CLEARLY FOCUSED ON
OUR STRENGTHS
EmpirE Company LimitEd
2009 Annual Report
A LEgACY OF CREAtiNg vALUE
Empire Company Limited’s primary goal and focus continues to be the achievement of long-
term sustainable value creation through cash flow and income growth and equity appreciation.
Through direct ownership and equity participation, Empire strives to continue this legacy
by focusing on businesses that we know and understand, namely food retailing, real estate
and corporate investments.
52 Weeks Ended
May 2, 2009
52 Weeks Ended
May 3, 2008
52 Weeks Ended
May 5, 2007 *
$ 15,015.1
$ 14,065.0
$ 13,366.7
$
262.9
3.0
265.9
3.99
0.05
4.04
39.14
0.70
$
242.8
73.0
315.8
3.69
1.11
4.80
36.14
0.66
$
200.1
5.7
205.8
3.04
0.09
3.13
32.31
0.60
2009 Financial Highlights
($ in millions, except per share amounts)
Operations
Revenue
Operating earnings
Capital gains (losses) and other items, net of tax
Net earnings
Per Share Information
Operating earnings (fully diluted)
Capital gains (losses) and other items, net of tax
Net earnings (fully diluted)
Book value
Dividends
*Restated
OPE RATING
EAR N INGS
$ I N M I LLIONS
2 8 0
210
14 0
70
DIVIDE N DS
$ PE R SHAR E
VALU E OF INVESTM E NT OF $10 0
MADE 10 YEARS AGO
$
0 . 8 0
0 . 6 0
0 . 4 0
0 . 20
4 0 0
3 0 0
20 0
10 0
FY
99
00
01
02
03
04
05
06
07
08
09
FY
99
00
01
02
03
04
05
06
07
08
09
FY
99
00
01
02
03
04
05
06
07
08
09
10-Year Operating Earnings CAGR
15.9%
10-Year DPS CAGR
17.8%
EMPIRE
EMPIRE
S&P/TSX INDEX
S&P/TSX INDEX
10-Year Total Return CAGR
15.5%
letter to
shareholders
FOCUSED
ON OUR
STRENGTHS
With the privatization of Sobeys Inc. in June 2007,
the primary focus of Empire’s energy and
capital solidified in support of our core food
retailing and related real estate operations with
a corresponding material reduction in our
corporate investments segment.
Our increased focus on food retailing
(Sobeys Inc.) and related real estate has enhanced
Empire’s operating earnings. Empire achieved
record financial results in fiscal 2009 largely
as a result of continued improvement in operational
performance by Sobeys. Revenue grew by
6.8 percent to $15.02 billion while operating earnings
increased by 8.3 percent to $262.9 million or
$3.99 per share.
This improved operational performance, combined
with a modest equity issuance completed in April 2009,
strengthened our financial position, with the ratio
of funded debt to capital falling to 32.7 percent from
39.8 percent at the start of the fiscal year.
Paul D. Sobey
President and CEO
Empire Company Limited
letter to shareholders
A passion for food
Sobeys’ determination to “out-food”,
“out-fresh”, “out-service” and
“out-market” those who choose to
compete with us has resulted in
solid same-store sales growth and
sales per square foot increases.
Food retailing
During fiscal 2009, ECL Developments continued
Sobeys achieved record operating performance in fiscal
to expand its property development pipeline and is on
2009 with a sales increase of $996.7 million or 7.2 percent,
plan with a total of 18 grocery-anchored plazas under
same-store sales growth of 5.2 percent and a net earnings
development (1.7 million square feet of gross leasable area)
increase of $32.8 million or 16.7 percent. The strong
at fiscal year-end. We view ECL Developments as an
performance of Sobeys is built upon its focus and
integral component of the ongoing growth of our food
determination to be widely recognized as the best food
retailing business. Through ECL Developments, we intend
retailer in the country.
to continue the internal property development of grocery-
During the year, Sobeys continued to modernize its
anchored plazas and free-standing grocery stores by
retail network, improved operational execution, enhanced
capitalizing on the knowledge and expertise within our food
productivity and continued to introduce innovative product
retailing and real estate businesses.
and service offerings. In fiscal 2009, Sobeys recorded
Crombie REIT recorded solid operating performance in
industry leading same-store sales growth and sales per
fiscal 2009 with operating income contribution to Empire
square foot increases, evidence that Sobeys’ unwavering
of $19.8 million, up 45.6 percent. This increase is the
focus on food is a winning strategy.
result of purchasing 61 properties from subsidiaries of
Empire in April 2008, as well as continued same-property
Real estate
net operating income growth.
Our consolidated real estate performance is not strictly
comparable to last year as last year’s performance
included Sobey Leased Properties’ operations, the principal
components of which were sold to Crombie REIT in
April 2008, with the remainder transferred to Sobeys.
Adjusting for this, there are three components to our real
estate business: our commercial property development
company, ECL Developments; our 47.4 percent interest in
Crombie REIT; and our 35.7 percent interest in Genstar
Development Partnership, our residential property operation.
2
Empire Company Limited
The NBA live in 3D
Fans experienced the first live
3D theatrical event in Canada
when Empire Theatres
broadcast the NBA All-Star
Saturday Night exclusively
at its Empress Walk location
in Toronto in February, 2009.
With respect to our residential property operation,
long-term value creation. Empire’s shareholders have been
Genstar contributed $23.2 million of net earnings in
well-served by the Company’s focus on its core businesses
fiscal 2009 versus $34.7 million last year. This decline
and approach to building long-term value and we intend to
was expected and, given the slow down in the housing
stay the course.
market, we expect that its contribution will decline further
in fiscal 2010. Genstar has a strong management team
A key to our success
and is well capitalized. It is in an excellent position to take
Empire’s success and sustainability has been made possible
advantage of new development opportunities and is well
by the skill and dedication of our executive and operating
positioned for future growth once the cycle improves.
management teams and the contributions of more than
90,000 employees at Empire and its related companies,
Investments and other operations
including its franchisees and affiliates. They have been
During fiscal 2009, our wholly-owned Empire Theatres
instrumental in creating successful organizations and that
business continued to benefit from strong theatre attendance,
success has in turn created winning environments. On behalf
same theatre revenue growth and enhanced operational
of the Board of Directors and our shareholders, we offer a
improvements. The continued growth in Empire Theatres’
sincere thanks for their ongoing efforts and dedication.
revenue and operating income is due to a steady stream
With the valued guidance of our Board, and the continuing
of popular movie releases, combined with the dedication
patronage of our customers, and support of our affiliates,
and efforts of our people at improving the movie-going
suppliers and investors, we are confident that Empire will
experience. The implementation of new technologies such
continue to prosper in the years ahead.
as digital cinema and RealD 3D, along with alternative
programming, has enriched the entertainment experience
for our customers.
Wajax Income Fund had an excellent start to our fiscal
year; however, as the economy weakened the company
prudently reduced its monthly distribution. Wajax is a very
well managed company with a strong competitive position in
its chosen markets. We remain confident that it will prosper
as economic conditions improve.
Looking forward
Our focus in fiscal 2010 will remain centred on operational
excellence and prudent capital management. Our actions
will continue to support the profitable growth of our core
food retailing business and we look forward to capitalizing
on real estate opportunities that align with building
Paul D. Sobey
President and CEO
Empire Company Limited
June 26, 2009
core businesses with
an integrated strategy
FOOD
RETAIlING
Profile
Profile
Sobeys Inc. owns or franchises more than 1,300 stores in every province across
Sobeys Inc. owns or franchises more than 1,300 stores in every province across
Canada under retail banners that include Sobeys, IGA, IGA extra, Foodland,
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
Price Chopper and Thrifty Foods, as well as Lawtons Drug Stores. Our five core
retail food formats are designed to ensure that we have the right offering in the
retail food 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
right-sized stores for each individual market we serve – from our full service format
to the convenience format, each tailored to satisfy the unique occasion-based
to the convenience format, each tailored to satisfy the unique occasion-based
food shopping needs of our customers.
food shopping needs of our customers.
Competitive strengths
Competitive strengths
➤ Our passionate “best in food” focus supported by our fresh food expertise.
➤ Our passionate “best in food” focus supported by our fresh food expertise.
➤ Our customer focus and superior service delivery.
➤ Our customer focus and superior service delivery.
➤ Our committed and knowledgeable regional and local market management teams,
➤ Our committed and knowledgeable regional and local market management teams,
affiliates and store operators.
affiliates and store operators.
➤ Our investment in innovation including our Compliments private label brand.
➤ Our investment in innovation including our Compliments private label brand.
➤ Our enhanced supply chain, back shop processes, systems and tools that support
➤ Our enhanced supply chain, back shop processes, systems and tools that support
our employees’ ability to serve the needs of our customers.
our employees’ ability to serve the needs of our customers.
Key performance indicators
Key performance indicators
F OOD R ETAILING
R EVE N U E
$ I N M I LLIONS
F OOD R ETAILING
OPE RATING INCOM E
$ I N M I LLIONS
16 , 0 0 0
12 , 0 0 0
8 , 0 0 0
4 , 0 0 0
14,764.8
4 0 0
3 0 0
20 0
10 0
401.4
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
Strategic priorities
Strategic priorities
We are determined to be widely recognized as the best food retailer in Canada.
We are determined to be widely recognized as the best food retailer in Canada.
Our focus in fiscal 2009 remained on three key imperatives:
Our focus in fiscal 2009 remained on three key imperatives:
➤ Continued improvement in operational execution through the engagement and
➤ Continued improvement in operational execution through the engagement and
development of our employees;
development of our employees;
➤ Reducing our cost base and improving productivity throughout our organization; and
➤ Reducing our cost base and improving productivity throughout our organization; and
➤ Innovation of the product and services offered to our customers.
