Empire Company Annual Report 2005

FY2005 Annual Report · Empire Company

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E M P I R E

enduring value: consistent, steady
long-term performance, businesses
we know and understand, strong
management and dedicated people,
disciplined financial management,
prospects for future growth

Empire Company Limited 2005 Annual Report

IFC Contents

2
Letter to Shareholders
6
Message from Operating Management
10
Long-term Progress
12 Message from the Chairman
12
15
16
18
19 Management’s Discussion and Analysis
58 Management’s Statement of Responsibility

Board of Directors
Corporate Governance
Community Involvement
Corporate Officers

for Financial Reporting

Financial Highlights

($ in millions, except per share amounts)

Operations
Revenue
Operating income
Operating earnings
Capital gain (loss), net of tax
Net earnings

Financial Condition
Total assets
Long-term debt
Shareholders’ equity

Per Share Information, basic and diluted
Operating earnings
Capital gain (loss), net of tax
Net earnings
Book value
Dividends

Share Price
High
Low
Close

*Restated

59
60
61

62
63
64

Auditors’ Reports
Consolidated Balance Sheets
Consolidated Statements of Retained
Earnings
Consolidated Statements of Earnings
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial
Statements
Eleven-year Financial Review
Investor Information

84
86
IBC Mission Statement

53 Weeks Ended
May 7th
2005

52 Weeks Ended
April 30th
2004*

52 Weeks Ended

April 30th
2003*

$ 12,435.2
463.7
182.9
3.7
186.6

4,929.2
974.4
1,709.0

2.78
0.05
2.83
25.87
0.48

38.00
24.25
36.66

$ 11,284.0
422.8
163.3
9.2
172.5

4,679.7
995.7
1,567.6

2.48
0.14
2.62
23.67
0.40

29.50
23.10
26.65

$ 10,624.2
444.4
159.3
(6.0)
153.3

4,519.3
1,122.4
1,418.5

2.42
(0.09)
2.33
21.41
0.33

33.25
23.70
23.85

Empire Company Limited is a diversified Canadian company whose key businesses include food retailing, real estate and
corporate investment activities. Guided by conservative business principles, our primary goal is to grow long-term
shareholder value through income and cash flow growth and equity participation in businesses that have the potential for
long-term growth and profitability.

This is Empire

Food
Sobeys Inc. (“Sobeys”), a 68.4%-owned
subsidiary of Empire, is a leading national
grocery retailer and food distributor with
annual revenue of $12 billion. Headquartered
in Stellarton, Nova Scotia, Sobeys owns or
franchises more than 1,300 stores in all 10
Canadian provinces under retail banners that
include Sobeys, IGA extra, IGA and Price
Chopper. During fiscal 2005, Empire increased
its ownership in Sobeys to 68.4% from
65.0% a year earlier.

Real Estate
Empire owns one of the largest portfolio’s of
prime retail properties in Eastern Canada
through wholly-owned Crombie Properties
Limited (“Crombie”) and Sobey Leased
Properties Limited (“SLP”). Crombie owns
and operates a diversified portfolio which
includes shopping centres and office properties.
The real estate division, through Crombie, also
owns 35.7% of Genstar Development
Partnership (“Genstar”), a residential land
development business with operations primarily
in Western Canada.

Food Revenue(1)
($ in millions)

Food
Operating Income
($ in millions)

Real Estate Revenue(1)
($ in millions)

Real Estate
Operating Income
($ in millions)

4
.
9
8
1
,
2
1

4
.
1
6
0
,
1
1

5
.
4
1
4
,
0
1

5
.
2
3
7
,
9

0
.
3
6
1
,
9

4
.
1
3
2

6
.
5
2
6 3
.
6
9
2

6
.
2
2
3 3
.
4
9
2

2
.
9
2
5 2
.
0
1
2

6
.
8
9
1

1
.
5
8
8 1
.
5
6
1

2
.
2
2
1

0
.
1
1
1

8
.
3
0
1

6
.
0
0
1

3
.
2
8

Fiscal Year
(1) Includes gain of $14.6 million
on sale of redundant real estate
in ﬁscal 2004.

Fiscal Year

Fiscal Year
(1) Revenue is before inter-segment
elimination.

Fiscal Year

Other Operations
Empire’s other operations consist primarily
of wholly-owned Empire Theatres Limited
(“Empire Theatres”), the leading movie exhibitor
in Atlantic Canada with 176 screens in 27
locations at fiscal year-end. Empire Theatres is
committed to providing its customers with an
enjoyable movie-going experience by offering
modern stadium-style seating, curved screens,
digital sound, a broad concession variety, and
exceptional customer service.

Investments
Empire manages an investment portfolio that
carried a market value of $465.5 million as at
fiscal 2005 year-end. Empire is committed to
maintaining a high quality, liquid investment
portfolio that offers a combination of yield and
attractive growth characteristics, providing Empire
with a pool of capital to support the growth
and development of the operating businesses
and to enhance shareholder net asset value.

Other Operations
Revenue
($ in millions)

Other Operations
Operating Income
($ in millions)

Investment Income(1)
($ in millions)

Investment Portfolio
Total Return*
vs. Benchmarks

4
.
4
7

4
.
4
5 6
.
0
6

2
.
6
5

1
.
9
4

5
.
6

8
.
9

5
.
9

0
.
9

Fiscal Year

8
.
9
2

7
.
5
1

Total
Investment
Income

Equity
Earnings

0
.
8
1

8
.
5
1

9
.
4
1

0
.
1
2

0
.
2
1

1
.
6 5
.
0

0
.
3

Empire Company
Investment
Portfolio

S&P/TSX Index

$185.77

S&P 500 Index
(in Canadian $)

$110.36

$72.88

250

200

150

100

Fiscal Year
(1) The decline in equity earnings
in ﬁscal 2002 is related to the sale
of Empire’s investment in
Hannaford Bros. Co. on July 28, 2000.

Fiscal Year
*$100 invested on 04/30/2000 in
Empire Company investment portfolio
or the index, including reinvestment
of dividends.

Paul Sobey, President and Chief Executive Officer, with Rob Dexter – a Director of
Empire since 1987, who succeeded Donald Sobey as Chairman in September, 2004,
becoming the first Chair from outside the Sobey family.

Enduring value

At Empire, we are very proud of our legacy of value creation and
we remain fully focused on the long-term. Our approach is clear
and unwavering: we commit our capital to businesses operating in
sectors we know and understand.We ensure that these operations
have outstanding management and are provided with the capital
they need to fund economically attractive growth and development.

Paul D. Sobey
President and C.E.O.

Robert P. Dexter
Chairman

Empire Company Limited || 1

Letter to Shareholders

‘‘With higher operating company earnings
and a very strong investment performance,
Empire once again built on our long-term
legacy of value creation.’’

Building value in 2005

Empire Company achieved strong, balanced
performance in 2005, posting record results in
revenues, operating earnings and cash flows. Our
revenues grew by 10.2% to reach $12.4 billion,
operating earnings grew by 12.0% to reach
$182.9 million or $2.78 per share. Dividends
paid to common shareholders increased by 20%
and we are pleased to note that the Board
approved a further 16.7% increase in the
common share dividend rate per share effective
July, 2005.This represents the tenth straight year
of growth in the dividend and is a reflection
of the Board’s confidence in the fundamentals
of our business.

We are pleased to see that the returns

enjoyed by our shareholders once again reflect the
strong underlying performance of our Company.
Empire provided a 39.8% total return to share-
holders in fiscal 2005, more than double that
recorded by the S&P/TSX Index over the same
time period.We believe that such returns reflect,
at least in part, a growing understanding of the
value of each of our operating businesses as well
as our long-term track record of building value.
That track record, in turn, reflects our ongoing

commitment to initiatives which enhance the
long-term value of Empire and our operating

businesses.We have not and will not be persuaded
to pursue short-term goals at the expense of
long-term value creation. Investments to enhance
Sobeys’ operational efficiency made this year and
planned for the future are an example of the
longer term focus of this organization.We are
pleased that throughout Empire, tough decisions
are made easier through the clarity of this core
principle: our shareholders deserve nothing less.
Empire’s steady and consistent performance

and legacy of value creation has largely been
the result of paying close attention to the needs
of our customers – consumers shopping for
groceries, movie-goers enjoying our theatres, and
tenants of our commercial real estate properties.
Along with the leadership, good planning and
disciplined execution demonstrated by the
management of our operations, we have clearly
benefited from the collective efforts of thousands
of hard working employees who have the passion
and desire to succeed and do better for their
respective customers.

Managing Growth in 2005
Sobeys has effectively pursued its food focused
strategy, and through significant investments in
merchandising, store network development,

2 || 2005 Annual Report

Paul D. Sobey
President and C.E.O.,
Empire Company Limited

margin and selling initiatives, has successfully
delivered sales growth well above the industry
average, with same store sales growth of 3.7%,
resulting in market share gains in its four major
markets. Bottom line performance improved in
2005 and during the year, Sobeys has, with
renewed vigour, focused on productivity
initiatives to reduce costs and increase
efficiencies.These initiatives carry a price tag
in the short-term: we are confident they will
lead to enhanced and sustainable profitability
over the longer term.

Empire’s confidence in Sobeys’ strategy and

execution was tangibly demonstrated through
our acquisition of 1.86 million Sobeys common
shares in fiscal 2005, increasing our ownership
interest in Sobeys to 68.4% from 65.0% at the
start of the fiscal year.

Our real estate division continues to deliver
strong financial results, with our residential real
estate operations once again exceeding our
performance metrics and expectations.

For several years we have cautioned that
residential development follows its own market
cycle and that a slowdown would begin catching
up with Genstar.We have been delighted to
have been proven wrong. Genstar is a very well

managed business which has been focused on
markets in Western Canada where demand has
remained quite strong. Although a slowdown must
surely eventually occur, we are confident that
Genstar will continue to outperform its market
sector through all stages of the economic cycle.
The real estate division’s commercial real

estate business has also remained strong.
Management has been successful in achieving
growth in this business, consistent with their
strategic plan. Our occupancy level has remained
healthy at 93.5%. In addition, we are pleased
that Empire’s real estate management have
achieved geographic diversification, another
strategic goal: Genstar is focused in the West,
largely in Calgary, Edmonton, and Vancouver,
while the commercial portfolio is focused in
Atlantic Canada and Ontario.

Our theatre operation had a good year,

posting top line growth of 13.7% and a
continued strong return on equity despite the
fact that the movie theatre industry was in the
doldrums for much of the fiscal year due to a
lack of blockbuster movies. Empire Theatres’
performance was largely driven by the
acquisition and development of six theatres
and 34 movie-screens during the year.

Empire Company Limited || 3

“What is key with our operating businesses is to
give top quality management the authority,
responsibility and accountability to perform.”

This performance reflects on the quality of
its management, its attention to cost controls
and the pursuit of its strategy of focusing on
markets where Empire Theatres can be the
entertainment destination of choice. While
turning in a solid financial performance, Empire
Theatres continues to build value for the future
with the addition of new screens, the ongoing
modernization of its existing circuit and a
passion for operational effectiveness and
efficiency.

During fiscal 2005 our investment portfolio
generated investment income of $21.0 million,
realized investment capital gains of $4.4 million
and increased our unrealized capital gain position
by $73.4 million. Empire’s investment returns
continued to outpace industry benchmarks for
the year and also over the longer term.

Our first quartile return performance was
centered around the solid performance by our
equity accounted investment in Wajax Limited.
Wajax earnings performance was the best in
seven years, reflecting their continued adherence
to the disciplines initiated in 2002 in order to
return Wajax’s profitability to an acceptable level.
Their focus on business fundamentals as well
as the implementation of growth and profit
improvement strategies in each of Wajax’s core

4 || 2005 Annual Report

businesses contributed to these solid results.We
acknowledge the hard work of the management
and employees of Wajax for delivering solid
financial results, a strong capital position, and a
renewed commitment to growing revenues and
delivering sustainable earnings.

Subsequent to fiscal year end, on June 15,

2005 Wajax completed its conversion to an
income fund. Empire subsequently via a
“secondary” offering reduced its holding
from 45.0% on a fully diluted basis, to 27.6%.
We believe that this conversion has not only
enhanced shareholder value and liquidity but
has also provided a new platform for the
growth and development of Wajax.

Ongoing Progress
Looking ahead through fiscal 2006, we will
continue to focus on our core operating
companies and expect further progress towards
the execution of their respective business plans.
We will also support and encourage continued
progress towards making each of our businesses
more efficient.

Each of our operating businesses will
continue to work towards enhancing value for
the long-term and all are prepared for challenges
in their markets.While fluctuations through a

From Left to Right:
Carol A. Campbell, Vice President, Risk Management
John G. Morrow, Vice President and Comptroller, Paul V. Beesley, Senior Vice President and
Chief Financial Ofﬁcer, Stewart H. Mahoney, Vice President Treasury and Investor Relations

cycle are to be expected; our focus will remain
on the long-term trends – and over the long-
term, Empire has done well for all stakeholders.
Empire’s management team has a significant

portion of personal net worth linked to the
Company’s fortunes; our interests are well
aligned with all shareholders of the Company
and we prefer nothing less. To further
enhance the long-term value in Empire we
are committed to the constant review of our
operating businesses and of our investments.
We will continue to monitor our progress
closely and analyze all tangible options for
improving long-term shareholder value.

We are very fortunate in having the support,

counsel and direction of a very strong Board
of Directors – including our new Chairman,
Rob Dexter, and our Chairman Emeritus,
Donald Sobey.The Company owes much to
Donald Sobey, Chairman of the Company for
20 years. His experience and sound judgment
have provided wise counsel to the Empire Board

and to our management team, and we look
forward for his continued contributions as a
Director of the Company.

We are also very fortunate in the quality and

dedication of the management and employees
of Empire and our operating businesses.Their
enthusiasm, hard work, passion and desire to
succeed and do better for their customers has
resulted in another successful year.With their
support we look forward to continuing to build
value together.

Paul D. Sobey
President and C.E.O.
July 15, 2005

Empire Company Limited || 5

Message from Operating Management

Bill McEwan
President and C.E.O.,
Sobeys Inc.

Food Retailing

Strategic Focus
At Sobeys, our focus is clear and steadfast –
we are focused on food, driven by our fresh
expertise, supported by superior customer
service – in the right-sized, right format stores
for each individual market we serve. Our passion
for food sets us apart in a highly competitive
marketplace. Our customers see and feel the
difference, and their growing patronage is driving
our sales and earnings growth.

Progress in 2005
In fiscal 2005 we continued to invest in our
food-focused strategy and we delivered
encouraging growth in revenues, same-store-
sales and market share.

We enhanced our store network further as

we opened, replaced, expanded, acquired or
converted close to 100 stores across the country.
As well, we continued to develop unique
formats for different markets.

We also introduced our new private label
brand – Compliments – in every banner across
the country.This product line is unique in
Canadian retailing, with three tiers of products
under the one brand.We will have launched
approximately 3,000 products by October, 2005.
On the productivity side, we invested in our

SMART Retailing initiative – a store based

6 || 2005 Annual Report

continuous improvement program designed to
reduce shrink and waste, effect savings and
engage employees to operate our stores more
efficiently.We continued the roll-out of our
common point of sale system, which is providing
us with better customer information while
enabling improved service at the check-out,
with increased efficiency.

Our bottom line progress reflects the net

impact of improved merchandising, pricing
and productivity improvements throughout the
year – achieved while we continue to make
significant investments in our retail network
and infrastructure for the long term.

Bill McEwan
President and C.E.O., Sobeys Inc.

Peter C. Godsoe
Chairman, Sobeys Inc.

J. Stuart Blair
President and C.E.O.,
Crombie Properties Limited

Real Estate

Strategic Focus
The foundation of our real estate business is our
commercial property portfolio in Atlantic Canada,
where Crombie and its affiliates are the clear
market leaders, with 77 properties, and 12.9 million
square feet of gross leaseable area. In recent years,
while continuing our leadership in this core
market, we have also been pursuing a diversification
strategy: we have targeted geographic expansion
of our commercial real estate in central Canada,
often in conjunction with Sobeys.To date, we
have 12 properties and 1.1 million square feet
of leasable space in Central Canada. Meanwhile,
we have complemented our commercial holdings
with a stake in residential development, through
our investment in Genstar.

Progress in 2005
Genstar exceeded expectations once again in
2005, with an outstanding sales and earnings
performance. Our commercial retail business
also continued to deliver steady results, posting
record levels for rental income and earnings.
Occupancy rate remained healthy at 93.5%.

While we remain committed to geographic

expansion, we made no major acquisitions in
Central Canada during the year, although we
did launch a major new retail development on
a significant property we own in Montreal,

Quebec. As noted last year, our targeted markets
in Ontario seem fully valued at present – and
we have no intention of overspending.We are
constantly reviewing and monitoring opportunities
and have been developing a joint capability with
Sobeys in Ontario as we continue to see long
term opportunities in Canada’s largest markets.
While expansion in other markets has

slowed for the short term, we continued to
strengthen our leadership in core Atlantic
markets. For example, we replaced Wal-Mart
with Sears, added Winners and redeveloped the
food court and exterior at Avalon Mall – the
largest mall in Newfoundland.We still have
plenty of scope for further development in
Atlantic Canada, and look forward to further
growth in Central Canada in 2006.

J. Stuart Blair
President and C.E.O.,
Crombie Properties Limited

Frank C. Sobey
Chairman,
Crombie Properties Limited

Empire Company Limited || 7

Stuart G. Fraser
President and C.E.O.,
Empire Theatres Limited

Other Operations

Strategic Focus
Empire Theatres has performed well over the
years by focusing on being the entertainment
focal point in the markets it serves.This strategy
has proven effective and has resulted in steady
growth in an industry which faces increasing
competition from home entertainment.We are
committed to providing a terrific cinema
experience to our customers, with modern
complexes featuring stadium seating, self-serve
electronic ticketing, large curved screens and
digital sound, modern arcade amenities, and
branded food choices.

Progress in 2005
A relative lack of blockbuster movies led to a flat
year for the cinema industry – particularly in the
second half of our fiscal year.We are pleased that
Empire Theatres outpaced the industry, posting
revenue growth of 13.6% over the prior year.

While the industry box office was somewhat

lackluster, we made great progress with our
program of controlled theatre expansion, as we
moved on attractive opportunities that arose in
markets we know and like. During the year, we
grew from 22 locations with 149 screens to 27
locations with 176 screens.We acquired four
locations with 23 screens from Viacom Canada in
Nova Scotia and New Brunswick, purchased

8 || 2005 Annual Report

an independent theatre in Rothesay, New
Brunswick and constructed a new theatre
centre in Bridgewater, Nova Scotia.We also
completed major renovations of venues in
Halifax and Moncton.With our joint venture
in Western Canada, we added one location and
grew by nine screens, for a total of four
locations and 24 screens.

Looking forward, we expect a better year

in 2006. Major new movies such as the new
installments of “Star Wars” and “Harry Potter”,
along with “Madagascar” and “War of the
Worlds” are expected to generate excitement –
and box office improvement.We will remain
focused on improving operational efficiency
and maximizing same theatre revenue while
pursuing controlled theatre expansion in markets
which make economic sense.

Stuart G. Fraser
President and C.E.O.,
Empire Theatres Limited

Stuart G. Fraser
President and
Chief Executive Ofﬁcer,
Empire Theatres Limited

Paul V. Beesley
Senior Vice-President,
Chief Financial Ofﬁcer
and Secretary
Empire Company Limited

Frank C. Sobey
Chairman,
Crombie Properties Limited

Stewart H. Mahoney
Vice-President,
Treasury and Investor
Relations
Empire Company Limited

Investments

Strategic Focus
Our long term perspective and focus on good
management and strong fundamental analysis
shapes our approach to investing.We invest in a
relatively small number of high quality, large cap
stocks – just 12 stocks on average over the past
four years – and we tend to hold them for the
long term. In fact, some of them have never left
the portfolio.

We avoid “hot stocks” and focus on under-

valued businesses that have outstanding
fundamentals and growth prospects.We maintain
a highly disciplined stock-picking approach
and actively monitor our holdings to advance
returns.This approach has resulted in superior
performance over time, greatly exceeding
that which could be expected from a more
passive index-based strategy or from a money-
market strategy.

Progress in 2005
In fiscal 2005, investment income equalled
$21.0 million, realized capital gains amounted
to $4.4 million and the unrealized capital gain
position grew by $73.4 million.Total portfolio
market value climbed from $391 million at the
start of the fiscal year to $465 million at fiscal
year end – largely as a result of share price
appreciation from Wajax as well as from financial
services and energy related stocks.

Empire’s investments continued to generate

returns well in excess of market benchmarks.
Total investment return for the twelve months
ended March 31, 2005 equalled 26.9%, compared
to 13.9% for the S&P/TSX Index and a negative
1.5% for the S&P 500 Index in Canadian dollars.
This contributes to a continuum of good
performance and long term value creation. Over
the past four years – a period of more difficult
equity markets – we have done quite well, with
an annual compound rate of return exceeding
16%.That is more than double the S&P/TSX
Index for the same period and more than triple
the S&P 500 Index in Canadian dollars.

A strong investment performance provides

Empire with considerable flexibility and
financial resources to support and build our core
businesses to create further value. During fiscal
2005, we allocated $70 million in investment
capital to purchase 1.86 million additional
common shares of Sobeys – increasing our
ownership interest from 65.0% to 68.4%.

Stewart H. Mahoney
Vice-President,
Treasury and Investor Relations
Properties

Empire Company Limited || 9

Long-term progress
Empire’s focus on enduring value is reflected in it’s long-term performance
and progress through different business cycles since the Company went
public 23 years ago. It all adds up to a legacy of value creation.

Assets
$4.9 Billion

Operating Cash Flow
$486.6 Million

21%
$4.9 Billion
71%

15%

$502.3 Million

82%

2005
Year Ended May 7

4 9 Billion

Food Distribution

Real Estate

Investments and
Other Operations

February, 1983
Empire increases its ownership in Hannaford

Bros. Co. (a U.S. food retailer) to 25% resulting

in a cost base of $20 million.

July, 1982
On July 9, 1982 Empire goes public at

$8/share, $0.67 split adjusted. Annual revenue

$300 million; total assets $260 million; net

earnings $7 million.

December, 1993
The real estate division increases its

ownership of Halifax Developments Limited

(HDL) to 100% from 36% at a cost of

$12.7 million.

$625
$625
$625
$625

$4.6$4.6$4.6$4.6

$0.51
$0.51
$0.51
$0.51

1983

10 || 2005 Annual Report

June, 1987
Empire purchases common shares of

Sobeys to increase its ownership to 100%.

March, 2002
Sobeys sells its SERCA Foodservice

operation to SYSCO for $411 million.

January, 2001
The real estate division purchases a

35.8% interest in Genstar Development

Partnership.

December, 1998
Sobeys went public on the TSE and

acquired the assets of the Oshawa Group

for $1.5 billion, tripling the size of

its food operations.

2005

$12,435

$182.9

$36.66

June, 2005
Wajax converts to an income trust. Empire

sells 2.875 million units.

Sobeys and 6 Commisso’s properties by Crombie.

February, 2004
Acquisition of Commisso’s Food Markets by

July, 2000
Empire sells its 25% investment in

Hannaford Bros. Co. for a $1.2 billion

Canadian consideration.

REVENUE
($ in millions)

OPERATING EARNINGS
($ in millions)

SHARE PRICE
($ per share)

Empire Company Limited || 11

Message from the Chairman

‘‘One of the strengths of Empire is that
the major shareholding family not only
demands long-term growth in profitability
but enables it.”

A legacy of enduring value

It is a great honour to succeed Donald Sobey as
Chair of this great enterprise. Now Chairman
Emeritus, Donald served as Chairman of Empire
for two decades – two extraordinary decades of
value creation.

This legacy of value creation is no accident.

It is the result of strong governance, carefully
developed and implemented business plans and
strategies, and outstanding efforts by management
and thousands of employees of Empire and its
operating companies. As well, it is a testament to
the stewardship, vision and values of Empire’s
major shareholders, the Sobey family, as exemplified
by the leadership of Donald and his brother David.
All shareholders have benefited from the
family ownership model of Empire. As someone

who has been associated with the company
since before it went public in 1982 and who has
been a director since 1987, I have observed this
model first hand. I can attest that one of the
strengths of Empire is that the major shareholding
family not only demands long term profitability,
but enables it.That is because the vision and
focus is always on the longer term – and the
family has always been prepared to accept short
term sacrifices to achieve the vision. In creating
a legacy, this family constantly looks beyond the
next quarter and the next business cycle to future
generations.The results speak for themselves.

While maintaining family control, the Sobey

family has always been assiduous about good
governance and has long since broadened and

Board of Directors

John L. Bragg 3, 6
Collingwood, Nova Scotia
Director since 1999.
Chairman, President and
Co-Chief Executive Ofﬁcer of
Oxford Frozen Foods Ltd.

Sir Graham Day 3, 5
Hantsport, Nova Scotia
Director since 1991.
Counsel to Stewart McKelvey
Stirling Scales.

Robert P. Dexter
Halifax, Nova Scotia
Director since 1987.
Chairman and
Chief Executive Ofﬁcer of
Maritime Travel Inc.

Jim Gogan 2
New Glasgow, Nova Scotia
Director since 1972.
Corporate Director

Ed Harsant 1
Woodbridge, Ontario
Director since 2003.
Corporate Director

12 || 2005 Annual Report

Donald R. Sobey
Director and Chairman Emeritus,
Empire Company Limited

Robert P. Dexter
Chairman,
Empire Company Limited

strengthened the Board with strong, independent
directors.The Company and all shareholders
have benefited from the counsel and advice of
independent directors, who bring diverse business
experience to the Empire board and those of its
subsidiaries.The value has become particularly
apparent as Empire – while remaining firmly
rooted in Atlantic Canada – has expanded to a
national platform.We were pleased at our last
Annual General Meeting to welcome two new
independent directors: Anna Porter, Publisher of
Key Porter Books of Toronto, and Stephen
Savidant, CEO of Esprit Exploration of Calgary.
They succeeded Mary Mogford of Toronto, who
retired from the Board, and Peter Godsoe – former
Chair and CEO of the Bank of Nova Scotia –

who left to assume his role as Chair of Sobeys Inc.
This focus on outside directors began long

before the recent concerns about governance
models and the resulting regulatory pressures.
A clear indication of this can be seen from the
fact that Empire established a board for Crombie
Properties and its predecessors more than thirty
years ago. Crombie was then – and remains
today – a wholly-owned subsidiary of Empire;
it is not a public company and there is no
requirement for it to have a board. But both
the family and outside directors of Empire
appreciated and have long understood the value
of Board stewardship and governance. Again,
the results speak for themselves.

Anna Porter 1
Toronto, Ontario
Director since 2004.
Corporate Director

E. Courtney Pratt 4, 5
Toronto, Ontario
Director since 1995.
President and
Chief Executive Ofﬁcer of
Stelco Inc.

Stephen J. Savidant 1
Calgary, Alberta
Director since 2004.
President and
Chief Executive Ofﬁcer of
Esprit Exploration Ltd.

J. William Sinclair 5
Pictou, Nova Scotia
Director since 1980.
Corporate Director

David F. Sobey 3
New Glasgow, Nova Scotia
Director since 1963.
Chairman Emeritus of
Sobeys Inc.

Empire Company Limited || 13

Robert P. Dexter
Chairman,
Empire Company Limited

In addition to strong governance on behalf of all
shareholders, Empire has also been dedicated to
the values of good citizenship and corporate
responsibility – in the interest of all stakeholders.
At Empire, we are very cognizant of the leadership
role we play in the communities where our
businesses operate and we seek to be an employer
of choice with progressive employment policies
and a model citizen, with far reaching corporate
philanthropy and community support programs.
The ongoing success of Empire is a source
of pride to me as a Nova Scotian and as a business
person. I am very pleased that all stakeholders
contributed to another strong year for the
Company in fiscal 2005, with stellar results and

Board of Directors

further gains in the legacy of shareholder value.
I am proud to have been part of this legacy
and I look forward to helping build upon it.
I am committed to ensuring that as Empire
goes through transitions in the Board and in its
businesses, the core values that are fundamental
to our success will endure.

