Empire Company Annual Report 2008

FY2008 Annual Report · Empire Company
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clearly focused on

our strengths

EMPIRE COMPANY LIMITED

2008 ANNUAL REPORT

Financial Highlights

($ in millions, except per share amounts)

52 Weeks Ended 
May 3, 2008

52 Weeks Ended
May 5, 2007*

52 Weeks Ended
May 6, 2006*

Operations

Revenue

Operating income

Operating earnings 

Capital gains and other items, net of tax

Net earnings

Financial Condition

Total assets

Long-term debt

Shareholders’ equity

Per Share Information

Operating earnings (fully diluted)

Capital gains and other items, net of tax

Net earnings (fully diluted)

Book value 

Dividends

Share Price

High

Low

Close

*Restated.

$

14,065.0

$

13,366.7

$

13,063.6

472.6

242.8

73.0

315.8

431.1 

200.1 

5.7 

205.8 

491.4

202.0

94.8

296.8

$

5,706.9

$

5,241.5

$

5,051.5

1,475.0

2,382.3

875.1 

 2,131.1  

809.8

 1,965.2 

$

$

3.69

1.11

4.80

36.14

0.66

55.19

35.40

39.25

$

$

3.04

0.09 

3.13 

32.31 

0.60 

45.25

39.49 

42.33 

$

$

3.07

1.44

4.51

29.77

0.56

44.35

33.37

43.29

Consolidated Revenue

$ IN MILLIONS

Consolidated Operating Earnings

$ IN MILLIONS

14,065.0

242.8

12,000

9,000

6,000

3,000

200

150

100

50

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

Empire Company Limited (TSX: EMP.A) is a Canadian company whose core businesses are food retailing and related real 

estate. Guided by conservative business principles, our primary goal is to build 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.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
knowledge & experience in

food retailing

& real estate

It’s a powerful combination of strengths built upon 100+ years in food retailing 

and 40+ years in real estate. Our focus on these core businesses will continue to 

guide Empire as we further enhance our capabilities and competitive advantages 

to sustain growth in our businesses.

2 EMPIRE’S CORE BUSINESSES
Our strengths, performanc
Our strengths, performanc

4 LETTER TO SHAREHOLDERS
Fiscal 2008 was a transfo
Fiscal 2008 was a transfo
enhanced our corporate st
enhanced our corporate st
a solid platform for growth
a solid platform for growth

8 FOOD RETAILING

In an environment of intens
In an environment of intens
our focus on food has not a
our focus on food has not a

14 REAL ESTATE

During 2008 we expanded o
During 2008 we expanded o
team with experienced individ
team with experienced 
individ
dedicated to expanding our p
dedicated to expanding our p

16 OUR LONG-TERM PROGRESS
Empire continues to deliver s
Empire continues to deliver s

18 LETTER FROM THE CHAIR
Empire’s long-term perspecti
Empire’s long-term perspecti
distinguishing advantage.
distinguishing advantage.

22 COMMUNITY INVOLVEMENT

Our goal is to “proudly serve o
Our goal is to “proudly serve o

27 MANAGEMENT’S DISCUSSION & ANALYSIS

70 CONSOLIDATED FINANCIAL STATEMENTS

  AND NOTES

Danielle McNelly, Assistant Meat Ma
Danielle McNelly, Assistant Meat Ma

 
EMPIRE’S CORE BUSINESSES

PROFILE

COMPETITIVE STRENGTHS

Sobeys Inc. owns and operates more 

than 1,300 corporate and franchise 

afﬁliate stores in every province across 

Canada under retail banners that

include Sobeys, IGA, IGA extra,

Foodland, Price Chopper and Thrifty 

Foods, as well as Lawtons Drug Stores.  

Our ﬁve core retail formats are

designed to ensure that we have the 

right offering in the right-sized stores

for each individual market we serve – 

from our full service format to the 

convenience format, each designed 

to satisfy the occasion-based food 

shopping needs of our customers. 

Empire’s real estate business includes 

commercial and residential property

operations. Our commercial real estate 

operations are focused on the 

development of food-anchored 

shopping plazas and ownership of

retail and ofﬁce properties through 

a 47.8 percent ownership interest in

Crombie REIT. The focus of our

residential operations is on land 

development, predominantly through

a 35.7 percent ownership interest in 

Genstar Development Partnership.

Our customer focus and superior 
service delivery.

Our passionate “best in food” focus
supported by our fresh food expertise
and our exceptional (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)
private label products.

Our committed and knowledgeable
franchise affiliates and store operators.

Our enhanced supply chain, back shop 
processes, systems and tools that 
support our employees in serving the 
needs of our customers.

Our knowledge, strength of management
and experience in real estate.

The close working relationship with 
Sobeys and Crombie REIT that enables 
Empire to accelerate the development 
of food-anchored shopping plazas
across Canada.

The preferential development agreement 
between our commercial division and 
Crombie REIT. This agreement reduces
risk and enhances opportunities for
both businesses. 

Our residential property operation, 
through Genstar, has attractive 
land holdings primarily in Western 
Canada and a proven, experienced
management team.

food retailing

The right-sized, right format offering 

for each market that we serve

(cid:115) FOOD RETAIL LOCATION

real estate

An expanding capability to develop 

food-anchored shopping plazas

(cid:115) REAL ESTATE PROPERTY

2

E M PI R E COM PANY LI M ITE D

KEY PERFORMANCE INDICATORS

VISION AND STRATEGIC PRIORITIES

Food Retailing Revenue

$ IN MILLIONS

Food Retailing Operating Income

$ IN MILLIONS

13,768.1

359.0

12 ,000

9,000

6,000

3,000

320

240

16 0

80

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

Real Estate Revenue

$ IN MILLIONS

Real Estate Funds from Operations

$ IN MILLIONS

240

18 0

120

60

160.6

60

45

30

15

64.4

29.1

35.3

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

COMMERCIAL

RESIDENTIAL

We are determined to be widely 
recognized as the best food retailer 
in Canada. Our focus in fiscal 2008 
remained on three key imperatives: 
continued improvement in operational 
execution through the engagement and 
development of our employees; reducing 
our cost base and improving productivity 
throughout our organization; and 
innovation in the product and services 
offered to our customers. Sustaining a 
competitive retail price position in each 
format and every market is a corner-
stone commitment from which we will 
not waver. Creating an environment in 
which our people are empowered with 
the skills, tools and processes to do 
their jobs well is fundamental to our 
superior execution and sustained growth.

The goal of our commercial real 
estate division is to create both 
certainty and pace of growth for 
Crombie REIT and Sobeys by 
continuing to accelerate growth in 
our development pipeline across 
Canada. Our strategy rests firmly on 
the combination of strengths brought 
to the business by Sobeys with its 
substantial in-house expertise in 
selecting commercial locations, 
Crombie REIT with its decades of 
management expertise, and the 
development expertise that we have 
within our commercial operations. 
Guiding our decisions at all times 
is a set of criteria that exemplifies 
our investment discipline. 

2008 AN N UAL R E PORT

3

LETTER TO SHAREHOLDERS

focused on

our strengths

Our solid operating achievements and financial performance in fiscal 2008 demonstrate 
the value of Empire’s privatization of Sobeys. We have created a solid platform for 
growth in food retailing and food-anchored shopping plaza development across Canada. 
With a strong, dedicated team, we see significant opportunity to leverage this model 
beyond our established presence in Eastern Canada, expanding more aggressively into 
Central Canada and British Columbia. 

Fiscal 2008 was a transformative year. 

The successful privatization of 

Sobeys simpliﬁed and enhanced our 

structure and corporate governance 

and intensiﬁed our focus on the return 

on capital employed. But it represented 

just one step in the implementation 

of a strategy designed to realign our 

activities and renew our focus on our 

strengths. In 2008, solid strategic 

progress, including expanded market 

presence, was made in each of our 

core businesses. Upon the close 

of the Sobeys privatization transaction 

in June 2007, we began negotiations 

to sell a portfolio of 61 commercial 

properties representing approximately 

Paul D. Sobey (left), President and CEO, 
Empire Company Limited; Stewart H. Mahoney, 
Vice President, Treasury and 
Investor Relations; and Paul V. Beesley, 
Executive Vice President and CFO.

interest in the Trust and we look forward 

to proﬁting from strong performance 

going forward. The sale of these 

properties was not only a sound 

ﬁnancial transaction. Just as important, 

it aligned well with Empire’s real estate 

strategy by supporting signiﬁcant 

growth for Crombie REIT and strength-

ening the solid relationship between our 

core businesses of food retailing and 

related real estate. The transaction also 

conﬁrms our conﬁdence in the Crombie 

management team and their strategies 

to sustain the solid operating and 

ﬁnancial performance that they have 

achieved since the REIT’s launch in 

March 2006. We look forward to the 

3.3 million square feet of gross leaseable area to 

generation of further transaction opportunities as Empire’s 

Crombie REIT. 

property development program evolves. 

The transaction closed in April 2008 for $428.5 million, 

While our real estate division successfully negotiated 

effectively monetizing the value of our assets and providing 

the sale of properties to Crombie REIT, Sobeys acquired 

Empire with funds to repay bank indebtedness and reduce our 

British Columbia-based grocery retailer Thrifty Foods. 

consolidated debt to capital ratio to 39.8 percent at the end 

Thrifty’s business includes 21 full-service supermarkets, 

of ﬁscal 2008. With an additional equity investment in 

a main distribution centre and a wholesale division on 

Crombie REIT, Empire now holds a 47.8 percent ownership 

Vancouver Island and the lower mainland of British Columbia.

4

E M PI R E COM PANY LI M ITE D

Daniel Giroux, 
Meat Counter Manager,
IGA extra,
Mascouche, Québec

The similarities between Sobeys and Thrifty Foods were 

While the turmoil in the capital markets has had an 

clear to us: an unwavering focus on food, dedicated 

impact on our share price over the last year, we have still 

employees, a great service culture and strong values, 

delivered an average annual total return to shareholders 

including a strong commitment to their communities. Thrifty 

of 12.0 percent over the last 10 years.

Foods was not only a great strategic ﬁt for our Company, 

it also expanded our footprint in British Columbia creating 

Food retailing

opportunities for future growth within food retailing and 

Sobeys achieved a 5.6 percent increase in sales to reach 

real estate development. 

Financial highlights

$13.77 billion and a 17.3 percent increase in net earnings 

in ﬁscal 2008. Once again, Sobeys’ solid performance was 

the result of an unwavering commitment to its food-focused 

We were pleased with Empire’s ﬁnancial results in ﬁscal 

strategy. Our strategy is executed through the collective 

2008. Revenues grew by 5.2 percent to $14.06 billion 

passion of our employees, franchisees and afﬁliates and 

while operating earnings increased to another record high, 

their knowledge of the food business in the distinct 

$242.8 million or $3.69 per share. Dividends paid to common

markets that we serve and our commitment to operational 

shareholders increased by 10.0 percent to $0.66 per

excellence and innovation.  

annum while book value per share grew by 11.9 percent.

Subsequent to ﬁscal year-end, coinciding with the release 

of our fourth qua

June 26, 2008, 

to announce a fu

in the Empire div

to $0.70 on an 

annualized basis

Rennie Bugeja, Real Estate 

Consultant, Sobeys Ontario; 

Derick Hendricks, Manager 

Construction Ontario/Québec, 

Crombie REIT; and Mark Stone, 

Manager of Real Estate Planning, 

ECL Developments Ltd., work 

together in a real estate business 

model uniquely capable 

of prospering throughout the 

traditional real estate cycles. 

2008 AN N UAL R E PORT

5

Every initiative that was implemented in ﬁscal 2008 – 

Crombie REIT’s real estate management skills and Sobeys’ 

from the launch of (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:43)(cid:86)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:37)(cid:74)(cid:84)(cid:79)(cid:70)(cid:90)(cid:1)and the 

regional expertise in identifying superior locations, we have 

introduction of almost 100 new products for kids to Fresh 

created a strong set of capabilities, assets and access to 

Item Management, a new SMART retailing program – 

markets. We’re simply stronger together than apart. 

was aimed at achieving our goal to “out-food”, “out-fresh”, 

With respect to our residential operations, Genstar 

“out-service” and “out-market” those who choose to 

continues to be an excellent investment, contributing 

compete with us. This focus is not only protecting Sobeys’ 

$34.7 million in earnings to Empire in ﬁscal 2008. Genstar’s 

position in the industry – it’s allowing the Company to grow

earnings contribution is expected to decline moderately 

in an intensely competitive market place. 

in ﬁscal 2009 as a result of an anticipated slowdown in 

Real estate

residential lot selling activity. Genstar has a very strong 

management team and holds an attractive mix of undeveloped

In ﬁscal 2008, we made substantial progress in the 

land and serviced lots. These properties were acquired at 

transformation of our real estate division, which works 

favourable prices and continue to represent very good 

closely with Sobeys on the development of food-anchored 

value, even in a stable or declining market environment. 

shopping plazas. We now have 1.9 million square feet of 

property either under development or offered for sale. 

Empire Theatres and other investments

We also have established new teams in Québec and British 

As the second largest movie exhibitor in Canada, 

Columbia to work with our existing teams in Ontario and 

wholly-owned Empire Theatres owns or has an interest in 

Atlantic Canada to expand our development pipeline. 

53 locations representing 387 screens, operating in eight 

These teams will work closely with Crombie REIT, 

provinces from coast-to-coast. During ﬁscal 2008, it opened 

which has provided an average annual investment return 

new theatres in Dartmouth, Nova Scotia and Bolton, Ontario 

of 12.0 percent since going public in March 2006 and 

and adopted new technologies such as digital cinema and 

has provided Empire shareholders with a second year 

Real D 3D. Attendance at existing theatres was driven by 

of exemplary operating and ﬁnancial performance. 

programming from The Metropolitan Opera, The Royal Opera 

By combining the development talents that we’re 

House, The Royal Ballet and World Wrestling Entertainment 

building within our commercial real estate division with 

in addition to the traditional major studio releases.

6

E M PI R E COM PANY LI M ITE D

Both Empire Theatres 

and Wajax beneﬁt Empire 

by providing a steady cash 

ﬂow, while enhancing our 

ﬁnancial ﬂexibility. 

Empire Theatres executives (left to right): 
Kevin J. MacLeod, Executive Vice President; 
Stuart G. Fraser, President and CEO; 
and Paul W. Wigginton, Vice President, 
Finance and CFO.

Our investment in Wajax Income Fund generated solid 

expenditures. By reducing our debt and managing our 

performance in ﬁscal 2008, contributing equity earnings 

capital prudently, we hope to return the rating assigned to

of $20.4 million and unit price appreciation of 14.0 percent 

our Company to investment grade by both rating agencies.

over ﬁscal 2007. Wajax Income Fund is a leading Canadian 

distributor and service support provider of mobile equipment, 

Heartfelt appreciation

industrial components and power systems. This is a very 

We have the ﬁnancial strength to execute our operating

solid business with a superb management team. Wajax is 

strategies, and we expect our ﬁnancial capacity to improve

well positioned in the market with substantial ties 

throughout ﬁscal 2009. We have a Board of Directors,

to Alberta’s oil sands. 

corporate management team and leadership in our core 

Both Empire Theatres and Wajax beneﬁt Empire 

businesses that have the experience and expertise to 

by providing a steady cash ﬂow, while enhancing our 

ensure we remain focused on our strengths and that

ﬁnancial ﬂexibility.

Strategic priorities 

our strategies are executed efﬁciently and capital is 

allocated prudently.

It is our people across the Company, however, who

As we move into ﬁscal 2009, we will continue to focus 

build this Company with consistent focus on superior 

on our core strategic priorities. First, we remain committed 

execution as they work together day-to-day with enthusi-

to supporting Sobeys in its goal to be widely recognized 

asm and commitment. With the continued support of our 

as the best food retailer in Canada in what continues to 

employees, franchisees and afﬁliates we are conﬁdent in 

be an intensely competitive environment. Second, we are 

our ability to grow our proﬁtability in the years ahead. 

committed to the ongoing evolution of our real estate 

business into a developer of new properties to be vended, 

preferably, to Crombie REIT. 

Finally, we are determined to reduce our leverage 

over the coming year through prudent working capital 

management and a renewed focus and scrutiny on capital 

y

President and CEO
Empire Company Limited
June 26, 2008

2008 AN N UAL R E PORT

7

FOOD RETAILING

focused on

food

In an environment of intense competition our focus has not wavered and will not waver. 
Sobeys is focused on food. As a result we have continued to make solid progress 
along a continuum in our determination to be widely recognized as the best food 
retailer in the country. We strive to (cid:178)(cid:80)(cid:86)(cid:85)(cid:14)(cid:71)(cid:80)(cid:80)(cid:69)(cid:179), (cid:178)(cid:80)(cid:86)(cid:85)(cid:14)(cid:71)(cid:83)(cid:70)(cid:84)(cid:73)(cid:179), (cid:178)(cid:80)(cid:86)(cid:85)(cid:14)(cid:84)(cid:70)(cid:83)(cid:87)(cid:74)(cid:68)(cid:70)(cid:179) and (cid:178)(cid:80)(cid:86)(cid:85)(cid:14)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:179)
all those who choose to compete with us in the Canadian food retail marketplace.

At the core of our food-focused strategy 

are our regional and local market 

management structures and teams of 

store operators who, by virtue of their 

“in the market” presence and knowledge, 

deploy market-tailored offerings to satisfy 

the unique occasion based needs of our 

customers. We capitalize on the diversity 

across the Canadian retail landscape by 

deploying our ﬁve distinct store formats 

based on individual market requirements 

and opportunities: full service, fresh ﬁll-in, 

community service, convenience and 

price discount food stores. Our ability to 

compete for customer patronage and 

loyalty – and grow sales per square foot 

– depends on being relevant in each 

Bill McEwan (right), President and CEO, 
Sobeys Inc., with Joan Muise, Administration 
Clerk and Donald MacLean, Owner/Operator of 
Foodland Westville, Nova Scotia. 

reducing our cost base and improving 

productivity throughout our organization; 

and innovation in the products and 

services offered to our customers. 

Sustaining a competitive retail price 

position in each format and every 

market is a cornerstone commitment 

that we will not waver from and creating 

an environment in which our people are 

empowered with the tools, skills and 

processes to do their jobs well is 

fundamental to superior execution 

and sustained growth.

Continued solid performance

With our focus clear and intact, 

Sobeys continued to achieve solid 

location with the right-sized store, the right format store, the 

operating and ﬁnancial performance in what remains an 

right price and promotion position, the right range of products 

intensely competitive food retail environment. Total revenue 

and the right balance of services and self serve offerings. 

for the year reached $13.77 billion compared to $13.03 billion 

During ﬁscal 2008, Empire’s privatization of Sobeys 

in ﬁscal 2007 as we sustained full year same-store sales 

served to support the three imperatives that are the tactical 

growth driven by continued increases in sales per square 

foundation of our strategy: operational execution through 

foot – key indicators of our strategic progress and evidence 

the engagement and development of our employees; 

of improved productivity. 

8

E M PI R E COM PANY LI M ITE D

strength in

freshness

Sobeys can “out-food”, “out-fresh” and “out-service” our competitors with innovative 

initiatives such as SMART retailing. SMART helps store managers like Joe Glover 

at Sobeys Store 925 in Oshawa achieve operational excellence by providing the tools 

and processes that allow them to use their local market knowledge to satisfy the 

unique needs of their customers more effectively. 

2008 AN N UAL R E PORT

9

Growing our store network

In ﬁscal 2008 we continued to expand and improve

the quality of Sobeys’ retail square footage, opening or

relocating 44 new stores, acquiring 22 stores and expanding

31 stores, while closing 67 stores; a net increase of 

127,000 new square feet across the country. We announced

the acquisition of British Columbia-based Thrifty Foods in

ly 2007. Thrifty Foods is a very well respected food-

cused retailer with great management, a strategy entirely

nsistent with ours, and a reputation for exceptional

stomer service, innovative product development and 

mmunity service. Building on the great foundation and 

putation of Thrifty Foods, we are committed to expanding 

r business on Vancouver Island and beyond.

strength in

communication

Our focus on fresh is just as vibrant on Sobeys.com as it is in 

our stores. Consumers can create shopping lists as they read 

our weekly ﬂyer, explore fresh tastes and meal ideas or visit our 

Countertop Buzz, our chefs’ blogs about great food, good fun, 

and inspirational meal ideas. 

10

E M PI R E COM PANY LI M ITE D

Sobeys launched the third wave 

of SMART retailing in 2008. 

Fresh Item Management provides 

store managers with the capability 

to analyze shopping patterns 

and determine the quantity of 

freshly produced items required 

throughout the day. 

Sobeys’ pharmacy customers know they can 
depend on knowledgeable customer service 
from employees like Rosa Milano. 

Monica Juliao,
Baker, Oshawa Sobeys

Sustaining our retail price position 

implementation of two new SMART programs in 2008. 

The intimate knowledge of each of our regional 

These initiatives were also made possible by the powerful 

management teams has been key to sustaining our 

information platform that we have implemented in Atlantic 

competitive retail price position in the face of new 

Canada, Ontario and the West. The ﬁrst of our new 

competition and, at times, unusual competitive pricing 

initiatives in 2008 was Workforce Management. This 

and promotional tactics. It is a position that has been 

initiative provides information to support the right levels of 

hard earned and one that we will not relinquish.

service at all times to service the needs of our customers 

Sustaining our price position relies signiﬁcantly 

in each store. Simply through more effective scheduling we 

on our ability to control and cut our costs and increase 

can improve service at a lower cost and higher productivity 

productivity in distribution centres, administrative ofﬁces 

to achieve increased customer satisfaction. 

and our stores. Initiatives such as SMART retailing, our 

The second initiative in 2008 was Fresh Item 

store-based operational excellence and productivity 

Management. By analyzing shopping patterns we can 

program, have been critical enablers. This program is 

determine the quantity of freshly produced items required 

all about the details of retail: continuous, incremental 

throughout the day. This ensures freshness while eliminating 

improvements that enhance our competitive position, 

the waste that inevitably results from over production. 

increase productivity and contribute to better top and 

In turn, this reduces shrink – a major drain on proﬁtability 

bottom-line performance. 

in food retailing. 

SMART retailing – the third wave

We’re now in the third wave of SMART retailing with 

the launch of Peer-to-Peer management in 2007, which 

allows stores across our network to share information and 

best practices. Furthermore, it was a key enabler for the 

2008 AN N UAL R E PORT

11

Sobeys Québec’s new distribution 

centre is the ﬁrst in Canada to 

be built according to the LEED®

(Leadership in Energy and 

Environmental Design) standard, 

the North American benchmark 

for green construction.

To ensure our products are meeting the needs 
of our customers, we’ve established a number of 
independent, consumer product appraisal panels 
that benchmark the quality of every one of our 
private label products. John Hale (second from 
right), Director of Product Appraisal, works with 
one of the panels.

Upstream in the supply chain we are building new 

The introduction of (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:43)(cid:86)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:37)(cid:74)(cid:84)(cid:79)(cid:70)(cid:90) builds 

distribution facilities and expanding others to ensure 

on our successful launch in 2007 of (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:48)(cid:83)(cid:72)(cid:66)(cid:79)(cid:74)(cid:68)(cid:84)(cid:1)

optimal service levels to our stores and to reduce errors 

and (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:67)(cid:66)(cid:77)(cid:66)(cid:79)(cid:68)(cid:70)(cid:14)(cid:110)(cid:82)(cid:86)(cid:74)(cid:77)(cid:74)(cid:67)(cid:83)(cid:70). To sustain our track 

and out-of-stocks. Our automated distribution centre under 

record of successful product innovation we have established 

construction in Vaughan, Ontario – just north of Toronto – 

professional in-house talent and independent consumer-

is proceeding on time and on budget. We anticipate 

based product appraisal panels that benchmark the quality 

opening the facility in early ﬁscal 2010. 

of every one of our products. 

Delicious, nutritious and fun

Embracing the challenges

During 2008 we continued to expand our private label 

The challenge as we move into ﬁscal 2009 will be to 

(cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84) line with the co-branded launch of our new 

respond effectively to an emerging cost of goods inﬂationary

kids’ line – (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:43)(cid:86)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:37)(cid:74)(cid:84)(cid:79)(cid:70)(cid:90). To date we have 

environment. We must manage the potential increased cost 

introduced nearly 100 new products including (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)

inputs in a way that will continue to provide fair value to the 

(cid:43)(cid:86)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:37)(cid:74)(cid:84)(cid:79)(cid:70)(cid:90)(cid:1)(cid:46)(cid:74)(cid:68)(cid:76)(cid:70)(cid:90)(cid:1)(cid:35)(cid:86)(cid:83)(cid:72)(cid:70)(cid:83)(cid:84)(cid:13)(cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:43)(cid:86)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:37)(cid:74)(cid:84)(cid:79)(cid:70)(cid:90)(cid:1)

consumer while at the same time not disrupting our 

(cid:34)(cid:77)(cid:81)(cid:73)(cid:66)(cid:14)(cid:53)(cid:66)(cid:85)(cid:70)(cid:83)(cid:84) and (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:43)(cid:86)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:37)(cid:74)(cid:84)(cid:79)(cid:70)(cid:90)(cid:1)(cid:39)(cid:83)(cid:86)(cid:74)(cid:85)(cid:1)(cid:49)(cid:74)(cid:68)(cid:14)(cid:46)(cid:74)(cid:89)

earnings position or interrupting our growth potential. Our 

dried fruit snack mix. More than 75 percent of the (cid:43)(cid:86)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)

keen focus on costs and productivity affords us a competitive

(cid:37)(cid:74)(cid:84)(cid:79)(cid:70)(cid:90) products meet the Heart and Stroke Foundation’s 

advantage in this environment and, while we have made 

nutrient criteria for healthy choices and bear the Health 

progress in line with our expectations, further sales per 

Check™ symbol. In addition, (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:43)(cid:86)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:37)(cid:74)(cid:84)(cid:79)(cid:70)(cid:90)

square foot across our system is achievable and we look 

products do not contain any artiﬁcial ﬂavours, artiﬁcial 

forward to continued improvement in ﬁscal 2009.

colours or added hydrogenated oils. 

But it is our (cid:81)(cid:70)(cid:80)(cid:81)(cid:77)(cid:70) who will execute and sell our way 

to growth – one customer at a time, one transaction at a 

time, one store at a time – that makes the greatest 

difference. In fact, our success resides not in the quality 

12

E M PI R E COM PANY LI M ITE D

Josée Rompré, Warehouse Clerk,  
Sobeys Québec Trois-Rivières Distribution Centre 

of our strategy, but in our ability to provide a workplace 

where our people can engage to win with tools, training, 

encouragement, processes and rewards that help them to 

get the job done well. We are exceptionally fortunate that 

our franchise afﬁliates and employees across the Company 

share our commitment to superior customer service and 

being the very best food retailer in the country.

The retail food industry has always been challenging 

and dynamic, but Sobeys has the strategic focus and 

ﬁnancial capacity to embrace both the opportunities and 

challenges that will inspire and confront us in the years 

ahead. Our performance over the years has proven  

that we are a company capable of building a healthy  

and sustainable retail food business and supporting 

infrastructure for the long term. We will stay the course  

to earn broader acknowledgement as the very best food 

fun &

retail business in Canada.

innovative

Bill McEwan
President and CEO
Sobeys Inc.
June 26, 2008

During 2008, Sobeys introduced nearly 100 new products 

under the co-branded Compliments Junior Disney line of 

products for kids. More than 75 percent meet the Heart and 

Stroke Foundation’s nutrient criteria for healthy choices and 

bear the Health Check™ symbol. Compliments Junior Disney

products do not contain any artiﬁcial ﬂavours, artiﬁcial colours 

or added hydrogenated oils. 

2008 AN N UAL R E PORT

13

REAL ESTATE

focused on

development 

During 2008, we expanded our team with experienced, talented individuals capable 
of executing effectively and dedicated to expanding our presence across the country. 
Our expertise in real estate, as well as our commitment to our disciplined investment 
criteria, will help to ensure that Empire prospers within the traditional economic cycles 
of the real estate industry.

Critical to our successful transition from 

an owner and manager of properties to 

a developer was the expansion of our 

team to include real estate development 

vice presidents in Atlantic Canada, 

Québec and British Columbia. These 

individuals bring integrity consistent with 

the Empire reputation and a commitment

to excellence over the long term. Their 

innovative and contrarian thinking is 

imbedded in a wealth of property 

development talent and experience in 

regions that we believe are particularly 

attractive at this time. These teams, in 

addition to our existing real estate 

teams in Atlantic Canada and Ontario, 

will work closely with Sobeys, including 

Frank C. Sobey (centre), President, 
ECL Properties Limited with Donald E. Clow, 
President, ECL Developments Limited, 
and Aaron Bryant, Director of Engineering, 
Crombie REIT. 

grocery stores. The sale closed in 

April 2008, representing the second 

wave of real estate transactions 

between Empire and Crombie REIT. 

The ﬁrst created Crombie REIT 

in March 2006 with the sale of 

44 commercial properties owned 

by Empire. 

A unique business model 

As Empire’s real estate development 

capacity matures, we will establish an 

expanding pipeline of projects that 

creates both certainty and pace of 

growth for Crombie REIT, which holds 

the right of ﬁrst refusal on the sale 

of any Empire properties. In fact, the 

newly-acquired Thrifty Foods, to develop properties that 

sustainable competitive advantage inherent in Empire’s 

expand the growth potential for the food retailing division 

real estate business today is the combination of strengths 

and Crombie REIT. 

brought to the business by Sobeys with its substantial 

A second step in our transition was the sale of 61 retail 

in-house expertise in selecting commercial locations, 

properties to Crombie REIT – 40 freestanding grocery 

Crombie REIT with its decades of management expertise, 

stores carrying various Sobeys banners and 21 strip 

and the robust development expertise that we’re gathering 

plazas, 20 of which are also anchored by Sobeys bannered 

within our real estate division.

14

E M PI R E COM PANY LI M ITE D

Working together are Pat Martin, Vice President 
Leasing, Crombie REIT; Steve Cleroux, 
Director Development, ECL Developments; 
Michael April, Vice President Real Estate Services, 
ECL Developments; and Joe Fiander, Vice President
Real Estate and Engineering, Sobeys Atlantic. 

Pipeline development strategy

performance remained robust in ﬁscal 2008 as it continued

Today our development pipeline comprises 14 properties 

to beneﬁt from the relative strength of the residential real

– 1.9 million square feet in projects in Nova Scotia, New 

estate market in Canada. The market has softened from the

Brunswick, Québec and Ontario. Several are targeted for 

peak experienced in 2007 and we expect a continued

completion this year, others are multi-year projects. Our goal 

slowdown of residential selling activity in 2009, but we

is to accelerate the growth of square feet available in our 

remain conﬁdent that Genstar will continue to yield a solid

pipeline for sale each year to Crombie REIT. We intend to 

return on our investment.

focus our investment on the locations with the greatest 

opportunity for proﬁt. Guiding our investments is a set of 

Outlook in challenging times

criteria that will entrench discipline. Those criteria include:

Volatile capital markets and a real estate slowdown in the

A satisfactory return on investment from every project;

United States are likely to affect the Canadian economy.

 A beneﬁcial competitive effect on Sobeys and

Not only is credit tight, which has a signiﬁcant impact on a

Crombie REIT;

capital intensive business like real estate, consumers and

Credit-worthy tenants with long-term leases that include

real estate buyers have become hesitant. We are convinced,

contractual increases;

however, that the strength of our relationships with Sobeys

Enhanced geographic diversiﬁcation; and

and Crombie REIT, combined with our strict discipline, will

Competitive positioning in the local market through

prove to be a sustainable competitive advantage as we

location or quality.   

continue to build shareholder value through the real estate

Our real estate division continues to hold an investment in

commercial real estate through Crombie REIT in which

Empire owns a 47.8 percent interest. Crombie REIT’s

operating and ﬁnancial performance continued to be

exemplary in ﬁscal 2008. We also hold an investment in

residential real estate through Genstar in which Empire

maintains a 35.7 percent ownership interest. Genstar’s

and economic cycles.

Frank C. Sobey

President
ECL Properties Limited
June 26, 2008

2008 AN N UAL R E PORT

15

OUR LONG-TERM PROGRESS

focused on

growth

Empire’s ability to build shareholder value has been based on continually investing in 
businesses we know and understand. This is reflected in our long-term performance 
and progress through different business cycles and will continue to ensure solid 
performance despite competition in food retailing and aggressive growth in real estate.

REVENUE
($ IN MILLIONS)

OPER ATING EARNINGS
($ IN MILLIONS)

BOOK VALUE
($ PER SHARE)

March 2002

December 1998

Sobe
the TS
asset
Group
triplin
food 

March 2000

Empire repurchases
5.5 million Non-Voting 
Class A shares for
$187 million.

July 2000

Empire sells its 25% 
investment in Hannaford
naford
Bros. Co. for a $1.2 billion
consideration.n.

$1.2 b

1999

$9.03

$5,362.7

$60.1

January 2001

The real estate 
division purchases a
35.8% interest in G
Development Partne
for $29 million.

FISCAL YE AR

99

00

01

02

16

E M PI R E COM PANY LI M ITE D

March 2006

Crombie REIT completes

ties 
million

August 2006

Sobeys acquires Québec’s
Achille de la Chevrotièreière
ch includes 25 
Ltée, which includes 25 
stores in northern Québec 
tores in northe
and Ontario as well as
and O
a distribution centre in 
Rouyn-Noranda for
$79.2 million.

2008

$14,065.0

$242.8

$36.14

res the
common
beys that it
or $1.06 billion,
0% ownership.

2007

ires Thrifty
261.8 million. 
Thrifty’s assets
full-service 
s, a distribution

wholesale
ancouver Island
er mainland 
olumbia.

April 2008

Empire sells
61 retail properties 
for $428.5 million 
to Crombie REIT.

June 2005

nverts to a

come trust.

Wajax converts to an
income trust. Empire 
sells 2.875 million units,
sells 2
f
for a $25.6 million gain.

September 2005

E
ac
th
$

February 2004

Acquisition of Commisso’s 
Food Markets by Sobeys 
and six Commisso’s 
properties by the real
estate division for 
$61 million.

Madeleine Blouin, Pricing Clerk,
IGA (cid:70)(cid:89)(cid:85)(cid:83)(cid:66), Mascouche, Québec

04

05

06

07

08

2008 AN N UAL R E PORT

17

LETTER FROM THE CHAIR

focused on

governance

As we look ahead, the Board remains confident that Empire’s continued focus on its 
core strengths in food retailing and related real estate has positioned the Company 
for enduring success. Thanks to the hard work of management and employees at 
Empire and in our operating companies, Empire posted record operating earnings 
in fiscal 2008.

