WN George Weston Ltd

TORONTO, Nov. 18, 2014 /CNW/ - George Weston Limited (TSX: WN) ("GWL" or the "Company") today announced its consolidated unaudited results for the 16 weeks ended October 4, 2014. With the completion of Loblaw Companies Limited's ("Loblaw") acquisition of Shoppers Drug Mart Corporation ("Shoppers Drug Mart") as previously reported in the second quarter of 2014, the Company's third quarter 2014 results include the results of Shoppers Drug Mart as well as the associated acquisition-related accounting adjustments.

The 2014 Third Quarter Report to Shareholders of GWL is available in the Investor Centre section of the Company's website at weston.ca and has been filed with SEDAR and is available at sedar.com.

2014 Third Quarter Highlights

• Sales growth of 34.7% to $13,974 million.
• Adjusted EBITDA⁽¹⁾ increased by $360 million to $1,101 million.
• Adjusted operating income⁽¹⁾ increased by $280 million to $748 million.
• Adjusted basic net earnings per common share from continuing operations⁽¹⁾ increased to $1.59 from $1.28.
• Free cash flow⁽¹⁾ was $194 million for the third quarter and $588 million year-to-date.

"George Weston Limited continued to advance strategic initiatives and focus on long term value creation for shareholders. We are pleased with the Company's performance after two full quarters of operations with Shoppers Drug Mart", said W. Galen Weston, Executive Chairman, George Weston Limited.

Pavi Binning, President, George Weston Limited, commented that "We are satisfied with George Weston Limited's third quarter results. Loblaw delivered solid performance across its businesses and had same-store sales growth in a competitive retail environment. Weston Foods delivered higher volumes across all categories, however operating performance was challenged by higher commodity and other input costs and plant start-up costs".

GWL's third quarter 2014 adjusted basic net earnings per common share from continuing operations⁽¹⁾ increased by $0.31 compared to the same period in 2013. The improvement was due to higher adjusted operating income⁽¹⁾ at Loblaw including Shoppers Drug Mart, partially offset by higher interest expense and other financing charges, the impact of the Company's dilution in ownership in Loblaw as a result of shares Loblaw issued to acquire Shoppers Drug Mart and the decline in adjusted operating income⁽¹⁾ at Weston Foods.

With the completion of the acquisition of Shoppers Drug Mart in the second quarter of 2014, there were significant acquisition-related accounting adjustments that had a negative impact on the Company's third quarter results, including the recognition of the fair value increment on the acquired Shoppers Drug Mart inventory sold of $107 million and the amortization of the acquired Shoppers Drug Mart intangible assets of $168 million.

The Company expects these non-cash adjustments to negatively impact its results in future periods as follows:

• annual amortization of approximately $550 million associated with the acquired intangible assets over the next ten years and decreasing thereafter; and
• remaining fair value increment on inventory sold of $69 million will be recognized in the fourth quarter of 2014.

In addition, the Company's third quarter results were negatively impacted by the unfavourable year-over-year impact of the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares and restructuring and other charges in the amounts of $108 million and $44 million, respectively. In the third quarter of 2014, Loblaw recorded $46 million in restructuring and reorganization costs primarily associated with the reduction of corporate and store-support positions, the departure of certain executives and the realignment of certain central office functions.

Basic net earnings per common share from continuing operations decreased by $0.91 compared to the same period in 2013. The decrease included the unfavourable impact of the items described above as well as a number of other items. For a complete list of items that impacted basic net earnings per common share from continuing operations but that are excluded from adjusted basic net earnings per common share from continuing operations⁽¹⁾, see the "Non-GAAP Financial Measures" section of this News Release.

REPORTABLE OPERATING SEGMENTS

Sales  In the third quarter of 2014, Weston Foods sales increased by $12 million, or 2.1%, compared to the same period in 2013. Foreign currency translation positively impacted sales by approximately 2.1%. Excluding the impact of foreign currency translation, sales were flat primarily due to an increase in volumes, offset by the combined negative impact of pricing and changes in sales mix.