➤ Innovation of the product and services offered to our customers.
4
Empire Company Limited
REAl
ESTATE
From left to right: Gary Finklestein, Vice
From left to right: Gary Finklestein, Vice
President, Ontario and Québec, Crombie REIT;
President, Ontario and Québec, Crombie REIT;
Scott Doan, Director Real Estate & Property
Scott Doan, Director Real Estate & Property
Management, Sobeys Ontario; and Jean Louis
Management, Sobeys Ontario; and Jean Louis
LaFontaine, Director Development – Québec,
LaFontaine, Director Development – Québec,
ECL Developments
ECL Developments
Profile
Profile
Empire’s real estate business includes commercial and residential property operations.
Empire’s real estate business includes commercial and residential property operations.
Our commercial real estate operations are focused on the development of food-anchored
Our commercial real estate operations are focused on the development of food-anchored
shopping plazas through a 100 percent ownership interest in ECL Developments Limited
shopping plazas through a 100 percent ownership interest in ECL Developments Limited
and ownership of retail and office properties through a 47.4 percent ownership interest in
and ownership of retail and office properties through a 47.4 percent ownership interest in
Crombie REIT. The focus of our residential operations is on land development, predominantly
Crombie REIT. The focus of our residential operations is on land development, predominantly
through a 35.7 percent ownership interest in Genstar Development Partnership.
through a 35.7 percent ownership interest in Genstar Development Partnership.
Competitive strengths
Competitive strengths
➤ Our knowledge, experience and management strength in real estate.
➤ Our knowledge, experience and management strength in real estate.
➤ The close working relationship with Sobeys and Crombie REIT that enables Empire
➤ The close working relationship with Sobeys and Crombie REIT that enables Empire
to optimize the development of food-anchored shopping plazas across Canada.
to optimize the development of food-anchored shopping plazas across Canada.
➤ The preferential development agreement between our commercial real estate
➤ The preferential development agreement between our commercial real estate
division and Crombie REIT. This agreement reduces risk and enhances opportunities
division and Crombie REIT. This agreement reduces risk and enhances opportunities
for both businesses.
for both businesses.
➤ Our residential property operation, through Genstar, has attractive land holdings
➤ Our residential property operation, through Genstar, has attractive land holdings
primarily in Western Canada and a proven, experienced management team.
primarily in Western Canada and a proven, experienced management team.
Key performance indicators
Key performance indicators
R EAL ESTATE
R EVE N UE 1
$ I N M I LLIONS
R EAL ESTATE
FU N DS FR OM OPE RATIONS 1
$ I N M I LLIONS
20 0
15 0
10 0
5 0
FISCAL YEAR
05
06
07
08
6 0
4 5
3 0
15
38.5
23.2
15.3
FISCAL YEAR
05
06
07
08
09
73.9
54.6
19.3
09
RESIDENTIAL
COMMERCIAL
RESIDENTIAL
COMMERCIAL
(1) Fiscal 2005-2008 have been restated to exclude Sobey Leased Properties which was sold on April 22, 2008.
(1) Fiscal 2005-2008 have been restated to exclude Sobey Leased Properties which was sold on April 22, 2008.
Strategic priorities
Strategic priorities
Real estate development at Empire is focused on establishing both certainty and
Real estate development at Empire is focused on establishing both certainty and
a healthy pace of growth for Sobeys and Crombie REIT. Our strategy rests firmly
a healthy pace of growth for Sobeys and Crombie REIT. Our strategy rests firmly
on Sobeys’ substantial in-house expertise in selecting commercial locations, ECL
on Sobeys’ substantial in-house expertise in selecting commercial locations, ECL
Developments’ property development capabilities and Crombie REIT’s operational
Developments’ property development capabilities and Crombie REIT’s operational
excellence. At all times we are guided by criteria that exemplify Empire’s investment
excellence. At all times we are guided by criteria that exemplify Empire’s investment
discipline and tradition of building assets to own for the long-term.
discipline and tradition of building assets to own for the long-term.
2009 Annual Report
5
food
retailing
FOCUSED
ON FOOD
The strength of Sobeys’ performance in a challenging
While our presence as a national grocer continues to
economic and competitive environment affirms the power
grow, our approach remains distinctly local. Across the
and potential of our unwavering focus on food. We remain
country we have regional management teams, and affiliate
determined to “out-food”, “out-fresh”, “out-service” and
franchise owners and store operators who understand the
“out-market” those who choose to compete with us for a
unique characteristics, cultures and occasion-based needs of
larger share of Canadian consumers’ food requirements.
our customers. Our employees are trained and encouraged
Our focus allowed us to deliver solid financial and operating
to take an active role in identifying local preferences to
results in fiscal 2009, while we continue to build a healthy
optimize store-level merchandising decisions. We take pride
and sustainable retail food business and infrastructure
in the quality, value and convenience of our meat, deli,
for the long term.
seafood, bakery, produce and prepared food offerings and
we thrive on serving our customers in ways they value most.
Bill McEwan, President and CEO,
Sobeys Inc. (left) with Justine Lorimer,
Sobeys Deli Clerk, Pictou, Nova Scotia
A modern retail network
been enhanced by the $1.3 billion invested in our store
During fiscal 2009, Sobeys continued to benefit from
network and infrastructure since the start of fiscal 2007.
the significant investments and upgrades made over the
We continue to modernize our distribution facilities
past several years in our stores, distributions centres,
to support growth in our retail network. The recent opening
business systems and processes, and in the engagement
of our new distribution centre in Vaughan, Ontario is
and training of our employees, who are the key to our
expected to significantly improve Sobeys’ supply chain
growth and success.
efficiencies while enhancing service levels to the
Over the past fiscal year, we have invested more than
majority of stores within the province. The new facility
$382 million to expand and improve the quality of our
incorporates WITRON Integrated Logistics Inc.’s fully
retail square footage, opening or relocating 47 new stores,
automated warehouse and picking system which has been
expanding 11 stores and closing 52 stores, for a net
proven to significantly reduce distribution costs, order
increase of 258,000 square feet across the country. Our
selection time and errors while increasing load integrity
operating results and key performance improvements have
and efficiency.
Same-Store SaleS
+5.2%
driven by our unwavering
focus on food
2009 Annual Report
7
food retailing
Improved execution
In fiscal 2009, we continued the transformation of our
business process and information systems to support
our food-focused strategy. Over several years we have
made significant progress standardizing back shop
functions. These changes have allowed us to leverage
technology investments and significantly improve the
efficiency of all facets of our business.
During the past year, the third wave of SMART retailing
– our ongoing operational excellence and productivity
program – continued to drive incremental improvements.
The expansion of our higher-margin fresh departments
including prepared meals, deli and bakery, has been
effective at increasing customer appeal, transaction size
and sales per square foot. The disciplines of SMART
retailing have equipped our people with the means to keep
labour and product costs under control while carefully
monitoring the ever-shifting demand for our fresh and
prepared products.
Understanding our customers
We earn the patronage of our shoppers based on the
quality, value and consistency of our product and service
offerings. Our Club Sobeys and AIR MILES® customer
loyalty programs reward our customers’ patronage and
serve as a means to collect and gain important insight
into their buying habits and preferences. The launch
of Club Sobeys and Club Sobeys MasterCard in Ontario
and Western Canada combined with the AIR MILES®
Reward Program that we have offered to consumers
in Atlantic Canada and Québec for a number of
years, makes shopping at Sobeys an even more
rewarding experience right across the country.
Customer response to the new Club Sobeys
program has exceeded our expectations with
the program meeting its annual objectives within
six weeks of its launch in September 2008. Late in
fiscal 2009, we expanded our AIR MILES® program
to also include Foodland stores in Atlantic Canada.
Employees such as Sylvie
Gendron take pride in the
quality, value and convenience
of our fresh food offerings.
8
Empire Company Limited
Sobeys rewards customers through our recently
launched Club Sobeys and Club Sobeys MasterCard
in Ontario and Western Canada and our AIR MIlES®
Reward Program in Atlantic Canada and Québec.
These comprehensive rewards programs also serve
as a means to gain insight into the buying habits
and preferences of our customers.
Solid growth
Today, more of our store network is at a
standard of operation that we consider
current. Invest ments in equipment, décor,
shelving, point of sale systems and
in-store fresh food preparation facilities
have improved the selling, productivity and
customer service elements within our
stores. Consequently more customers are
shopping more often and buying more on
each trip resulting in a sustained increase
in sales per square foot.
SOB EYS’ SAM E-STOR E
SALES G R OW TH
%
SOB EYS’ SALES
PE R SQUAR E F OOT
$
6 . 0
4 . 5
3 . 0
1. 5
5.2
11.00
10 .00
9.00
8.00
10.73
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
AIR MILES® is a registered trademark of AIR MILES International Trading B.V. Used under license by LoyaltyOne, Inc.
2009 Annual Report
9
Compliments innovations
Sobeys built upon its reputation for
excellence in prepared meals with
the introduction of Compliments
and Gourmet Minute prepared meal
products produced by a world class
manufacturer, Fleury Michon.
food retailing
Inspired to innovate
Operational excellence, cost and productivity improvements
and engaging our people are at the very core of our focus
and determination to be widely recognized as the best food
retailer in the country. Sobeys’ reputation for excellence in
prepared meals has proven to be a significant benefit in an
uncertain economy as consumers seek alternatives to
dining out. In fiscal 2009, we continued to build upon our
leadership in this area with the introduction of Compliments
and Gourmet Minute prepared meal products produced by a
world class manufacturer, Fleury Michon. These premium
quality products have been available at grocery stores
across Europe for years and we believe the great quality
and value will resonate with Canadian shoppers. Customer
response has been very positive and we expect to roll out
these exceptional products across much of our retail network
in the year ahead.
