1. No category

OPERATIONS REPORT 2010
TABLE OF CONTENTS
President’s Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Quick Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Our Values – Our Service
Improving the Customer Experience . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Environmental Performance:
Deposit Return: Driving the Green Economy . . . . . . . . . . . . . . . . . . 8
Lights Out: Energy Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Our Commitment to Responsible Service . . . . . . . . . . . . . . . . . . . . . 15
A Community Based Retailer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Employee Health & Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The Year in Beer Sales
. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Beer Tax Contributions
. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Audited Financial Statements
. . . . . . . . . . . . . . . . . . . 29
TBS Service Fees and Financial Operations
. . . 44
APPENDIX A: TBS Rate Sheet . . . . . . . . . . . . . . . . . . . . . 45
In 2010, The Beer Store continued to improve on what it does best – provide Ontario’s
beer drinkers the ultimate source for beer.
We offered our customers one of the best selections of beer in the world, selling 346
brands from 89 Canadian and international brewers. We delivered this impressive
selection of beer by maintaining a policy of being completely open to any brewer in
the world that wants to sell their beer in Ontario.
In 2010 we continued to make improvements to the TBS retail and shopping
experience. We know that beer consumers are becoming increasingly diverse in terms
of how they like to obtain information about our products. Whether you as a beer
consumer want to talk to a Customer Service Representative in one of our stores,
read a brochure or download an “App” before you decide what beer to buy, TBS is
working to accommodate your needs.
New investments have been made across our business to provide customers with
more choices and better information about their beer purchases. New stores, a
website re-design, new beer apps and electronic newsletters, employee product
training, expanded single-serve selection and gift cards are some of the many
customer service initiatives we moved forward on in 2010 that are highlighted in this
year’s operational report.
In a number of areas, we’ve established extremely high standards. Our track record
with respect to managing packaging and responsible sales policies sets the gold
standard for beverage alcohol retailers in North America. Keeping the bar high and
striving to move it higher remains a priority for us, and with the help of TBS employees
we continued to deliver outstanding results in the critical areas of responsible sales
practices and environmental performance.
Since our inception in 1927 we’ve always believed in the importance of striving to be
a community based retailer and leveraging our resources to support the communities
in which we do business. In this regard, 2010 was our best year ever in terms of
charitable fundraising. Our employees and stores participated with dozens of community
groups and charities to raise awareness of, and funding for, both local community
causes and provincial charitable initiatives.
Finally, 2010 was another great year for employee health and safety as we continued
our long-term trend of reducing time lost to accidents. Our employees are TBS’s most
p
with input
p from all levels of our
important asset. We’ve made these improvements
d what we can to ensure TBS staff remain
organization and we’ll continue to do
engaged, productive and healthy.
s operatio
onal report.
I hope you enjoy this year
year’s
operational
Ted Moroz
3
In calendar year 2010
The Beer Store:
SOLD THE EQUIVALENT
OF 89 MILLION CASES
FROM 89 BREWERS
LOCATED IN ONTARIO,
THE REST OF CANADA
AND AROUND THE WORLD
OPENED SEVEN NEW STORES –
TWO NEW LOCATIONS AND
FIVE STORE RELOCATIONS
COLLECTED AND RECYCLED MORE CONSUMER
PACKAGING THAN IT SOLD 1:
94 PERCENT OF ALL TBS LISTED BEER PACKAGING WAS
COLLECTED FOR RE-USE OR RECYCLING
MORE THAN 106,000 TONNES OF WINE AND SPIRIT
CONTAINERS WERE COLLECTED FOR RECYCLING UNDER
THE ONTARIO DEPOSIT RETURN PROGRAM
IMPLEMENTED NEW ENERGY SAVING INITIATIVES AT 127 STORES
AND 19 WAREHOUSES OR 32% OF ITS STORE AND WAREHOUSE
LOCATIONS
CHALLENGED OVER 4.2
MILLION CUSTOMERS
FOR AGE IDENTIFICATION
OR INTOXICATION
RAISED OVER
$1.5 MILLION FOR
DOZENS OF ONTARIO
CHARITIES AND COMMUNITY
ORGANIZATIONS
1 All container recovery performance data relates to the 52-week prior to May 8, 2011 for cans and the 52-week
period prior to April 24, 2011 for all other containers and packaging. See The Beer Store Responsible Stewardship
report for 2010-2011 for more details.
4
Our Values – Our Service
Improving the Customer Experience
To be the Ultimate Source for Beer TBS needs to not only stock a great selection of beer
products, it also needs to present those products in an organized, accessible and pleasant
shopping experience. That means constantly seeking out ways to improve the experience for
existing customers and adding new features that will help attract new customers. In 2010,
TBS continued to implement a number of initiatives designed to improve the customer
experience.
Retail Store Improvements
Rollout of the re-designed store format
In 2010 TBS continued to roll out its new re-designed
store format. It opened two new locations, raising its
total number of retail outlets to 437.
It also converted five existing outlets to the
new store format.
The Self-serve Format:
• Enhanced product displays improve
shopping experience
• Walk-in coolers with wide aisles and convenient
4-tier shelving
• Products grouped into categories
e.g. imports, singles, discount, etc.
• Highest customer satisfaction rating – especially
among shoppers under 30 years of age
New Urban Beer Boutique
TBS also began experimenting with new store formats
to serve markets with unique customer service needs.
In 2010 a new urban beer boutique was developed for
use in densely populated urban markets with a high
concentration of condominium residences and high
levels of pedestrian traffic.
TBS Beer Boutique Concept:
• An emphasis on premium brands and small pack
sizes desired by urban customers
• Toronto Liberty Village Pilot Location opened in 2011
• Potential rollout to other urban locations
5
TBS 2010 Operational Report
Improving the Customer Experience
Our Values – Our Service
Improving the Customer Experience, cont’d
Single-serve Selection
TBS continued to expand its selection of product offerings
in the fast growing single-serve segment in 2010.
Twelve brewers added twenty single-serve brands to
their TBS portfolios in 2010 and dedicated single-serve
coolers were added to 153 additional locations bringing
the total number of TBS stores with dedicated singleserve coolers up to 258.
Single-serve Selection
• 110 brands
• Available at 258 TBS stores
• 28.6 % growth in sales in 2010
Expanded Hours of Operation
TBS also adopted new strategies to better match
store hours to consumer demand. In 2010 Sunday
shopping hours were extended at 150 of our stores
during the summer months to increase accessibility
during this peak beer sales period. Store closing hours
were also extended to 11 PM on Friday and Saturday
nights at 42 busier locations to provide customers
with greater shopping convenience.
Gift Cards
New programmable gift cards were introduced
in 2010 to replace paper based gift certificates.
• A great way to give the gift of beer
• Also exploring technology to enable on-line
reloading of cash to the gift card.
6
TBS 2010 Operational Report
IImproving
i th
the C
Customer Experience
Our Values – Our Service
Connecting with Consumers
With the explosion of new technologies and social media, the business of communicating
about your business with customers has changed dramatically in the last decade. In response
to this trend TBS continues to evolve its internet and interactive media presence and
offerings by constantly seeking out new ways to offer consumers more options to learn
about The Beer Store, beer products and beer culture.
TBS’s Bmail newsletter contains articles about TBS contests, responsible hosting and beer recipes, yum!
TBS Website Redesign
• More accessible information about beer,
TBS promotions, store locations, brands, etc.
• Over 1 million hits per month
• TBS Beer Blog, Twitter and Facebook
applications also available
Other Beer Store Information
• Beer store apps for smart phone users
• Chill Magazine available in-store and on-line
• Digital in-store displays and modernized
store layouts
7
TBS 2010 Operational Report
Improving the Customer Experience
Environmental Performance:
Deposit Return: Driving the Green Economy
The Beer Store is one of North America’s greenest retailers. It may be the only retailer that
takes back more consumer packaging than it sells. But collecting and recycling containers
and packaging is just part of the story. The TBS deposit return system ensures that collected
materials drive green economic activity and jobs in Ontario – sorting collected materials at
the point of return helps reduce contamination and maximizes both the value of collected
recyclable materials and the associated energy and pollution reduction benefits.
In many respects, the closed-loop TBS deposit return system closely mimics the operation
of natural eco-systems. A maximum amount of material is either re-used within existing
processes (e.g. the refillable beer bottle), or in the case of recycled material, re-metabolized
for use in other processes and materials – a minimal amount of material ends up as waste.