Although food and related real estate

have been the foundation of Empire’s

ability to create long-term wealth for

many decades, the decision to privatize

Sobeys and increase our focus on food

and related real estate was taken only

after very careful study of our options

and the possible ramiﬁcations. A year

after the fact, Sobeys has achieved

solid results despite the most

competitive environment that we’ve

seen in many years.

We believe that a signiﬁcant portion

of Empire’s ﬁscal 2008 results were

driven by management’s commitment to

achieving a single Board mandate: Make

Robert P. Dexter, Chair, Empire Company Limited 
Halifax, Nova Scotia – Director since 1987,
Chair and CEO of Maritime Travel Inc.

distinguishing competitive advantage

that we believe will ensure Sobeys’

ability to sustain its performance for

another 100+ years.

A second major accomplishment

of the year was the completion of the

transformation of our commercial real

estate division, from an owner and

manager of commercial real estate into

a business focused on food-anchored 

shopping plaza development. During

the year Empire sold 61 properties to

Crombie REIT – a sale that was made

easier with the privatization of Sobeys.

All remaining property owned and

managed by Sobey Leased Properties

Sobeys the best food retailer in the Canadian market.

has been folded into Sobeys. At the same time, our real estate

With the support of Empire’s Board of Directors, Sobeys’

development division completed its ﬁrst full year of operations

management team is able to take a long-term perspective,

by establishing teams of experienced real estate developers

achieving progress along a continuum with a strategy that

in British Columbia and Québec. The Board is watching the

has proven effective historically and we feel will sustain

development of this business with keen interest.

our growth in the future. This long-term perspective is a

E M PI R E COM PANY LI M ITE D

Foreground, from left to right

Background, from left to right

Robert P. Dexter
Halifax, Nova Scotia
Director since 1987.
Chair and Chief Executive Ofﬁcer,
Maritime Travel Inc.,
Chair, Empire Company Limited

David Leslie(1) (9)
Toronto, Ontario
Director since 2007.
Former Chairman and 
Chief Executive Ofﬁcer,
Ernst & Young LLP

Mel Rhinelander(4) (5) (7)
Toronto, Ontario
Director since 2007.
Vice Chairman,
Extendicare REIT

Marcel Côté(3) (5) (7)
Montreal, Québec
Director since 2007.
Senior Partner, Secor Inc.

Christine Cross(3) (9)
Thundridge, Hertfordshire,
United Kingdom
Director since 2007.
President, Christine Cross Ltd.

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

Edward C. Harsant(1) (5) (7)
Woodbridge, Ontario
Director since 2003.
Corporate Director

John L. Bragg(3) (6) (8)
Collingwood, Nova Scotia
Director since 1999.
Chairman, President and
Co-Chief Executive Ofﬁcer,
Oxford Frozen Foods Ltd.

Bill McEwan
New Glasgow, Nova Scotia
Director since 2007.
President and 
Chief Executive Ofﬁcer,
Sobeys Inc.

Malen Ng(2) (9)
Toronto, Ontario
Director since 2007.
Chief Financial Ofﬁcer,
Workplace Safety and
Insurance Board of Ontario

Stephen J. Savidant(1) (5) (7)
Calgary, Alberta 
Director since 2004.
Corporate Director
Chairman,
ProspEx Resources Inc.

Frank C. Sobey(10)
Stellarton, Nova Scotia
Director since 2007.
Chairman, Crombie REIT

David F. Sobey
New Glasgow, Nova Scotia
Director since 1963.
Chair Emeritus, Sobeys Inc.

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

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

Karl R. Sobey(5)
Halifax, Nova Scotia
Director since 2001.
Corporate Director

David S. Ferguson(3) (9)
Atlanta, Georgia
Director since 2007.
Principal, D.S. Ferguson 
Enterprises, LLC.

Robert G. C. Sobey(9)
Stellarton, Nova Scotia
Director since 1998.
President and 
Chief Executive Ofﬁcer,
Lawtons Drug Stores Limited

1 Audit Committee Member

2 Audit Committee Chair

3 Human Resources 

Committee Member

4 Human Resources Committee Chair

5 Corporate Governance 

Committee Member

6 Corporate Governance 

Committee Chair

7 Nominating Committee Member

8 Nominating Committee Chair

9 Oversight Committee Member

10 Oversight Committee Chair

2008 AN N UAL R E PORT

19

Focused on 

experience

John L. Bragg, Chair of Empire’s Corporate Governance Committee, 

was recognized by the Institute of Corporate Directors with the 

ICD Fellowship Award for his efforts to foster excellence in 

governance in Canada. Mr. Bragg is Chairman, President and 

co-Chief Executive Ofﬁcer of Oxford Frozen Foods Limited, a food 

manufacturer, and an ofﬁcer of several associated and afﬁliated 

companies. In addition to his role at Empire, he serves as director 

for many leading Canadian companies including TD Bank Financial 

Group and Canada Bread Limited. In recognition of his leadership 

and innovative thinking, Mr. Bragg was appointed an Ofﬁcer of the 

Order of Canada in 1996. 

Effective stewardship

Acknowledgements

Intense scrutiny of Empire’s corporate strategies and their

As Chair, I would like to thank the management and

execution is key to effective governance and Empire has a

employees of Empire and its operating companies for their 

Board comprised of individuals particularly capable of

commitment and for their hard work. I would also like to 

providing this oversight. Although several members of the

thank my fellow directors for their consistent dedication 

Empire Board retired at the end of ﬁscal 2007, with the

to their role as stewards of shareholder interests. We ﬁrmly 

privatization of Sobeys, the Empire Board expanded to

believe good corporate governance is critical to our

welcome eight new directors: Marcel Côté, Christine Cross,
David Ferguson, David Leslie, Bill McEwan, Malen Ng,
Mel Rhinelander and Frank Sobey.

Our Board truly reﬂects a diversity of experience

among its directors. Some have had many years of experi-

ence serving Empire, and the new additions bring new

insights to the Board. Together they represent a mix of

talents and experiences in diverse companies and countries. 

This Board became very cohesive very quickly, a testament

to their individual capabilities and resolve. We have also 

continued to ensure the Board’s ability to act independently 

through measures that recognize the size of the Board, the

structure of the Company and our shareholder structure.

long-term success in the marketplace, and that this

Company can sustain the performance it has so adeptly

achieved for more than 100 years.

Robert P. Dexter

Chair
Empire Company Limited
June 26, 2008

20

E M PI R E COM PANY LI M ITE D

CORPORATE GOVERNANCE

On behalf of Empire’s shareholders, the Board of Directors 

  Recommends the appointment of the external auditors;

is responsible for the stewardship of the Company. To fulﬁll 

  Communicates directly with external auditors; 

this responsibility it establishes policies aimed at ensuring 

  Directly oversees the work of the external auditors;

the Company’s corporate governance practices are 

  Reviews and assesses risk management; and

among the best in Canada. Supporting those policies is a 

  Reviews consolidated quarterly and annual ﬁnancial 

Code of Business Conduct and Ethics that emphasizes 

statements and related communications prior to 

accountability and a Corporate Disclosure Policy that 

public disclosure.

ensures transparency.

While written policies and standards provide the 

Corporate Governance Committee 

foundation for governance, thorough oversight demands a 

   Develops, monitors and ensures compliance with Empire’s 

Board that is fully engaged in ensuring the Company can 

corporate governance policies, including responsibility 

continue to grow shareholder value. At Empire, every director 

for disclosure; 

is involved in establishing Empire’s strategies, assessing 

   Annually assesses the effectiveness of the Board as a 

performance and progress in meeting established long and 

whole, the committees of the Board and the contributions 

short-term goals, and understanding the major risks to the 

of individual directors; 

Company’s ability to deliver results. Because the Board is 

  Recommends suitable compensation of directors; and

composed of a diversity of individuals with a combination of 

   Recommends the composition of the Board committees. 

skills and experience, it is particularly capable of guiding and 

challenging the senior management team. 

 Nominating Committee

A comprehensive discussion of Empire’s corporate 

  Monitors the composition of the Board for skill and 

governance policies and practices can be found in our 

expertise; and

Management Information Circular and also on our website 

   Identiﬁes, evaluates and recommends suitable candidates 

at www.empireco.ca along with our Corporate Disclosure 

for election or appointment as directors of the Company.

Policy and Code of Business Conduct and Ethics. 

Human Resources Committee

Board Committees

  Reviews all Company policies related to compensation;

The Board of Directors fulﬁlls many of its responsibilities 

  Recommends compensation for executive management; 

with the support of ﬁve committees: Audit Committee, 

  Reviews the Company’s management training and 

Corporate Governance Committee, Nominating Committee, 

development programs;

Human Resources Committee, and Oversight Committee. 

   Ensures Empire’s compliance with occupational health 

Every member of the Audit Committee, the Human Resources

and safety standards; 

Committee and the Nominating Committee is independent 

   Undertakes CEO and executive succession planning and 

according to the standards of corporate and securities laws 

monitors management succession planning;

as well as Empire’s own governance policies. All members 

   Conducts the annual performance review for the CEO;

of the Audit Committee meet the independence and ﬁnancial 

   Establishes annual and longer-term objectives for the 

literacy tests set out in Multilateral Instrument 52-110 

CEO; and

adopted by most of the Canadian securities regulators.

   Oversees the Company’s pension plan.

The responsibilities of each committee of the Board 

include the following:

Oversight Committee

Audit Committee

  Reviews all matters related to business process 

optimization and information technology, including 

  Reviews and assesses the Company’s ﬁnancial reporting 

guiding principles, governance models, strategies, 

practices and procedures; 

planning and risk management processes; and

  Reviews the adequacy and reporting of internal 

  Monitors all related projects.

accounting controls and the independence of external 

auditors from management; 

2008 AN N UAL R E PORT

21

COMMUNITY INVOLVEMENT

focused on

giving

Our goal to “proudly serve our communities” extends beyond the workplace to the 
hundreds of charities across Canada supported by the management, franchisees and 
employees of Empire, Sobeys, ECL Properties and Empire Theatres at both a corporate 
and personal level, collectively contributing over $13 million to our communities. In fact, 
we believe that this commitment to community is fundamental to sustaining our success 
and we encourage our employees to participate in enhancing the well being of the 
communities in which they live and work. Here are just a few examples of how we 
made a difference in 2008.

Helping the hungry 

Most closely related to our core 

business are the hundreds of thousands 

of dollars raised every year to help 

feed those in need: 

Sobeys’ stores in Atlantic Canada 

raised close to $150,000 in food 

products for local food banks 

through Sobeys’ 100th anniversary 

celebrity shopping sprees and 

holiday food drive. 

Sobeys, Foodland, IGA and 

Price Chopper stores in Ontario 

raised $387,000 to feed hungry 

children through the Breakfast 

for Learning program.

Sobeys employees and customers across 
Canada support dozens of causes and raise 
hundreds of thousands of dollars every year to 
help eliminate hunger among children.

Foundation’s Centre of Care Fund 

in its ﬁght against breast cancer. 

Thrifty Foods’ stores sold Jeans 

Day buttons to raise funds for the 

B.C. Children’s Hospital, the only 

pediatric acute care hospital in B.C. 

By matching every dollar raised, 

the stores raised over $32,000.

Supporting those who 

help others

Our charity extends to those 

organizations and events that raise 

funds for a multitude of charities 

and causes: 

Sobeys and Empire Theatres

are national sponsors of Kids Help 

Finding a cure 

Phone. Sobeys stores across the Atlantic region raised 

Our employees and stores support dozens of organizations 

$34,000 in support of Kids Help Phone through a bonus 

seeking cures for diseases that plague our communities 

AIR MILES® promotion. Empire Theatres launched its ﬁrst 

as well as the hospitals that care for the sick and injured:

annual National Movie Day in 42 locations across Canada 

Sobeys’ stores in Saskatchewan sold pink ribbons to 

raising over $20,000 for Kids Help Phone. 

raise $63,000 to support the Saskatoon City Hospital 

22

E M PI R E COM PANY LI M ITE D

Employees at the Caledon East 

Foodland in Ontario have reduced 

the use of plastic bags at their 

store by 65 percent in one year. 

The dramatic reduction in waste 

was achieved in part by the 

determination of employees as 

demonstrated by cashier Jessica 

Preston (pictured) and co-workers 

who were shocked at the number of 

plastic bags used on a typical Saturday. 

They created a sign that asked 

customers to think twice about using 

plastic bags and encouraged them to use 

Sobeys’ re-useable Green Bags for Life.

2008 AN N UAL R E PORT

The 2007 Sobey Art Award 

recognized Michel de Broin 

for his passion for creating works 

that provoke debate and excite 

our senses – such as 

the piece shown at right.

Sobey Art Foundation Chair Donald Sobey and 
Jeffrey Spalding, former Director of the Art 
Gallery of Nova Scotia, present the $50,000
2007 Sobey Art Award to Montreal artist 
Michel de Broin. 

(cid:35)(cid:77)(cid:66)(cid:68)(cid:76)(cid:1)(cid:56)(cid:73)(cid:80)(cid:77)(cid:70)(cid:1)(cid:36)(cid:80)(cid:79)(cid:71)(cid:70)(cid:83)(cid:70)(cid:79)(cid:68)(cid:70)
72 Chairs, 400 cm in diameter

Creating a greener community

Arts and culture

On Earth Day, Sobeys Québec collected funds by 

The Sobey Art Award, created in 2002 by the Sobey Art 

donating 10 cents for each transaction for which shoppers

Foundation, is designed to recognize and support contem-

used their reusable grocery bags and asking these 

porary Canadian artists under the age of 40. Michel de 

customers to donate another 10 cents “for the Earth”. 

Broin of Québec was the 2007 winner of the $50,000 

In an effort to reduce waste, over 100 Sobeys store 

Sobey Art Award presented in partnership with Scotiabank 

and ofﬁce employees in Pictou County, Nova Scotia 

and the Art Gallery of Nova Scotia. The 25 artists selected 

participated in the 2008 (cid:40)(cid:80)(cid:1)(cid:40)(cid:83)(cid:70)(cid:70)(cid:79)(cid:13)(cid:1)(cid:40)(cid:70)(cid:85)(cid:1)(cid:36)(cid:77)(cid:70)(cid:66)(cid:79) campaign 

to participate in the competition represented the remarkable 

by collecting 2,000 kg of litter around their workplaces. 

breadth of talent in Canada. Each of these artists is a 

The Sobey Foundation 

leader in their region and an ambassador for Canadian art 

on the international stage. For more information about the 

The generosity of the employees of Empire and its 

Sobey Art Award visit (cid:88)(cid:88)(cid:88)(cid:15)(cid:84)(cid:80)(cid:67)(cid:70)(cid:90)(cid:66)(cid:83)(cid:85)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:15)(cid:68)(cid:66).

subsidiaries is amply supported by the Sobey Foundation, 

contributions from our operating companies, as well as the 

Healthcare

investments by individual members of the Sobey family. 

In ﬁscal 2008, Empire, Sobeys and the Sobey Foundation 

We are proud of our decades of commitment to enhancing 

supported the David Foster Gala, an event that supports 

the lives of Canadians.

Education

families and children with lifesaving organ transplants.   

Members of management at Empire and Sobeys volunteer 

their time to community-based groups such as the Aberdeen 

Education is a key focus of the Sobey family efforts. Several 

Hospital Foundation, the Dalhousie Medical Research 

scholarships are dedicated to providing a brighter future 

Foundation and the Summer Street Industries Foundation.

for young people and their communities. Over the past two 

years the Sobey Foundation has also contributed to the 

capital campaigns at several Atlantic Canadian universities.

24

E M PI R E COM PANY LI M ITE D

Paul A. Jewer, Senior Vice President, Finance 
and Treasurer, Sobeys Inc., with Melanie Thomas, 
CA Program Analyst, Sobeys Inc.

focused on

leadership

Top 40 under 40™ Paul A. Jewer, Senior Vice President, Finance and Treasurer at Sobeys, 

was recognized as one of Canada’s Top 40 Under 40™ in May 2008. Founded in 1995 

to celebrate Canada’s leaders of today and tomorrow, this is a national program 

managed by The Caldwell Partners. Winners of the award must be under the age of 40 

and have already achieved signiﬁcant success – demonstrating vision, leadership and 

innovation – while making a meaningful contribution to their communities. A native of 

Grand Falls-Windsor, NL, Paul is a Chartered Accountant who graduated from Acadia 

University in 1994. He joined Sobeys in 2003 with a diverse background in accountancy 

and the software industry.

Sobeys to train CAs

The Institute of Chartered Accountants of Nova Scotia (ICANS) and Sobeys Inc. have 

established Nova Scotia’s first Chartered Accountant Training Office in industry. Historically, 

CA students have been required to train in a public practice chartered accountancy firm 

or the Office of the Auditor General. Sobeys Inc. is the first industry organization in Nova 

Scotia – and one of a select group of leading corporations across Canada – to meet the 

strict criteria required to provide CA designation training. Melanie Thomas was one of the 

first students enrolled in this program.

The establishment of this innovative professional program at Sobeys is evidence of 

the Company’s commitment to establishing the career paths of tomorrow’s finance leaders 

while providing Sobeys with the opportunity to attract the best finance talent to the Company.

™ The Caldwell Partners

2008 AN N UAL R E PORT

25

CORPORATE OFFICERS

Ofﬁcers of Empire Company Limited

Robert P. Dexter
Chair

Paul D. Sobey
President and
Chief Executive
Ofﬁcer

Paul V. Beesley
Executive
Vice President
and Chief
Financial Ofﬁcer

Frank C. Sobey
Vice President,
Real Estate

Stewart H. Mahoney
Vice President,
Treasury and
Investor Relations

Carol A. Campbell
Vice President,
Risk Management

John G. Morrow
Vice President 
and Comptroller

Karin McCaskill
Secretary

Ofﬁcers of Operating Companies

Sobeys Inc. 

Robert P. Dexter
Chair

Bill McEwan
President and Chief
Executive Ofﬁcer

Craig T. Gilpin
President
Operations,
Sobeys Ontario

J. Gary Kerr
President
Operations,
Sobeys West 

Jason Potter
President
Operations,
Sobeys Atlantic

Marc Poulin
President
Operations,
Sobeys Québec

Dennis Folz
Chief Human
Resources Ofﬁcer

François Vimard
Chief Financial 
Ofﬁcer

Belinda Youngs
Chief Marketing 
Ofﬁcer

Karin McCaskill
Senior
Vice President, 
General Counsel 
and Secretary

Paul A. Jewer
Senior
Vice President, 
Finance and 
Treasurer

L. Jane McDow
Assistant Secretary

ECL Properties Limited 

Empire Theatres Limited

Frank C. Sobey
President

Donald E. Clow
Vice President

Paul V. Beesley
Chief Financial
Ofﬁcer

Stuart G. Fraser
President and
Chief Executive 
Ofﬁcer

Kevin J. MacLeod  
Executive
Vice President

Paul W. Wigginton
Vice President,
Finance and Chief
Financial Ofﬁcer

26

E M PI R E COM PANY LI M ITE D

MANAGEMENT’S DISCUSSION AND ANALYSIS

TABLE OF CONTENTS

28 INTRODUCTION

46 QUARTERLY RESULTS OF OPERATIONS

28 FORWARD-LOOKING INFORMATION

49 FINANCIAL CONDITION

29 NON-GAAP FINANCIAL MEASURES

29 EMPIRE’S STRATEGIC DIRECTION

29 OVERVIEW OF THE BUSINESS

Food Retailing

Real Estate

Investments and Other Operations

32 SOBEYS PRIVATIZATION

33 ACQUISITION OF THRIFTY FOODS

34 SALE OF 61 PROPERTIES TO CROMBIE REIT

35 OPERATIONAL CHANGES

36 CONSOLIDATED OPERATING RESULTS

37 MANAGEMENT’S EXPLANATION OF FISCAL

2008 ANNUAL CONSOLIDATED RESULTS

Revenue

Operating Income

Interest Expense

Income Taxes

Minority Interest

Earnings before Capital Gains and Other Items

Capital Gains and Other Items

Net Earnings

39 FISCAL 2008 OPERATING PERFORMANCE 

  BY DIVISION

Food Retailing

Real Estate

Investments and Other Operations

Capital Structure and Key Financial Condition Measures

Shareholders’ Equity

Liabilities

Financial Instruments

52 LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Investing Activities

Financing Activities

55 ACCOUNTING POLICY CHANGES

58 CRITICAL ACCOUNTING ESTIMATES

60 CONTROLS AND PROCEDURES

60 INTERNAL CONTROLS OVER 
  FINANCIAL REPORTING

60 RELATED PARTY TRANSACTIONS

60 OTHER MATTERS

62 GUARANTEES AND COMMITMENTS

63 DESIGNATION FOR ELIGIBLE DIVIDENDS

63 CONTINGENCIES

63 RISK MANAGEMENT

67 OUTLOOK

68 NON-GAAP FINANCIAL MEASURES

Consolidated Revenue

$ IN MILLIONS

Consolidated Operating Earnings

Consolidated Shareholders’ Equity

$ IN MILLIONS

$ IN MILLIONS

14,065.0

242.8

2,382.3

12,000

9,000

6,000

3,000

200

150

100

50

2,000

1,500

1,000

500

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

2008 AN N UAL R E PORT

27

 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS

The following 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 52 weeks ended 
May 3, 2008, as compared to the 52 weeks ended May 5, 2007. 
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 the 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. 

This 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 52 weeks ended 
May 3, 2008 as compared to the 52 weeks ended May 5, 2007. 
The consolidated ﬁnancial statements and accompanying notes 
have been prepared in accordance with Canadian Generally 
Accepted Accounting Principles (“GAAP”) and are reported 
in Canadian dollars. 

These consolidated ﬁnancial statements include the 
accounts of Empire and its subsidiaries and variable interest 
entities (“VIEs”) which the Company is required to consolidate. 
Included in the Company’s 2008 Annual Report, on page 106, is 
a glossary of terms used throughout this MD&A. The information 
contained in this MD&A is current to June 26, 2008, unless 
otherwise noted.

Forward-Looking Information 

This discussion contains forward-looking statements which 
reﬂect management’s expectations regarding the Company’s 
objectives, plans, goals, strategies, future growth, results 
of operations, performance and business prospects and 
opportunities. These forward-looking statements include the 
following items: 

Sobeys’ expectation that there will not be a material adverse 
impact on its business as a result of global disruption in 
the market for third-party Asset-Backed Commercial Paper 
(“ABCP”) liquidity, and its belief that it has sufﬁcient credit 
facilities to satisfy its ﬁnancial obligations;
Sobeys’ expectations that administrative and business 
rationalization activities as well as system process initiatives 
in the current year and upcoming quarters will have a cost 
impact as expected and will provide thereafter annualized 
cost reductions, both of which could be impacted by the ﬁnal 
scope and scale of these activities;
Sobeys’ expectations that the new distribution centre 
announced in Ontario and the closures of distribution 
centres in Québec will reduce overall distribution costs, 
which could be impacted by the number of positions 
eliminated at these distribution centres;
Sobeys’ expectation that sales growth will continue through 
2009 could be impacted by market conditions and therefore 
may not be realized; 
Management’s belief that the growth rate in residential 
lot sales will continue to be impacted by general economic 
conditions, particularly in the Western Canada housing 
market, with lot sales likely to slow moderately from the 
level experienced in ﬁscal 2008; 

The Company’s expectations on future capital spending 
for its Real Estate and Food Retailing Divisions, which could 
be impacted by the availability of labour, capital resource 
allocation decisions, as well as general economic and 
market conditions; 
The Company’s expectation that certain real estate property 
held by ECL Properties can be successfully redeveloped or 
leased up to the point where such property can be offered 
for sale to Crombie REIT and if refused by Crombie REIT, 
then offered to a third party;
The Company’s expectations regarding the purchase of 
158,200 Series 2 Preferred Shares for cancellation by 
the end of calendar 2008 could be impacted by market 
conditions and availability of sellers;
Management’s expectations that funded debt to capital 
ratio will decline in ﬁscal 2009 as a result of equity growth 
and plans to generate free cash ﬂow which will be used to 
reduce bank debt;
The Company’s expectations that its capital resources 
and liquidity position will meet its capital and liquidity 
requirements over the next year;
The Company’s expectations relating to pending tax matters 
with Canada Revenue Agency (“CRA”) and provincial tax 
authorities, which could be determined differently by CRA. 
This could cause the Company’s effective tax rate and its 
earnings to be affected positively or negatively in the period 
the matter is resolved; and
The Company’s expectations that the adoption of accounting 
standards relating to increased disclosure in ﬁnancial 
statements will not have a signiﬁcant impact on the 
Company’s ﬁnancial statements disclosure.

28

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

Forward-looking statements are typically identiﬁed by words or 
phrases such as “anticipates”, “expects”, “believes”, “estimates”, 
“intends” and other similar expressions. 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. These uncertainties and risks are discussed 
in the Company’s materials ﬁled with the Canadian securities 
regulatory authorities from time to time, including those 
discussed in the Risk Management section of this MD&A. 

Non-GAAP Financial Measures

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, other than as required 
by Canadian security regulations. 

There are measures included in this MD&A that do not have 
a standardized meaning under Canadian 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. 

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. This is accomplished through direct 
ownership and equity participation in businesses that 
management believes have the potential for long-term growth 
and proﬁtability. 

As an outcome of its strategic review session, the Company 
is resolved to clearly focus on its core strengths in food retailing 
and related real estate while continuing to direct its energy and 
capital towards growing the long-term sustainable value of each 
of its core operating businesses. 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 its capital in order to augment the 
growth in its core operating businesses.

Overview of the Business

Empire’s key businesses include food retailing, real estate, 
and investments and other operations. Food retailing is carried 
out through wholly-owned Sobeys Inc. (“Sobeys”). The real 
estate business is carried out through a wholly-owned operating 
subsidiary ECL Properties Limited (“ECL”), which includes a 
100 percent ownership interest in ECL Developments Limited 
(“ECL Developments”), as well as a 35.7 percent ownership 
interest in Genstar Development Partnership and a 43.3 percent 
interest in Genstar Development Partnership II (collectively 
referred to as “Genstar”) and a 47.8 percent ownership interest 
in Crombie REIT. The results of Sobey Leased Properties 

Limited (“SLP”) until April 22, 2008 were consolidated under 
real estate business; results after April 22, 2008 were reported 
under Sobeys. Corporate investment activities and other 
operations includes wholly-owned ETL Canada Holdings Limited 
(“Empire Theatres”); Kepec Resources Limited (“Kepec”), a joint 
venture with APL Oil and Gas Limited, which has ownership 
interests in various oil and gas properties in Alberta; and a 
27.6 percent ownership position in Wajax Income Fund (“Wajax”). 
With over $14 billion in annual revenue and approximately 
$5.7 billion in assets, Empire employs approximately 
42,000 people directly and through its subsidiaries.

2008 AN N UAL R E PORT

29

Food Retailing

Sobeys conducts business through approximately 1,300 retail 
grocery stores (corporately owned and franchised). Empire 
owned 100.0 percent of Sobeys at the end of ﬁscal 2008 
compared to a 72.1 percent ownership interest at the end of 
ﬁscal 2007. On June 15, 2007, Empire acquired the outstanding 
common shares of Sobeys that it did not already own, achieving 
100 percent ownership. See the section entitled “Sobeys 
Privatization” on page 32.

Sobeys’ strategy is focused on delivering the best food 

shopping experience to its customers in the right format, 
right-sized stores, supported by superior customer service. 
The ﬁve distinct store formats deployed by Sobeys to satisfy its 
customers’ principal shopping requirements are: full service, 
fresh service, convenience service, community service and price 
service. Sobeys remains focused on improving the product, 
service and merchandising offerings within each format by 
realigning and renovating its current store base, while continuing 
to build new stores. Sobeys’ six major banners are the primary 
focus of these format development efforts: Sobeys, IGA, 
IGA (cid:70)(cid:89)(cid:85)(cid:83)(cid:66), Foodland, Price Chopper and Thrifty Foods.

During the ﬁscal year, Sobeys opened, replaced, expanded, 
renovated, acquired and/or converted the banners in 157 stores 
(2007 – 150 stores). In ﬁscal 2008, Sobeys continued to 
execute a number of initiatives in support of its food-focused 
strategy, including productivity initiatives and business process, 
supply chain and system upgrades.

(cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84), Sobeys private label brand, was launched in 
ﬁscal 2005 to contribute to growth of company-wide sales and 
proﬁtability and earn a greater share of customers’ food and 
grocery shopping requirements. The (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84) brand consists 
of three quality tiers: Value, Selection and Sensations. In addition, 
Sobeys introduced two sub-brands during ﬁscal 2006, 
(cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:48)(cid:83)(cid:72)(cid:66)(cid:79)(cid:74)(cid:68)(cid:84) and (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:67)(cid:66)(cid:77)(cid:66)(cid:79)(cid:68)(cid:70)(cid:14)(cid:110)(cid:82)(cid:86)(cid:74)(cid:77)(cid:74)(cid:67)(cid:83)(cid:70),
an organic and healthy line of products respectively. During 
ﬁscal 2008, Sobeys partnered with The Walt Disney Company 
and launched (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:43)(cid:86)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:37)(cid:74)(cid:84)(cid:79)(cid:70)(cid:90), a line of nutritious 
alternatives for snacks, lunch box ideas and easy-to-prepare 
meals for children. At the end of ﬁscal 2008, Sobeys had 
launched approximately 4,800 (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84) products.

Business Process and Information Systems 
Transformation and Rationalization Costs

Sobeys continues to make signiﬁcant progress in 
the implementation of system-wide business process 
optimization and rationalization initiatives that are designed 
to reduce complexity and improve processes and efﬁciency 
throughout Sobeys. 

In ﬁscal 2006, Sobeys began its business process and 
information systems transformation plan for the Company by 
focusing on the signiﬁcant opportunity to upgrade information 
processing and decision support capabilities and improve 

efﬁciencies in Ontario. The system and processes that were 
implemented were developed over several years and were 
focused on standardizing and streamlining the “back shop” in 
support of the Sobeys’ food-focused strategy. This move allows 
Sobeys to leverage technology investments, improve efﬁciencies 
and expects to lower costs over the long-term. 

During the third quarter of ﬁscal 2007, Sobeys completed 
the implementation of the system in Ontario. This implementation
supports all aspects of that business including operations, 
merchandising, distribution and ﬁnance and is an important 
enabler of further initiatives in Ontario including a new 
distribution facility that was announced on November 21, 2006.
When opened in the ﬁrst quarter of ﬁscal 2010, the new 

distribution centre, located in Vaughan, Ontario, will utilize 
automation technology and is expected to signiﬁcantly increase 
Sobeys’ warehouse and distribution capacity while reducing 
overall distribution costs and improving service to its store 
network and customers. During the third quarter of ﬁscal 2007, 
Sobeys recognized $5.3 million of severance costs related to 
the development of this automated facility. Subsequent to year 
end, additional severance costs of approximately $4.6 million 
have been incurred related to this automated facility and will 
be recognized in the ﬁrst quarter of ﬁscal 2009. The new 
distribution centre, when opened in ﬁscal 2010, is expected 
to provide annual distribution savings in excess of the costs 
incurred in the third quarter and any additional business 
rationalization or restructuring costs incurred leading up to 
its opening.

A business process and information system transformation 

plan, similar to that deployed in the Ontario region, began in 
Western Canada during ﬁscal 2007 and was completed during 
the second quarter of ﬁscal 2008. 

In the fourth quarter of ﬁscal 2007, Sobeys completed the 
closure of two small distribution facilities, one in Anjou and one 
in the Abitibi region of Québec. Rationalization costs related to 
these facilities of $5.6 million were incurred in the fourth quarter 
of ﬁscal 2007. During ﬁscal 2008, $3.5 million of these costs 
were reversed as a result of changes in management’s estimate 
of the expected costs. It is expected that the annualized savings 
associated with this closure will be approximately $5.0 million.
During the third quarter of ﬁscal 2007, Sobeys completed 
a rationalization of administrative functions in Atlantic Canada. 
In addition to asset write-offs, in excess of 100 people were 
impacted by this rationalization; however, a number of these 
people were redeployed into Sobeys’ retail store network. 
Pre-tax costs of $7.9 million were incurred during the third 
quarter of ﬁscal 2007 as a result of this rationalization.
During the ﬁrst quarter of ﬁscal 2008, Sobeys also 
completed a rationalization of administrative functions in its 
National departments. An additional $1.0 million of rationalization
costs is anticipated in the ﬁrst quarter of ﬁscal 2009.

30

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

The total pre-tax costs of the above Sobeys initiatives can be summarized as follows:

($ in millions)

13 Weeks Ended
May 3, 2008

13 Weeks Ended
May 5, 2007

52 Weeks Ended
May 3, 2008

52 Weeks Ended
May 5, 2007

Business process and system initiative costs 
Rationalization costs 

Total costs

$

$

–
(0.5) 

(0.5)

$

 $

4.9
5.6

10.5

$

$

8.6
(1.8) 

6.8

$

$

30.3
18.8

49.1

The business process and system initiative costs primarily 
include labour, implementation and training costs associated 
with the business process and system implementations. Costs in 
the second half of ﬁscal 2008 were insigniﬁcant as Sobeys has 
substantially completed its upgrade of information processing 
and decision support capabilities. 

Real Estate 

Empire’s real estate division includes commercial and 
residential property operations. Our commercial operations are 
focused on the development of food-anchored shopping plazas 
through wholly-owned ECL, which includes wholly-owned 
ECL Developments, a self-storage operation and a 47.8 percent 
ownership interest in Crombie REIT. ECL also owns various 
commercial properties held for sale or redevelopment. Our 
residential operations are conducted through our 35.7 percent
ownership interest in Genstar. Genstar’s business is the 
development of raw land for residential use primarily carried 
out in Ontario and Western Canada. Genstar is accounted for 
on a proportionate consolidation basis. Empire summarizes its 
real estate’s ﬁnancial results between commercial property 
operations consisting of ECL, and residential propery operations 
which consist primarily of Genstar.

At the end of ﬁscal 2008, commercial real estate operations 

had approximately 0.8 million square feet of gross leaseable 
area (“GLA”) as compared to approximately 5.7 million square 
feet at the end of last ﬁscal year. The decrease is largely the 
result of the sale of 61 properties totalling 3.3 million square 
feet of GLA to Crombie REIT in the fourth quarter and the 
concurrent transfer of the remaining assets of SLP totalling 
approximately 1.1 million square feet of GLA to Sobeys. In 
addition, commercial real estate operations had planned 
developments equalling 1.1 million square feet of GLA in various 
stages of development.

The wholly-owned real estate operations are focused on 
commercial property development. For new commercial property 
development, management is committed to adhering to a 
disciplined growth strategy. Speciﬁcally, investment decisions 
are expected to meet certain criteria, including: 

A satisfactory return on investment;
A beneﬁcial competitive effect on Sobeys and Crombie REIT;
Credit-worthy tenants with long-term leases that include 
contractual increases;
Enhanced geographic diversiﬁcation; and
Competitive positioning in the local market through location 
or quality.