Ready for challenges ahead
Sobeys has been able to continue to grow sales and
profitability in an intensely competitive market, but we have
no appetite for complacency. We are excited about our
opportunities for continued sales, earnings and market
share growth. We are aware that today’s business climate
will challenge even the best-run companies and that while
the retail food business may be recession resistant, it is by
no means recession proof. We intend to innovate, execute
and grow in a manner consistent with our intention to
grow shareholder value by being widely recognized as the
best food retailer in the country – period.
Bill McEwan
President and CEO
Sobeys Inc.
June 26, 2009
10
Empire Company Limited
Sobeys Urban Fresh,
Jasper Avenue, Edmonton, Alberta
Our five core retail food formats ensure that we have
the right offering in the right-sized stores for each
community we serve.
LEARN MORE
Sobeys.com/club-sobeys
Compliments.ca
Compliments.ca/inspired-magazine
2009 Annual Report
11
real
estate
A SUSTAINAblE
COMPETITIvE
ADvANTAGE
During fiscal 2009, the real estate division accelerated
With respect to residential real estate operations, as
the pace of its development in close cooperation
we expected, Genstar’s contribution to Empire’s operating
with Sobeys and Crombie REIT. We believe this strategic
income declined in fiscal 2009 as a result of diminishing
partnership represents a significant and sustainable
activity in new home construction. However, we are
competitive advantage.
confident that this investment will continue to yield solid
At the heart of this advantage is an integrated real estate
returns over the long term.
strategy focused on food-anchored commercial property
development. Sobeys brings valued site selection expertise
Going forward
for commercial locations, with ECL Developments as
We are confident that Empire will continue to generate value
the developer for the sites. Crombie REIT, in which we
from its real estate assets throughout the economic cycle.
currently have a 47.4 percent equity interest, has in turn the
Our real estate development activities are focused on a very
operational expertise to further optimize value creation.
defensive sector of the commercial real estate market and
Our growth strategy is disciplined with every investment
we are working closely with the Sobeys’ food retailing team.
decision guided by pre-established criteria, including:
The unique and integrated relationship that ECL
Developments has with Sobeys and Crombie REIT
promises to deliver long-term sustainable value. We will
continue to take advantage of the opportunities generated
by this unique relationship.
Frank C. Sobey
President
ECL Properties Limited
June 26, 2009
➤ Great property location;
➤ Disciplined cost controls;
➤ Beneficial competitive effect for Sobeys; and
➤ Satisfactory return on investment.
This investment discipline, combined with coast-to-coast
exposure and regional intelligence, enhances our potential
for success, even in the toughest environment.
Steady results from our investments
Our interest in Crombie REIT continued to generate solid
operating results in fiscal 2009 with operating income
contribution to Empire increasing 45.6 percent. There
was improvement in operating performance from existing
properties and profitable growth from new acquisitions.
At the end of March, 2009, the overall occupancy rate at
Crombie REIT’s properties was a healthy 94.2 percent.
12
Empire Company Limited
ProJeCt PIPelINe
1.7million square feet
18 projects
Today, our growing retail development pipeline consists of 18 projects in Ontario,
Québec and Atlantic Canada with more than 1.7 million square feet of gross
leasable area. More than 90 percent of our current projects under development
will be anchored by a Sobeys business. In the year ahead, we plan to invest up to
$100 million in additional development opportunities to support Sobeys’ growth.
LEARN MORE
Empireco.ca
Crombiereit.com
Genstar.com
Frank C. Sobey (left), President,
ECL Properties Limited with
Donald E. Clow, President,
ECL Developments Limited
long-term
progress
bUIlDING
ENDURING
vAlUE
00
March
01
January
02
March
FISCAL 2000
REVENUE
($ IN MILLIONS)
$9,100.1
Empire repurchases
5.5 million Non-Voting
Class A shares for
$187 million.
The real estate division
purchases a 35.7% interest
in Genstar Development
Partnership for $29 million.
Sobeys sells its
Serca Foodservice
operation to SYSCO
for $411 million.
July
Empire sells its 25%
investment in Hannaford
Bros. Co. for $1.2 billion.
03 – 04
February 04
Sobeys acquires
Commisso’s Food Markets
for $61 million and the
real estate division acquires
Commisso’s real estate
assets for $42.5 million.
OPER ATING EARNINGS
($ IN MILLIONS)
$84.7
BOOK VALUE
($ PER SHARE)
$8.73
14
Empire Company Limited
Empire’s ability to build shareholder value is based on investments in the
businesses we understand best – food retailing and related real estate.
With a focus on meeting the everyday needs of Canadian shoppers, these
businesses have helped Empire achieve steady performance, particularly in
the recent difficult economic environment. We are confident they will continue
to provide abundant opportunity for growth in the years ahead.
BooK ValUe
CaGr
18%
from 2000 to 2009
08
April
Empire sells 61 properties
for $428.5 million to
Crombie REIT.
05
June
Wajax converts to an
income trust. Empire
sells 2.875 million units,
for a $25.6 million gain.
September
Empire Theatres acquires
27 movie theatres for
$83 million.
06
March
07
June
Crombie REIT completes
its initial public offering.
Empire sells 44 properties to
the REIT for $468.5 million
and retains a 48.3%
ownership interest.
August
Sobeys acquires Achille
de la Chevrotière Ltée,
which included 25 stores
in northern Québec and
Ontario as well as
a distribution centre in
Rouyn-Noranda for
$79.2 million.
Empire acquires the
outstanding common
shares of Sobeys that it
did not own for $1.06 billion,
achieving 100% ownership.
September
Sobeys acquires Thrifty
Foods for $253.6 million.
At the time, Thrifty’s assets
included 20 full-service
supermarkets, a distribution
centre and a wholesale
division on Vancouver Island
and the lower mainland
of British Columbia.
REVENUE
($ IN MILLIONS)
$15,015.1
OPER ATING EARNINGS
($ IN MILLIONS)
$262.9
BOOK VALUE
($ PER SHARE)
$39.14
09
April
Empire issued 2,713,000
Non-Voting Class A shares
at $49.75 per share for
total net proceeds to
Empire of approximately
$129 million. Proceeds
from this equity issue,
coupled with strong cash
generation from Sobeys,
helped reduce Empire’s
ratio of debt to capital
to 32.7 percent from
39.8 percent at the start
of the fiscal year.
2009 Annual Report
15
corporate
governance
AT THE HEART
OF lONG-TERM
SUCCESS
Empire’s strengthened focus on its food retailing and related
debt to capital ratio stands at 32.7 percent and we are
real estate continued to pay dividends for our investors
confident in our ability to fund our core businesses despite
in fiscal 2009. We achieved another year of record financial
today’s uncertain economy.
performance and delivered total shareholder return of
We also continued to advance the effectiveness of your
25 percent.
Board. Empire’s Board has strong representation from our
The performance of Sobeys was key. Sobeys’ deter mination
largest investors and the valued presence of independent
to be widely recognized as the best food retailer in Canada
directors with a wide range of experience and skill. There is
is delivering solid results. Our customers are enjoying the
a healthy dynamic in our deliberations that has not only
benefits of a modern retail grocery network – with more stores
provided valuable advice and counsel for management, but
now reflecting current standards, an increasingly efficient
excellent stewardship for shareholders.
distribution network, as well as business processes and systems
In closing, I would like to extend my appreciation to the
that enhance profitability through operational excellence.
management and employees of Empire and its operating
We also continued to make solid progress in our real
companies for posting another record performance in fiscal
estate division. ECL Developments has established a
2009. It is their efforts that make it possible to reward the
breadth of capabilities and a pipeline of properties with
loyalty and confidence of our customers and investors.
impressive speed and Crombie REIT posted another solid
year of operational performance.
Empire’s performance in fiscal 2009 is evidence that
our strategy is sound and we are executing on all fronts.
Our financial performance has also resulted in a reduction
in our leverage over the past year, with consolidated net
funded debt at the end of fiscal 2009 of $1.07 billion,
down from a peak of $1.75 billion following the privatization
of Sobeys and the acquisition of Thrifty Foods. Our funded
Robert P. Dexter
Chair
Empire Company Limited
June 26, 2009
1
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Empire Company Limited
Recognizing proven capability
During 2009, Rob Sobey received the ICD.D designation from the Institute of
Corporate Directors upon completion of the Directors Education Program. Rob is
currently CEO of Lawtons Drug Stores and was recently chosen by Atlantic Business
Magazine as CEO of the Year for Atlantic Canada in 2009. Rob has served on
numerous volunteer boards and is currently a Governor of Nova Scotia College of
Art and Design and a Trustee on the Board of Queen’s University. Rob recently
served as Chairman of both the Art Gallery of Nova Scotia and the Nova Scotia
Community College.
Empire Company limited board of Directors
1 David F. Sobey
New Glasgow, Nova Scotia
Director since 1963.
7 Marcel Côté
13 Karl R. Sobey
Montreal, Québec
Director since 2007.
Halifax, Nova Scotia
Director since 2001.
LEARN MORE
Empireco.ca/governance
2 Christine Cross
Thundridge, Hertfordshire,
United Kingdom
Director since 2007.
3 Bill McEwan
New Glasgow, Nova Scotia
Director since 2007.
4 John L. Bragg
Collingwood, Nova Scotia
Director since 1999.
5 Mel Rhinelander
Toronto, Ontario
Director since 2007.
6 Robert G. C. Sobey
Stellarton, Nova Scotia
Director since 1998.
8 John R. Sobey
14 Malen Ng
Pictou County, Nova Scotia
Director since 1979.
Toronto, Ontario
Director since 2007.
9 Frank C. Sobey
15 Paul D. Sobey
Stellarton, Nova Scotia
Director since 2007.
Pictou County, Nova Scotia
Director since 1993.
10 David Leslie
Toronto, Ontario
Director since 2007.