All materials are separated by type at the point of collection which minimizes cross material
contamination (e.g. plastics in glass, glass
in aluminum etc.). Glass containers are also
colour sorted when collected which ensures
Materials Composition2
that virtually all of the collected glass can be
directed toward high-end recycling uses such
as making new glass bottles from used and
recycled glass bottles, or in the manufacture
of fiberglass insulation.
Curbside Collection System:
4.7 % metal (aluminum and steel)
57.1 % paper
21.4 % cardboard and paper based packaging
6.6 % mixed plastics
9.6 % glass (mixed colours)
0.6 % polycoat
TBS Glass Cullet
99 % Green Glass
< 1% paper
< 1 % metal
Glass and other materials collected in singlestream curbside recycling systems (i.e. systems
where all collected material is comingled in
the collection vehicle and separated later at
a sorting facility) have to be separated after
those materials are collected. The resulting
materials (e.g. aluminum, plastic, glass cullet,
etc.) have higher material contamination levels
than those associated with deposit return
systems. With respect to glass, most of the
glass cullet generated through curbside
collection systems is not high enough in
quality to be utilized for clear glass bottle
remanufacturing. In Ontario much of the
glass collected in the Blue Box is directed
toward use as asphalt filler and some of it
ends up in landfills.
2 Source for blue box percentages: Highlights of the
2010 Datacall Residential Blue Box Materials 2010.
8
TBS 2010 Operational Report
Environmental Performance
Environmental Performance:
Deposit Return: Driving the Green Economy, cont’d
Ensuring better recycling outcomes is not only good for Ontario’s recycling economy, but
higher-value recycling, as an examination of Owens-Illinois makes clear, also generates
greater environmental benefits.
Driving the Green Economy: Owens-Illinois Glass Manufacturing
Owens-Illinois (O-I) is the world’s largest glass container manufacturer, with revenues
of $6.6 billion in 2010 and more than 24,000 employees at 80 plants in 21 countries.
The company’s Brampton plant is an important end-user of material recovered by TBS
through the Ontario Deposit Return Program (ODRP) for wine and spirit containers and
the TBS deposit system for beer containers and packaging. O-I’s Brampton plant employs
375 people and manufactures the refillable standard bottle used by the Canadian brewing
industry as well as recyclable single-use beer, cooler, wine and
spirits bottles used by Ontario beverage alcohol producers.
The TBS and ODRP deposit return programs provide
O-I Brampton with a consistent supply of high-quality recyclable
glass cullet. Using recycled glass as a material input to O-I’s
manufacturing process results in fewer emissions and greater
energy efficiency. Using recycled glass also avoids the
environmental impact of extracting, transporting and
processing the raw materials needed to make virgin glass.
A Life Cycle Assessment published by O-I in 2010
established that increasing the use of recycled glass in
the manufacturing process by 10 percent reduces carbon
emissions by approximately five percent and leads to energy
savings of about three percent.
Impact of ODRP on Ontario Glass Cullet Supply
The ODRP program generated a significant increase in the
quantity of glass containers collected for recycling in Ontario.
For the reasons noted above, it also dramatically increased the
quality of glass cullet available for remanufacturing processes.
Prior to the implementation of the ODRP program, O-I had to
import glass cullet from other jurisdictions to support its Ontario
glass manufacturing production. Following ODRP, O-I’s Ontario
plant was able to increase its purchases of local glass cullet and
increase the use of recycled glass cullet in its manufacturing
9
TBS 2010 Operational Report
Environmental Performance
Environmental Performance:
Deposit Return: Driving the Green Economy, cont’d
operations. Both of these developments contributed to reduced energy use by O-I.
Transportation fuel use associated with O-I’s cullet supply chain was reduced and the
energy and emissions benefits of utilizing higher recycled glass content in its
manufacturing processes were increased.
With ODRP, Ontario is now a net exporter of glass cullet to other jurisdictions. The
improved recycling outcomes generated by ODRP directly supports jobs and investment
here in Ontario. With a reliable source of locally procured high-quality recyclable materials,
the companies that rely on quality glass cullet for manufacturing, such as Ontario’s
glass and fiberglass manufacturers, are well positioned to compete in the North
American marketplace.
THE QUALITY OF TBS
COLLECTED MATERIALS
ENSURES HIGHER-VALUE
RECYCLING USES AND
GENERATES ENHANCED
ENVIRONMENTAL BENEFITS
TBS 2010 Operational Report
10
Environmental Performance
Environmental Performance:
Deposit Return: Driving the Green Economy, cont’d
A. Packaging Report
TBS Containers
Sales and returns summary
April 25, 2010-April 24, 2011
Sales
Container Type
Recovery
y Rate
TBS
LCBO
Total
Returns
2009-2010
2010-2011
All Glass Bottles
(Refillable & Non-Refillable)
1,192,295,760
147,449,769
1,339,745,529
1,333,409,339
98.8%
99.5%
Refillable Bottles
1,065,532,692
103,193,140
1,168,725,832
1,166,698,937
100%
99.8%
Non-Refillable Bottles
126,763,068
44,256,629
171,019,697
166,710,402
91%
97%
Metal Cans
386,251,313
169,345,184
555,596,497
444,551,287
82%
80%
1,397,799
-
1,397,799
1,406,707
101%
101%
126,533
18,218
144,751
764
1%
1%
1,580,071,405
316,813,171
1,896,884,576
1,779,368,097
95%
94%
Kegs
PET Bottles
TOTAL (by units)
Note: TBS containers include provincial sales of all beer brands and containers that are sold by TBS
including sales of those containers through other channels such as licensees, LCBO stores, agency stores
and TBS Retail Partner outlets. Beer products sold exclusivelyy byy the LCBO are included as ODRP containers below.
TBS 2010 Operational Report
11
Environmental Performance
Environmental Performance:
Deposit Return: Driving the Green Economy, cont’d
ODRP Containers
Sales and returns summary
April 25, 2010-April 24, 2011
Container Type
Sales
(tonnes)
Returns
(tonnes)
2009-2010
2010-2011
GLASS
267,938,408
217,945,184
80%
81%
PET
27,343,988
13,139,793
53%
48%
TETRA/BIB
7,940,166
2,519,916
33%
32%
CANS*
59,897,221
47,742,519
82%
80%
Total
363,119,783
281,347,412
77%
77.5%
Secondary Packaging
Sales and returns summary
TBS
(tonnes sold)
2010-11
LCBO
(tonnes sold)
2010-11
Recovered
(tonnes)
2009-10
Recovered
(tonnes)
2010-11
Corrugated/
Boxboard
21,335
3,182
26,090
24,720
Metal
2,609
659
156
286
Plastic
380
74
390
590
Packaging Type
Note: Secondary packaging sold by TBS and the LCBO refers to secondary
packaging associated with TBS-listed beer products only. Recovered
packaging includes any TBS or ODRP related packaging that is returned
with containers to TBS. Secondary packaging associated with sales of ODRP
containers by LCBO and Ontario winery retail stores is not currently available.
TBS 2010 Operational Report
12
Environmental Performance
Environmental Performance:
Deposit Return: Economic and Environmental Benefits
B. Energy and GHG Savings
For each and every beverage alcohol container recovered by TBS, energy is conserved and
emissions related to new container manufacturing are reduced. Re-use and recycling avoids
having to extract virgin resources, use energy, and generate pollution. When one considers
re-using 1.17 billion bottles, and recycling 893 million single use beverage alcohol containers
each year in Ontario, the environmental savings are remarkable.
TBS & ODRP Avoided GHG Emissions and Avoided Energy Consumption
Clear
Coloured
Glass Bottle Glass Bottle
Recycling
Recycling
2010-2011
Glass
Re-use
TOTAL Tonnes
282,785
58,724
109,233
7,765
286
912
459,705
Avoided GHG
107,458
6,460
6,008
75,010
340
3,320
198,596
1,922,938
98,656
119,064
678,350
3,606
77,803
2,900,417
Avoided Energy
Aluminum
Recycling
Steel
PET
Total
Diversion
Energy Savings
Bottle re-use is responsible for avoiding 1.9M gigajoules of energy annually, equivalent to the
energy from 328,000 barrels of oil3, worth about $29.5 million in today’s oil prices4.
In the case of non-refillable glass bottles, approximately two thirds of containers sold are
recovered and recycled back into new bottles. Recycled bottles replace virgin raw materials
which directly reduce greenhouse gases and other pollutants like nitrogen oxide emissions.
Aluminum cans are compacted into bales and shipped directly to a smelter to melt and
re-roll into new can sheet. Making aluminum can sheet from recycled-content uses only 5%
of the energy required to make can sheet from virgin raw material, and avoids ten tonnes of
greenhouse gas emissions for every tonne recycled5.