Robert P. Dexter
Chairman
July 19, 2005

Donald R. Sobey 3
Pictou County, Nova Scotia
Director since 1963.
Chairman Emeritus of
Empire Company Limited

John R. Sobey 1
Pictou County, Nova Scotia
Director since 1979.
Corporate Director

Karl R. Sobey 3
Halifax, Nova Scotia
Director since 2001.
Corporate Director

Paul D. Sobey
Pictou County, Nova Scotia
Director since 1993.
President and
Chief Executive Ofﬁcer of
Empire Company Limited

Rob G. C. Sobey
Stellarton, Nova Scotia
Director since 1998.
Senior Vice-President,
Merchandising and
Marketing of Sobeys Atlantic

14 || 2005 Annual Report

Corporate Governance

Corporate Governance Practices
At Empire, we are committed to the highest
level of corporate governance.We believe that a
strict code of business conduct - emphasizing
accountability - and a comprehensive disclosure
policy - ensuring transparency - are the pillars of
a successful firm. Empire’s Board is committed to
delivering value to its stakeholders while assuming
the explicit responsibility of the stewardship of
the company.

At Empire, we constantly review and monitor

our own governance policies and practices.
We consistently examine our policies with a
strict eye to ensure that Empire is a leader in
governance practices.

A comprehensive review of our corporate
governance policies and practices can be found
in our Proxy Circular and on our website at
www.empireco.ca. Further, a detailed explanation
of our Corporate Disclosure Policy, approved by
our Corporate Governance and Nominating
Committee of our Board of Directors, as well as
our Code of Business Conduct is available on
our website.

Board Committees
At Empire, the governance of the corporation
is the responsibility of the Board of Directors
which is supported by three key committees:
the Corporate Governance and Nominating

1 Audit Committee Member

2 Audit Committee Chairman

3 Human Resources

Committee Member

4 Human Resources

Committee Chairman

5 Corporate Governance

and Nominating
Committee Member

6 Corporate Governance

and Nominating
Committee Chairman

Committee, the Human Resources Committee,
and the Audit Committee. All members of the
Audit Committee and the Corporate
Governance and Nominating Committee are
independent directors and all are unrelated as
recommended by TSX Guidelines.The Human
Resource Committee is entirely composed of
outside directors, of which all but three are
unrelated. In addition, the Audit Committee
meets the independence and financial literacy
tests set out in Multilateral Instrument 52-110
adopted by most of the Canadian securities
regulators.The responsibilities of each committee
of the Board are as follows:

Corporate Governance and Nominating
Committee – develops the Company’s corporate
governance policies, including responsibility for
disclosure; reviews and assesses the effectiveness
of the Board as a whole, the committees of the
Board and the contribution of individual directors;
recommends suitable compensation of directors;
and is responsible for recommending nominees
for election or appointment as Directors.

Human Resource Committee – monitors man-
agement compensation and succession planning;
reviews the Company’s management training
and development programs; conducts the annual
performance review for the CEO and establishes
annual and longer term objectives for the CEO;
oversees the Company’s pension plan.

Audit Committee – reviews and assesses the
Company’s financial reporting practices and
procedures; reviews the adequacy and reporting
of its internal accounting controls and the
independence of external auditors from man-
agement; assesses risk management and reviews
consolidated quarterly and annual financial
statements and related communications;
communicates directly with internal and
external auditors; and directly oversees the work
of the external auditor.The external auditor
communicates directly to the Audit Committee.

Empire Company Limited || 15

Community Involvement

‘‘Empire’s operating companies are active
members of the communities in which they
operate through the volunteer efforts of
thousands of employees.’’

Valuing our Community

Community Value
The enduring value of Empire and our community
based operating businesses – grocery retailing,
real estate and theatres – is absolutely dependent
on the economic vitality of the markets where
we operate and on the support of the people
who live in the communities we serve.We have
always understood the importance of giving
something back, and we believe we have a
particular responsibility to provide leadership
where our roots are – in Atlantic Canada
– as one of the few major corporations based
in the region.

Empire is proud to be a member of the
Imagine corporate giving program and we
sponsor numerous charitable initiatives through
our operating companies and franchisees as well
as through the Sobey Foundation.The Sobey
Foundation is a private Foundation, which uses
endowed funds to support charitable organizations
whose focus and activities directly relate to
education, culture, and health, with emphasis on
infrastructure and equipment.This support is
strengthened and enhanced by the volunteer
efforts of thousands of employees in communities
across Canada.

Community Support
Grassroots efforts by our community based
operations have contributed in a significant way
to the well being of communities across Canada.
As a prime example, Sobeys food stores under
all our banners and in all regions have been
major supporters of local food banks, and have
launched creative campaigns ranging from
Fill’er Up in Moncton to Hampers of Hope,
Pot of Soup, Campers for Hampers and Fame
for Food in Western Canada. As well, in 2005,
with support from franchisees, employees and
customers across Canada, Sobeys raised over
$300,000 for Tsunami relief efforts in Asia and
was the driving force behind an award winning
concert in Halifax for Oxfam’s relief efforts.
Management and employees of Crombie
Properties have focused primarily on communi-
ties in Atlantic Canada where we are leaders in
the commercial property market – supporting
business development organizations as well as
family and health oriented charities such as the
Special Olympics, the Children’s Aid Society’s
Families for Christmas program, and the
Dragon Boat Race on the River for Breast
Cancer research.

16 || 2005 Annual Report

From Left to Right:
Jean-Pierre Gauthier, Artist, 2004 Winner,
Donald R. Sobey, Director and Chairman Emeritus,
Empire Company Limited, Brian Jungen, Artist,
2002 Winner

Educational Support
We believe quality education is the most
important contributor to the future growth
of our communities and to employment
opportunities for young people. As a result,
Sobeys Inc. and the Sobey family has had a
special focus on education and scholarship:
Sobeys Inc. Scholarship Program – which
assists employees and their families pursuing
university education.
Frank H. Sobey Fund for Excellence in
Business Studies – assisting business students
at universities in Atlantic Canada.
Donald R. Sobey Atlantic Leadership
Scholarship – scholarships for students from
Atlantic Canada to attend Queen’s School of
Business in Ontario.

As well, of particular note in fiscal 2005,
Sobeys Inc. combined its focus on food with
our emphasis on education and community
support and funded Sobeys Culinary Centres
– two major teaching kitchens at community
colleges in Halifax and Toronto.These will
also serve as test kitchens for Compliments
food innovations.

Cultural Support
Since 1981, the Sobeys Art Foundation has
built on the vision of the late Frank H. Sobey,
a dedicated collector and supporter of
Canadian art, having assembled one of the
finest collections of 19th and 20th century
Canadian art at Crombie House in Nova Scotia.
In 2001, we extended the vision to the
future, extending support to contemporary art,
with the creation of the bi-annual Sobeys Art
Award.This award – which at $50,000 is the
richest of its kind in Canada – is designed to
provide assistance for young artists (under the
age of 40) while increasing public awareness
of their work. In fiscal 2005, our Chairman
Emeritus Donald Sobey was proud
to present the second Sobeys Art Award to
Montreal-based artist Jean-Pierre Gauthier,
who creates kinetic installations.
For information about this dynamic award,
please visit the website at www.sobeyartaward.ca.

Empire Company Limited || 17

Crombie Properties
Limited
Frank C. Sobey
Chairman

J. Stuart Blair
President and
Chief Executive Officer

William T. Brock
Corporate Director

David G. Graham
President,
Atlantic Developments Inc.

David J. Hennigar
Chairman, Acadian
Securities Inc.

Kenneth C. Rowe
Chairman, President and
Chief Executive Officer of
IMP Group Ltd.

John B. Roy
Corporate Director

David F. Sobey
Chairman Emeritus,
Sobeys Inc.

Donald R. Sobey
Chairman Emeritus,
Empire Company Limited

John R. Sobey
Corporate Director

Paul D. Sobey
President and Chief
Executive Officer,
Empire Company Limited

Corporate Officers

Officers of Empire
Company Limited

Marc Poulin
President Operations,
Sobeys Quebec

Directors of
Operating Companies

Duncan F. Reith
Chief Merchandising Officer

Michael G. Scott
President Operations,
Sobeys Atlantic

J. Bruce Terry
Executive Vice-President and
Chief Financial Officer

François Vimard
Executive Vice-President

Crombie Properties
Limited
Frank C. Sobey
Chairman

J. Stuart Blair
President and
Chief Executive Officer

Allan K. MacDonald
Vice-President,
Leasing

Scott R. MacLean
Vice-President,
Operations

Pat G. Martin
Vice-President,
Development of Ontario and
Quebec Region

John G. Morrow
Vice-President,
Finance and Secretary

Paul W. Wigginton
Comptroller

Empire Theatres
Limited
Stuart G. Fraser
President and
Chief Executive Officer

Kevin J. MacLeod
Vice-President,
Operations

Sobeys Inc.
Peter C. Godsoe
Chairman

Bill McEwan
President and
Chief Executive Officer

John L. Bragg
Chairman, President and
Chief Executive Officer of
Oxford Frozen Foods Ltd.

Marcel Côté
Senior Partner of Secor Inc.

Christine Cross
President of Christine Cross Ltd.

Sir Graham Day
Counsel to Stewart McKelvey
Stirling Scales. Former
Chairman, Sobeys Inc.

Robert P. Dexter
Chairman and
Chief Executive Officer,
Maritime Travel Inc.,
and Chairman,
Empire Company Limited

Malen Ng
Chief Financial Officer,
Workplace Safety and
Insurance Board of Ontario

Mel A. Rhinelander
President and
Chief Executive Officer,
Extendicare Inc.

David F. Sobey
Chairman Emeritus

Donald R. Sobey
Chairman Emeritus,
Empire Company Limited

Frank C. Sobey
Chairman,
Crombie Properties Limited

John R. Sobey
Corporate Director

Paul D. Sobey
President and
Chief Executive Officer,
Empire Company Limited

Robert P. Dexter
Chairman

Paul D. Sobey
President and
Chief Executive Officer

Paul V. Beesley
Senior Vice-President,
Chief Financial Officer
and Secretary

Stewart H. Mahoney
Vice-President,
Treasury and Investor Relations

John G. Morrow
Vice-President and Comptroller

Carol A. Campbell
Vice-President,
Risk Management

Officers of
Operating Companies

Sobeys Inc.
Peter C. Godsoe
Chairman

Bill McEwan
President and
Chief Executive Officer

Craig T. Gilpin
President Operations,
Sobeys Ontario

R. Glenn Hynes
Executive Vice-President and
Chief Development Officer

Paul A. Jewer
Vice-President,
Finance and Treasurer

J. Gary Kerr
President Operations,
Sobeys West

Karin McCaskill
Senior Vice-President,
General Counsel and Secretary

L. Jane McDow
Assistant Secretary

18 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 19

Management’s Discussion and Analysis

Revenue(1)
($ in millions)

Operating Earnings(1)
($ in millions)

Shareholders’ Equity
($ in millions)

5
3
4
,
2
1

4
8
2
,
1
1

4
2
6
,
0
1

6
2
9
,
9

1
3
3
,
9

12434.998024

10362.498353

8289.998682

6217.499012

4144.999341

2072.499671

0.000000

0
.
9
0
7
,
1

6
.
7
6
5
,
1

5
.
8
1
4
,
1

6
.
0
9
2
,
1

0
.
5
1
1
,
1

9
.
2
8
1

3
.
3
6
1

3
.
9
5
1

2
.
2
3
1

5
.
8
8

182.8866

152.4055

121.9244

91.4433

60.9622

30.4811

0.0000

1708.999695

1424.166412

1139.333130

854.499847

569.666565

284.833282

0.000000

Fiscal Year
(1) Includes gain of $14.6 million
on sale of redundant real estate
in ﬁscal 2004.

Fiscal Year
(1) Earnings before net capital
gain (loss) and other items.

Fiscal Year

Introduction

21 Company Overview

Food
Real Estate
Investments and Other Operations

Strategic Direction

24 Consolidated Operating Results

25 Explanation of

2005 Annual Results
Revenue
Operating Income
Interest Expense
Income Taxes
Minority Interest
Operating Earnings
Capital Gain
Net Earnings

27 Operating Performance

by Division
Food
Real Estate
Investments and Other Operations

35 Quarterly Results of Operations

Results by Quarter
Fourth Quarter Results

Financial Condition
Assets and Net Asset Value
Capital Structure and Key Financial

Condition Measures

Shareholders Equity
Liabilities
Financial Instruments

Liquidity and Capital Resources
Sources of Liquidity
Major Cash Flow Components
Operating Activities
Investing Activities
Financing Activities

45 Accounting Standards

CICA Section 1100, Generally

Accepted Accounting Principles
EIC-144, Accounting by a Customer
(Including a Reseller) for Certain
Consideration Received from a
Vendor

CICA Section 3870, Stock-Based
Compensation and Other
Stock Based Payments

AcG-13, Hedging Relationships
CICA Section 3110, Asset
Retirement Obligations
Lease Accounting
AcG-15, Consolidation of Variable

Interest Entities

50 Critical Accounting Estimates

Pension, Post-Retirement and Post-
Employment Benefits
Goodwill and Long-lived Assets
Income Taxes

51 Disclosure Controls

51 Related Party Transactions

52 Contingencies

53 Risk Management
Competition
Financial
Insurance
Human Resources
Environmental, Health and Safety
Food Safety
Technology
Real Estate
Legal, Taxation and Accounting
Franchise Operations
Foreign Operations
Foreign Currency
Equity Price

56 Outlook

57 Non-GAAP Financial Measures

Empire Company Limited || 19

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 20

Management’s Discussion & Analysis

Exchange Commission. Adjustments were required to
restate certain prior period information and further
information can be found in the section entitled “Lease
Accounting” included in this MD&A.

Also, effective for the fourth quarter of ﬁscal 2005,

the Company implemented Accounting Guideline 15
“Consolidation of Variable Interest Entities” (“AcG-15”).
AcG-15 required the Company to consolidate certain
entities that are deemed to be subject to control of the
Company on a basis other than through ownership of a
voting interest in the entity.The guideline was adopted
retroactively without restatement of prior periods. See
Note 22 to the audited annual consolidated ﬁnancial
statements. Please review the section titled “AcG-15,
Consolidation of Variable Interest Entities” included in
this MD&A for more information.

This discussion contains forward-looking
information about the future performance of the
Company and its divisions.These statements are based
on management’s assumptions and beliefs in light of the
information currently available to them.These forward-
looking statements are subject to inherent uncertainties,
risks and other factors that could cause actual results to
differ materially from such statements, including but not
limited to: general industry and economic conditions,
pricing pressures and competitive factors, rates of return
on capital spending, the results of business improvement
and development initiatives and the availability and
terms of ﬁnancing, amongst other factors.When relying
on forward-looking statements to make decisions, the
Company cautions readers not to place undue reliance
on these statements, as a number of important factors
could cause actual results to differ materially from any
estimates or intentions expressed in such forward-
looking statements.The Company does not undertake
to update any forward-looking statements that may
be made from time to time by or on behalf of
the Company.

There are measures included in this MD&A that
do not have a standardized meaning under Canadian
generally accepted accounting principles (“GAAP”).
Management includes these measures because it believes
certain investors use these measures as a means of
assessing relative ﬁnancial performance. Additional
information relating to non-GAAP ﬁnancial measures
is provided at the end of this document.

Introduction

This Management’s Discussion and Analysis (“MD&A”)
contains commentary from management on the
consolidated ﬁnancial condition and results of
operations of Empire Company Limited (“Empire” or
the “Company”) for the 53 weeks ended May 7, 2005,
as compared to the 52 weeks ended April 30, 2004.
Management also provides an explanation of the
Company’s fourth quarter results, changes in accounting
policies, critical accounting estimates and factors that
the Company believes may affect its prospective
ﬁnancial condition, cash ﬂows and results of operations.
This MD&A also provides analysis of operating
performance of the Company’s divisions as well as a
discussion of cash ﬂows, the impact of risks and the
outlook for the business. Additional information
about the Company, including the Company’s Annual
Information Form, can be found on SEDAR at
www.sedar.com.

The discussion and analysis is the responsibility of

management.The Board of Directors carries out its
responsibility for review of this disclosure principally
through its audit committee, comprised exclusively
of independent directors.The audit committee has
reviewed and approved this disclosure and it has also
been approved by the Board of Directors.

This discussion and analysis should be read in
conjunction with the audited annual consolidated
ﬁnancial statements of the Company and the
accompanying notes for the 53 weeks ended May 7,
2005. In ﬁscal 2005, the ﬁscal year-end of the Company
changed to the ﬁrst Saturday in May to be consistent
with its major subsidiary, Sobeys Inc.

The reader should note that the implementation of
Emerging Issues Committee Abstract 144, “Accounting
by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor” (“EIC-144”)
resulted in a restatement of certain prior periods’
information, as outlined in the section entitled
“EIC-144, Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a
Vendor” included in this MD&A.

Also, in the fourth quarter of ﬁscal 2005, the
Company reviewed its accounting practices in relation
to leases as a result of recent clariﬁcation by the Ofﬁce
of the Chief Accountant of the U.S. Securities and

20 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 21

Company Overview

Empire is a diversified Canadian company headquartered in Stellarton,
Nova Scotia. Empire’s key businesses are food retailing – through a
68.4% ownership of Sobeys Inc. (“Sobeys”), real estate through two
wholly-owned operating subsidiaries: Sobey Leased Properties Limited
(“SLP”), and Crombie Properties Limited (“Crombie”), including
35.7% ownership of Genstar Development Partnership (“Genstar”);
and corporate investment activities and other operations which includes
wholly-owned Empire Theatres Limited (“Empire Theatres”).

With $4.9 billion in assets, Empire employs approximately
37,000 people directly and through its subsidiaries.

Guided by conservative business principles, Empire’s

continuing to build new stores.The Company’s four
major banners – Sobeys, IGA extra, IGA and Price
Chopper – constitute our primary formats.

primary goal is to grow long-term shareholder value
through income and cash ﬂow growth and equity
appreciation.This is accomplished through direct
ownership and equity participation in businesses that
management believes have the potential for long-term
growth and proﬁtability.

Food Division
Sobeys is a leading national retail grocery and food
distributor headquartered in Stellarton, Nova Scotia.
Founded in 1907, Sobeys owns or franchises more than
1,300 corporate and franchised food stores located in
all 10 provinces under various retail banners: including
Sobeys, IGA extra, IGA, and Price Chopper. Sobeys
and its subsidiaries conduct business in four operating
regions: Sobeys West, Sobeys Ontario, Sobeys Quebec,
and Sobeys Atlantic.

Sobeys’ strategy is focused on delivering the best

food shopping experience to its customers in the
right-sized, right format, stores, supported by superior
customer service.The ﬁve speciﬁc store formats
deployed by the Company to satisfy its customers’
principal shopping requirements are the full service,
fresh service, convenience service, community service
and price service formats.The Company remains
focused on improving the product, service and
merchandising offerings within each format by
realigning and renovating its current store base, while

During the year, Sobeys opened, replaced, expanded,
renovated, acquired and/or converted the banners in 98
stores (2004 – 200 stores). Sobeys continued to execute
a number of initiatives in support of its food-focused
strategy including productivity initiatives and business
process and system upgrades.

In ﬁscal 2005, Sobeys continued the roll-out of the
Sobeys banner in Western Canada with the introduction
of 11 Sobeys stores in Saskatchewan.The Saskatchewan
store program combines a traditional full service Sobeys
offering with a discount format grocery pricing position.
The conversion of the Saskatchewan stores brings the
total Sobeys banner stores in Western Canada to 72.
Sobeys opened Ontario’s ﬁrst two Sobeys express

stores in conjunction with the new Canadian Tire
gasoline retail concept called “Q”.These Sobeys express
stores combine convenience products and service with
additional fresh food and “on-the-go” programs.

Sobeys is committed to remaining competitive in

increasingly competitive markets as demonstrated by its
continued implementation of the “We Serve.You Save.”
pricing program across the country. Sobeys sales growth
in ﬁscal 2005 was partially fuelled by this aggressive
pricing posture in addition to continued implementation
of sales, merchandising and capital spending initiatives.
Compliments, Sobeys new private label brand, was

launched during the year to contribute to growth of
company-wide proﬁtability by earning a greater share

Empire Company Limited || 21

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 22

Management’s Discussion and Analysis

of customers’ food and grocery shopping requirements.
The Compliments brand consists of three tiers: Value,
Selection and Sensations.The Company plans to have
launched approximately 3,000 Compliments products
by October 2005. At the end of ﬁscal 2005, 1,049
selection tier and 625 value tier items were launched
representing 56 percent of the planned total.
In addition to the above noted sales and
merchandising initiatives which have driven sales
growth, Sobeys remains focused on short, medium
and long-term productivity and business process
optimization initiatives designed to improve its
processes and cost structure for the long-term.

A key productivity focus in ﬁscal 2005 was the
roll-out of the ﬁrst phase of Sobeys SMART Retailing
initiative. SMART Retailing focuses on continuous
improvement processes that have resulted in improved
labour productivity in the handling of back-shop
inventories, reduction in back room inventories and
shrink (product waste) reduction in produce, bakery,
and meat departments. SMART Retailing has been
implemented in 397 stores to date with planned
completion of the remaining 315 targeted stores in
ﬁscal 2006.The next phase of SMART Retailing will
be focused on the implementation of a comprehensive
store performance management process supported by
a balanced scorecard.This will support the ongoing
implementation of SMART Retailing and focus on
customer satisfaction, sales growth and margin
improvements.

During ﬁscal 2005 Sobeys also made signiﬁcant
progress in the implementation of system-wide business
process optimization initiatives that are designed to
reduce complexity and improve processes throughout
the Company.To this end, Sobeys continued the roll-
out of a common point-of-sale (POS) system.This
common POS system provides improved customer
information and enhanced customer service at store
check-outs, and is a key enabler of other business
process optimization initiatives currently underway.
Sobeys is also engaged in the roll-out of a new

scale networking solution, which will enable full
compliance with the new nutritional labeling
requirements that come into effect on December 12, 2005.

22 || 2005 Annual Report

System and process complexities in the Ontario

business, as discussed in the ﬁscal 2004 MD&A,
negatively impacted earnings in that region. In ﬁscal
2006 Sobeys intends to advance its business process and
information systems transformation plan for the
Company by focusing on the signiﬁcant opportunity
to upgrade capabilities and improve efﬁciencies in the
Ontario region.The system and processes that are being
implemented have been developed over several years
and are currently employed in Sobeys Atlantic Region.
The Ontario roll-out will simplify, standardize and
streamline the “back shop”, in support of Sobeys food
focused strategy.This move will leverage technology
investments, improve efﬁciencies and lower costs over
the long term.The anticipated cost of this roll-out is
expected to approximate $0.20 to $0.25 per Sobeys
share in ﬁscal 2006.

Real Estate
Empire’s real estate operations are focused on the
development and management of a commercial
property portfolio and through a 35.7 percent interest
in Genstar, the sale of residential housing lots.
Management is committed to strengthening its existing
real estate operations while also pursuing accretive
acquisitions and developments, primarily in the
Ontario market.

At the end of ﬁscal 2005, real estate operations had

12.9 million square feet under ownership, unchanged
from last year. Commercial real estate operations are
conducted through Crombie and SLP, while residential
land development is primarily conducted through
Genstar, which operates principally in high growth
communities in Ontario and Western Canada.

Empire’s real estate property portfolio is diversiﬁed
geographically with the commercial property portfolio
operating in Atlantic Canada and, to a growing extent,
Central Canada, and the residential portfolio operating
mainly in Western Canada.

The real estate division now manages 1.1 million

square feet of property in Ontario and Quebec.The
trend towards increasing the percentage of total
property square footage in Ontario relative to the total
portfolio is expected to continue.

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 23

The commercial property portfolio is also diversiﬁed

between retail and ofﬁce use.Today, 87 percent of the
gross leasable area in Empire’s real estate portfolio is
retail space, of which 41 percent is leased to Empire-
afﬁliated companies.The retail segment of the real
estate portfolio includes 74 properties.The real estate
portfolio also includes nine ofﬁce properties,
representing 13 percent of total gross leasable area.

Investments & Other Operations
The third component of Empire’s business is its
investments and other operations. Empire’s investment
portfolio consists of Canadian and U.S. common equity
investments. At ﬁscal year-end, Empire’s investments,
excluding its investment in Genstar, carried a market
value of $465.5 million consisting of Canadian common
equity investments valued at $331.0 million, foreign
common equities valued at $133.0 million in Canadian
dollars, and preferred equities and other investments
valued at $1.5 million.The Canadian common equity
investment market value includes the market value of
Empire’s equity accounted investment in Wajax Limited
(approximately a 45% ownership position on a fully
diluted basis) of $144.6 million at ﬁscal year-end. All of
Empire’s investments are listed on a recognized public
stock exchange.

Other operations primarily consist of wholly-
owned Empire Theatres, a movie exhibitor with 176
screens in 27 locations in Atlantic Canada and, through
a joint venture, 24 screens in four locations in Western
Canada. On June 15, 2004, Empire Theatres acquired
from Viacom Canada Inc. four cinemas operating 23
screens in Nova Scotia and New Brunswick.

Empire’s Strategic Direction

Management’s primary objective is to maximize the
long-term sustainable value of Empire through
enhancing the worth of the Company’s net assets
and in turn, having that value reﬂected in Empire’s
share price.

The strategic direction of the Company is to stay
the course by continuing to direct its energy and capital
towards growing the long-term sustainable value of
each its core operating businesses – food distribution,
real estate and theatres.While these respective core
businesses are well established and proﬁtable in their
own right, the diversiﬁcation they offer Empire by both
business line and by market area served is considered
by management to be an additional source of strength.
Together, these core businesses reduce risk and
volatility, thereby contributing to greater consistency
in consolidated earnings growth over the long-term.
Going forward, the Company intends to continue to
direct its resources towards the most promising
opportunities within these core businesses in order to
maximize long-term shareholder value.

In carrying out the Company’s strategic direction,

Empire management deﬁnes its role as having four
fundamental responsibilities: ﬁrst, to support the
development and execution of sound strategic plans for
each of its operating companies; second, to regularly
monitor the development and the execution of business
plans within each operating company; third, to ensure
that Empire is well governed as a public company;
and fourth, to prudently manage a pool of investment
capital in order to augment the growth in our core
operating businesses.

The Company also remains committed to holding

an investment portfolio consisting largely of high
quality common equities. A liquid investment portfolio
provides Empire with the opportunity to augment
earnings while waiting to make further investment in
its core operations as attractive opportunities unfold.
Historically the Company has been successful in
generating investment returns well in excess of the
Company’s cost of capital and well in excess of returns
that would otherwise have been generated by either
passively investing, using index-based investments,
or from investing in money market investments.

Empire Company Limited || 23

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Management’s Discussion and Analysis

Consolidated Operating Results

The consolidated ﬁnancial overview presented below reports on the ﬁnancial performance for ﬁscal 2005 relative to
the last two ﬁscal years.