Pursuant to a Development Agreement with Crombie REIT, 
ECL provides Crombie REIT with a preferential right to acquire 
all property developments proposed to be undertaken by ECL. 
ECL also has a Non-Competition Agreement with Crombie REIT 
whereby it will not compete with Crombie REIT in the 
acquisition, ownership, investment in or development of any 
grocery-anchored shopping plazas in Canada. These agreements 
are for an initial 10-year term, subject to an extension reached 
by mutual agreement. Empire subsidiaries will continue to work 
closely with Crombie REIT to identify development opportunities 
that further Crombie REIT’s external growth strategy.

Investments and Other Operations

The third component of Empire’s business is its investments 
and other operations, consisting primarily of a 27.6 percent 
ownership interest in Wajax, wholly-owned Empire Theatres 
and Kepec. 

During the ﬁrst quarter of ﬁscal 2008, the Company sold 

its portfolio marketable securities, with the exception of its 
investment in Wajax, to assist in ﬁnancing the privatization of 
Sobeys as detailed below. The market value of Empire’s equity 
accounted investment in Wajax at the end of ﬁscal 2008 was 
$153.4 million (2007 – $154.6 million), representing an 
unrealized gain of $121.8 million (2007 – $122.4 million).

Other operations include wholly-owned Empire Theatres, 

the second largest movie exhibitor in Canada which, as of 
May 3, 2008, owned or had an interest in 53 locations 
representing 387 screens, and Kepec. 

2008 AN N UAL R E PORT

31

 
 
 
 
 
 
 
 
 
 
Sobeys Privatization

On April 26, 2007, Empire and Sobeys jointly announced 
that they had entered into an arrangement agreement (the 
“Arrangement”) pursuant to which Empire would acquire all of 
the outstanding common shares of Sobeys that it did not then 
own at a price of $58.00 per share. The transaction valued the 
Sobeys shares not then owned by Empire at approximately 
$1.06 billion. 

The Arrangement required various approvals to comply with 
applicable corporate and securities laws. Sobeys’ shareholders 
approved the Arrangement at a Special Shareholders’ Meeting 

held on June 9, 2007 by the requisite majority; the Supreme 
Court of Nova Scotia gave its sanction to the Arrangement 
on June 13, 2007; the Arrangement became effective upon 
registration of the ﬁnal Court order with the Nova Scotia 
Registry of Joint Stock Companies at the close of business 
on June 15, 2007, at which time Empire acquired all of the 
outstanding shares of Sobeys that it did not previously own. 
Subsequently, the Sobeys common shares ceased trading on 
the Toronto Stock Exchange, and were de-listed at the close 
of business on June 18, 2007.

The acquisition was accounted for using the purchase method with operating results being included in the consolidated ﬁnancial 
statements since the acquisition date. The ﬁnal purchase price allocation, which has incorporated management’s assessment of fair 
value, is as follows:

($ in millions)

Consideration
Cash   
Acquisition costs 

Total consideration paid
Less: Carrying amount of net assets acquired 

Excess consideration paid over net assets acquired  

Allocation of excess consideration paid over net assets acquired

Property and equipment 
Accrued beneﬁt liability
Employee future beneﬁts obligation  
Amortizable intangible assets
Indeﬁnite-life intangible assets
Goodwill
Future income taxes 
Accumulated other comprehensive loss

$

1,061.7
4.0

1,065.7
 576.5

$

489.2 

 $

81.7
(13.1)
(3.8)
49.9 
243.7 
165.2 
(35.0)
0.6

$

489.2 

The acquisition was ﬁnanced by funds of $278.0 million 
generated primarily from the sale of certain portfolio investments 
and by advances of $787.7 million under new credit facilities 
(the “Credit Facilities”). At the time of ﬁnancing, the Credit 
Facilities consisted of a $950.0 million unsecured revolving 
credit facility maturing on June 8, 2010 (subject to annual 
one-year extensions at the request of the Company) and a 
$50.0 million unsecured non-revolving credit facility that matured 
on June 30, 2007. The unsecured non-revolving credit facility 
was repaid on June 30, 2007 with funds drawn from the 
unsecured revolving credit facility. 

The Credit Facilities are subject to certain ﬁnancial 

covenants. Interest on the debt varies based on the designation 
of the loan (bankers’ acceptances (“BA”) rate loans, Canadian 
prime rate loans, U.S. base rate loans or London InterBank 
Offered Rate (“LIBOR”) loans), ﬂuctuations in the underlying 
rates, and in the case of BA rate loans or LIBOR loans, the 
margin applicable to the ﬁnancial covenants. On June 18, 2007, 
Empire entered into two delayed ﬁxed rate interest swaps. 
The ﬁrst swap in an amount of $200.0 million is three years in 
duration and carries a ﬁxed interest rate of 4.998 percent. The 
second swap in an amount of $200.0 million is for a period of 
ﬁve years at a ﬁxed interest rate of 5.051 percent. Both swaps 
became effective on July 23, 2007.

32

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
On June 27, 2007, pursuant to the terms of the Credit 
Facilities, Empire and Sobeys ﬁled notice with the lenders 
requesting the establishment of a new $300.0 million ﬁve-year 
credit facility in favour of Sobeys at the same interest rate and 
substantially on the same terms and conditions as the Credit 
Facilities. At July 23, 2007, Sobeys drew down $300.0 million 
from its new credit facility, the proceeds of which were used 
to pay a dividend to the Company. The Company used the 
proceeds from the dividend to reduce its indebtedness under 
the Credit Facilities and the Credit Facilities were reduced 
to $650.0 million accordingly. On that date, the Company 
transferred the second swap to Sobeys. 

On July 30, 2007, Sobeys exercised an option under its 

new Credit Facility to increase the size of the credit from 
$300.0 million to $600.0 million. At the same time, Sobeys 

terminated its previously existing $300.0 million operating 
Credit Facility which would have expired on December 20, 2010. 
At May 3, 2008, $275.0 million of this new Credit Facility was 
drawn down; $250.0 million has been classiﬁed as long-term 
debt and $25.0 million has been classiﬁed as bank indebtedness. 
Sobeys had also issued $41.7 million in letters of credit against 
the facility at May 3, 2008.

As mentioned, the closing date of the Sobeys privatization 

was on June 15, 2007, which was approximately mid-way 
through the ﬁrst quarter of ﬁscal 2008. Empire’s weighted 
average ownership of Sobeys during ﬁscal 2008 amounted 
to 97.0 percent as compared to a weighted average ownership 
interest of 71.8 percent in ﬁscal 2007. This resulted in 
signiﬁcantly lower minority interest expense during ﬁscal 2008 
relative to the prior year.

Acquisition of Thrifty Foods

On September 12, 2007, Sobeys acquired all the assets of Thrifty Foods for $253.6 million. The assets acquired consisted of 
20 full-service supermarkets, a main distribution centre and a wholesale division on Vancouver Island and the lower mainland of 
British Columbia. The acquisition was accounted for using the purchase method with the results of Thrifty Foods being consolidated 
as of the acquisition date. 

Management carried out a detailed analysis and changes were made to the preliminary allocation of the excess consideration paid 

over net assets acquired as disclosed in the previous quarters of ﬁscal 2008. The measurement and allocation of ﬁnite and inﬁnite 
intangible assets, and goodwill (approximately $174.0 million of which is deductible for tax) was completed during the fourth quarter 
of ﬁscal 2008. The ﬁnal purchase price allocation, incorporating management’s assessment of fair value, is as follows:

($ in millions)

Consideration
Cash 
Acquisition costs 

Total consideration paid 

Net assets acquired:
Current assets
Long-term assets 
Current liabilities assumed
Long-term liabilities assumed

Net assets acquired 

Excess consideration paid over net assets acquired  

Allocation of excess consideration paid over net assets acquired

Intangible assets – Banner   

– Other 

Goodwill

$

250.4
3.2 

 253.6 

41.4 
36.9 
(43.6)
(13.1)

21.6

 $

232.0

 $

 $

24.0
1.9
206.1

232.0

2008 AN N UAL R E PORT

33

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sale of 61 Properties to Crombie REIT

On April 22, 2008, the Company’s real estate division sold 
61 properties to Crombie REIT. Included in the proceeds are 
additional Class B Units of Crombie Limited Partnership (which 
are convertible on a one for one basis into Units of Crombie 
REIT). The investment in Class B Units maintained the 

Company’s interest in Crombie REIT at approximately 
47.8 percent after Crombie REIT issued additional units as a 
result of the underwriting banks exercising their over-allotment 
option. The Company’s investment in Crombie REIT is accounted 
using the equity method. Details of the sale are as follows:

($ in millions)

Proceeds

Cash   
Investment in Crombie REIT 

Book value of property and equipment sold 
Early extinguishment of long-term debt  
Transaction costs
Other costs

Gain before income taxes and deferral   
Income taxes

Gain before deferral 
Deferral of gain

Net gain   

$

373.5
55.0

428.5

238.9
18.5
6.5
12.5

276.4

152.1 
7.8

144.3 
(144.3)

$

 Nil

As part of the transaction, Sobeys entered into new lease 
agreements (the “Sobeys Leases”) with respect to their 
occupancy in a portion of the 61 commercial properties. 
The Sobeys Leases have terms of between 17 and 23 years 
(except for three leases which have an outside date of 12 years) 
(the “Outside Date”). Each Sobeys Lease is based on an initial 
term of two years and thereafter alternating between successive 

periods of three years and two years until the applicable 
Outside Date. The Outside Date may be extended at Sobeys’ 
option by up to four consecutive further periods of ﬁve years 
each. The minimum rents under the Sobeys Leases will range 
from $8 per square foot to $14 per square foot with rental 
increases every ﬁve years. 

34

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operational Changes

Listed below is a summary of events that impacted the ﬁscal 
year 2008 operating results and which affect the comparability 
of information for the 13-week and 52-week periods ended 
May 3, 2008 versus the 13-week and 52-week periods ended 
May 5, 2007:

On June 15, 2007, Empire acquired approximately 
18.3 million common shares of Sobeys, increasing its 
ownership position from 72.1 percent at May 5, 2007 to 
100.0 percent on June 15, 2007. The privatization of Sobeys 
resulted in a weighted average ownership interest of 
97.0 percent in ﬁscal 2008 as compared to a weighted 
average ownership interest of 71.8 percent in ﬁscal 2007.
Sobeys’ sales in ﬁscal 2008 were positively inﬂuenced 
by the acquisition of Achille de la Chevrotière Ltée 
and its associated companies (“ADL”) which closed on 
August 27, 2006 and the acquisition of Thrifty Foods which 
closed on September 12, 2007. These acquisitions increased 
ﬁscal 2008 sales by $454.7 million. 
Sobeys continued to experience declines in its tobacco 
sales. Late in the second quarter of ﬁscal 2007, a major 
Canadian tobacco supplier began to sell and distribute 
directly to certain Sobeys’ customers. A decline in wholesale 
tobacco sales impacted fourth quarter ﬁscal 2008 revenues 
by $15.6 million relative to the same quarter in the prior 
ﬁscal year and ﬁscal 2008 sales by $117.2 million relative 
to the prior year. 

Revenues for residential real estate were negatively 
impacted compared to last year by sales related to the 
Martello condominium project which was completed in 
the prior ﬁscal year. For the 52 weeks ended May 5, 2007, 
Martello revenues equalled $37.9 million. Revenues from 
the Martello Condominium project did not have a material 
impact on the 13 weeks ended May 5, 2007. 
Empire Theatres changed its ﬁscal year-end from the last 
Thursday in April to the last Thursday in December effective 
December 28, 2006. This change in Empire Theatres’ ﬁscal 
year-end was made to align with industry practice. Empire’s 
ﬁscal year ended May 3, 2008 contains 12 months 
of operations while the ﬁscal year ended May 5, 2007 
contained 11 months of operations. The additional 
month of operations impacted revenues by approximately 
$10.0 million in the ﬁscal year.

Also impacting comparability year-over-year are costs related 
to Sobeys’ business process and system initiative, business 
rationalization, and privatization costs as outlined under the 
section titled “Fiscal 2008 Operating Performance by 
Division – Food”.

The reader should note that management explains the 
impact of the above events when discussing the operating 
results for the food retailing division, the real estate division 
and investments and other operations.

2008 AN N UAL R E PORT

35

Consolidated Operating Results

The consolidated ﬁnancial overview provided below reports on the ﬁnancial performance for ﬁscal 2008 relative to the last two 
ﬁscal years. 

Summary Table of Consolidated Financial Results

($ in millions, except per share information)

Consolidated revenue

Operating income

Operating earnings
Capital gains and other items, net of tax 

52 Weeks Ended

52 Weeks Ended

53 Weeks Ended

May 3,
2008

% of
Revenue

May 5, 

2007 (1)

% of 
Revenue

May 6,

2006 (2)

% of
 Revenue

 $ 14,065.0 

100.00%

$ 13,366.7 

100.00%

 $ 13,063.6 

100.00%

 472.6 

 242.8 
 73.0 

3.36% 

1.73% 
0.52%

 431.1 

 200.1 
 5.7 

3.23%

1.50%
0.04%

 491.4 

 202.0 
94.8 

3.76%

1.55%
0.72%

2.27%

Net earnings

$

315.8

2.25%

 $

205.8

1.54%

 $

296.8 

Basic earnings per share

Operating earnings
Capital gains and other items, net of tax 

Net earnings

Basic weighted average number

of shares outstanding (in millions) 

Diluted earnings per share

Operating earnings
Capital gains and other items, net of tax

Net earnings

Diluted weighted average number

of shares outstanding (in millions)

$

 $

$

 $

3.69 
1.11

4.80 

 65.6 

3.69 
 1.11 

4.80 

 65.7 

$

 $

$

 $

3.05
 0.09 

3.14

 65.5  

3.04  
 0.09 

3.13

 65.7 

 $

 $

$

 $

3.08
 1.45

4.53

 65.5

3.07 
 1.44 

4.51 

 65.7 

Dividends per share

$

0.66 

 $

0.60 

$

0.56 

(1) Amounts have been restated to reﬂect a change in accounting policy with respect to deferred charges. Please see the section entitled 

“Accounting Policy Changes – Deferred Charges” in this MD&A.

(2) Amounts have been restated as a result of a reclassiﬁcation and change in accounting policy with respect to the Company’s adoption of 

EIC-156 in the ﬁrst quarter of ﬁscal 2007. Please see the sections entitled “Accounting Policy Changes – Vendor Consideration” under Accounting 
Policy Changes in this MD&A.

36

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Management’s Explanation of Fiscal 2008 Annual Consolidated Results

The following is a review of Empire’s consolidated ﬁnancial 
performance for the 52-week periods ended May 3, 2008 
compared to May 5, 2007.

Revenue and ﬁnancial performance of each of the 
Company’s businesses (food retailing, real estate, and 
investments and other operations) are discussed in detail 
in the section entitled “Fiscal 2008 Operating Performance 
by Division” in this MD&A.

Revenue

The consolidated revenue for ﬁscal 2008 was $14.06 billion, 
an increase of $698.3 million or 5.2 percent compared to 
ﬁscal 2007. Growth in Sobeys’ sales of $736.1 million and in 
investments and other operations’ revenue of $21.0 million 

Revenue Table

was offset by a $58.8 million reduction in revenue from the real 
estate division. The decline in real estate division revenue was 
anticipated and reﬂects a slowdown in residential lot sales along 
with the completion of the Martello condominium project during 
the prior ﬁscal year. 

For a list of items that impacted revenue comparability refer 
to the “Operational Changes” section of this MD&A on page 35.
Excluding the impact of the acquisition of Thrifty Foods, the 
decline in wholesale tobacco sales, and the sales impact related 
to the Martello project, Empire’s consolidated sales growth 
would have been 2.2 percent for the fourth quarter. Adjusting 
for the same items in addition to the acquisition of ADL as 
discussed, Empire’s consolidated sales growth would have been 
2.9 percent for the ﬁscal year. The table below presents the 
impact of the above items on ﬁscal 2008 revenue growth.

52 Weeks Ended ($ in millions)

May 3, 2008

May 5, 2007

$ Change

% Change

Financially reported sales 

Add (deduct) the impact of: 

Impact of wholesale tobacco decline 
Impact of ADL and Thrifty acquisitions 
Impact of Martello revenues 
Impact of Theatres’ year-end change(1) 

Subtotal

$

14,065.0

$ 13,366.7 

 $

698.3  

5.2%

 117.2 
(454.7)
 37.9 
 (10.0)

 (309.6)

$

388.7  

2.9%

(1) The impact for Theatres’ revenue, reﬂected in the above table, represents the additional four weeks of revenue for ﬁscal 2008 as a result 

of Empire Theatres’ ﬁscal year-end change.

Please refer to the section entitled “Fiscal 2008 Operating Performance by Division” for an explanation of the change in revenue 
by division.

Consolidated Operating Earnings

Consolidated Operating Earnings

$ IN MILLIONS

$ PER SHARE FULLY DILUTED

242.8

3.69

200

150

100

50

4.00

3.00

2.00

1.00

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

2008 AN N UAL R E PORT

37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income

Earnings before Capital Gains and Other Items

Consolidated operating income, deﬁned as operating earnings 
before minority interest, interest expense, income taxes and capital 
gains and other items, in ﬁscal 2008 totalled $472.6 million compared 
to $431.1 million last year, an increase of $41.5 million or 9.6 percent. 
The increase in operating income is the result of a $68.0 million 
increase in operating income contribution from the food retailing 
division, offset by an $8.5 million decrease in operating income from 
investments and other operations (net of corporate expenses) and 
an $18.0 million decrease in real estate division operating income.
Included in food retailing division operating income for ﬁscal 
2008 were $6.8 million of pre-tax costs incurred by Sobeys related 
to its business process and system initiative and severance 
associated with rationalization efforts, partially offset by the reversal 
of a portion of rationalization costs related to two distribution centres 
in Québec. Sobeys incurred $49.1 million of pre-tax costs related 
to its business process and system initiative and business 
rationalization during ﬁscal 2007.

Please refer to the section entitled “Fiscal 2008 Operating 

Performance by Division” for an explanation of the change in 
operating income for each division. 

Interest Expense

For the 52 weeks ended May 5, 2008, consolidated interest 
expense equalled $105.8 million, versus $60.1 million in the prior 
year. The $45.7 million increase in ﬁscal 2008 interest expense 
compared to last ﬁscal year is primarily due to higher funded 
debt amounts.

Consolidated funded debt increased $661.5 million to 

$1,573.5 million at the end of ﬁscal 2008 compared to 
$912.0 million at the end of ﬁscal 2007. The increase in funded 
debt was largely the consequence of long-term debt incurred to 
ﬁnance the privatization of Sobeys and the acquisition of Thrifty 
Foods, partially offset by application of the proceeds from the sale 
of the liquid investment portfolio in the ﬁrst quarter and the sale 
of 61 properties to Crombie REIT, as mentioned, to reduce 
indebtedness. The sale of the 61 properties had a minimal impact 
on interest expense given that it occurred 11 days prior to 
the end of the ﬁscal year. 

Income Taxes

The effective income tax rate for ﬁscal 2008 was 30.3 percent 
versus 31.1 percent last year. The main reason for the ﬁscal year 
decrease is due to reductions in the Canadian federal and certain 
provincial statutory income tax rates and the application of those 
lower rates to future tax balances. 

Minority Interest

Minority interest for the ﬁscal year equalled $12.8 million compared 
to $55.4 million in the prior year. The decrease is largely the result of 
Empire increasing its ownership position in Sobeys to 100.0 percent 
on June 15, 2007 resulting in a weighted average ownership position 
of 97.0 percent in ﬁscal 2008 as compared to a weighted average 
ownership position in Sobeys of 71.8 percent in ﬁscal 2007.

For the 52 weeks ended May 3, 2008, earnings before capital 
gains and other items amounted to $242.8 million ($3.69 per 
share) compared to $200.1 million ($3.04 per share) in the prior 
year. The $42.7 million or 21.3 percent increase is the result of 
the $41.5 million increase in operating income, the $42.6 million 
decrease in minority interest and the decrease in income taxes 
of $4.3 million; offset by the $45.7 million increase in interest 
expense as discussed.

Capital Gains and Other Items 

For the full ﬁscal year, the Company recorded capital gains and other 
items, net of tax, of $73.0 million as compared to $5.7 million last 
year. The increase was largely the result of the sale of marketable 
securities in the ﬁrst quarter of ﬁscal 2008 which generated a 
capital gain, net of tax, of $81.9 million, partially offset by an 
impairment loss provision on certain commercial property and also 
on asset-backed commercial paper (“ABCP”), as discussed below.

Based on estimated fair values of commercial properties held 

by the real estate division, it was determined that the carrying 
value of one commercial property was impaired. Accordingly, the 
Company recorded a pre-tax impairment charge in the fourth 
quarter of $6.0 million to reduce the carrying value on this property 
to estimated fair value. Also during the fourth quarter, Sobeys 
increased its pre-tax impairment loss provision on ABCP by 
$4.5 million (from $3.0 million previously recorded to $7.5 million), 
representing 25 percent of the $30.0 million of ABCP held by 
Sobeys. The Company estimated the impairment loss using a 
discounted cash ﬂow approach. The ABCP investment has been 
reclassiﬁed as a long-term asset rather than cash and cash 
equivalents due to the uncertainty as to the timing of collection. 
During the fourth quarter, on April 22, 2008, Empire’s real 
estate division closed the sale of 61 retail properties to Crombie 
REIT. The selling price for the 61 properties was $428.5 million. 
In accordance with Canadian GAAP, the gain on this transaction 
of $144.3 million has been accounted for as a reduction in the 
carrying value of Crombie REIT because the purchaser is a 
related party. This differs from International Financial Accounting 
Standards, which will be adopted during the ﬁrst quarter of ﬁscal 
2012 and, upon adoption, will require that the net gain relating 
to the 52.2 percent non-Empire ownership of Crombie REIT to 
be recorded as an increase in retained earnings. 

Net Earnings

Net earnings for the 52 weeks ended May 3, 2008 totalled 
$315.8 million ($4.80 per share) as compared to $205.8 million 
($3.14 per share) recorded last ﬁscal year, an increase of 
$110.0 million or 53.4 percent. The increase in net earnings for 
ﬁscal 2008 compared to ﬁscal 2007 reﬂects the increase in 
earnings before capital gains and other items of $42.7 million 
as well as the increase in capital gains and other items of 
$67.3 million as discussed.

38

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

Fiscal 2008 Operating Performance by Division

Food Retailing

Highlights 

Sobeys acquired Thrifty Foods in September 2007 for a total 
consideration of $253.6 million.
Sobeys achieved ﬁscal 2008 sales growth of $736.1 million 
or 5.6 percent and same-store sales growth of 2.8 percent.
Continued progress in system-wide business process 
optimization and rationalization initiatives.
Total capital expenditures equalled $481.2 million in 
ﬁscal 2008. 
Opened, or replaced 44 corporate and franchised stores, 
acquired 22 stores, expanded 31 stores, rebannered/
redeveloped 60 stores and closed 67 stores.

To assess its ﬁnancial performance and condition, Sobeys’ 
management monitors a set of ﬁnancial measures, which 
evaluate sales growth, proﬁtability and ﬁnancial condition. 

The primary ﬁnancial performance and condition measures 
for Sobeys are set out below.

52 Weeks Ended

May 3, 2008

May 5, 2007 (1)

Sales growth
Same-store sales growth 
Earnings per 

share growth (basic) 

Return on equity
Funded debt to total capital 
Funded debt to EBITDA 
Property and equipment 

5.6%
2.8%

  16.3%
10.0%
  35.6%
1.7x

2.5%
2.4%

(8.9%)
9.1%
23.7%
1.2x

purchases (in millions)

$

481

$

447

(1) Amounts have been restated as a result of a reclassiﬁcation with 
respect to deferred charges. Please see the section entitled 
“Accounting Policy Changes – Deferred Charges” in this MD&A.

The table below presents sales, operating income and net earnings contribution to Empire by Sobeys: 

($ in millions)

Sales   
Operating income
Net earnings

52 Weeks Ended
May 3, 2008

52 Weeks Ended
May 5, 2007

Year-over-Year

$ Change

% Change

 $

13,768.1
 359.0
186.6

$ 13,032.0

 $

 291.0  
119.6  

736.1  
 68.0  
67.0 

5.6%
23.4%
56.0%

Food Retailing Revenue

Food Retailing Operating Income

$ IN MILLIONS

$ IN MILLIONS

13,768.1

359.0

12 ,000

9,000

6,000

3,000

320

240

16 0

80

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

2008 AN N UAL R E PORT

39

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue 

In ﬁscal 2008, Sobeys achieved sales of $13.77 billion, an 
increase of $736.1 million or 5.6 percent over ﬁscal 2007. 
During the ﬁscal year, same-store sales (sales from stores in 
the same locations in both reporting periods) increased by 
2.8 percent. Same-store sales growth does not include 
wholesale sales.

Sales growth for the year was driven by Sobeys continued 

implementation of sales and merchandising initiatives and 
sustained competitive pricing across the country, coupled 
with an increase in retail selling square footage resulting from 
new stores, enlargements and the acquisition of Achille de la 
Chevrotière Ltée on August 27, 2006 and Thrifty Foods on 
September 12, 2007.

Total store square footage increased by 3.0 percent in 

ﬁscal 2008 as a result of the opening of 44 new or replacement 
stores, the acquisition of 22 stores and the expansion of 31 stores.
There were 67 stores closed in ﬁscal 2008.

Sobeys experienced declines in its wholesale tobacco sales 

during ﬁscal 2008. Wholesale tobacco sales declined 
$117.2 million in ﬁscal 2008 compared to ﬁscal 2007. Margins 
on tobacco sales are signiﬁcantly lower than on other products; 
therefore, the loss of these sales did not have a material impact 
on earnings. As shown in the table below, excluding the impact 
of the wholesale tobacco decline, the acquisition of ADL on 
August 27, 2006 and the acquisition of Thrifty Foods on 
September 12, 2007, Sobeys’ sales growth would have been 
3.1 percent in ﬁscal 2008.

52 Weeks Ended ($ in millions)

May 3, 2008

May 5, 2007

$ Change

% Change

Sobeys’ ﬁnancially reported sales 

 $

13,768.1 

$ 13,032.0

 $

736.1  

5.6%

Add (deduct) the impact of:

Impact of wholesale tobacco decline 
Impact of ADL and Thrifty Foods acquisitions 

Subtotal

 117.2 
 (454.7)

 (337.5)

 $

398.6  

3.1%

Business Process and System Initiative, Business Rationalization and Privatization Costs

Included in earnings for ﬁscal 2008, and also impacting year-over-year earnings variances for Sobeys, were costs related to Sobeys’ 
business process and system initiative as well as business rationalization and privatization costs. As you can see from the table below, 
in total, these costs had a $6.8 million pre-tax impact on earnings ($49.1 million pre-tax in ﬁscal 2007).

($ in millions)

13 Weeks Ended
May 3, 2008

13 Weeks Ended
May 5, 2007

52 Weeks Ended
May 3, 2008

52 Weeks Ended
May 5, 2007

Business process and system initiative costs 
Rationalization costs 

Total costs

 $

 $

–
(0.5) 

(0.5)

 $

 $

4.9
5.6  

10.5

 $

 $

8.6
(1.8) 

6.8

$

$

30.3 
18.8

49.1 

40

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A description of these costs is as follows:

Operating Income

Sobeys’ operating income equalled $359.0 million during ﬁscal 
2008, a 23.4 percent increase from last year’s $291.0 million. 
Sobeys’ recorded operating margin in the ﬁscal year was 
2.64 percent compared to 2.23 percent in the prior year. 
The $68.0 million increase in Sobeys’ operating income in 
ﬁscal 2008 was largely the result of Sobeys’ commitment to 
competitive pricing, innovation and cost management initiatives 
and lower spending in ﬁscal 2008 on business process and 
system initiatives and business rationalization costs. 

Included in food retailing division operating income in 
ﬁscal 2007 were $49.1 million of pre-tax costs incurred by 
Sobeys related to its business process, system initiative and 
rationalization costs as compared to $6.8 million of such costs 
in ﬁscal 2008. Also impacting ﬁscal 2008 operating income 
was a $37.0 million increase in depreciation and amortization 
expense, reﬂecting Sobeys’ continued capital investments. 

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

Food retailing division net earnings contribution in ﬁscal 2008 
amounted to $186.6 million compared to $119.6 million last 
year, a $67.0 million or 56.0 percent increase. The earnings 
increase largely reﬂects the $68.0 million improvement in 
operating income and the $42.6 million reduction in minority 
interest, offset by, the $5.1 million impairment charge, net of tax, 
on asset-backed commercial paper as discussed, a $24.0 million 
increase in interest expense due to higher funded debt levels 
and higher income tax expense of $14.5 million.

Business process and system initiative costs – For the 
52 weeks ended May 3, 2008, $8.6 million ($30.3 million 
in ﬁscal 2007) of pre-tax costs ($nil for the 13 weeks ended 
May 3, 2008 and $4.9 million for the 13 weeks ended 
May 5, 2007) were incurred related to Sobeys business 
process and system initiative. The business process 
and system initiative costs primarily included labour, 
implementation and training costs associated with the 
business process and system implementation. 
Atlantic business rationalization costs – During the third 
quarter of ﬁscal 2007, Sobeys completed a rationalization 
of administrative functions in Atlantic Canada. In addition to 
asset write-offs, in excess of 100 people were impacted by 
this rationalization; however, a number of these people were 
redeployed into Sobeys’ retail store network. Pre-tax costs of 
$7.9 million were incurred during ﬁscal 2007 as a result of 
this rationalization. There were no further rationalization 
costs incurred by Sobeys Atlantic region in ﬁscal 2008.
Ontario distribution network rationalization – 
On November 21, 2006, Sobeys announced plans to 
build a new distribution centre in Vaughan, Ontario. Utilizing 
automation technology, the new facility is expected to 
signiﬁcantly increase Sobeys’ warehouse and distribution 
capacity while reducing overall distribution costs and 
improving service to its store network and customers. 
During ﬁscal 2007, Sobeys recognized $5.3 million of 
severance costs associated with this rationalization. 
There was $0.5 million of costs incurred in ﬁscal 2008. 
Subsequent to year end additional severance costs of 
approximately $4.6 million have been incurred and will be 
recognized in the ﬁrst quarter of ﬁscal 2009. This new 
distribution centre, when opened in early ﬁscal 2010, is 
expected to provide annual distribution cost savings in 
excess of the costs incurred in the third quarter and any 
additional business rationalization or restructuring costs 
incurred leading up to its opening. 
Québec distribution network rationalization – In ﬁscal 
2007, Sobeys completed the closure of two small facilities, 
one in Anjou and one in the Abitibi region of Québec. 
Rationalization costs related to these facilities of $5.6 million 
were incurred in the fourth quarter of ﬁscal 2007. During 
ﬁscal 2008, $3.5 million of these costs were reversed as a 
result of changes in management’s estimate of the expected 
costs. It is expected that the annualized savings associated 
with this closure will be approximately $5.0 million.

2008 AN N UAL R E PORT

41

Real Estate

Highlights 

The successful completion of the sale of 61 properties 
to Crombie REIT for total proceeds of $428.5 million and 
an economic gain of $144.3 million.
Another strong year for residential operations with an 
operating income contribution of $50.7 million.
A 12.0 percent total investment return from Crombie REIT 
since the initial public offering in March 2006. 
Real estate division funded debt to total capital decreased 
to 22.0 percent in ﬁscal 2008 from 39.8 percent last year.

Real estate management assesses its ﬁnancial performance 
and condition through monitoring of key ﬁnancial measures. 
The primary ﬁnancial performance and condition measures are 
set out below.

52 Weeks Ended

May 3, 2008

May 5, 2007

Total square footage 

(in millions)

Funds from operations 

($ in millions)
Return on equity(1)
Funded debt to total capital 

0.8

5.7

 $

64.4
17.7%
  22.0%

 $

74.6 
17.5%
39.8%

(1) Return on Equity is calculated as earnings available for common 
shareholders divided by average common shareholders’ equity. 

The table below presents revenue, operating income, capital gains and other items, net earnings and funds from operations for the 
real estate division’s commercial operations and residential operations.

52 Weeks Ended ($ in millions)

May 3, 2008

May 5, 2007

$ Change

% Change

Revenue

Commercial
Residential

Inter-segment

Operating income
Commercial
Residential

Capital gains and other items (net of tax)

Commercial
Residential

Net earnings

Commercial(1) 
Residential

Funds from operations 

Commercial
Residential

 $

 $

 $

 $

$

$

 $

 $

 $

$

75.4
 85.2 

 160.6 
 (34.9) 

125.7

49.3 
 50.7  

100.0

(3.5)
 (0.6)

(4.1)

20.1
34.7

54.8

29.1
 35.3 

64.4

$

$

$

$

 $

 $

$

 $

 $

 $

72.7 
146.1

218.8  
 (34.3) 

184.5 

46.8 
71.2  

118.0

0.7
(0.7) 

–

21.0
 46.8  

67.8 

26.8
 47.8  

74.6 

 $

 $

 $

 $

 $

 $

 $

 $

 $

 $

2.7  
 (60.9) 

 (58.2) 
 (0.6) 

(58.8)

2.5  
 (20.5)

(18.0)

(4.2) 
 0.1  

(4.1) 

(0.9) 
 (12.1) 

(13.0)

2.3  
 (12.5) 

(10.2) 

3.7% 
 (41.7%)

 (26.6%)
1.7% 

(31.9%)

5.3%
(28.8%)

(15.3%)

 (600.0%)
 (14.3%)

 –

 (4.3%)
 (25.9%)

(19.2%)

8.6% 
 (26.2%)

 (13.7%)

(1) There were net capital losses and other items, net of tax, of $4.1 million included in net earnings for ﬁscal 2008 ($nil in ﬁscal 2007).

42

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Revenue

Real estate division revenues, net of inter-segment transactions, 
amounted to $125.7 million in ﬁscal 2008 as compared to 
$184.5 million in the prior year. The $58.8 million reduction in 
revenue from the real estate division was anticipated as a result 
of an expected slowdown in residential lot sales and the 
completion of the Martello condominium project in the prior 
ﬁscal year. 

Revenue from residential operations was $85.2 million in 
ﬁscal 2008 compared to $146.1 million last year, a $60.9 million 
or 41.7 percent decrease. Included in residential operations 
revenue for ﬁscal 2007 was $37.9 million of revenue related to 
the Martello condominium project. Excluding the impact of the 
Martello project, residential operations revenues declined by 
$23.0 million or 15.7 percent compared to last year. In the 
previous year management cautioned that the pace of growth 
experienced in residential lot sales in ﬁscal 2007 was not 
sustainable over the long-term. Management further cautions 
that residential lot sales are likely to slow from the level 
experienced in ﬁscal 2008. 