11 Stephen J. Savidant
Calgary, Alberta
Director since 2004.
12 Donald R. Sobey
Pictou County, Nova Scotia
Director since 1963.
16 David S. Ferguson
Atlanta, Georgia
Director since 2007.
17 Edward C. Harsant
Woodbridge, Ontario
Director since 2003.
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Robert P. Dexter
Chair, Empire Company Limited
Halifax, Nova Scotia – Director since 1987.
the bigger
picture
RESPONSIbIlITY:
A lASTING
COMMITMENT
Proudly serving our communities is more than a statement of what we do – it’s at the very foundation of who we are.
In 2009, the management, employees, franchisees and affiliates within Empire, Sobeys, ECL Properties and Empire Theatres
supported hundreds of charities and causes across Canada at a corporate, regional and personal level. Many are directly
related to our businesses, including dozens of health and food-related programs, such as food banks. But our reach is broad,
extending to the arts, education, environment and healthcare.
A greener community
Empire’s focus on community is further shaped by our
Knowing that sustainability is a journey, we are also
commitment to improving our environmental performance
acting upon opportunities to achieve bigger results more
through reasonable, practical, environmentally responsible
quickly by:
business practices that are in the long-term best interests
of our shareholders, employees, customers, suppliers
and communities.
We strive to have every employee, manager and
franchisee committed to managing our operations in a
manner that minimizes our environmental impact. We are
also committed to continually assessing, monitoring and
enhancing our operational procedures and management
systems so that our efforts to minimize our environmental
➤ Sharing best practices and insights across regions;
➤ Accelerating evaluation and adoption of new
technologies and solutions;
➤ Developing national targets and policies;
➤ Defining common measurement metrics, and
deploying tools for easier data capture, tracking,
and reporting by all business units; and
➤ Participating in industry environmental initiatives.
impact are effective. Further, we are committed to
Our goal is to integrate sustainability into all aspects
promoting a culture of environmental awareness across
of our business.
our real estate and food retailing networks.
Sobeys is working within our industry and with various
levels of government to establish and comply with
environmental standards related to waste diversion and
store energy consumption. In fiscal 2009, we established
quantifiable sustainability objectives.
18
Empire Company Limited
We are committed to establishing a culture of
awareness and managing our food retailing and
real estate operations in a manner that minimizes
environmental impact. We are making significant
progress in the following areas:
LEED®-certified buildings
Improving energy efficiency
Reducing waste
The IGA store in Saint-Pascal
Our efforts to conserve energy
The sustainable use of resources
de Kamouraska was the first
are ongoing as we continuously
includes waste reduction and
LEED*-certified supermarket in
challenge ourselves and our
waste diversion through recycling,
Canada, and a second store and
suppliers to identify innovative ways
reuse, and composting organic
a distribution centre in Québec
to reduce the energy requirements
matter. Many of our stores
are in the process of obtaining
LEED certification. This LEED
at our stores and distribution
and distribution centres have
centres. The energy consumption
reduced costs and increased
experience has had an influence
in our recently expanded head
revenue by diverting cardboard,
on our building decisions,
office building, which is in the
even where LEED certification
process of obtaining LEED
certification, has not increased
despite a 60% increase in space.
sustainable business.
plastic and metal from waste
to recycling – evidence of the
benefits of becoming a more
is not possible.
*Leadership in Energy
*
and Environmental Design
LEED is a registered trademark of the U.S. Green Building Council.
2009 Annual Report
19
the bigger picture
Frank H. Sobey Awards for
Excellence in Business Studies
2009 scholarship recipients
From left to right: Graham Watts, University
of Prince Edward Island; Myra Freeman, Fund
Director; Michael Harris, Memorial University;
David F. Sobey, Fund Chair; Thor Jensen,
University of New Brunswick; Aaron Murphy,
Saint Mary’s University; Bob Brown, Fund
Director; Katie Brewer, Cape Breton University;
and Paul Sobey, Fund Director. Missing from
the photo is Ashley Hannon, Acadia University.
The Sobey legacy
Empire’s commitment to investing in our future is closely
One of our scholarship programs is the Frank H. Sobey
tied to the legacy of the Sobey family. Funding from the
Awards for Excellence in Business Studies that annually
Sobey Foundation and the Empire group of companies,
presents six $10,000 awards to full-time business school
as well as contributions from the Sobey family, support a
students attending Atlantic universities. The candidates are
variety of heathcare, educational and community-based
nominated by the Deans of Business at each university
initiatives across Canada. Several scholarship programs
based on academic standing, entrepreneurial interest,
assist young people in their individual effort to attain
extracurricular and community activities, employment history
the education so necessary to succeed today, while support
and career aspirations.
for the capital campaigns at several universities enhances
the quality of education in Canada.
Sobey Art Award
Vancouver artist Tim Lee was the winner of
the 2008 Sobey Art Award. Working with
photography, video, text and sculpture, Tim’s
work both replicates and re-imagines significant
moments in art history and popular culture.
The $70,000 Sobey Art Award is Canada’s
premier art award recognizing and supporting
contemporary artists under the age of 40. For
more information visit www.sobeyartaward.ca.
LEARN MORE
Sobeyartaward.ca
Top40award-canada.org
20
Empire Company Limited
Top 40 under 40™
Developing
Jason Potter, President Operations for Sobeys Atlantic
tomorrow’s leaders
region, (pictured above) was recognized as one of Canada’s
During fiscal 2009,
Top 40 Under 40™ for 2008. This national award honours
Sobeys Inc. began training
young Canadians for their vision, leadership, innovation,
chartered accountants through an innovative professional
achievement and community involvement. Jason has worked
program developed in partnership with the Institute of
with Sobeys since 1992 in progressively senior operations
Chartered Accountants of Nova Scotia (ICANS). Diane
and mer chandising roles. His commitment extends beyond
Cameron (above right), Director, General Accounting and
Sobeys into the community where he serves as Chair of the
Reporting, was instrumental in Sobeys becoming one
Grocery Industry Foundation Together (GIFT) in Atlantic
of a select group of leading corporations across Canada
Canada. GIFT Atlantic makes a meaningful difference in
to provide CA designation training in industry. As an
the lives of children by contributing more than $500,000
enhancement to the program, Sobeys created a mentoring
to children’s charities in Atlantic Canada each year. This is
program that pairs CA students such as Jennifer Sheppard
the second year in a row that a Sobeys employee has
(above left) with an experienced CA such as Diane.
received the award.
™ The Caldwell Partners
Helping kids coast-to-coast
As corporate sponsors, Empire Theatres and Sobeys Inc. assist
Kids Help Phone in raising funds for bilingual, confidential and
anonymous phone and online counselling and support service for
children and youth across Canada. During fiscal 2009,
Empire Theatres raised more than $85,000 through
initiatives such as the first national Movie Day for
Kids Help Phone, the Being There for Kids Dinner,
the annual Walk for Kids Help Phone and in-theatre
coin box programs at all theatre locations. In addition
to fundraising support, Empire Theatres helps raise
awareness of Kids Help Phone through in-theatre
advertising. Sobeys’ support of Kids Help Phone has
focused primarily on the annual Being There for Kids
Dinner, which last year raised more than $1.2 million
for this vitally important service.
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
Corporate Secretary
Officers of Operating Companies
Sobeys Inc.
Robert P. Dexter
Chair
Bill McEwan
President and Chief
Executive Officer
François Vimard
Chief Financial
Officer
Jason Potter
President
Operations,
Sobeys Atlantic
Marc Poulin
President
Operations,
Sobeys Québec
David Jeffs
President
Operations,
Sobeys Ontario
Sylvain Prud’homme
President
Operations,
Sobeys West
Dennis Folz
Chief Human
Resources 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
Stuart G. Fraser
President and
Chief Executive
Officer
Paul W. Wigginton
Vice President,
Finance and Chief
Financial Officer
22
Empire Company Limited
management’s discussion and analysis
Table of Contents
24 Forward-Looking Information
41 Financial Condition
25 Non-GAAP Financial Measures
25 Empire’s Strategic Direction
25 Overview of the Business
Food Retailing
Real Estate
Investments and Other Operations
27 Operational Changes
27 Consolidated Operating Results
28 Management’s Explanation of
Fiscal 2009 Annual Consolidated Results
Revenue
Operating Income
Interest Expense
Income Taxes
Earnings before Capital Gains and Other Items
Capital Gains and Other Items
Net Earnings
30 Outlook
31 Fiscal 2009 Operating Performance by Division
Food Retailing
Real Estate
Investments and Other Operations
38 Quarterly Results of Operations
Capital Structure and Key Financial Condition Measures
Shareholders’ Equity
Liabilities
Financial Instruments
44 Liquidity and Capital Resources
Operating Activities
Investing Activities
Financing Activities
Guarantees and Commitments
Free Cash Flow
49 Accounting Policy Changes
51 Critical Accounting Estimates
53 Disclosure Controls and Procedures
53 Internal Controls over Financial Reporting
53 Related-Party Transactions
54 Subsequent Events
54 Other Matters
55 Designation for Eligible Dividends
55 Contingencies
55 Risk Management
59 Employee Future Benefit Obligations
59 Non-GAAP Financial Measures
CONSOLIDATE D
R EVE N U E
$ I N M I LLIONS
CONSOLIDATE D
OPE RATING EAR N INGS
$ I N M I LLIONS
CONSOLIDATE D
SHAR E HOLDE RS’ EQU ITY
$ I N M I LLIONS
16 , 0 0 0
12 , 0 0 0
8 , 0 0 0
4 , 0 0 0
15,015.1
2 8 0
210
14 0
70
262.9
2 , 8 0 0
2 ,10 0
1, 4 0 0
70 0
2,683.5
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
2009 Annual Report
23
management’s discussion and analysis
MAy 2, 2009
(In MIllIons exCepT shARe CApITAl)
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 2, 2009, as compared to the 52 weeks ended May 3, 2008.