Collectively re-using and recycling beverage alcohol containers last year avoided nearly
200,000 tonnes of greenhouse gas emissions, the same amount emitted from about
38,940 passenger vehicles each year.
3 One barrel of oil contains 5.86 GJ of energy. http://www.unitjuggler.com/energy-conversion.html
4 Based on a crude oil price of $90 per barrel.
5 See U.S. Environmental Protection Agency, Communicating the Benefits of Recycling at
http://www.epa.gov/osw/conserve/tools/localgov/benefits.
TBS 2010 Operational Report
13
Environmental Performance
Environmental Performance:
Lights Out: Energy Conservation
TBS considers retail locations (437) and distribution centres (8) as part of its larger
Sustainable Materials Management program. For several years TBS management and
individual employees have participated on an “Energy Team” dedicated to researching,
testing and introducing initiatives aimed at reducing TBS energy consumption.
TBS has been recognized for outstanding achievement in energy use reduction by
retrofitting existing buildings with R-30 roofs, installing programmable thermostats and
heater timers, switching to energy efficient lighting, and replacing large hot water tanks
with smaller, more efficient models.
In 2010 this work continued, with lighting energy audits conducted at 145 retail locations,
and lighting retrofits completed at 94 stores under the Ontario Power Authority’s Power
Savings Blitz program. TBS also upgraded roofing insulation at nine existing stores and
installed energy efficient hot water tanks at a similar number of locations.
TBS continues to implement and research better ways to keep its customers’ beer cold.
At three retail locations, refrigeration units were replaced with smaller, more efficient systems
that will lower refrigeration related energy consumption by 60%. A “No Cool” pilot project was
implemented at 32 stores to keep beer cold utilizing outside air for a period of four weeks
with no refrigeration – and will enable TBS to optimize the use of outside air for cooling
purposes going forward. TBS also co-partnered with Dupont in testing a new refrigerant at
its store located in Milton. The new refrigerant will be used in TBS stores going forward as
it generated a 6 to 8% energy savings in its test trial.
TBS also implemented further efficiency initiatives
with respect to its distribution fleet. Fifty trucks
had dry batteries installed to enable the operation
of rear lift gates without running the truck’s engine.
The initiative will save approximately 1,500 litres of
fuel each week. TBS also completed installation
of GPS tracking technology in all delivery vehicles
in 2010. This technology enables TBS to drive
efficiencies in fuel consumption both through
improved route design and the monitoring of idling
and driving practices.
In short, 2010 was another year where TBS continued
to deliver on its commitment to improve environmental
performance in every aspect of its operations.
TBS 2010 Operational Report
14
Environmental Performance
Our Commitment to Responsible Service
At TBS responsible service is practised in a number of ways. First and foremost a number of
operational policies have been enacted to ensure that minors and intoxicated individuals
are not served at our stores.
Responsible Sales Policies
• Request ID from anyone who appears 25 or under
• Refuse service to anyone who appears intoxicated
• Refuse service to individuals who appear to be
purchasing for minors or intoxicated individuals
• Annual responsible service training for all sales staff
• Mystery shop program to ensure compliance with policies
• Store level responsible service results incorporated
into store manager performance reviews
NO OF CUSTOMERS REFUSED
SERVICE: 120,000
NO OF CUSTOMERS ASKED
FOR AGE IDENTIFICATION
OR CHALLENGED FOR
INTOXICATION: 4.2 MILLION
TBS CUSTOMER CHALLENGES
LAST FIVE YEARS: 20.8 MILLION
It is also important that customers enjoy beer responsibly. To that end TBS incorporates
responsible service messaging into virtually all of its marketing initiatives.
Responsible Service Messaging
g g
• In-store posters (all stores))
• Party planning brochures
• Website hosting guides
• Chill magazine features
• Bmail
• Media advertising
• Partnership with
Arrive Alive Drive Sober
TBS 2010 Operational Report
15
Our Commitment to Responsible Service
A Community Based Retailer
TBS’s principal charitable fundraising initiative, Returns for Leukemia, is operated in
partnership with United Food and Commercial Workers Local 12R24 (the union
representing TBS employees), and has been operating for 5 consecutive years. In 2010,
fundraising through this initiative surpassed the $1 million dollar mark for the first time.
TBS stores and employees also participated with dozens of other community groups
and charitable organizations across Ontario to raise awareness of, and funding for, important
community and charitable causes. The funds raised with those initiatives when combined with
amounts raised through Returns for Leukemia totalled $1.5 million in 2010.
“On behalf of the 90,000 Canadians
affected by blood cancer, I want to
extend a huge thank you to UFCW
Local 12R24, The Beer Store and
everyone who so generously donated
their time and money.”
Nancy Allen, President
Returns for Leukemia
• UFCW Local 12R24 – TBS Partnership
• Province-wide May 29th – 30th Bottle Drive
The Leukemia & Lymphoma Society of Canada
• 2,300 Volunteers
• 437 Stores
• $1.065 Million in Donations and Donated Deposits
Other TBS Community and Charitable Initiatives
• $92,000 for Ontario Legions
• Red Shirt Fridays (support for Canadian troops)
• $78,000 for Red Cross
• Dozens of local or store led initiatives
(e.g. $6,500 for Terry Fox Foundation in Sudbury)
• $77,000 for Rogers House (Ottawa Hospice)
• $50,000 for the Conservation Council of Ontario
• $60,000 for Arrive Alive DRIVE SOBER
Note: The aforementioned funds are not provided by TBS, but raised
independently through fundraising initiatives..
TBS 2010 Operational Report
16
A Community Based Retailer
Employee Health and Safety
In 2010, TBS continued to place a strong emphasis on employee health and safety. Through
monitoring and an ongoing commitment to continuous improvement TBS’s health and safety
culture is evolving in a positive way. Employees understand that maintaining a safe work
environment is everyone’s responsibility. TBS expects every employee to go home as healthy
as when they arrived.
TBS continues to promote health and safety through a growing training portfolio. Through
traditional training sessions held across the province to e-learning, employees are receiving
critical health and safety information on a regular basis.
With the heightened awareness of musculoskeletal disorders (MSDs), TBS partnered with
other industries to create the Soft Tissue Council. The Council’s mandate is to promote and
foster the adoption and sharing of industry best practices and the reduction of soft tissue
injuries. It has positioned TBS for continued success. In 2010 TBS piloted equipment that will
assist in mitigating these types of injuries.
The Beer Store’s Provincial Joint Health and Safety committee is another key initiative designed
to improve employee health and safety. Managers and union executives meet regularly to
identify health and safety concerns and resolve related problems. The committee is a
fundamental part of TBS’s overall health and safety program.
TBS, like a number of companies, also solicits feedback from employees on areas where
employees feel the company is performing well and identifying areas that could be improved.
Health and safety ranked in the number one position in 2010 on the TBS Employee
Engagement Survey as a company strength. It is an encouraging message that TBS is on
the right track when it comes to this important issue.
Lost Time Accident Frequency 2010
2003
2004
2005
2006
2007
2008
2009
YTD 2010
20.00
15.00
10.00
5.00
0.00
19.32
TBS Logisitics
9.59
TBS Total Company
5.41
TBS 2010 Operational Report
17
2.19
2.21
1.66
1.42
2.20
1.50
TBS Retail
Employee Health and Safety
The Year in Beer Sales
I. Product Selection
The primary goal at TBS is to become the “Ultimate Source for Beer”. TBS is a unique
retailer with an open listing policy meaning that any brewer in the world that wants to sell
in the system can do so. TBS stocks 346 brands from 89 brewers from around the world.
TBS Brewer Facts:
TBS Brand Distribution
by Brewer Type
Total number of Brewers ........... 89
Ontario based Brewers ............. 27
33% IMPORT
Small Ontario Brewers6............. 21
Out-of-Province Brewers7 ........... 7
35% ONTARIO
Import Brewers ........................ 56
Brewery Countries of Origin ...... 25
19% ONTARIO
SMALL
BREWER
WER
TBS stocks a wide assortment of beer products from
brewers both large and small. Almost a fifth of TBS
brands are produced by small Ontario brewers and 46%
of the brands available are produced outside of Ontario
by both large and small breweries from around Canada
and the rest of the world.
13% OUT-OFPROVINCE
TBS OPEN LISTING
POLICY: ANY BREWER
IN THE WORLD CAN SELL
BEER IN OUR STORES
6 Refers to Ontario brewers selling at The Beer Store whose products, based on TBS sales estimates, are
subject to lower taxes under the Alcohol Gaming Regulation and Public Protection Act, 1996 or eligible for
the small beer manufacturers tax credit under the Taxation Act.