Commercial property revenues, net of inter-segment 

transactions, for ﬁscal 2008 equalled $40.5 million, an increase 
of $2.1 million or 5.5 percent compared to revenues of 
$38.4 million reported last year. 

Operating Income

During ﬁscal 2008, real estate division operating income 
declined $18.0 million or 15.3 percent compared to last year as 
the result of a $20.5 million decrease in residential operating 
income, offset by a $2.5 million increase in commercial 

operating income. The decline in operating income generated 
by residential operations was expected given the exceptional 
residential lot sales activity experienced in Western Canada 
in ﬁscal 2007 compared to current economic conditions. 

Capital Gains and Other Items

Capital losses and other items, net of tax, for the real estate 
division totalled $4.1 million in ﬁscal 2008 (ﬁscal 2007 – $ nil). 
The difference over last year is primarily related to the 
impairment charge taken on one commercial property during 
ﬁscal 2008 as discussed. 

Net Earnings

Real estate division net earnings contribution in ﬁscal 2008 
amounted to $54.8 million compared to $67.8 million last year, 
a $13.0 million or 19.2 percent decrease. The earnings decline 
largely reﬂects the $18.0 million reduction in operating income 
as discussed, the $4.1 million impairment charge, net of tax, on 
one commercial property as discussed, offset by a $0.9 million 
reduction in interest expense due to lower long-term debt levels 
and lower income tax expense of $8.2 million.

Funds from Operations

Funds from real estate operations in ﬁscal 2008 of $64.4 million 
decreased $10.2 million or 13.7 percent compared to last year 
as a result of a decrease in residential funds from operations of 
$12.5 million due to lower operating earnings, partially offset by 
higher commercial funds from operations of $2.3 million due to 
higher operating earnings. 

Real Estate Revenue

$ IN MILLIONS

Real Estate Funds from Operations

$ IN MILLIONS

240

180

120

60

160.6

60

45

30

15

64.4

29.1

35.3

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

COMMERCIAL

RESIDENTIAL

2008 AN N UAL R E PORT

43

Investments and Other Operations

Highlights

A $21.0 million or 14.0 percent increase in revenue as a 
result of record revenues for wholly-owned Empire Theatres. 
The change in Empire Theatres’ ﬁscal year-end to 
December 31st, to align with industry practice, accounted 
for $10.0 million of the revenue increase. 
During the ﬁrst quarter the liquid investment portfolio was 
sold for proceeds of $278.0 million, resulting in an after-tax 
capital gain of $81.9 million. These funds were used to 
support the cost of privatizing Sobeys.

Maintained a 27.6 percent interest in Wajax which 
contributed $20.4 million in equity earnings in ﬁscal 2008 
and an investment total return of 14.0 percent. 

Investment Value

At the end of ﬁscal 2008, Empire’s total investments, excluding 
its investment in Genstar U.S. investments and in Crombie REIT, 
carried a market value of $155.0 million on a cost base of 
$33.2 million, resulting in an unrealized gain of $121.8 million 
(2007 – $219.3 million). 

The table below presents a reconciliation of the consolidated balance sheet investments, both equity and cost, to those related 
to the investment and other operations division:

($ in millions)

Investments, at cost
Investments, at equity

Total Investments 

Less: Crombie REIT
Less: Genstar U.S.(1)
Plus: Hedge Value

May 3, 2008

May 5, 2007

 $

 $

Market
Value

1.6
 429.6  

431.2  

275.9

 0.3  
 –  

 $

Cost
Value

1.6
 41.4  

 43.0  

 9.5 
 0.3  
 –  

Unrealized
Gain

Market
Value

Cost
Value

Unrealized
Gain

–
 388.2

388.2

266.4  
 –  
 –  

$

$

283.1
434.0 

 $

189.7 
142.8  

717.1  

 278.1  
 1.3  
 3.5  

 332.5  

 109.3
 1.3 
 –  

93.4
 291.2

384.6

 168.8 
 – 
 3.5

 $

155.0

 $

33.2

 $

121.8

$

441.2 

 $

221.9

 $

219.3 

(1) Assumes market value equals book value.

During ﬁscal 2008 realized capital gains on the sale of 
investments totalled $100.9 million compared to $6.2 million 
of realized capital gains in the prior year. The Company sold all 
its portfolio investments, excluding its 27.6 percent interest in 
Wajax, during in the ﬁrst quarter of ﬁscal 2008 to provide funds 
for the privatization of Sobeys. Funds generated from this sale 
amounted to $278.0 million in the ﬁrst quarter.

The total unrealized gain position at the end of ﬁscal 2008 

was $121.8 compared to $219.3 million at the end of ﬁscal 
2007. The decrease of $97.5 million in the unrealized gain 
position is primarily attributed to realized investment capital 
gains during the ﬁscal year of $100.9 million. 

Realized capital gains for ﬁscal 2008, plus unrealized capital 
gains combined to equal $222.7 million at the end of the ﬁscal year. 
This compares to a total realized gain on investment sales plus 
unrealized capital gains at the end of ﬁscal 2007 of $225.5 million. 

Investments and 
Other Operations Revenue

Investments and 
Other Operations Operating Income*

$ IN MILLIONS

$ IN MILLIONS

160

120

80

40

171.2

32

24

16

8

24.4

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

* BEFORE CORPORATE EXPENSES

44

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Composition

At ﬁscal year end, May 3, 2008, Empire’s investment portfolio (excluding cash, Crombie REIT and Genstar U.S.) consisted of:

($ in millions Cdn.)

Wajax  
Other Canadian equities
U.S. equities 
Preferred shares & other
Hedge value

Total 

Unrealized
Gain (Loss)

Unrealized 
Gain (Loss)

$

Market
Value

153.4
–
 – 
1.6  
–  

% of 
Total

99.0% $

0.1%

 –  
1.0% 
 –  

$

Cost

 31.6 
–
 –  
 1.6  
 –  

$

May 3,
2008

 121.8
–
 –  
 –  
 –  

May 5,
2007

122.4
92.2
1.2
– 
3.5

$

May 6,
2006

159.9
68.8
(29.8)
–
15.4 

 $

155.0

100.0%  $

33.2

 $

121.8

 $

219.3

 $

214.3 

The table below presents investments and other operations’ (net of corporate expenses) ﬁnancial highlights for the 52 weeks ended 
May 3, 2008 compared to the same period last year.

52 Weeks Ended ($ in millions)

May 3, 2008

May 5, 2007

$ Change

Revenue   

Investment income

Operating income
Capital gains and other items, net of tax 

Net Earnings

Revenue

Investments and other operations’ revenue, primarily generated 
by Empire Theatres, equalled $171.2 million for ﬁscal 2008 
versus $150.2 million last year. There are 52 weeks of revenue 
included in ﬁscal 2008 compared to 48 weeks last year from 
Empire Theatres as a result of the change in the Company’s 
year-end date. As previously discussed, the additional four 
weeks of Theatre operations included in this ﬁscal year impacted
revenues by approximately $10.0 million. Adjusting for this 
impact, investments and other operations’ revenue increased 
by 7.3 percent in ﬁscal 2008.

Investment Income

Investment income (excluding equity earnings from 
Crombie REIT and Genstar’s U.S. investments) equalled 
$20.9 million in ﬁscal 2008, a decrease of $9.0 million over 
the $29.9 million recorded last year. The decline was the result 
of lower dividend income of $8.5 million reﬂecting the sale of 
the portfolio investments in the ﬁrst quarter as mentioned and 
equity earnings from Wajax that were $0.5 million lower than 
last year.

 $

171.2

 $

150.2 

 $

20.9  

13.6  
 82.2  

29.9  

22.1  
 5.7  

$

74.4

$

18.4

 $

21.0

 (9.0)

 (8.5)
 76.5

56.0

Capital Gains and Other Items

Capital gains, net of tax, realized from investment sales in 
ﬁscal 2008 amounted to $82.2 million compared to $5.7 million 
last year. The bulk of the capital gains, net of tax, in ﬁscal 2008 
relates to the sale of common equity investments in the ﬁrst 
quarter to assist in funding the privatization of Sobeys 
as discussed. 

Net Earnings 

Investments (net of corporate expenses) and other operations 
contributed $74.4 million to Empire’s consolidated ﬁscal 2008 
net earnings compared to an $18.4 million net earnings 
contribution last year. The increase is primarily the result of 
the higher realized investment capital gains as discussed. 

2008 AN N UAL R E PORT

45

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarterly Results of Operations

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

Results by Quarter

($ in millions, except
per share information)

Revenue    
Operating income
Operating earnings(2)
Capital gains (losses) 

Fiscal 2008

Fiscal 2007(1)

Q4
(13 Weeks)
May 3, 
2008

Q3
(13 Weeks)
Feb. 2,
2008

Q2
(13 Weeks)
Nov. 3,
2007

Q1
(13 Weeks)
Aug. 4,
2007

Q4
(13 Weeks)
May 5, 
2007

Q3
(13 Weeks)
Feb. 3,
2007

Q2
(13 Weeks)
Nov. 4,
2006

Q1
(13 Weeks)
Aug. 5,
2006

 $ 3,557.8 
 136.2 
 73.6 

 $ 3,503.0 
90.7 
48.9 

 $ 3,484.8 
118.2
59.9

 $ 3,519.4

127.5  
 60.4  

$ 3,350.4 
  124.0
64.1 

 $ 3,281.9  $ 3,353.5  $ 3,380.9
 121.2
 53.3 

   113.0  
49.8  

72.9  
32.9

and other items, net of tax 

 (7.1) 

 (0.3) 

 (1.5)

81.9  

 0.7 

(1.0)

6.0

 –

Net earnings

Per share information, diluted

Operating earnings
Capital gains (losses) 

$

$

66.5 

 $

48.6 

 $

58.4 

 $ 142.3

$

64.8 

 $

31.9  $

55.8  $

53.3

1.12  $

0.73 

 $

0.91  $

0.92  $

0.98 

 $

0.49 

 $

0.76 

 $

0.81

and other items, net of tax 

(0.11) 

 0.01

 (0.02)

1.24  

 0.01

 (0.01)

0.09  

 –

Net earnings

$

1.01  $

0.74 

 $

0.89 

 $

2.16

$

0.99 

 $

0.48  $

0.85  $

0.81

Diluted weighted average 
number of shares 
outstanding (in millions)

65.7

65.7  

 65.7 

65.7  

 65.7  

 65.7 

65.7  

 65.7

(1) Amounts have been restated as a result of a reclassiﬁcation with respect to deferred charges. Please see the section entitled “Accounting Policy 

Changes – Deferred Charges” in this MD&A and “Accounting Policy Changes – Vendor Consideration” in this MD&A. 

(2) Operating earnings is net earnings before capital gains (losses) and other items, net of tax.

Revenue and operating earnings growth have been inﬂuenced by the Company’s investing activities including the privatization 
of Sobeys, the competitive environment, general industry trends and by other risk factors as outlined in this MD&A.

46

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fourth Quarter Results

Summary Table of Consolidated Financial Results for the Fourth Quarter

($ in millions, except per share information)

13 Weeks Ended
May 3, 2008

% of 
Revenue

13 Weeks Ended
May 5, 2007

% of 
Revenue

Revenue   

Operating income

Operating earnings 

Capital gains (losses) and other items, net of tax 

Net earnings

Basic earnings per share 
Operating earnings 
Capital gains (losses) and other items, net of tax 

Net earnings

Basic weighted average number

of shares outstanding (in millions) 

Diluted earnings per share

Operating earnings 
Capital gains (losses) and other items, net of tax 

Net earnings

Diluted weighted average number

of shares outstanding (in millions) 

 $

3,557.8  

  100.00%

 $

3,350.4

100.00%

3.70%

1.91%

0.02%

1.93%

136.2  

 73.6  

 (7.1) 

66.5  

1.12  
(0.11) 

1.01  

 65.6  

1.12  
 (0.11) 

1.01  

 65.7  

$

$

$

 $

 $

3.83% 

2.07%

-0.20%

1.87%

124.0  

 64.1  

 0.7  

64.8  

0.98 
 0.01

0.99

 65.6 

0.98
 0.01 

0.99

 65.7 

$

 $

$

$

$

The following is a review of ﬁnancial performance for the 13 weeks ended May 3, 2008 compared to the 13 weeks ended May 5, 2007.

Revenue

Revenue for the fourth quarter was $3.56 billion compared to $3.35 billion last year, a $207.4 million or 6.2 percent increase. 
As shown in the following table, excluding the decline in wholesale tobacco sales and the Thrifty Foods acquisition, revenue growth 
would have been 2.2 percent for the fourth quarter.

13 Weeks Ended ($ in millions)

May 3, 2008

May 5, 2007

$ Change

% Change

Financially reported sales 

Add (deduct) the impact of:

Impact of Thriftys acquisition 
Impact of wholesale tobacco decline 

Subtotal

$

3,557.8 

$

3,350.4 

 $

207.4  

6.2%

 (148.6)
 15.6

 (133.0)

 $

74.4  

2.2%

Food retailing division revenue increased by $236.9 million or 7.3 percent compared to the fourth quarter of ﬁscal 2007. Same-store 
sales increased 2.6 percent during the fourth quarter of ﬁscal 2008. The growth in retail sales was a direct result of the continued 
implementation of sales and merchandising initiatives across the country, coupled with the increased retail selling square footage 
from new stores, enlargements and the acquisition of Thrifty Foods on September 12, 2007. As outlined above, sales were positively 
impacted in the quarter by the acquisition of Thrifty Foods and negatively impacted by the decline in wholesale tobacco sales. 
Excluding the impact of the Thrifty Foods acquisition and the wholesale tobacco decline, Sobeys’ sales growth would have been 
3.2 percent on a comparable 13-week basis.

2008 AN N UAL R E PORT

47

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate operations reported fourth quarter revenues 
(net of inter-segment transactions) of $33.8 million, a decrease 
of $32.2 million or 48.8 percent compared to the fourth quarter 
last year. Commercial property revenue growth remained ﬂat 
while revenue from residential operations decreased by 
$32.2 million or 56.7 percent. The decline in residential 
operations revenue was expected; management had previously 
cautioned that residential lot sales in Western Canada 
particularly in the Calgary and Edmonton, Alberta markets, 
was not sustainable at the rates observed in ﬁscal 2007. 

Revenue from investments and other operations in the fourth 

quarter equalled $43.4 million, an increase of $2.7 million or 
6.6 percent over the fourth quarter last year. This is primarily 
related to higher revenue contribution from Empire Theatres.

and the application of those lower rates to future tax balances, 
related to the real estate operations. This resulted in a lower 
effective income tax rate for the fourth quarter of ﬁscal 2007.

Minority Interest

In the fourth quarter of ﬁscal 2008, Empire recorded minority 
interest expense of $1.3 million compared to $14.1 million in 
the fourth quarter last year. The decrease of $12.8 million in 
minority interest is primarily the result of Empire increasing 
its ownership position in Sobeys to 100.0 percent on 
June 15, 2007, resulting in a weighted average ownership 
position in the fourth quarter of 100.0 percent as compared 
to a weighted average ownership position in Sobeys at the 
end of the fourth quarter last year of 72.1 percent.

Operating Income

Consolidated operating income in the fourth quarter of ﬁscal 
2008 totalled $136.2 million compared to $124.0 million in the 
fourth quarter last year, an increase of $12.2 million or 9.8 percent. 
The increase in operating income was the result of a $29.3 million
or 39.1 percent increase in operating income contribution from 
the food retailing division, a $1.8 million or 62.1% increase in 
operating income contribution from investments and other 
operations, partially offset by a decrease in real estate division 
operating income of $18.9 million or 41.0 percent.

In the fourth quarter last year, Sobeys incurred $10.5 million 

of pre-tax costs related to its business process and system 
initiative and rationalization costs. 

Residential real estate operating income amounted to 
$15.6 million, a $19.0 million decrease from the fourth quarter 
last year. The decline is attributed to slowing of residential 
lot sales in Western Canada, particularly in the Calgary and 
Edmonton, Alberta markets. Commercial real estate operating 
income of $11.6 million increased $0.1 million from the same 
quarter last year.

Interest Expense

The $13.1 million increase in fourth quarter consolidated 
interest expense compared to the same quarter last year is 
the result of increased funded debt. Funded debt increased 
$661.5 million to end the ﬁscal year at $1,573.5 million 
compared to $912.0 million at the end of ﬁscal 2007. This 
increase was largely the consequence of long-term debt 
incurred to ﬁnance the privatization of Sobeys and the 
acquisition of Thrifty Foods as mentioned.

Income Taxes

The effective income tax rate for the fourth quarter was 
31.0 percent versus 28.6 percent in the fourth quarter last year. 
The main reason for this increase is in the fourth quarter of ﬁscal 
2007, the Canadian government approved a reduction in the 
Canadian federal and certain provincial statutory income tax rates 

Earnings before Capital Gains and Other Items

The $9.5 million or 14.8 percent increase in earnings before 
capital gains and other items over the prior year was the result 
of the $12.2 million improvement in operating income and 
the $12.8 million reduction in minority interest, offset by the 
$13.1 million increase in interest expense and a $2.4 million 
increase in income taxes, as discussed. 

Capital Gains and Other Items

The Company reported capital losses and other items, net of 
tax, of $7.1 million in the fourth quarter compared to capital 
gains and other items, net of tax, of $0.7 million last year.

In the fourth quarter of ﬁscal 2008, it was determined that 

the carrying value of one commercial property was impaired. 
Accordingly, the Company recorded an impairment charge of 
$6.0 million ($4.1 million after tax) to reduce the carrying value 
on this property to estimated fair value. 

Also during the fourth quarter, Sobeys increased its pre-tax 

impairment loss provision on ABCP by $4.5 million (from 
$3.0 million previously recorded to $7.5 million), representing 
25 percent of the $30.0 million of ABCP held by Sobeys. The 
Company estimated the impairment loss using a discounted 
cash ﬂow approach. The ABCP investment has been reclassiﬁed 
as a long-term asset rather than cash and cash equivalents due 
to the uncertainty as to the timing of collection. 

Net Earnings

Consolidated net earnings, including capital gains and other 
items, net of tax, totalled $66.5 million ($1.01 per share, basic) 
in the fourth quarter, an increase of $1.7 million or 2.6 percent 
over the fourth quarter last year.

48

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

Financial Condition

Capital Structure and Key Financial Condition Measures

The Company’s ﬁnancial condition at the end of ﬁscal 2008 remained healthy as indicated by the following ﬁnancial condition measures.

($ in millions, except per share and ratio calculations)

Shareholders' equity 
Book value per share 
Minority interest
Bank indebtedness 
Long-term debt, including current portion(1)
Funded debt to total capital 
Net debt to capital ratio(2) 
Debt to EBITDA
Interest coverage
Total assets

(1) Includes liabilities related to assets held for sale.

(2) Net debt to total capital reduces funded debt by cash and cash equivalents.

May 3,
2008

2,382.3
36.14 
37.6  
 92.1  
1,481.4 
39.8%
36.7%
2.02x
4.47x
5,706.9

 $

 $

May 5,
2007
(Restated)

May 6,
2006
(Restated)

$

2,131.1

 $

32.31  
588.6  
 30.1  
 881.9  
30.0% 
22.5% 
1.30x 
7.17x 
5,241.5

$

 $

1,965.2
 29.77
 585.4
 98.6 
 809.8
31.6%
22.4%
1.33x
5.86x
5,051.5

Shareholders’ Equity

Book value per common share was $36.14 at May 3, 2008, compared to $32.31 at May 5, 2007 and $29.77 at May 6, 2006. 
The increase in book value largely reﬂects the Company’s earnings growth.

The Company’s share capital on May 3, 2008 consisted of:

Preferred shares, par value $25 each, issuable in series 
2002 Preferred shares par value $25 each, issuable in series
Non-Voting Class A shares, without par value
Class B common shares, without par value, voting

Employees Share Purchase Plan

Authorized
Number of Shares

Issued and 
Outstanding
Number of Shares

 2,772,300 
 992,000,000
 259,107,435 
40,800,000

258,200
–
31,484,498
34,260,763 

$ Millions 

 $

6.5 

185.1
 7.6 

 199.2 
 (3.5)

$

195.7 

2008 AN N UAL R E PORT

49

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Non-Voting Class A and Class B common shares 
outstanding at May 3, 2008 equalled 65,745,261, 10,461 
shares higher than the previous ﬁscal year-end, May 5, 2007. 
There were 31,484,498 Non-Voting Class A and 34,260,763 
Class B common shares outstanding at May 3, 2008. During 
ﬁscal 2008, 300,000 Class B common shares were exchanged 
for 300,000 Non-Voting Class A shares of Empire. 

Empire had 99,349 options outstanding at May 3, 2008, 
compared to no options outstanding at May 5, 2007. There were 
27,674 options exercised during the ﬁscal 2007, compared to 
no options exercised in the current ﬁscal year. 

During ﬁscal 2008, the Company purchased for cancellation 

41,800 Series 2 Preferred shares for $1.0 million; 31,900 
preferred shares were purchased for cancellation in ﬁscal 2007 
for $0.8 million. The Company plans to purchase on a best 
efforts basis for cancellation an additional 158,200 Series 2 
Preferred shares by the end of calendar 2008.

During the ﬁscal year, 10,461 Non-Voting Class A shares 

were issued under Empire’s share purchase plan to certain 
ofﬁcers and employees for $0.4 million compared to 

46,047 Non-Voting Class A shares issued in ﬁscal 2007 for 
$1.0 million. During ﬁscal 2007, Empire purchased 46,047 Non-
Voting Class A shares for cancellation. No Non-Voting Class A 
shares were purchased for cancellation in ﬁscal 2008. 

As at June 26, 2008, the Company had total Non-Voting 

Class A and Class B common shares outstanding of 
31,484,498 and 34,260,763, respectively. 

Dividends paid to Non-Voting Class A and Class B common 

shareholders amounted to $43.2 million in ﬁscal 2008 
($0.66 per share) versus $39.5 million ($0.60 per share) in 
ﬁscal 2007. Subsequent to ﬁscal year-end, on June 26, 2008 
the Company announced an increase in the dividend rate to 
$0.70 per share annually.

Share Price

$ PER SHARE

Book Value Per Share

$ PER SHARE

Common Dividends Per Share

$ PER SHARE

39.25

36.14

0.66

40

30

20

10

32

24

16

8

0.60

0.45

0.30

0.15

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

Liabilities

Historically, Empire has ﬁnanced a signiﬁcant portion of its 
assets through the use of long-term debt. Longer-term assets 
are generally ﬁnanced with ﬁxed rate, long-term debt, thereby 
reducing both interest rate and reﬁnancing risk. Total long-term 
debt (including the current portion of long-term debt) at 
May 3, 2008 was $1,481.4 million, representing 94.1 percent 
of Empire’s total funded debt of $1,573.5 million. Funded 
debt increased $661.5 million from the previous ﬁscal year, 
May 5, 2007 ($912.0 million). The signiﬁcant increase over last 
ﬁscal year is the result of debt incurred to fund the privatization 

of Sobeys as discussed earlier, as well as the additional long-term 
debt used to fund the acquisition of Thrifty Foods, partially offset 
by proceeds from the sale of 61 properties to Crombie REIT in 
the fourth quarter. Since last ﬁscal year-end, the consolidated 
funded debt to total capital ratio has increased 9.8 percentage 
points to 39.8 percent as a result of the higher debt levels as 
discussed. Management expects the funded debt to capital ratio 
to decline in ﬁscal 2009 as a result of equity growth and a plan to 
generate free cash ﬂow, which will be used to reduce bank debt. 
The majority of Empire’s funded debt is long-term in nature. 

50

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

The long-term debt is segmented by division as follows:

Long-term debt ($ in millions)

May 3, 2008

May 5, 2007

May 6, 2006

Food retailing
Real estate
Investments and other operations 

Total 

 $

1,010.2

 50.7  
 420.5  

 $

1,481.4 

$

$

 $

612.7
 228.1  
 41.1  

490.0
 261.0
 58.8

881.9 

 $

809.8 

DBRS and S&P placed Sobeys’ credit ratings under review 
when the privatization of Sobeys was announced. On 
July 20, 2007, DBRS downgraded their rating on Sobeys’ 
Medium Term Notes from BBB (high) to BBB (low). The trend 
remained negative. On July 31, 2007, S&P also downgraded 
Sobeys’ credit ratings from BBB (low) to BB (high). S&P also 
kept a negative trend in place.

Interest coverage for ﬁscal 2008 was 4.5 times, down from 

the 7.2 times reported for the ﬁscal year ended May 5, 2007. 
The decline in the interest coverage compared to ﬁscal 2007 

was the result of the increased interest expense related to the 
additional borrowings to fund the Sobeys privatization and the 
acquisition of Thrifty Foods as previously discussed. 

Empire and its subsidiaries have provided covenants to its 
lenders in support of various ﬁnancing facilities. All covenants 
were complied with for the 52 weeks ended May 3, 2008 and 
for ﬁscal 2007. 

Funded Debt to Total Capital

Interest Coverage

PERCENTAGE

TIMES

40

30

20

10

39.8

6.0

4.5

3.0

1.5

4.47

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

Financial Instruments

Empire utilizes interest rate instruments from time to time to 
prudently manage its exposure to interest rate volatility and also 
to ﬁx future long-term debt maturities that are expected to be 
reﬁnanced. At May 3, 2008, there were four interest rate 
hedges in place with Empire or one of its operating companies. 
On June 18, 2007, Empire entered into two delayed ﬁxed rate 
interest swaps. The ﬁrst swap in an amount of $200.0 million 
is three years in duration and carries a ﬁxed interest rate of 
4.998 percent. The second swap in an amount of $200.0 million is 
for a period of ﬁve years at a ﬁxed interest rate of 5.051 percent. 
Both swaps became effective on July 23, 2007. Empire later 
transferred the second swap to Sobeys. Empire Theatres 
entered into two interest rate swaps on December 27, 2006, 
which ﬁxed the interest rate on $20.0 million of the ﬂoating rate 

debt at 4.28 percent, plus a stamping fee for a ﬁve-year term. 
These swaps ﬁxed the interest rate on approximately 74 percent 
of Empire Theatres’ total indebtedness, all of which is borrowed 
at ﬂoating rates. The fair value of these interest rate swaps at 
year-end was negative $20.0 million. 

The Company also uses forward contracts to ﬁx the 

exchange rate on some of its expected requirements for Euros 
and U.S. dollars. As of May 3, 2008, Sobeys had an asset of 
$2.3 million relating to the value of ﬁve Euro forward contracts. 
There were no outstanding U.S. dollar forward contracts.

Empire and its subsidiaries utilize hedging instruments 

as deemed appropriate to mitigate risk exposure, not for 
speculative purposes. 

2008 AN N UAL R E PORT

51

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liquidity and Capital Resources

Empire’s liquidity remained strong at May 3, 2008 as a result 
of the following sources:

Cash and cash equivalents on hand;
Unutilized bank credit facilities;
Availability of long-term debt ﬁnancing; and
Cash generated from operating activities.

At May 3, 2008, cash and cash equivalents equalled 

$191.4 million versus $294.9 million at May 5, 2007. 

At the end of ﬁscal 2008, on a non-consolidated basis, Empire 

maintained authorized bank lines for operating, general and 

corporate purposes of $650.0 million, of which $399.7 million 
or 61.5 percent were utilized. On a consolidated basis, Empire’s 
authorized bank credit facilities exceeded borrowings by 
$690.8 million at May 3, 2008, versus $661.0 million at May 5, 2007.

The Company anticipates that its capital resources will 
meet its ﬁnancial and liquidity requirements over the next year, 
including capital expenditures, dividends and scheduled 
debt repayments.

The following table highlights major cash ﬂow components 
for the 13 weeks and 52 weeks ended May 3, 2008 compared 
to the 13 weeks and 52 weeks ended May 5, 2007.

Major Cash Flow Components

($ in millions)

13 Weeks Ended
May 3, 2008

13 Weeks Ended 
May 5, 2007

52 Weeks Ended
May 3, 2008

52 Weeks Ended
May 5, 2007

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 ﬁnancing activities

66.5 
105.7

 172.2  
92.0  

264.2  
 211.7  
(407.6) 

 $

64.7
127.7  

192.4  
 84.0  

276.4  
 (149.3) 
 (35.6) 

 $

315.5
 354.1  

 669.6  
 (26.1)

 643.5 
 (1,367.5)
 620.5  

$

205.4
 382.6 

588.0
(149.2)

438.8 
(424.8)
 (60.2)

Increase (decrease) in cash and cash equivalents 

$

68.3 

$

91.5

$

(103.5)

 $

(46.2)

Operating Activities

Fourth quarter cash ﬂows from operating activities equalled 
$264.2 million compared to $276.4 million in the comparable 
period last year. The decrease of $12.2 million is largely 
attributed to an increase in the net change in non-cash working 
capital of $8.0 million and an increase in net earnings available 
for common shareholders of $1.8 million as discussed, offset 
by a decrease in items not affecting cash of $22.0 million. 

Non-Cash Working Capital (Quarter-Over-Quarter)

In ﬁscal 2008, operating activities generated cash ﬂow 
of $643.5 million compared to $438.8 million last year. The 
increase of $204.7 million is primarily the result of the 
$123.1 million increase in net change in non-cash working cash 
ﬂow and earnings for common shareholders increasing by 
$110.1 million, offset by a $28.5 million decrease in items not 
affecting cash, primarily due to the reduction in minority interest.
The following tables present non-cash working capital changes 

on a quarter-over-quarter basis and on a year-over-year basis.

($ in millions)

Receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities 
Income taxes receivable (payable)
Impact of reclassiﬁcations on working capital(1) 

 $

May 3,
2008

316.3
 820.2  
 62.0 
 (1,322.4)
(15.5) 
 37.5  

 $

Feb. 2,
2008

313.4
 847.0  
61.7  
(1,246.1) 
 (0.7)
 14.8

Q4 F2008 vs.
Q3 F2008
Increase
(Decrease) in
Cash Flows

Q4 F2007 vs.
Q3 F2007
Increase
(Decrease) in
Cash Flows

 $

 $

(2.9)
 26.8  
 (0.3) 
 76.3  
14.8
 (22.7) 

1.6 
 15.3
 0.5
 84.1
 (21.5)
 4.0

Total 

$

(101.9)

$

(9.9)

 $

92.0

 $

84.0

52

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Cash Working Capital (Year-Over-Year)

($ in millions)

Receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities 
Income taxes receivable (payable) 
Impact of reclassiﬁcations on working capital(1) 

 $

May 3,
2008

316.3
820.2  
 62.0 
 (1,322.4)
(15.5) 
 42.4 

$

May 5,
2007

312.3
 757.5  
 51.4  
(1,260.3) 
3.6  
12.4  

Year-Over-Year
Increase
(Decrease) in
Cash Flows

 $

(4.0)
 (62.7)
 (10.6)
 62.1
 19.1 
 (30.0)

Total 

 $

(97.0)

$

(123.1)

 $

(26.1)

(1) Reclassiﬁcations primarily relate to business acquisitions and rationalization costs.

The net change in non-cash working capital of $92.0 million 
in the fourth quarter was largely due to a $76.3 million increase 
in payables, a $26.8 million decrease in inventories and an 
increase in income taxes payable of $14.8 million compared 
to the third quarter ended February 2, 2008. The decrease in 
inventory is primarily related to lower inventory requirements 
in the food retailing division following the December selling 
season. The increased accounts payable and accrued liabilities 
largely reﬂects higher accounts payable and accrued liabilities 
at Sobeys due to a general increase as a result of increased 
operations. The decrease in taxes payable compared to the 
third quarter reﬂects the timing of tax remittances.

Year-over-year non-cash working capital decreased 
$26.1 million. This is primarily the result of a $62.7 million 
increase in inventories, a $10.6 million increase in prepaid 
expenses and a $4.0 million increase in receivables, partially 
offset by a decrease in income taxes receivable of $19.1 million 
and a $62.1 million increase in accounts payable and accrued 
liabilities compared to the fourth quarter of last year. The 
increase in inventories and related accounts payable and 
accrued liabilities is correlated to Sobeys’ higher sales volumes, 
the Thrifty’s acquisition and the increased square footage in 
its expanded store network.

Investing Activities

In the fourth quarter of ﬁscal 2008, the Company generated 
cash from investing activities of $211.7 million compared to 
cash used in investing activities of $149.3 million in the fourth 
quarter last year. The fourth quarter investing activities this year 
beneﬁted from proceeds of $373.5 million related to the sale 
of 61 properties to Crombie REIT, which was partially offset 
by a net increase in investments, primarily Crombie REIT, of 
$54.2 million. Investment in property, equipment and other 
assets totalled $150.3 million in the fourth quarter versus 
$141.3 million in the same quarter last year.

For the ﬁscal year, cash used in investing activities increased 

$942.7 million to total $1,367.5 million. This was primarily the 
result of the purchase of Sobeys’ shares to privatize the 
Company for a cash outlay of $1,065.7 million, cash used in 
business acquisitions, primarily Thrifty Foods, of $263.2 million 
and an increase in the cash used to purchase property and 
equipment of $40.5 million, partially offset by cash proceeds 
from sale of property to Crombie REIT of $373.5. 

Consolidated purchases of property, equipment and other 
assets totalled $549.4 million compared to $508.9 million last 
ﬁscal year. The table below presents capital expenditures over 
the last two ﬁscal years by division. 

($ in millions)

May 3, 2008

May 5, 2007

Food retailing
Real estate
Investments 

$ 481.2 
 47.3 

 $ 446.7 
 16.0 

and other operations 

 20.9  

46.2 

Total 

 $ 549.4 

$ 508.9

2008 AN N UAL R E PORT

53

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The table below outlines the number of stores Sobeys invested in or closed during ﬁscal 2008 compared to ﬁscal 2007.

Sobeys’ Corporate and Franchised Store Construction Activity

# of Stores

Opened/Acquired/Relocated   
Expanded
Rebannered/Redeveloped 
Closed 

13 Weeks Ended
May 3, 2008

13 Weeks Ended
May 5, 2007

52 Weeks Ended
May 3, 2008

52 Weeks Ended
May 5, 2007

15  
10

9  
17  

7  
3  
13  
9  

66  
31  
60  
67  

77 
24
 49
38

The following table shows Sobeys’ square footage changes for 
the 13 weeks and 52 weeks ended May 3, 2008 by type.

Sobeys’ Square Footage Changes

Square Feet (in thousands)

Q4 F08
vs. Q3 F08

Q4 F08 
vs. Q4 F07

Opened 
Relocated  
Acquired   
Expanded  
Closed 

Net Change

 153  
48  
 – 
 50  
 124  

 127  

 477
 364
 571
 172 
 794 

 790 

At May 3, 2008, Sobeys’ square footage totalled 27.2 million 
square feet, a 3.0 percent increase over the 26.4 million square 
feet in operation at the end of the fourth quarter of last year.
Capital expenditures for the real estate division equalled 
$47.3 million in ﬁscal 2008 ($16.0 million in ﬁscal 2007) as 
a result of ongoing property developments and land additions. 
The signiﬁcant increase in capital expenditures underlines 
ECL Developments’ commitment to acquire attractive sites 
for grocery-anchored shopping plaza development.