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 manage-
ment. 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 2, 2009, as compared to the 52 weeks ended May 3, 2008.
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 2009 Annual Report, on page 100, is
a glossary of terms used throughout this MD&A. The information
contained in this MD&A is current to June 26, 2009, 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, financial
condition, results of operations, cash flows, performance,
business prospects and opportunities. All statements other than
statements of historical facts included in this MD&A, including
statements regarding the Company’s objectives, plans, goals,
strategies, future growth, financial condition, results of opera-
tions, cash flows, performance, business prospects and
opportunities, may constitute forward-looking information.
Forward-looking information and statements are identified by
words or phrases such as “anticipates”, “expects”, “believes”,
“estimates”, “intends”, “could”, “may”, “plans”, “predicts”, “projects”,
“will”, “would”, “foresees”, “remain confident that” and other
similar expressions or the negative of these terms. These
statements are based on Empire management’s reasonable
assumptions and beliefs in light of the information currently
available to them. The forward-looking information contained
in this MD&A is presented for the purpose of assisting the
Company’s security holders in understanding its financial
position and results of operation as at and for the periods ended
on the dates presented and the Company’s strategic priorities
and objectives and may not be appropriate for other purposes.
By its very nature, forward-looking information requires the
Company to make assumptions and is subject to inherent risks
and uncertainties, which give rise to the possibility that the
Company’s predictions, forecasts, expectations or conclusions
will not prove to be accurate, that the Company’s assumptions
may not be correct and that the Company’s objectives, strategic
goals and priorities will not be achieved. Although the Company
believes that the predictions, forecasts, expectations or
conclusions reflected in the forward-looking information
are reasonable, it can give no assurance that such matters will
prove to have been correct. Such forward-looking information
is not fact but only reflections of management’s estimates and
expectations. These forward-looking statements are subject to
uncertainties and other factors that could cause actual results
to differ materially from such statements. These factors include
but are not limited to: changes in general industry, market
and economic conditions, competition from existing and new
competitors, energy prices, supply issues, inventory management,
changes in demand due to seasonality of the business, interest
rates, changes in laws and regulations, operating efficiencies
and cost saving initiatives. In addition, these uncer tainties and
risks are discussed in the Company’s materials filed with the
Canadian securities regulatory authorities from time to time,
including the Risk Management section of this MD&A.
Empire cautions that the list of important factors is not
exhaustive and other factors could also adversely affect our
results. Readers are urged to consider the risks, uncertainties
and assumptions carefully in evaluating the forward-looking
information and are cautioned not to place undue reliance on
such forward-looking information. Forward-looking statements
may not take into account the effect on the Company’s business
of transactions occurring after such statements have been
made. For example, dispositions, acquisitions, asset write-downs
or other changes announced or occurring after such statements
are made may not be reflected in forward-looking statements.
The forward-looking information in this MD&A reflects the
Company’s expectations as of June 26, 2009, and is subject
to change after this date. 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 applicable securities laws.
24
empire Company limited Management’s Discussion and Analysis
non-GAAp Financial Measures
There are measures included in this MD&A that do not have
a standardized meaning under 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 manage-
ment 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
consis tency 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
100.0 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 47.9 percent ownership interest
in Crombie REIT. Subsequent to year-end, on June 25, 2009,
Crombie REIT closed a bought-deal public offering of units at a
price of $7.80 per unit. In satisfaction of its pre-emptive right
with respect to the public offering, the Company subscribed for
$30.0 million of Class B Units (which are convertible on a
one-for-one basis into units of Crombie REIT). Consequently
the Company’s interest in Crombie REIT was reduced from
47.9 percent to 47.4 percent. The results of Sobey Leased
Properties Limited (“Sobey Leased Properties” or “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 opera tions include
wholly-owned ETL Canada Holdings Limited (“Empire Theatres”);
Kepec Resources Limited (“Kepec”), a party to 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 $15 billion in annual revenue and approximately
$5.9 billion in assets, Empire and its related companies employ
over 90,000 people, including its franchisees and affiliates.
Food Retailing
Empire’s food retailing division is carried out through its
wholly-owned subsidiary, Sobeys.
Sobeys conducts business through more than 1,300 retail
grocery stores (corporately owned and franchised) which
operate 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.
Sobeys’ financial contribution to Empire reflects Empire’s
weighted average ownership of 100.0 percent for fiscal 2009
and weighted average ownership of 96.9 percent for fiscal 2008.
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
2009 Annual Report
25
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 expanding 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 extra, Foodland, Price
Chopper and Thrifty Foods.
During the fiscal year, Sobeys opened, replaced, expanded,
renovated, acquired and/or converted the banners in 74 stores
(2008 – 157 stores). In fiscal 2009, Sobeys continued
to execute a number of initiatives in support of its food-
focused strategy, including product and service innovations,
productivity initiatives and business process, supply chain
and system upgrades.
Real estate
Empire’s real estate division includes commercial and
residential operations. Our commercial operations are focused
on the development of food-anchored shopping plazas
through wholly-owned ECL, which includes wholly-owned
ECL Developments and a 47.4 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 division’s
financial results between commercial property operations
consisting of ECL, and residential property operations which
consists primarily of Genstar.
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 guided by pre-established criteria, including:
Great property location;
Disciplined cost controls;
Beneficial competitive effect for Sobeys; and
Satisfactory return on investment.
ECL Developments is focused on the expansion of its
development pipeline through the identification of attractive
Investments and other operations
The third component of Empire is investments and other
operations, consisting primarily of a 27.6 percent ownership
interest in Wajax, wholly-owned Empire Theatres and Kepec.
The market value of Empire’s equity accounted investment
in Wajax at the end of fiscal 2009 was $71.3 million (2008 –
$153.4 million), representing an unrealized gain of $40.3 million
(2008 – $121.8 million).
commercial real estate locations to be successfully developed
from an economic standpoint, for preferential sale to
Crombie REIT or, in absence of their interest, to a third party.
ECL Developments has approximately 1.7 million square feet
of gross leasable area (“GLA”) under development as at fiscal
year-end, as compared to approximately 1.2 million square feet
at the end of last fiscal year. This increase is due to property
acquisitions made in fiscal 2009. Our property pipeline is
comprised of 18 properties located in Nova Scotia, New
Brunswick, Quebec and Ontario. The properties are primarily
retail plazas with approximately 60 percent of the GLA located
outside of Atlantic Canada. More than 90 percent of the projects
currently under development will be anchored by a Sobeys
business. The properties are anticipated to be made available
to Crombie REIT over the next one to four years.
Pursuant to a development agreement with Crombie REIT
dated March 23, 2006, between ECL and Crombie REIT,
ECL provides Crombie REIT with a preferential right to acquire
all property developments proposed to be undertaken by ECL
Developments. ECL also has a non-competition agreement
with Crombie REIT dated March 23, 2006, 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.
The Empire group of companies will continue to work closely
with Crombie REIT to identify development opportunities.
Other operations include wholly-owned Empire Theatres,
the second largest movie exhibitor in Canada which, as of
May 2, 2009, owned or had an interest in 51 locations
representing 377 screens, and Kepec.
26
empire Company limited Management’s Discussion and Analysis
operational Changes
Listed below is a summary of events that impacted the fiscal
year 2009 operating results and which affect the comparability
of information for the 13-week and 52-week periods ended
May 2, 2009 versus the 13-week and 52-week periods ended
May 3, 2008:
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 100.0 percent in
fiscal 2009 as compared to a weighted average ownership
interest of 96.9 percent in fiscal 2008. The weighted
average ownership of Sobeys was 100.0 percent in the
fourth quarter of fiscal 2009 and the same quarter last year.
Sobeys’ sales in fiscal 2009 were positively influenced
by the acquisition of Thrifty Foods, which closed on
September 12, 2007. The assets acquired included 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. For additional
details of the acquisition, see Note 26 of the audited annual
consolidated fiscal 2009 financial statements. Fiscal 2009
included a full year of sales from Thrifty Foods compared to
fiscal 2008 which reported Thrifty Foods from when it
was acquired on September 12, 2007 until May 3, 2008.
This acquisition impacted sales recorded in fiscal 2009 by
$224.8 million. There was no impact on the comparability
of the fourth quarter of fiscal 2009 to the same quarter
last year.
On April 22, 2008, the Company’s real estate division,
through Sobey Leased Properties, sold 61 properties to
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 maintained the Company’s
interest in Crombie REIT at approximately 48 percent. The
Company subsequently sold the remaining SLP assets to
Sobeys. The Company’s investment in Crombie REIT is
accounted for using the equity method. Details of the sale
are outlined in Note 3 of the audited annual consolidated
financial statements of the Company for fiscal 2008. This
transaction reduced commercial real estate revenue by
$20.6 million in fiscal 2009 compared to fiscal 2008 and by
$4.9 million in the fourth quarter of fiscal 2009 compared to
the same quarter last year.
Also impacting comparability are year-over-year costs related to
Sobeys’ business process and system initiatives, business
rationalization, and privatization costs as outlined under the
section titled “Fiscal 2009 Operating Performance by Division –
Food Retailing”.
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.
Consolidated operating Results
highlights
Sobeys opened, acquired or replaced 47 corporate and
franchised stores, expanded 11 stores, rebannered/
redeveloped 16 stores and closed 52 stores.
Revenue of $15.02 billion, up $950.1 million or 6.8 percent.
Sobeys same-store sales increased 5.2 percent.
Earnings before capital gains (losses) and other items of
$262.9 million, up $20.1 million or 8.3 percent.
Net earnings of $265.9 million ($4.04 per share),
a $49.9 million or 15.8 percent decrease.