7 Out-of-province Brewers refers to Canadian brewers whose majority of TBS sales volume is supplied from
breweries located in provinces other than Ontario.
TBS 2010 Operational Report
18
The Year in Beer Sales
The Year in Beer Sales
II. Sales by Brewer Category
TBS 2010 Volume Sales Trends:
TBS Volume Sales 2006 to 2010
7,500,000
hectolitres
800,000
hectolitres
7,250,000
7,000,000
600,000
6,750,000
2010
2009
2008
2007
6,250,000
400,000
2006
6,500,000
6,000,000
200,000
total
domestic
import
• Total TBS beer volume up 0.1%
• Domestic beer volume up 0.1%
• Import beer volume down 0.5%
• Regional brewer volume up 6.7%8
• Ontario small brewer volume up 8.6%
Overall beer volume sales at TBS were
relatively flat in 2010 with a slight increase
in domestic volume and a slight decrease in
import volume.
2010 marked the first year since TBS began
selling import beer in 1993 that import beer
volume declined.
Both regional brewers and Ontario small
brewers outperformed general sales trends in
TBS in 2010, increasing sales by more than
the general increase in domestic sales. While
sales in both these categories have fluctuated
in recent years, the 2010 increase is consistent
with the long-term volume growth associated
with both these categories.
TBS Sales - Regional Brewers
TBS Sales - Ontario Small Brewers
2010
2010
2009
2009
2008
2008
2007
2007
2006
2006
340,000
360,000
380,000
400,000 420,000
hectolitres
0
20,000
40,000
60,000 hectolitres
8 Regional brewer refers to out-of-province brewers and non-owner Ontario brewers that are too large for their
products to be eligible for reduced taxes under the Alcohol and Gaming Regulation and Public Protection
Act, 1996 and other Ontario government small beer manufacturer tax credits (i.e. Ontario brewers with an
annual production of more than 150,000hl annually).
TBS 2010 Operational Report
19
The Year in Beer Sales
The Year in Beer Sales
II. Sales by Brewer Category, cont’d
Five-Year Sales Trends: 2006 to 2010
Change in TBS volume sales by
Brewer Category: 2006 to 2010:
Since 2006, TBS sales trends have been
characterized by growth in the import,
regional brewer and Ontario small brewer
categories.
24.2%
20%
Import beer which accounted for 8.2% of
sales in 2006 now accounts for 9.5% of
TBS sales. Domestic beer market share has
dropped from 91.8% to 90.5% during the
same period.
14.6%
15%
10%
5.3%
5%
0%
Despite an overall decline in domestic beer
sales, both regional breweries and Ontario
small breweries have exhibited volume
growth over the last five years with Ontario
small breweries posting volume growth in
excess of both regional breweries and
import brewers.
TBS 2010 Operational Report
-0.7%
Total
20
-2.1%
Domestic
Import
Regional Ontario
Small
Brewers
The Year in Beer Sales
The Year in Beer Sales
Total TBS Sales Value*
III. Sales by Value and Beer Prices
$2,650,000
(000s)
Total TBS sales value (excluding sales
taxes but including deposit), increased
approximately $38 million in 2010 or by 1.4%.
The bulk of this increase is due to provincial
tax adjustments associated with implementation of the Harmonized Sales Tax (HST)
that occurred on July 1, 2010.9 The sales
figures for 2010 and 2009, therefore, are not
directly comparable.
$2,600,000
2010
2009
2008
2007
2006
$2,550,000
$2,500,000
* Figures exclude GST and Ontario Sales Tax
but include deposit.
Average TBS Home Consumer Selling Price Per Litre
Including Sales Taxes (Excluding Deposits)
$
3.94
$
3.93
$
3.90
$
3.88
3.82
$
$
2006
2007
2008
$
$
3.82
3.81
$
3.92
3.83
$
3.72
F2001
F2002
F2003
F2004
F2005
2009
2010
As can be seen from the above graph, average TBS home consumer prices increased slightly
in 2010, rising by approximately 0.5%. This increase is primarily due to higher taxes on
retail beer prices associated with HST implementation. Although implementation of HST on
beer was done in a revenue neutral fashion, some tax load previously associated with sales
taxes on beer sold in the licensee (bar and restaurant) channel (approximately $17 million on
an annual basis), was transferred to commodity taxes on beer sold in the retail channel.
In 2010, this transfer was equivalent to approximately $.02 per litre or the amount of the
increase experienced in TBS home consumer prices.
TBS home consumer prices have increased by $.10 per litre since 2006 or just over $.80 per
case of twenty-four bottles. Prices, however, remain lower than they were in fiscal year 2004
or fiscal year 2005. The highly competitive pricing environment at TBS is reflected in the
9 Implementation of the HST on July 1, 2010 lowered the provincial retail sales tax rate from 12% to 8% and the
licensee sales tax rate from 10% to 8%. In order to implement these changes in a revenue neutral fashion, the
province increased provincial commodity taxes on beer which are levied at the brewery level and built into the
pre-sales tax price. As a result of this redistribution of tax load, 2010 pre-sales tax prices included a greater
amount of tax than in years prior.
TBS 2010 Operational Report
21
The Year in Beer Sales
The Year in Beer Sales
III. Sales by Value and Beer Prices, cont’d
significant market share held by discount brands and the increased use of limited time offers
and promotional pricing on mainstream and premium beer products.
In fact, in the last 15 years, TBS inflation adjusted
home consumer prices have actually declined. As
the graph below indicates, average TBS home
consumer prices, adjusted for inflation, are
12.7% less than they were in 2002 and 6.5%
less than they were fifteen years ago.
2010 AVERAGE BEER PRICES
ADJUSTED FOR INFLATION:
6.5% LESS THAN 1995
12.7% LESS THAN 2002
Change in Retail TBS Beer Selling Price
in 1995 Dollars
$
3.40
$
3.30
$
3.30
$
3.20
$
3.10
$
3.08
08
08
3.00 3
$
$
2.88
8
$
2,90
$
2.80
$
2.70
$
2.60
2010
2009
2008
2007
2006
F2005
F2004
F2003
F2002
F2001
F2000
F1999
F1998
F1997
F1996
F1995
Average TBS Home Consumer Beer Price Per Case in 1995 Dollars
1995 $25
$25.21
21
TBS 2010 Operational Report
2002 $27
$27.01
01
22
2010 $
$23.57
The Year in Beer Sales
The Year in Beer Sales
IV. TBS Sales by Channel
TBS is both a retail and wholesale business. As the following table indicates, TBS
operates 437 stores in an Ontario beverage alcohol system that includes 1,303 outlets
where beer can be purchased.
Ontario Retail Beer Outlets10
2006
2007
2008
2009
2010
TBS Stores
441
440
438
436
437
LCBO Stores
598
601
604
607
611
LCBO Agency Stores & TBS Retail Partners
194
215
216
216
216
On-site Brewery Stores
38
39
39
39
39
1,271
1,295
1,297
1,298
1,303
Total
Home Consumer Volume
Sales Trends:
TBS Home Consumer
Volume Sales
2010
2009
2008
2007
2006
5,000,000
hectolitres
4,750,000
• 2010 volume declined by 48,000 hl
or 1% less than 2009
4,500,000
• 2010 volume declined 2% over
five years (since 2006)
2010 was the third straight year that TBS
home consumer sales declined. TBS home
consumer sales represented 64% of TBS
sales in 2010.
4,250,000
4,000,000
10 Store numbers for LCBO Stores and On-site Brewery stores for all years and Retail Partner and Agency store
numbers for 2006 are from LCBO Annual Reports for March 31st of that year. TBS store numbers for all
years and Retail Partner and Agency store numbers for 2007, 2008, 2009 and 2010 are from TBS data as
of December 31st for that year.
TBS 2010 Operational Report
23
The Year in Beer Sales
The Year in Beer Sales
IV. TBS Sales by Channel, cont’d
TBS Wholesale Sales
TBS Licensee Sales
In addition to selling beer to the public through
its retail stores, TBS also distributes beer to
LCBO stores, Agency stores and TBS Retail
Partner stores as well as 9,700 licensed bars
and restaurants.
2010
2010
A number of long-term trends continued in
2010 with a decline in licensee sales volumes
and increased sales to both LCBO outlets
and Agency and Retail Partner stores. TBS
draught licensee sales exceeded packaged
sales volume for the first time in several years.