Capital spending by investments and other operations 
equalled $20.9 million in ﬁscal 2008 ($46.2 million in ﬁscal 
2007) primarily as a result of a reduction in expenditures to 
invest in selected oil and gas properties in Alberta through 
Kepec. The majority of the capital spending in ﬁscal 2008 
was to modernize and develop various movie theatre locations.

Financing Activities

Financing activities during the fourth quarter used $407.6 million 
of cash compared to $35.6 million of cash used in the 
comparable period of ﬁscal 2007. Net repayments of funded 
debt amounted to $390.3 million in the fourth quarter 
(repayments of $445.9 million net of issuances of $55.6 million) 
compared to net repayments of $19.0 million (repayments of 
$40.9 million net of issuances of $21.9 million) in the fourth 
quarter of ﬁscal 2007. In the fourth quarter of ﬁscal 2008, the 
proceeds from the sales of 61 properties to Crombie REIT 
were used to repay long-term debt as discussed.

For the ﬁscal year, ﬁnancing activities increased cash 

by $620.5 million compared to a $60.2 million decline 
last year largely due to the issuance of long-term debt. In 
ﬁscal 2008, the net increase in funded debt amounted 
to $654.3 million (issuances of $1,161.8 million net of 
repayments of $507.5 million) compared to net repayments of 
$10.7 million (repayments of $171.5 million net of issuances 
of $160.8 million) in ﬁscal 2007. The additional long-term debt 
added in ﬁscal 2008 was related to the privatization of Sobeys 
and the acquisition of Thrifty Foods. A portion of this newly 
issued debt was later repaid with proceeds from the sale of 
61 properties to Crombie REIT as discussed. The Company 
added net long-term debt of $592.3 million in ﬁscal 2008 
versus $56.6 million added last year. 

Food Retailing Capital Expenditures

Real Estate Capital Expenditures

$ IN MILLIONS

$ IN MILLIONS

481.2

400

300

200

100

47.3

60

45

30

15

FISCAL YEAR

04

05

06

07

08

FISCAL YEAR

04

05

06

07

08

54

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounting Policy Changes

Accounting standards adopted during ﬁscal 2008:

Accounting Changes

In July 2006, the Canadian Institute of Chartered Accountants 
(“CICA”) issued section 1506 of the CICA Handbook, 
“Accounting Changes”, which describes the criteria for changing 
accounting policies, along with the accounting and disclosure for 
changes in accounting policies, changes in accounting estimates 
and corrections of errors. These changes came into effect for 
ﬁscal periods beginning on or after January 1, 2007 and were 
applicable as of the Company’s ﬁrst quarter of ﬁscal 2008. 

Financial Instruments

On May 6, 2007, the Company implemented the CICA Handbook 
Sections 3855, “Financial Instruments – Recognition and 
Measurement”, 3865, “Hedges”, 1530, “Comprehensive Income”, 
3251, “Equity” and 3861, “Financial Instruments – Disclosure 
and Presentation”. These standards have been applied without 
restatement of prior periods. The transitional adjustments 
resulting from these standards were recognized in the opening 
balances of retained earnings and accumulated other 
comprehensive income. 

Financial Instruments – Recognition and Measurement

Section 3855, “Financial Instruments – Recognition and 
Measurement” requires the Company to initially recognize all 
of its ﬁnancial assets and liabilities, including derivatives and 
embedded derivatives in certain contracts, at fair value adjusted 
on transition as appropriate, and measured subsequently in 
accordance with the classiﬁcation chosen. Non-ﬁnancial 

derivatives must be recorded at fair value on the consolidated 
balance sheet unless they are exempt from derivative treatment 
based upon expected purchase, sale or usage requirements.

This standard also requires the Company to classify ﬁnancial 

assets and liabilities according to their characteristics and 
management’s choices and intentions related thereto for the 
purposes of ongoing measurements. Classiﬁcation choices for 
ﬁnancial assets include: a) held for trading – measured at fair 
value with changes in fair value recorded in net earnings; 
b) held to maturity – recorded at amortized cost with gains and 
losses recognized in net earnings in the period that the asset is 
derecognized or impaired; c) available-for-sale – measured at 
fair value with changes in fair value recognized in other 
comprehensive income for the current period until realized 
through disposal or impairment; and d) loans and receivables – 
recorded at amortized cost with gains and losses recognized 
in net earnings in the period that the asset is derecognized or 
impaired. Classiﬁcation choices for ﬁnancial liabilities include: 
a) held for trading – measured at fair value with changes in 
fair value recorded in net earnings and b) other – measured 
at amortized cost with gains and losses recognized in net 
earnings in the period that the liability is no longer recognized. 
Subsequent measurement for these assets and liabilities are 
based on either fair value or amortized cost using the effective 
interest method, depending upon their classiﬁcation. Any 
ﬁnancial asset or liability can be classiﬁed as held for trading 
as long as its fair value is reliably determinable.

In accordance with the new standard, the Company’s 
ﬁnancial assets and liabilities are generally classiﬁed and 
measured as follows:

Asset/Liability

Cash   
Cash equivalents
Receivables
Mortgages, loans and other receivables  
Investments
Derivative other assets and liabilities 
Non-derivative other assets and liabilties 
Bank indebtedness 
Accounts payable and accrued liabilities 
Long-term debt

Classification

Held for trading
Held for trading
Loans and receivables
Loans and receivables
Available-for-sale
Held for trading
Held to maturity
Other liabilities
Other liabilities
Other liabilities

Measurement

Fair value
Fair value
Amortized cost
Amortized cost
Fair value
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost

 Other balance sheet accounts, including, but not limited to, 
inventories, prepaid expenses, investments (at equity), property 
and equipment, assets held for sale, intangibles, goodwill, 
current and future long-term income taxes, employee future 
beneﬁts obligation and minority interest are not within the 
scope of the new accounting standard as they are not 
ﬁnancial instruments.

Transaction costs, other than those related to ﬁnancial 
instruments classiﬁed as held for trading which are expensed 
as incurred, are added to the fair value of the ﬁnancial asset or 
ﬁnancial liability on initial recognition and amortized using the 
effective interest method.

2008 AN N UAL R E PORT

55

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives are required to be separated and 
measured at fair values if certain criteria are met. Under an 
election permitted by the new standard, management reviewed 
contracts entered into or modiﬁed subsequent to May 3, 2003 
and determined that the Company does not currently have any 
signiﬁcant embedded derivatives in its contracts that require 
separate accounting treatment. 

Section 3855 also requires that obligations undertaken 
through issuance of a guarantee that meets the deﬁnition of 
a guarantee pursuant to Accounting Guideline 14, “Disclosure 
of Guarantees”, be recognized at fair value at inception. No 
subsequent re-measurement at fair value is required unless the 
ﬁnancial guarantee qualiﬁes as a derivative. Management reviewed 
and determined that identiﬁed guarantees were immaterial.

The fair value of a ﬁnancial instrument is the amount of the 

consideration that would be agreed upon in an arm’s length 
transaction between knowledgeable, willing parties who are under 
no compulsion to act. To estimate the fair value of each type of 
ﬁnancial instrument various market value data and other valuation 
techniques were used as appropriate. The fair value of cash 
approximated its carrying value. The fair value of currency swaps 
was estimated based on discounting of the forward rate at the 
reporting date compared to the forward rate in the contract. The 
fair value of interest rate swaps was estimated by discounting net 
cash ﬂows of the swaps using forward interest rates for swaps of 
the same remaining maturities. The fair value of energy contracts 
was estimated based on changes in forward commodity rates.

Hedges

Section 3865, “Hedges” replaces Accounting Guideline 13, 
“Hedging Relationships”. The requirements for identiﬁcation, 
designation, documentation and assessment of effectiveness of 
hedging relationships remain substantially unchanged. Section 
3865 addresses the accounting treatment of qualifying hedging 
relationships and the necessary disclosures and also requires all 
derivatives in hedging relationships to be recorded at fair value.
The Company has cash ﬂow hedges which are used to 
manage exposure to ﬂuctuations in foreign currency exchange 
rates, variable interest rates and energy prices. For cash ﬂow 
hedges, the effective portion of the change in fair value of the 
hedging item is recorded in other comprehensive income. To the 
extent the change in fair value of the derivative is not completely 
offset by the change in fair value of the hedged item, the 
ineffective portion of the hedging relationship is recorded 
immediately in net earnings. Amounts accumulated in other 
comprehensive income are reclassiﬁed to net earnings when 
the hedged item is recognized in net earnings. When a hedging 
instrument in a cash ﬂow hedge expires or is sold, or when a 
hedge no longer meets the criteria for hedge accounting, any 
cumulative gain or loss in accumulated other comprehensive 
income relating to the hedge is carried forward until the hedged 
item is recognized in net earnings. When the hedged item 
ceases to exist as a result of its expiry or sale, or if an 
anticipated transaction is no longer expected to occur, the 
cumulative gain or loss in accumulated other comprehensive 
income is immediately reclassiﬁed to net earnings.

Signiﬁcant derivatives include the following:
Foreign currency forward contracts for the primary purpose 
of limiting exposure to exchange rate ﬂuctuations relating 
to expenditures denominated in foreign currencies. These 
contracts are designated as hedging instruments for 
accounting purposes. Accordingly, the effective portion of 
the change in the fair value of the forward contracts are 
accumulated in other comprehensive income until the 
variability in cash ﬂows being hedged is recognized in 
earnings in future accounting periods.
Electricity contracts to manage the cost of electricity 
designated as cash ﬂow hedges of anticipated transactions. 
The portion of gain or loss on derivative instruments 
designated as cash ﬂow hedges that are deferred in 
accumulated other comprehensive income is reclassiﬁed 
into other income/expense when the product containing 
the hedged item impacts earnings. Hedge ineffectiveness 
was immaterial for the current ﬁscal year. 
Interest rate swaps designated as cash ﬂow hedges to 
manage variable interest rates associated with some of 
the Company’s debt portfolio. Hedge accounting treatment 
results in interest expense on the related debt being 
reﬂected at hedged rates rather than variable interest rates.

Comprehensive Income

In accordance with Section 1530, “Comprehensive Income”, 
the Company reported a new ﬁnancial statement entitled 
“Consolidated Statements of Comprehensive Income”, which 
is comprised of net earnings and other comprehensive income. 
Other comprehensive income represents the change in 
shareholders’ equity from transactions and other events from 
non-owner sources and includes unrealized gains and losses 
on ﬁnancial assets that are classiﬁed as available-for-sale, and 
changes in the fair value of the effective portion of cash ﬂow 
hedging instruments. The accumulated other comprehensive 
income (i.e. the portion of comprehensive income not already 
included in net earnings) is being presented as a separate line 
in shareholders’ equity. In accordance with the new standard, 
$0.6 million relating to unrealized losses resulting from the 
translation of self-sustaining foreign operations which had 
previously been classiﬁed as cumulative translation adjustment 
within shareholders’ equity is now presented within accumulated 
other comprehensive income.

Equity

Section 3251, “Equity”, which replaced Section 3250, “Surplus”, 
establishes standards for the presentation of equity and 
changes in equity during the reporting period and requires the 
Company to present separately equity components and changes 
in equity arising from: i) net earnings; ii) other comprehensive 
income; iii) other changes in retained earnings; iv) changes in 
contributed surplus; v) changes in share capital; and vi) changes 
in reserves. 

56

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

Financial Instruments – Disclosure and Presentation

Section 3861, “Financial Instruments – Disclosure and 
Presentation”, which replaced Section 3860, of the same 
title, establishes standards for the presentation of ﬁnancial 
instruments and non-ﬁnancial derivatives, and identiﬁes the 
information that should be disclosed about them.

The following table summarizes the transition adjustments 

recorded upon implementation: 

($ in millions)

Transition Adjustments

Consolidated Balance Sheet

Investments
Other assets
Other liabilities
Long-term debt
Future income taxes
Minority interest
Accumulated other comprehensive income

$

94.4
 (4.5)
 2.5
 2.7
 (18.5)
 0.6
(77.2)

Deferred Charges

The Company adopted CICA Section 3855, “Financial 
Instruments – Recognition and Measurement”, effective as of 
the ﬁrst quarter of ﬁscal 2008. Concurrent with issuance of this 
section, Section 3070, “Deferred Charges”, was withdrawn. As 
a result, the Company reviewed its deferred costs classiﬁcations 
included with other assets and determined that the following 
changes were necessary:

Deferred Store Marketing

Deferred store marketing costs, primarily comprised of store 
renovation and expansion costs, were reclassiﬁed and included 
with equipment, ﬁxtures and vehicles as part of the Company’s 
property and equipment balance sheet group. Prior year 
balances were reclassiﬁed which resulted in an increase in 
property and equipment and a decrease in other assets of 
$106.2 million at May 5, 2007 as well as an increase in 
depreciation expense and decrease in cost of sales, selling 
and administrative expenses of $25.3 million for the year 
ended May 5, 2007. There is no impact on net earnings or 
earnings per share as a result of this change.

Deferred Repositioning Costs

Effective for the ﬁrst quarter of ﬁscal 2008, the Company 
changed its accounting policy for the treatment of certain 
deferred costs associated with major repositioning or branding 
efforts of the Company. Due to the withdrawal of the primary 
source of GAAP, Section 3070, “Deferred Charges”, the 
Company looked to other sources of existing and proposed 
GAAP for guidance in determining its future policy for such 
costs. Based on this review, the Company determined, in setting 
the new policy, that it would be more appropriate to expense 

these types of costs in the period incurred as it provides 
more relevant information on expenditures associated with 
repositioning and branding efforts. 

This change in accounting policy was applied retrospectively 
resulting in a $9.1 million decrease in other assets, a $3.2 million 
decrease in long-term future tax liabilities, and a $4.3 million 
decrease in earnings (net of minority interest of $1.6 million) 
at May 5, 2007. The effect for the year ended May 5, 2007 is a 
$9.1 million increase in cost of sales, selling and administrative 
expenses, a $3.2 million decrease in income taxes and $0.06 
decrease in basic and diluted earnings of per share. The effect 
for the year ended May 3, 2008, was a $3.6 million decrease in 
cost of sales, selling and administrative expenses, a $1.2 million 
increase in income taxes and an increase in basic and diluted 
earnings of $0.04 per share.

The following accounting standards have been implemented 

during ﬁscal 2007:

Vendor Consideration

During the ﬁrst quarter of ﬁscal 2007, the Company implemented 
on a retroactive basis, Emerging Issues Committee Abstract 156 
(“EIC-156”), “Accounting by a Vendor for Consideration Given to 
a Customer (including a Reseller of the Vendor’s Products)”. This 
abstract requires a vendor to generally record cash consideration 
given to a customer as a reduction to the selling price of the 
vendor’s product or services and reﬂect it as a reduction of 
revenue when recognized in the statement of earnings. 

Prior to the implementation of EIC-156, the Company 

recorded certain sales incentives paid to independent 
franchisees, associates and independent accounts in cost of 
sales, selling and administrative expenses on the statement 
of earnings. Accordingly, the implementation of EIC-156 on a 
retroactive basis resulted in a reduction in both sales and cost 
of sales, selling and administrative expenses. As reclassiﬁcations, 
these changes did not impact net earnings or earnings per share.

Future Changes in Accounting Policies

Inventories

In June 2007, the CICA issued Section 3031, “Inventories”, 
which has replaced existing Section 3030 with the same title. 
The new Section establishes that inventories should be 
measured at the lower of cost and net realizable value, with 
guidance on the determination of cost. This standard is effective 
for interim and annual ﬁnancial statements relating to ﬁscal 
years beginning on or after January 1, 2008 and is applicable 
for the Company’s ﬁrst quarter of ﬁscal 2009. The Company has 
evaluated the impact of this new standard and does not expect 
the adoption of this standard to have a signiﬁcant impact on its 
ﬁnancial statement disclosures and statement of earnings.

2008 AN N UAL R E PORT

57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital Disclosures

In October 2006, the CICA issued Section 1535, “Capital 
Disclosures”. This section establishes standards for disclosing 
information about an entity’s capital and how it is managed. The 
standard is effective for interim and annual ﬁnancial statements 
relating to ﬁscal years beginning on or after October 1, 2007 and 
is applicable for the Company’s ﬁrst quarter of ﬁscal 2009. The 
Company does not expect that the adoption of this standard will 
have a signiﬁcant impact on its ﬁnancial statement disclosures.

Financial Instruments – Disclosure and Financial 
Instruments – Presentation

Section 3862 “Financial Instruments – Disclosure” and Section 
3863, “Financial Instruments – Presentation”, replace Section 
3861, “Financial Instruments – Disclosure and Presentation”. 
Section 3862 requires increased disclosures regarding the risks 
associated with ﬁnancial instruments such as credit risk, liquidity 
risk and market risks and the techniques used to identify, monitor 
and manage these risks. Section 3863 carries forward standards 
for presentation of ﬁnancial instruments and non-ﬁnancial 
derivatives and provides additional guidance for the classiﬁcation 
of ﬁnancial instruments between liabilities and equity. These 
standards are effective for interim and annual ﬁnancial 
statements relating to ﬁscal years beginning on or after 
October 1, 2007 and are applicable for the Company’s ﬁrst 

quarter of ﬁscal 2009. The Company does not expect the 
adoption of these standards to have a signiﬁcant impact on 
its ﬁnancial disclosures and results of operations.

Goodwill and Intangible Assets

In February 2008, the CICA issued Section 3064, “Goodwill 
and Intangible Assets”, which replaced existing Section 3062, 
“Goodwill and Other Intangible Assets” as Section 3450, 
“Research and Development”. The new standard provides 
guidance on the recognition, measurement, presentation and 
disclosure of goodwill and intangible assets. This standard is 
effective for interim and annual ﬁnancial statements relating 
to ﬁscal years beginning on or after October 1, 2008 and is 
applicable for the Company’s ﬁrst quarter of ﬁscal 2010. The 
Company is currently evaluating the impact of this new standard.

International Financial Reporting Standards

In January 2006, the Canadian Accounting Standards Board 
announced its decision requiring all publicly accountable entities 
to report under International Financial Reporting Standards. 
This decision establishes standards for ﬁnancial reporting with 
increased clarity and consistency in the global marketplace. 
These standards are effective for interim and annual ﬁnancial 
statements relating to ﬁscal years beginning on or after 
January 1, 2011 and are applicable for the Company’s ﬁrst 
quarter of ﬁscal 2012. The Company is currently evaluating 
the impact of these new standards.

Critical Accounting Estimates

The preparation of ﬁnancial statements in accordance with 
Canadian GAAP requires management to make estimates and 
assumptions that affect the reported amounts and disclosures 
made in the consolidated ﬁnancial statements and accompanying 
notes. Certain of these estimates require subjective or complex 
judgments by management that may be uncertain. Some of 
these items include inventories, carrying value of commercial 
properties, goodwill, employee future beneﬁts, asset backed 
commercial paper, and income taxes. Changes to these 
estimates could materially impact the ﬁnancial statements. 
These estimates are based on management’s best knowledge 
of current events and actions that the Company may undertake 
in the future. Actual results could differ from these 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 beneﬁts obligation. 

Signiﬁcant assumptions used to calculate the pension and 
employee future beneﬁts obligation 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 ten 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 rates are determined on April 30th 
every year. For ﬁscal 2008, the discount rate used for calculation 
of pension and other beneﬁt plan expense was 5.25 percent 
(ﬁscal 2007 – 5.0 percent). The expected long-term rate of 
return on plan assets for pension beneﬁt plans for each of ﬁscal 
2008 was 7.0 percent (ﬁscal 2007 – 7.0 percent). The expected 
growth rate in health care costs was 9.0 percent for ﬁscal 2008 

58

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

(ﬁscal 2007 – 10.0 percent). The cumulative growth rate in 
health care costs to 2016 is expected to be 5.0 percent. The 
expected future growth rate is evaluated on an annual basis. 
The table below outlines the sensitivity of the 2008 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 obligation or beneﬁt plan expenses. 

($ in millions)

Expected long-term rate of return on plan assets 

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

Discount rate(2) 

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

Growth rate of health care costs(3) 

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

Pension Plans

Other Benefit Plans

Benefit 
Obligations

Benefit    
Cost (1)

Benefit 
Obligations

Benefit 
Cost(1)

7.00%
(2.4)
2.4

5.25%
0.4
(0.8)

 $
 $

 $
 $

5.25% 
(29.5)
33.1

 $
 $

5.25% 
(17.1)
20.6

9.00% 
19.1
(15.4)

 $
 $

 $
 $

5.25%
(0.7)
0.8

9.00%
1.9 
(1.5)

 $
 $

 $
 $

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

(2) 5.5 percent for the Employee Pension Plan and the Post Retirement Beneﬁt Plan. 

(3) Gradually decreasing to 5.0 percent in 2016 and remaining at that level thereafter.

Goodwill and Long-Lived Assets

Goodwill is not amortized and is assessed for impairment 
at the reporting unit level. This is done, at a minimum, 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 judgment. 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.

Valuation of Inventories

Inventories are valued at the lower of cost and estimated net 
realizable value. Signiﬁcant estimation or judgment is required 
in the determination of (i) inventories counted and adjusted to 
cost and (ii) estimated inventory reductions due to spoilage, 
shrinkage and allowances, occurring between the last physical 
inventory count and the balance sheet date.

2008 AN N UAL R E PORT

59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Inventory shrinkage, which is calculated as a percentage 
of the related inventory, is evaluated throughout the year and 
provides for estimated inventory shortages from the last physical 

count to the balance sheet date. To the extent that actual losses 
experienced vary from those estimated, inventories, operating 
income and consolidated earnings may be impacted.

Controls and Procedures

Empire’s management, with the participation of the Chief 
Executive Ofﬁcer (“CEO”) and Chief Financial Ofﬁcer (“CFO”), 
has reviewed and evaluated the Corporation’s disclosure 
controls and procedures (as that term is deﬁned in Multi-

National Instrument 52-109) as of May 3, 2008. Based on 
that evaluation, the CEO and CFO have concluded that the 
design and operation of the system of disclosure controls 
and procedures was effective. 

Internal Controls Over Financial Reporting

Empire’s management, with the participation of the CEO 
and CFO, has reviewed and evaluated the design of the 
Corporation’s internal controls over ﬁnancial reporting (as that 
term is deﬁned in MI 52-109) as of May 3, 2008. Internal 
controls over ﬁnancial reporting are designed to provide 
reasonable assurance regarding the reliability of the Company’s 
ﬁnancial reporting and its preparation of ﬁnancial statements 
for external purposes in accordance with Canadian GAAP. 
All internal control systems, no matter how well designed, have 
inherent limitations. Therefore, even those systems determined 
to be effective can provide only reasonable assurance with 
respect to ﬁnancial reporting. 

In addition, management has evaluated whether there were 
changes in our internal controls over ﬁnancial reporting during 
the interim period ended May 3, 2008 that have materially 
affected, or are reasonably likely to materially affect, our internal 
controls over ﬁnancial reporting. 

As a result of this evaluation, management reports that there 

have been no changes in the Company’s internal controls over 
ﬁnancial reporting during the 52 weeks ended May 3, 2008 that 
have materially affected, or are reasonably likely to materially 
affect, our internal controls over ﬁnancial reporting. Therefore, 
Empire’s CEO and CFO have concluded that the design of its 
internal controls over ﬁnancial reporting is effective.

Related Party Transactions

The Company rents premises from Crombie REIT. In addition, 
Crombie REIT provides administrative and management 
services to the Company. The rental payments are at fair value 
and the charges incurred for administrative and management 
services are on a cost recovery basis. The Company has 
non-interest bearing notes payable to Crombie REIT in the 
amount of $19.6 million.

On October 2, 2006, the Company sold two commercial 
properties to Crombie REIT for cash proceeds of $32.4 million, 
which was fair market value. Since the sale was to an equity 
accounted investment, no gain was recorded on the sale.

Other Matters

Asset Backed Commercial Paper

On April 22, 2008, the Company sold 61 commercial 

properties to Crombie REIT, for cash proceeds of $373.5 million 
plus additional Class B Units in Crombie Limited Partnership 
totalling $55.0 million, which was fair market value. In 
accordance with Canadian GAAP, the gain on this transaction 
of $144.3 million has been accounted for as a reduction in the 
carrying value of Crombie REIT because the purchaser is a 
related party.

As of May 3, 2008, the Company held third-party ABCP with an 
original cost of $30.0 million that was in default. The ABCP was 
rated by the Dominion Bond Rating Service (“DBRS”) as R-1 

(high), the highest credit rating for commercial paper since the 
ABCP are backed by AAA (high) rated assets. The $30.0 million 
of ABCP held by the Company is entirely made up of collateralized

60

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

debt obligations. Collateralized debt obligations are a type of 
asset-backed security that is created by a portfolio of ﬁxed-
income assets which may include pools of bonds, credit card 
debt, commercial mortgage-backed securities and other loans.
In the second quarter of ﬁscal 2008, a global disruption in 
the market for such commercial paper resulted in a constraint 
on the liquidity of ABCP. DBRS placed certain of the ABCP 
“Under Review with Developing Implications” following an 
announcement on August 16, 2007 that a consortium 
representing banks, asset providers and major investors had 
agreed in principle to a long-term proposal and interim 
agreement regarding the ABCP (commonly referred to as “the 
Montreal Proposal”). On September 6, 2007 a pan-Canadian 
committee (“the Committee”) consisting of major investors was 
formed to oversee the proposed restructuring process of the 
ABCP. As of May 3, 2008, all of the ABCP held by the Company 
were part of the Montreal Proposal. Under this proposal, the 
affected ABCP would be converted into term ﬂoating rate notes 
maturing no earlier than the scheduled termination dates of the 
underlying assets. The Montreal Proposal called for the investors 
to continue to roll their ABCP during the standstill period. 

On December 23, 2007, a formal restructuring proposal was 

established to address the global disruption experienced with 
third-party ABCP. On April 25, 2008, note holders voted in 
favour of the restructuring proposal, which will provide investors 
with new long-term notes that will more closely match the 
maturity dates of the underlying assets and the cash ﬂows they 
are expected to generate and was approved on June 5, 2008 
by the Ontario Superior Court of Justice.

On March 20, 2008, the Committee issued an Information 
Statement containing details about the proposed restructuring. 
Based on this and other public information it is estimated that 
the $30.0 million of ABCP in which the Company has invested 
in is represented by a combination of leveraged collateralized 
debt, synthetic assets and traditional securitized assets. The 
Company will, on restructuring, receive replacement senior 
Class A-1 and Class A-2 and subordinate Class B and Class C 
long-term ﬂoating rate notes with maturities of approximately 
eight years and nine months.

The Company expects to receive replacement notes with par 

values as follows:

($ in millions)

Class A-1: 
Class A-2: 
Class B:    
Class C:    

Total :   

$

8.2
17.8
 3.1
0.9

$

30.0

The replacement notes are expected to obtain an 

AA rating while the replacement subordinate notes are likely 
to be unrated.

The valuation technique used by the Company to estimate 

the fair value of its investment in ABCP at May 3, 2008 
incorporates probability weighted discounted cash ﬂows 
considering the best available public information regarding 
market conditions, prevailing yields, credit spreads and other 
factors that a market participant would consider for such 
investments. The assumptions used in determining the estimated 
fair value reﬂect the details included in the Information 
Statement issued by the Committee and the risks associated 
with the long-term ﬂoating rate notes.

Interest rates and credit losses vary by each of the different 
replacement long-term ﬂoating rate notes to be issued as each 
has different credit ratings and risks. Interest rates and credit 
losses also vary by the different probable cash ﬂow scenarios 
that have been modeled.

Discount rates vary dependent upon the credit rating of the 
replacement long-term ﬂoating rate notes. Discount rates have 
been estimated using Government of Canada benchmark rates 
plus expected spreads for similarly rated instruments with similar 
maturities and structure. An increase in the estimated discount 
rates of 1 percent would reduce the estimated fair value of the 
Company’s investment in ABCP by approximately $5.0 million.

Maturities vary by different replacement long-term 
ﬂoating rate notes as a result of the expected maturity of 
the underlying assets.

These investments were initially and continue to be classiﬁed 

as held-to-maturity instruments by the Company and were 
carried at an amortized cost. Due to the lack of liquidity and 
a yield on these instruments, a pre-tax impairment loss of 
$7.5 million or 25 percent of the original cost was recorded 
during ﬁscal 2008. It is possible that the amount ultimately 
recovered may differ from the estimate. The Company continues 
to investigate the implications of the default and the remedies 
available. In addition, these investments have been reclassiﬁed 
as long-term under other assets rather than current assets due 
to the uncertainty as to the timing of collection.

Continuing uncertainties regarding the value of assets which 
underlie the ABCP, the amount and timing of cash ﬂows and the 
outcome of the restructuring process could give rise to a further 
material change in the value of the Company’s investment in 
ABCP which could impact the Company’s near term earnings.
The Company believes it has sufﬁcient credit facilities to 
satisfy its ﬁnancial obligations as they come due and does not 
expect there will be a material adverse impact on its business 
as a result of this current third-party ABCP liquidity issue.

2008 AN N UAL R E PORT

61

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Guarantees and Commitments

The following illustrates the Company’s signiﬁcant contractual obligations over the next ﬁve ﬁscal years and thereafter.

Gross obligations excluding lease income

($ in millions) 

2009 

2010 

2011 

Long-term debt
Capital leases 
Operating leases 

$

47.2 
 13.2  
300.9  

 $

20.4
 12.0  
 281.8  

 $ 536.3 
 11.1  
 263.9 

 $

2012 

18.0
 8.0  
247.5 

2013 

  Thereafter 

Total 

 $ 265.7

 4.9  
234.5 

 $ 530.9 
 7.3
1,862.8

 $ 1,418.5
 56.5
 3,191.4 

Total contractual
obligations

 $ 361.3 

 $ 314.2

 $ 811.3

 $ 273.5 

 $ 505.1 

$ 2,401.0

 $ 4,666.4

Operating leases, net of expected lease income received by the Company

($ in millions) 

2009 

2010 

2011 

2012 

2013 

  Thereafter 

Total 

 $ 219.1

 $ 204.4 

 $ 191.3

 $ 179.6 

 $ 172.6 

 $ 1,483.2 

 $ 2,450.2

Franchise Afﬁliates

Other

Sobeys has guaranteed certain bank loans contracted by 
franchise afﬁliates. As at May 3, 2008, these loans amounted 
to $1.3 million (May 5, 2007 – $2.9 million).

At May 3, 2008, the Company was contingently liable for letters 
of credit issued in the aggregate amount of $60.3 million 
(May 5, 2007 – $48.5 million). 

Upon entering into the lease of its new Mississauga 
distribution centre in March 2000, Sobeys 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 12 years with an aggregate obligation of $37.5 million 
(May 5, 2007 – $40.4 million). At the time of the sale of assets 
of Serca Foodservice Inc. to SYSCO Corp., the lease of the 
Mississauga distribution centre was assigned to and assumed 
by a subsidiary of the purchaser and SYSCO Corp. agreed to 
indemnify and hold Sobeys harmless from any liability it may 
incur pursuant to its guarantee.

During the second quarter of ﬁscal 2008, Sobeys entered 
into an additional guarantee contract. Under the terms of the 
guarantee, should a franchise afﬁliate be unable to fulﬁll their 
lease obligation, Sobeys would be required to fund the greater 
of $5.0 million or 9.9 percent of the unfulﬁlled obligation 
balance. As at May 3, 2008 the amount of the guarantee was 
$5.0 million.

Sobeys also has guaranteed certain equipment leases of 
its franchise afﬁliates. Under the terms of the guarantee should 
a franchise afﬁliate be unable to fulﬁll its lease obligation, 
Sobeys would be required to fund the difference of the lease 
commitments up to a maximum of $70.0 million reduced from 
$100.0 million during the second quarter of ﬁscal 2008 on 
a cumulative basis. Sobeys approves each of the contracts.
The aggregate, annual, minimum rent payable under the 

guaranteed operating equipment leases for ﬁscal 2009 is 
approximately $18.1 million. The guaranteed lease commitments 
over the next ﬁve ﬁscal years are:

($ in millions)

2009   
2010   
2011   
2012   
2013   
Thereafter

Guaranteed 
Lease Commitments

 $
$
$
$
$
$

18.1
 13.6
 12.5
 10.1 
 7.7
1.8

62

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designation For Eligible Dividends

The new dividend regime for the favourable tax treatment of 
“eligible dividends” has been brought into effect by Bill C-28 which 
came into effect on February 21, 2007. Passage of this bill has 
important implications for corporations paying eligible dividends. To 
be eligible dividends, dividends paid on or after February 21, 2007, 
must be designated as such as the time of payment.

Contingencies

Empire has, in accordance with the administrative position of 
the Canada Revenue Agency, included the appropriate language 
on its website to designate the dividends paid by Empire as 
eligible dividends unless otherwise designated.

In the ordinary course of business, the Company is subject to 
ongoing audits by tax authorities. While the Company believes 
that its tax ﬁling positions are appropriate and supportable, from 
time to time certain matters are reviewed and challenged by 
tax authorities.

On June 21, 2005, Sobeys received a notice of 

reassessment from Canada Revenue Agency (“CRA”) for the 
ﬁscal years 1999 and 2000 related to the Goods and Services 
Tax (“GST”). CRA asserts that Sobeys was obliged to collect 
GST on the sales of tobacco products to status Indians. The 
total tax, interest and penalties in the reassessment were 
$13.6 million. Sobeys has reviewed this matter, has received 
legal advice, and believes it was not required to collect GST. 
During the second quarter of ﬁscal 2006, Sobeys ﬁled a Notice 
of Objection with CRA. Accordingly, Sobeys has not recorded in 
its statement of earnings any of the tax, interest or penalties 
set-out in the notice of reassessment. Sobeys has deposited 
with CRA funds to cover the total tax, interest and penalties in 
the reassessment and has recorded this amount as a long-term 
receivable from CRA pending resolution of the matter.

The Company and a subsidiary have been reassessed in 
respect to the tax treatment of gains realized on the sale of 
shares in Hannaford Bros. Co. (“Hannaford”) in ﬁscal 2001. 
In the event that the tax authorities are successful in respect 
of the Hannaford transaction, which the Company believes is 
unlikely, the maximum potential exposure in excess of provisions 
taken is approximately $22.8 million. The Company has appealed 

the reassessments in respect of the sale of Hannaford shares. 
The Company expects that it will be substantially successful 
on its appeals of each of these reassessments. The Company 
also believes that the ultimate resolution of these matters will 
not, in any event, have a material impact on earnings because 
it has made adequate provisions for each of these matters. 
Should the ultimate outcome materially differ from the provisions 
established, the effective tax rate and earnings of the Company 
could be materially affected, negatively or positively, in the 
period in which the matters are resolved.