Earnings Before Interest Taxes Depreciation and Amortization  Weston Foods EBITDA⁽¹⁾ in the third quarter of 2014 decreased by $34 million. The decrease was primarily due to an insured inventory loss due to a weather event in the net amount of $11 million, a multi-employer pension plan ("MEPP") settlement payment of $8 million as well as a fair value loss on commodity derivatives of $9 million, each of which is described in the "Non-GAAP Financial Measures" section of this News Release. In addition, the decrease was due to the decline in underlying operating performance described below.

Adjusted EBITDA⁽¹⁾ in the third quarter of 2014 decreased by $3 million, or 2.9%, compared to the same period in 2013. Adjusted EBITDA margin⁽¹⁾ for the third quarter of 2014 decreased by 0.9% compared to the same period in 2013. The decrease in adjusted EBITDA⁽¹⁾ was primarily due to higher commodity and other input costs, including the negative impact of foreign exchange, and plant start-up costs.

Operating Income  Weston Foods operating income decreased by $35 million compared to the third quarter of 2013 and was negatively impacted by the adjustments to EBITDA⁽¹⁾ described above.

Adjusted operating income⁽¹⁾ decreased by $5 million, or 5.8%, compared to the third quarter of 2013, driven by the decline in adjusted EBITDA⁽¹⁾ described above and an increase in depreciation and amortization in the third quarter of 2014 of $2 million due to investments in capital.

Sales  Loblaw sales in the third quarter of 2014 increased by $3,590 million, or 35.9%, compared to the third quarter of 2013, and included $3,387 million in sales related to Shoppers Drug Mart. Excluding Shoppers Drug Mart, Retail sales increased by 2.2% and same-store sales growth was 2.6% (2013 - 0.4%). Loblaw's average quarterly internal food price index was in line with (2013 - lower than) the average quarterly national food price inflation of 2.8% (2013 - 0.9%) as measured by "The Consumer Price Index for Food Purchased from Stores". In the last twelve months, corporate and franchise store square footage remained flat (2013 - increase of 1.2%).

Gross Profit  Loblaw's Retail gross profit increased by $1,268 million to $3,366 million in the third quarter of 2014 from $2,098 million in the same period in 2013. The increase included:

• $1,323 million of gross profit generated by Shoppers Drug Mart; partially offset by
• the negative impact of the recognition of the fair value increment on inventory sold of $107 million recorded on the acquisition of Shoppers Drug Mart.

Excluding the above impacts, Retail gross profit increased by $52 million, or 2.5%, in the third quarter of 2014 compared to the same period in 2013, driven by higher sales. While Retail gross profit percentage remained flat at 21.5%, retail margins decreased, driven by inflationary pressures, and shrink was higher due to continued investments in fresh assortment. Synergies and lower transportation costs fully offset these decreases.

Earnings Before Interest Taxes Depreciation and Amortization  Loblaw EBITDA⁽¹⁾ increased by $216 million compared to the third quarter of 2013, and was negatively impacted by a number of items, including the fair value increment on inventory sold noted in gross profit above and restructuring and other charges. For a complete list of items that impacted EBITDA⁽¹⁾ but that are excluded from adjusted EBITDA⁽¹⁾, see the "Non-GAAP Financial Measures" section of this News Release.

Loblaw adjusted EBITDA⁽¹⁾ increased by $363 million to $999 million in the third quarter of 2014 from the same period in 2013, and included $355 million of adjusted EBITDA⁽¹⁾ related to Shoppers Drug Mart. Excluding Shoppers Drug Mart, adjusted EBITDA⁽¹⁾ increased by $8 million compared to the third quarter of 2013, primarily driven by an increase in Retail due to higher gross profit as described above, partially offset by costs related to certain of Loblaw's emerging businesses, synergy related costs, higher marketing investments and an increase in other operating costs. Excluding Shoppers Drug Mart, adjusted EBITDA margin⁽¹⁾ was 6.3% compared to 6.4% in the same period in 2013.