2007
2007
TBS Wholesale Volume Sales Trends:
Packaged
Draught
20
2009
009
2008
2008
2006
20
06
0
200,000
200
000 400
400,000
000 600,000
600 000 800,000
800
hectolitres
TBS Retail Partner/Agency Sales
• Overall wholesale sales in 2010 increased
by 51,600hl or 2.0%
2010
2009
• Total licensee sales declined by 48,100hl
or 3.4%
2008
• Licensee packaged beer sales declined
by 45,000hl or 6.3%
2007
• Licensee draught beer sales declined
by 3,100hl or 0.4%
2006
0
• Sales to LCBO increased by 85,600hl
or 10.8%
• Agency Store/Retail Partner sales
increased by 14,100hl or 4.4%
100,000 200,000 300,000 400,000 hectolitres
TBS LCBO Sales
2010
2009
2008
2007
2006
0
TBS 2010 Operational Report
24
200,000 400,000 600,000 800,000 hectolitres
The Year in Beer Sales
The Year in Beer Sales
IV. TBS Sales by Channel, cont’d
TBS Percentage Sales by Channel
2006
2007
2008
2009
2010
Home Consumer
64.8%
64.9%
64.6%
64.7%
64.0%
Licensee
21.6%
20.8%
20.4%
19.4%
18.8%
LCBO
9.1%
9.6%
10.1%
10.8%
12.0%
Retail Partner/Agency
3.7%
4.0%
4.2%
4.4%
4.6%
Other
0.7%
0.7%
0.7%
0.7%
0.7%
Total
100.0%
100.0%
100.0%
100.0%
100.0%
TBS 2010 Operational Report
25
The Year in Beer Sales
Beer Tax Contributions
Ontario beer taxes were subject to a number of changes in 2010 due to the implementation of the Harmonized Sales Tax (HST) on July 1, 2010.
As can be seen from the table below, Ontario sales tax rates on beverage alcohol sales
were lowered when Ontario implemented the HST in cooperation with the federal government.
The provincial retail alcohol sales tax of 12% was lowered to the HST provincial portion
of 8% and the provincial 10% sales tax on alcohol sales in bars and restaurants was also
lowered to the HST provincial rate of 8%.
To implement these changes in a revenue neutral fashion, the provincial government
increased the basic beer tax on packaged beer from $.5555 per litre to $.6975 per litre.
The government also increased its basic beer tax on draught beer by an equal amount.
In conjunction with HST implementation, the provincial government also changed the way
it collects taxes on beer sales through TBS and on-site brewery stores. On July 1, 2010, the
previous system of collecting provincial revenues on beer through a set of manufacturer
licensing fees levied by the Alcohol and Gaming Commission of Ontario under the
authority of the Liquor Licence Act were eliminated and replaced with a new system of
beer commodity taxes which are levied at the point-of-sale to the consumer. The new
commodity taxes are now collected by the Ontario Ministry of Finance under the authority
of the Alcohol and Gaming Regulation and Public Protection Act, 1996. TBS collects
these taxes from consumers and remits them to brewers who then submit payments to
the Ministry of Finance.11
Federal and Provincial Beer Taxes (2010)
Rates Before July 1, 2010
Rates After July 1, 2010
$.3122/litre
$.3122/litre
Basic Fee/Tax (Packaged)12
$.5555/litre
$.6975/litre
Volume Levy
$.176/litre
$.176/litre
$0.0893/container
$0.0893/container
Federal Goods and Services Tax
5 percent
5 percent
Provincial Sales Tax
12 percent
8 percent
Provincial Licensee (Bars and Restaurants)
10 percent
8 percent
Federal Excise Tax
Provincial Beer Commodity Taxes*
Environmental Levy (non-refillable containers)
Sales Tax
(HST 13 %)
11 In 2010 beer commodity taxes were paid to the then Ministry of Revenue. This Ministry was merged into the
Ministry of Finance following the 2011 election.
12 The provincial basic fee for draught beer (beer sold in containers of 18 litres or larger) was $.4055 per litre
prior to July 1, 2010 and $.5475 per litre after July 1, 2010.
TBS 2010 Operational Report
26
Beer Tax Contributions
Beer Tax Contributions, cont’d
Tax Examples by Price Point – After July 1, 2010
Retail Price
Federal Tax
Provincial Tax
(excluding deposit) (as a % of price)
Total Tax
(as a % of price) (as a % of price)
24-Discount Bottles at Minimum
Social Reference Price
$26.40
14.1 %
34.2 %
48.3 %
24-Bottles at Average TBS Home
Consumer Per Litre Price
$32.10
12.4 %
29.3 %
41.7 %
24-Cans at Top Ten Brand Price
$36.55
11.7 %
33.3 %
45.0 %
24-Bottles Premium Priced Import Beer
$43.55
10.1 %
27.9 %
38.0 %
24-Bottles Ontario Small Brewery
(producing 15,000 hl annually)
$41.55
6.4 %
14.4 %
20.8 %
Government tax rates ranged from 48.3 per cent
on discount beer selling at the minimum social
reference price to around 38 per cent for premium
products. Government tax rates also vary by
brewery size.13 Ontario small brewers are subject
to tax rates between 20 and 25 percent of retail
price depending upon their selling price and their
annual sales volumes.
The total beer commodity tax contribution
associated with beer sales in Ontario in 2010
was approximately $1.6 billion. Of this, the province
collected approximately $1,130 million, while the
federal government generated approximately
$474 million.
2010 Per Litre
Beer Tax
Ontario
$0.87
13 In Ontario any beer produced by a brewer whose worldwide annual production is less than 50,000 hl is
subject to a basic fee that is $.4999 less per litre than the rate applied to regular beer products. This reduced
rate generates a tax benefit of over $4.00 per case up to a maximum of $2.5 million per brewer. Ontario
brewers producing between 50,000 and 150,000hl annually are eligible for a small beer manufacturer tax
credit under the Taxation Act. Brewers producing between 50,000 and 75,000hl annually are eligible for
$2.5 million in tax credits. Brewers producing between 75,000 and 150,000hl annually are eligible for tax
credits which decline proportionately as the brewery size increases (from $2.5 million at 75,000hl to zero
at over 150,000hl – a brewer halfway between 75,000 and 150,000hl (112,500hl) therefore would receive
$1.25 million in tax credits).
TBS 2010 Operational Report
27
Beer Tax Contributions
Beer Tax Contributions, cont’d
Ontario Taxes Collected on Beer Sales (2010)
(All figures based on estimates)
Government Revenues Associated with TBS Beer Sales14
2010
Provincial Commodity Taxes
$548.5 Million
Federal Excise Taxes
$199.7 Million
Goods and Service Tax (Federal portion of HST)
$113.5 Million
Provincial Sales Tax (Provincial portion of HST)
$167.4 Million
Total Government Beer Taxes Associated with TBS Sales
$1,029.1 Million
Other Government Beer Tax Revenues (LCBO Sales, On-site beer stores, licensee sales)15
2010
Provincial Commodity Taxes
$173.6 Million
Federal Excise Taxes
$55.6 Million
Retail GST (Federal
(
p
portion of HST))
$37.7 Million
Retail PST (Provincial portion of HST)
$62.7 Million
GST on Licensee Resale (Federal portion of HST)
$67.8 Million
PST on Licensee Resale (Provincial portion of HST)
$177.5 Million
Non-TBS Total
$574.9 Million
Total Ontario Beer Commodity and Sales Taxes
$1,604 Million
Note: In the case of imported and domestic beer sales through the LCBO, provincial commodity taxes on beer
are collected by the LCBO as equivalent LCBO mark-ups. In the case of domestic beer sales, as noted above,
the government changed the collection mechanism for beer taxes on sales through The Beer Store and on-site
brewery stores on July 1, 2010. These pre-collected consumer taxes are collected by brewers and remitted to
the Ministry of Finance. Tax estimates do not include any adjustment for provincial small brewery tax reductions
or reduced federal excise tax rates associated with a Canadian brewer’s first 75,000 hl of production (these
amounts are not reported by provincial or federal governments).
14 Provincial commodity taxes include the basic beer tax, volume tax and environmental tax remitted by
brewers to the Ministry of Finance related to TBS sales and LCBO mark-ups (equivalent to beer taxes) applied
to imported beer sold to TBS. Federal excise taxes remitted include federal excise taxes collected related
to TBS domestic and imported sales. Neither provincial commodity tax nor federal excise tax calculations
include taxes collected on TBS sales to LCBO stores. Those taxes are included in Other Government Beer
Tax Revenues.