Summary Table of Consolidated Financial Results

($ in millions, except per share information)

2005

% of
Revenue

Revenue

53 Weeks Ended
May 7

52 Weeks Ended
April 30

2004(2)

% of
Revenue

52 Weeks Ended
April 30

2003

% of
Revenue

Food (1)
Real estate, net of inter-segment
Other operations

$ 12,189.4 98.02 % $ 11,061.4
1.38 %
158.2
0.60 %
64.4

171.4
74.4

98.03 %
1.40 %
0.57 %

$ 10,414.5
149.2
60.5

98.03 %
1.40 %
0.57 %

$ 12,435.2 100.00 % $ 11,284.0 100.00 %

$ 10,624.2 100.00 %

Consolidated revenue

Operating income

Food
Real estate
Investments and other

Consolidated operating income
Interest expense
Income taxes (from operating activities)
Minority interest

Operating earnings
Capital gain (loss) and other items,

322.6
122.2
18.9

463.7
86.7
130.5
63.6

182.9

3.73 %
0.70 %
1.05 %
0.51 %

1.47 %

net of tax

Net earnings

Cash ﬂows from operating activities

3.7

0.03 %

186.6

486.6

1.50 % $

3.91 % $

Total assets

Total long-term liabilities

$ 4,929.2

$ 1,552.3

Per share, basic and fully diluted
Operating earnings
Capital gain (loss) and other items,

net of tax

Net earnings

Basic and fully diluted weighted average

number of shares outstanding

Dividends

2.78

0.05

2.83

65.7

0.48

293.7
111.0
18.1

422.8
92.4
108.6
58.5

163.3

9.2

172.5

467.2

4,679.7

1,696.7

2.48

0.14

2.62

65.8

0.40

3.75 %
0.82 %
0.96 %
0.52 %

1.45 %

0.08 %

1.53 %

4.14 %

324.2
103.8
16.4

444.4
93.7
123.9
67.5

159.3

4.18 %
0.88 %
1.17 %
0.64 %

1.50 %

(6.0)

(0.06)%

1.44 %

3.34 %

153.3

356.1

4,519.3

1,711.9

2.42

(0.09)

2.33

65.8

0.33

(1) Fiscal 2004 revenue includes a $14.6 million gain on the sale of several real estate assets.

(2) Fiscal 2004 and fiscal 2003 have been restated to reflect retroactive adjustments related to lease accounting and vendor allowances respectively. Please see
the section entitled “Lease Accounting” and “EIC-144, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a
Vendor” in this MD&A.

24 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 25

Explanation of Fiscal 2005 Annual Results

The financial performance for each of the Company’s businesses
(food, real estate, investments and other operations) are discussed
in detail in further sections of this MD&A.

The following is a review of Empire’s consolidated performance for the 53 weeks ended May 7, 2005 compared

to the 52 weeks ended April 30, 2004.

Revenue
The effect on ﬁscal 2005 revenue of eliminating the impact of VIE consolidation and the 53rd week of revenue:

Reported
Revenue
Fiscal
2005
12,435

Growth
over
Fiscal
2004
10.2 %

($ in millions)
Fiscal 2005

VIE
Impact
(137)

53rd Week
Impact
(241)

Adjusted
12,057

Growth
over
Fiscal
2004
6.9 %

Reported
Revenue
Fiscal
2004
11,284

Each of Empire’s operating businesses contributed to
growth in the Company’s consolidated revenue in ﬁscal
2005 over the prior ﬁscal year; an increase of $1,151.2
million or 10.2 percent.The revenue increase is largely
attributed to an increase in food division revenues of
$1,128.0 million or 10.2 percent over the prior year.
Growth in real estate revenues (net of inter-segment)
totalled $13.2 million or 8.3 percent, while other
operations recorded revenue growth of $10.0 million
or 15.5 percent, primarily as a result of strong revenue
growth at Empire Theatres.

Fiscal 2005 contained 53 weeks of operations
compared to 52 weeks in ﬁscal 2004.The additional
week accounted for $241 million or 2.1 percentage
points of the 10.2 percent ﬁscal 2005 revenue increase.
Also impacting revenue growth in ﬁscal 2005 was the
consolidation of VIEs in the fourth quarter, which
accounted for approximately $137 million or
1.2 percentage points of the increase over ﬁscal 2004.
Excluding the additional selling week and the VIE
consolidation, revenue growth in ﬁscal 2005 equalled
6.9 percent. Fiscal 2005 revenue growth was also
positively impacted by the acquisition of Commisso’s
Food Markets Limited and Commisso’s Grocery
Distributors Limited (“Commisso’s”) by Sobeys and the
acquisition by Crombie of certain real estate properties
previously owned by Commisso’s at the beginning of
the fourth quarter of ﬁscal 2004. Fiscal 2005 revenue
contains a full year of Commisso’s sales versus only the
fourth quarter sales in ﬁscal 2004.

Operating Income
The year-over-year increase in operating income or
earnings before interest and taxes (“EBIT”) of
$40.9 million or 9.7 percent is the result of a
$28.9 million or 9.8 percent increase in operating
income contribution from the food distribution
division, an $11.2 million or 10.1 percent increase in
operating income from the real estate division and an
$0.8 million or 4.4 percent increase in operating
income from investments and other operations.The
year-over-year change in operating income for each
division is explained in the section which follows,
“Operating Performance by Division”.

Interest Expense
The $5.7 million decline in interest expense is largely
attributed to reduced interest expense on long-term
debt. Interest on long-term debt declined $5.4 million,
or 6.2 percent largely as a result of $79.8 million of
long-term debt repayments made during the year
compared to $39.9 million of new long-term debt
issued during the ﬁscal year.

The majority of the Company’s debt carries ﬁxed

interest rates and therefore there is minimal exposure to
interest rate risk from ﬂuctuating short-term interest rates.

Income Taxes
The ﬁscal 2005 effective tax rate was 34.6 percent
compared to 32.9 percent in ﬁscal 2004.The ﬁscal 2004
tax rate was favourably impacted by a lower effective

Empire Company Limited || 25

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Management’s Discussion and Analysis

tax rate on a pre-tax capital gain of $14.6 million from
real estate divestments recorded by Sobeys in the fourth
quarter of the year. As well, there was a slight shift in
the current year to a greater portion of taxable earnings
in jurisdictions with higher statutory tax rates.

Minority Interest
The Company incurs minority interest expense as a
consequence of not owning 100 percent of Sobeys.
Fiscal 2005 minority interest equalled $63.6 million,
an increase of $5.1 million or 8.7 percent from the
$58.5 million recorded in ﬁscal 2004.The increase in
minority interest is attributed to increased Sobeys net
earnings offset by an increase in Empire’s ownership
interest in Sobeys, from 65.0 percent last ﬁscal year to
68.4 percent at the end of ﬁscal 2005.

Empire purchased a total of 1,864,600 common

shares of Sobeys in ﬁscal 2005 resulting in the increase
in ownership.These share purchases totalled
$70.0 million and were funded largely through bank
indebtedness. Over the last two years Empire has
purchased 3,833,400 common shares of Sobeys for a
total cost of $137.8 million.

Operating Earnings
The $19.6 million or 12.0 percent improvement in
operating earnings (earnings before net capital gain
(loss) and other items) over the prior year was the
result of the $40.9 million increase in operating
income, the $5.7 million reduction in interest expense,
the $21.9 million increase in income tax expense
and the $5.1 million increase in minority interest as
previously discussed.

Capital Gain
The capital gain (net of tax) of $3.7 million resulted
from the sale of portfolio equity investments during the
year (2004 – $9.2 million).

Net Earnings
The increase in net earnings of $14.1 million or 8.2
percent from last year is the result of the $19.6 million
increase in operating earnings as discussed and the
decrease in net capital gain (loss) over the prior year of
$5.5 million.

Operating Earnings
($ in millions)

Operating Earnings
per Share
($ per share)

9
.
2
8
1

3
.
3
6
1

3
.
9
5
1

8
7
.
2

2
4
.
2

8
4
.
2

2
.
2
3
1

5
.
8
8

0
0
.
2

3
3
.
1

Fiscal Year

Sobeys
Queensway Store

Toronto, Ontario

Avalon Mall
St. John’s, Newfoundland

26 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 27

Operating Performance by Division

Food Division

Highlights

• Sobeys achieved sales growth of 10.3 percent and same-store sales growth of 3.7 percent. Excluding the additional

selling week in ﬁscal 2005 and the consolidation of variable interest entities, Sobeys sales growth equalled
6.9 percent.

• EBITDA as a percentage of sales increased to 4.09 percent compared to 4.05 percent last year. EBITDA increased

11.6 percent.

• Sobeys contributed $123.1 million in net earnings to Empire (66% of total Empire net earnings); a 14.5 percent

increase over last year.

• Total property and equipment purchases equalled $268.5 million (total company-wide capital expenditures, which

includes franchisee and third party spending, equalled $436.0 million).

• Opened 41 corporate and franchised stores, expanded 19 stores and rebannered 36 stores.
• Launched Compliments, Sobeys new private label brand.
• Rolled-out the ﬁrst phase of the SMART Retailing initiative and continued implementation of a common point-

of-sale system.

Sales
Fiscal 2005 sales illustrated to reﬂect the elimination of VIE consolidation and the 53rd week of sales:

Reported
Sales
Fiscal
2005
12,189

Growth
over
Fiscal
2004
10.3%

($ in millions)
Fiscal 2005

VIE
Impact
(137)

53rd Week
Impact
(241)

Adjusted
11,811

Growth
over
Fiscal
2004
6.9%

Reported
Sales
Fiscal
2004
11,047

In ﬁscal 2005, Sobeys achieved sales of $12.2 billion, an increase of $1.1 billion or 10.3 percent over ﬁscal 2004.
Fiscal 2005 contained 53 weeks of operations compared to 52 weeks in ﬁscal 2004.This additional week accounted
for $241 million or 2.2 percentage points of the 10.3 percent ﬁscal 2005 sales increase. Also impacting sales growth in

Sobeys
Toronto, Ontario

IGA
Longlier, Quebec

Empire Company Limited || 27

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Management’s Discussion and Analysis

ﬁscal 2005 was the consolidation of VIEs in the fourth
quarter, which accounted for approximately $137
million or 1.2 percentage points of the increase over
ﬁscal 2004. Finally, the acquisition of Commisso’s
occurred at the beginning of the fourth quarter of ﬁscal
2004, therefore ﬁscal 2005 sales growth was positively
impacted by a full year of Commisso’s sales versus only
the fourth quarter sales in ﬁscal 2004. Excluding the
additional selling week and VIE consolidation, sales
growth in ﬁscal 2005 equalled 6.9 percent.

Sales growth was also driven by Sobeys continued

implementation of sales and merchandising initiatives
across the country, coupled with the increased retail
selling square footage resulting from the opening of
new stores and an ongoing program to enlarge and
renovate existing store assets.

Store square footage increased by 2.5 percent in
ﬁscal 2005 as a result of the opening of 41 new stores
and the expansion of 19 stores.

Sobeys same-store sales, (sales from stores in the
same locations in both reporting periods) increased by
3.7 percent.

Sobeys expects continued sales growth in ﬁscal
2006 as a result of ongoing capital investment in its
retail store network, and continued offering,
merchandising and marketing improvements across
the country.

Earnings before Interest, Income Taxes,
Depreciation and Amortization
Sobeys ﬁscal 2005 EBITDA (“earnings before interest,
income taxes, depreciation and amortization”) increased
$52.0 million or 11.6 percent to $499.0 million from
$447.0 million reported in ﬁscal 2004. EBITDA as a
percentage of sales increased to 4.09 percent from
4.05 percent last year.

Included in the previous year EBITDA were one-

time pre-tax costs of $20.2 million related to the
uninsured cost of the power failure in Ontario
($4.9 million), the adverse outcome in a long-standing
real estate lawsuit ($4.0 million), closure costs related
to the Grande Prairie and Peace River, Alberta
distribution centres ($1.2 million), increase in estimate
of store closing costs ($5.3 million), and pension and
beneﬁt costs for employees on long-term disability
($4.8 million).

Also included in the previous year EBITDA, was

a $14.6 million pre-tax gain on the sale of several
redundant real estate assets.

Earnings before Interest, Income Taxes,
Depreciation, Amortization and Rent
Fiscal 2005 earnings before interest, income taxes,
depreciation and amortization and rent (EBITDAR)
was $774.9 million compared to $698.1 million in ﬁscal
2004. Sobeys leases a substantial portion of its store

Compliments
Selections Brand

Compliments
Sensations Brand

28 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 29

network.Therefore, to arrive at a measure of operating
performance excluding the impact of capital, gross
rent expense of $275.9 million in ﬁscal 2005 and
$251.1 million in ﬁscal 2004 is added to EBITDA to
arrive at EBITDAR. EBITDAR as a percent of sales in
ﬁscal 2005 was 6.36 percent compared to 6.32 percent
in ﬁscal 2004.

Earnings before Interest and Income Taxes
Sobeys EBIT increased to $322.6 million in ﬁscal 2005,
a 9.6 percent increase from the prior year, with an
EBIT margin of 2.65 percent compared to 2.66 percent
in ﬁscal 2004. Included in ﬁscal 2005 EBIT was a
$23.7 million increase in depreciation and amortization
expense ($176.4 million current year compared to
$152.7 million last year), reﬂecting Sobeys continued
capital investments.The 53rd week of operations in
ﬁscal 2005 favourably impacted EBIT by approximately
$6.1 million or 2.1 percentage points.

Sobeys will continue to focus on disciplined cost

management initiatives, supply chain and retail
productivity improvements and migration of best
practices across its four regions to continue to fuel and
fund investments to drive sales and improve margins
over time.

Net Earnings
Sobeys’ ﬁscal year 2005 net earnings were
$186.7 million compared with $166.5 million last year,
a $20.2 million or 12.1 percent increase. Sobeys net
earnings in ﬁscal 2005 were favourably impacted by
approximately $3.5 million as a result of the 53rd week
of operations. Fiscal 2005 net earnings reﬂect increased
depreciation and amortization expense, while ﬁscal

2004 earnings were impacted by the net effect of the
one-time items and gain on sale of redundant real
estate, both referred to above.The consolidation of VIEs
resulted in a $0.6 million reduction in net earnings in
ﬁscal 2005.

Sobeys’ contribution to Empire’s net earnings

equalled $123.1 million (66.0 percent of Empire
consolidated net earnings) compared to $107.5 million
(62.3 percent of consolidated earnings) the previous
ﬁscal year, a 14.5 percent increase.

Food Division
Revenue
($ in millions)

Food Division
Operating Income
($ in millions)

4
.
9
8
1
,
2
1

4
.
1
6
0
,
1
1

5
.
4
1
4
,
0
1

5
.
2
3
7
,
9

0
.
3
6
1
,
9

6
.
5
2
6 3
.
6
9
2

6
.
2
2
3 3
.
4
9
2

4
.
1
3
2

Fiscal Year

Empire Company Limited || 29

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 30

Management’s Discussion and Analysis

Real Estate Division

Highlights

• Occupancy rate remained strong at 93.5 percent (93.6 percent last year).
• Exceptional year for residential operations with growth in net earnings of 25.3 percent.
• Funds from operations increased 10.3 percent to $64.4 million from $58.4 million last year.
• The real estate portfolio was strengthened and diversiﬁed through the development of existing properties and

continued residential development activity through Genstar.

The table below segments real estate division revenue, funds from operations and net earnings for commercial and
residential operations.

($ in millions)

Revenue

Commercial
Residential

Inter-segment

Funds from operations

Commercial
Residential

Net earnings

Commercial
Residential

53 weeks ended
May 7, 2005

% Change
over 2004

52 weeks ended
April 30, 2004

% Change
over 2003

$ 194.2
35.0

229.2
(57.8)

$ 171.4

42.7
21.7

64.4

24.4
21.3

45.7

7.7 %
15.9 %

8.9 %
10.5 %

8.3 %

4.7 %
23.3 %

10.3 %

(2.0)%
25.3 %

9.1 %

$ 180.3
30.2

210.5
(52.3)

$ 158.2

40.8
17.6

58.4

24.9
17.0

41.9

4.0 %
19.4 %

6.0 %
5.9 %

6.0 %

9.4 %
7.3 %

8.8 %

18.0 %
(4.5)%

7.7 %

Genstar
Calgary, Alberta

Barhaven
Ottawa, Ontario

30 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 31

Revenue
Commercial property related revenue increased
$13.9 million or 7.7 percent as a result of continued
strong occupancy rates, generally higher rental renewal
rates, ongoing property development, and acquisition
activity that occurred in the fourth quarter last year. At
the start of the fourth quarter last ﬁscal year, Crombie
acquired six properties from Commisso’s Properties Ltd.
in Southwestern Ontario which added gross leasable
area of 0.5 million square feet.

Leasing activity has remained strong with an overall

(retail plus ofﬁce) occupancy rate of 93.5 percent,
relatively unchanged from 93.6 percent a year ago.
The retail occupancy rate was 94.2 percent compared
to 94.4 percent a year earlier. Ofﬁce vacancy at
9.5 percent compared to 9.8 percent a year earlier
remained below the average ofﬁce vacancy rate in the
Halifax and Moncton markets, respectively.The
majority of the Company’s ofﬁce space is located in
the Halifax and Moncton markets.

Revenue from residential activities increased
$4.8 million or 15.9 percent largely as a result of
stronger than expected lot sales in Genstar’s Western
Canadian operation, particularly in Calgary and
Edmonton markets. Genstar continues to beneﬁt from
continued strong housing markets in Western Canada.
At this time, it is expected that this trend will continue
for the remainder of the calendar year.

Operating Income
The $11.2 million or 10.1 percent increase in real estate
division operating income in ﬁscal 2005 was largely the
result of a strong contribution from Genstar, the beneﬁt
of having the six Ontario properties acquired in the
fourth quarter last year for a full operating year,
successful re-development activities and generally
higher net effective rental rates. Costs and operating
costs as a percentage of revenues were unchanged at
39.5 percent.The real estate operation contributed
26.4 percent of Empire’s total operating income in
ﬁscal 2005 (2004 – 26.3 percent).

Net Earnings
Real estate division contribution to Empire’s ﬁscal 2005
net earnings was $45.7 million (24.5 percent of Empire
consolidated net earnings), an increase of $3.8 million
or 9.1 percent from the $41.9 million recorded in ﬁscal
2004.The increase is principally the result of the higher
operating income generated in ﬁscal 2005 net of
additional income tax expense paid. Interest expense
was relatively unchanged from the prior year.
Funds from operations (net income plus

depreciation) increased 10.3 percent to $64.4 million
from $58.4 million last year as a result of improved
operating earnings performance.

Real Estate Revenue
($ in millions)

2
.
9
2
5 2
.
0
1
2

6
.
8
9
1

1
.
5
8
8 1
.
5
6
1

Real Estate
Operating Income
($ in millions)

2
.
2
2
0 1
.
1
1
1

8
.
3
0
1

6
.
0
0
1

3
.
2
8

Fiscal Year

Empire Company Limited || 31

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Management’s Discussion and Analysis

Investments and Other Operations

Highlights

• Empire’s liquid portfolio investments generated a 26.9 percent return in ﬁscal 2005, resulting in ﬁrst quartile return

performance.

• Four-year annualized return performance for Empire’s portfolio investments was 16.2 percent compared to a

7.9 percent total return for the S&P/TSX Composite Index and a negative 4.5 percent total return for the S&P
500 Index, in Canadian dollars.

• Net investment capital gains of $3.7 million were realized in ﬁscal 2005 largely as a result of the sale of common

equity investments.

• Empire Theatres acquired four locations with 23 screens from Viacom Canada Inc. in Nova Scotia and New

Brunswick, purchased one independent theatre and constructed one new theatre.

Investment Value
At ﬁscal year-end, May 7, 2005, Empire’s total investments (excluding cash) carried a market value of $465.5 million
on a cost base of $325.9 million, resulting in an unrealized gain of $139.6 million.This compares to an unrealized
gain of $66.2 million at the end of ﬁscal 2004.

Portfolio Composition
At ﬁscal year end, May 7, 2005, Empire’s investment portfolio consisted of:

$ in millions (Canadian)

Canadian equities
U.S. equities
Wajax
Preferred and other

Market
Value

$ 186.4
133.0
144.6
1.5

$ 465.5

% of
Portfolio

40.0%
28.6
31.1
0.3

100.0%

Cost

135.0
134.3
55.1
1.5

325.9

Unrealized
Gain (Loss)

$ 51.4
(1.3)
89.5
–

$ 139.6

Empire’s direct debt matched to these investments was $137.7 million Canadian at year-end, equivalent to
29.6 percent of total investment market value. Management considers a ratio of debt to investment value of no
greater than 35 percent as prudent.

Revenue
Investments and other operations’ revenue, primarily generated by Empire Theatres, reached $74.4 million versus
$64.4 million last year. Revenue growth at Empire Theatres was primarily the result of the acquisition of the

Park Lane Theatre
Halifax, Nova Scotia

Bayers Lake Theatre
Halifax, Nova Scotia

32 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 33

23 screens from Viacom Canada Inc. along with continued
modernization of existing locations. Empire Theatres
had 176 screens in operation at the end of ﬁscal 2005
compared to 149 at the end of the prior ﬁscal year.

Investment Return
The total return on the Empire investment portfolio,
as independently benchmarked against over 100 North
American equity fund managers, has provided ﬁrst
quartile return performance (i.e. in the top 25 percent
of surveyed equity fund managers) over one, two, three,
four and ﬁve year trailing periods ended March 31,
2005, respectively.

Total portfolio return for the twelve month period
ended March 31, 2005 was 26.9 percent.This compares
to a 13.9 percent total return for the S&P/TSX
Composite Index and a negative 1.5 percent total return
for the S&P 500 Index in Canadian dollars over the
same twelve month period. Empire’s investment return
performance was ranked as being in the top quartile for
the twelve month period ended March 31, 2005.

The tables below present the return performance for
Empire's investments, relative to Canadian and U.S. equity
benchmarks over each of the last ﬁve years ended March
31st, as well as on a two, three, four and ﬁve-year
annualized compounded basis. Investment returns are
measured using a calendar quarter-end cycle, consistent
with industry practice.

Total Investment Return
(Annual Returns for Periods Ended March 31)

Empire Investment Portfolio
S&P/TSX Composite Index
S&P 500 Index (in Cdn.$)

2001

19.8%
–18.6%
–14.8%

Total Investment Return
(Annualized Compound Returns for Periods Ended March 31, 2005)

Empire Investment Portfolio
1st Quartile Manager Return
Median Manager Return
S&P/TSX Composite Index
S&P 500 Index (in Cdn.$)

Other Operations
Revenue
($ in millions)

Other Operations
Operating Income
($ in millions)

4
.
4
5 6
.
0
2 6
.
6
5

1
.
9
4

4
.
4
7

8
.
9

5
.
9

0
.
9

5
.
6

Fiscal Year

2002

18.2%
4.9%
1.4%

2-year

44.0%
23.8%
20.6%
25.3%
8.9%

2003

–25.6%
–17.6%
–30.7%

3-year

15.5%
5.8%
4.2%
8.9%
–6.3%

2004

63.4%
37.7%
20.5%

4-year

16.2%
5.8%
4.0%
7.9%
–4.5%

2005

26.9%
13.9%
–1.5%

5-year

16.9%
4.7%
1.8%
2.0%
–6.6%

The median manager and ﬁrst quartile manager returns as presented in the table above were calculated using
Canadian and U.S. equity manager return data, as supplied by an independent analytical ﬁrm, multiplied by the
respective Canadian and U.S. equity weights for the Empire investment portfolio.

Despite the volatility in equity markets, management continues to believe that equity market returns will be

superior to either ﬁxed income or money market investment returns over the long term. Management remains
committed to prudently managing a high quality, liquid portfolio of common equities to augment the growth in
the Company’s core operating businesses.

Empire Company Limited || 33

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Management’s Discussion and Analysis

Performance Attribution
The increase of $73.4 million in investment market value
over book cost over the last twelve months ending
March 31, 2005 was largely attributed to a $57.9 million
increase in the unrealized gain position in the Wajax
investment combined with an increase in value of the
majority of liquid common equities in the portfolio.
Investments in Wajax, ﬁnancial-related equities and
energy-related equities performed particularly well
relative to overall benchmark index returns.

Hedging Investment Currency Risk
At May 7, 2005, Empire had hedged approximately
75 percent of the market value of its U.S. based
common equity investments by way of $61.0 million in
U.S. dollar short-term borrowings.The average foreign
exchange rate associated with these U.S. dollar bank
loans is $1.3538 (73.86 cents).The fair value of the
hedge was $5.2 million at the end of the ﬁscal year
(close to zero dollars at the end of ﬁscal 2004) as a
result of the foreign exchange rate equalling $1.2432
(80.44 cents) at the end of the ﬁscal year. Management
has documented and accounted for the U.S. bank loans
as a fair value hedge.This hedge value is not included
in the $139.6 million unrealized investment gain
discussed above.

Capital Allocation from Investments
During ﬁscal 2005 Empire purchased 1,864,600 common
shares of Sobeys for a total cost of $70.0 million. This
outlay was funded through capital reallocation from the
investment division and bank indebtedness.This resulted
in an increase in Empire’s ownership of Sobeys of 3.4
percentage points, with total interest of 68.4 percent at
the end of ﬁscal 2005 versus 65.0 percent a year earlier.
Over the last two years Empire has purchased
3,833,400 common shares of Sobeys for a total cost of
$137.8 million, serving to increase its ownership from
62.0 to 68.4 percent over this time period.

Investment Income
Investment income generated by the investment
portfolio equalled $18.8 million in ﬁscal 2005, an
increase of $2.9 million or 18.2 percent over the prior
year.The increase is the result of equity accounted
earnings from Wajax being higher than last year by
$4.6 million combined with a decrease in dividend
income of $1.7 million.The decline in dividend
income was expected as a result of changes in the
investment portfolio mix.The growth in Wajax equity
earnings was higher than expected and is largely the
result of management’s attention to cost controls and a
strong resource sector which beneﬁts Wajax products
and services.

Operating Earnings
Fiscal 2005 operating earnings from investments (net
of corporate expenses) and other operations equalled
$14.1 million, an increase of $0.4 million or 2.9 percent
over the prior year.The increase is attributed to the
$2.9 million increase in investment income offset by a
$0.6 million reduction in theatre operating earnings
and a $1.9 million increase in corporate expenses.

Capital Gain
The capital gain (net of tax) realized on the sale of
investments in ﬁscal 2005 of $3.7 million (2004 –
$9.4 million) was largely the result of the sale of
common equity investments.

Net Earnings
Investments (net of corporate expenses) and other
operations contributed $17.8 million to Empire’s
consolidated net earnings (9.5 percent of Empire
consolidated net earnings).This compares to a
$23.1 million net earnings contribution last year
(13.4 percent of Empire consolidated net earnings).
The decline is due to the reduction in realized
capital gains as discussed offset by the increase in
operating earnings.

34 || 2005 Annual Report

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Quarterly Results of Operations

The following table is a summary of selected consolidated ﬁnancial information from the Company’s unaudited
interim consolidated ﬁnancial statements for each of the eight most recently completed quarters.

($ in millions,
except per share information)

Revenue
Operating income
Operating earnings
Net capital gain (loss)
and other items

Q4
(14 weeks)
May 7,
2005

$3,360.2
124.0
49.3

Q3
(13 weeks)
Jan. 29,
2005

$2,978.5
113.3
46.2

Q2
(13 weeks)
Oct. 30,
2004

$3,022.8
111.6
42.9

Q1
(13 weeks)
July 31,
2004

$3,073.7
114.8
44.5

Q4
(13 weeks)
Apr. 30,
2004

$ 2,876.4
100.9
41.0

Q3
(13 weeks)
Jan. 31,
2004

$ 2,798.5
109.9
44.0

Q2
(13 weeks)
Oct. 31,
2003

$ 2,794.4
104.4
38.9

Q1
(13 weeks)
July 31,
2003

$ 2,814.7
107.6
39.4

5.5

1.4

(3.0)

(0.2)

(0.1)

8.8

(2.2)

2.7

Net earnings

54.8

47.6

39.9

44.3

40.9

52.8

36.7

42.1

Per Share Information,

basic and fully diluted

Operating earnings (1) $
Net capital gain (loss)
and other items

Net earnings

Weighted average

number of shares
outstanding (in millions)

0.75

0.70

0.66

0.67

0.62

0.67

0.59

0.60

0.08

0.83

0.02

0.72

(0.05)

–

0.61

0.67

0.62

0.13

0.80

(0.03)

0.56

0.04

0.64

65.7

65.8

All quarters previous to the fourth quarter of fiscal 2005 have been restated to reflect the retroactive adjustment related to lease accounting and EIG-144.
Please see the sections entitled “Lease Accounting” and “EIC-144” in this fiscal 2005 annual MD&A.