Operating Income  Loblaw operating income in the third quarter of 2014 decreased by $30 million compared to the third quarter of 2013, and was negatively impacted by the adjustments to EBITDA⁽¹⁾ described above and the amortization of intangible assets acquired with Shoppers Drug Mart. For a complete list of items that impacted operating income but that are excluded from adjusted operating income⁽¹⁾, see the "Non-GAAP Financial Measures" section of this News Release.

Adjusted operating income⁽¹⁾ increased by $285 million, or 74.6%, in the third quarter of 2014 compared to the same period in 2013, and included $275 million of adjusted operating income⁽¹⁾ related to Shoppers Drug Mart. Excluding Shoppers Drug Mart, adjusted operating income⁽¹⁾ increased by $10 million and was positively impacted by an increase in Retail adjusted EBITDA⁽¹⁾ described above and a decrease in depreciation and amortization of $2 million.

NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
In the third quarter of 2014, net interest expense and other financing charges increased by $100 million to $257 million compared to the same period in 2013. Excluding the impacts described below, net interest expense and other financing charges increased by $61 million, driven by higher interest on long term debt, primarily as a result of debt incurred by Loblaw to finance its acquisition of Shoppers Drug Mart and distributions paid by Choice Properties Real Estate Investment Trust ("Choice Properties") on its Trust Units held by unitholders other than the Company.

Net interest expense and other financing charges was negatively impacted when compared to the same period in 2013 as a result of the following:

• the unfavourable year-over-year impact of $108 million for the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares; and
• a charge of $4 million (2013 - nil) related to the accelerated amortization of deferred financing costs.

These impacts were partially offset by:

• the favourable year-over-year impact of $11 million for the fair value adjustment of the Trust Unit liability;
• Choice Properties' initial public offering ("IPO") transaction costs of $43 million incurred in the third quarter of 2013;
• early debt settlement costs of $18 million incurred by Loblaw in the third quarter of 2013; and
• net financing charges of $1 million related to the acquisition of Shoppers Drug Mart, incurred in the third quarter of 2013.

INCOME TAXES
In the third quarter of 2014, income tax expense decreased to $28 million from $80 million, and the effective income tax rate decreased to 17.7% from 26.3%, compared to the same period in 2013. The decrease in the effective income tax rate was primarily attributable to an increase in non-taxable foreign currency translation gains and a decrease in certain non-deductible amounts.

ADJUSTED DEBT⁽¹⁾
The Company's adjusted debt⁽¹⁾ increased significantly in the second quarter of 2014 as a result of Loblaw's acquisition of Shoppers Drug Mart. On closing of the acquisition, adjusted debt⁽¹⁾ increased to approximately $12.1 billion.

Since the acquisition, the Company has made progress and is on track towards its debt reduction targets. Adjusted debt⁽¹⁾ was $11.8 billion as at the end of the third quarter of 2014, a decrease of approximately $350 million. Since closing of the acquisition, Loblaw has repaid $1.95 billion of its $3.5 billion term loan and a $350 million medium term note ("MTN"). These repayments were partially offset by $1.5 billion related to Loblaw's sale of Choice Properties transferor notes to third parties, the Company's issuance of a $200 million MTN, credit facility draws by Choice Properties of $77 million and other indebtedness.

FREE CASH FLOW⁽¹⁾
Free cash flow⁽¹⁾ was $194 million in the third quarter of 2014 compared to $34 million in the same period in 2013. The $160 million increase was primarily due to higher cash earnings driven by Shoppers Drug Mart, partially offset by higher interest payments and higher fixed asset purchases.