15 Provincial commodity taxes include an estimate of revenues derived from the basic tax, volume tax and
environmental tax, remitted by brewers regarding on-site store sales and direct deliveries to licensees plus
LCBO mark-ups (equivalent to beer taxes) collected on LCBO retail domestic and imported beer sales
(excludes LCBO wholesale sales to TBS). Licensee GST and PST estimates assume an average licensee price
of approximately $4.50 per bottle and $5.00 per pint. Estimates for LCBO tax revenues are based on volumes
from LCBO quarterly reports that cover calendar year 2010.
TBS 2010 Operational Report
28
Beer Tax Contributions
Brewers Retail Inc.
Financial Statements
December 26, 2010
TBS 2010 Operational Report
29
29
Audited Financial Statements
PricewaterhouseCoopers LLP
Chartered Accountants
PO Box 82
Royal Trust Tower, Suite 3000
Toronto-Dominion Centre
Toronto, Ontario
Canada M5K 1G8
Telephone +1 416 863 1133
Facsimile +1 416 365 8215
February 28, 2011
Independent Auditors’ Report
To the Shareholders of Brewers Retail Inc.
We have audited the accompanying financial statements of Brewers Retail Inc., which comprise
the balance sheet as at December 26, 2010 and the statements of operations and comprehensive
loss and shareholders’ deficiency, and cash flows for the year then ended, and the related notes
including a summary of significant accounting policies.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with Canadian generally accepted accounting principles, and for such internal
control as management determines is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member
firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
TBS 2010 Operational Report
30
Audited Financial Statements
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial
position of Brewers Retail Inc. as at December 26, 2010 and the results of its operations
and its cash flows for the year then ended in accordance with Canadian generally accepted
accounting principles.
Chartered Accountants, Licensed Public Accountants
TBS 2010 Operational Report
31
Audited Financial Statements
Brewers Retail Inc.
Balance Sheet
(in thousands of dollars)
December 26, 2010
$
December 27, 2009
$
51,120
50,942
5,862
39,988
146,472
1,346
244,788
4,625
31,741
140,575
1,897
229,780
137,433
12,822
120,450
1,745
517,238
140,705
14,122
112,377
5,529
502,513
210,667
92,356
201,745
504,768
188,003
98,610
286,613
Asset retirement obligation
1,016
Deferred interest rate swap gain (note 10)
261
Senior unsecured notes net of current portion (notes 5 and 10)
Accrued benefit liability (note 4)
98,878
604,923
1,006
887
205,529
94,863
588,898
Assets
Current assets
Cash and cash equivalents (note 7)
Accounts receivable
Brewers (note 8)
Other (note 8)
Inventories (note 2)
Prepaid expenses and deposits
Property and equipment (note 3)
Future income tax assets (note 9)
Accrued benefit asset (note 4)
Interest rate swap instrument (note 10)
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Brewers (note 8)
Other
Senior unsecured (notes 5 and 10)
Shareholders’ Deficiency
Capital stock (note 6)
Deficit
385
(88,070)
(87,685)
517,238
385
(86,770)
(86,385)
502,513
Commitments and contingencies (note 7)
Approved
pproved by the Board of D
Directors
Director
or
TBS 2010 Operational Report
32
Director
Audited Financial Statements
Brewers Retail Inc.
Statement of Operations and Comprehensive Loss and Shareholders’ Deficiency
(in thousands of dollars)
Year ended
December 26, 2010
$
Year ended
December 27, 2009
$
291,624
58,700
350,324
293,364
56,033
349,397
322,317
17,786
10,221
350,324
321,550
17,625
10,222
349,397
-
-
1,300
1,300
(192)
1,303
1,111
Net loss and comprehensive loss for the year
(1,300)
(1,111)
Shareholders’ deficiency – Beginning of year
(86,770)
(85,659)
Shareholders’ deficiency – End of year
(88,070)
(86,770)
Revenue (note 1)
Service charges (note 8)
Other
Expenses
Operating (note 8)
Amortization
Interest (notes 5 and 10)
Earnings before income taxes
Provision for (recovery of) income taxes (note 9)
Current
Future
TBS 2010 Operational Report
33
Audited Financial Statements
Brewers Retail Inc.
Statement of Cash Flows
(in thousands of dollars)
Year ended
December 26, 2010
$
Year ended
December 27, 2009
$
(1,300)
(1,111)
17,786
(626)
1,300
10
23,753
(27,811)
(272)
12,840
17,625
(626)
1,303
13
21,982
(29,804)
227
9,609
572
13,412
8,753
18,362
(13,964)
730
(13,234)
(17,033)
96
(16,937)
Increase in cash and cash equivalents during the year
Cash and cash equivalents - Beginning of year
Cash and cash equivalents - End of year
178
50,942
51,120
1,425
49,517
50,942
Supplemental information
Interest paid
10,853
10,895
Cash provided by (used in)
Operating activities
Net loss for the year
Add (deduct): Non-cash items
Amortization
Amortization of deferred interest rate swap gain
Future income taxes
Asset retirement obligation
Employee future benefits
Funding of employee future benefits
(Gain) loss on disposal of assets
Change in non-cash operating working capital balances (note 12)
Investing activities
Purchase of property and equipment (note 3)
Proceeds on sale of property and equipment
TBS 2010 Operational Report
34
Audited Financial Statements
Brewers Retail Inc.
Notes to Financial Statements
December 26, 2010
(in thousands of dollars)
1 Summary of significant accounting policies
The financial statements of Brewers Retail Inc. (the company) have been prepared in
accordance with Canadian generally accepted accounting principles. The more significant
accounting policies are as follows.
General
The company’s fiscal year-end is such that it falls on the Sunday closest to December 31
of each year. Accordingly, the fiscal 2010 period was for the year ended December 26, 2010.
Revenue recognition
Service charge revenue is primarily earned based on the volume of products distributed
at rates determined annually. The difference, if any, between service charge revenue and
costs and expenses incurred is allocated among the owner-breweries in accordance with
the terms of the shareholders’ agreement and recorded as an adjustment to service
charge revenue.
The company purchases and distributes beer and related products in Ontario. Sales and
cost of sales for the year totalled $2,663,658 (2009 - $2,625,681).
Cash and cash equivalents
Cash and cash equivalents include cash on hand and highly liquid investments with a
maturity of less than three months from the date of acquisition. Short-term investments
are recorded at cost plus accrued interest, which approximates fair value.
Inventories
Inventories of beer are valued at cost, which equals the selling price. Also included
in inventories are returnable containers recorded at their recoverable deposit value
and related products and dispensing equipment recorded at the lower of cost and
net realizable value.
Property and equipment
Property and equipment are recorded at cost less accumulated amortization and any
impairment loss. The company assesses property and equipment for recoverability
whenever indicators of impairment exist. If the carrying value of the asset exceeds the
estimated net recoverable amount of the asset, then an impairment loss is recognized
to write the asset down to its fair value. Property and equipment are amortized over
their estimated useful lives on a straight-line basis as follows:
Buildings
Leasehold improvements
Machinery, equipment and technology
Single aperture kegs
Pallets
TBS 2010 Operational Report
35
40 years
over term of the leases
4 - 20 years
20 years
4 years
Audited Financial Statements
Brewers Retail Inc.
Notes to Financial Statements
December 26, 2010
(in thousands of dollars)
Income taxes
Future tax assets and liabilities are recorded on the differences between the accounting
carrying values of balance sheet assets and liabilities and the tax cost basis of these
assets and liabilities based on substantively enacted tax laws and rates.
The company reviews the valuation of its future tax assets annually and records
adjustments to reflect the realizable amount of its future tax assets.
Use of estimates
The preparation of these financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and assumptions
that affect the amounts reported and disclosed in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Employee future benefits
The company provides pension benefits to its employees through various defined benefit
pension plans. The cost of pension benefits earned by employees covered under defined
benefit plans is determined using the projected benefit method pro-rated on service.
Past service costs are amortized over the average remaining service life of active
employees. Any excess of the net actuarial gain (loss) over 10% of the greater of the
benefit obligation and the fair value of plan assets is amortized commencing in the
following year over the average remaining service life of active employees. The cost of
post-employment benefits other than pensions is recognized on an accrual basis over
the estimated working lives of the employees.
Asset retirement obligation
The company follows The Canadian Institute of Chartered Accountants (CICA) Handbook
Section 3110, Asset Retirement Obligations, which establishes standards for the
recognition, measurement and disclosure of liabilities related to statutory, contractual or
legal obligations of retiring property and equipment. For the company, asset retirement
obligations arise in respect of certain properties.