(1) Operating earnings is net earnings before net capital gain (loss) and other items.

The Company’s operations are impacted to some degree by certain holiday periods in the year; however business is
not materially cyclical or seasonal.

Fourth Quarter Results
Summary Table of Consolidated Financial Results for the Fourth Quarter

14 Weeks Ended
May 7, 2005
$

% of Revenue

13 Weeks Ended
April 30, 2004

% of Revenue

100.00%
3.69%
0.69%
1.09%
16.3%

$ 2,876.4
100.9
22.7
24.1
40.9

100.00%
3.51%
0.79%
0.84%
1.42%

($ in millions, except per share data)

Revenue
Operating income
Interest expense
Income taxes
Net earnings

Per Share, basic and diluted
Operating earnings
Weighted average number of shares outstanding,

basic and diluted (in millions)

Dividends

$ 3,360.2
124.0
23.3
36.6
54.8

0.75

65.7
0.120

Fourth quarter fiscal 2004 has been restated to reflect retroactive adjustments related to lease accounting and EIC-144.

0.62

65.8
0.100

Empire Company Limited || 35

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Management’s Discussion and Analysis

Impact of VIEs on Revenue, EBIT and EBITDA

($ in millions)

Revenue
Operating income
Earnings, before interest, taxes, depreciation

and amortization

Excluding VIEs
14 Weeks Ended
May 7, 2005
$

% of Revenue

Including VIEs
14 Weeks Ended
May 7, 2005

% of Revenue

$ 3,222.8
124.2

100.00%
3.85%

$ 3,360.2
124.0

100.00%
3.69%

172.2

5.34%

173.8

5.17%

The following is a review of ﬁnancial performance for the 14-week period ended May 7, 2005 compared to the
13-week period ended April 30, 2004.

Revenue
Revenue for the fourth quarter was $3.36 billion compared to $2.87 billion last year, a 16.8 percent increase.The food
division reported revenue of $3.29 billion, an increase of $477.0 million or 16.9 percent (Sobeys’ revenue in the fourth
quarter last year includes a capital gain of $14.6 million). For the food division, the fourth quarter of ﬁscal 2005
contained 14 weeks of operations compared to 13 weeks in ﬁscal 2004.The additional week accounted for approximately
$241 million of the revenue increase. Also impacting revenue growth was the consolidation of variable interest
entities in the fourth quarter, this accounted for approximately $137 million of the revenue increase over ﬁscal 2004.
The table below presents the impact of the additional selling week and the consolidation of variable interest

entities in the fourth quarter on Empire’s consolidated revenue.

($ in millions)

Reported
Revenue
Q4 2005

Fourth Quarter

3,360

Growth
over
Q4 2004

16.8%

VIE
Impact

(137)

53rd Week
Impact

(241)

Adjusted

2,982

Growth
over
2004

3.7%

Reported
Revenue
Q4 2004

2,876

Revenue increased $483.8 million or 16.8 percent
compared to the fourth quarter of ﬁscal 2004.The fourth
quarter of ﬁscal 2005 contained 14 weeks of operations
compared to 13 weeks in ﬁscal 2004 and this additional
week accounted for approximately $241 million or
8.4 percentage points of the fourth quarter sales increase.
Another signiﬁcant impact on quarter four revenue
growth in ﬁscal 2005 was the consolidation of VIEs in
the fourth quarter, which accounted for approximately
$137 million or 4.7 percentage points of the increase
over ﬁscal 2004.The acquisition of Commisso’s occurred
at the beginning of the fourth quarter of ﬁscal 2004 and
as a result it did not impact the quarter-over-quarter
growth. Excluding the additional selling week and the
VIE consolidation, fourth quarter revenue growth in
ﬁscal 2005 equalled 3.7 percent.

Food division same-store sales grew 4.5 percent
during the fourth quarter of ﬁscal 2005.The growth in
retail sales was a direct result of Sobeys’ aggressive pricing
posture, the continued implementation of sales and
merchandising initiatives across Sobeys, increased retail
selling square footage of 0.6 million additional square
feet and Sobeys’ ongoing ﬁnancial commitment to
upgrade and renovate existing store assets. Same-store
sales growth outpaced overall Company sales growth as
there was no growth in Sobeys’ wholesale sales to
independent customers in the fourth quarter this year
compared to the fourth quarter last year. In particular,
Sobeys experienced a decline in the sale of tobacco
products to its independent wholesale customers.
Wholesale sales to independent customers are not
included in same-store sales growth.

36 || 2005 Annual Report

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Real estate operations reported fourth quarter

revenues (net of inter-company eliminations) of
$47.4 million, an increase of $4.0 million or 9.2 percent
over the fourth quarter last year. Commercial property
revenue grew by $1.6 million or 4.8 percent while
revenue from residential operations increased $2.4 million
or 24.2 percent.The growth in commercial property
revenues was the result of continued strong occupancy
levels and generally higher rental renewal rates.The
increase in residential revenue from Genstar was the
result of exceptionally strong lot sales, particularly in
Calgary and Edmonton markets.

Operating Income
The $23.1 million or 22.9 percent increase in consolidated
operating income in the fourth quarter was largely the
result of an $18.9 million or 28.8 percent increase in
food division operating income contribution to Empire
compared to the fourth quarter last year.

Sobeys’ EBITDA for the quarter ended May 7, 2005

was $133.1 million; an increase of 20.0 percent or
$22.2 million versus the $110.9 million recorded in the
same quarter last year. EBITDA as a percentage of sales
increased to 4.04 percent from 3.96 percent when
compared to fourth quarter ﬁscal 2004 results. Sobeys
experienced a modest increase in gross margin
percentage, excluding the impact of consolidating VIEs,
compared to the same quarter last year as a result of the
continued implementation of enhanced merchandising
programs and store productivity initiatives.

Sobeys’ EBITDA for the fourth quarter of ﬁscal
2005 was also positively impacted by approximately
$6.1 million due to the extra week of operations in the
fourth quarter. EBITDA for the fourth quarter of ﬁscal
2004 was positively impacted by the sale of redundant
real estate for a pre-tax gain of $14.6 million and
negatively impacted by expenses related to an increase
in an estimate of store closing costs of $5.3 million and
pension and beneﬁt costs for employees on long- term
disability of $4.8 million, both before tax.The net impact
from the gain, store closure costs and pension and
beneﬁt amounts was $0.06 per Sobeys share, after tax.

Sobeys’ EBIT for the fourth quarter increased
$18.3 million or 27.6 percent to $84.6 million. EBIT
margin, which is EBIT divided by sales, for the fourth
quarter increased to 2.57 percent from 2.37 percent in
the same quarter last year.

Real Estate division operating income grew by

$3.7 million or 11.7 percent over the fourth quarter
last year. Commercial operations operating income was
unchanged at $23.0 million while residential operations
operating income increased 43.5 percent to reach
$12.2 million.This scale of growth in residential
operations operating income is not expected to be
sustainable. Management recognizes that selling
residential lots is a cyclical industry and that growth
will likely soften when interest rates rise and/or other
macroeconomic events dampen residential real estate
activity.

Investments and other operations’ fourth quarter

operating income increased by $0.5 million, as a result
of a $1.8 million increase in investment income, offset
by increased corporate expenses of $0.7 million and a
reduction in operating income from other operations
of $0.6 million.

Interest Expense
The $0.6 million increase in fourth quarter interest
expense is due to an increase in interest expense
connected to short-term debt.The Company’s bank
loans increased in the fourth quarter as a result of
funding the purchase of 1.5 million common shares
of Sobeys in early April, 2005. Sobeys’ consolidation
of VIEs also served to increase interest expense.

Income Taxes
The effective income tax rate for the fourth quarter was
35.2 percent compared to 30.7 percent in the fourth
quarter last year.The ﬁscal 2004 quarterly tax rate was
favourably impacted by the lower effective rate on a
capital gain recorded by Sobeys of $14.6 million in the
fourth quarter. In ﬁscal 2005 there was a shift to a
greater portion of taxable earnings in jurisdictions with
higher statutory rates.

Empire Company Limited || 37

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Management’s Discussion and Analysis

Minority Interest
The $2.8 million increase in minority interest relative
to the fourth quarter last year was the result of higher
earnings from Sobeys offset by an increase in Empire’s
ownership interest.The purchase of 1.5 million Sobeys
shares in early April 2005 served to increase Empire’s
interest in Sobeys from 66.1 percent to 68.4 percent.

Operating Earnings
The $8.3 million or 20.2 percent increase in operating
earnings over the fourth quarter last year is the result
of a $7.5 million increase in food distribution division
earnings contribution; a $1.5 million increase in real
estate division earnings contribution and a $0.7 million
decrease in earnings contribution from investments and
other operations.

Capital Gain (Loss)
The capital gain (net of tax) of $5.5 million and the
net capital loss of $0.1 million recorded in the fourth
quarter of ﬁscal 2005 and ﬁscal 2004, respectively, were
the result of the sale of investments.

Net Earnings
Net earnings in the fourth quarter, including net capital
gains and other items, totalled $54.8 million or $0.83 per
share versus $40.9 million or $0.62 per share in the fourth
quarter last year. Sobeys accounted for $7.5 million of the
increase in consolidated earnings. Sobeys earnings were
favourably impacted by approximately $3.5 million as a
result of the additional week of operations in the fourth
quarter ﬁscal 2005.The additional week positively
impacted Empire’s net earnings by $2.4 million.

Financial Condition

Assets and Net Asset Value
At ﬁscal year end May 7, 2005, management calculates Empire’s consolidated net asset value (management’s estimate
of the market value of the Company’s assets less indebtedness) at $2,536 million ($38.59 per Empire common share),
an increase of $491 million or 24.0 percent from the calculated net asset value at April 30, 2004 of $2,045 million
($31.08 per Empire common share).

The table below presents the composition of net asset value by business segment:

($ in millions)

Food (1)
Real Estate (2)
Investments and Other (3)

Less: corporate debt and preferred shares

Net asset value

Per share

May 7, 2005

April 30, 2004

Net Asset
Value

1,662
493
527

2,682
146

2,536

38.59

Percent
of Total

62%
18%
20%

100%

Net Asset
Value

1,226
452
453

2,131
86

2,045

31.08

Percent
of Total

58%
21%
21%

100%

(1) Food division net asset value at May 7, 2005 equals the 44.67 million common shares of Sobeys owned at fiscal year-end multiplied by the market
price of a Sobeys common share at fiscal year-end. Food distribution net asset value at April 30, 2004 equalled the 42.81 million common shares of
Sobeys owned at fiscal year-end multiplied by the market price of a Sobeys common share at fiscal year-end.

(2) Real estate net asset value for May 7, 2005 and for April 30, 2004 respectively have been calculated at nine times trailing funds from commercial

operations plus five times trailing funds from residential operations.

(3) Investment net asset value is derived from stated public market values of securities held in the portfolio.

38 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 39

At May 7, 2005, approximately 80 percent of Empire’s
net asset value was derived from assets that are valued
by publicly available market prices from recognized
public stock exchanges.This includes Sobeys common
shares and securities held in Empire’s investment
portfolio. For each dollar increase in Sobeys’ share
price, Empire’s net asset value increases by
approximately $0.68 per share.

Book value per common share was $25.87 at May

7, 2005, compared to $23.67 at April 30, 2004.

The Company’s ﬁnancial condition at May 7, 2005
continued to strengthen as indicated in the table below.

Capital Structure and
Key Financial Condition Measures

($ in millions, except ratio calculations) May 7, 2005

April 30, 2004

Shareholders’ equity
Short-term debt
Long-term debt, including

current portion
Funded debt to total

capital

Adjusted debt to total

capital(1)

Debt to EBITDA
Interest coverage
Total assets

$ 1,709.0
219.4
$

$ 1,567.6
140.8
$

974.4

995.7

41.4%

42.2%

57.4%
1.87x
5.35x
$ 4,929.2

55.3%
1.98x
4.58x
$ 4,679.7

(1) Adjusted debt includes capitalization of lease obligations based on six
times net annual lease payments (gross lease payments net of expected
sub-lease income).

Shareholders’ Equity
Total common shares outstanding at May 7, 2005
equalled 65,735,810, relatively unchanged from a year
ago.There were 31,150,585 Non-Voting Class A shares
outstanding and 34,585,225 Class B common shares
outstanding at May 7, 2005. During ﬁscal 2005, 9,400
options were exercised compared to 30,000 in ﬁscal
2004. At May 7, 2005, Empire had 27,674 options
outstanding expiring in October, 2006.

During ﬁscal 2005 Empire purchased for
cancellation 100,000 series 2 preferred shares for
$2.5 million. Empire has a policy of repurchasing
enough Class A Non-Voting shares to offset the dilutive
effect of shares issued to fulﬁll the Company’s
obligation under its stock option and share purchase
plans. During ﬁscal 2005 Empire purchased 61,129
Non-Voting Class A shares for cancellation versus
68,477 shares purchased for cancellation in ﬁscal 2004.
At July 15, 2005, Empire had 65,756,064 common
shares outstanding, consisting of 31,170,839 Non-Voting
Class A shares and 34,585,225 Class B common shares
outstanding, along with 27,674 options outstanding
expiring in October, 2006. Options allow the holder to
purchase Non-Voting Class A shares at $6.555 per share.
Dividends paid to common shareholders amounted

to $31.6 million ($0.48 per share) versus $26.3 million
($0.40 per share) for the same period last year.

Net Asset Value
per Share
($ per share)

7
5
.
9
3

9
5
.
8
3

1
9
.
3
3

8
0
.
1
3

8
8
.
4
2

Closing Share Price
($ per share)

Book Value per Share
($ per share)

Common Dividends
per Share
($ per share)

6
6
.
6
3

8
8
.
8
2

5
6
.
6
2

5
8
.
3
2

0
0
.
7
1

7
8
.
5
7 2
6
.
3
1 2
4
.
1
2

7
4
.
9
2 1
8
.
6
1

8
4
.
0

0
4
.
0

3
3
.
0

1
2
.
0

7
1
.
0

Fiscal Year

Empire Company Limited || 39

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Management’s Discussion and Analysis

Liabilities
Empire ﬁnances a signiﬁcant portion of its assets through
the use of debt (consisting of bank indebtedness, long-
term debt and long-term debt due within one year),
the majority of which is ﬁxed-rate and long-term in
nature.Total ﬁxed-rate, long-term debt (including the
current portion of long-term debt) at ﬁscal year-end of
$861.3 million represents 71.4 percent of Empire’s total
funded debt. Long-term debt (including current portion)
by operating company is detailed in the table below.

($ in millions)

May 7, 2005

April 30, 2004

Food
Real Estate
Other Operations

Total

457.8
512.2
4.4

974.4

453.1
538.2
4.4

995.7

Of the total long-term debt outstanding at ﬁscal year
end, 47.0 percent was directly related to the food
distribution segment, 52.6 percent was directly related
to the real estate segment, and 0.4 percent was related
to other operations.There is no long-term debt carried
by the investment segment.The investment segment’s
assets are short-term and liquid in nature, therefore
associated ﬁnancing is also short-term. Empire ﬁnances
its long-term assets predominately with ﬁxed-rate long-
term debt, thereby reducing both interest rate and
reﬁnancing risk.

A total of $488.1 million in long-term debt is due
within the next ﬁve years, and a further $486.3 million
with longer maturities.The fair value of the Company’s
long-term debt is estimated to be $1,126.0 million.
Long-term debt maturities, including capital leases, in
ﬁscal 2006 and 2007 amount to $247.0 million and
$42.6 million, respectively.The Company anticipates
being able to fund these maturities through the
following sources of cash: cash generated from operations,
use of short-term credit facilities and the issuance of
additional long-term debt. Management monitors
capital markets with a view to replacing maturing debt
with new debt having longer-term maturities.

40 || 2005 Annual Report

At May 7, 2005, interest coverage (operating income

divided by interest expense) improved to 5.35 times
from the 4.58 times coverage reported as of April 30,
2004.The improvement in coverage is the result of a
9.7 percent increase in year-over-year operating income
coupled with a 6.2 percent decrease in interest expense
over the same period.The ratio of debt to EBITDA
also improved from last ﬁscal year end, reﬂecting the
growth in EBITDA.

The debt to total capital ratio declined 0.8 percentage
points to 41.4 percent as a result of equity growing at a
faster rate than funded debt. Excluding the impact of
the VIEs (variable interest entities), the ratio of debt to
total capital would be 40.8 percent.The net debt (debt
less cash and cash equivalents) to total capital ratio
declined 1.1 percentage points to 36.6 percent.

The Company also monitors adjusted debt to total
capital, where net annual lease payments are capitalized
at six times annual lease payments, and this capitalized
lease obligation is then added to funded debt. Adjusted
debt to capital at ﬁscal year end was 57.4 percent versus
55.3 percent the prior year.

Empire’s investment portfolio consisting of liquid

publicly traded securities also strengthens the
Company’s ﬁnancial position. At ﬁscal year end May 7,
2005 the portfolio carried a market value of $465.5
million (2004 – $390.9 million).

Funded Debt to
Total Capital
(percentage)

6
.
9
4 4
.
6
4

9
.
5
4

2
.
2
4

4
.
1
4

Interest Coverage
(times)

4
.
5

8
.
4

6
.
4

7
.
3

3
.
2

Fiscal Year

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 41

Through established credit ratings, Empire and
Sobeys maintain access to the capital markets. Empire
has a corporate unsecured debt rating of BBB- (stable
trend) from Standard & Poor’s and a debt rating of BBB
(negative trend) from Dominion Bond Rating Service.
Sobeys has a corporate unsecured debt rating of BBB-
(stable trend) from Standard and Poor’s and a debt
rating of BBB high (negative trend) from Dominion
Bond Rating Service.

Empire and its subsidiaries have provided covenants

to its lenders in support of various ﬁnancing facilities.
All covenants were complied with in ﬁscal 2005 and
ﬁscal 2004.

Empire anticipates ready availability of any required

longer-term ﬁnancing due to its investment grade
credit rating and previous experience in the capital
markets.

Financial Instruments
Empire utilizes interest rate instruments from time to
time to prudently manage exposure to interest rate
volatility and also to ﬁx future long-term debt maturities
which are expected to be reﬁnanced. At May 7, 2005,
the gross notional amount of all interest exchange
agreements totalled $43.8 million at rates ranging from
4.22 percent to 6.18 percent.

To mitigate the currency risk associated with the

Company’s U.S. dollar investments, Empire has
designated U.S. bank loans as hedges.This debt is short-
term in nature and provides ﬂexibility to hedge the
U.S. dollar exposure. Empire and its subsidiaries use
hedging instruments to mitigate risk exposure, not for
speculative purposes. Sobeys has locked in the interest
rate on the underlying government of Canada 15 year
yield, for reﬁnancing $100 million of a November 2005
Series A Medium Term Note (MTN) maturity, using a
bond forward.

Liquidity and Capital Resources

Sources of Liquidity

Empire’s liquidity remains strong as a result of the
following sources of liquidity:

• Cash and cash equivalents on hand;
• Unutilized bank credit facilities;
• Availability of long-term debt ﬁnancing;
• Empire’s portfolio of liquid investments; and
• Cash generated from operating activities

The Company anticipates that these sources of
liquidity will be sufﬁcient to meet expected cash outﬂows
over the next year.

At May 7, 2005 cash and cash equivalents were
$281.7 million versus $202.2 million at April 30, 2004.
On a non-consolidated basis, Empire maintains
authorized bank lines for operating, general and corporate
purposes of $325.0 million, of which 41 percent was
utilized at year-end. Financial instruments are used from
time to time to manage the risk of short-term interest
rate ﬂuctuations on underlying short-term bank
indebtedness. On a consolidated basis, Empire’s
authorized bank credit facilities exceeded borrowings
by $548.2 million at May 7, 2005.

The Company normally reﬁnances existing long-

term debt as it matures, and maintains ﬁnancial
ﬂexibility through its investment portfolio and access
to the capital markets for additional long-term debt or
equity ﬁnancing. Longer-term ﬁnancing is obtained
by Sobeys’ through Canadian public debt markets via
Sobeys’ established medium term note (MTN) program.
Sobeys’ Short Form Base Shelf Prospectus, which enables
the issuance of MTNs, expired on January 20, 2005.
In view of the high levels of liquidity and access to
committed credit facilities, Sobeys is determining when
it will renew its MTN program.

Sobeys also utilizes capital leases for the ﬁnancing
of selected properties and assets.The Company, along
with Sobeys, anticipates continued ready access to
ﬁnancing sources as a result of in-place investment
grade credit ratings as mentioned and previous capital
markets experience.

Empire Company Limited || 41

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 42

Management’s Discussion and Analysis

Major Cash Flow Components

($ in millions)

Earnings for Common Shareholders
Items not affecting cash

Net change in non-cash working capital

Cash ﬂows from operating activities
Cash ﬂows used in investing activities
Cash ﬂows (used in) from ﬁnancing activities
Discontinued operations
Initial impact of variable interest entities

14 Weeks

May 7,
2005

54.8
95.0

149.8
111.8

261.6
(205.8)
34.9
–
32.9

13 Weeks

April 30,
2004

40.8
80.2

121.0
147.7

268.7
(169.1)
(26.9)
–
–

53 Weeks

May 7,
2005

186.3
316.0

502.3
(15.7)

486.6
(447.0)
7.0
–
32.9

52 Weeks

April 30,
2004

172.1
272.3

444.4
22.8

467.2
(435.6)
(147.5)
1.3
–

Increase (decrease) in cash and cash equivalents

123.6

72.7

79.5

(114.6)

Fiscal 2004 has been restated to reflect retroactive adjustments related to release accounting and EIC-144. See sections entitled “Lease Accounting” and
“EIC-144” in this MD&A.

Operating Activities

Cash ﬂows from operating activities amounted to $261.6 million in the fourth quarter compared to $268.7 million
in the fourth quarter last ﬁscal year.The decrease of $7.1 million was attributed to a decline in non-cash working
capital of $35.9 million, offset by increased earnings for common shareholders of $14.0 million, and an increase in
items not affecting cash of $14.8 million.

Cash ﬂows from operating activities on an annual basis amounted to $486.6 million compared to $467.2 million
last ﬁscal year.The increase of $19.4 million was the result of a $14.2 million improvement in earnings for common
shareholders, a $43.7 million increase in items not affecting cash (primarily as a result of a $27.8 million increase in
depreciation and amortization expense) offset by a $38.5 million decline in non-cash working capital.

Major Components of Non-Cash Working Capital
(Including VIEs)

($ in millions)

Including
VIEs as of
May 7,
2005

Receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Income taxes receivable (payable)
Variable interest entities
Business acquisitions and reclassiﬁcations

257.8
639.6
52.3
(1,149.1)
15.0
(74.2)
(8.9)

Jan. 29,
2005

298.9
543.5
40.8
(1,042.9)
12.5
–
(8.5)

Quarter
Increase
(Decrease)
in Cash Flows

41.1
(96.1)
(11.5)
106.2
(2.5)
74.2
0.4

April 30,
2004

329.5
483.6
49.3
(1,138.4)
(7.2)
–
–

Year-to-Date
Increase
(Decrease)
in Cash Flows

71.7
(156.0)
(3.0)
10.7
(22.2)
74.2
8.9

Total

(267.5)

(155.7)

111.8

(283.2)

(15.7)

Fiscal 2004 has been restated to reflect retroactive adjustments related to release accounting and EIC-144. See sections entitled “Lease Accounting” and
“EIC-144” in this MD&A.

42 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 43

Major Components of Non-Cash Working Capital
(Excluding VIEs)

($ in millions)

Excluding
VIEs as of
May 7,
2005

Receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Income taxes receivable (payable)
Business acquisitions and reclassiﬁcations

279.7
518.3
48.1
(1,119.5)
14.8
(8.9)

Jan. 29,
2005

298.9
543.5
40.8
(1,045.7)
12.5
(8.5)

Quarter
Increase
(Decrease)
in Cash Flows

19.2
25.2
(7.3)
73.8
(2.3)
0.4

April 30,
2004

329.5
483.6
49.3
(1,138.4)
(7.2)
–

Year-to-Date
Increase
(Decrease)
in Cash Flows

49.8
(34.7)
1.2
(18.9)
(22.0)
8.9

(15.7)

Total

(267.5)

(158.5)

109.0

(283.2)

Fiscal 2004 has been restated to reflect retroactive adjustments related to release accounting and EIC-144. See sections entitled “Lease Accounting” and
“EIC-144” in this MD&A.

Excluding the impact of VIEs, receivables decreased
$19.2 million, inventory levels decreased $25.2 million
and accounts payable and accrued liabilities increased
$73.8 million compared to the third quarter of ﬁscal
2005. Contributing to the decrease in accounts
receivable during the fourth quarter is the collection of
supplier revenue that was outstanding at the end of the
third quarter.The increase in accounts payable and
accrued liabilities was consistent with the prior year and
can be attributed to a combination of higher trade
payables and higher accrued liabilities such as
construction costs and employee incentives.

Compared to April 30, 2004 ﬁscal year-end levels

and excluding the impact of the VIEs, accounts
receivable decreased $49.8 million, inventory increased
$34.7 million and income taxes payable decreased
$22.0 million.The decrease in receivables is primarily
attributable to the reclassiﬁcation of $31.0 million of
customer-related payables in the second quarter of ﬁscal
2005. Historically, some customer receivables were
reported at a gross value and the customer payables
were reported in accounts payable. During the second
quarter of ﬁscal 2005, the food division began netting
the receivables and related payables for these customers.
The increase in inventory is required to support
Sobeys’ expanded store network and growing sales.

Investing Activities

Cash ﬂows used in investing activities of $205.8 million
in the fourth quarter was $36.7 million higher than in
the fourth quarter of last ﬁscal year.The increase is
largely the result of $58.6 million of cash used to
purchase common shares of Sobeys in the quarter

compared to $1.0 million used to purchase Sobeys’
shares in the fourth quarter last year. In ﬁscal 2004,
proceeds from the sale of redundant real estate assets
were partially offset by the cost of the Commisso’s
acquisition.

Fiscal year cash used in investing activities increased

$11.4 million to total $447.0 million. Purchases of
shares in Sobeys totalled $93.5 million in ﬁscal 2005
compared to $74.2 million last ﬁscal year. Other factors
contributing to the increase included proceeds from the
sale of property being $46.3 million lower than the
prior year and purchases of property, equipment and
other assets being down $59.0 million from the
prior year.

Consolidated on balance sheet purchases of

property equipment and other assets totalled
$372.0 million compared to $431.0 million last ﬁscal
year.The table below presents balance sheet capital
expenditures over the last two years by business segment.

($ in millions)

Food
Real estate
Investments and other

Total capital expenditures

2005

321.1
33.2
17.7

372.0

2004

384.9
34.2
11.9

431.0

Food division company-wide capital investment
includes on-balance sheet capital expenditures, all
known capital investments by franchise afﬁliates and
capital investments by third-party landlords. Company-
wide capital investment totalled $436 million in ﬁscal
2005, down from $553 million in the previous year.
Sobeys remains committed to growing and improving
its store network. During the fourth quarter,

Empire Company Limited || 43

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 44

Management’s Discussion and Analysis

13 corporate and franchised stores were opened
compared to 36 corporate and franchised stores
opened, replaced or acquired during the fourth quarter
of last year. During the fourth quarter of ﬁscal 2004,
Sobeys completed the acquisition of 15 stores, six cash
and carry outlets and the wholesale business of
Commisso’s. An additional seven stores were expanded
during the quarter.There were 16 stores rebannered
in the current quarter compared to 20 for the same
quarter last year.