Successfully completed the issuance of 2,713,000 Non-
Voting Class A shares (including the 200,000 issued under
the over-allotment option) at $49.75 per share for net
proceeds of $129.1 million, which was used to reduce
indebtedness at the holding company level.
2009 Annual Report
27
The consolidated financial overview provided below reports on the financial performance for fiscal 2009 relative to the prior
two fiscal years.
Summary Table of ConSolidaTed f inanCial r eSulTS
52 Weeks Ended
($ in millions, except per share information)
May 2,
2009
% of
Revenue
May 3,
2008
% of
Revenue
May 5,
2007(1)
% of
Revenue
Revenue
Operating income
Operating earnings
Capital gains (losses) and
other items, net of tax
$ 15,015.1
100.00%
$ 14,065.0
100.00%
$ 13,366.7
100.00%
468.1
262.9
3.12
1.75
472.6
242.8
3.36
1.73
431.1
200.1
3.23
1.50
3.0
0.02
73.0
0.52
5.7
0.04
Net earnings
$
265.9
1.77%
$
315.8
2.25%
$
205.8
1.54%
Basic earnings per share
Operating earnings
Capital gains (losses) and
other items, net of tax
Net earnings
Basic weighted average number
$
4.00
$
3.69
$
3.05
0.05
$
4.05
1.11
$
4.80
0.09
$
3.14
of shares outstanding (in millions)
65.7
65.6
65.6
Diluted earnings per share
Operating earnings
Capital gains (losses) and
other items, net of tax
Net earnings
Diluted weighted average number
$
3.99
$
3.69
$
3.04
0.05
$
4.04
1.11
$
4.80
0.09
$
3.13
of shares outstanding (in millions)
65.8
65.7
65.7
Dividends per share
$
0.70
$
0.66
$
0.60
(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 the fiscal 2008 annual MD&A contained on pages 27 to 68 of the fiscal 2008 Annual Report.
Management’s explanation of Fiscal 2009 Annual Consolidated Results
The following is a review of Empire’s consolidated financial
performance for the 52-week period ended May 2, 2009
compared to the 52-week period ended May 3, 2008.
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 2009 Operating Performance by Division” in this MD&A.
Revenue
The consolidated revenue for fiscal 2009 was $15.02 billion,
an increase of $950.1 million or 6.8 percent compared to fiscal
2008. Growth in Sobeys’ sales of $996.7 million and in
investments and other operations’ revenue of $8.1 million was
offset by a $54.7 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 and
the sale of 61 commercial properties to Crombie REIT in the
fourth quarter of last fiscal year. Excluding the impact of the
acquisition of Thrifty Foods, Empire’s consolidated sales growth
would have been 5.2 percent for the fiscal year.
For a list of items that impacted revenue comparability refer
to the “Operational Changes” section of this MD&A.
Please refer to the section entitled “Fiscal 2009 Operating
Performance by Division” for an explanation of the change in
revenue by division.
28
empire Company limited Management’s Discussion and Analysis
operating Income
For the full fiscal year, Empire recorded operating income of
$468.1 million, a decrease of $4.5 million or 1.0 percent from
the prior year.
Please refer to the section entitled “Fiscal 2009 Operating
Performance by Division” for an explanation of the change
in operating income for each division.
The contributors to the change in consolidated operating
Interest expense
income from last fiscal year are as follows:
Sobeys’ operating income contribution to Empire in fiscal
2009 totalled $401.4 million, an increase of $42.4 million
or 11.8 percent from the $359.0 million recorded last year.
Included in Sobeys’ fiscal 2009 operating income contribu-
tion to Empire was a $25.6 million increase in depreciation
and amortization expense, reflecting Sobeys’ continued
capital investment.
Residential property operating income contribution in fiscal
2009 was $33.6 million, a decrease of $17.1 million from
the $50.7 million recorded last year as a result of lower
residential lot sales in Western Canada.
Commercial property operating income in fiscal 2009 was
$22.3 million compared to $49.3 million last fiscal year.
The $27.0 million decline is primarily attributed to the sale
of certain Sobey Leased Properties’ assets (61 properties)
to Crombie REIT on April 22, 2008, as Sobey Leased
Properties accounted for operating income of $30.0 million
last fiscal year. The reduction in operating income from
Sobey Leased Properties was partially offset through
increased equity accounted earnings from Empire’s interest
in Crombie REIT which contributed $19.8 million to
operating income in fiscal 2009 versus a $13.6 million
contribution last year.
Investments and other operations, net of corporate expenses,
contributed operating income of $10.8 million in fiscal 2009
compared to a $13.6 million contribution last fiscal year. Equity
accounted earnings generated from the Company’s interest
in Wajax amounted to $18.5 million versus $19.7 million last
year. Operating income generated from other investments
and operations, net of corporate expenses, amounted to
negative $7.7 million as compared to negative $6.1 million
last year.
For the 52 weeks ended May 2, 2009, consolidated interest
expense equalled $80.6 million, versus $105.8 million in the
prior year. The $25.2 million decrease in fiscal 2009 interest
expense compared to last fiscal year is primarily due to lower
funded debt levels which are principally related to: (i) cash
proceeds of $373.5 million received on the sale of certain
Sobey Leased Properties’ assets in the fourth quarter last fiscal
year; (ii) free cash flow generation by Sobeys which served to
reduce its funded debt; and (iii) lower average interest rates on
unhedged floating rate indebtedness. The proceeds from the
$135 million equity issuance which closed April 24, 2009 also
served to reduce funded debt; however, it had a modest impact
on lowering annual interest expense as the equity issue closed
approximately one week prior to the end of the fiscal year.
Consolidated funded debt decreased $270.6 million
to $1,302.9 million at the end of fiscal 2009 compared to
$1,573.5 million at the end of fiscal 2008, a 17.2 percent decrease.
Income Taxes
The effective income tax rate for fiscal 2009 was 30.0 percent
versus 30.3 percent last year. In the third quarter of fiscal 2008,
the Canadian Government approved general federal corporate
income tax rate reductions ranging from 1.0 percent to 3.5 per cent
by January 2012. These rate reductions, along with recently
enacted changes in certain provincial jurisdictions, lowered both
the current year income tax rate and the effective rate applied to
future timing differences. This resulted in a lower overall effective
income tax rate in fiscal 2009 as compared to fiscal 2008.
CONSOLIDATE D
OPE RATING EAR N INGS
$ I N M I LLIONS
CONSOLIDATE D
OPE RATING EAR N INGS
$ PE R SHAR E FU LLY DI LUTE D
2 8 0
210
14 0
70
262.9
4 . 0 0
3 . 0 0
2 . 0 0
1. 0 0
3.99
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
2009 Annual Report
29
earnings before Capital Gains and other Items
For the 52 weeks ended May 2, 2009, earnings before capital
gains and other items amounted to $262.9 million ($3.99 per
share) compared to $242.8 million ($3.69 per share) in the prior
year. The $20.1 million or 8.3 percent increase is the result of
the $25.2 million decrease in interest expense and the
$4.5 million decrease in minority interest, partially offset by the
$4.5 million decrease in operating income and the $5.1 million
increase in income taxes.
The table below presents Empire’s segmented earnings before capital gains (losses) and other items, by division for the 52 weeks ended
May 2, 2009, compared to the 52 weeks ended May 3, 2008.
($ in millions)
Food retailing(1)
Real estate
Investments & other operations
Consolidated
52 Weeks Ended
May 2, 2009
52 Weeks Ended
May 3, 2008
Year-over-Year
($) Change
Year-over-Year
(%) Change
$
229.1
36.7
(2.9)
$
191.7
58.9
(7.8)
$
$
262.9
$
242.8
$
37.4
(22.2)
4.9
20.1
19.5%
(37.7%)
62.8%
8.3%
(1) Adjusted for the impact of the amortization and depreciation of various items related to the privatization of Sobeys in June 2007.
Capital Gains and other Items
net earnings
Net earnings for the 52 weeks ended May 2, 2009 totalled
$265.9 million ($4.04 per share) as compared to $315.8 million
($4.80 per share) recorded last fiscal year, a decrease of
$49.9 million or 15.8 percent. The decrease in net earnings
for fiscal 2009 compared to fiscal 2008 reflects the decrease
in capital gains and other items of $70.0 million, partially offset
by the increase in earnings before capital gains and other
items of $20.1 million as discussed.
For the full fiscal year, the Company recorded capital gains
and other items, net of tax, of $3.0 million as compared to
$73.0 million last year. Capital gains and other items, net of tax,
in fiscal 2009 were primarily related to the sale of non-core real
estate assets for gains of $5.9 million, net of tax, offset by an
increase in the provision on asset backed commercial paper
(“ABCP”) equal to $3.1 million, net of tax, taken by Sobeys in
the third quarter. Capital gains and other items, net of tax, in
fiscal 2008 were 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 ABCP held by Sobeys, as discussed in detail in the
section entitled “Other Matters” of this MD&A.
outlook
Management’s primary objective continues to be to maximize the
long-term sustainable value of Empire through enhancing 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
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 sold, 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, Empire intends to further reduce our consolidated
funded debt over the coming year through the prudent
management of 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 a strong management team, improving the customers’
in-store experience and improving our productivity.
30
empire Company limited Management’s Discussion and Analysis
Sobeys plans to focus on its workforce management and
merchandising initiatives in fiscal 2010 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 already
been put in place.
Real estate Division
Empire’s real estate management group will continue to maximize
and prudently reinvest its cash flow to further strengthen its
property portfolio.
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 all Sobeys
regions and divisions 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 site
selection expertise for commercial locations, Crombie REIT
with its decades of management expertise, and the robust
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.