ACQUISITION OF SHOPPERS DRUG MART CORPORATION
Loblaw expects to achieve annualized synergies of $300 million in the third full year following the close of the acquisition of Shoppers Drug Mart (net of related costs). First year synergies are being generated primarily from improved cost of inventories sold and from purchasing efficiencies in goods not for resale. In the third quarter of 2014 and year-to-date, Loblaw realized net synergies of approximately $44 million and $52 million, respectively, primarily in cost of inventories sold.

Pursuant to a Consent Agreement reached with the Competition Bureau in the first quarter of 2014, Loblaw was required to divest 16 Shoppers Drug Mart stores, two of its franchise grocery stores and nine of its in-store pharmacies. In the third quarter of 2014, two Loblaw franchise grocery stores and two Shoppers Drug Mart stores were sold, and the nine Loblaw in-store pharmacies were licensed to unrelated parties. This resulted in a net gain of $2 million to Loblaw recorded in operating income. Subsequent to the end of the third quarter of 2014, the Competition Bureau approved the sale of an additional ten Shoppers Drug Mart stores of which five sales have been completed.

As a result of the acquisition, GWL's ownership interest in Loblaw decreased from approximately 63% to approximately 46%. The Company remains the controlling shareholder and continues to consolidate Loblaw.

OUTLOOK⁽²⁾
The outlook reflects the underlying operating performance of the Company's operating segments as discussed below.

Weston Foods expects a slight decline in adjusted operating income⁽¹⁾ in the fourth quarter of 2014 when compared to the same period in 2013 before including the positive impact of the 53rd week.

In the third quarter of 2014, Loblaw continued to execute on its strategy and delivered solid financial and operational performance in a very competitive trading environment that saw supermarket square footage growth moderate and greater predictability in regulatory drug reform. Loblaw expects these industry and business trends to continue for the balance of the year. As a result, for 2014, Loblaw expects its business divisions to achieve financial and operational performance, on an adjusted basis and excluding synergies, in line with 2013 performance trends. Loblaw also remains on track to achieve $100 million in net synergies in the first twelve months following the acquisition of Shoppers Drug Mart.

DECLARATION OF QUARTERLY DIVIDENDS
Subsequent to the end of the third quarter of 2014, the Company's Board of Directors declared a quarterly dividend on GWL Common Shares, Preferred Shares, Series I, Preferred Shares, Series III, Preferred Shares, Series IV and Preferred Shares, Series V payable as follows:

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 forward-looking statements in this News Release include, but are not limited to, statements with respect to the Company's anticipated future results and events, targeted synergies expected following the acquisition of Shoppers Drug Mart and future plans. These specific forward-looking statements are contained throughout this News Release including, without limitation, in the "Outlook" and "Consolidated Results of Operations" sections. 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 2014 is based on certain assumptions including assumptions about sales and volume growth, anticipated cost savings and operating efficiencies, and competitive square footage growth. 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 those expressed, implied or projected in the forward-looking statements, including those described in the "Enterprise Risks and Risk Management" section of the Management's Discussion and Analysis ("MD&A") in the Company's 2013 Annual Report, the "Enterprise Risks and Risk Management" section of the MD&A included in the Company's 2014 Third Quarter Report to Shareholders and the Company's Updated and Restated Annual Information Form for the year ended December 31, 2013; updated to June 2, 2014 ("AIF"). Such risks and uncertainties include:

• failure by Loblaw to realize the anticipated strategic benefits or synergies expected following the acquisition of Shoppers Drug Mart;
• failure to realize benefits from investments in the Company's information technology ("IT") systems, including the Company's IT systems implementation, or unanticipated results from these initiatives;
• failure to realize anticipated results, including revenue growth, anticipated cost savings or operating efficiencies from the Company's major initiatives, including those from restructuring;
• the inability of the Company's IT infrastructure to support the requirements of the Company's business;
• the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrink;
• changes in the Company's estimate of inventory cost as a result of its IT system upgrade;
• public health events and risks associated with those related to food and drug 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;
• 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;
• changes in the Company's income, capital, commodity, property and other tax and regulatory liabilities including changes in tax laws, regulations or future assessments;
• changes to the regulation of generic prescription drug prices and the reduction of reimbursements under public drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers; and
• failure to respond to changes in consumer and retail customer trends.

