadian GAAP IFRS Canadian GAAP IFRS Canadian GAAP (audited) IFRS For the year ended January 1, 2011 ($ millions except where

• therwise indicated)

First Quarter Second Quarter Third Quarter Fourth Quarter ( ) Revenue 6,926 6,914 7,317 7,267 9,593 9,536 7,161 7,110 30,997 30,827 Operating income 260 294 330 334 390 389 289 278 1,269 1,295 Net earnings 137 138 180 174 213 196 151 126 681 634 Basic net earnings per common share ($) 0.50 0.50 0.64 0.63 0.77 0.70 0.54 0.45 2.45 2.28 Diluted net earnings per common share ($) 0.49 0.47 0.64 0.61 0.76 0.70 0.54 0.45 2.44 2.24 EBITDA (1) 412 436 479 474 591 584 442 430 1,924 1,924 EBITDA margin (1) 5.9% 6.3% 6.5% 6.5% 6.2% 6.1% 6.2% 6.0% 6.2% 6.2%

(1) See reconciliation of EBITDA to unaudited IFRS net earnings on the following slide.

A full reconciliation of earnings will be provided in the financial statements commencing in Q1 2011.

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2010 Quarterly IFRS EBITDA Impact

Loblaw Companies Limited 2010 Quarterly IFRS EBITDAImpact (preliminary unaudited) 2010 Quarterly IFRS EBITDA Impact (preliminary, unaudited)

First Second Third Fourth For the year ended January 1 ($ millions) First Quarter Second Quarter Third Quarter Fourth Quarter January 1, 2011 Net earnings 138 $ 174 $ 196 $ 126 $ 634 $ Add impact of the following: Income taxes 67 79 89 67 302 Net interest expense and other financing charges 89 81 104 85 359 Operating income 294 334 389 278 1,295 Add impact of the following: Depreciation and amortization 142 140 195 152 629 EBITDA 436 $ 474 $ 584 $ 430 $ 1 924 $ EBITDA 436 $ 474 $ 584 $ 430 $ 1,924 $

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What’s not changing?

• Short term and long term strategic plans
• Focus and execution of renewal plan
• Capital management and funding strategy

p g g gy

The Company will release its first quarter unaudited IFRS p y q Financial Statements on May 4, 2011 with the required 2010 reconciliations.

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Impact of IFRS on Impact of IFRS on George Weston Limited

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Impact of IFRS on George Weston Limited

• The impact of IFRS on George Weston Limited, excluding Loblaw, was

not significant

• Total change in equity on transition excluding the reclassification of
• Total change in equity on transition, excluding the reclassification of

minority interest, was a decrease of $91M for Weston Foods, and $1,334M on a consolidated basis

• Total impact on 2010 net earnings was an increase of $3M for Weston
• Total impact on 2010 net earnings was an increase of $3M for Weston

Foods, and a decrease of $26M on a consolidated basis

• The drivers of these impacts were mainly consistent with those

explained by Loblaw Three additional differences that impact GWL: explained by Loblaw. Three additional differences that impact GWL:

• Presentation of minority interest (“non-controlling interest” under IFRS);
• IFRS 1 election related to cumulative translation losses; and
• IFRS 3 “Business Combinations”

$1M decrease to net earnings related to

• IFRS 3 Business Combinations - $1M decrease to net earnings related to

transaction costs on recent acquisitions.

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Opening Balance Sheet Impact

($ millions, preliminary unaudited) Loblaw Weston Foods GWL Consolidated Total Shareholders' Equity - CGAAP 6,273 $ 6,942 $ Differences (decreasing) increasing As at January 1, 2010 Differences (decreasing) increasing Borrowing costs (199) (199) Property, plant & equipment (58) (13) (71) Leases(1,2) (27) 8 (19) Employee future benefits(2) (305) (84) (389) C lid ti

(2)

Consolidations(2) (98) (98) Impairment of assets (187) (187) Revenue & financial instruments (331) (331) Share-based payments (6) (4) (10) Customer loyalty programs (14) (14) y y p g ( ) ( ) Provisions(3) (18) 2 (16) Subtotal of adjustments (1,243) (91) (1,334) Change in presentation of minority interest 31 2,379 Total Equity - IFRS 5,061 $ 7,987 $

(1)

$8 increase related to Leases for Weston Foods relates to the gain on a sale-leaseback transaction that was deferred under CGAAP, and under IFRS is required to be expensed immediately.

(2)

Includes the effect of certain immaterial prior period adjustments as noted in the Company's 2010 Annual MD&A

(3)

$2 increase related to Provisions for Weston Foods was due to the timing of recognition related to a restructuring provision that was recognized in Q4 2009 under CGAAP and Q1 2010 under IFRS

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was recognized in Q4 2009 under CGAAP, and Q1 2010 under IFRS.

2010 Quarterly IFRS Net Earnings Impact

George Weston Limited 2010 Quarterly IFRS Net Earnings Impact (preliminary unaudited, unless otherwise indicated) Canadian Canadian Canadian Canadian Canadian GAAP For the year ended Dec 31st 2010 ($ millions except where First Quarter (unaudited) Second Quarter (unaudited) Third Quarter (unaudited) Fourth Quarter (unaudited) GAAP IFRS GAAP IFRS GAAP IFRS GAAP IFRS (audited) IFRS Revenue 7,177 7,165 7,530 7,480 9,884 9,827 7,417 7,366 32,008 31,838 Operating income 274 304 389 397 490 493 330 322 1,483 1,516 Net earnings attributable to shareholders of the C 42 41 125 123 184 176 101 86 452 426

• therwise indicated)

Company 42 41 125 123 184 176 101 86 452 426 Basic net earnings per common share ($) 0.25 0.24 0.89 0.88 1.32 1.25 0.70 0.59 3.16 2.96 Diluted net earnings per common share ($) 0.25 0.17 0.89 0.84 1.31 1.18 0.70 0.52 3.14 2.74 EBITDA (1) EBITDA (1) 438 458 550 549 707 704 497 488 2,192 2,199 EBITDA margin (1) 6.1% 6.4% 7.3% 7.3% 7.2% 7.2% 6.7% 6.6% 6.8% 6.9%

(1) See reconciliation of EBITDA to the unaudited IFRS net earnings attributable to shareholders of the Company on the following slide.

A full reconciliation of earnings will be provided in the financial statements commencing in Q1, 2011.

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2010 Quarterly IFRS EBITDA Impact

George Weston Limited 2010 Quarterly IFRS EBITDA Impact (preliminary, unaudited)

($ millions) First Quarter Second Quarter Third Quarter Fourth Quarter

For the year ended Dec 31st 2010

Net earnings attributable to shareholders of the Company 41 $ 123 $ 176 $ 86 $ 426 $ Add impact of the following: Non-controlling interest 51 66 72 48 237 Income taxes 68 92 118 99 377 Net interest expense and other financing charges 144 116 127 89 476 Operating income 304 397 493 322 1,516 Add impact of the following: Depreciation and amortization 154 152 211 166 683 Depreciation and amortization 154 152 211 166 683 EBITDA 458 $ 549 $ 704 $ 488 $ 2,199 $

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