With respect to residential real estate, Empire remains
committed to its investment in Genstar and is very supportive
of its management and strategy. Management does caution
that earnings contribution from Genstar is trending substantially
lower. Genstar in our view continues to be well capitalized and,
with a very capable management team, is favourably positioned
to capitalize on new profitable growth opportunities.
Investments and other operations
With respect to Wajax, we expect lower comparative results
in calendar 2009. Wajax management advised that they believe
their earnings will be lower in calendar 2009 and accordingly
reduced monthly distributions to $0.20 per unit. Wajax in our
view continues to be well capitalized and, with a very capable
management team, is favourably positioned to capitalize on new
profitable growth opportunities.
Fiscal 2009 operating performance by Division
Food Retailing
HigHligHTS
Sobeys achieved fiscal 2009 sales growth of $996.7 million
or 7.2 percent and same-store sales growth of 5.2 percent.
Total capital expenditures equalled $382.7 million in
fiscal 2009.
Opened, acquired or replaced 47 corporate and franchised
stores, expanded 11 stores, rebannered/redeveloped
16 stores and closed 52 stores.
Funded debt to total capital improved to 31.2 percent at the
end of fiscal 2009 compared to the 35.6 percent reported
at the end of fiscal 2008.
To assess its financial performance and condition, Sobeys’
management monitors a set of financial measures, which
evaluate sales growth, profitability and financial condition.
The primary financial performance and condition measures
for Sobeys are set out below.
52 Weeks Ended
May 2, 2009
May 3, 2008
Sales growth
Same-store sales growth
Return on equity
Funded debt to total capital
Funded debt to EBITDA
Property and equipment
7.2%
5.2%
11.3%
31.2%
1.4x
5.6%
2.8%
10.0%
35.6%
1.7x
purchases ($ in millions)
$
383
$
489
2009 Annual Report
31
The table below presents sales, operating income and net earnings contribution to Empire by Sobeys:
($ in millions)
Sales
Operating income(1)
Net earnings(1)
52 Weeks Ended
May 2, 2009
52 Weeks Ended
May 3, 2008
Year-over-Year
($) Change
Year-over-Year
(%) Change
$ 14,764.8
401.4
226.0
$ 13,768.1
$
359.0
186.6
996.7
42.4
39.4
7.2%
11.8%
21.1%
(1) Adjusted for the impact of the amortization and depreciation of various items related to the privatization of Sobeys in June 2007.
revenue
In fiscal 2009, Sobeys achieved sales of $14.76 billion, an
increase of $996.7 million or 7.2 percent over fiscal 2008.
During the fiscal year, same-store sales (sales from stores
in the same locations in both reporting periods) increased
by 5.2 percent.
Sales growth for the year was driven by Sobeys increased
retail selling square footage from new stores and enlargements,
coupled with the continued implementation of sales and
merchandising initiatives, a full year of sales reported by Thrifty
Foods versus approximately eight months of sales reported last
year and retail food inflation.
Sobeys expects sales growth to continue in fiscal 2010 as
a result of on-going capital investment in its retail store network,
and continued offering, merchandising, pricing and operational
execution improvements across the country.
As shown in the table below, excluding the impact of the
acquisition of Thrifty Foods on September 12, 2007, Sobeys’
sales growth would have been 5.6 percent in fiscal 2009.
($ in millions)
Sobeys’ financially reported sales
Impact of Thrifty Foods acquisition
52 Weeks Ended
May 2, 2009
52 Weeks Ended
May 3, 2008
($) Change
(%) Change
$ 14,764.8
$ 13,768.1
$
996.7
(224.8)
$
771.9
7.2%
5.6%
Total store square footage increased by 1.1 percent in fiscal 2009 as a result of the opening of 47 new or replacement stores and the
expansion of 11 stores. There were 52 stores closed in fiscal 2009.
buSineSS ProCeSS and i nformaTion SySTemS
TranSformaTion and r aTionalizaTion CoSTS
Sobeys continues to make significant progress in the implemen-
tation 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 by focusing on the
significant opportunity to upgrade information processing and
decision support capabilities. The systems and processes that
F OOD R ETAILING
R EVE N U E
$ I N M I LLIONS
F OOD R ETAILING
OPE RATING INCOM E
$ I N M I LLIONS
16 , 0 0 0
12 , 0 0 0
8 , 0 0 0
4 , 0 0 0
14,764.8
4 0 0
3 0 0
2 0 0
10 0
401.4
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
32
empire Company limited Management’s Discussion and Analysis
were implemented were developed over several years and were
focused on standardizing and streamlining the “back shop” in
support of Sobeys’ food-focused strategy. These changes allow
Sobeys to leverage technology investments, improve efficiencies
and are expected to lower costs over the long term.
Sobeys completed the implementation of this system in
Ontario during the third quarter of fiscal 2007 and in Western
Canada during the second quarter of fiscal 2008. The business
process and system initiative costs primarily included labour,
implementation and training costs associated with these
initiatives. There were no costs incurred in the fourth quarter
of the current or prior year related to these initiatives. For the
52 weeks ended May 2, 2009, there were no pre-tax costs
incurred related to these initiatives ($8.6 million in the 52 weeks
ended May 3, 2008).
The implementation of these initiatives support all aspects of
the business including operations, merchandising, distribution,
human resources and finance. They are important enablers of
further initiatives including a new distribution facility in Ontario
that was announced on November 21, 2006.
When it begins operations in the first quarter of fiscal 2010,
the new distribution centre, located in Vaughan, Ontario, will
utilize automation technology and equipment, and significantly
increase Sobeys’ warehouse and distribution capacity while
reducing overall distribution costs and improving service to its
store network and customers.
During fiscal 2009, Sobeys recognized $6.9 million of
severance costs (2008 – $0.5 million) related to the development
of this automated facility, which included the severance costs
associated with a resulting rationalization of certain administrative
functions in Ontario. The new distribution centre is expected
to provide annual distribution savings in excess of these costs
and any additional business rationalization or restructuring
costs incurred leading up to its opening.
During the first quarter of fiscal 2008, Sobeys also performed
a rationalization of administrative functions in its national and
regional departments. An additional $3.8 million of rationalization
costs were incurred in fiscal 2009 (2008 – negative $1.8 million).
The reversal in fiscal 2008 was the result of changes in
management’s estimate of expected costs.
The total pre-tax costs of the above initiatives can be summarized as follows:
($ in millions)
13 Weeks Ended
May 2, 2009
13 Weeks Ended
May 3, 2008
52 Weeks Ended
May 2, 2009
52 Weeks Ended
May 3, 2008
Business process and system initiative costs
Rationalization costs
Total costs
$
$
–
1.6
1.6
$
$
–
$
–
$
(0.5)
(0.5)
$
10.7
10.7
$
8.6
(1.8)
6.8
oPeraTing inCome
Sobeys reported operating income of $406.1 million during
fiscal 2009, an 11.6 percent increase from last year’s
$363.8 million. Sobeys’ fiscal 2009 operating income includes
a $24.7 million increase in depreciation and amortization
expenses, reflecting Sobeys’ commitment to continued capital
investments. Sobeys recorded operating income margin in the
fiscal year was 2.75 percent compared to 2.64 percent in the
prior year.
Sobeys will continue to focus on disciplined cost management
initiatives, supply chain and retail productivity improvements and
migration of best practices across its regions and divisions to
continue to fuel and fund investments to drive sales and improve
margins over time.
After adjusting for the impact of the amortization and
depreciation of various items related to the privatization as
discussed, Sobeys’ operating income contribution to Empire in
fiscal 2009 was $401.4 million compared to a contribution of
$359.0 million in fiscal 2008. Sobeys’ operating income margin
for fiscal 2009 after adjusting for the above items equalled
2.72 percent compared to 2.61 percent for fiscal 2008.
neT earningS
Sobeys reported net earnings of $229.2 million in fiscal 2009
compared to $196.4 million last year, a $32.8 million or
16.7 percent increase. The earnings increase largely reflects the
$42.3 million improvement in operating income which included
a $24.7 million increase in depreciation and amortization,
a $3.1 million provision, net of tax, related to ABCP in fiscal
2009 compared to a $6.3 million provision, net of tax, in fiscal
2008, and a $0.2 million decrease in interest expense; partially
offset by an increase in income taxes of $10.9 million and an
increase in minority interest expense of $2.0 million.
Adjusting for the impact of the depreciation and amortization
related to the privatization and the related tax impact, as well
as for the change in Empire’s weighted average ownership
position in Sobeys (100.0 percent for fiscal 2009 compared
to 96.9 percent for fiscal 2008), the food retailing division
contributed net earnings of $226.0 million to Empire for fiscal
2009, an increase of $39.4 million or 21.1 percent over the
$186.6 million recorded in fiscal 2008.
2009 Annual Report
33
Real estate
HigHligHTS
The sale of non-core properties for capital gains, net of tax,
of $5.9 million.
A 45.6 percent increase in operating income from
Crombie REIT compared to fiscal 2008, largely as a result
of the acquisition of 61 Sobey Leased Properties assets
in the fourth quarter of fiscal 2008.
Operating income from Genstar of $33.6 million in fiscal
2009 compared to $50.7 million reported in fiscal 2008.
Real estate management assesses its financial performance
and condition through monitoring of key financial measures.
The primary financial performance and condition measures
are set out below.
52 Weeks Ended
May 2, 2009
May 3, 2008
Funds from Operations
($ in millions)
Return on Equity(1)
Funded Debt to Total Capital
Development Pipeline
$
38.5
17.8%
25.6%
$
64.3
17.7%
22.4%
(in millions of square feet)
1.7
1.2
(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, net earnings and funds from operations for the real estate division’s commercial
operations and residential operations.