These obligations are initially measured at fair value and are adjusted for any changes
resulting from age, and any changes to the timing or the amount of the original estimate
of undiscounted cash flows. The asset retirement cost is capitalized as part of the related
assets and is amortized into earnings over time.
Derivatives
Derivatives are carried at fair value and are reported as assets where they have a positive
fair value to the company and as liabilities where they have a negative fair value to the
company. The change in fair value during the year is recorded in the statement of
operations. At December 26, 2010 and December 27, 2009, the only derivatives
outstanding were interest rate swaps. This derivative is a Level 2 measurement item for
the determination of fair value, based on information regarding interest rates obtained
from a major financial institution.
TBS 2010 Operational Report
36
Audited Financial Statements
Brewers Retail Inc.
Notes to Financial Statements
December 26, 2010
(in thousands of dollars)
New accounting policies
As required by the CICA, on January 1, 2010, the company adopted the amendments to
CICA Handbook Section 1506, Accounting Changes, which was established to exclude
changes in accounting policies upon the complete replacement of an entity’s primary
basis of accounting. There was no effect on the financial statements.
2 Inventories
December 26, 2010 December 27, 2009
$
$
Beer
Returnable containers
Related products
Dispensing equipment
Keg repair materials
142,090
2,320
691
1,347
24
146,472
136,890
2,530
681
437
37
140,575
3 Property and equipment
December 26, 2010 December 27, 2009
Land
Buildings
Leasehold improvements
Machinery, equipment
and technology
Single aperture kegs
Pallets
Cost
$
Accumulated
amortization
$
Net
$
Net
$
8,135
111,303
80,479
99,398
47,810
55,143
65,452
8,135
63,493
25,336
33,946
8,145
63,783
25,271
37,347
18,206
7,458
324,979
15,708
3,433
187,546
2,498
4,025
137,433
2,985
3,174
140,705
During the year, property and equipment were acquired at an aggregate cost of $14,972
(2009 - $17,620), of which $1,008 (2009 - $2,947) is included in other payables and accruals.
4 Employee future benefits
The company has a number of defined benefit and defined contribution plans providing
pension and other retirement and post-employment benefits to most of its employees.
TBS 2010 Operational Report
37
Audited Financial Statements
Brewers Retail Inc.
Notes to Financial Statements
December 26, 2010
(in thousands of dollars)
Information about the company’s defined benefit and defined contribution plans in
aggregate, based on a September 30, 2010 measurement date, is as follows:
Pension benefit plans
Other benefit plans
December 26, 2010 December 27, 2009
$
$
December 26, 2010 December 27, 2009
$
$
Fair value of plan assets
Accrued benefit obligation
Net liability
Unamortized past service
(costs) gain
Unamortized actuarial
(loss) gain
553,060
651,187
(98,127)
32,057
531,517
586,999
(55,482)
42,507
78,949
(78,949)
(3,982)
72,286
(72,286)
371
186,520
125,352
(15,947)
(22,948)
Accrued benefit asset
(liability)
120,450
112,377
(98,878)
(94,863)
The company is in compliance with all contribution regulations within the Pension
Benefits Act (Ontario) and the terms of each plan.
The assets of the pension benefit plans are allocated between equity securities (62%)
and debt securities (38%).
Other information about the company’s defined benefit plans is as follows:
Pension benefit plans
Other benefit plans
December 26, 2010 December 27, 2009
$
$
December 26, 2010 December 27, 2009
$
$
Net expenses
Company contributions
Benefits paid
15,992
24,021
31,846
13,821
26,016
29,080
7,814
3,799
3,834
8,161
3,788
3,788
The significant actuarial assumptions adopted in measuring the company’s accrued
benefit obligations are as follows:
Year ended December 26, 2010
%
Discount rate
Long-term rate of return on plan assets
Rate of compensation increase - bargaining unit
Rate of compensation increase - salary plan
TBS 2010 Operational Report
38
5.35
7.25
2.00
Year ended December 27, 2009
%
6.00
7.50
2.00
Audited Financial Statements
Brewers Retail Inc.
Notes to Financial Statements
December 26, 2010
(in thousands of dollars)
For measurement purposes, an 8.5% annual rate of increase in the per capita cost of
drugs and other medical benefits was assumed for fiscal 2011. The rate is assumed to
decrease by 0.5% per year to a minimum of 5%.
Brewers Retail Pension Plan for Salaried Employees
Salaried employees are members of the Brewers Retail Pension Plan for Salaried Employees. Based on the latest actuarial valuation as at January 1, 2010, net assets of the
plan were $205,767 and the present value of the accumulated benefits was $252,626.
The company continues to remit contributions, as detailed in the valuation, in order to
bring the pension plan to a fully funded position.
Brewers Retail Pension Plan for Bargaining Unit Employees
Based on the actuarial valuation of the Brewers Retail Pension Plan for Bargaining Unit
Employees as at January 1, 2008, net assets of the plan were $341,636 and the present
value of the accumulated benefits was $398,561. The company continues to remit contributions, as detailed in the valuation, in order to bring the pension plan to a fully funded
position.
5 Senior unsecured notes
Year ended December 26, 2010
$
Year ended December 27, 2009
$
Senior unsecured Series A notes,
due June 15, 2011, interest payable
quarterly at an annual rate of 7.5%
200,000
200,000
Fair value of senior unsecured notes
1,745
5,529
201,745
201,745
-
205,529
205,529
Less: Current portion
The company issued $200,000 senior unsecured notes through a private placement that
was completed on June 15, 2001.
6 Capital stock
Authorized
197,700 first preference shares, eight dollars Series A, redeemable at one hundred dollars each
10,000 Class A shares, non-voting
Unlimited Class C shares, non-voting, redeemable at one hundred dollars each contingent upon
certain future events
Unlimited Class D shares, non-voting, redeemable at one hundred dollars each contingent upon
certain future events
1,000 common shares
TBS 2010 Operational Report
39
Audited Financial Statements
Brewers Retail Inc.
Notes to Financial Statements
December 26, 2010
(in thousands of dollars)
Issued
December 26, 2010
$
December 27, 2009
$
100
93
92
100
385
100
93
92
100
385
10,000 Class A shares
612,236 Class C shares
916,590 Class D shares
1,000 common shares
7 Commitments and contingencies
The company has commitments under operating leases for real estate, vehicles and
equipment that require future minimum annual payments as follows:
$
2011
2012
2013
2014
2015
Thereafter
28,098
25,268
21,605
17,265
2,286
15,155
119,677
The company is a defendant in legal suits and disputes during its normal course of
business and does not believe the ultimate resolution of these matters will result in any
material liability.
Included in cash and cash equivalents is $64 (2009 - $79) that has been pledged as
collateral on letters of credit of up to $500. The company has a bank overdraft facility
of up to $150 of which $nil (2009 - $nil) is outstanding.
8 Related party transactions and balances
The company is owned by three breweries. The company carried out the following
transactions in accordance with the terms of the shareholders’ agreement during the
year and had balances at the end of the year with these entities as follows:
TBS 2010 Operational Report
40
Audited Financial Statements
Brewers Retail Inc.
Notes to Financial Statements
December 26, 2010
(in thousands of dollars)
Year ended December 26, 2010
$
Service charge revenue
Purchases of beer
Operating costs charged to
a sister company at cost
Accounts receivable - Brewers
Accounts receivable - Sister company
Accounts payable and accrued liabilities - Brewers
Year ended December 27, 2009
$
216,685
2,361,620
219,972
2,338,199
4,403
5,862
415
210,667
3,626
4,625
321
188,003
These transactions were in the normal course of operations and were measured at the
exchange value, which represents the amount of consideration established and agreed
to by the related parties.
9 Income taxes
Year ended December 26, 2010
$
Current income tax recovery
Use of loss carry-forwards
Temporary differences at Canadian enacted
future tax rates averaging 25.00% (2009 - 26.94%)
Total income tax expense for the year
Year ended December 27, 2009
$
3,300
(192)
2,603
(2,000)
(1,300)
1,300
1,111
The balance sheet reflects future income tax balances related to differences between
the accounting and tax bases of the company’s assets and liabilities. Future income tax
assets as at December 26, 2010 arose on timing differences between accounting and tax
values of $50,000 primarily for property and equipment, pension and post-employment
benefit assets and obligations.
10 Financial instruments
Fair value
The company’s financial instruments are classified into the following categories:
• cash and cash equivalents as held-for-trading, which are measured at fair value;
• accounts receivable as loans and receivables, which are initially measured at fair
value and subsequently at amortized cost; and
• accounts payable and accrued liabilities as other financial liabilities, which are
measured at amortized cost.