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. Information on risks and uncertainties related to Shoppers Drug Mart are disclosed in the Information Statement filed by Loblaw on August 20, 2013, the Shoppers Drug Mart 2013 annual MD&A filed by Shoppers Drug Mart on February 20, 2014 and the Company's AIF. 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.

NON-GAAP FINANCIAL MEASURES
The Company uses the following non-GAAP financial measures: EBITDA, adjusted EBITDA and adjusted EBITDA margin, adjusted operating income and adjusted operating margin, adjusted basic net earnings per common share from continuing operations, adjusted debt, 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.

Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and income that must be recognized under GAAP when analyzing consolidated and segment underlying operating performance. The excluded items are not necessarily reflective of the Company's underlying operating performance and make comparisons of underlying financial performance between periods difficult. 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.

As of the first quarter of 2014, management no longer excludes equity-settled share-based compensation when analyzing consolidated and segment underlying operating performance. As a result, prior year adjusted EBITDA and adjusted EBITDA margin, adjusted operating income and adjusted operating margin, and adjusted basic net earnings per common share from continuing operations were restated to conform with the current year's presentation.

As of the second quarter of 2014, management no longer excludes net interest expense incurred in connection with the financing related to the acquisition of Shoppers Drug Mart when analyzing consolidated underlying operating performance. These amounts were excluded from adjusted basic net earnings per common share from continuing operations in periods prior to the closing of the acquisition of Shoppers Drug Mart.

As of the third quarter of 2014, management no longer excludes Choice Properties' general and administrative costs in periods where these costs were incurred in the comparative period. These costs continue to be excluded in periods where they were not incurred in the comparative period in order to make comparisons of underlying financial information more useful.

These 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.

EBITDA, Adjusted EBITDA and Adjusted Operating Income  The Company believes adjusted EBITDA is 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 and debt reduction objectives. The Company believes adjusted operating income is also useful in assessing the Company's underlying operating performance and in making decisions regarding the ongoing operations of its business.

The following table reconciles EBITDA, adjusted EBITDA and adjusted operating income to operating income, which is reconciled to GAAP net earnings (loss) from continuing operations attributable to shareholders of the Company reported in the unaudited interim period condensed consolidated statements of earnings for the 16 weeks and 40 weeks ended October 4, 2014 and October 5, 2013.

The following items impacted operating income in the third quarters of 2014 and 2013:

Amortization of intangible assets acquired with Shoppers Drug Mart The acquisition of Shoppers Drug Mart in the second quarter of 2014 included approximately $6 billion of definite life intangible assets, which are being amortized over their estimated useful lives. During the third quarter of 2014, $168 million of amortization was recognized in operating income.

Recognition of fair value increment on inventory sold at Loblaw  In connection with the acquisition of Shoppers Drug Mart, acquired assets and liabilities were recorded on the Company's consolidated balance sheet at their fair value. This resulted in a fair value adjustment to Shoppers Drug Mart inventory on the date of acquisition of $798 million representing the difference between inventory cost and its fair value. In the third quarter of 2014, $107 million was recognized in gross profit and operating income.

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.

Fixed asset and other related impairments  At each balance sheet date, the Company assesses and, when required, records impairments and recoveries of previous impairments related to the carrying value of its fixed assets, investment properties and intangible assets. In the third quarter of 2014, Loblaw recorded a charge of $10 million (2013 - $4 million) related to fixed asset and other related impairments.

Fair value adjustment of Shoppers Drug Mart's share-based compensation liability  In the second quarter of 2014, in conjunction with Loblaw's acquisition of Shoppers Drug Mart, Loblaw converted certain Shoppers Drug Mart cash-settled share-based compensation awards to awards based on Loblaw's common shares. Loblaw is exposed to market price fluctuations in its common share price as these awards are settled in cash and the associated liability is recorded at fair value each reporting date based on the market price of Loblaw's common shares. In the third quarter of 2014, Loblaw recorded a loss of $5 million (2013 - nil).