On an annual basis, the food division opened
41 corporate and franchised stores this ﬁscal year
compared to 76 corporate and franchise stores opened
or replaced last year. An additional 19 stores were
expanded in the year compared to 18 stores last year
and 36 stores were rebannered this year compared to
90 last year.

Net retail store square footage increased during the

fourth quarter by 189,516 square feet (327,902 square
feet opened, less 138,386 square feet closed). Net retail
store additions for the year totalled 578,517 square feet
(1,042,599 square feet opened less 464,082 square feet
closed). At May 7, 2005, Sobeys’ square footage totalled
25.0 million square feet, a 2.5 percent increase over the
beginning of the ﬁscal year.

Sobeys continues to focus on growth through a

combination of new store openings, renovations,
replacements and enlargements and, where appropriate,
through strategic acquisitions.The majority of total

Food
Capital Expenditures
($ in millions)

Real Estate
Capital Expenditures
($ in millions)

9
.
8
5
4

2
.
1
1
4

9
.
4
8
3

1
.
1
2
3

7
.
6
5
2

1
.
8
4

2
.
4
3

2
.
3
3

1
.
5
2

6
.
0
2

Fiscal Year

44 || 2005 Annual Report

company-wide capital spending in ﬁscal 2006, which
will approximate the average spending of the past
number of years, will be allocated to the retail store
network. During ﬁscal 2006, the Company plans to
open, expand, or renovate approximately 70 corporate
and franchised stores across Canada, increasing square
footage by approximately four percent.

During ﬁscal 2005 the Real estate division capital

spending was primarily focused around the modernization
and development of existing commercial properties
such as conversion of the Downsview Mall in Lower
Sackville, Nova Scotia from an enclosed shopping
centre to a strip centre and the renovation of the
Avalon Mall Food Court in St. John’s, Newfoundland.
New developments in Central Canada consisted of the
Greenﬁeld Park commercial development in Montreal,
Quebec and the purchase of land for development in
Oshawa, Ontario.

Capital spending by investments and other operations

equalled $17.7 million in ﬁscal 2005 ($11.9 million in
2004) largely as a result of expenditures to acquire and
modernize the four theatre locations (23 screens)
purchased by Empire Theatres from Viacom Canada Inc.
during the year.

Financing Activities

Financing activities during the fourth quarter generated
$34.9 million in cash compared to $26.9 million of
cash used in the comparable period of ﬁscal 2004.
The Company incurred increased bank loans of
$43.3 million in the fourth quarter primarily in
connection with the purchase of common shares in
Sobeys. In the fourth quarter of ﬁscal 2004, bank loans
of $4.4 million were repaid.

For the ﬁscal year, ﬁnancing activities increased
cash by $7.0 million compared to $147.5 million of
cash used in ﬁnancing activities the prior year.
Repayments of long-term debt were signiﬁcantly
higher last ﬁscal year, largely reﬂecting the repayment
of a $100 million Series B MTN in the second quarter
ﬁscal 2004. Also in ﬁscal 2005, the issuance of long-
term debt totaling $39.9 million was $25.0 million
higher than the long-term debt issued the prior year.
Further, the Company increased its bank indebtedness
by $78.6 million in ﬁscal 2005 compared to a
$41.5 million increase in bank indebtedness last year.

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 45

The Company’s share capital was comprised of the

following at its ﬁscal year end, May 7, 2005:

Accounting Standards

Authorized

Number of Shares

Preferred shares, par value of $25 each,

issuable in series as a class
2002 Preferred Shares, par value

2,846,000

$25 each, issuable in series as a class

992,000,000

Non-Voting Class A shares, without

par value

Class B common shares, without

par value, voting

259,174,746

40,800,000

Issued

Preferred shares, Series 2 cumulative, redeemable,

rate of 75% of prime

Non-Voting Class A
Class B common

331,900
31,150,585
34,585,225

CICA Section 1100, Generally Accepted
Accounting Principles
During ﬁscal 2004, the Canadian Institute of Chartered
Accountants (“CICA”) introduced Handbook Section
1100 which discusses primary sources of GAAP, what
to do when a matter is not dealt with explicitly in the
sources of GAAP and identiﬁes other sources to be
consulted when a matter is not addressed within the
sources of GAAP. Effective May 1, 2004, the Company
adopted this handbook section prospectively without
restatement. As a result the Company now recognizes
depreciation of real estate buildings, rental expense and
income from tenant leases on a straight-line basis.
Adoption of the straight-line method of depreciation
resulted in additional depreciation of $1.2 million
during ﬁscal 2005.

As of July 15, 2005 the Company had common

Effective May 1, 2004, the Company also changed

shares outstanding of 65,756,064.

Dividend Payments
Dividends of $31.6 million ($0.48 per share) were paid
in ﬁscal 2005 on Empire’s common shares, up from the
$26.3 million ($0.40 per share) paid in ﬁscal 2004.The
dividend rate increased from $0.40 to $0.48 per share.
There was no material change in the number of
common shares outstanding year-over-year.

Debt Repayments
Empire’s repaid long-term debt of $79.8 million during
ﬁscal 2005 compared to $188.9 million in long-term
debt repayments made in ﬁscal 2004. In ﬁscal 2004 Sobeys
repaid a $100 million Series B MTN; reﬁnancing with
proceeds of a new MTN issued in February 2003.

Share Repurchases
During ﬁscal 2005, Empire repurchased 61,129 Non-
Voting Class A shares ($1.6 million) under a Normal
Course Issuer Bid announced on July 8, 2004.The
Company issued 42,129 Non-Voting Class A shares
($0.9 million) to fulﬁll its obligations under its stock
option and share purchase plans.

The Company anticipates that its capital resources
and liquidity position will meet its capital and liquidity
requirements over the next year, which is expected to
include capital expenditures, dividends and planned
debt reduction.

its policy to record real estate lease expense on a
straight-line basis. Additional real estate lease expense
of $2.7 million was recorded in ﬁscal 2005 as a result
of this policy change.The Company also changed its
policy to record income of a straight-line basis,
resulting in additional straight-line real estate revenue
of $2.2 million during ﬁscal 2005.

EIC-144, Accounting by a Customer (Including
a Reseller) for Certain Consideration Received
from a Vendor
In January 2004, the CICA issued a new accounting
standard, EIC-144 titled “Accounting by a Customer
(Including a Reseller) for Certain Consideration
Received from a Vendor”. EIC-144 provides that cash
consideration received from a vendor is presumed to
be a reduction in the prices of the vendor’s products
or services and should, therefore, be characterized as a
reduction in cost of sales and related inventory when
recognized in the customer’s income statement and
balance sheet. If the consideration is a payment for
assets or services delivered to the vendor, the cash
consideration should be characterized as revenue or
other income. If it is a reimbursement of costs incurred
to sell the vendor’s products, the cash consideration
should be characterized as a reduction of that cost,
provided certain conditions are met. EIC-144 requires
retroactive application to all ﬁnancial statements for
annual and interim periods ending after August 15,

Empire Company Limited || 45

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 46

Management’s Discussion and Analysis

2004.The Company adopted EIC-144 in the current
ﬁscal year, adjusting for it retroactively, with restatement
of the comparative periods for the current and prior
ﬁscal year.

The Company receives allowances from certain

vendors, whose products are purchased for resale.
Included in these vendor programs are allowances for
volume purchases, exclusivity allowances, listing fees,
and other allowances. Due to the retroactive
implementation of EIC-144, the timing of recognition
of certain vendor allowances has changed, resulting in
the Company recording a decrease in opening retained
earnings for ﬁscal 2004 of $3.8 million (net of income
taxes receivable of $3.4 million and minority interest
of $2.1 million), and a decrease in inventory of
$9.3 million.The implementation of EIC-144 did not
result in a material change in the annual net earnings
for ﬁscal 2005 or ﬁscal 2004 or in ﬁscal 2005 or ﬁscal
2004 quarterly net earnings.

CICA Section 3870, Stock-Based Compensation
and Other Stock-Based Payments
At the beginning of ﬁscal 2003, the Company adopted,
on a prospective basis, the CICA Handbook 3870
“Stock-Based Compensation and Other Stock-Based
Payments”.There was no effect on the Company upon
implementation of this standard. In ﬁscal 2004, the
Company adopted the Emerging Issues Committee
Abstract 132 “Share Purchase Financing”.This abstract
requires share purchase loans that are not treated as
assets on the balance sheet to be accounted for as
stock-based compensation.There was no effect on the
Company upon implementation of this abstract.

AcG-13, Hedging Relationships
Accounting guideline (“AcG”) 13, “Hedging
Relationships”, came into effect during the current
ﬁscal year.This guideline addresses the identiﬁcation,
designation, documentation and effectiveness of
hedging relationships for the purpose of applying hedge
accounting and provides guidance with respect to the
discontinuance of hedge accounting.There was no
effect on the Company of prospectively adopting this
guideline.

46 || 2005 Annual Report

CICA Section 3110, Asset Retirement Obligations
During the current ﬁscal year, CICA Handbook
Section 3110, “Asset Retirement Obligations,” was
adopted.This section establishes standards for the
recognition, measurement, and disclosure of legal
obligations associated with the costs to retire long-lived
assets. A liability associated with the retirement of long-
lived assets is recorded in the period in which the legal
asset is capitalized as part of the related asset and
depreciated over its useful life. Subsequent to the initial
measurement of the asset retirement obligation, the
obligation is adjusted to reﬂect the passage of time and
changes in the estimated future costs underlying the
obligation.There has been no impact on the Company
from the retroactive adoption of this section.

Lease Accounting
On February 7, 2005, the Ofﬁce of the Chief
Accountant of the U.S. Securities and Exchange
Commission (“SEC”) issued a clariﬁcation in respect of
accounting for various components of property leases
and leasehold improvements on which U.S. and
Canadian accounting governing bodies had been largely
silent. As a result of the SEC clariﬁcation the Company
has adopted the following two accounting policies: lease
inducements received as a reimbursement for leasehold
improvement (costs are amortized over the term of the
lease) and lease expense related to a store fixturing
period (is expensed during the fixturing period).
A store ﬁxturing period varies by store but is generally
considered to be one month prior to the store opening.
The Company has adopted this guideline retroactively
with restatement.

The Company has reviewed its practices related to

lease accounting and has determined that adjustments
were required to align to the recent clariﬁcation of
lease accounting guidelines.The ﬁrst adjustment relates
to lease allowances and incentives. Historically the
Company classiﬁed lease allowances as a reduction of
the related capital assets, which effectively reduced the
depreciation expense over the expected life of the asset.
The guideline clariﬁcation suggests these lease allowances
should be recorded as a deferred credit and amortized
as a reduction of lease expense over the term of the
lease.The second adjustment relates to rent expense to
be recorded during a store’s ﬁxturing period.The
Company is often granted a ﬁxturing period during

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 47

Variable interest entities are deﬁned under AcG-15

as entities that do not have sufﬁcient equity at risk to
ﬁnance their activities without additional subordinated
ﬁnancial support, or where the equity holders lack the
overall characteristics of a controlling ﬁnancial interest.
The guideline requires that the VIE be consolidated
with the ﬁnancial results of the entity deemed to be the
primary beneﬁciary of the VIEs’ expected losses and its
expected residual returns.

The Company has implemented AcG-15 on
May 7, 2005 retroactively without restatement of prior
periods. Entities that have been identiﬁed as meeting
the characteristics of a VIE have been consolidated
in the Company’s results for the fourth quarter of
ﬁscal 2005.

The Company has identiﬁed the following entities as
VIEs:

Franchisees
The Company has identiﬁed 287 franchisees whose
franchise agreements result in the Company being
deemed the primary beneﬁciary of the entity according
to AcG-15.The results for these entities were
consolidated with the results of the Company.

Warehouse and Distribution Agreement
The Company has an agreement with an independent
entity to provide warehouse and distribution services.
The terms of the agreement with this entity require the
Company to consolidate its results with those of the
Company pursuant to AcG-15.

The Company has consolidated the results of these

independent franchisees and the entity providing
warehouse and distribution services for the fourth
quarter of ﬁscal 2005.

which rent is not charged.The ﬁxturing is generally
considered to be one month prior to the store opening.
Historically, when the Company was granted a ﬁxturing
period rent expense was not recorded as none was being
charged and the store was not yet open.The clariﬁcation
of the accounting guidance however requires that the
ﬁxturing period be considered a free-rent period that
should be included in the term of the lease. Since lease
expense must be recognized on a straight-line basis over
the lease term an appropriate portion of the straight-
line expense must be recorded for the ﬁxturing period.
The third adjustment relates to the capitalization of
long term leases. An evaluation was completed in the
fourth quarter of the current year and certain long
term leases have been identiﬁed as capital leases.These
changes have been accounted for on a retroactive basis
with restatement resulting in the following net impact
on the comparative statements for the period ended
May 7, 2005:

• As at April 30, 2004 a reduction to retained

earnings of $5.4 million.

• A reduction in net income for the 52 week

period ended April 30, 2004 of $0.6 million from
$173.1 million to $172.5 million, and a reduction
in earnings per share from $2.63 to $2.62.

• As at April 30, 2004 an increase to property and
equipment, future income taxes, long-term debt
and long-term lease obligation of $10.1 million,
$4.4 million, $10.3 million and $12.5 million
respectively, and a decrease in minority interest of
$2.9 million.
These lease accounting adjustments did not have
any material impact on the Company’s ﬁscal 2005 net
earnings, historical or future revenues, cash ﬂows or
lease payments.

AcG-15, Consolidation of Variable Interest Entities
Effective for the fourth quarter ended May 7, 2005,
the Company was required to implement Accounting
Guideline 15 “Consolidation of Variable Interest
Entities” (“AcG-15”) issued by the CICA. AcG-15
requires the Company to consolidate certain entities
that are deemed to be subject to control of the
Company on a basis other than through ownership of
a voting interest in the entity.

Empire Company Limited || 47

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 48

Management’s Discussion and Analysis

Impact of the Consolidation of VIEs
Balance Sheet as at May 7, 2005

($ in millions)

Assets
Current

Cash and cash equivalents
Receivables
Income taxes receivable
Inventories
Prepaid expenses

Investments, at cost (quoted market value $320.9)
Investments, at equity (realizable value $162.4)

Current assets and marketable investments
Property and equipment
Assets for realization
Other assets
Goodwill

Liabilities
Current

Bank indebtedness
Accounts payable and accrued liabilities
Future income taxes
Long-term debt due within one year

Long-term debt
Long-term lease obligations
Deferred revenue
Employee future beneﬁt obligations
Future income taxes
Minority interest

Shareholders’ Equity
Capital stock
Retained earnings
Cumulative translation adjustment

48 || 2005 Annual Report

Consolidated
Balance Sheet
as at May 7,
2005 before
AcG-15 Impact

Impact of the
Implementation
of AcG-15

Consolidated
Balance Sheet
as at May 7,
2005 after
AcG-15 Impact

247.6
279.7
14.8
518.3
48.1

1,108.5
270.8
72.9

1,452.2
2,395.3
11.5
321.7
684.9

$ 4,865.6

219.4
1,119.5
52.4
245.1

1,636.4

709.6
12.3
3.0
94.5
158.8
531.9

3,146.5

194.6
1,525.6
(1.1)

1,719.1

$ 4,865.6

34.1
(21.9)
0.2
121.3
4.2

137.9
–
–

137.9
34.5
–

(108.8)

–

63.6

–
29.6
–
1.9

31.5

17.8
–
–
–
–
24.4

73.7

–
(10.1)
–

(10.1)

63.6

281.7
257.8
15.0
639.6
52.3

1,246.4
270.8
72.9

1,590.1
2,429.8
11.5
212.9
684.9

$ 4,929.2

219.4
1,149.1
52.4
247.0

1,667.9

727.4
12.3
3.0
94.5
158.8
556.3

3,220.2

194.6
1,515.5
(1.1)

1,709.0

$ 4,929.2

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 49

The impact of implementation of AcG-15 on the consolidated balance sheet of the Company can be explained as
follows:
• Accounts receivable and long-term notes receivable due from the franchisees were eliminated upon consolidation.

Cash, inventories, ﬁxed assets, accounts payable and debt ﬁnancing of the ﬁxed assets have been consolidated.

• A charge of $9.5 million has been recorded to opening retained earnings (net of minority interest of $5.0 million)

to reﬂect: a) the reduction of inventory values of the franchisees that include charges from the Company for
distribution costs and vendor allowances that are not recognized by the Company until ﬁnal sale to customers, and
b) goodwill that is carried on the accounts of stores determined to be VIEs has been assessed as being impaired
with no fair market value, and, as such, has been eliminated.

• Minority interest represents the equity in the VIEs held by the common shareholders.

Income Statement impact for 53 weeks ended, May 7, 2005.

($ in millions)

Revenue
Operating expenses

Consolidated
Income Statement
before
AcG-15 Impact

Consolidated
Impact of the Income Statement
after
AcG-15 Impact

Implementation
of AcG-15

$ 12,297.8

137.4

$ 12,435.2

Cost of sales, selling and administrative expenses
Depreciation and amortization

11,655.2
199.7

135.8
1.8

11,791.0
201.5

Investment income

Operating income

Interest expense

Long-term debt
Short-term debt

Capital gain and other items

Earnings before income taxes and minority interest
Income taxes

Earnings before minority interest
Minority interest

Net earnings

Earnings per share basic and diluted

Basic and diluted weighted average number of common shares

outstanding, in millions

442.9
21.0

463.9

81.1
5.1

86.2

377.7
4.4

382.1
131.3

250.8
63.8

187.0

2.84

65.7

(0.2)
–

(0.2)

0.4
0.1

0.5

(0.7)
–

(0.7)
(0.1)

(0.6)
(0.2)

(0.4)

(0.01)

442.7
21.0

463.7

81.5
5.2

86.7

377.0
4.4

381.4
131.2

250.2
63.6

186.6

2.83

65.7

The impact of implementation of AcG-15 on the consolidated income statement of the Company can be explained
as follows:

Franchise retail sales are recorded and sales from the Company’s distribution centres and cost of goods sold to
the franchisee have been eliminated.The impact on all other ﬁnancial statement line items including net
earnings is immaterial.

Empire Company Limited || 49

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Management’s Discussion and Analysis

Critical Accounting Estimates

Pension, Post-Retirement and Post-Employment
Beneﬁts
Certain estimates and assumptions are used in
actuarially determining the Company’s deﬁned pension
and employee future beneﬁt obligations.

Signiﬁcant assumptions used to calculate the
pension and employee future beneﬁt obligations are the
discount rate, the expected long-term rate of return on
plan assets and expected growth rate of health care
costs.These assumptions depend on various underlying
factors such as economic conditions, investment
performance, employee demographics and mortality
rates.These assumptions may change in the future and
may result in material changes in the pension and
employee beneﬁt plans expense.The magnitude of any
immediate impact, however, is mitigated by the fact that
net actuarial gains and losses in excess of 10 percent of
the greater of the accrued beneﬁt plan obligation and
the market value of the beneﬁt plan assets are amortized
on a straight-line basis over the average remaining
service period of the active employees. Changes in
ﬁnancial market returns and interest rates could also

result in changes in funding requirements for the
Company’s deﬁned beneﬁt pension plans.

The discount rate is based on current market
interest rates, assuming a portfolio of Corporate AA
bonds with terms to maturity that, on average, match
the terms of the obligation.The appropriate discount
rate is determined on April 30th every year. For ﬁscal
2005, the discount rate used for calculation of pension
and other beneﬁt plan expense was 5.5 percent compared
to 6.0 percent for ﬁscal 2004.The expected long-term
rate of return on plan assets for pension beneﬁt plans
for each of ﬁscal 2005 and 2004 was 7.0 percent.The
expected growth rate in health care costs is 10 percent
for ﬁscal 2005.The cumulative growth rate to 2012 is
expected to be 6.0 percent.The expected future growth
rate is evaluated on an annual basis.The table below
outlines the sensitivity of the 2005 key economic
assumptions used in measuring the accrued beneﬁt plan
obligations and related expenses of the Company’s
pension and other beneﬁt plans.The sensitivity of each
key assumption has been calculated independently.
Changes to more than one assumption simultaneously
may amplify or reduce the impact on the accrued
beneﬁt obligations or beneﬁt plan expenses.

Pension Plans

Other Benefit Plans

($ in millions)

Expected long term rate of return on plan assets

Impact of: 1% increase
Impact of: 1% decrease

Discount rate

Impact of: 1% increase
Impact of: 1% decrease

Growth rate of health care costs(1)

Impact of: 1% increase
Impact of: 1% decrease

Benefit
Obligations

5.50%
(29.3)
32.9

$
$

Benefit
Cost(1)

7.00%
(2.4)
2.4

5.50%
0.3
(0.6)

$
$

Benefit
Obligations

Benefit
Cost(1)

5.75%
(15.7)
18.9

10.00%
15.9
(13.0)

$
$

5.75%
(0.8)
0.9

10.00%
1.9
(1.5)

$
$

(1) Reflects the impact on the current service cost, the interest cost and the expected return on assets.

50 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 51

Goodwill and Long Lived Assets
Goodwill is not amortized and is assessed for
impairment at the reporting unit level at least annually.
Any potential goodwill impairment is identiﬁed by
comparing the fair value of a reporting unit to its
carrying value. If the fair value of the reporting unit
exceeds its carrying value, goodwill is considered not to
be impaired. If the carrying value of the reporting unit
exceeds its fair value, potential goodwill impairment has
been identiﬁed and must be quantiﬁed by comparing
the estimated fair value of the reporting unit’s goodwill
to its carrying value. Any goodwill impairment will
result in a reduction in the carrying value of goodwill
on the consolidated balance sheet and in the
recognition of a non-cash impairment charge in
operating income.

The Company periodically assesses the
recoverability of long-lived assets when there are
indications of potential impairment. In performing
these analyses, the Company considers such factors as
current results, trends and future prospects, current
market value and other economic factors.

A substantial change in estimated undiscounted

future cash ﬂows for these assets could materially
change their estimated fair values, possibly resulting in
additional impairment. Changes which may impact
future cash ﬂows include, but are not limited to,
competition and general economic conditions and
unrecoverable increases in operating costs.

Income Taxes
Future income tax assets and liabilities are recognized
for the future income tax consequences attributable to
temporary differences between the ﬁnancial statement
carrying values of assets and liabilities and their
respective income tax bases. Future income tax assets or
liabilities are measured using enacted or substantively
enacted income tax rates expected to apply to taxable
income in the years in which those temporary
differences are expected to be recovered or settled.The
calculation of current and future income taxes requires
management to make estimates and assumptions and to
exercise a certain amount of judgement.The ﬁnancial

statement carrying values of assets and liabilities are
subject to accounting estimates inherent in those
balances.The income tax bases of assets and liabilities
are based upon the interpretation of income tax
legislation across various jurisdictions.The current and
future income tax assets and liabilities are also impacted
by expectations about future operating results and the
timing of reversal of temporary differences as well as
possible audits of tax ﬁlings by the regulatory
authorities. Management believes it has adequately
provided for income taxes based on current available
information.

Changes or differences in these estimates or
assumptions may result in changes to the current or
future income tax balances on the consolidated balance
sheet. A charge or credit to income tax expense may
result in cash payments or receipts.

Disclosure Controls

Based on an evaluation of the Company’s disclosure
controls and procedures, the Company’s Chief
Executive Ofﬁcer and Chief Financial Ofﬁcer have
concluded as of May 7, 2005 that these controls and
procedures operated effectively.

Related Party Transactions

Sobeys continues to lease certain real property from
Crombie and its afﬁliates at fair market values.The rates
are determined based primarily on the ﬁnancing of the
actual costs incurred at the time of construction of the
leased properties.The aggregate net payments under
these leases amounted to approximately $56.8 million
(2004 – $52.2 million). Sobeys was charged
administrative expenses of $0.3 million (2004 –
$0.4 million).

Empire Theatres leased certain real property from
Crombie and its afﬁliates, at fair market value, during
the year.The aggregate payments under the leases
amounted to approximately $4.4 million (2004 –
$3.2 million).

Empire Company Limited || 51

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Management’s Discussion and Analysis

Contingencies

During the fourth quarter, Lumsden Brothers Limited (“Lumsden”), a wholesaling subsidiary of Sobeys, received
notice from Canada Revenue Agency (CRA) that it is proposing a reassessment related to Goods and Services Tax
(GST) for ﬁscal years 1999 and 2000.The proposed reassessment relates to GST on sales of tobacco products to status
Indians. CRA asserts that Lumsden was obliged to collect GST on the sales of these tobacco products to status
Indians.The total tax, interest and penalties in the proposed reassessment are approximately $13 million. On June 17,
2005, Lumsden received a notice of reassessment from Canada Revenue Agency (CRA) related to the Goods and
Services Tax (GST) matter outlined above. Lumsden has reviewed this matter, has received legal advice, and believes it
was not required to collect GST. Lumsden is challenging this reassessment. Accordingly, Sobeys has not recorded in its
ﬁnancial statements any of the tax, interest or penalties set-out in the notice of reassessment.

The table below illustrates the Company’s signiﬁcant contractual obligations.

($ in millions)

Long-term debt
Capital leases
Operating leases
Total contractual
obligations

2006

242.0
5.0
205.3

2007

38.9
3.7
186.7

2008

73.8
3.3
163.3

2009

75.4
2.9
146.5

2010 Onwards

41.0
2.1
132.6

480.1
6.2
1,091.9

Total

951.2
23.2
1,926.3

452.3

229.3

240.4

224.8

175.7

$ 1,578.2

$ 2,900.7

Operating leases, net of lease income received by the Company, are as follows:

($ in millions)

2006

2007

2008

2009

2010 Onwards

Total

129.3

115.1

99.1

88.0

80.6

708.2

$ 1,220.3

Other contractual obligations not reﬂected in the table
above are discussed below.

At May 7, 2005, Sobeys was contingently liable for

letters of credit issued in the aggregate amount of
$26.2 million (2004 – $22.0 million). Sobeys has also
guaranteed certain bank loans contracted by franchisees.
As at May 7, 2005, these loans amounted to
approximately $2.4 million (2004 – $5.0 million).

Upon entering into the lease of its new Mississauga

distribution centre in March 2000, Sobeys Capital
Incorporated guaranteed to the landlord the
performance by SERCA Foodservice Inc. of all of its
obligations under the lease.The remaining term of the
lease is 15 years with an aggregate obligation of
$46.2 million. At the time of the sale of assets of

SERCA Foodservice Inc. to Sysco Corporation, the
lease of the Mississauga distribution centre was assigned
to and assumed by a subsidiary of the purchaser and
Sysco Corporation agreed to indemnify and hold
Sobeys Capital Incorporated harmless from any liability
it may incur pursuant to its guarantee.

Sobeys leases space for certain company-owned
and franchised stores.The terms of these leases vary by
location with typical renewal options.

At May 7, 2005 Crombie was contingently liable
for letter of credit issued in the aggregate amount of
$17.7 million (2004 – $20.0 million).

52 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 53

Risk Management

Through its operating companies and investment
portfolio, Empire is exposed to a number of risks in the
normal course of business that have the potential to
affect its operating performance.The Company has
operating and risk management strategies and insurance
programs to help minimize these operating risks.

Competition
Empire’s food retail business, through Sobeys, operates
in a dynamic and competitive market. Other national
and regional food distribution companies along
with non-traditional competitors, such as mass
merchandisers and warehouse clubs, represent a
competitive risk to Sobeys’ ability to attract customers
and operate proﬁtably in its markets.