TBS 2010 Operational Report
41
Audited Financial Statements
Brewers Retail Inc.
Notes to Financial Statements
December 26, 2010
(in thousands of dollars)
The estimated fair value of cash and cash equivalents, accounts receivable and accounts
payable and accrued liabilities approximates their carrying value due to the relatively
short-term nature of the instruments and/or due to the interest rates on the borrowing.
The estimated fair value of the unsecured notes is $201,745 (2009 - $205,529), based
on prevailing interest rates.
Credit risk
The company does not have significant concentrations of credit risk other than amounts
receivable from shareholders.
The credit risk associated with the interest rate swap agreement arises from the
possibility the counterparty to one of these contracts will fail to perform according to
the terms of the contract. Counterparties to the company’s interest rate swap agreement
are major Canadian financial institutions that have been assessed as financially sound
to support their obligations.
Interest rate risk
The company entered into interest rate swap contracts to manage the company’s
current and anticipated exposure to interest rate risk. The company does not hold or
issue derivative financial instruments for trading or speculative purposes.
The company has $100,000 of interest rate swap agreements, which will terminate in
2011. Under these arrangements, the company received interest at 7.5% and paid
interest at the three-month bankers’ acceptance rate plus 2.615%. The estimated fair
value of the swap is $1,745 (2009 - $5,529) representing a net receipt to the company.
This amount is recorded in the statement of operations. The interest rate swaps meet the
criteria for hedge accounting under CICA Handbook Section 3865. Thus, neither the
notional principal amounts nor the current replacement value of these outstanding
interest rate swaps are carried on the balance sheet.
As a result of entering into the $100,000 interest rate swap, on June 26, 2006, the
previously held interest rate swaps were unwound and resulted in a gain of $3,131.
This gain is being amortized over the remaining term of the debt. The amortization of
$626 (2009 - $626) is reported net in interest expense.
11 Capital management
The company’s capital consists of share capital and deficit. The company’s objectives
in managing capital are to ensure adequate operating funds are available to maintain
its business activities and to provide a cost-effective operation to its shareholders.
Additionally, the company aims to ensure sufficient liquidity to support its stores, execute
its business plans and enable the internal financing of capital projects.
Due to fluctuations in interest rates, the company is exposed to interest rate risk as
described in notes 1 and 10. The company employs a partial hedging strategy to
manage the interest risk on its long-term debt.
TBS 2010 Operational Report
42
Audited Financial Statements
Brewers Retail Inc.
Notes to Financial Statements
December 26, 2010
(in thousands of dollars)
The company’s primary uses of capital are to finance non-cash working capital along
with capital expenditures for new store additions, existing store renovation projects,
information technology software and hardware purchases and equipment purchases. The
company currently funds these requirements out of its internally generated cash flows.
The company is not subject to any externally imposed capital requirements. There has
been no change with respect to the overall capital risk management strategy during the year.
12 Change in non-cash operating working capital balances
Year ended December 26, 2010
$
(Increase) decrease in accounts receivable
Brewers
Others
Increase in inventory
Decrease (increase) in prepaid expenses
Increase in accounts payable and accrued liabilities
Brewers
Other (note 3)
Decrease in income taxes payable
Year ended December 27, 2009
$
(1,237)
(8,247)
(5,897)
551
1,767
(4,878)
(7,979)
(403)
22,664
(7,262)
-
16,635
3,803
(192)
572
8,753
13 Comparative Figures
Certain of the comparative figures have been reclassified to conform to the presentation
adopted in the current year.
TBS 2010 Operational Report
43
Audited Financial Statements
Audited
TBS
Service
Financial
Fees Statements
& Financial Operations
The Beer Store is owned by Labatt Brewing Company Ltd., Molson Coors Canada and Sleeman
Breweries Ltd. The company was originally established in 1927 and currently operates under
the authority of the Liquor Control Act and the Alcohol Gaming Regulation and Public
Protection Act, 1996.
The Beer Store operates on a cost recovery basis. All non-owner brewers pay uniform
service fees to sell their products at TBS (see 2010 TBS Rate Sheet page 45). TBS owners
pay a volume-based basic fee that varies from year to year based on actual TBS costs.
Owners are responsible for covering operating costs and investments in the infrastructure
that are not covered by revenues generated from non-owner basic fees and elected service
fees (fees for optional services which are the same for owner and non-owner brewers) and
other TBS revenues.
The Beer Store’s brewer rate sheet provides reduced service fees for the first 25,000 hectolitres (hl)
and next 50,000 hl of a brewer’s sales at TBS. On the first 25,000 hl sold each year, brewers
receive a 12% reduction off their Basic Service Fee (for packaged beer sales). On the next
50,000 hl sold, brewers receive a 2% reduction. In 2010, 88 percent of brewers selling at TBS
sold less than 25,000 hl and therefore received the maximum discount on all their volume sold.
Brewers are able to list their beer products in any TBS store they choose subject to the terms
of TBS’s standard form User Agreement, provincial regulatory approvals and payment of
TBS’s one-time listing fee (a base of $2,659.42 plus $212.76 for the first 233 stores, $50 for all
stores beyond 233 and $500 for all stores classified as capacity constrained “D” stores).
The Beer Store does not set the prices of the products it sells. Brewers set their own selling
price subject to provincial (Liquor Control Board of Ontario) regulatory approval.
TBS operations are subject to provincial laws and regulations and oversight by two
government agencies: the Alcohol and Gaming Commission of Ontario (AGCO) and the
Liquor Control Board of Ontario (LCBO). All new store locations must be approved by the
AGCO and TBS hours of operations and marketing and advertising practices must conform
to Liquor Licence Act and Liquor Control Act requirements. Service fees must conform to
the terms of a Beer Trade Memorandum of Understanding signed by Canada and the
United States16 in 1993. This trade agreement limits fee increases to the rate of inflation
unless it can be demonstrated that costs have increased at a rate in excess of inflation.
16 The Canada-United States Memorandum of Understanding on Provincial Beer Marketing Practices signed in
August 1993 pursuant to a WTO trade dispute defines terms of access for foreign beer in the Ontario market
including service fees applied by The Beer Store. The Ontario government was a party to the negotiations that
concluded with the agreement.
TBS
S 2010 O
Operational Report
44
TBS
SS
Service Fees & Financial O
Operations
Appendix A
TBS RATE SHEET (EFFECTIVE May 3, 2010)
BASIC SERVICES
Audited Financial Statements
First
25,000 hl
Next
50,000 hl
Remaining
Volume
$43.60
$36.74
$48.58
$40.84
$49.57 per hl
$40.98 per hl
Base Fee +
Per store, Per SKU
First 233 Stores
All Other Stores
above 233
All “D” Stores
$2,659.42
$5,318.84
$212.76
$425.50
$50
$500
Packaged
Draught
LISTING ADMINISTRATION FEE
Packaged
Draught
ELECTED SERVICES
TRANSFERS
Emergency
Regular
$24.53 per hl
$20.32 per hl
DELIVERY SERVICE TO LCBO
DELIVERY SERVICE TO RETAIL PARTNERS
EMPTY CONTAINER DISPOSAL
Bottles (Service fee currently under review)
Cans
OLD CODE DISPOSAL
VOUCHER ADMINISTRATION
IN STORE PRODUCT INFORMATION – POSTER
Fee will be in addition to supplier cost to produce plus delivery
$20.32 per hl
$20.32 per hl
$5.47 per hl
$2.42 per hl
T.B.D.
5% of retail value
$159.57 per store
EMPTY CONTAINER PURCHASE
This charge applies to all products sold through the LCBO
where the empty containers are redeemed by BRI
NON-STANDARD CONTAINERS
Industry Standard Bottles, Kegs and Cans which do not require
sorting or special handling are exempt from this charge
$6.81 per hl
Packaged
Draught
KEG REPAIR SURCHARGE
$0.0466 per unit
$1.34 per unit
$0.55 per usage
DIRECT DELIVERY KEG FEE
$4.20 per hl
DRAUGHT BEER
Non-Palletized Shipments
Return of Empty Containers
T.B.D.
T.B.D.
NOTE: GST/HST OR EQUIVALENT WILL BE ADDED TO ALL FEES WHERE APPLICABLE
OTHER FEES
Other fees include (but are not limited to) liability insurance required by the government and special services
which the Brewer may engage BRI to perform from time to time. Deposits for the use of BRI pooled assets
(e.g. kegs and pallets) will be levied as appropriate. Deposits will be refunded as the assets are returned.
TBS 2010 Operational Report
45
TBS Rate Sheet