During the fourth quarter, the Company settled other 
outstanding disputes with CRA. Payments of $28.4 million 
were covered by existing provisions resulting in no impact on 
net earnings.

The Company entered into an agreement with Crombie REIT 

to fund certain property redevelopments and originally issued 
and recorded a note payable to Crombie REIT in the amount 
of $39.6 million related thereto. The Company has agreed 
to pay for all additional costs and expenses required for the 
redevelopment of those properties. In the event that the 
redevelopment costs are less than $39.6 million, the savings 
will be paid to the Company.

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.

Risk Management

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

Empire has adopted an annual enterprise risk management 

assessment which is overseen by the Company’s senior 
management and reported to the Board and Committees of 

the Board. The enterprise risk management framework sets 
out principles and tools for identifying, evaluating, prioritizing 
and managing risk effectively and consistently across Empire.

Sobeys has adopted an annual enterprise risk management 

assessment which is overseen by the Sobeys’ Leadership 
Committee and reported to the Board and Committees of the 
Board. The enterprise risk management framework sets out 
principles and tools for identifying, evaluating, prioritizing and 
managing risk effectively and consistently across Sobeys.

2008 AN N UAL R E PORT

63

Competition 

Financial 

Empire’s food retailing 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 through regionally 
managed operations. 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 ﬁve distinct formats, sizes, 
and banners, to meet anticipated needs of its customers in order 
to enhance proﬁtability by region and by target market. 

Empire’s real estate operations, through ECL, 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: (i) acquire a prospective property in compliance with 
our investment criteria; (ii) lease space in its properties and 
(iii) maximize rents charged and minimize 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. 

Continued growth of rental income is dependant on 
renewing expiring leases and ﬁnding new tenants to ﬁll 
vacancies at market rental rates, thereby 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 2008, our 
real estate operations encountered generally positive economic 
conditions with relatively stable occupancy levels and healthy 
rental renewal rates. During ﬁscal 2008, capitalization rates 
remained relatively low which impacted the number of potential 
properties that generate an attractive return on investment.
Genstar faces competition from other residential land 
developers in securing attractive sites for new residential 
lot development. Although Genstar does hold land for future 
development, given the relatively low level of interest rates and 
continued strong demand for new home construction in many of 
Genstar’s markets, it faces signiﬁcant competition when looking 
to acquire new land for future development.

Empire and its operating companies have adopted a number 
of key ﬁnancial policies to manage ﬁnancial risk. Risks can 
also arise from changes in the rules or standards governing 
accounting or ﬁnancial reporting. The Company employs 
numerous professionally accredited accountants throughout 
its ﬁnance group.

In the ordinary course of managing its 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. 

Interest Rate Risk

Interest rate risk is the potential for ﬁnancial loss arising from 
changes in interest rates. The majority of the Company’s 
long-term debt is at ﬁxed interest rates or hedged with interest 
rate swaps. Bank indebtedness and approximately 30 percent 
of the Company’s long-term debt is exposed to interest rate risk 
due to ﬂoating rates.

Insurance 

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

Human Resources

Empire is exposed to the risk of labour disruption in its 
operating companies. Labour disruptions pose a moderate 
operational risk, as Sobeys operates an integrated network 
of more than 22 distribution centres across the country for 
the food retailing division. Sobeys has good relations with its 
employees and unions and does not anticipate any material 
labour disruptions in ﬁscal 2009. However, Sobeys has stated 
that it will accept the short-term costs of a labour disruption 
to support a steadfast commitment to 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 to better 
serve its customers. The ability of the Company to properly 
develop, train and retain its employees with the appropriate skill 
set could affect the Company’s future performance.

There is always a risk associated with the loss of key 

personnel. Succession plans have been identiﬁed for key roles 
including the depth of management talent throughout the 
Company and its subsidiaries which is reviewed annually by the 
Human Resources Committee.

64

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

Business Continuity

The Company is subject to unexpected events and natural 
hazards which could cause sudden or complete cessation 
of its day to day operations. 

One such unexpected and natural hazard is the risk of a 
pandemic. Sobeys is working with industry and government 
sources to develop a pandemic preparedness plan. 

Responsibility for business continuity planning has been 
designated to the Human Resources Committee of Empire’s 
Board of Directors.

Environmental, Health and Safety

The Company is continually enhancing its programs in areas 
of environmental, health and safety and is in 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.

Empire and Sobeys have 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.

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 Sobeys’ 
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 the storage and distribution of its 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, including the risk of 
realization of beneﬁts, 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. The 
Company’s Board of Directors have 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.

Real Estate

The Company utilizes a capital allocation process which is 
focused on obtaining the most attractive real estate locations 
for its retail grocery stores as well as for its commercial property 
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 these 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. The Company mitigates the risk 
of not being in compliance with the various laws, rules and 
regulations by monitoring for newly adopted activities, improving 
technology systems and controls, improving internal controls to 
detect and prevent errors and overall, application of more 
scrutiny to ensure compliance.

2008 AN N UAL R E PORT

65

Operations

Foreign Currency

The success of Empire is closely tied to the performance of 
Sobeys’ retail stores. Franchise afﬁliates operate approximately 
53 percent of Sobeys’ retail stores. Sobeys relies on the 
franchise afﬁliates and corporate store management 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 store 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.

Supply Chain

Sobeys is exposed to potential supply chain disruptions that 
could result in shortages of merchandise in its retail store 
network. Sobeys mitigates this risk through effective supplier 
selection and procurement practices along with a reliance 
on the efﬁcient maintenance and evolution of its supply 
and logistics chain to sustain and meet growth objectives.

Seasonality

The Company’s operations as they relate to food, speciﬁcally 
inventory levels, sales volume and product mix, are impacted 
to some degree by certain holiday periods in the year.

Product Costs

Sobeys is a signiﬁcant purchaser of food product which may be 
at risk of cost inﬂation given rising commodity prices and other 
costs of production to food manufacturers. Should rising cost 
of product materialize in excess of expectations and should 
Sobeys not be able to offset such cost inﬂation through higher 
retail prices and/or other cost savings, there could be a negative 
impact on sales and margin performance. Sobeys has various 
procurement and merchandising programs in place to mitigate 
this risk. 

Utility and Fuel Prices

The Company is a signiﬁcant consumer of electricity, other 
utilities and fuel. Unanticipated cost increases in these items 
could negatively affect the Company’s ﬁnancial performance. 
The Company has various consumption and procurement 
programs in place to minimize utility risk. 

Foreign Operations

Empire does not directly carry out foreign operations; however, 
Sobeys does have certain foreign operations. Sobeys’ foreign 
operations are limited to a small number of produce brokerage 
ofﬁces based in the United States. 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. 

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 dollar, the Euro, 
and the U.S. dollar. U.S. dollar purchases of product by the food 
retailing division represent approximately three percent of 
Sobeys’ total annual purchases with Euro purchases limited 
to speciﬁc contracts for capital expenditures. Sobeys has 
processes in place to use forward contracts with high quality 
counter-parties to ﬁx the exchange rate on some of its expected 
requirements for Euros and U.S. dollars. 

Ethical Business Conduct

Any failure of the Company to adhere to its policies, the law or 
ethical business practices could signiﬁcantly affect its reputation 
and brands and could therefore negatively impact the Company’s 
ﬁnancial performance. The Company’s framework for managing 
ethical business conduct includes the adoption of a Code of 
Business Conduct and Ethics which directors and employees 
of the Company are required to acknowledge and agree to on 
a regular basis and, as part of an independent audit and security 
function, maintenance of a whistle-blowing hotline.

Information Management

The integrity, reliability and security of information in all its 
forms are critical to the Company’s daily and strategic 
operations. Inaccurate, incomplete or unavailable information 
and/or inappropriate access to information could lead to 
incorrect ﬁnancial and/or operational reporting, poor decisions, 
privacy breaches and/or inappropriate disclosure or leaks of 
sensitive information.

Information management is identiﬁed as a risk in its own 

right, separate from the technology risk. The Company 
recognizes that information is a critical enterprise asset. 
Currently, the information management risk is being managed 
at the Regional and National levels through the development 
of policies and procedures pertaining to security access, system 
development, change management and problem and incident 
management. With a view to enhancing and standardizing the 
controls to manage the information management risk, the 
Company is developing corporate operating policies which 
establish minimum standards for the usage, security and 
appropriate destruction of information. Furthermore, enterprise 
metrics are being identiﬁed to assist in monitoring signiﬁcant 
information management risks.

Capital Allocation

The risk associated with capital allocation is high for a holding 
company, especially due to the amount of capital invested in 
the operating companies. It is important to ensure the capital 
allocation decisions result in appropriate return on capital. The 
Company has a number of strong mitigation strategies in place 
regarding the allocation of capital, including the board review 
of capital allocation decisions. The Company has established 
prudent hurdle rates for capital investments that are evaluated 
through a strong due diligence process.

66

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

Access to Capital

Access to capital risk refers to Empire being unable to obtain 
required capital at reasonable terms, given the prevailing market 
conditions. There are several factors that impact the level of 
inherent risk: the state of the capital markets; the level of capital 

required; the credit rating assigned by the rating agencies and 
the availability of credit from the banks. Empire mitigates these 
risks by maintaining strong relationships with its banks and 
access to the capital markets. 

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.

Management is clearly focused on directing its energy 
and capital towards growing the long-term sustainable value 
of its food retailing, real estate and related businesses. In doing 
so we remain committed to: a) supporting Sobeys in its goal to 
be the widely recognized as the best food retailer in Canada; 
b) the proﬁtable growth of our real estate business as it 
develops new properties to be vended, preferably, to Crombie 
REIT; and c) capitalizing on opportunities afforded as a result 
of the existing strong relationships between our food retailing 
and our real estate businesses.

Finally, we intend to further reduce our consolidated 
funded debt over the coming year through the prudent 
management of our working capital and capital outﬂows in 
each operating company. 

Food Retailing 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. This includes continuing 
to build on the transformation process and improving the 
customers’ in-store experience and our productivity.

The challenge as we move throughout ﬁscal 2009 will be 
to respond effectively to a potential cost of goods inﬂationary 
environment while competition remains intense. We must 
manage any increased costs in a way that will continue to 
provide fair value to the consumer while at the same time not 
disrupting our earnings position or interrupting our growth 
potential. Our keen focus on costs and productivity affords us 
a competitive advantage in this environment and, while we have 
made progress in line with our expectations, further sales per 
square foot across our system is achievable and we expect 
continued improvement in ﬁscal 2009.

Sobeys plans to focus on its workforce management and 

in-store programs in ﬁscal 2009 in order to further improve 
store productivity. These key customer driven initiatives will 
assist Sobeys retail store network in delivering the best food 
shopping experience, building on the strong foundation that has 
been already been put in place.

We will stay the course to earn broader acknowledgement 

as the very best food retailing business in Canada.

Real Estate Division

Empire’s real estate management group will continue its policy 
of maximizing and prudently reinvesting its cash ﬂow to further 
strengthen its property portfolio.

With respect to residential real estate, we remain committed 

to our investment in Genstar and are very supportive of its 
management and strategy. We do caution that residential selling 
activity may well experience a slow down in our ﬁscal 2009, 
particularly given the recent credit market turbulence and its 
impact on the housing market generally. 

With regard to the commercial property development, 

management looks forward to continuing its strong relationship 
with Sobeys and to pursuing attractive opportunities to jointly 
develop locations with Sobeys. Our goal is to accelerate growth 
in the property pipeline available for sale each year to Crombie 
REIT which holds the right of ﬁrst refusal on the sale of any 
Empire property. Our teams will work closely with Sobeys, 
including newly-acquired Thrifty Foods, to develop properties 
that expand the growth potential for both food retailing and 
Crombie REIT. 

In fact, the distinguishing advantage inherent in Empire’s real 
estate business today is the combination of strengths brought to 
the business by Sobeys with its substantial in-house expertise in 
selecting commercial locations, Crombie REIT with its decades 
of management expertise, and the development expertise within 
our real estate division. 

As a result of our combined real estate knowledge and 
expertise, we are conﬁdent in our ability to steer our investment 
capital to locations with the greatest opportunity for economic 
proﬁt and in doing so will adhere to a set of disciplined 
investment criteria.

In summary, management is conﬁdent that the strength of 
our relationships with Sobeys and Crombie REIT, combined with 
our strict investment discipline, will prove to be a sustainable 
competitive advantage and positively correlate to the 
enhancement of Empire’s shareholder value. 

2008 AN N UAL R E PORT

67

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 other 
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 before minority interest, interest expense and 
income taxes. 
EBITDA is calculated as EBIT plus depreciation and 
amortization.
Operating earnings is calculated as net earnings before 
capital gains and other items, net of tax. 

Funds from operations are calculated as operating earnings 
plus depreciation and amortization. 
Interest coverage is calculated as operating income divided 
by interest expense.
Funded debt is all interest bearing debt, which includes 
bank loans, bankers’ acceptances, long-term debt and 
liabilities relating to assets held for sale.
Total capital is calculated as funded debt plus 
shareholders’ equity.
Same-store sales are sales from stores in the same locations 
in both reporting periods.

The following table reconciles Empire’s funded debt and total capital to GAAP measures reported on the balance sheets as at 
May 3, 2008, May 5, 2007 and May 6, 2006, respectively:

($ in millions)

May 3, 2008

May 5, 2007

May 6, 2006

Bank indebtedness 
Long-term debt due within one year
Liabilities relating to assets held for sale 
Long-term debt 

Funded debt
Total shareholders’ equity

Total capital

$

92.1
60.4 
6.4
 1,414.6

 1,573.5  
2,382.3 

 $

30.1 
 82.5  
 6.8  
 792.6 

 912.0
 2,131.1  

 $

98.6 
 95.4
 7.1
707.3

 908.4
 1,965.2

 $

3,955.8

$

3,043.1 

 $

2,873.6

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

Dated: June 26, 2008
Stellarton, Nova Scotia, Canada

68

E M PI R E COM PANY LI M ITE D    MANAG E M E NT’S DISCUSSION AN D ANALYSIS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 prepared 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.

Management of the Company has established and maintains a system of internal control that provides reasonable assurance 
as to the integrity of the consolidated ﬁnancial statements, the safeguarding of Company assets, and the prevention and detection 
of fraudulent ﬁnancial reporting.

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 26, 2008

Paul V. Beesley
Executive Vice President and
Chief Financial Ofﬁcer
June 26, 2008

AUDITORS’ REPORT

To the shareholders of Empire Company Limited

We have audited the consolidated balance sheets of Empire Company Limited as at May 3, 2008 and May 5, 2007, and the 
consolidated statements of earnings, comprehensive income, retained earnings, accumulated other comprehensive loss and cash 
ﬂows for the 52 week ﬁscal years then ended. 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 3, 2008 and May 5, 2007, and the results of its operations and its cash ﬂows for the ﬁscal years then ended in accordance 
with Canadian generally accepted accounting principles.

Chartered Accountants
New Glasgow, Canada
June 16, 2008

2008 AN N UAL R E PORT

69

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets 

(in millions)

Assets
Current

Cash and cash equivalents   
Receivables
Mortgages, loans and other receivables (Note 6)   
Income taxes receivable  
Inventories
Prepaid expenses 

Investments (realizable value $1.6; 2007 – $283.1)  
Investments, at equity (realizable value $429.6; 2007 – $434.0) (Note 5)  
Mortgages, loans and other receivables (Note 6) 
Other assets (Note 7) 
Property and equipment (Note 8) 
Assets held for sale (Note 9) 
Intangibles (less accumulated amortization of $21.3; 2007 $11.7) (Note 10) 
Goodwill   

Liabilities
Current

Bank indebtedness (Note 11) 
Accounts payable and accrued liabilities 
Income taxes payable 
Future income taxes (Note 17) 
Long-term debt due within one year (Note 12) 
Liabilities relating to assets held for sale (Note 9)  

Long-term debt (Note 12) 
Employee future beneﬁts obligation (Note 24) 
Future income taxes (Note 17) 
Other long-term liabilities (Note 13) 
Minority interest

Shareholders’ Equity
Capital stock (Note 14)
Contributed surplus 
Retained earnings
Accumulated other comprehensive loss  

Commitments and contingent liabilities (Note 22)

Approved on behalf of the Board

Director

Director

See accompanying notes to the consolidated ﬁnancial statements

70

E M PI R E COM PANY LI M ITE D    CONSOLI DATE D FI NANCIAL STATE M E NTS

May 3, 2008

May 5, 2007
Restated (Note 1)

$

191.4
316.3
18.7
–
820.2
62.0

1,408.6
1.6
41.4
56.3
175.5
2,457.3
60.3
346.8
1,159.1

$

294.9
312.3
14.5
3.6
757.5
51.4

1,434.2
189.7
142.8
65.1
151.7
2,409.1
24.1
38.2
786.6

$

5,706.9

$

5,241.5

$

92.1
1,322.4
15.5
32.9
60.4
6.4

1,529.7
1,414.6
110.7
125.5
106.5
37.6

3,324.6

195.7
0.5
2,207.6

(21.5) 

2,382.3

$

30.1
1,260.3
–
40.4
82.5
6.8

1,420.1
792.6
102.1
130.4
76.6
588.6

3,110.4

196.1
0.3
1,935.3
(0.6)

2,131.1

$

5,706.9

$

5,241.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Retained Earnings

52 Weeks Ended
(in millions)

Balance, beginning of year as previously reported    
Adjustment due to change in accounting policy (Note 1) 

Balance, beginning of year as restated   
Net earnings
Dividends

Preferred shares 
Common shares 

Premium on common shares purchased for cancellation (Note 14) 

May 3, 2008

May 5, 2007
Restated (Note 1)

$

1,939.6

$

(4.3) 

1,935.3
315.8

(0.3) 
(43.2) 

–

1,771.0
–

1,771.0
205.8

(0.4)
(39.5)
(1.6)

Balance, end of year 

$

2,207.6

$

1,935.3

See accompanying notes to the consolidated ﬁnancial statements

Consolidated Statements of Accumulated Other Comprehensive Loss

52 Weeks Ended
(in millions) 

Balance, beginning of year 
Transition adjustment as of May 6, 2007 (Note 1) 

Adjusted balance, beginning of year  
Acquired comprehensive loss from purchase of minority interest in Sobeys Inc. 
Other comprehensive (loss) income for the year 

Balance, end of year 

See accompanying notes to the consolidated ﬁnancial statements

May 3, 2008

May 5, 2007

$

$

(0.6)
77.2

76.6
(0.6) 
(97.5) 

$

(21.5)

$

(1.1)
–

(1.1)
–
0.5

(0.6)

2008 AN N UAL R E PORT

71

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Earnings

52 Weeks Ended

(in millions except per share amounts) 

Revenue   
Operating expenses

Cost of sales, selling and administrative expenses 
Depreciation and amortization 

Investment income (Note 15) 

Operating income

Interest expense

Long-term debt 
Short-term debt 

Capital gains and other items (Note 16) 

Earnings before income taxes and minority interest   

Income taxes (Note 17)

Current
Future  

Earnings before minority interest 
Minority interest

Net earnings

Earnings per share (Note 4)

Basic   

Diluted

Weighted average number of common shares outstanding, in millions

Basic   

Diluted

See accompanying notes to the consolidated ﬁnancial statements

May 3, 2008

May 5, 2007

Restated (Note 1)

$

14,065.0

$ 13,366.7

  13,322.3
304.6

12,707.9
269.2

438.1
34.5

472.6

100.6
5.2

105.8

366.8
87.7

454.5

120.8
5.1

125.9

328.6
12.8

315.8

4.80

4.80

65.6

65.7

389.6
41.5

431.1

54.1
6.0

60.1

371.0
7.1

378.1

104.8
12.1

116.9

261.2
55.4

205.8

3.14

3.13

65.6

65.7

$

$

$

$

$

$

72

E M PI R E COM PANY LI M ITE D    CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income

52 Weeks Ended 
(in millions) 

Net earnings

Other comprehensive income, net of income taxes

Reclassiﬁcation of gains on available-for-sale ﬁnancial assets to earnings 
Unrealized losses on derivatives designated as cash ﬂow hedges 
Reclassiﬁcation of loss on derivative instruments designated as cash ﬂow hedges to earnings 
Share of comprehensive loss of entities accounted using the equity method 
Foreign currency translation adjustment 

May 3, 2008

May 5, 2007
Restated (Note 1)

$

315.8

$

205.8

(78.7) 
(14.0) 
(0.6) 
(4.6) 
0.4

(97.5) 

–
–
–
–
0.5

0.5

Comprehensive income 

$

218.3

$

206.3

See accompanying notes to the consolidated ﬁnancial statements

2008 AN N UAL R E PORT

73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows

52 Weeks Ended
(in millions) 

Operating Activities

Net earnings
Items not affecting cash (Note 18) 
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. (Note 2) 
Proceeds from sale of property to Crombie REIT (Note 3)   
Purchase of property and equipment  
Proceeds on disposal of property and equipment 
Mortgages, loans and other receivables 
Increase in other assets 
Business acquisitions, net of cash acquired of $10.2 (Note 25) 

Cash ﬂows used in investing activities   

Financing Activities

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

Cash ﬂows from (used in) ﬁnancing activities 

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 3, 2008

May 5, 2007
Restated (Note 1)

$

315.8
354.1

(0.3) 

669.6
(26.1) 

643.5

138.3
(1,065.7) 
373.5
(549.4) 
52.2
4.6
(57.8)
(263.2) 

(1,367.5)

62.0
(1.1) 

1,099.8

(507.5) 
11.1
(1.0) 
0.4
–

(43.2) 

620.5

(103.5) 
294.9

$

205.8
382.6
(0.4)

588.0
(149.2)

438.8

185.4
(48.6)
–
(508.9)
68.9
5.1
(30.8)
(95.9)

(424.8)

(68.5)
1.2
159.6
(103.0)
(8.3)
(0.8)
1.0
(1.9)
(39.5)

(60.2)

(46.2)
341.1

$

191.4

$

294.9

74

E M PI R E COM PANY LI M ITE D    CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MAY 3, 2008 (In millions except share capital)

Note 1 Summary of Signiﬁcant Accounting Policies

Basis of consolidation

Empire Company Limited (the “Company”) is a diversiﬁed 
Canadian company whose key businesses include food 
retailing, real estate and corporate investment activities. 
These consolidated ﬁnancial statements have been prepared 
in accordance with Canadian generally accepted accounting 
principles (“GAAP”), and include the accounts of the Company, 
all subsidiary companies, including 100% owned Sobeys Inc. 
(“Sobeys”), and certain enterprises considered variable interest 
entities (“VIEs”) where control is achieved on a basis other than 
through ownership of a majority of voting rights. 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.

The Company’s ﬁscal year ends on the ﬁrst Saturday in 
May. As a result of this, the ﬁscal year is usually 52 weeks 
but results in a duration of 53 weeks every ﬁve to six years.

Changes in accounting policies 

Adopted during ﬁscal 2008 

Accounting changes 

In July 2006, the Canadian Institute of Chartered Accountants 
(“CICA”) issued section 1506 of the CICA Handbook, 
“Accounting Changes”, which describes the criteria for changing 
accounting policies, along with the accounting and disclosure for 
changes in accounting policies, changes in accounting estimates 
and correction of errors. These changes came into effect for 
ﬁscal periods beginning on or after January 1, 2007 and were 
applicable as of the Company’s ﬁrst quarter of ﬁscal 2008.

Financial instruments 

On May 6, 2007, the Company implemented the CICA Handbook 
Sections 3855, “Financial Instruments – Recognition and 
Measurement”, 3865, “Hedges”, 1530, “Comprehensive Income”, 
3251, “Equity”, and 3861, “Financial Instruments – Disclosure 
and Presentation”. These standards have been applied without 
restatement of prior periods. The transitional adjustments 

resulting from these standards were recognized in the opening 
balances of retained earnings and accumulated other 
comprehensive income. 

Financial instruments, recognition and measurement

Section 3855 requires the Company to initially recognize 
all of its ﬁnancial assets and liabilities, including derivatives and 
embedded derivatives in certain contracts, at fair value adjusted 
on transition as appropriate, and measured subsequently in 
accordance with the classiﬁcation chosen. Non-ﬁnancial 
derivatives must be recorded at fair value on the consolidated 
balance sheet unless they are exempt from derivative treatment 
based upon expected purchase, sale or usage requirements. 

This standard also requires the Company to classify ﬁnancial 

assets and liabilities according to their characteristics and 
management’s choices and intentions related thereto for the 
purpose of ongoing measurements. Classiﬁcation choices for 
ﬁnancial assets include: a) held for trading – measured at fair 
value with changes in fair value recorded in net earnings; 
b) held to maturity – recorded at amortized cost with gains 
and losses recognized in net earnings in the period that the 
asset is derecognized or impaired; c) available-for-sale 
measured at fair value with changes in fair value recognized in 
other comprehensive income for the current period until realized 
through disposal or impairment; and d) loans and receivables – 
recorded at amortized cost with gains and losses recognized in 
net earnings in the period that the asset is no longer recognized 
or impaired. Classiﬁcation choices for ﬁnancial liabilities include: 
a) held for trading – measured at fair value with changes in fair 
value recorded in net earnings and b) other – measured at 
amortized cost with gains and losses recognized in net earnings 
in the period that the liability is no longer recognized. 
Subsequent measurement for these assets and liabilities are 
based on either fair value or amortized cost using the effective 
interest method, depending upon their classiﬁcation. Any 
ﬁnancial asset or liability can be classiﬁed as held for trading as 
long as its fair value is reliably determinable.

In accordance with the new standard, the Company’s 
ﬁnancial assets and liabilities are generally classiﬁed and 
measured as follows:

Asset/Liability

Cash   
Cash equivalents
Receivables
Mortgages, loans and other receivables  
Investments
Derivative other assets and liabilities 
Non-derivative other assets and liabilties 
Bank indebtedness 
Accounts payable and accrued liabilities 
Long-term debt

Classification

Held for trading
Held for trading
Loans and receivables
Loans and receivables
Available-for-sale
Held for trading
Held to maturity
Other liabilities
Other liabilities
Other liabilities

Measurement

Fair value
Fair value
Amortized cost
Amortized cost
Fair value
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost

2008 AN N UAL R E PORT

75

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other balance sheet accounts, including, but not limited to, 
inventories, prepaid expenses, investments (at equity), property 
and equipment, assets held for sale, intangibles, goodwill, current 
and long-term future income taxes, employee future beneﬁts 
obligation and minority interest are not within the scope of the 
new accounting standards as they are not ﬁnancial instruments. 

Transaction costs, other than those related to ﬁnancial 
instruments classiﬁed as held for trading which are expensed 
as incurred, are added to the fair value of the ﬁnancial asset 
or ﬁnancial liability on initial recognition and amortized using 
the effective interest method. 

Embedded derivatives are required to be separated and 
measured at fair values if certain criteria are met. Under an 
election permitted by the new standard, management reviewed 
contracts entered into or modiﬁed subsequent to May 3, 2003 
and determined that the Company does not currently have any 
signiﬁcant embedded derivatives in its contracts that require 
separate accounting treatment. 

Section 3855 also requires that obligations undertaken 
through issuance of a guarantee that meets the deﬁnition of 
a guarantee pursuant to Accounting Guideline 14, “Disclosure 
of Guarantees”, be recognized at fair value at inception. No 
subsequent re-measurement at fair value is required unless 
the ﬁnancial guarantee qualiﬁes as a derivative. Management 
reviewed and determined that identiﬁed guarantees 
were immaterial.

The fair value of a ﬁnancial instrument is the amount of 
the consideration that would be agreed upon in an arm’s length 
transaction between knowledgeable, willing parties who are 
under no compulsion to act. To estimate the fair value of each 
type of ﬁnancial instrument various market value data and other 
valuation techniques were used as appropriate. The fair value 
of cash approximated its carrying value. The fair value of 
currency swaps was estimated based on discounting of the 
forward rate at the reporting date compared to the forward rate 
in the contract. The fair value of interest rate swaps was 
estimated by discounting net cash ﬂows of the swaps using 
forward interest rates for swaps of the same remaining 
maturities. The fair value of energy contracts was estimated 
based on changes in forward commodity rates.

Hedges 

Section 3865, “Hedges”, replaces Accounting Guideline 13, 
“Hedging Relationships”. The requirements for identiﬁcation, 
designation, documentation and assessment of effectiveness of 
hedging relationships remain substantially unchanged. Section 3865
addresses the accounting treatment of qualifying hedging 
relationships and the necessary disclosures and also requires all 
derivatives in hedging relationships to be recorded at fair value. 
The Company has cash ﬂow hedges which are used to 
manage exposure to ﬂuctuations in foreign currency exchange 
rates, variable interest rates and energy prices. For cash ﬂow 
hedges, the effective portion of the change in fair value of the 
hedging item is recorded in other comprehensive income. To the 
extent the change in fair value of the derivative is not completely 
offset by the change in fair value of the hedged item, the 

ineffective portion of the hedging relationship is recorded 
immediately in net earnings. Amounts accumulated in other 
comprehensive income are reclassiﬁed to net earnings when 
the hedged item is recognized in net earnings. When a hedging 
instrument in a cash ﬂow hedge expires or is sold, or when a 
hedge no longer meets the criteria for hedge accounting, any 
cumulative gain or loss in accumulated other comprehensive 
income relating to the hedge is carried forward until the hedged 
item is recognized in net earnings. When the hedged item ceases 
to exist as a result of its expiry or sale, or if an anticipated 
transaction is no longer expected to occur, the cumulative gain or 
loss in accumulated other comprehensive income is immediately 
reclassiﬁed to net earnings.

Signiﬁcant derivatives include the following:

(1)   Foreign currency forward contracts for the primary purpose 

of limiting exposure to exchange rate ﬂuctuations relating 
to expenditures denominated in foreign currencies. These 
contracts are designated as hedging instruments for 
accounting purposes. Accordingly, the effective portion 
of the change in the fair value of the forward contracts 
are accumulated in other comprehensive income until the 
variability in cash ﬂows being hedged is recognized in 
earnings in future accounting periods.

(2)   Electricity contracts to manage the cost of electricity 

designated as cash ﬂow hedges of anticipated transactions. 
The portion of gain or loss on derivative instruments 
designated as cash ﬂow hedges that are deferred in 
accumulated other comprehensive income is reclassiﬁed 
into other income/expense when the product containing 
the hedged item impacts earnings. Hedge ineffectiveness 
was immaterial for the current ﬁscal year.

(3)   Interest rate swaps designated as cash ﬂow hedges to 
manage variable interest rates associated with some of 
the Company’s debt portfolio. Hedge accounting treatment 
results in interest expense on the related debt being 
reﬂected at hedged rates rather than variable interest rates.

Comprehensive income 

In accordance with Section 1530 , “Comprehensive Income”, 
the Company has reported a new ﬁnancial statement entitled 
“Consolidated Statements of Comprehensive Income”, which 
is comprised of net earnings and other comprehensive income. 
Other comprehensive income represents the change in 
shareholders’ equity from transactions and other events from 
non-owner sources and includes unrealized gains and losses 
on ﬁnancial assets that are classiﬁed as available-for-sale, and 
changes in the fair value of the effective portion of cash ﬂow 
hedging instruments. The accumulated other comprehensive 
income (i.e. the portion of comprehensive income not already 
included in net earnings) is being presented as a separate line 
in shareholders’ equity. In accordance with the new standard, 
$0.6 relating to unrealized losses resulting from the translation 
of self-sustaining foreign operations which had previously 
been classiﬁed as cumulative translation adjustment within 
shareholders’ equity is now presented within accumulated other 
comprehensive income.

76

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

Equity 

Section 3251, “Equity”, which replaced Section 3250, “Surplus”, 
establishes standards for the presentation of equity and 
changes in equity during the reporting period and requires the 
Company to present separately equity components and changes 
in equity arising from: i) net earnings; ii) other comprehensive 
income; iii) other changes in retained earnings; iv) changes in 
contributed surplus; v) changes in share capital; and vi) changes 
in reserves. 

Financial instruments – disclosure and presentation 

Section 3861, “Financial Instruments – Disclosure and 
Presentation”, which replaces 3860, of the same title, 
establishes standards for the presentation of ﬁnancial instruments 
and non-ﬁnancial derivatives, and identiﬁes the information that 
should be disclosed about them. 

The following table summarizes the transition adjustments 

recorded upon implementation:

Transition Adjustments

Consolidated Balance Sheet 

Investments
Other assets
Other liabilities
Long-term debt
Future income taxes
Minority interest
Accumulated other comprehensive income   

$

94.4
(4.5)
2.5
2.7
(18.5)
0.6
(77.2)

Deferred charges 

The Company adopted CICA Section 3855 effective as of the 
ﬁrst quarter of ﬁscal 2008. Concurrent with the issuance of this 
section, Section 3070, “Deferred Charges”, was withdrawn. As 
a result, the Company reviewed its deferred costs classiﬁcations 
included with other assets and determined the following 
changes were necessary:

Deferred store marketing – Deferred store marketing costs, 
primarily comprised of store renovation and expansion costs, 
were reclassiﬁed and included with equipment, ﬁxtures and 
vehicles as part of the Company’s property and equipment 
balance sheet group. Prior year balances were reclassiﬁed 
which resulted in an increase in property and equipment and 
a decrease in other assets of $106.2 at May 5, 2007 as well 
as an increase in depreciation expense and decrease in cost 
of sales, selling and administrative expenses of $25.3 for the 
year ended May 5, 2007. There is no impact on net earnings 
or earnings per share as a result of this change.
Deferred repositioning costs – Effective for the ﬁrst quarter 
of ﬁscal 2008, the Company changed its accounting policy 
for the treatment of certain deferred costs associated with 
major repositioning or branding efforts of the Company. 
Due to the withdrawal of the primary source of GAAP, 
Section 3070, “Deferred Charges”, the Company looked to 

other sources of existing and proposed GAAP for guidance 
in determining its future policy for such costs. Based on this 
review, the Company determined, in setting the new policy, 
that it would be more appropriate to expense these types of 
costs in the period incurred as it provides more relevant 
information on expenditures associated with repositioning 
and branding efforts. 

This change in accounting policy was applied 

retrospectively resulting in a $9.1 decrease in other assets, 
a $3.2 decrease in long-term future tax liabilities, and a 
$4.3 decrease in earnings (net of minority interest of $1.6) 
at May 5, 2007. The effect for the year ended May 5, 2007 
is a $9.1 increase in cost of sales, selling and administrative 
expenses, a $3.2 decrease in income taxes and a $0.06 
decrease in basic and diluted earnings per share. The effect 
for the year ended May 3, 2008 was a $3.6 decrease in cost 
of sales, selling and administrative expenses, a $1.2 increase 
in income taxes and an increase in basic and diluted 
earnings of $0.04 per share.