Sobeys maintains a strong national presence in the

Canadian retail food and food distribution industry.
The most signiﬁcant risk to Sobeys is the potential for
reduced revenues and proﬁt margins as a result of
increased competition.To mitigate this risk, Sobeys’
strategy is to be geographically diversiﬁed with the
beneﬁts of national scale, to be customer and market-
driven, to be focused on superior execution, and to
have efﬁcient, cost effective operations. Sobeys reduces
its exposure to competitive or economic pressures in
any one region of the country by operating in each
region of Canada through a network of corporate,
franchised, and afﬁliated stores, and through servicing
the needs of thousands of independent, wholesale
accounts.

Sobeys approaches the market with a variety of
store formats, sizes, and banners, in order to enhance
proﬁtability by region and by target market.

Empire’s real estate operations compete with
numerous other developers, managers, and owners of
real estate properties in seeking tenants and new
properties for future development.The existence of
competing developers, managers, and owners could
affect our real estate group’s ability to lease space in its
properties and on rents charged or concessions granted.
Commercial property revenue is also dependent on the
renewal of lease arrangements by key tenants.These
factors could adversely affect revenues and cash ﬂows.
Other than space leased to afﬁliated companies, no one
tenant accounts for more than 5.0 percent of real estate
division total base rental income.

Continued growth of rental income is dependant

on renewing expiring leases and ﬁnding new tenants to
ﬁll vacancies at market rental rates, hereby ensuring an
attractive return on our investment.The success of the
real estate portfolio is also subject to general economic
conditions, the supply and demand for rental property
in key markets served, and the availability of attractive
ﬁnancing to expand the real estate portfolio where
deemed prudent. During ﬁscal 2005, our real estate
operations encountered generally positive economic
conditions in our key markets and a relative lack of
new rental space resulted in relatively stable rental rates.

Financial
Empire and its operating companies have adopted a
number of ﬁnancial policies to manage interest rate risk
and foreign exchange risk.

The majority of Empire’s consolidated debt is at
ﬁxed rates and accordingly there is limited exposure to
interest rate ﬂuctuations. Fixed rate debt issues have
staggered maturity dates which minimize the Company’s
exposure to reﬁnancing risk.

In the ordinary course of managing ﬂoating rate
debt, the Company utilizes ﬁnancial instruments from
time to time to manage the volatility of borrowing
costs. Financial instruments are not used for speculative
purposes.

Insurance
Empire and its subsidiaries are self-insured on a limited
basis with respect to certain operational risks. In
addition to maintaining comprehensive loss prevention
programs and management programs to mitigate the
ﬁnancial impact of operational risks, the Company and
its afﬁliates also purchase excess insurance coverage
from ﬁnancially stable third-party insurance companies.

Human Resources
Empire is exposed to the risk of labour disruption in its
operating companies. Subsequent to year-end, Sobeys
successfully ratiﬁed a four-year collective agreement
with employees located at its Edmonton, Alberta
distribution centre. Labour disruptions pose a moderate
operational risk, as Sobeys operates an integrated
network of more than 20 distribution centres across the
country. Sobeys have good relations with its employees
and unions and does not anticipate any material labour
disruptions in ﬁscal 2006. However, Sobeys has stated

Empire Company Limited || 53

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 54

Management’s Discussion and Analysis

that it will accept the short-term costs of a labour
disruption to support a steadfast commitment to
maintaining fair and equitable work environments
while building and sustaining a competitive cost
structure for the long term.

Effective leadership is very important to the
growth and continued success of the Company.The
Company develops and delivers training programs at all
levels across its various operating regions in order to
improve employee knowledge and better serve its
customers.The ability of Sobeys to properly develop
and retain its employees could affect the Company’s
future performance.

Environmental, Health and Safety
Empire has an effective environmental, health and safety
program in place including policies targeted at ensuring
compliance with relevant legislation.

Employee awareness and training programs are

conducted and environmental, health and safety risks
are reviewed on a regular basis.

Any environmental site remediation is completed

using appropriate, qualiﬁed internal and external
resources and health and safety issues are proactively
dealt with.The Board of Directors receives regular
reports which review outstanding matters, identify new
legislation and outline new programs being
implemented across the Company to positively impact
the environment and employee health and safety.
Existing environmental protection regulatory
requirements are not expected to have a material
ﬁnancial or operational effect on the capital
expenditures, earnings or competitive position of
the Company during the current ﬁscal year or in
future years.

Sobeys has developed programs to promote a
healthy and safe workplace, as well as progressive
employment policies focused on the well being of the
thousands of employees who work in its stores,
distribution centres and ofﬁces.These policies and
programs are reviewed regularly by the Human
Resources Committee of the Board.

Each operating business conducts an ongoing,
comprehensive environmental monitoring process and
the Company is unaware of any material environmental
liabilities in any of its operating companies. Empire’s
Board of Directors receives quarterly reports that review
any outstanding issues including plans to resolve them.

54 || 2005 Annual Report

Food Safety
Sobeys is subject to potential liabilities connected with
its business operations, including potential liabilities and
expenses associated with product defects, food safety
and product handling. Such liabilities may arise in
relation to the storage, distribution and display of
products and, with respect to private label products, in
relation to the production, packaging and design of
products.

A large majority of Sobeys’ sales are generated from

food products and Sobeys could be vulnerable in the
event of a signiﬁcant outbreak of food-borne illness or
increased public health concerns in connection with
certain food products. Such an event could materially
affect ﬁnancial performance. Procedures are in place
to manage food crises, should they occur.These
procedures identify risks, provide clear communication
to employees and consumers and ensure that potentially
harmful products are removed from inventory
immediately. Food safety related liability exposures
are insured by the Company’s insurance program.
In addition, Sobeys has food safety procedures and
programs, which address safe food handling and
preparation standards. Sobeys employs best practices
for storage and distribution of food products.

Technology
The Company and each of its operating companies are
committed to improving their respective operating
systems, tools and procedures in order to become more
efﬁcient and effective.The implementation of major
information technology projects carries with it various
risks that must be mitigated by disciplined change
management and governance processes. Sobeys has
a business process optimization team staffed with
knowledgeable internal and external resources that is
responsible for implementing the various initiatives.
Sobeys’ Board of Directors also created an Oversight
Committee to ensure appropriate governance of these
change initiatives is in place and this committee receives
regular reports from the Company’s management.

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 55

small produce brokerage business based in the State of
Florida. Crombie, through its interest in Genstar, has
certain residential land development in the California
market but on a limited scale.These foreign operations
are relatively small and are not considered material to
Empire on a consolidated basis, as such, the Company
does not have any material risks associated with
foreign operations.

Foreign Currency
The Company conducts the majority of its operating
business in Canadian dollars and its foreign exchange
risk is limited to currency ﬂuctuations between the
Canadian and U.S. dollar. U.S. dollar purchases of
product by the food division represent approximately
two percent of the Company’s total annual purchases.
Sobeys uses forward contracts to ﬁx the exchange rate
on some of its expected requirements for U.S. dollars
for periods of not more than 30 days.

At May 7, 2005, Empire had common equity
investments totalling $106.9 million denominated in
U.S. dollar currency.To mitigate exposure to currency
ﬂuctuation, the Company has hedged a portion of its
foreign currency exposure through the use of U.S.
dollar denominated debt against the assets. At May 7,
2005 the ratio of U.S. dollar debt to the market value
of U.S. equities was 57.1 percent.

Equity Price Risk
The carrying values of the investments in Empire’s
investment portfolio are based on cost; however the
realizable value of each investment and therefore the
portfolio is based on market prices and is subject to
market price ﬂuctuations. Empire has a disciplined,
long-term approach to select quality investments and
has been successful in generating above market
portfolio returns.While portfolio returns may not
match those of the prior year, or exceed median
manager returns, management will continue to manage
the portfolio prudently to ensure appropriate
diversiﬁcation and liquidity.

Real Estate
The Company is focused on obtaining the most attractive
real estate locations for its retail grocery stores as well as
for its commercial property operations and residential
development operations, with direct Company ownership
being an important, but not overriding, consideration.

Sobeys develops certain retail store locations on

owned sites, however, the majority of its store
development is done in conjunction with external
developers.The availability of high potential new store
sites and/or the ability to expand existing stores is
therefore in large part contingent upon successful
negotiation of operating leases with these developers
and Sobeys ability to purchase high potential sites.

Legal, Taxation and Accounting
Changes to any of the various federal and provincial
laws, rules and regulations related to the Company’s
business could have a material impact on its ﬁnancial
results. Compliance with any proposed changes could
also result in signiﬁcant cost to the Company. Failure to
fully comply with various laws, rules and regulations
may expose the Company to proceedings which may
materially affect its performance.

Similarly, income tax regulations and/or accounting
pronouncements may be changed in ways which could
negatively affect the Company.

Franchise Operations
The success of Sobeys is closely tied to the performance
of its retail stores. Franchisees operate approximately
61 percent of these retail stores. Sobeys relies on the
franchisees to successfully execute retail programs and
strategies.

To maintain controls over Sobeys’ brands and the

quality and range of products and services offered at its
stores, each franchisee agrees to purchase merchandise from
Sobeys. In addition, each franchisee agrees to comply with
the policies, marketing plans and operating standards
prescribed by Sobeys.These obligations are speciﬁed under
franchise agreements which expire at various times for
individual franchisees. As well, Sobeys maintains head
lease control, or has long-term buying agreements, to
control the vast majority of its retail locations.

Foreign Operations
Empire does not directly carry out foreign operations,
however, Sobeys and Crombie do have certain foreign
operations. Sobeys’ foreign operations are limited to a

Empire Company Limited || 55

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Management’s Discussion and Analysis

Outlook

Management’s primary objective will continue to be to
maximize the long-term sustainable value of Empire
through enhancing the worth of the Company’s net
assets and in turn, having that value reﬂected in
Empire’s share price.

The Company will continue to direct its energy
and capital towards growing the long-term sustainable
value of each its core operating businesses – food
distribution, real estate and theatres.While these
respective core businesses are well established and
proﬁtable in their own right, the diversiﬁcation they
offer Empire by both business line and by market area
served is considered by management to be an additional
source of strength. Going forward, the Company
intends to continue to direct its resources towards the
most promising opportunities within these core
businesses in order to maximize long-term shareholder
value. Comments with respect to the outlook for each
of the Company’s divisions are noted below.

Food Division
Sobeys will continue to invest in infrastructure and
productivity improvements in a manner consistent with
its expressed intention to build a healthy and sustainable
retail business and infrastructure for the long term. In
ﬁscal 2006 Sobeys will advance its business process and
information systems transformation plan for the
Company by focusing on the signiﬁcant opportunity to
upgrade capabilities and improve efﬁciencies in
Ontario.The system and processes that are being
implemented have been developed over several years
and are currently employed in the Food division’s
Atlantic Region.The Ontario initiative will simplify,
standardize and streamline the “back shop”, in support

of the Company’s food focused strategy.These efforts
will leverage technology investments, improve efﬁciency
and lower costs over the long term.The anticipated cost
of the Ontario initiative is expected to approximate
$0.20 to $0.25 per Sobeys share in ﬁscal 2006.

Real Estate Division
Over the next year, Empire’s real estate management
group will continue its policy of maximizing and
prudently reinvesting its cash ﬂow to further strengthen
and diversify its portfolio of residential and commercial
properties.

Empire’s real estate management group expects
overall retail occupancy levels to remain strong during
ﬁscal 2006 as a result of the diligence of our leasing
team and general economic conditions. Management
looks forward to continuing its strong relationship with
Sobeys and to pursuing attractive opportunities to
jointly develop locations with Sobeys.

Investments and Other Operations
Growth in the Company’s investment portfolio will be
dependent on a number of factors including investor
sentiment in the U.S. and Canada. Equity markets may
continue to remain volatile. Management remains
committed to maintaining a portfolio of high quality,
liquid common equity investments as a pool of capital
to augment the growth in its core operating companies
as attractive opportunities arise.

With respect to Empire Theatres’ outlook,

management recognizes that future growth will remain
highly dependent on a steady supply of quality product.
Based on the quality of ﬁlm releases expected in ﬁscal
2006, an experienced operations team, and planned
screen development, management looks forward to
continued revenue growth in this business.

56 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 57

Non-GAAP Financial Measures

There are measures included in this MD&A that do not
have a standardized meaning under GAAP and
therefore may not be comparable to similarly titled
measures presented by publicly traded companies.The
Company includes these measures because it believes
certain investors use these measures as a means of
assessing ﬁnancial performance. Empire’s deﬁnition of
the non-GAAP terms are as follows:

• Operating Income or EBIT is calculated as operating

earnings plus interest expense, income taxes and
minority interest.

• EBITDA is calculated as operating income plus

depreciation and intangible amortization.

• EBITDAR is calculated as EBITDA plus gross rent

expense.

• Operating earnings is calculated as net earnings
before capital gains (losses) and other items.
• Funds from operations is calculated as operating

earnings plus depreciation expense.

• Interest coverage is calculated as operating income

divided by interest expense.

• Net asset value is management’s estimate of the

market value of the Company’s assets less liabilities.

• Funded debt is all interest bearing debt, which

includes bank loans, bankers’ acceptances, long-term
debt and capital lease obligations.

• Net debt is calculated as funded debt less cash and

cash equivalents.

• Adjusted debt is funded debt plus the capitalized

value of operating lease payments, which is calculated
as six times net annual operating lease payments.

• Total capital is calculated as funded debt plus

shareholders’ equity.

• Company-wide capital investment includes on-

balance sheet capital expenditures, all known capital
investments by franchise afﬁliates and capital
investments by third-party landlords.

Additional Information

Additional ﬁnancial information relating to Empire,
including the Company’s Annual Information Form,
can be found on the Company’s web site or on the
SEDAR web site for Canadian regulatory ﬁlings at
www.sedar.com.

June 23, 2005
Stellarton, Nova Scotia

Empire Company Limited || 57

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 58

Management’s Statement of Responsibility for Financial Reporting

Preparation of the consolidated ﬁnancial statements accompanying this annual report and the presentation of all other
information in the report is the responsibility of management.The consolidated ﬁnancial statements have been pre-
pared in accordance with Canadian generally accepted accounting principles and reﬂect management’s best estimates
and judgements. All other ﬁnancial information in the report is consistent with that contained in the consolidated
ﬁnancial statements.

The Board of Directors, through its Audit Committee, oversees management in carrying out its responsibilities

for ﬁnancial reporting and systems of internal control.The Audit Committee, which is chaired by and composed
solely of directors who are unrelated to, and independent of, the Company, meet regularly with ﬁnancial
management and external auditors to satisfy itself as to reliability and integrity of ﬁnancial information and the
safeguarding of assets.The Audit Committee reports its ﬁndings to the Board of Directors for consideration in
approving the annual consolidated ﬁnancial statements to be issued to shareholders.The external auditors have full
and free access to the Audit Committee.

Paul D. Sobey
President and
Chief Executive Ofﬁcer
June 23, 2005

Paul V. Beesley
Senior Vice President,
Chief Financial Ofﬁcer and Secretary
June 23, 2005

58 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 59

Auditors’ Report

To the Shareholders of Empire Company Limited

We have audited the consolidated balance sheets of Empire Company Limited as at May 7, 2005 and April 30, 2004,
and the consolidated statements of earnings, retained earnings, and cash ﬂows for the 53 week and 52 week ﬁscal
years then ended, respectively.These consolidated ﬁnancial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated ﬁnancial statements based on
our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards.Those standards

require that we plan and perform an audit to obtain reasonable assurance whether the consolidated ﬁnancial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated ﬁnancial statements. An audit also includes assessing the accounting
principles used and signiﬁcant estimates made by management, as well as evaluating the overall consolidated ﬁnancial
statement presentation.

In our opinion, these consolidated ﬁnancial statements present fairly, in all material respects, the ﬁnancial position
of the Company as at May 7, 2005 and April 30, 2004, and the results of its operations and its cash ﬂows for the ﬁscal
years then ended in accordance with Canadian generally accepted accounting principles.

Grant Thornton LLP
Chartered Accountants
New Glasgow, Canada
June 14, 2005, except for Note 24(a)
which is as of June 17, 2005 and Note 24(b) which is as of June 21, 2005

Empire Company Limited || 59

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 60

Consolidated Balance Sheets

(in millions)

Assets
Current

Cash and cash equivalents (Note 2)
Receivables
Income taxes receivable
Inventories
Prepaid expenses

Investments, at cost (quoted market value $320.9; 2004 – $312.6)
Investments, at equity (realizable value $162.4; 2004 – $92.4)

Current assets and marketable investments
Property and equipment (Note 4)
Assets for realization
Other assets (Note 5)
Goodwill

Liabilities
Current

Bank indebtedness (Note 6)
Accounts payable and accrued liabilities
Income taxes payable
Future income taxes (Note 11)
Long-term debt due within one year

Long-term debt (Note 7)
Long-term lease obligation (Note 21)
Deferred revenue
Employee future beneﬁt obligation (Note 17)
Future income taxes (Note 11)
Minority interest

Shareholders’ Equity
Capital stock (Note 8)
Retained earnings
Cumulative translation adjustment

See accompanying notes to the consolidated financial statements.

Contingent liabilities (Note 16)
Approved on behalf of the Board,

Director
Paul D. Sobey

60 || 2005 Annual Report

Director
Robert P. Dexter

May 7, 2005
(See Note 23)

April 30, 2004
Restated (Note 1)

281.7
257.8
15.0
639.6
52.3

1,246.4
270.8
72.9

1,590.1
2,429.8
11.5
212.9
684.9

202.2
329.5
–
483.6
49.3

1,064.6
278.0
60.8

1,403.4
2,298.2
16.3
304.9
656.9

$ 4,929.2

$ 4,679.7

219.4
1,149.1
–
52.4
247.0

1,667.9
727.4
12.3
3.0
94.5
158.8
556.3

3,220.2

194.6
1,515.5
(1.1)

1,709.0

140.8
1,138.4
7.2
46.3
82.7

1,415.4
913.0
12.5
6.6
90.4
133.2
541.0

3,112.1

196.7
1,371.5
(0.6)

1,567.6

$ 4,929.2

$ 4,679.7

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 61

Consolidated Statements of Retained Earnings

Years Ended (See Note 23)
(in millions)

Balance, beginning of year as previously reported
Adjustment due to adoption of accounting standards prior year (Note 1)

Balance, beginning of year as restated
Adjustment due to adoption of accounting standards current year (Note 1)
Net earnings

Refundable taxes recovered

Dividends declared
Preferred shares
Common shares

Premium on common shares purchased for cancellation (Note 8)

Balance, end of year

See accompanying notes to the consolidated financial statements.

May 7, 2005
(53 Weeks)

April 30, 2004
(52 Weeks)

$ 1,380.7
(9.2)

$ 1,230.6
(8.6)

1,371.5
(9.5)
186.6

1,548.6

–

(0.3)
(31.6)

(31.9)

(1.2)

1,222.0
–
172.5

1,394.5

5.1

(0.4)
(26.3)

(26.7)

(1.4)

$ 1,515.5

$ 1,371.5

Empire Company Limited || 61

May 7, 2005
(53 Weeks)

April 30, 2004

(52 Weeks)
Restated (Note 1)

$12,435.2
11,791.0

$ 11,284.0
10,703.3

644.2
201.5

442.7
21.0

463.7

81.5
5.2

86.7

377.0
4.4

381.4

99.5
31.7

131.2

250.2
63.6

186.6

2.83

580.7
173.7

407.0
15.8

422.8

86.9
5.5

92.4

330.4
11.6

342.0

93.4
17.6

111.0

231.0
58.5

172.5

2.62

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 62

Consolidated Statements of Earnings

Years Ended (See Note 23)

(in millions except per share amounts)

Revenue
Cost of sales, selling and administrative expenses

Depreciation and amortization

Investment income (Note 9)

Operating income

Interest expense

Long-term debt
Short-term debt

Capital gain and other items (Note 10)

Earnings before income taxes and minority interest

Income taxes (Note 11)

Current
Future

Earnings before minority interest
Minority interest

Net earnings

Earnings per share, basic and diluted (Note 3)

See accompanying notes to the consolidated financial statements.

62 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 63

Consolidated Statements of Cash Flows

Years Ended (See Note 23)

(in millions)

Operating Activities
Net earnings
Items not affecting cash (Note 12)
Preferred dividends

Net change in non-cash working capital

Cash ﬂows from operating activities

Investing Activities

Net decrease in investments
Purchase of shares in subsidiary, Sobeys Inc.
Purchase of property, equipment and other assets
Proceeds from sale of property
Business acquisitions, net of cash acquired

Cash ﬂows used in investing activities

Financing Activities

Increase in bank indebtedness
Decrease in construction loans
Issue of long-term debt
Repayment of long-term debt
Increase (decrease) in long-term lease obligation
Minority interest
Repurchase of preferred shares
Issue of Non-Voting Class A shares
Repurchase of Non-Voting Class A shares for cancellation
Common dividends
Refundable taxes

Cash ﬂows from (used in) ﬁnancing activities

Increase (decrease) in cash from continuing operations
Initial impact of variable interest entities
Discontinued operations

Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

See accompanying notes to the consolidated financial statements.

May 7, 2005
(53 Weeks)

April 30, 2004

(52 Weeks)
Restated (Note 1)

186.6
316.0
(0.3)

502.3
(15.7)

486.6

3.0
(93.5)
(372.0)
35.1
(19.6)

(447.0)

78.6
(1.1)
39.9
(79.8)
(0.2)
4.4
(2.5)
0.9
(1.6)
(31.6)
–

7.0

46.6
32.9
–

79.5
202.2

281.7

172.5
272.3
(0.4)

444.4
22.8

467.2

52.3
(74.2)
(431.0)
81.4
(64.1)

(435.6)

41.5
(0.9)
14.9
(188.9)
0.9
6.9
–
1.1
(1.8)
(26.3)
5.1

(147.5)

(115.9)
–
1.3

(114.6)
316.8

202.2

Empire Company Limited || 63

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 64

Notes to the Consolidated Financial Statements
May 7, 2005 (in millions except share capital and per share data)

1. Summary of Signiﬁcant
Accounting Policies

The consolidated ﬁnancial statements have been prepared
in accordance with Canadian generally accepted
accounting principles (GAAP).

Principles of Consolidation
These consolidated ﬁnancial statements include the
accounts of the Company and all subsidiary companies
and entities considered variable interest entities.
Investments in which the Company has signiﬁcant
inﬂuence are accounted for by the equity method.
Investments in signiﬁcant joint ventures are consolidated
on a proportionate basis.

Changes in Accounting Policies
(a) Generally accepted accounting principles
During ﬁscal 2004, the Canadian Institute of Chartered
Accountants (CICA) introduced Handbook Section
1100,“Generally accepted accounting principles”,
which deleted the reference to industry practice that
had previously constituted a source for Canadian GAAP.
The Company had been following industry practice
with respect to depreciation and lease accounting.
Section 1100 now requires the Company to recognize
depreciation of real estate buildings, rental expense and
income from tenant leases on a straight-line basis.
Effective May 1, 2004, the Company adopted this
handbook section prospectively without restatement.

Depreciation
The sinking fund method was used to record
depreciation of the real estate buildings, calculated as an
amount which, compounded annually at the rate of 5%,
would have fully amortized the cost of the buildings
over their estimated useful lives ranging from 20 to 40
years. Effective May 1, 2004 the straight-line method is
now used to record depreciation of the real estate
buildings. Depreciation is determined with reference to
each rental property’s book value, its estimated useful
life (not greater than 40 years) and its residual value.
Adoption of the straight-line method has resulted in
additional depreciation of $1.2 during the current
ﬁscal year.

Real Estate Leases
Rental expense was recognized in accordance with the
lease agreements with landlords. Effective May 1, 2004
the Company has changed its policy to record real

64 || 2005 Annual Report

estate lease expense on a straight-line basis. Additional
real estate lease expense of $2.7 was recorded in the
current ﬁscal year as a result of this policy change in
the food distribution reporting segment. Real estate
revenue was recognized in accordance with the lease
agreements with tenants.The Company has changed
its policy to record income on a straight-line basis.
Adoption of this policy resulted in recognition of
additional straight-line real estate revenue of $2.2
during the current ﬁscal year.

On February 7, 2005, the Ofﬁce of the Chief

Accountant of the U.S. Securities and Exchange
Commission (SEC) issued a clariﬁcation in respect of
accounting for various components of property leases
and leasehold improvements on which U.S. and
Canadian accounting governing bodies had been largely
silent. As a result of the SEC clariﬁcation the Company
has adopted the following two accounting policies.
Lease inducements received as a reimbursement for
leasehold improvement costs are amortized over the
term of the lease.The total lease expense is amortized
straight-line over the entire term of the lease including
rent free periods related to store ﬁxturing. A store
ﬁxturing period varies by store but is generally
considered to be one month prior to the store opening.
The Company has adopted this guideline retroactively
with restatement (see Note 20).

(b) Asset Retirement Obligations
Beginning in ﬁscal 2005, the CICA Handbook Section
3110,“Asset retirement obligations”, was adopted
retroactively.This section establishes standards for the
recognition, measurement and disclosure of legal
obligations associated with the costs to retire long-lived
assets. A liability associated with the retirement of long-
lived assets is recorded in the period in which the legal
asset is capitalized as part of the related asset and
depreciated over its useful life. Subsequent to the initial
measurement of the asset retirement obligation, the
obligation is adjusted to reﬂect the passage of time and
changes in the estimated future costs underlying the
obligation.There has been no impact on the Company
from the adoption of this section.

(c) Hedging
Accounting Guideline (AcG) 13,“Hedging
relationships”, came into effect during the current ﬁscal
year.This guideline addresses the identiﬁcation,
designation, documentation and effectiveness of hedging
relationships for the purpose of applying hedge

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 65

accounting and provides guidance with respect to the
discontinuance of hedge accounting.There was no effect
on the Company of adopting this guideline. Pursuant to
the requirements of AcG-13, the Company has formally
identiﬁed and documented loans denominated in U.S.
dollars as hedges for a portion of its U.S. investments.

(d) Vendor Allowances
In January 2004, the CICA’s Emerging Issues
Committee (EIC) issued a new accounting standard,
EIC-144,“Accounting by a customer (including a
reseller) for certain consideration received from a
vendor”. EIC-144 outlines that cash consideration
received from a vendor is presumed to be a reduction
in the prices of the vendor’s products or services and
should be accounted for as a reduction in cost of sales
and related inventory, when recognized in the customer’s
income statement and balance sheet. Certain exceptions
apply if the consideration is a payment for assets or
services delivered to the vendor or for reimbursement
of costs incurred to sell the vendor’s products, provided
certain conditions are met.The Company adopted
EIC-144 in the second quarter, adjusting for it
retroactively, with restatement of the comparative periods
for the current and prior ﬁscal year (see Note 21).

(e) Variable Interest Entities (VIEÕs)
Effective for the fourth quarter ended May 7, 2005,
the Company was required to implement AcG-15
“Consolidation of variable interest entities” issued by
the CICA. AcG-15 requires the Company to
consolidate certain entities that are deemed to be
subject to control of the Company on a basis other
than through ownership of a voting interest in the
entity (see Note 22).

Cash and Cash Equivalents
Cash and cash equivalents are deﬁned as cash, treasury
bills and guaranteed investments with a maturity less
than 90 days.

Inventories
Warehouse inventories are valued at the lower cost and
net realizable value with cost being determined
substantially on a ﬁrst-in, ﬁrst-out (FIFO) basis. Retail
inventories are valued at the lower of cost and net
realizable value. Cost is determined by using FIFO or
the retail method.The retail method uses the anticipated
selling price less normal proﬁt margins, substantially on
an average cost basis. Real Estate inventory of residential

properties is carried at the lower of cost and net
realizable value.

Portfolio Investments
Portfolio investments are accounted for under the cost
method. Investment income is recognized on an accrual
basis. Portfolio investments are written down when the
inherent loss is determined to be other than temporary.
Gains and losses on sale of investments are recorded in
earnings as realized.