Shoppers Drug Mart (divestitures) acquisition costs In the third quarter of 2014, Loblaw recognized a net gain of $2 million related to the completed divestitures required by the Competition Bureau as a result of Loblaw's acquisition of Shoppers Drug Mart. Further adjustments for divestiture gains or losses will be made when the remaining Shoppers Drug Mart stores are sold. In connection with the acquisition of Shoppers Drug Mart, in the third quarter of 2014, Loblaw recorded nil (2013 - $9 million) of acquisition costs.

Choice Properties start-up costs  In connection with the IPO of Choice Properties in the third quarter of 2013, Loblaw incurred certain costs to facilitate the start-up of the new entity. During the third quarter of 2013, Loblaw recorded $3 million of Choice Properties start-up costs.

Inventory loss incurred by Weston Foods  On August 31, 2014, a weather event in the U.S. caused significant damage to Weston Foods inventories stored at a third-party warehouse. Damaged inventory in the amount of $17 million (U.S. $15 million) was written-off in the third quarter of 2014 and was recorded in selling, general and administrative expenses in the Company's consolidated statement of earnings. An insurance claim is in progress and partial proceeds of $6 million (U.S. $5 million) were received in the third quarter of 2014 and were also recorded in selling, general and administrative expenses. Additional losses or charges associated with this inventory will be recorded as incurred and additional proceeds are expected to be recorded as the insurance claim progresses. Subsequent to the end of the third quarter of 2014, the Company received additional proceeds of $16 million (U.S. $14 million) associated with this claim.

Fair value adjustment of commodity derivatives at Weston Foods  Weston Foods is exposed to commodity price and U.S. dollar exchange rate 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 and foreign currency derivatives to reduce the impact of price fluctuations in forecasted raw material purchases over a specified period of time. These derivatives are not acquired for trading or speculative purposes. Pursuant to Weston Foods' derivative instruments accounting policy, certain changes in fair value, which include realized and unrealized gains and losses related to future purchases of raw materials, are recorded in operating income. In the third quarter of 2014, Weston Foods recorded a charge of $9 million (2013 - income of $1 million) related to the fair value adjustment of exchange traded commodity derivatives and foreign currency derivatives. Despite the impact of accounting for these commodity and foreign currency derivatives on the Company's reported results, the derivatives have the economic impact of largely mitigating the associated risks arising from price and exchange rate fluctuations in the underlying commodities.

Multi-employer pension plan settlement payment by Weston Foods  Weston Foods participates in a U.S. MEPP, providing pension benefits to union employees pursuant to the provisions of one of its collective bargaining agreements. During the third quarter of 2014, Weston Foods made a settlement payment of $8 million (U.S. $7 million) which was recorded in selling, general and administrative expenses in the Company's consolidated statement of earnings. Weston Foods will participate in the MEPP as a new employer as defined by the plan pursuant to its collective bargaining agreement.

Foreign currency translation gain  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 third quarter of 2014, a foreign currency translation gain of $31 million (2013 - $12 million) was recorded in operating income as a result of the appreciation of the U.S. dollar relative to the Canadian dollar.

Adjusted Basic Net Earnings per Common Share from Continuing Operations  The Company believes adjusted basic net earnings per common share from continuing operations 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 from continuing operations to GAAP basic net earnings (loss) per common share from continuing operations reported for the periods ended as indicated.

In addition to the items described in the "EBITDA, Adjusted EBITDA and Adjusted Operating Income" section above, the following items also impacted basic net earnings per common share from continuing operations in the third quarters of 2014 and 2013:

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 net interest expense and other financing charges. The adjustment is determined by changes in the value of the underlying Loblaw common shares. In the third quarter of 2014, a charge of $88 million on a pre-tax basis (2013 - income of $20 million) was recorded in net interest expense and other financing charges as a result of the increase (2013 - decrease) in the market price of Loblaw common shares. An increase (decrease) in the market price of Loblaw common shares results in a charge (income) to net interest expense and other financing charges.