Adopted during ﬁscal 2007

Vendor consideration

During the ﬁrst quarter of ﬁscal 2007, the Company implemented, 
on a retroactive basis, Emerging Issues Committee Abstract 156 
(“EIC-156”), “Accounting by a Vendor for Consideration Given to 
a Customer (including a Reseller of the Vendor’s Products)”. This 
abstract requires a vendor to generally record cash consideration 
given to a customer as a reduction to the selling price of the 
vendor’s products or services and reﬂect it as a reduction of 
revenue when recognized in the statement of earnings.

Prior to the implementation of EIC-156, the Company 

recorded certain sales incentives paid to independent 
franchisees, associates and independent accounts in cost 
of sales, selling and administrative expenses on the statement 
of earnings. Accordingly, the implementation of EIC-156 on 
a retroactive basis resulted in a reduction in both sales
 and cost of sales, selling and administrative expenses. As 
reclassiﬁcations, these changes did not impact net earnings 
or earnings per share.

Future changes in accounting policies

Inventories 

In June 2007, the CICA issued Section 3031, “Inventories”, 
which has replaced existing Section 3030 with the same title. 
The new Section establishes that inventories should be 
measured at the lower of cost and net realizable value, with 
guidance on the determination of cost. This standard is effective 
for interim and annual ﬁnancial statements relating to ﬁscal 
years beginning on or after January 1, 2008 and is applicable 
for the Company’s ﬁrst quarter of ﬁscal 2009. The Company has 
evaluated the impact of this new standard and does not expect 
the adoption of this standard to have a signiﬁcant impact on its 
ﬁnancial statement disclosures and statement of earnings.

2008 AN N UAL R E PORT

77

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital disclosures

Cash and cash equivalents

In October 2006, the CICA issued Section 1535, “Capital 
Disclosures”. This section establishes standards for disclosing 
information about an entity’s capital and how it is managed. The 
standard is effective for interim and annual ﬁnancial statements 
relating to ﬁscal years beginning on or after October 1, 2007 and 
is applicable for the Company’s ﬁrst quarter of ﬁscal 2009. The 
Company does not expect that the adoption of this standard will 
have a signiﬁcant impact on its ﬁnancial statement disclosures.

Financial instruments – disclosure and ﬁnancial 
instruments – presentation 

Section 3862, “Financial Instruments – Disclosure” and Section 
3863, “Financial Instruments – Presentation”, replace Section 
3861, “Financial Instruments – Disclosure and Presentation”. 
Section 3862 requires increased disclosures regarding the 
risks associated with ﬁnancial instruments such as credit risk, 
liquidity risk and market risks and the techniques used to identify, 
monitor and manage these risks. Section 3863 carries forward 
standards for presentation of ﬁnancial instruments and non-
ﬁnancial derivatives and provides additional guidance for the 
classiﬁcation of ﬁnancial instruments between liabilities and 
equity. These standards are effective for interim and annual 
ﬁnancial statements relating to ﬁscal years beginning on or 
after October 1, 2007 and are applicable for the Company’s 
ﬁrst quarter of ﬁscal 2009. The Company does not expect the 
adoption of these standards to have a signiﬁcant impact on its 
ﬁnancial disclosures and results of operations.

Goodwill and intangible assets

In February 2008, the CICA issued Section 3064, “Goodwill 
and Intangible Assets”, which replaced existing Section 3062, 
“Goodwill and Other Intangible Assets” and Section 3450, 
“Research and Development”. The new standard provides 
guidance on the recognition, measurement, presentation and 
disclosure of goodwill and intangible assets. This standard is 
effective for interim and annual ﬁnancial statements relating 
to ﬁscal years beginning on or after October 1, 2008 and is 
applicable for the Company’s ﬁrst quarter of ﬁscal 2010. The 
Company is currently evaluating the impact of this new standard.

International ﬁnancial reporting standards

In January 2006, the Canadian Accounting Standards Board 
announced its decision requiring all publicly accountable entities 
to report under International Financial Reporting Standards. 
This decision establishes standards for ﬁnancial reporting with 
increased clarity and consistency in the global marketplace. 
These standards are effective for interim and annual ﬁnancial 
statements relating to ﬁscal years beginning on or after 
January 1, 2011 and are applicable for the Company’s ﬁrst 
quarter of ﬁscal 2012. The Company is currently evaluating 
the impact of these new standards.

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

Inventories

Warehouse inventories are valued at the lower of cost and net 
realizable value with cost being determined on a ﬁrst-in, ﬁrst-out 
or a moving average cost basis. Retail inventories are valued at 
the lower of cost and net realizable value. Cost is determined 
using moving average cost 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. 

Property and equipment

Property and equipment is recorded at net book value, being 
original cost less accumulated depreciation and any writedowns 
for impairment.

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, ﬁxtures and vehicles 
Buildings   
Leasehold 

3 – 20 years
10 – 40 years

improvements

Lesser of lease term and 7 – 10 years

Property and equipment is reviewed for impairment whenever 
events or changes in circumstances indicate that the carrying 
value of property and equipment may not be recoverable. The 
assets are impaired when the carrying value exceeds the sum 
of the undiscounted future cash ﬂows expected from use and 
eventual disposal. If property and equipment is determined to 
be impaired, the impairment loss is measured at the excess 
of the carrying value over fair value.

Assets to be disposed are classiﬁed as held for sale and 
are no longer depreciated. Assets held for sale are recognized 
at the lower of book value and fair value less cost of disposal.

The Company follows the full cost method of accounting for 

its exploration and development of petroleum and natural gas 
reserves. Costs initially capitalized are depleted and depreciated 
using the unit-of-production method based on production 
volumes, before royalties, in relation to the Company’s share 
of estimated proved petroleum and natural gas reserves.

78

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

 
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 $1.5 (2007 – $1.5).

(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 2007 or 2008.

(c)   Development properties and land held for 

future development

A subsidiary company capitalizes interest, real estate taxes and 
other expenses to the extent that they relate to properties for 
immediate development. To the extent that the resulting carrying 
value exceeds its fair market value, the excess is charged 
against income. The carrying costs on the balance of properties 
held for future development are capitalized as incurred. An 
amount of $0.8 (2007 – $0.7) was capitalized during the year.

Leases

Leases meeting certain criteria are accounted for as capital 
leases. The imputed interest is charged against income. If the 
lease contains a term that allows ownership to pass to the 
Company, or there is a bargain purchase option, the capitalized 
value is depreciated over the estimated useful life of the related 
asset. Otherwise, the capitalized value is depreciated on a 
straight-line basis over the lesser of the lease term and its 
estimated useful life. Capital lease obligations are included in 
the long-term debt of the Company and are reduced by rental 
payments net of imputed interest. All other leases are accounted 
for as operating leases.

Lease allowances and incentives received are recorded as 
other long-term liabilities and amortized as a reduction of lease 
expense over the term of the lease. Real estate lease expense 
is amortized straight-line over the entire term of the lease 
including free rent 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.

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 

not amortized but rather are subject to an annual impairment 
review or more frequently if circumstances exist that might 
indicate their value is impaired. Should the carrying value exceed 
the fair value of goodwill or intangible assets (e.g. trademarks) 
the carrying value will be written down to the fair value.

Intangibles

Intangibles arise on the purchase of a new business, existing 
franchises, and the acquisition of pharmacy prescription ﬁles. 
Amortization is recorded on limited life intangibles on a straight-line 
basis, over the estimated useful life of the intangible as follows:

Franchise rights/agreements
Brand names
Patient ﬁles
Other

10 – 20 years
10 – 15 years
10 years
5 – 23 years

Assets held for sale

Certain land and buildings have been listed for sale and 
reclassiﬁed as “Assets held for sale” in accordance with CICA 
Handbook Section 3475, “Disposal of Long-lived Assets and 
Discontinued Operations”. These assets are expected to be sold 
within a twelve month period. Assets held for sale are valued at 
the lower of book value and fair value less cost of disposal. 
Liabilities assumed upon sale of assets or debts to be repaid 
as part of a sale transaction are also classiﬁed as “Liabilities 
relating to assets held for sale”.

Store opening expenses

Opening expenses of new stores and store conversions are written 
off on a straight-line basis during the ﬁrst year of operation.

Future income taxes

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 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, rental revenue arising from the sale of subsidiaries 
and gains on sale leaseback transactions. Deferred revenue is 
being taken into income on a straight-line basis over the term of 
the related agreements and included in other long-term liabilities.

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 in accumulated other comprehensive income.

Other assets and liabilities denominated in foreign currencies 

are translated into Canadian dollars at the foreign currency 
exchange rate in effect at each period end date. Exchange 
gains or losses arising from the translation of these balances 
denominated in foreign currencies are recognized in operating 
income. Revenues and expenses denominated in foreign 
currencies are translated into Canadian dollars at the average 
exchange rate for the period.

2008 AN N UAL R E PORT

79

Revenue recognition

Vendor allowances

Food sales are recognized at the point-of-sale. Sales include 
revenues from customers through corporate stores operated 
by the Company and consolidated VIEs, and revenue from sales 
to non-VIE franchised stores, afﬁliated stores and independent 
accounts. Revenue received from non-VIE franchised stores, 
afﬁliated 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 retail sales. Real estate revenue is recognized 
in accordance with the lease agreements with tenants on 
a straight-line basis.

Pension beneﬁt plans and other beneﬁt plans

The cost of the Company’s pension beneﬁts for deﬁned 
contribution plans are expensed at the time active employees 
are compensated. 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 plan amendments and increases in the 

obligation related to past service is amortized on a straight-line 
basis over the expected average remaining service life 
(“EARSL”) of active members, except for the Company’s 
Supplemental Executive Retirement Plan for which the impact 
is amortized over no more than 5 years. The actuarial gains 
and losses and the impact of changes in the actuarial basis in 
excess of 10 percent 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.

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. The Company 
recognizes these allowances as a reduction of cost of sales, 
selling and administrative expenses and related inventories in 
accordance with EIC-144 “Accounting by a Customer (including 
a Reseller) for Certain Consideration Received from a Vendor”. 
Certain allowances from vendors are contingent on the 
Company achieving minimum purchase levels. These allowances 
are recognized when it is probable that the minimum purchase 
level will be met and the amount of allowance can be estimated. 
As of the year ended May 3, 2008, the Company has recognized 
$5.1 (2007–$2.4) of allowances in income where it is probable 
that the minimum purchase level will be met and the amount of 
allowance can be estimated.

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. 
Certain of these estimates require subjective or complex 
judgements by management that may be uncertain. Some of 
these items include the valuation of inventories, goodwill, 
employee future beneﬁts, valuation of asset-backed commercial 
paper and income taxes. Changes to these estimates could 
materially impact the ﬁnancial statements. These estimates are 
based on management’s knowledge of current events and 
actions that the Company may undertake in the future. Actual 
results could differ from these estimates.

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 determined based on the treasury stock 
method which assumes that all outstanding stock options with 
an exercise price below the average market price are exercised 
and the assumed proceeds are used to purchase the Company’s 
common shares at the average market price during the year.

80

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

Note 2 Privatization of Sobeys Inc. 

On April 26, 2007, the Company and Sobeys jointly announced 
that they had entered into an arrangement agreement (the 
“Arrangement”) pursuant to which the Company would acquire 
all of the outstanding common shares of Sobeys that it did not 
then own at a price of $58.00 per share. 

The Arrangement required various approvals to comply 
with applicable corporate and securities laws. The Sobeys 
shareholders approved the Arrangement at a special 
shareholders’ meeting held on June 9, 2007 by the requisite 
majority; the Supreme Court of Nova Scotia gave its sanction 
to the Arrangement on June 13, 2007; the Arrangement 
became effective upon registration of the ﬁnal Court order with 
the Nova Scotia Registry of Joint Stock Companies at the close 
of business on June 15, 2007, at which time the Company 
acquired all the outstanding shares of Sobeys that it did not 
previously own. Subsequently, the Sobeys common shares 
ceased trading on the Toronto Stock Exchange, and were 
delisted at the close of business on June 18, 2007. 

The acquisition was accounted for using the purchase method 
with operating results being included in the consolidated ﬁnancial 
statements since the acquisition date. Management carried out 
a detailed analysis and changes were made to the preliminary 
allocation of the excess consideration paid over net assets acquired 
as disclosed in previous quarters of ﬁscal 2008. The measurement 
and allocation of tangible assets, ﬁnite and inﬁnite intangible 
assets, and goodwill was completed during the fourth quarter 
of ﬁscal 2008. 

The ﬁnal purchase price allocation, incorporating management’s 
assessment of fair value, is as follows:

Consideration
Cash   
Acquisition costs

Total consideration paid 
Carrying amount of net assets acquired 

Excess consideration paid over net 

assets acquired

Allocation of excess consideration paid 
over net assets acquired

Property and equipment 
Accrued beneﬁt asset 
Employee future beneﬁts obligation 
Amortizable intangible assets 
Indeﬁnite-life intangible assets   
Goodwill
Future income taxes 
Accumulated other comprehensive loss   

$ 1,061.7
4.0

 1,065.7
  576.5

$ 489.2

$

81.7
(13.1)
(3.8)
49.9
243.7
165.2
(35.0)
0.6

$ 489.2

The acquisition was ﬁnanced by funds of $278.0, received 
primarily from sale of certain portfolio investments, and by 
advances of $787.7 under new credit facilities (see Note 12). 

2008 AN N UAL R E PORT

81

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 3 Sale of Property to Crombie REIT

On April 22, 2008, the Company’s real estate segment sold 61 
commercial properties to Crombie Real Estate Investment Trust 
(“Crombie REIT”). Included in the proceeds were additional 
Class B Units of Crombie REIT (which are convertible on a one 
for one basis into Units of Crombie REIT). The investment in 
Class B Units will maintain the Company’s interest in Crombie 

REIT at 47.8%. The Company’s investment in Crombie REIT is 
accounted using the equity method. Under Canadian GAAP, the 
gain on sale was not included in net earnings; rather the gain 
(net of income taxes) reduced the carrying value of the 
Company’s equity investment in Crombie REIT. Details of the 
sale are as follows:

Proceeds

Cash   
Investment in Crombie REIT 

Book value of property and equipment sold  
Early extinguishment of long-term debt  
Transaction costs
Other costs

Gain before income taxes and deferral   

Income taxes
Current
Future  

Gain before deferral 
Deferral of gain

Net gain   

$

373.5
55.0

428.5

238.9
18.5
6.5
12.5

276.4

152.1

27.0
(19.2)

7.8

144.3
(144.3)

$

Nil

As part of the transaction, Sobeys entered into new lease 
agreements (the “Sobeys Leases”) with respect to their 
occupancy in a portion of the 61 commercial properties. 
The Sobeys Leases have terms of between 17 and 23 years 
(except for 3 leases which have an outside date of 12 years) 
(the “Outside Date”). Each Sobeys Lease is based on an initial 
term of two years and thereafter alternating between successive 

periods of three years and two years until the applicable Outside 
Date. The Outside Date may be extended at Sobeys’ option by 
up to four consecutive further periods of ﬁve years each. The 
minimum rents under the Sobeys Leases will range from $8 per 
square foot to $14 per square foot with rental increases every 
ﬁve years.

Note 4 Earnings Per Share

Earnings applicable to common shares is comprised of the following:

Operating earnings 
Capital gains and other items, net of income taxes of $14.7 (2007 – $1.4) 

$

Net earnings
Preferred share dividends 

2008

2007
Restated (Note 1)

$

242.8
73.0

315.8

(0.3) 

200.1
5.7

205.8
(0.4)

Earnings applicable to common shares   

$

315.5

$

205.4

82

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share is comprised of the following:

Operating earnings 
Capital gains and other items   

Basic earnings per share 

Operating earnings 
Capital gains and other items   

Diluted earnings per share 

Note 5 Investments, at Equity

Wajax Income Fund (27.6% interest) 
Crombie REIT (47.8% interest)  
U.S. residential real estate partnerships  

The Company’s carrying value of its investment in Wajax Income Fund is as follows:

Balance, beginning of year 
Equity earnings
Share of comprehensive loss 
Distributions received 

Balance, end of year 

The Company’s carrying value of its investment in Crombie REIT is as follows:

Balance, beginning of year 
Equity earnings
Share of comprehensive loss 
Distributions received 
Interest received in Crombie REIT 
Deferral of gains on sale of property 

Balance, end of year 

$

$

$

$

$

$

$

$

$

2008

2007

Restated (Note 1)

3.69
1.11

4.80

3.69
1.11

4.80

$

$

$

$

3.05
0.09

3.14

3.04
0.09

3.13

May 3, 2008

May 5, 2007

31.6
9.5
0.3

41.4

$

$

32.2
109.3
1.3

142.8

May 3, 2008

May 5, 2007

$

32.2
19.7
(0.2) 
(20.1) 

31.6

$

33.1
20.6
–
(21.5)

32.2

May 3, 2008

May 5, 2007

$

109.3
13.6
(6.8) 
(17.0) 
55.0
(144.6) 

112.8
11.6
–
(15.1)
–
–

$

9.5

$

109.3

2008 AN N UAL R E PORT

83

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 6 Mortgages, Loans and Other Receivables

Loans receivable
Mortgages receivable 
Other   

Less amount due within one year 

May 3, 2008

May 5, 2007

$

$

58.1
0.6
16.3

75.0
18.7

56.3

$

$

62.7
0.6
16.3

79.6
14.5

65.1

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.

Note 7 Other Assets

Deferred ﬁnancing costs 
Deferred purchase agreements 
Accrued beneﬁt asset (Note 24)  
Asset-backed commercial paper 
Restricted cash
Derivative assets
Other   

May 3, 2008

May 5, 2007

$

$

0.6
35.9
58.2
22.5
3.9
2.3
52.1

7.0
31.1
68.4
–
5.7
–
39.5

$

175.5

$

151.7

Asset-backed commercial paper

As of May 3, 2008, the Company held third-party asset-backed 
commercial paper (“ABCP”) with an original cost of $30.0 that 
was in default. The ABCP was rated by the Dominion Bond 
Rating Service (“DBRS”) as R-1 (high), the highest credit 
rating for commercial paper since the ABCP are backed by 
AAA (high) rated assets. The $30.0 of ABCP held by the 
Company is entirely made up of collateralized debt obligations. 
Collateralized debt obligations are a type of asset-backed 
security that is created by a portfolio of ﬁxed-income assets 
which may include pools of bonds, credit card debt, commercial 
mortgage-backed securities and other loans.

In the second quarter of ﬁscal 2008, a global disruption in 
the market for such commercial paper resulted in a constraint 
on the liquidity of ABCP. DBRS placed certain of the ABCP 
“Under Review with Developing Implications” following an 
announcement on August 16, 2007 that a consortium 
representing banks, asset providers and major investors had 
agreed in principle to a long-term proposal and interim 

agreement regarding the ABCP (commonly referred to as 
“the Montreal Proposal”). On September 6, 2007 a pan-Canadian
committee (“the Committee”) consisting of major investors was 
formed to oversee the proposed restructuring process of the 
ABCP. As of May 3, 2008, all of the ABCP held by the Company 
were part of the Montreal Proposal. Under this proposal, the 
affected ABCP would be converted into term ﬂoating rate notes 
maturing no earlier than the scheduled termination dates of the 
underlying assets. The Montreal Proposal called for the investors 
to continue to roll their ABCP during the standstill period.

On December 23, 2007, a formal restructuring proposal was 

established to address the global disruption experienced with 
third-party ABCP. On April 25, 2008, note holders voted in 
favour of the restructuring proposal, which will provide investors 
with new long-term notes that will more closely match the 
maturity dates of the underlying assets and the cash ﬂows they 
are expected to generate and was approved on June 5, 2008 
by the Ontario Superior Court of Justice.

84

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
On March 20, 2008, the Committee issued an Information 
Statement containing details about the proposed restructuring. 
Based on this and other public information it is estimated that 
the $30.0 of ABCP in which the Company has invested in is 
represented by a combination of leveraged collateralized debt, 
synthetic assets and traditional securitized assets and the 
Company will, on restructuring, receive replacement senior 
Class A-1 and Class A-2 and subordinate Class B and Class C 
long-term ﬂoating rate notes with maturities of approximately 
eight years and nine months. 

The Company expects to receive replacement notes with par 

values as follows:

Class A-1  
Class A-2
Class B
Class C

 $

8.2
17.8
3.1
0.9

 $

30.0

The replacement notes are expected to obtain an AA rating 
while the replacement subordinate notes are likely to be 
unrated.

The valuation technique used by the Company to estimate 

the fair value of its investment in ABCP at May 3, 2008, 
incorporates probability weighted discounted cash ﬂows 
considering the best available public information regarding 
market conditions, prevailing yields, credit spreads and other 
factors that a market participant would consider for such 
investments. The assumptions used in determining the estimated 
fair value reﬂect the details included in the Information 
Statement issued by the Committee and the risks associated 
with the long-term ﬂoating rate notes.

Interest rates and credit losses vary by each of the different 
replacement long-term ﬂoating rate notes to be issued as each 
has different credit ratings and risks. Interest rates and credit 
losses also vary by the different probable cash ﬂow scenarios 
that have been modeled.

Discount rates vary dependent upon the credit rating of the 
replacement long-term ﬂoating rate notes. Discount rates have 
been estimated using Government of Canada benchmark rates 
plus expected spreads for similarly rated instruments with similar 
maturities and structure. An increase in the estimated discount 
rates of 1 percent would reduce the estimated fair value of the 
Company’s investment in ABCP by approximately $5.0.
Maturities vary by different replacement long-term 

ﬂoating rate notes as a result of the expected maturity of the 
underlying assets.

These investments were initially and continue to be classiﬁed 
as held-to-maturity instruments by the Company and are carried 
at amortized cost. Due to the lack of liquidity and a yield on 
these instruments, a pre-tax impairment loss of $7.5 (25 percent 
of the original cost) was recorded during ﬁscal 2008. It is 
possible that the amount ultimately recovered may differ from 
the estimate. The Company continues to investigate the 
implications of the default and the remedies available. In 
addition, these investments have been reclassiﬁed as long-term 
other assets rather than current assets due to the uncertainty 
as to the timing of collection.

Continuing uncertainties regarding the value of assets which 
underlie the ABCP, the amount and timing of cash ﬂows and the 
outcome of the restructuring process could give rise to a further 
material change in the value of the Company’s investment in 
ABCP which could impact the Company’s near term earnings.
The Company believes it has sufﬁcient credit facilities to 
satisfy its ﬁnancial obligations as they come due and does not 
expect there will be a material adverse impact on its business 
as a result of this current third party ABCP liquidity issue.

Cash ﬂow hedges

Financial derivatives assigned as part of a cash ﬂow hedging 
relationship are classiﬁed as either an other asset or other 
liability as required based on their fair value determination.

2008 AN N UAL R E PORT

85

 
 
 
 
 
 
 
 
 
Note 8 Property and Equipment

Food retailing segment

Land 
Land held for development  
Buildings
Equipment, ﬁxtures and vehicles 
Leasehold improvements 
Construction in progress 
Assets under capital leases  

Real estate and other segments

Land 
Land held for development  
Buildings
Equipment
Leasehold improvements 
Construction in progress 
Petroleum and natural gas costs 

Total 

Food retailing segment

Land 
Land held for development  
Buildings
Equipment, ﬁxtures and vehicles 
Leasehold improvements 
Construction in progress 
Assets under capital leases  

Real estate and other segments

Land 
Land held for development  
Buildings
Equipment
Leasehold improvements 
Construction in progress 
Petroleum and natural gas costs 

Cost

Accumulated
Depreciation

May 3, 2008
Net Book Value

$

261.6
61.7 
839.0 
2,281.4 
448.2 
164.4 
99.3 

4,155.6 

6.9 
63.4 
63.9 
76.9 
56.3 
10.0 
82.1 

$

–
– 
206.6 
1,449.8 
253.4 
– 
42.7 

1,952.5 

– 
– 
30.2 
37.3 
15.5 
– 
22.3 

$

261.6
61.7
632.4
831.6
194.8
164.4
56.6

2,203.1

6.9
63.4
33.7
39.6
40.8
10.0
59.8

359.5 

105.3 

254.2

$

4,515.1

$

2,057.8

$

2,457.3

Cost

Accumulated
Depreciation

May 5, 2007
Net Book Value
Restated (Note 1)

$

188.7
93.1 
673.2 
2,012.3 
397.9 
109.3 
83.1 

3,557.6 

78.8 
26.8 
377.3 
72.7 
52.4 
21.8 
78.7 

708.5 

$

–
– 
161.7 
1,256.7 
243.9 
– 
34.5 

1,696.8 

– 
– 
102.2 
32.6 
12.1 
– 
13.3 

160.2 

$

188.7
93.1
511.5
755.6
154.0
109.3
48.6

1,860.8

78.8
26.8
275.1
40.1
40.3
21.8
65.4

548.3

Total 

$

4,266.1

$

1,857.0

$

2,409.1

86

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 9 Assets Held for Sale

Included in assets held for sale are commercial properties 
from the various segments with a net carrying value of $60.3 
(2007 – $24.1). Included in liabilities related to these assets 

held for sale is $6.4 (2007 – $6.8). These assets are listed for 
potential sale to outside parties and it is expected that these 
properties will be disposed of in the next twelve months.

Note 10 Intangible Assets

Brand names
Franchise rights/agreements 
Patient ﬁles
Private labels
Other   

Note 11 Bank Indebtedness

May 3, 2008

May 5, 2007

$

$

199.1
36.2
18.8
59.5
33.2

346.8

$

$

0.5
20.4
9.6
–
7.7

38.2

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.

On November 15, 2007, Sobeys established and utilized 
a new unsecured non-revolving credit facility of $30.0 which 
matured on May 15, 2008 and subsequently extended to 
August 15, 2008. The interest rate is ﬂoating and may be tied 
to the bankers’ acceptance rate, Canadian prime rate or London 
InterBank Offered Rate (“LIBOR”).

Note 12 Long-term Debt

First mortgage loans, average interest rate 9.8%, due 2008-2026 
Medium Term Notes, interest rate 5.8%, due October 6, 2036 
Medium Term Notes, interest rate 6.1%, due October 29, 2035 
Medium Term Notes, interest rate 7.2%, due February 26, 2018 
Debentures, average interest rate 10.3%, due 2008-2016 
Notes payable and other debt primarily at interest rates ﬂuctuating with the prime rate 
Credit facility, ﬂoating interest rate tied to bankers’ acceptance rates, due June 8, 2010 
Credit facility, ﬂoating interest rate tied to bankers’ acceptance rates, due July 23, 2012 
Credit facility, ﬂoating interest rate tied to bankers’ acceptance rates, due November 8, 2010  
Construction loans, interest rates ﬂuctuatingwith the prime rate 
Unamortized ﬁnancing costs 
Capital lease obligations, net of imputed interest 

Less amount due within one year 

May 3, 2008

May 5, 2007

$

$

Total

72.2
125.0
175.0
100.0
75.4
154.2
395.0
250.0
75.0
0.5
(3.8) 
56.5

1,475.0
60.4

$

1,414.6

$

Total

155.6
125.0
175.0
100.0
88.8
179.4
–
–
–
1.6
–
49.7

875.1
82.5

792.6

2008 AN N UAL R E PORT

87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt is secured by land and buildings, speciﬁc 
charges on certain assets and additional security as described 
in Note 11. Capital lease obligations are secured by the related 
capital lease asset.

During the year, in relation to the privatization of Sobeys, 

the Company entered into new credit facilities (the “Credit 
Facilities”) consisting of a $950.0 unsecured revolving term 
credit maturing June 8, 2010 (subject to annual one-year 
extensions at the request of the Company) and a $50.0 
unsecured non-revolving credit that matured on June 30, 2007. 
The Credit Facilities are subject to certain ﬁnancial covenants. 
Interest on the debt varies based on the designation of the loan 
(bankers’ acceptances (“BA”) rate loans, Canadian prime rate 
loans, U.S. base rate loans or LIBOR loans), ﬂuctuations in the 
underlying rates, and in the case of the BA rate loans or LIBOR 
loans, the margin applicable to the ﬁnancial covenants. On 
June 18, 2007, the Company entered into two delayed ﬁxed rate 
interest swaps. The ﬁrst swap, in an amount of $200.0, is for 
a period of three years at a ﬁxed interest rate of 5.00%. The 
second swap, in an amount of $200.0, is for a period of ﬁve 
years at a ﬁxed interest rate of 5.05%. Both swaps became 
effective on July 23, 2007. 

On June 27, 2007, pursuant to the terms of the Credit 

Facilities, the Company and Sobeys ﬁled notice with the lenders 
requesting the establishment of a new $300.0 ﬁve-year credit 
in favour of Sobeys at the same interest rate and substantially 
on the same terms and conditions as the Credit Facilities. At 
July 23, 2007, Sobeys drew down $300.0 from its new credit 
facility, the proceeds of which were used to pay a dividend to 
the Company. The Company used the proceeds from the 
dividend to reduce its indebtedness under the Credit Facilities 
and the Credit Facilities were reduced to $650.0 accordingly. 
On that date, the Company also transferred the second swap to 
Sobeys. In the fourth quarter, the Credit Facilities were further 
reduced to $395.0.

Note 13 Other Long-term Liabilities

Deferred lease obligation 
Deferred revenue
Accrued beneﬁt liability (Note 24) 
Derivative liabilities 
Other   

On July 30, 2007, Sobeys exercised an option under its new 

credit facility to increase the size of the credit from $300.0 to 
$600.0. At the same time, Sobeys terminated its previously 
existing $300.0 operating credit which would have expired on 
December 20, 2010. At May 3, 2008, $275.0 of this new credit 
facility was drawn down; $250.0 has been classiﬁed as 
long-term debt and $25.0 has been classiﬁed as bank 
indebtedness. Sobeys has also issued $41.7 in letters of credit 
against the facility at May 3, 2008. 

On November 8, 2007, Sobeys established and drew down 

on a new unsecured revolving credit facility of $75.0. The 
maturity date is November 8, 2010. The interest rate is ﬂoating 
and may be tied to the bankers’ acceptance rate, Canadian 
prime rate or LIBOR. 

During ﬁscal 2008, the Company increased its capital lease 

obligation by $8.9 (2007 – $5.6) with a similar increase in 
assets under capital lease. These additions are non-cash in 
nature, therefore have been excluded from the statement of 
cash ﬂow.

Debt retirement payments and capital lease obligations in 

each of the next ﬁve ﬁscal years and thereafter are:

2009   
2010   
2011   
2012   
2013   
Thereafter

Long-Term Debt

Capital Leases

$

47.2
20.4
536.3
18.0
265.7
530.9

$

13.2
12.0
11.1
8.0
4.9
7.3

May 3, 2008

May 5, 2007

$

$

53.2
5.3
23.5
21.7
2.8

$

106.5

$

41.3
6.5
25.7
–
3.1

76.6

88

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 14 Capital Stock

Authorized

Preferred shares, par value of $25 each, issuable in series.

Series 2 cumulative, redeemable, rate of 75% of prime.   
2002 Preferred Shares, par value of $25 each, issuable in series.
Non-Voting Class A shares, without par value. 
Class B common shares, without par value, voting.   

2,772,300
992,000,000
259,107,435
40,800,000

No. of Shares

May 3, 2008

May 5, 2007 

Issued and outstanding

Preferred shares, Series 2 
Non-Voting Class A 
Class B common

Employees share purchase plan 

During the year, the Company purchased for cancellation 
41,800 (2007 – 31,900) Series 2 preferred shares for 
$1.0 (2007 – $0.8).

During the year, 10,461 (2007 – 18,373) Non-Voting Class A

shares were issued under the Company’s share purchase plan 
to certain ofﬁcers and employees for $0.4 (2007 – $0.8), 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.

Under the Long-Term Incentive Plan 99,349 options were 
issued. Options allow holders to purchase Non-Voting Class A 
shares at $43.96 per share. Options expire in December 2015.

Loans receivable from ofﬁcers and employees of $3.5 (2007 
– $3.6) 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 111,971 
(2007 – 125,265) Non-Voting Class A shares. The market value 
of the shares at May 3, 2008 was $4.4 (May 5, 2007 – $5.3).

Note 15 Investment Income

Dividend and interest income 
Share of earnings of entities accounted using the equity method 

$

258,200
 31,484,498 
34,260,763

$

6.5
185.1
7.6

199.2

(3.5) 

7.5
184.5
7.7

199.7
(3.6)

$

195.7

$

196.1

During the year, 300,000 Class B common shares were 

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

During ﬁscal 2007, under a normal course issuer bid, the 
Company purchased for cancellation 46,047 Non-Voting Class A
shares. The purchase price was $1.9 of which $1.6 of the 
purchase price (representing the premium on common shares 
purchased for cancellation) was charged to retained earnings.

During ﬁscal 2007, 27,674 options were exercised for $0.2. 
These options allowed holders to purchase Non-Voting Class A 
shares at $6.555 per share.

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.

2008

1.2
33.3

34.5

$

$

$

$

2007

9.7
31.8

41.5

2008 AN N UAL R E PORT

89

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 16 Capital Gains and Other Items

Gain on sale of investments 
Other items
Change in fair value of Canadian third party asset-backed commercial paper (Note 7) 
Reduction of book value of real estate assets 

$

2008

100.9
0.3
(7.5) 
(6.0) 

87.7

$

$

$

2007

6.2
0.9
–
–

7.1

Note 17 Income Taxes

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:

Income tax expense according to combined statutory rate of 31.9% (2007 – 32.2%) 
Increase (decrease) in income taxes resulting from
Rate changes effect on timing differences 
Non-taxable dividends and equity earnings 

Capital gains and other items 

May 3, 2008 income tax expense attributable to net earnings consists of:

Operations
Capital gains and other items   

May 5, 2007 income tax expense attributable to net earnings consists of:

Operations
Capital gains and other items   

Current

102.2
18.6 

120.8

104.9

(0.1) 

104.8

$

$

$

$

2008

2007
 Restated (Note 1)

$

116.8

$

119.7

(5.5) 
(0.1) 

111.2
14.7

125.9

Future

9.0
(3.9) 

5.1

10.6
1.5 

12.1

$

$

$

$

$

(2.0)
(2.2)

115.5
1.4

116.9

Total

111.2
14.7

125.9

115.5
1.4

116.9

$

$

$

$

$

90

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

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

Property and equipment 
Investments
Future employee beneﬁts obligation 
Restructuring provisions 
Pension contributions 
Deferred costs
Deferred credits
Goodwill and intangibles 
Other   

Future income taxes – current liabilities  
Future income taxes – non-current liabilities 

May 3, 2008

May 5, 2007

$

$

$

$

125.9
8.1
(30.9) 
(8.4) 
12.6
3.2
48.8
29.8
(30.7) 

158.4

32.9
125.5

158.4

$

$

$

$

108.0
38.9
(34.9)
(11.6)
18.6
1.0
54.8
10.2
(14.2)

170.8

40.4
130.4

170.8

In the ordinary course of business, the Company is subject to ongoing audits by tax authorities. While the Company believes that its tax 
ﬁling positions are appropriate and supportable, from time to time certain matters are reviewed and challenged by the tax authorities.