Depreciation and Amortization
Depreciation on real estate buildings is calculated using
the straight-line method with reference to each
property’s book value, its estimated useful life (not
exceeding 40 years) and its residual value. Deferred
leasing costs are amortized over the terms of the
related leases.

Depreciation of other property and equipment is

recorded on a straight-line basis over the estimated
useful lives of the assets as follows:
Equipment
Buildings
Leasehold improvements

3 – 20 years
10 – 40 years
7 – 10 years

Capitalization of Costs
(a) Construction Projects
Certain subsidiary companies and joint ventures
capitalize interest during the construction period until
the project opening date.The amount of interest
capitalized to construction in progress in the current
year was $0.1 (2004 – $0.6).

(b) Commercial Properties
Certain subsidiaries and joint ventures capitalize the
direct carrying and operating costs applicable to the
unleased areas of each new project for a reasonable
period from the project opening date until a certain
level of occupancy is reached. No amounts were
capitalized in ﬁscal 2004 or 2005.

Future Development

A subsidiary company capitalizes interest and real estate
taxes to the extent that they relate to properties for
immediate development.The carrying costs on the
balance of development properties are expensed as
incurred.The amount of real estate taxes capitalized in
the current year was $0.1 (2004 – $0.1).

Empire Company Limited || 65

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 66

Notes to the Consolidated Financial Statements

Long-lived Assets
Effective May 1, 2003, the Company adopted two new
CICA Handbook sections prospectively. Section 3063,
“Impairment of long-lived assets”, provides guidance
with regard to the measurement, recognition and
disclosure of the impairment of long-lived assets.There
was no impact of the application of Section 3063 on
the ﬁnancial statements. Section 3475, “Disposal of
long-lived assets and discontinued operations”, provides
guidance with regard to the identiﬁcation, measurement
and disclosure of any long-lived assets not held for use
and discontinued operations.

Leases
Leases meeting certain criteria are accounted for as
capital leases.The imputed interest is charged against
income and the capitalized value is depreciated on a
straight-line basis over the lesser of the lease term and
its estimated useful life. Obligations under capital leases
are reduced by rental payments net of imputed interest.
All other leases are accounted for as operating leases.

Goodwill
Goodwill represents the excess of the purchase price
of the business acquired over the fair value of the
underlying net tangible and intangible assets acquired
at the date of acquisition.

Goodwill and intangible assets with indeﬁnite
useful lives are subject to an annual impairment review.
Any permanent impairment in the book value of
goodwill or intangible assets (i.e. trademarks) will be
written off against earnings.The Company has
completed its review and has determined the book
value of existing goodwill is not impaired.

Intangibles
Intangibles arise on the purchase of new businesses,
existing franchises and the acquisition of pharmacy
prescription ﬁles. Amortization is on a straight-line basis
over 10-15 years.

Deferred Costs
Deferred costs consist of deferred store marketing,
deferred ﬁnancing, transitional pension assets and
deferred purchase agreements.
Deferred costs are amortized as follows:
Deferred store marketing – 7 years
Deferred ﬁnancing – over the term of the debt
Deferred purchase agreements – over the term of the
franchise agreement

66 || 2005 Annual Report

Assets for Realization
Certain land and buildings have been listed for sale and
reclassiﬁed as “Assets for realization” in accordance with
CICA Handbook Section 3475.These assets are
expected to be sold within a twelve month period, are
no longer productive assets and there is no longer an
intent to develop for future use. Assets for realization
are valued at the lower of cost and fair value less cost
of disposal.

Store Opening Expenses
Opening expenses of new stores and store conversions
are written off during the ﬁrst year of operation.

Stock-based Compensation Plans
At the beginning of ﬁscal 2003, the Company adopted,
on a prospective basis, the CICA Handbook Section
3870, “Stock-based compensation and other stock-
based payments”. In ﬁscal 2004, the Company adopted
EIC Abstract 132, “Share purchase ﬁnancing”.This
abstract requires share purchase loans that are not
treated as assets on the balance sheet to be accounted
for as stock-based compensation.There was no effect
on the Company upon implementation of this section
and abstract.

The Company’s stock option plan and share

purchase plan are described in Note 8.

Future Income Taxes
The Company accounts for income taxes under the
liability method.The difference between the tax basis
of assets and liabilities and their carrying value on the
balance sheet is used to calculate future tax assets and
liabilities.The future tax assets and liabilities have been
measured using the substantively enacted tax rates that
will be in effect when the differences are expected
to reverse.

Deferred Revenue
Deferred revenue consists of long-term supplier
purchase agreements and rental revenue arising from
the sale of subsidiaries. Deferred revenue is being taken
into income over the term of the related agreements.

Foreign Currency Translation
Assets and liabilities of self-sustaining foreign
investments are translated at exchange rates in effect at
the balance sheet date.The revenues and expenses are
translated at average exchange rates for the year.
Cumulative gains and losses on translation are shown
as a separate component of shareholders’ equity.

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 67

Other assets and liabilities are translated at the currency
exchange rate in effect at the balance sheet date.These
exchange gains or losses are recognized in operating
income. Revenues and expenses denominated in
foreign currencies are translated into Canadian dollars
at the average currency exchange rate for the period.

Revenue Recognition
Food distribution sales are recognized at the point-of-
sale. Sales include revenue from customers through
corporate stores operated by the Company, consolidated
VIE’s and revenue from sales to franchised stores,
afﬁliated stores and independent accounts. Revenue
received from franchise stores, associated stores and
independent accounts is mainly derived from the sale
of product.The Company also collects franchise fees
under two types of arrangements. Franchise fees
contractually due based on the dollar value of product
shipped are recorded as revenue when the product is
shipped. Franchise fees contractually due based on the
franchisee’s retail sales are recorded as revenue weekly
upon invoicing based on the franchisee’s retails sales.
Real Estate revenue is recognized in accordance with
the lease agreements with tenants on a straight-line
basis as described above.

Financial Instruments
The Company uses interest rate instruments to manage
exposure to ﬂuctuations in interest rates.The realized
gain or loss arising from these instruments is included
in interest expense.

The Company also uses derivative ﬁnancial
instruments to partially hedge its exposure to foreign
exchange in its U.S. dollar denominated investment
portfolio.These instruments are accounted for as hedges
of anticipated transactions and accordingly, gains and
losses on these instruments are included in measurement
of the related hedged risk when realized.

Pension Beneﬁt Plans and Other Beneﬁt Plans
The cost of the Company’s pension beneﬁts for deﬁned
contribution plans are expensed as contributions are
paid.The cost of deﬁned beneﬁt pension plans and
other beneﬁt plans is accrued based on actuarial
valuations, which are determined using the projected
beneﬁt method pro-rated on service and management’s

best estimate of the expected long-term rate of return
on plan assets, salary escalation, retirement ages and
expected growth rate of health care costs.

Current market values are used to value beneﬁt
plan assets.The obligation related to employee future
beneﬁts is measured using current market interest rates,
assuming a portfolio of Corporate AA bonds with
terms to maturity that, on average, match the terms of
the obligation.

The impact of changes in plan amendments is
amortized on a straight-line basis over the expected
average remaining service life (EARSL) of active
members. For pension beneﬁt plans, the actuarial gains
and losses and the impact of changes in the actuarial
basis in excess of 10% of the greater of the projected
beneﬁt obligation and the market value of assets are
amortized on a straight-line basis over the EARSL of
the active members. For other beneﬁt plans, actuarial
gains and losses are recognized immediately. For the
supplementary executive retirement plan, the impact
of changes in the plan provisions are amortized over
5 years.

Use of Estimates
The preparation of consolidated ﬁnancial statements in
conformity with Canadian GAAP requires management
to make estimates and assumptions that affect the
amounts reported in the consolidated ﬁnancial
statements and accompanying notes.These estimates are
based on management’s best knowledge of current
events and actions that the Company may undertake in
the future.

Earnings Per Share
Earnings per share is calculated by dividing the earnings
available to common shareholders by the weighted
average number of common shares outstanding during
the year. Diluted earnings per share is calculated using
the treasury stock method.

2. Cash and Cash Equivalents

Included in cash and cash equivalents is restricted cash
of $7.5 (2004 – $30.4) relating to the sale of assets.

Empire Company Limited || 67

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 68

Notes to the Consolidated Financial Statements

3. Earnings Per Share

Earnings per share amounts are calculated on the weighted average number of shares outstanding (2005 – 65,750,928
shares; 2004 – 65,772,518 shares) after providing for preferred share dividends accrued to the balance sheet date.
Diluted earnings per share have been calculated on the assumption that all the outstanding stock options were
exercised and share purchase loans were repaid at the beginning of the year.There is no effect as a result of this
calculation.

Earnings applicable to common shares is comprised of the following:

Operating earnings
Capital gain and other items, net of tax of $0.7 (2004 – $2.4)

Net earnings
Preferred share dividends

Earnings applicable to common shares

Earnings per share is comprised of the following:

Operating earnings
Capital gain and other items

Basic earnings per share

Diluted earnings per share

4. Property and Equipment

Real estate segment

Land
Land held for future development
Buildings

Food division and other segments

Land
Land held for future development
Buildings
Equipment
Leasehold improvements
Oil and gas exploration costs
Assets under capital leases

2005
(53 Weeks)

2004
(52 Weeks)
Restated (Note 1)

182.9
3.7

186.6
(0.3)

186.3

2.78
0.05

2.83

163.3
9.2

172.5
(0.4)

172.1

2.48
0.14

2.62

Cost

Accumulated
Depreciation

May 7, 2005

Net
Book Value

147.1
9.1
915.0

1,071.2

–
–
174.3

174.3

95.2
85.4
615.7
1,714.2
328.3
10.7
35.8

2,885.3

–
–
125.5
1,016.2
198.2
0.8
11.7

1,352.4

147.1
9.1
740.7

896.9

95.2
85.4
490.2
698.0
130.1
9.9
24.1

1,532.9

Total

$ 3,956.5

$ 1,526.7

$ 2,429.8

68 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 69

Real estate segment

Land
Land held for future development
Buildings

Food division and other segments

Land
Land held for future development
Buildings
Equipment
Leasehold improvements
Oil and gas exploration costs
Assets under capital leases

April 30, 2004
Restated (Note 1)

Cost

Accumulated
Depreciation

Net
Book Value

144.4
11.7
887.7

1,043.8

72.8
81.4
573.0
1,619.4
293.4
0.6
23.9

2,664.5

–
–
161.7

161.7

–
–
107.4
960.4
174.0
–
6.6

144.4
11.7
726.0

882.1

72.8
81.4
465.6
659.0
119.4
0.6
17.3

1,248.4

1,416.1

Total

5. Other Assets

Loans and mortgages

receivable
Deferred costs
Intangibles (less
accumulated
amortization of $2.4
2004 – $0.5)

May 7, 2005

April 30, 2004
Restated (Note 1)

41.7
149.6

21.6

212.9

147.8
144.0

13.1

304.9

Loans Receivable
Loans receivable represent long-term ﬁnancing to
certain retail associates.These loans are primarily
secured by inventory, ﬁxtures and equipment, bear
various interest rates and have repayment terms up to
ten years.The carrying amount of the loans receivable
approximates fair value based on the variable interest
rates charged on the loans and the operating
relationship of the associates with the Company. Loans
receivable decreased by $108.8 as a result of the
consolidation of VIE’s (see Note 22).

The loans and mortgages receivable are net of

current portions of $15.5 (2004 – $15.4).

$ 3,708.3

$ 1,410.1

$ 2,298.2

6. Bank Indebtedness

As security for certain bank loans the Company has
provided an assignment of certain marketable securities
and, in certain divisions and subsidiaries, general
assignments of receivables and leases, ﬁrst ﬂoating
charge debentures on assets and the assignment of
proceeds of ﬁre insurance policies.

Under the terms of a credit agreement entered
into between the Company and a banking syndicate, a
revolving term credit facility of $300.0 was established.
This 364-day revolving unsecured facility will expire
on June 22, 2006.Various provisions of the agreement
provide the Company with the ability to extend the
facility for a minimum period of two years. Interest is
payable on this facility at rates which ﬂuctuate with
changes in the prime rate.

In the ordinary course of managing its debt the
Company uses various ﬁnancial instruments, which are
not reﬂected on the balance sheet, to reduce or
eliminate exposure to interest rate and foreign currency
risks. Interest rate swaps, caps, collars and forward
contracts are used to hedge or reduce the exposure to
ﬂoating interest rates and foreign currency ﬂuctuations
associated with short-term obligations. At May 7, 2005
the Company had no such instruments in place for
short-term obligations.

Empire Company Limited || 69

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 70

Notes to the Consolidated Financial Statements

7. Long-term Debt

First mortgage loans, average interest rate 9.1%,

due 2005 – 2026

Bank loans, average interest rate 6.4%,

due September 30, 2004

Medium term note, interest rate 7.6%,

due November 1, 2005

Medium term note, interest rate 7.2%,

due February 26, 2018

Debentures, average interest rate 10.6%,

due 2005 – 2016

Notes payable and other debt at interest rates

ﬂuctuating with the prime rate

Construction loans at interest rates ﬂuctuating

with the prime rate

Capital lease obligations, due 2005 – 2011,

net of imputed interest

Less amount due within one year

The Company has ﬁxed the interest rate on $16.0 of
its long-term debt at 4.2 percent by utilizing an
interest exchange agreement.Through a bond
forward the Company has locked in the rate on the
underlying Government of Canada 15 year yield for
refinancing $100.0 of the Medium term note due
November 1, 2005.

Long-term debt is secured by land and buildings,

speciﬁc charges on certain assets and additional security
as described in Note 6.

During ﬁscal 2001 the Company negotiated a new
unsecured $550.0 credit facility consisting of $250.0 of
non-revolving debt to be repaid over ﬁve years, plus a
$300.0 revolving line of credit.The balance of $250.0 of
the non-revolving debt was retired on September 30, 2004.

Debt retirement payments and capital lease
obligations in each of the next ﬁve ﬁscal years are:

70 || 2005 Annual Report

Real
Estate
Segment

Food
Distribution
Segment

May 7, 2005

April 30, 2004
Restated (Note 1)

Total

401.1

23.9

425.0

443.6

–

69.9

45.2

516.2

0.4

–

516.6
52.1

464.5

2006
2007
2008
2009
2010

–

175.0

100.0

68.2

67.5

434.6

–

23.2

457.8
194.9

262.9

–

175.0

100.0

138.1

112.7

950.8

0.4

23.2

974.4
247.0

727.4

20.0

175.0

100.0

147.6

85.1

971.3

1.5

22.9

995.7
82.7

913.0

Long-term Debt

Capital Leases

$
$
$
$
$

242.0
38.9
73.8
75.4
41.0

$
$
$
$
$

5.0
3.7
3.3
2.9
2.1

Operating Leases
The net aggregate, annual, minimum rent payable under
operating leases for ﬁscal 2006 is approximately $129.3
($205.3 gross less expected sub-lease income of $76.0).
The commitments over the next ﬁve ﬁscal years are:

2006
2007
2008
2009
2010

Net Lease
Obligation

Gross Lease
Obligation

$
$
$
$
$

129.3
115.1
99.1
88.0
80.6

$
$
$
$
$

205.3
186.7
163.3
146.5
132.6

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 71

8. Capital Stock

Authorized:
Preferred shares, par value of $25 each, issuable in series as a class.
Series 2 cumulative, redeemable, rate of 75% of prime
Non-Voting Class A shares, without par value
Class B common shares, without par value, voting

Issued and outstanding:
Preferred shares, Series 2 cumulative,
redeemable, rate of 75% of prime

Non-Voting Class A
Class B common

Loans receivable from ofﬁcers and employees

under share purchase plan

Number of Shares

May 7, 2005

431,900
30,869,585
34,885,225

331,900
31,150,585
34,585,225

8.3
183.0
7.7

199.0

(4.4)

194.6

Number of Shares

994,846,000
259,174,746
40,800,000

April 30, 2004

10.8
182.5
7.7

201.0

(4.3)

196.7

During the year the Company purchased for
cancellation 100,000 Series 2 preferred shares for $2.5.
During the year, under a normal course issuer bid

which expires on July 11, 2005, the Company
purchased for cancellation 61,129 (2004 – 68,477)
Non-Voting Class A shares.The purchase price was
$1.6 of which $1.2 of the purchase price (representing
the premium on common shares purchased for
cancellation) was charged to retained earnings.

During the year 9,400 (2004 – 30,000) options
were exercised resulting in 9,400 (2004 – 30,000) Non-
Voting Class A shares being issued for $0.1 (2004 –
$0.2). Options allow holders to purchase Non-Voting
Class A shares at $6.555 per share. Options expire in
October 2006.There were 27,674 options outstanding
at May 7, 2005.

During the year 32,729 (2004 – 34,429) Non-
Voting Class A shares were issued under the Company’s
share purchase plan to certain ofﬁcers and employees
for $0.8 (2004 – $0.9), which was based on the average

trading price of the Non-Voting Class A shares on
the Toronto Stock Exchange for the ﬁve previous
trading days.

Loans receivable from ofﬁcers and employees of
$4.4 (2004 – $4.3) under the Company’s share purchase
plan are classiﬁed as a reduction of Shareholders’ Equity.
Loan repayments will result in a corresponding increase
in Share Capital.The loans are non-interest bearing and
non-recourse, secured by 245,030 (2004 – 255,597)
Non-Voting Class A shares. Market value of the shares
at May 7, 2005 was $9.0 (2004 – $6.8).

Under certain circumstances, where an offer (as
deﬁned in the share conditions) is made to purchase
Class B common shares, the holders of the Non-Voting
Class A shares shall be entitled to receive a follow-up
offer at the highest price per share paid, pursuant to
such offer to purchase Class B common shares.

During the year 300,000 Class B common shares

were exchanged for 300,000 Non-Voting Class A shares.

Empire Company Limited || 71

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 72

Notes to the Consolidated Financial Statements

9. Investment Income

10. Capital Gain and Other Items

2005
(53 Weeks)

2004
(52 Weeks)

Dividend and interest

income

9.0

10.7

Share of income of

companies accounted for
by the equity method

11. Income Taxes

12.0

21.0

5.1

15.8

Gain on sale of
investments

Other items

2005
(53 Weeks)

2004
(52 Weeks)

2.9
1.5

4.4

11.7
(0.1)

11.6

Income tax expense varies from the amount that would be computed by applying the combined federal and
provincial statutory tax rate as a result of the following:

2005
(53 Weeks)

2004
(52 Weeks)
Restated (Note 1)

133.1

114.6

–
–
(5.5)
2.9

130.5
0.7

131.2

Future

32.7
(1.0)

31.7

(3.8)
(1.4)
(4.1)
3.3

108.6
2.4

111.0

Total

130.5
0.7

131.2

Current

Future
Restated (Note 1)

Total
Restated (Note 1)

85.0
8.4

93.4

23.6
(6.0)

17.6

108.6
2.4

111.0

Income tax expense according to combined statutory rate of 35.3% (2004 – 34.7%)
Increase (decrease) in income taxes resulting from

Adjustment to future tax assets and liabilities for substantially enacted

changes in tax laws

Non-taxable gains
Non-taxable dividends and equity earnings
Large corporation tax

Capital gain and other items

Current

97.8
1.7

99.5

May 7, 2005 income tax expense attributable to net income consists of:

Operations
Capital gain and other items

April 30, 2004 income tax expense attributable to net income consists of:

Operations
Capital gain and other items

72 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 73

The tax effect of temporary differences that give rise to
signiﬁcant portions of future income taxes are presented
below:

May 7, 2005

April 30, 2004
Restated (Note 1)

Property and equipment
Investments
Future employee beneﬁt

112.7
36.0

obligation

Restructuring provisions
Pension contributions
Deferred cost
Deferred credits
Goodwill
Other

Future income taxes –

current

Future income taxes –

non-current

(32.2)
(5.3)
16.0
23.7
57.7
6.0
(3.4)

211.2

52.4

158.8

211.2

12. Supplementary Cash
Flow Information

90.5
35.4

(31.0)
(1.5)
16.2
18.8
47.8
6.3
(3.0)

179.5

46.3

133.2

179.5

a) Items not affecting cash
Depreciation and
amortization
Future income taxes
Amortization of deferred

costs

Equity in earnings of

other companies, net
of dividends received

Minority interest
Employee future beneﬁt

obligation

b) Other information
Net interest paid

Net income taxes paid

2005
(53 Weeks)

2004
(52 Weeks)
Restated (Note 1)

201.5
31.7

34.0

(8.4)
53.1

4.1

316.0

85.1

124.7

173.7
17.6

25.5

(4.8)
48.3

12.0

272.3

93.2

145.6

13. Joint Ventures

The ﬁnancial statements include the Company’s
proportionate share of the accounts of incorporated and
unincorporated joint ventures. A summary of these
amounts is as follows:

May 7, 2005

April 30, 2004

Assets

Liabilities
Equity and advances

Revenues
Expenses

Income before income

taxes

Cash provided (used)

Operating activities
Investing activities
Financing activities

101.6

41.9
59.7

101.6

2005
(53 Weeks)

43.2
7.9

35.3

36.8
(8.4)
(0.1)

28.3

81.4

55.1
26.3

81.4

2004
(52 Weeks)

34.4
7.0

27.4

23.6
(18.0)
(3.6)

2.0

14. Segmented Information

2005
(53 Weeks)

2004
(52 Weeks)

Revenue

Food division

Sales
Gain on sale of assets

$ 12,189.4
–

$ 11,046.8
14.6

12,189.4

11,061.4

Real estate

Commercial
Inter-segment
Residential

Other operations

Elimination

136.4
57.8
35.0

229.2

74.4

128.0
52.3
30.2

210.5

64.4

12,493.0
(57.8)

11,336.3
(52.3)

$ 12,435.2

$ 11,284.0

In ﬁscal 2004, Sobeys Inc. sold several redundant real
estate assets.These assets were not considered strategic
for the long-term plans of the Company.The gain
realized on the sale of these assets was $14.6.

Empire Company Limited || 73

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 74

Notes to the Consolidated Financial Statements

Operating income

Food
Real estate

Commercial
Residential
Other operations
Investment income
Corporate expenses

2005
(53 Weeks)

2004
(52 Weeks)
Restated (Note 1)

322.6

293.7

89.1
33.1
9.5
18.8
(9.4)

85.8
25.2
9.8
15.9
(7.6)

463.7

422.8

May 7, 2005

April 30, 2004
Restated (Note 1)

Identiﬁable assets

Food

Food distribution
Goodwill

Real estate
Investments
Other (including

goodwill of $3.8;
2004 - $Nil)

2,829.0
681.1

3,510.1
1,017.9
325.9

2,620.2
656.9

3,277.1
990.8
324.7

75.3

87.1

4,929.2

4,679.7

2005
(53 Weeks)

2004
(52 Weeks)
Restated (Note 1)

Depreciation and amortization

Food
Real estate
Corporate and other

Capital expenditure

Food
Real estate
Corporate and other

176.4
18.7
6.4

201.5

2005
(53 Weeks)

321.1
33.2
17.7

372.0

152.7
16.3
4.7

173.7

2004
(52 Weeks)

384.9
34.2
11.9

431.0

The Company operates principally in two business
segments: food distribution and real estate.The food
distribution segment consists of distribution of
food products in Canada. The real estate segment

74 || 2005 Annual Report

consists of development and ownership of both
commercial and residential properties. Commercial real
estate is mainly shopping centres and ofﬁce buildings
in Central and Eastern Canada. Residential real estate
is the development of housing lots for resale.
Inter-segment transactions are at market values.

15. Financial Instruments

Credit Risk
There is no significant concentration of credit risk.
The credit risk exposure is considered normal for
the business.

Other Financial Instruments
The book value of cash and cash equivalents,
receivables, loans and mortgages, bank indebtedness,
accounts payables and accrued liabilities and income
taxes payable approximate fair values at May 7, 2005.
The fair value of investments is $483.3.

The total fair value of long-term debt is estimated

to be $1,126.0.The fair value of variable rate debt is
assumed to approximate its carrying amount.The fair
value of other long-term debt has been estimated by
discounting future cash ﬂows at a rate offered for debt
of similar maturities and credit quality.The fair value of
the bond forward and of the delayed start interest rate
swaps is $(3.6).

Interest Rate Risk
The majority of the Company debt is at ﬁxed rates.
Accordingly, there is limited exposure for interest rate risk.

Foreign Currency Risk
Investments include $152.1 Canadian that is denominated
in U.S. funds. Bank indebtedness includes $87.9 Canadian
that is denominated in U.S. funds and it acts as a partial
hedge to the foreign exchange ﬂuctuations inherent in
the market value of the U.S. investments.

16. Contingent Liabilities

At May 7, 2005 the Company was contingently liable
for letters of credit issued in the aggregate amount of
$44.0 (2004 – $42.0).

The Company has guaranteed certain bank loans
contracted by franchisees. As at May 7, 2005 these loans
amounted to approximately $2.4 (2004 – $5.0).

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 75

Upon entering into the lease of its Mississauga
distribution centre in March 2000 Sobeys Inc., a
subsidiary of the Company, guaranteed to the landlord a
performance, by SERCA Foodservice, of all its obliga-
tion under the lease.The remaining term of the lease is
15 years with an aggregate obligation of $46.2. At the
time of the sale of assets of SERCA Foodservice to
Sysco Corp., the lease of the Mississauga distribution
centre was assigned to and assumed by the purchaser,
and Sysco Corp. agreed to indemnify and hold Sobeys
Inc. harmless from any liability it may incur pursuant
to its guarantee.

Sobeys Inc. has received notice from Canada

Revenue Agency (CRA) that it is proposing a
reassessment related to Goods and Services Tax (GST)
for ﬁscal years 1999 and 2000.The proposed
reassessment relates to GST on sales of tobacco
products to status Indians. CRA asserts that Sobeys Inc.
was obliged to collect GST on the sales of these
tobacco products to status Indians.The total tax,
interest and penalties in the proposed reassessment are
approximately $13.0. Sobeys Inc. has reviewed this
matter, has received legal advice and believes it was not
required to collect GST. Sobeys Inc. is challenging this
proposed reassessment and if necessary will defend
against any reassessments to the appropriate judicial
bodies. Accordingly, the Company has not recorded any
of the proposed tax, interest or penalties in its ﬁnancial
statements.

The Company has agreed to indemnify its
directors and ofﬁcers and particular employees in
accordance with the Company’s policies.The Company
maintains insurance policies that may provide coverage
against certain claims.

The Company has entered into the following

delayed start interest rate swaps:

– Notional amount of $5.5, commencing on

September 7, 2007 and terminating September 7,
2017.The Company pays interest at a ﬁxed rate of
6.16% and receives interest based on the 90-day
bankers’ acceptance rate.

– Notional amount of $22.3, commencing on

November 30, 2007 and terminating November
30, 2017.The Company pays interest at a ﬁxed rate
of 6.18% and receives interest based on the 90-day
bankers’ acceptance rate.

There are various claims and litigation, which the
Company is involved with, arising out of the ordinary
course of business operations.The Company’s
management does not consider the exposure to such
litigation to be material, although this cannot be
predicted with certainty.

17. Employee Future Beneﬁts

The Company has a number of deﬁned beneﬁt and
deﬁned contribution plans providing pension and other
retirement beneﬁts to most of its food distribution and
real estate employees.

Deﬁned Contribution Pension Plans
The contributions required by the employee and the
employer are speciﬁed.The employee’s pension depends
on what level of retirement income (for example,
annuity purchase) that can be achieved with the
combined total of employee and employer contributions
and investment income over the period of plan
membership, and the annuity purchase rates at the time
of the employee’s retirement.