Fair value adjustment of Trust Unit liability The Company is exposed to market price fluctuations as a result of Choice Properties Trust Units held by unitholders other than the Company. These Trust Units are presented as a liability on the Company's consolidated balance sheets as they are redeemable for cash at the option of the holder, subject to certain restrictions. This liability is recorded at fair value at each reporting period based on the market price of Trust Units at the end of the period. In the third quarter of 2014, the Company recorded a gain of $16 million (2013 - $5 million) in net interest expense and other financing charges related to the fair value adjustment of the Trust Unit liability as a result of a decrease in the market price of Trust Units.

Accelerated amortization of deferred financing costs  In the third quarter of 2014, Loblaw recorded a charge, on a pre-tax basis, of $4 million related to the accelerated amortization of deferred financing costs due to the repayment of $350 million of Loblaw's term loan facility.

Shoppers Drug Mart net financing charges  In addition to the acquisition costs noted above, during the third quarter of 2013, net charges of $1 million on a pre-tax basis were incurred in connection with the financing related to Loblaw's acquisition of Shoppers Drug Mart. These financing charges were recorded in net interest expense and other financing charges.

Choice Properties IPO transaction costs In addition to the start-up costs noted above, during the third quarter of 2013, transaction costs of $43 million on a pre-tax basis were incurred related directly to the IPO. These transaction costs were recorded in net interest expense and other financing charges.

Early debt settlement costs  In the third quarter of 2013, Loblaw settled its remaining U.S. $150 million private placement note and related cross currency swap in advance of their May 29, 2015 maturity date. Loblaw incurred early-settlement costs related to the prepayment of $18 million on a pre-tax basis, which were recorded in net interest expense and other financing charges.

Adjusted Debt  The Company believes adjusted debt to rolling year adjusted EBITDA is useful in assessing the amount of financial leverage employed. The Company changed its definition of adjusted debt in the second quarter of 2014 to include capital securities to better align with management's definition for debt reduction purposes. In the table below, the Company has presented adjusted debt as at March 28, 2014, the date of acquisition of Shoppers Drug Mart, as this is the baseline for the Company's debt reduction targets.

The following table reconciles adjusted debt used in the adjusted debt to rolling year adjusted EBITDA ratio to GAAP measures reported as at the periods ended as indicated.

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

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

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 2014 Third Quarter Report to Shareholders. This financial information does not contain all disclosures required by IFRS, and accordingly, this financial information should be read in conjunction with the Company's 2013 Annual Report and 2014 Third Quarter Report to Shareholders available in the Investor Centre section of the Company's website at www.weston.ca.

Condensed Consolidated Statements of Earnings

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Cash Flows

2014 THIRD QUARTER REPORT TO SHAREHOLDERS
The Company's 2013 Annual Report and 2014 Third Quarter Report to Shareholders are available in the Investor Centre section of the Company's website at www.weston.ca and have been filed with SEDAR and are available online at www.sedar.com.

INVESTOR RELATIONS
Shareholders, security analysts and investment professionals should direct their requests to Mr. Geoffrey H. Wilson, Senior Vice President, Investor Relations, Business Intelligence and Communications, 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, a public company with shares trading on the Toronto Stock Exchange. For information regarding Loblaw, readers should also refer to the materials filed by Loblaw with SEDAR from time to time. These filings are also maintained at Loblaw's corporate website at www.loblaw.ca.

CONFERENCE CALL AND WEBCAST PRESENTATION

George Weston Limited will host a conference call as well as an audio webcast on Tuesday November 18, 2014 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: 21369576#. To access via audio webcast, please visit the Investor Centre section of www.weston.ca. Pre-registration will be available.

SOURCE George Weston Limited