Note 18 Supplementary Cash Flow Information

a)

Items not affecting cash

Depreciation and amortization 
Future income taxes 
Amortization of other assets 
Provision on asset-backed commercial paper 
Minority interest 
Stock-based compensation  
Long-term lease obligation  
Employee future beneﬁts obligation  
Rationalization costs (Note 27) 
Reduction of book value of real estate assets 

b) Other cash ﬂow information

Net interest paid 

Net income taxes paid 

2008

2007
Restated (Note 1)

304.6
5.1
5.1
7.5
12.8
2.5
11.9
4.8
(6.2) 
6.0

354.1

103.9

157.5

$

$

$

$

269.2
12.1
19.1
–
44.4
1.4
16.1
4.8
15.5
–

382.6

58.9

168.2

$

$

$

$

2008 AN N UAL R E PORT

91

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 19 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:

Assets  

Liabilities   
Equity and advances 

Revenues  
Expenses  

Income before income taxes 

Cash provided (used)

Operating activities 
Investing activities 
Financing activities 

Note 20 Segmented Information

Revenue

Food retailing

Real estate
  Commercial

Inter-segment 

  Residential

Investment and other operations 

Elimination

May 3, 2008

May 5, 2007

$

$

$

$

$

$

$

139.4

67.8
71.6

139.4

2008

88.7
36.8

51.9

74.8
(14.6) 
(2.3) 

57.9

$

$

$

$

$

$

$

136.3

72.7
63.6

136.3

2007

111.8
41.7

70.1

68.7
(34.2)
3.3

37.8

2008

2007

$

13,768.1

$ 13,032.0

40.5
34.9
85.2

160.6

171.2

38.4
34.3
146.1

218.8

150.2

  14,099.9
(34.9)

13,401.0
(34.3)

$

14,065.0

$ 13,366.7

92

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income

Food retailing
Real estate
  Commercial  
  Residential
Investment and other operations 
Corporate expenses 

Identiﬁable assets

Food retailing
Goodwill

Real estate
Investment and other operations (including goodwill of $40.1; 2007 – $40.1)  

Depreciation and amortization

Food retailing
Real estate
Investment and other operations 

Capital expenditures

Food retailing
Real estate
Investment and other operations 

2008

2007
Restated (Note 1)

$

359.0

$

291.0

49.3
50.7
24.4
(10.8) 

46.8
71.2
31.6
(9.5)

$

472.6

$

431.1

May 3, 2008

May 5, 2007
Restated (Note 1)

$

4,026.7
1,119.0

5,145.7
282.0
279.2

$

3,422.4
746.5

4,168.9
609.4
463.2

$

5,706.9

$

5,241.5

2008

2007
 Restated (Note 1)

276.2
5.4
23.0

304.6

$

$

240.6
6.8
21.8

269.2

2008

2007
Restated (Note 1)

481.2
47.3
20.9

549.4

$

$

446.7
16.0
46.2

508.9

$

$

$

$

The Company operates principally in two business segments: food retailing and real estate. The food retailing segment consists of 
distribution of food products in Canada. The real estate segment consists of development and ownership of both commercial and 
residential properties. Commercial real estate is mainly land held for development of food anchored retail strip plazas. Residential 
real estate is the development of housing lots for resale. Inter-segment transactions are at market values. 

2008 AN N UAL R E PORT

93

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 21 Financial Instruments

Credit risk

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

Fair value of ﬁnancial instruments

The book value of cash and cash equivalents, receivables, loans 
and mortgages, bank indebtedness, and accounts payable and 
accrued liabilities approximate fair values at May 3, 2008. The 
fair value of all investments is $431.2 (May 5, 2007 – $717.1).
The total fair value of long-term debt is estimated to be 
$1,409.1 (May 5, 2007 – $907.5). The fair value of variable rate 
long-term 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 current rate offered for debt 
of similar maturities and credit quality.

Derivative ﬁnancial instruments

Derivative ﬁnancial instruments are recorded on the 
consolidated balance sheet at fair value unless the derivative 
instrument is a contract to buy or sell a non-ﬁnancial item 
in accordance with the Company’s expected purchase, sale 
or usage requirements, referred to as a “normal purchase or 
normal sale”. Changes in the fair values of derivative ﬁnancial 
instruments are recognized in earnings unless it qualiﬁes and 
is designated as an effective cash ﬂow hedge or a normal 
purchase or normal sale. Normal purchases and normal sales are 
exempt from the application of the standard and are accounted 
for as executory contracts. Changes in fair value of a derivative 
ﬁnancial instrument designated as a cash ﬂow hedge are 
recorded in other assets and liabilities with the effective portion 
recorded in accumulated other comprehensive income.

The following table summarizes the fair value of ﬁnancial 

assets and ﬁnancial liabilities classiﬁed as held-for-trading, 
including non-ﬁnancial derivatives, recognized in net earnings 
for the year ended May 3, 2008, before income taxes and 
minority interest.

Designated as
Held-for-Trading 

Required to be
Classified as
Held-for-Trading

Cash and cash equivalents 
Interest rate swaps
Foreign currency forwards 
Commodity swaps

$ 191.4
–
–
–

$

–
(20.0)
2.3
(1.7)

During the year, only the interest rate swaps resulted in an 
earnings impact. A loss in value of $0.9 was recorded in 
interest expense.

Interest rate risk

Interest rate risk is the potential for ﬁnancial loss arising from 
changes in interest rates. The majority of the Company’s long-
term debt is at ﬁxed interest rates or hedged with interest rate 
swaps. Bank indebtedness and approximately 30 percent of the 
Company’s long-term debt is exposed to interest rate risk due 
to ﬂoating rates.

Foreign exchange risk

Bank indebtedness includes $4.0 Canadian that is denominated 
in U.S. dollars and it acts as a partial hedge to the foreign 
exchange ﬂuctuations inherent in the residual value of certain 
equipment. The Company uses forward contracts to ﬁx the 
exchange rate on some of its expected requirements for Euros 
and U.S. dollars. Amounts received or paid related to instruments 
used to hedge foreign exchange, including any gains and losses, 
are recognized in the cost of purchases.

Note 22 Commitments and Contingent Liabilities

Guarantees and commitments

At May 3, 2008 the Company was contingently liable for 
letters of credit issued in the aggregate amount of $60.3 
(May 5, 2007 – $45.8).

Sobeys has guaranteed certain bank loans contracted by 
franchise afﬁliates. As at May 3, 2008 these loans amounted 
to approximately $1.3 (May 5, 2007 – $2.9).

During the second quarter of ﬁscal 2008 Sobeys entered 
into an additional guarantee contract. Under the terms of the 
guarantee, should a franchise afﬁliate be unable to fulﬁll their 

lease obligation, Sobeys would be required to fund the greater 
of $5.0 or 9.9 percent of the unfulﬁlled obligation balance. As 
at May 3, 2008 the amount of the guarantee was $5.0.

Sobeys has guaranteed certain equipment leases of its 
franchise afﬁliates. Under the terms of the guarantee should 
a franchise afﬁliate be unable to fulﬁl their lease obligation, 
Sobeys would be required to fund the difference of the lease 
commitments up to a maximum of $70.0, reduced from $100.0 
during the second quarter of ﬁscal 2008, on a cumulative basis. 
Sobeys approves each of the contracts. 

94

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
The aggregate, annual, minimum rent payable under the 

guaranteed operating equipment leases for ﬁscal 2009 is 
approximately $18.1. The guaranteed lease commitments over 
the next ﬁve ﬁscal years are:

Guaranteed Lease Commitments

2009   
2010   
2011   
2012   
2013   
Thereafter

$
$
$
$
$
$

18.1
13.6
12.5
10.1
7.7
1.8

The net aggregate, annual, minimum rent payable under 
operating leases for ﬁscal 2009 is approximately $219.1 
($300.9 gross less expected sub-lease income of $81.8). 
The commitments over the next ﬁve ﬁscal years are:

2009   
2010   
2011   
2012   
2013   
Thereafter

Net Lease

Obligation

$ 219.1
$ 204.4
$ 191.3
179.6
$
$
172.6
$ 1,483.2

Gross Lease

Obligation

$ 300.9
281.8
$
263.9
$
$
247.5
$ 234.5
$ 1,862.8

Upon entering into the lease of its Mississauga distribution 
centre in March 2000, Sobeys guaranteed to the landlord the 
performance, by Serca Foodservice, of all its obligations under 
the lease. The remaining term of the lease is 12 years with an 
aggregate obligation of $37.5 (2007 – $40.4). 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 harmless from any liability it may 
incur pursuant to its guarantee.

Contingencies

On June 21, 2005, Sobeys received a notice of reassessment 
from Canada Revenue Agency (“CRA”) for ﬁscal years 1999 
and 2000 related to the Goods and Services Tax (“GST”). 
CRA asserts that Sobeys was obliged to collect GST on sales 
of tobacco products to status Indians. The total tax, interest 
and penalties in the reassessment was $13.6. Sobeys has 
reviewed this matter, has received legal advice, and believes 
it was not required to collect GST. During the second quarter 

of ﬁscal 2006, Sobeys ﬁled a Notice of Objection with CRA. 
Accordingly Sobeys has not recorded in its statement of 
earnings any of the tax, interest or penalties in the notice of 
reassessment. Sobeys has deposited with CRA funds to cover 
the total tax, interest and penalties in the reassessment and 
has recorded this amount as a long-term receivable from 
CRA pending resolution of the matter.

The Company and a subsidiary have been reassessed in 
respect to the tax treatment of gains realized on the sale of 
shares in Hannaford Bros. Co. (“Hannaford”) in ﬁscal 2001. 
In the event that the tax authorities are successful in respect 
of the Hannaford transaction, which the Company believes is 
unlikely, the maximum potential exposure in excess of provisions 
taken is approximately $22.8. The Company has appealed the 
reassessments in respect of the sale of Hannaford shares. The 
Company expects that it will be substantially successful on its 
appeals of each of these reassessments. The Company also 
believes that the ultimate resolution of these matters will not, 
in any event, have a material impact on earnings because it has 
made adequate provisions for each of these matters. Should 
the ultimate outcome materially differ from the provisions 
established, the effective tax rate and earnings of the Company 
could be materially affected, negatively or positively, in the 
period in which the matters are resolved.

During the fourth quarter, the Company settled other 
outstanding disputes with CRA. Payments of $28.4 were 
covered by existing provisions resulting in no impact on 
net earnings.

The Company entered into an agreement with Crombie REIT 

to fund certain property redevelopments and originally issued 
and recorded a note payable to Crombie REIT in the amount 
of $39.6  related thereto. The Company has agreed to pay for 
all additional costs and expenses required for the redevelopment 
of those properties. In the event that the redevelopment costs 
are less than $39.6, the savings will be paid to the Company.
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. 

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.

2008 AN N UAL R E PORT

95

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 23 Related Party Transactions

The Company rents premises from Crombie REIT. In addition, 
Crombie REIT provides administrative and management services 
to the Company. The rental payments are at fair value and the 
charges incurred for administrative and management services 
are on a cost recovery basis. The Company has non-interest 
bearing notes payable to Crombie REIT in the amount of $19.6.

Note 24 Employee Future Beneﬁts

On October 2, 2006, the Company sold two commercial 

properties to Crombie REIT for cash proceeds of $32.4, 
which was fair market value. Since the sale was to an equity 
accounted investment, no gain was recorded on the sale.

The company has a number of deﬁned beneﬁt and deﬁned 
contribution plans providing pension and other retirement 
beneﬁts to most of its 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.

The Company uses April 30th as an actuarial valuation date 

and May 1st as a measurement date for accounting purposes 
for its deﬁned beneﬁt pension plans.

Retirement Pension Plan
Senior Management Pension Plan
Other Benefit Plans

Deﬁned contribution plans

Most Recent
Valuation Date

Next Required
Valuation Date

May 1, 2007
May 1, 2007
April 30, 2006

May 1, 2010
May 1, 2010
April 30, 2009

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

2008   
2007   

$
$

18.6
14.5

96

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deﬁned beneﬁt plans

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

Accrued beneﬁt obligation

Balance, beginning of year   
Current service cost, net of employee contributions 
Interest cost
Employee contributions 
Beneﬁts paid
Past service costs 
Actuarial (gains) losses  

Balance, end of year 

Plan assets

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

Market value, end of year 

Funded status

Deﬁcit  
Unamortized past service cost 
Unamortized actuarial losses 

Accrued benefit asset (liability) 

Expense

Current service cost, net of employee contributions
Interest cost
Actual return on plan assets 
Actuarial (gains) losses 
Past service costs 
Surplus payments to members 

Income before adjustments  

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

Net expense (income) 

Classiﬁcation of accrued beneﬁt asset (liability)

Other assets
Other liabilities

Accrued benefit asset (liability)  

Pension
Benefit Plans
2008

Pension
Benefit Plans
2007

Other
Benefit Plans
2008

Other
Benefit Plans
2007

$

$

$

$

$

$

$

$

$

$

288.7
2.2
13.9
0.3
(20.5) 
0.1
(15.6)

269.1

283.3
(13.0) 
2.5
0.3
(20.5)
(0.1) 

252.5

(16.5)
0.4
50.8

34.7

2.2
13.9
13.0
(15.6)
0.1
0.1

13.7

(32.2)
0.1
16.0

(2.4)

58.2
(23.5)

34.7

$

$

$

$

$

$

$

$

$

$

269.3
2.3
14.9
0.3
(18.6)
–
20.5

288.7

267.2
27.9
6.5
0.3
(18.6)
–

283.3

(5.4)
0.5
47.6

42.7

2.3
14.9
(27.9)
20.4
–
–

9.7

9.4
0.2
(19.3)

–

68.4
(25.7)

42.7

$

$

$

$

$

$

$

$

$

$

116.6
2.7
6.1
–
(3.5)
–
(5.5)

116.4

–
–
3.4
–
(3.4)
–

–

(116.4)
0.6
5.1

(110.7)

2.6
6.1
–
(5.5) 
–
–

3.2

–
0.1
5.0

8.3

–

(110.7) 

(110.7)

$

$

$

$

$

$

$

$

$

$

114.1
2.5
5.9
–
(3.8)
–
(2.1)

116.6

–
–
3.8
–
(3.8)
–

–

(116.6)
1.0
13.5

(102.1)

2.5
5.9
–
(2.1)
–
–

6.3

–
0.1
2.2

8.6

–
(102.1)

(102.1)

2008 AN N UAL R E PORT

97

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

Accrued benefit obligation 

$

21.8

$

20.9

$

110.7

$

102.1

Pension
Benefit Plans
2008

Pension
Benefit Plans
2007

Other
Benefit Plans
2008

Other
Benefit Plans
2007

The signiﬁcant actuarial assumptions adopted in measuring the Company’s accrued beneﬁt obligations are as follows 
(weighted-average assumptions as of May 3, 2008):

Pension
Benefit Plans
2008

Pension
Benefit Plans
2007

Other
Benefit Plans
2008

Other
Benefit Plans
2007

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

5.25%
7.00%
4.00%

5.00%
7.00%
4.00%

5.25%

5.25%

For measurement purposes, a 9.0 percent ﬁscal 2008 annual 
rate of increase in the per capita cost of covered health care 
beneﬁts was assumed. The cumulative rate expectation to 2016 
is 5.0 percent. The expected average remaining service period of
the active employees covered by the pension beneﬁt plans ranges 
from 10 to 11 years with a weighted average of 10 years at year 
end. The expected average remaining service period of the active 
employees covered by the other beneﬁt plans range from 11 to 
16 years with a weighted average of 14 years at year end.

The table below outlines the sensitivity of the ﬁscal 2008 

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 impact on the accrued beneﬁt obligations or beneﬁt 
plan expenses.

Expected long-term rate of return on plan assets 

Impact of: 1% increase 
 1% decrease 

Discount rate(2) 

Impact of: 1% increase 
 1% decrease 
Growth rate of health costs(3)
Impact of: 1% increase 
 1% decrease 

Pension Plans

Other Benefit Plans

Benefit
Obligations

5.25% 
(29.5)
33.1

$
$

Benefit   
Cost(1)

7.00%

(2.4) 
2.4
5.25% 
0.4
(0.8)

$
$

$
$

Benefit
Obligations

Benefit

Cost(1)

5.25% 
(17.1)
20.6
9.00% 
19.1
(15.4)

$
$

$
$

5.25%
(0.7)
0.8
9.00%
1.9
(1.5)

$
$

$
$

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

(2) 5.5% for the Employee Pension Plan and the Post Retirement Beneﬁt Plan.

(3) Gradually decreasing to 5.0% in 2016 and remaining at that level thereafter.

98

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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  
Foreign currency hedges 

2008

2.91%
25.51%
70.26%
0.26%
 1.06%

2007

2.43%
18.20%
78.55%
0.22%
 0.60%

Total investments

100.00%

100.00%

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

2008

% of Plan
 Assets

$

80.8 

9.0%

$

2007

92.2

% of Plan
Assets

9.3%

Note 25 Business Acquisitions

Sobeys acquires franchisee stores and prescription ﬁles. 
The results of these acquisitions have been included in the 
consolidated ﬁnancial results of the Company, and were 
accounted for through the use of the purchase method. As 

illustrated in the table below, the acquisition of certain franchise 
stores resulted in the acquisition of intangible assets. The 
method of amortization of limited life intangibles is on a straight-
line basis over the estimated useful life of the intangible.

Franchisees

Inventory
Property and equipment 
Intangibles
Goodwill
Other assets (liabilities) 

Cash consideration 

Prescription ﬁles

Intangibles

Cash consideration 

2008

2007

6.6
5.1
5.9
1.2
(1.5) 

17.3

2.5

2.5

$

$

$

$

4.9
2.4
3.3
0.9
0.3

11.8

4.9

4.9

$

$

$

$

On September 12, 2007, Sobeys acquired all the assets and 
assumed certain liabilities of Thrifty Foods (“Thrifty”) for an 
amount of $253.6. The assets acquired include 20 full-service 
supermarkets, a main distribution centre and a wholesale 
division on Vancouver Island and the lower mainland of British 
Columbia. The acquisition was accounted for using the purchase 
method with the results of Thrifty being consolidated since the 

acquisition date. Management carried out a detailed analysis 
and changes were made to the preliminary allocation of the 
excess consideration paid over net assets acquired as disclosed 
in previous quarters of ﬁscal 2008. The measurement and 
allocation of ﬁnite and inﬁnite intangible assets and goodwill 
(approximately $174.0 of which is deductible for tax) was 
completed during the fourth quarter of ﬁscal 2008. 

2008 AN N UAL R E PORT

99

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The ﬁnal purchase price allocation, incorporating management’s assessment of fair value, is as follows:

Consideration
Cash   
Acquisition costs 

Total consideration paid

Net assets acquired
Current assets
Long-term assets 
Current liabilities assumed   
Long-term liabilities assumed 

Total net assets acquired 

Excess consideration paid over net assets acquired  

Allocation of excess consideration paid over net assets acquired

Intangible assets – Banner  

– Other 

Goodwill

$

$

$

$

250.4
3.2

253.6

41.4
36.9
(43.6)
(13.1)

21.6

232.0

24.0
1.9
206.1

232.0

During the ﬁrst two quarters of ﬁscal 2007, the Company 
increased its ownership interest in Sobeys from 70.3% to 
72.1% 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 $48.6, goodwill increased by $13.0 
and minority interest decreased by $35.6.

On August 27, 2006, Sobeys acquired substantially all of 
the food distribution assets of Achille de la Chevrotière Ltée 
and its associated companies (“ADL”) for an amount of $79.2. 

The assets acquired include 25 owned or franchised retail 
store operations, other wholesale supply agreements and 
distribution facilities in Rouyn-Noranda, Québec. Sixteen of the 
franchised retail store operations are considered VIEs under 
the Company’s policy (see Note 28). They have been included 
in the consolidated results of the Company. The acquisition was 
accounted for using the purchase method with the results of 
ADL being consolidated since the acquisition date. The ﬁnal 
purchase price allocation, which has incorporated management’s 
assessment of fair value, is as follows:

Consideration
Cash   
Acquisition costs 

Total consideration paid 

Net assets acquired
Current assets
Long-term assets 
Current liabilities assumed   
Long-term liabilities assumed 

Total net assets acquired 

Excess consideration paid over net assets acquired  

Allocation of excess consideration paid over net assets acquired

Intangible assets – Agreements 

– Other 

Goodwill

100

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

$

$

$

$

75.8
3.4

79.2

28.0
27.7
(20.0)
(4.6)

31.1

48.1

6.3
0.5
41.3

48.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 26 Stock-based Compensation

Deferred share units

Stock option plan

Members of the Board of Directors may elect to receive all or 
any portion of their fees in Deferred Share Units (“DSUs”) in 
lieu of cash. The number of DSUs received is determined by 
the market value of the Company’s Non-Voting Class A shares 
on each director’s fee payment date. Additional DSUs are 
received as dividend equivalents. DSUs 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 an 
Empire Company Limited Non-Voting Class A share at the time 
of the redemption. On an ongoing basis, the Company values the 
DSU obligation at the current market value of a corresponding 
number of Non-Voting Class A shares and records any increase 
in the DSU obligation as an operating expense. At May 3, 2008, 
there were 64,877 (May 5, 2007 – 66,435) DSUs outstanding. 
During the year, the stock-based compensation expense was 
$0.5 (2007 – $0.6).

During ﬁscal 2008, the Company granted options under the 
Stock Option plan for employees of the Company whereby 
options are granted to purchase Non-Voting Class A Shares. 
Options allow holders to purchase Non-Voting Class A Shares 
at $43.96 per share and expire in December 2015. The options 
vest over four years with 50 percent of the options vesting only 
if certain ﬁnancial targets are attained in a given ﬁscal year. 
These options have been treated as stock-based compensation. 

During ﬁscal 2008, 99,349 options were granted. The 
compensation cost relating to the ﬁscal 2008 was determined 
to be $0.2 with amortization of the cost over the vesting period. 
The total increase in contributed surplus in relation to the 
Stock Option compensation cost for ﬁscal 2008 is $0.2. The 
compensation cost was calculated using the Black-Scholes 
model with the same assumptions as detailed above for the 
share purchase loans.

Share purchase loans

Phantom performance option plan

The Company has a Share Purchase Loan plan for employees 
of the Company whereby loans are granted to purchase Non-
Voting Class A Shares. These loans have been treated as stock-
based compensation in accordance with EIC Abstract 132. 

The compensation cost relating to the Share Purchase Loans 

was determined to be $0.1 (2007 – $0.2) with amortization of 
the cost over six years. The total increase in contributed surplus 
in relation to the Share Purchase Loan compensation cost 
for ﬁscal 2008 is $0.1 (2007– $0.1). The contributed surplus 
balance was reduced by $0.1 in relation to shares issued under 
the Share Purchase Loan that have been treated as stock-based 
compensation that became fully vested with the employee 
during ﬁscal 2008. Shares become vested when the employees’ 
outstanding loan balance is reduced. The compensation 
cost was calculated using the Black-Scholes model with the 
following assumptions:

Expected life
Risk-free interest rate
Expected volatility
Dividend yield

2008

6 years
3.50%
20.1%
1.5%

2007

7 years
4.40%
19.7%
1.4%

In June 2007, the Board of Directors approved a Phantom 
Performance Option Plan for eligible employees of Sobeys. 
Under the plan, units are granted at the discretion of the Board 
based on a notional equity value of Sobeys tied to a speciﬁed 
formula. The units have a three-year vesting period with a third 
of the units vesting each year. As the notional fair value of 
Sobeys changes, the employees are entitled to the incremental 
increase in the notional equity value over a ﬁve-year period. 
The Company recognizes a compensation expense equal to 
the increase in notional value over the original grant value on 
a straight-line basis over the vesting period. After the vesting 
period, any increase in incremental notional equity value is 
recognized as a compensation expense immediately. This is 
recorded as a liability until settlement and is re-measured 
at each interim and annual reporting period of the Company. 
At the end of ﬁscal 2008, 518,579 units were outstanding 
and the Company recognized $0.1 (May 5, 2007 – $Nil) 
of compensation expense associated with this Plan during 
ﬁscal 2008.

2008 AN N UAL R E PORT

101

 
 
 
 
Note 27 Business Rationalization Costs

During the third quarter of ﬁscal 2007, Sobeys completed a 
rationalization of administrative functions and also began to 
incur rationalization costs associated with the development of a 
new grocery distribution centre in Vaughan, Ontario. These costs 
primarily relate to severance and ﬁxed asset and inventory write-
offs. In the fourth quarter of ﬁscal 2007, Sobeys also recorded 
additional rationalization costs related to the closure of two 
distribution facilities in Quebec of which $3.5 was reversed in 
ﬁscal 2008 as a result of changes in management’s estimates of 

the expected costs. During the ﬁrst quarter of ﬁscal 2008, Sobeys 
incurred additional administrative rationalization costs. Subsequent 
to year-end additional severance costs of approximately $5.6 have 
been incurred and will be recognized in the ﬁrst quarter of ﬁscal 
2009. Additional rationalization costs are anticipated and will 
be quantiﬁed and disclosed throughout ﬁscal 2009 as they are 
available. The costs associated with the organizational change are 
recorded as incurred as cost of sales, selling and administrative 
expenses in the statement of earnings, before tax, as follows:

Severance
Other costs
Asset write-offs

Severance
Other costs 
Asset write-offs

Liability at
May 5, 2007

Incurred
Fiscal 2008

12.1
– 
– 

12.1

$

$

(1.8)
– 
– 

(1.8)

$

$

Paid

4.4
– 
– 

4.4

Incurred

Incurred

Liability at
May 3, 2008

$

$

5.9
–
–

5.9

Total Incurred
and

Fiscal 2007

Fiscal 2008

Anticipated

Anticipated

14.3
1.1 
3.4 

18.8

$

$

(1.8)
– 
– 

(1.8)

$

$

5.6
– 
– 

5.6

$

$

18.1
1.1
3.4

22.6

$

$

$

$

102

E M PI R E COM PANY LI M ITE D    NOTES TO TH E CONSOLI DATE D FI NANCIAL STATE M E NTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Warehouse and Distribution Agreement

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

Note 28 Variable Interest Entities

Variable interest entities are deﬁned under AcG-15, 
“Consolidation of Variable Interest Entities” 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.

The Company has identiﬁed the following entities as VIEs:

Franchise Afﬁliates

The Company has identiﬁed 292 (May 5, 2007 – 271) 
franchise afﬁliate stores 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.

Note 29 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.

2008 AN N UAL R E PORT

103

ELEVEN YEAR FINANCIAL REVIEW

Years Ended(1)

2008

2007

Restated

2006

Restated

2005

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 gains (losses) 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 on a Fully Diluted Basis ($ per share)

Operating earnings
Capital gains (losses) and other items, net of tax  
Net earnings
Dividends

Non-Voting Class A shares
Class B common shares

Book value

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

High    
Low 
Close   

Diluted weighted average number of 
shares outstanding (in millions) 

$

14,065.0 
472.6
105.8
125.9
12.8

$ 13,366.7 
431.1 
60.1 
116.9 
55.4 

 $ 13,063.6 
491.4 
83.8 
153.1 
67.1 

 $ 12,435.2
463.7
86.7
131.2
63.6

242.8
–
242.8
73.0
315.8
14.0%

5,706.9
1,414.6  
2,382.3  

3.69
1.11
4.80

0.660
0.660
36.14

55.19
35.40
39.25

65.7

200.1 
– 
200.1 
5.7 
205.8 
10.1% 

5,241.5 
792.6 
2,131.1 

3.04 
0.09 
3.13 

0.600 
0.600 
32.31 

45.25 
39.49 
42.33 

202.0 
– 
202.0 
94.8 
296.8 
16.2% 

5,051.5 
707.3 
1,965.2 

3.07 
1.44 
4.51 

0.560 
0.560 
29.77 

44.35 
33.37 
43.29 

182.9
–
182.9
3.7
186.6
11.4%

4,929.2
727.4
1,709.0

2.78
0.05
2.83

0.480
0.480
25.87

38.00
24.25
36.66

65.7 

65.7 

65.7

(1) Fiscal years ended April 30th, except ﬁscal 2005, which ended May 7, 2005, ﬁscal 2006, which ended May 6, 2006, ﬁscal 2007, which ended May 5, 2007, 

and ﬁscal 2008, which ended May 3, 2008, 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 gains (losses) and other items, net of tax.

104

E M PI R E COM PANY LI M ITE D

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004

2003

2002

2001

2000

1999

1998

 $ 11,284.0 
 422.8 
 92.4  
 111.0 
 58.5  

 163.3 
 –  
 163.3  
 9.2  
 172.5  
11.6% 

 $ 10,624.2

 $

444.4  
 93.7  
120.0  
 67.5  

159.3  
 –  
 159.3  
 (6.0) 
 153.3  
11.4% 

 4,679.7

 913.0  
 1,567.6  

 4,519.3  
 923.1  
 1,418.5 

 2.47  
 0.14  
 2.61  

0.400 
0.400 
 23.67  

 29.50  
 23.10  
 26.65  

 2.42  
 (0.09) 
 2.33  

0.330 
0.330 
 21.41  

 33.25  
 23.70  
 23.85  

9,926.5
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 

0.214 
0.214 
19.47 

33.30 
15.75 
28.88 

 $

9,331.1
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 

0.170 
0.170 
16.82 

18.25 
13.88 
17.00 

 $

9,100.1
309.7 
159.6 
68.1 
32.9 

78.8 
5.9 
84.7 
2.1 
86.8 
13.3% 

4,171.0 
 1,332.0 
602.8 

1.10 
0.03 
1.13 

0.140 
0.140 
8.73 

16.98 
12.33 
16.05 

 $

5,362.7 
184.4 
112.6 
49.1 
9.2 

59.0 
1.1 
60.1 
74.9 
135.0 
21.7% 

4,023.5 
1,391.8  
737.5 

0.78 
1.00 
1.78 

0.136 
0.136 
9.03 

16.27 
12.50 
13.00 

 $

2,912.2 
108.6
76.8
17.9
–

56.1
8.1
64.2
23.6
87.8
17.9%

1,907.2
616.5
558.3

0.85
0.32
1.17

0.121
0.116
7.06

14.25
7.80
13.63

 65.8  

 65.8  

65.7 

65.6 

75.6 

75.0 

73.9

2008 AN N UAL R E PORT

105

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GLOSSARY

Adjusted debt

Net debt to total capital 

Funded debt plus the capitalized value of operating lease 
payments, which is calculated as six times net annual 
operating lease payments 

Adjusted debt to capital 

Adjusted debt divided by the sum of adjusted debt and 
shareholders’ equity 

Book value per share 

Shareholders’ equity less preferred shares divided by Non-Voting
Class A shares and Class B common shares outstanding 

Capital expenditure 

Payments made for the acquisition of property and equipment 

Funded debt less cash and cash equivalents divided by funded 
debt less cash and cash equivalents plus shareholders’ equity

Operating earnings 

Net earnings before capital gains (losses) and other items, 
net of tax 

Operating income 

Operating earnings before minority interest, interest expense 
and income taxes 

Operating margin 

Operating income divided by sales 

Private label 

EBITDA 

Operating income plus depreciation and amortization 

A brand of products that is marketed, distributed and owned by 
the Company 

Expanded stores 

Renovated stores 

Stores that undergo construction resulting in a square footage 
increase during the year 

Stores that undergo construction, resulting in no increase in 
square footage 

Funded debt 

Return on equity 

All interest bearing debt, which includes bank loans, bankers’ 
acceptances, long-term debt and liabilities relating to assets 
held for sale 

Net earnings available for common shares divided by average 
common shareholders’ equity 

Same-store sales 

Funds from operations 

Sales from stores in the same location in both reporting periods 

Operating earnings plus depreciation and amortization 

Hedge 

A ﬁnancial instrument used to manage foreign exchange, 
interest rate or energy or other commodity risk by making 
a transaction which offsets the existing position  

Interest coverage  

Operating income divided by interest expense 

Total capital 

Funded debt plus shareholders’ equity 

VIE (Variable Interest Entity)
An entity that does not have sufﬁcient equity at risk to ﬁnance 
its activities without additional subordinated ﬁnancial support, 
or where the equity holders lack the overall characteristics of a 
controlling ﬁnancial interest 

Letters of credit 

Weighted average number of shares 

Financial instruments issued by a ﬁnancial institution to 
guarantee the Company’s payments to a third party 

The number of Non-Voting Class A shares plus Class B common 
shares outstanding adjusted to take into account the time the 
shares are outstanding in the reporting period

106

E M PI R E COM PANY LI M ITE D

SHAREHOLDER AND INVESTOR INFORMATION

31,484,498
34,260,763

Outstanding Shares
As of June 26, 2008

Non-Voting Class A shares
Class B common shares, voting

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

Bankers
Bank of Montreal 
Bank of Nova Scotia
Bank of Tokyo-Mitsubishi
Canadian Imperial Bank of Commerce
National Bank of Canada
Rabobank
Royal Bank of Canada
TD Canada Trust

Solicitors
Stewart McKelvey 
Halifax, Nova Scotia

Auditors
Grant Thornton, LLP
New Glasgow, Nova Scotia

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

Empire Company Limited
Head Ofﬁce:
115 King St. 
Stellarton, Nova Scotia 
B0K 1S0
Telephone: (902) 755-4440
Fax: (902) 755-6477
Internet: 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

Communication 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

Shareholders’ Annual General Meeting
September 11, 2008, at 11:00 a.m. (ADT)
Empire Studio 7 Cinemas
610 East River Road
New Glasgow, Nova Scotia

Stock Exchange Listing
The Toronto Stock Exchange

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

Average Daily Trading Volume (TSX)
57,951

Dividend Record and Payment Dates For Fiscal 2008

Record Date
July 15, 2008
October 15, 2008*
January 15, 2009*
April 15, 2009*

* Subject to approval by Board of Directors

Payment Date
July 31, 2008
October 31, 2008*
January 30, 2009*
April 30, 2009*

Front Cover: Mélanie Mignault, Deli Counter Manager, and Francine Côté, Cashier, IGA extra, Mascouche, Québec; Sobeys customer;  
Kathleen DeVargas, Administration Manager, Woodchester Sobeys; Graeme Ogilvie, Assistant Grocery Manager, Mississauga Sobeys; Stan Malecki, 
Vice President Development, ECL Developments Ltd.
Back Cover: Ray Bourbonnais, Vice President Development, ECL Developments Ltd. and Thrifty Foods; Marissa Coleman, Meat Manager, Mississauga 
Price Chopper; Shelly MacInnis, Cashier, Crystal MacLean, Owner/Operator, and Darrell Gero, Meat Manager, Foodland, Westville, Nova Scotia;
Jonathan Lavergne, Warehouse Clerk, Sobeys Québec Trois-Rivières Distribution Centre.

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