Deﬁned Beneﬁt Pension Plans
The ultimate retirement beneﬁt is deﬁned by a formula
that provides a unit of beneﬁt for each year of service.
Employee contributions, if required, pay for part of the
cost of the beneﬁt, but the employer contributions fund
the balance.The employer contributions are not
speciﬁed or deﬁned within the plan text, they are based
on the result of actuarial valuations which determine
the level of funding required to meet the total
obligation as estimated at the time of the valuation.

Most recent
valuation date

Next required
valuation date

Retirement Pension

Plan

December 31, December 31,
2006

2003

Senior Management
Pension Plan

December 31, December 31,
2007

2004

Deﬁned Contribution Plans
The total expense and cash contributions for the
Company’s deﬁned contribution plans are as follows:

2005
2004

$
$

12.1
11.5

Empire Company Limited || 75

9667_Empire AR 05 B. F. MIL 7/25/05 11:26 AM Page 76

Notes to the Consolidated Financial Statements

Deﬁned Beneﬁt Plans
Information about the Company’s deﬁned beneﬁts plans, in aggregate, is as follows:

Pension
Benefit Plans

Other
Benefit Plans

2005

2004

2005

2004

Accrued beneﬁt obligation
Balance, beginning of year
New incidence (post-employment beneﬁts)
Current service cost
Interest cost
Employee contributions
Past service costs
Special termination beneﬁts
Beneﬁts paid
Actuarial losses (gains)

Balance, end of year

Plan assets

Market value, beginning of year
Actual return on plan assets
Employer contributions
Employee contributions
Beneﬁts paid

Market value, end of year

Funded status
Deﬁcit
Unamortized past service cost
Unamortized actuarial losses

Accrued beneﬁt asset (liability)

Expense

Current service cost
Interest cost
Special termination beneﬁts
Actual return on plan assets
Actuarial losses (gains)
Past service costs
New incidence (post-employment beneﬁts)

Expense before adjustments
Expected vs actual return on plan assets
Recognized vs actual past service costs
Recognized vs actual actuarial losses (gains)

252.0
–
2.2
14.8
0.4
0.7
–
(18.4)
15.3

267.0

223.5
31.3
7.6
0.4
(18.4)

244.4

(22.6)
1.0
49.9

28.3

2.2
14.8
–
(31.3)
15.3
0.7
–

1.7
16.0
(0.5)
(12.9)

Net expenses

4.3

235.0
–
2.5
14.9
0.5
–
1.3
(16.6)
14.4

252.0

199.8
36.8
3.0
0.5
(16.6)

223.5

(28.5)
0.4
53.1

25.0

2.5
14.9
1.3
(36.8)
14.4
–
–

(3.7)
23.3
–
(10.9)

8.7

112.0
0.4
2.4
5.9
–
–
–
(4.4)
(7.6)

108.7

–
–
4.4
–
(4.4)

–

(108.7)
1.2
13.0

(94.5)

2.4
5.9
–
–
(7.6)
–
0.4

1.1
–
0.1
7.2

8.4

90.4
7.7
2.4
6.2
–
1.3
–
(4.4)
8.4

112.0

–
–
4.5
–
(4.5)

–

(112.0)
1.3
20.3

(90.4)

2.3
6.2
–
–
8.4
1.3
7.7

25.9
–
(1.3)
(6.9)

17.7

76 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:27 AM Page 77

Classiﬁcation of accrued beneﬁt asset (liability)

Other assets
Accrued liabilities/expected ﬁscal 2006

contributions

Other long-term liabilities

Accrued beneﬁt asset (liability)

Pension
Benefit Plans

Other
Benefit Plans

2005

55.2

(9.2)
(17.7)

28.3

2004

49.2

(7.3)
(16.9)

25.0

2005

2004

–

(4.9)
(89.6)

(94.5)

–

(4.4)
(86.0)

(90.4)

Included in the above accrued beneﬁt obligation at year-end are the following amounts in respect of plans that are
not funded:

Accrued beneﬁt obligation

Pension
Benefit Plans

Other
Benefit Plans

2005

19.5

2004

18.5

2005

94.5

2004

90.4

The signiﬁcant actuarial assumptions adopted in measuring the Company’s accrued beneﬁt obligations are as follows
(weighted-average assumptions as of May 7, 2005):

Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase

Pension
Benefit Plans

Other
Benefit Plans

2005

5.50%
7.00%
4.00%

2004

6.00%
7.00%
4.00%

2005

5.75%

2004

6.00%

For measurement purposes, a 10% ﬁscal 2005 annual rate of increase in the per capita cost of covered health care
beneﬁts was assumed.The cumulative rate expectation to 2012 is 6%.The expected average remaining service period
of the active employees covered by the pension beneﬁt plans ranges from 11 to 19 years with a weighted average of
11 years at year end.The expected average remaining service period of the active employees covered by the other
beneﬁt plans range from 13 to 17 years with a weighted average of 16 years at year end.

Pension Plans

Other Benefit Plans

Expected long-term rate of return on plan assets

Impact of: 1% increase
1% decrease

Discount rate

Impact of: 1% increase
1% decrease

Growth rate of health costs(1)
Impact of: 1% increase
1% decrease

Benefit
Obligations

5.5%
(29.3)
32.9

$
$

Benefit
Cost(1)

7.0%
(2.4)
2.4
5.5%
0.3
(0.6)

$
$

Benefit
Obligations

Benefit
Cost(1)

5.75%
(15.7)
18.9
10.0%
15.9
(13.0)

$
$

5.75%
(0.8)
0.9
10.0%
1.9
(1.5)

$
$

(1) Reﬂects the impact on the current service cost, the interest cost and the expected return on assets.

Empire Company Limited || 77

9667_Empire AR 05 B. F. MIL 7/25/05 11:27 AM Page 78

Notes to the Consolidated Financial Statements

The asset mix of the deﬁned beneﬁt pension plans as at year end is as follows:

Cash and short-term investments
Bonds, debenture, ﬁxed income pooled funds and real estate funds
Equities and pooled equities fund
Accrued interest and dividends

Total investments

2005

7.06%
17.71%
74.96%
0.27%

2004

3.21%
21.27%
75.24%
0.28%

100.00%

Within these securities are investments in Empire Company Limited.The market value of these shares at year end are
as follows:

2005

80.2

% of plan
assets

10.0%

2004

57.7

% of plan
assets

8.1%

Commisso’s Acquisitions
During the 2004 ﬁscal year the Company acquired
substantially all of the assets and trade liabilities of
Commisso’s Food Markets Limited, Commisso’s
Grocery Distributors Limited and Commisso’s
Properties Inc. which are located in Southern Ontario.
Acquired were six grocery stores (and the shopping
centres where they are located), nine additional grocery
stores, six cash-and-carry outlets and a wholesale
business and distribution centre.The acquisition was
completed February 1, 2004 and was accounted for
using the purchase method, with operating results
being included in the consolidated ﬁnancial statements
at this date.

Inventories
Property and equipment
Goodwill
Intangibles
Other assets
Accounts payable
Long-term liabilities
Other liabilities

Expenses

Cash consideration

16.2
56.1
62.5
5.4
3.1
(32.1)
(38.5)
(21.2)

51.5
(0.8)

50.7

18. Business Acquisitions

Sobeys Inc.
During ﬁscal 2005 the Company increased its
ownership interest in Sobeys Inc. from 65.0% to 68.4%
by way of purchase of shares on the open market.
The acquisition was accounted for using the purchase
method with operating results being included in the
consolidated ﬁnancial statements from the date of each
share acquisition.The cash consideration paid was
$93.5, goodwill increased by $27.1 and minority
interest decreased by $66.4.

During ﬁscal 2004 the Company increased its

ownership interest in Sobeys Inc. from 62% to 65%
by way of purchase of shares on the open market.
The acquisition was accounted for using the purchase
method with operating results being included in the
consolidated ﬁnancial statements from the date of each
share acquisition.The cash consideration paid was
$74.2, goodwill increased by $26.2 and minority
interest decreased by $48.0.

Other Acquisitions
During the year the Company acquired franchisee
stores and prescription ﬁles in its food distribution
segment as part of its normal course of operations and
acquired four cinemas in Nova Scotia and New
Brunswick in its other operations segment for total cash
consideration of $19.1.The acquisitions were accounted
using the purchase method with net identiﬁable assets
recorded at $15.3 (including intangible assets of $7.2)
and goodwill recorded at $3.8.

78 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:27 AM Page 79

19. Stock-based Compensation

Members of the Board of Directors may elect to
receive all or any portion of their fees in Deferred
Share Units (DSU’s) in lieu of cash.The number of
DSU’s received is determined by the market value of
the Company’s common shares on each directors’ fee
payment date. Additional DSU’s are received as
dividend equivalents. DSU’s cannot be redeemed
for cash until the holder is no longer a director of the
Company.The redemption value of a DSU equals
the market value of a Empire Company Limited
common share at the time of the redemption. On an
ongoing basis, the Company values the DSU obligation
at the current market value of a common share and
records any increase in the DSU obligation as an
operating expense. At May 7, 2005 there were 50,420
(April 30, 2004 – 36,643) DSU’s outstanding. During
the year, the stock-based compensation expense was
$0.9 (2004 – $0.2).

20. Real Estate Leases

The Company has reviewed its practices related to lease
accounting and has determined that adjustments were
required to align to the recent clariﬁcation of lease
accounting guidelines.The ﬁrst adjustment relates to
lease allowances and incentives. Historically the
Company classiﬁed lease allowances as a reduction of
the related capital assets, which effectively reduced the
depreciation expense over the expected life of the asset.
The guideline clariﬁcation suggests these lease
allowances should be recorded as a deferred credit and
amortized as a reduction of lease expense over the term
of the lease.The second adjustment relates to rent
expense to be recorded during a store’s ﬁxturing
period.The Company is often granted a ﬁxturing
period during which rent is not charged.The ﬁxturing
period is generally considered to be one month prior
to the store opening. Historically, when the Company
was granted a ﬁxturing period, rent expense was not
recorded as none was being charged and the store was
not yet open.The clariﬁcation of the accounting
guidance however requires that the ﬁxturing period be
considered a rent free period that should be included in
the term of the lease. Since lease expense must be
recognized on a straight-line basis over the lease term
an appropriate portion of the straight-line expense must
be recorded for the ﬁxturing period.The third
adjustment relates to the capitalization of long-term

leases. An evaluation was completed in the fourth
quarter of the current year and certain long-term leases
have been identiﬁed as capital leases.These changes
have been accounted for on a retroactive basis with
restatement resulting with the following net impact on
the comparative statements:

As at April 30, 2004 a reduction to retained

earnings of $5.4.

A reduction in net income for the 52 week period
ended April 30, 2004 of $0.6 from $173.1 to $172.5, and
a reduction in earnings per share from $2.63 to $2.62.
As at April 30, 2004 an increase to Property and
equipment, Future income taxes, Long-term debt and
Long-term liabilities of $10.1, $4.4, $10.3 and $12.5,
respectively and a decrease in Minority interest of $2.9.
These lease accounting adjustments did not have any
material impact on the Company’s ﬁscal 2005 net
earnings, historical or future revenues, cash ﬂows or
lease payments.

21. Vendor Allowances

The Company receives allowances from certain vendors,
whose products are purchased for resale. Included in
these vendor programs are allowances for volume
purchases, exclusivity allowances, listing fees and other
allowances. Due to the retroactive implementation of
EIC-144, the timing of recognition of certain vendor
allowances has changed, resulting in the Company
recording a decrease in opening retained earnings for
ﬁscal 2004 of $3.8 (net of income tax effect of $3.4 and
minority interest of $2.1) and a decrease to inventory of
$9.3.The implementation of EIC-144 did not result in
a material change in the annual net earnings for ﬁscal
2004 or in the current year.

22. Variable Interest Entities

Variable interest entities are deﬁned under AcG-15 as
entities that do not have sufﬁcient equity at risk to
ﬁnance their activities without additional subordinated
ﬁnancial support, or where the equity holders lack the
overall characteristics of a controlling ﬁnancial interest.
The guideline requires that the VIE be consolidated
with the ﬁnancial results of the entity deemed to be the
primary beneﬁciary of the VIE’s expected losses and its
expected residual returns.

Empire Company Limited || 79

9667_Empire AR 05 B. F. MIL 7/25/05 11:27 AM Page 80

Notes to the Consolidated Financial Statements

The Company has implemented AcG-15 on May 7, 2005 retroactively without restatement of prior periods.
Entities that have been identiﬁed as meeting the characteristics of VIE have been consolidated in the Company’s
results for the fourth quarter.

The Company has identiﬁed the following entities as VIE’s:

Franchisees
The Company has identiﬁed 287 franchisees whose franchise agreements result in the Company being deemed the
primary beneﬁciary of the entity according to AcG-15.The results of these entities require consolidation with the
results of the Company.

Warehouse and Distribution Agreement
The Company has an agreement with an independent entity to provide warehousing and distribution services.
The terms of the agreement with this entity require the Company to consolidate its results with those of the
Company pursuant to AcG-15.

The Company has consolidated the results of these independent franchisees and the entity providing warehouse and
distribution services effective at the fourth quarter of ﬁscal 2005.

Balance Sheet as at May 7, 2005

Consolidated
Balance Sheet
as at May 7,
2005 before
AcG-15 Impact

Impact of the
Implementation
of AcG-15

Consolidated
Balance Sheet
as at May 7,
2005 after
AcG-15 Impact

247.6
279.7
14.8
518.3
48.1

1,108.5
270.8
72.9

1,452.2
2,395.3
11.5
321.7
684.9

34.1
(21.9)
0.2
121.3
4.2

137.9
–
–

137.9
34.5
–
(108.8)
–

281.7
257.8
15.0
639.6
52.3

1,246.4
270.8
72.9

1,590.1
2,429.8
11.5
212.9
684.9

$ 4,865.6

63.6

$ 4,929.2

Assets
Current

Cash and cash equivalents
Receivables
Income taxes receivable
Inventories
Prepaid expenses

Investments, at cost (quoted market value $320.9)
Investments, at equity (realizable value $162.4)

Current assets and marketable investments
Property and equipment
Assets for realization
Other assets
Goodwill

80 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:27 AM Page 81

Balance Sheet as at May 7, 2005

Liabilities
Current

Bank indebtedness
Accounts payable and accrued liabilities
Future income taxes
Long-term debt due within one year

Long-term debt
Long-term lease obligation
Deferred revenue
Employee future beneﬁt obligation
Future income taxes
Minority interest

Shareholders’ Equity
Capital stock
Retained earnings
Cumulative translation adjustment

Consolidated
Balance Sheet
as at May 7,
2005 before
AcG-15 Impact

Impact of the
Implementation
of AcG-15

Consolidated
Balance Sheet
as at May 7,
2005 after
AcG-15 Impact

219.4
1,119.5
52.4
245.1

1,636.4
709.6
12.3
3.0
94.5
158.8
531.9

3,146.5

194.6
1,525.6
(1.1)

1,719.1

$ 4,865.6

–
29.6
–
1.9

31.5
17.8
–
–
–
–
24.4

73.7

–
(10.1)
–

(10.1)

63.6

219.4
1,149.1
52.4
247.0

1,667.9
727.4
12.3
3.0
94.5
158.8
556.3

3,220.2

194.6
1,515.5
(1.1)

1,709.0

$ 4,929.2

Accounts receivable and long-term notes receivable due from the franchisees were eliminated upon consolidation.
Cash, inventories, ﬁxed assets, accounts payable and debt ﬁnancing the ﬁxed assets has been consolidated.
A charge of $9.5 has been recorded to opening retained earnings (net of minority interest of $5.0) to reﬂect:

1) The reduction of inventory values of the franchisees that include charges from the Company for distribution

costs and vendor allowances that are not recognized by the Company until ﬁnal sale to customers,

2) Goodwill that is carried on the accounts of stores determined to be VIE’s has been assessed as being impaired

with no fair market value and, as such, has been eliminated.

Minority interest represents the equity in the VIE’s held by the common shareholder.

Empire Company Limited || 81

9667_Empire AR 05 B. F. MIL 7/25/05 11:27 AM Page 82

Notes to the Consolidated Financial Statements

Income Statement for the 53 weeks ended May 7, 2005

Sales
Operating expenses

Consolidated
Income Statement
as at May 7,
2005 before
AcG-15 Impact

Consolidated
Income Statement
as at May 7,
2005 after
AcG-15 Impact

Impact of the
Implementation
of AcG-15

$ 12,297.8

137.4

$ 12,435.2

Cost of sales, selling and administrative expenses
Depreciation and amortization

11,655.2
199.7

135.8
1.8

11,791.0
201.5

Investment income

Operating income

Interest expense

Long-term debt
Short-term debt

Capital gain and other items

Earnings before income taxes and minority interest
Income taxes

Earnings before minority interest
Minority interest

Net earnings

Earnings per share basic and diluted

Basic and diluted weighted average number of
common shares outstanding, in millions

442.9
21.0

463.9

81.1
5.1

86.2

377.7
4.4

382.1
131.3

250.8
63.8

187.0

2.84

65.7

(0.2)
–

(0.2)

0.4
0.1

0.5

(0.7)
–

(0.7)
(0.1)

(0.6)
(0.2)

(0.4)

(0.01)

442.7
21.0

463.7

81.5
5.2

86.7

377.0
4.4

381.4
131.2

250.2
63.6

186.6

2.83

65.7

The impact of implementation of AcG-15 on the consolidated income statement of the Company can be

explained as follows:

Franchise retail sales are recorded and sales from the Company’s warehouse and cost of goods sold to the
franchisees have been eliminated.The impact on all other ﬁnancial statement line items including net earnings is
immaterial.

82 || 2005 Annual Report

9667_Empire AR 05 B. F. MIL 7/25/05 11:27 AM Page 83

23. Change in Fiscal Year-end

Effective for ﬁscal 2005, Empire’s year-end changed
from April 30th to the ﬁrst Saturday in May. As such,
the quarter-end dates and ﬁscal year-end will be
consistent with Sobeys Inc.

24. Subsequent Events

(a) On June 17, 2005, Sobeys Inc. received notice from
Canada Revenue Agency (CRA) that a notice of
reassessment was forthcoming related to the Goods
and Services Tax (GST) matter outlined in Note 16.
Sobeys Inc. has reviewed this matter, has received
legal advice and believes it was not required to
collect GST. Sobeys Inc. is challenging this proposed
reassessment and if necessary will defend against any
reassessments to the appropriate judicial bodies.
Accordingly, the Company has not recorded any of
the proposed tax, interest or penalties in its ﬁnancial
statements.

(b) On June 6, 2005, the shareholders of Wajax Limited
(Wajax), an equity accounted investment, approved a
Plan of Arrangement to convert Wajax into an

income fund.The Company owned approximately
45% of the outstanding shares of Wajax (on a fully
diluted basis).The Plan of Arrangement was
completed on June 15, 2005 with the Company
receiving one unit of Wajax Income Fund (Fund)
for each Wajax share held.Through a secondary
offering, on June 21, 2005, the Company sold a
total of 2.5 million Fund units for net proceeds of
approximately $44.This reduced the Company’s
ownership percentage to approximately 29.9%.The
net proceeds from this sale are expected to be used
to repay bank indebtedness.The Company has
granted an over-allotment option to the
underwriters exercisable to July 21, 2005, whereby
the underwriters can purchase from the Company
up to 375,000 units at $19.25 per unit.

25. Comparative Figures

Comparative ﬁgures have been reclassiﬁed, where
necessary, to reﬂect the current year’s presentation and
to record the effects of retroactive application of certain
new accounting standards.

Empire Company Limited || 83

9667_Empire AR 05 B. F. MIL 7/25/05 2:11 PM Page 84

Eleven-Year Financial Review

Years Ended(1)

Financial Results ($ in millions; except ROE)

Revenue

Operating income

Interest expense

Income taxes

Minority interest

Earnings from continuing operations

before net capital gains and other items

Earnings from discontinued operations (2)
Operating earnings (3)

Capital gain (loss) and other items, net of tax

Net earnings

Return on equity

Financial Position ($ in millions)

Total assets

Long-term debt (excluding current portion)

Shareholders’ equity

Per Share Data ($ per share)

Operating earnings

Capital gain (loss) and other items, net of tax

Net earnings

Dividends

Non-Voting Class A common shares
Class B common shares

Book value

Share Price, Non-Voting Class A Shares ($ per share)

High

Low

Weighted Average Number of Common

Shares Outstanding (in millions)

2005

2004
Restated

2003
Restated

2002

2001

$ 12,435.2

$ 11,284.0

$ 10,624.2

$ 9,926.5

$ 9,331.1

463.7

86.7

131.2

63.6

182.9
–

182.9

3.7

186.6

11.4%

4,929.2

727.4

1,709.0

2.78

0.05

2.83

0.4800
0.4800

25.87

38.00

24.25

36.66

65.7

422.8

92.4

111.0

58.5

163.3
–

163.3

9.2

172.5

11.6%

4,679.7

913.0

1,567.6

2.48

0.14

2.62

0.4000
0.4000

23.67

29.50

23.10

26.65

65.8

444.4

93.7

120.0

67.5

159.3
–

159.3

(6.0)

153.3

11.4%

4,519.3

923.1

1,418.5

2.42

(0.09)

2.33

0.3300
0.3300

21.41

33.25

23.70

23.85

65.8

416.2

111.6

104.8

50.0

123.5
8.7

132.2

63.7

195.9

16.4%

4,318.0

975.0

1,290.6

2.00

0.97

2.97

0.2138
0.2138

19.47

33.30

15.75

28.88

65.7

341.1

145.8

131.9

34.3

78.5
10.0

88.5

491.5

580.0

69.1%

4,254.3

1,107.2

1,115.0

1.33

7.49

8.82

0.1700
0.1700

16.82

18.25

13.88

17.00

65.6

(1) Fiscal years are ended April 30th except ﬁscal 2005 which ended May 7, 2005 (a 53 week year), reﬂecting a change in ﬁscal year end to the ﬁrst Saturday in May,

consistent with the ﬁscal year end of Sobeys Inc.

(2) Discontinued operations reﬂect the ﬁnancial contribution of SERCA Foodservice operations, which was sold at the end of 2002.

(3) Operating earnings equals net earnings before capital gain (loss) and other items.

84 || 2005 Annual Report

2002

926.5

416.2

111.6

104.8

50.0

123.5

8.7

132.2

63.7

195.9

16.4%

318.0

975.0

290.6

2.00

0.97

2.97

.2138
.2138

19.47

33.30

15.75

28.88

65.7

9667_Empire AR 05 B. F. MIL 7/25/05 11:27 AM Page 85

2001

2000

1999

1998

1997

1996

1995

$ 9,331.1

$ 9,100.1

$ 5,362.7

$ 2,912.2

$ 3,149.7

$ 2,915.2

$ 2,699.5

341.1

145.8

131.9

34.3

78.5

10.0

88.5

491.5

580.0

69.1%

4,254.3

1,107.2

1,115.0

1.33

7.49

8.82

0.1700
0.1700

16.82

18.25

13.88

17.00

65.6

309.7

159.6

68.1

32.9

78.8

5.9

84.7

2.1

86.8

13.3%

184.4

112.6

49.1

9.2

59.0

1.1

60.1

74.9

135.0

21.7%

108.6

76.8

17.9

–

56.1

8.1

64.2

23.6

87.8

114.2

79.2

16.9

0.4

51.5

–

51.5

1.4

52.9

17.9%

11.9%

4,171.0

1,332.0

602.8

4,023.5

1,391.8

737.5

1.10

0.03

1.13

0.1400
0.1400

8.73

16.98

12.33

16.05

75.6

0.78

1.00

1.78

0.1363
0.1363

9.03

16.275

12.50

13.00

75.0

1,907.2

616.5

558.3

0.85

0.32

1.17

0.1213
0.1163

7.06

14.25

7.80

13.63

73.9

1,797.4

606.8

479.6

0.65

0.02

0.67

0.1100
0.0900

5.93

7.85

6.13

7.85

74.0

110.1

87.7

13.7

0.5

41.1

–

41.1

(19.4)

21.7

3.9%

1,731.4

656.1

474.9

0.47

(0.26)

0.21

0.1075
0.0825

5.24

7.88

5.75

6.15

74.6

122.5

89.3

16.8

0.5

42.7

–

42.7

(1.5)

41.2

9.4%

1,761.1

648.0

469.5

0.49

(0.02)

0.47

0.1000
0.0600

5.12

8.25

6.50

6.69

74.5

Empire Company Limited || 85

9667_Empire AR 05 B. F. MIL 7/25/05 11:27 AM Page 86

Investor Information

Empire Company Limited
Head Office:
115 King Street
Stellarton, Nova Scotia
B0K 1S0
Telephone: (902) 755-4440
Fax: (902) 755-6477
Email: www.empireco.ca

Investor Relations and Inquiries
Shareholders, analysts, and investors should
direct their financial inquiries or requests to:
Stewart H. Mahoney, CFA,
Vice President, Treasury and Investor Relations
E-mail: investor.relations@empireco.ca

Communications regarding investor records including
changes of address or ownership, lost certificates, or tax forms,
should be directed to the Company’s transfer agent and
registrar, CIBC Mellon Trust Company.

Affiliated Company Web Addresses
www.sobeys.com
www.empiretheatres.com
www.crombieproperties.com

Shareholders’ Annual General Meeting
September 8, 2005 at 11:00 a.m. (ADT)
Aberdeen Cinemas
610 East River Road
New Glasgow, Nova Scotia

Stock Exchange Listing
The Toronto Stock Exchange

Stock Symbols
Non-Voting Class A shares – EMP.NV.A
Preferred shares:
Series 2 – EMP.PR.B

Average Daily Trading Volume (TSX)
27,500

Common Dividend Record and Payment Dates for
Fiscal 2006*
Record Date

Payment Date

July 15, 2005

October 14, 2005

January 16, 2006

April 14, 2006

* subject to approval by Board of Directors

July 29, 2005

October 28, 2005

January 31, 2006

April 28, 2006

31,170,839

27,674

34,585,225

Outstanding Shares
As of July 15, 2005

Non-Voting Class A

Options exercisable

with Non-Voting Class A shares

Class B common, voting

Transfer Agent and Registrar
CIBC Mellon Trust Company
Investor Correspondence
P.O. Box 7010
Adelaide Street Postal Station
Toronto, Ontario
M5C 2W9
Telephone: (800) 387-0825
Email: enquiries@cibcmellon.com

Bankers
Bank of Montreal
Bank of Nova Scotia
Canadian Imperial Bank of Commerce
National Bank of Canada
Royal Bank of Canada
TD Canada Trust

Solicitors
Stewart McKelvey Stirling Scales
Halifax, Nova Scotia

Auditors
Grant Thornton, LLP
New Glasgow, Canada

Multiple Mailings
If you have more than one account, you may receive
a separate annual report for each. If this occurs,
please contact CIBC Mellon Trust Company at
(800) 387-0825 to eliminate the multiple mailings.

Exemplaire Français
Vous pouvez obtenir un exemplaire français de ce
rapport annuel en écrivant à :

Empire Company Limited
Investor Relations
115 King Street
Stellarton, Nova Scotia
B0K 1S0

86 || 2005 Annual Report

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9667_Empire AR 05 B. F. MIL 7/25/05 11:27 AM Page 87

Mission Statement

Goal
Empire is committed to building shareholder value through long-term
proﬁtability and growth by becoming a market leader in its core
operating businesses and by investing in other opportunities to
augment this growth in value.

How
We believe that the three key factors in the creation of value are ﬁrst,
strong management, second, ﬁnancial structures which facilitate growth
and third, emphasis on long-term growth in cash ﬂow that exceeds the
after-tax dollar cost of capital.

Values
Empire will be a good corporate citizen, upholding the highest
standards of integrity and ethical conduct.

www.empireco.ca

E M P I R E

C O M P A N Y L I M I T E D

Empire Company Limited || 87

E M P I R E

C O M P A N Y L I M I T E D