52 Weeks Ended ($ in millions)
May 2, 2009
May 3, 2008
($) Change
(%) Change
Revenue
Residential
Sobey Leased Properties(1)
Other Commercial
Inter-segment
Elimination
Operating income
Residential
Sobey Leased Properties(1)
Crombie REIT(2)
Other Commercial
Net earnings
Residential
Commercial
Funds from operations(3)
Residential
Commercial
$
$
$
54.6
–
16.4
2.9
73.9
(2.9)
71.0
33.6
–
19.8
2.5
$
$
85.2
20.6
19.9
34.9
160.6
(34.9)
$
125.7
$
$
$
50.7
30.0
13.6
5.7
(30.6)
(20.6)
(3.5)
(32.0)
(86.7)
32.0
(54.7)
(17.1)
(30.0)
6.2
(3.2)
$
55.9
$
100.0
$
(44.1)
$
$
$
$
23.2
19.4
$
34.7
20.1
$
42.6
$
54.8
$
(11.5)
(0.7)
(12.2)
23.2
15.3
$
38.5
$
35.3
29.0
64.3
$
(12.1)
(13.7)
$
(25.8)
(35.9%)
(100.0%)
(17.6%)
(91.7%)
(54.0%)
91.7%
(43.5%)
(33.7%)
(100.0%)
45.6%
(56.1%)
(44.1%)
(33.1%)
(3.5%)
(22.3%)
(34.3%)
(47.2%)
(40.1%)
(1) On April 22, 2008, Sobey Leased Properties sold 61 properties to Crombie REIT with the remaining assets of Sobey Leased Properties transferred
to Sobeys.
(2) Equity accounted earnings in Crombie REIT during the fiscal year.
(3) Operating earnings plus depreciation and amortization.
34
empire Company limited Management’s Discussion and Analysis
revenue
Real estate division revenues, net of elimination, amounted to
$71.0 million in fiscal 2009 as compared to $125.7 million in
the prior year. The $54.7 million reduction in revenue from the
real estate division was anticipated as a result of an expected
slowdown in residential lot sales and the sale of 61 Sobey
Leased Properties’ assets to Crombie REIT in the fourth quarter
of fiscal 2008.
Revenue from residential operations was $54.6 million in
fiscal 2009 compared to $85.2 million last year, a $30.6 million
or 35.9 percent decrease. Commercial property revenues, net
of elimination, for fiscal 2009 equalled $16.4 million, a decrease
of $24.1 million or 59.5 percent compared to revenues of
$40.5 million reported last year.
oPeraTing inCome
During fiscal 2009, real estate division operating income
declined $44.1 million or 44.1 percent compared to last year
as the result of a $30.0 million decrease in operating income
from Sobey Leased Properties, a $17.1 million decrease
in residential operating income, a $3.2 million decrease in
commercial operating income, partially offset by an increase in
equity earnings from Crombie REIT of $6.2 million. The decline
in operating income generated by residential operations was
anticipated given management’s expectation for a housing
market slowdown in Western Canada. The decline in operating
income generated by Sobey Leased Properties was expected
given the sale of 61 properties to Crombie REIT in the fourth
quarter of fiscal 2008.
CaPiTal gain S (loSSeS) and oTH er iTem S
Capital gains and other items, net of tax, for the real estate
division totalled $5.9 million in fiscal 2009 (fiscal 2008 – capital
losses and other items, net of tax, of $4.1 million). Capital gains
in fiscal 2009 relate primarily to the sale of non-core properties
while the capital losses in fiscal 2008 relate primarily to the
impairment charge taken on one commercial property.
neT earningS
Real estate division net earnings contribution in fiscal 2009
amounted to $42.6 million compared to $54.8 million last year,
a $12.2 million or 22.3 percent decrease. The earnings decline
largely reflects the $44.1 million reduction in operating income
as discussed, partially offset by a $12.6 million reduction in
interest expense due to lower long-term debt levels, an increase
in capital gains and other items, net of tax, of $10.0 million, and
lower income tax expense of $9.3 million.
fundS from oPeraTionS
Funds from real estate operations in fiscal 2009 of $38.5 million
decreased $25.8 million or 40.1 percent compared to last year
as a result of a decrease in commercial funds from operations
of $13.7 million and a decrease in residential funds from
operations of $12.1 million. The decrease in both residential and
commercial funds from operations is due primarily to the decrease
in operating income for the reasons previously mentioned.
R EAL ESTATE
R EVE N UE 1
$ I N M I LLIONS
R EAL ESTATE
FU N DS FR OM OPE RATIONS 1
$ I N M I LLIONS
20 0
15 0
10 0
5 0
FISCAL YEAR
05
06
07
08
6 0
4 5
3 0
15
38.5
23.2
15.3
FISCAL YEAR
05
06
07
08
09
73.9
54.6
19.3
09
RESIDENTIAL
COMMERCIAL
RESIDENTIAL
COMMERCIAL
(1) Fiscal 2005 – 2008 have been restated to
exclude Sobey Leased Properties which was
sold on April 22, 2008.
2009 Annual Report
35
Investments and other operations
HigHligHTS
On April 24, 2009, Empire successfully completed the
issuance of 2,713,000 Non-Voting Class A shares (including
the 200,000 issued under the over-allotment option)
at $49.75 per share for net proceeds of $129.1 million,
which were used to reduce indebtedness at the holding
company level.
Maintained a 27.6 percent interest in Wajax which
contributed $18.5 million in equity earnings in fiscal 2009.
Reduced funded debt by $156.9 million compared to the
end of fiscal 2008.
Empire Theatres’ revenue in fiscal 2009 increased by
6.1 percent compared to fiscal 2008.
inveSTmenT value
At the end of fiscal 2009, Empire’s total investments,
excluding its investment in Genstar U.S. and in Crombie REIT,
carried a market value of $72.4 million (May 3, 2008 –
$155.0 million) on a cost base of $32.1 million (May 3, 2008 –
$33.2 million), resulting in an unrealized gain of $40.3 million
(May 3, 2008 – $121.8 million). The decrease in unrealized gain
was primarily related to a decrease in Wajax’s unit price from
$33.50 per unit as of May 3, 2008 to $15.58 per unit as of
May 2, 2009.
The table below presents a reconciliation of the consolidated balance sheet investments, both equity and cost, to those related to the
investment and other operations division:
($ in millions)
Investments
Investments, at equity
Total investments
Less: Crombie REIT
Less: Genstar U.S.(1)
(1) Assumes market value equals book value.
$
Market
Value
1.1
254.4
255.5
175.6
7.5
May 2, 2009
May 3, 2008
Carrying
Value
Unrealized
Gain
Market
Value
Carrying
Value
Unrealized
Gain
$
$
1.1
18.8
19.9
(19.7)
7.5
–
235.6
235.6
195.3
–
$
1.6
$
1.6
$
429.6
431.2
275.9
0.3
41.4
43.0
9.5
0.3
–
388.2
388.2
266.4
–
$
72.4
$
32.1
$
40.3
$
155.0
$
33.2
$
121.8
INVESTM E NTS AN D OTH E R
OPE RATIONS R EVE N U E
$ I N M I LLIONS
INVESTM E NTS AN D OTH E R
OPE RATIONS OPE RATING INCOM E*
$ I N M I LLIONS
20 0
15 0
10 0
5 0
179.3
3 2
24
16
8
22.8
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
*B E FOR E COR PORATE EXPE NSES
36
empire Company limited Management’s Discussion and Analysis
PorTfolio Com PoSiTion
At fiscal year end, May 2, 2009, 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
Market
Value
% of
Total
Cost
Unrealized
Gain (Loss)
May 2,
2009
Unrealized
Gain (Loss)
May 3,
2008
$
71.3
98.5%
$
31.0
$
40.3
$
121.8
$
–
–
–
–
–
–
–
–
1.1
–
1.5%
–
1.1
–
–
–
–
–
–
–
May 5,
2007
122.4
92.2
1.2
–
3.5
Total
$
72.4
100.0%
$
32.1
$
40.3
$
121.8
$
219.3
The table below presents investments and other operations’ (net of corporate expenses) financial highlights for the 52 weeks ended
May 2, 2009 compared to the 52 weeks ended May 3, 2008.
52 Weeks Ended ($ in millions)
May 2,
2009
May 3,
2008
($)
Change
Revenue
$
179.3
$
171.2
$
8.1
Operating income
Wajax
Other operations, net of corporate expenses
Total operating income
Operating earnings
Capital gains (losses) and other items, net of tax
18.5
(7.7)
10.8
(2.9)
0.2
19.7
(6.1)
13.6
(7.8)
82.2
(1.2)
(1.6)
(2.8)
4.9
(82.0)
(%)
Change
4.7%
(6.1%)
(26.2%)
(20.6%)
62.8%
(99.8%)
Net earnings
$
(2.7)
$
74.4
$
(77.1)
(103.6%)
revenue
Investments and other operations’ revenue, primarily generated
by Empire Theatres, equalled $179.3 million for fiscal 2009
versus $171.2 million last year, an increase of $8.1 million or
4.7 percent.
inveSTmenT i nCome
Investment income (excluding equity earnings from Crombie
REIT and Genstar U.S.) equalled $19.0 million in fiscal 2009,
a decrease of $1.9 million from the $20.9 million recorded
last year. The decline was the result of a decrease in dividend
income of $0.7 million from fiscal 2008 reflecting the sale
of the portfolio investments in the first quarter of fiscal 2008
as mentioned and a decrease in equity earnings from Wajax
of $1.2 million from last year.
CaPiTal gain S and oTH er iTem S
Capital gains and other items, net of tax, realized from
investment sales in fiscal 2009 amounted to $0.2 million
compared to $82.2 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 and other operations, net of corporate expenses,
contributed negative $2.7 million to Empire’s consolidated fiscal
2009 net earnings compared to a $74.4 million net earnings
contribution last year. The decrease is primarily the result of
the capital gains related to the sale of the liquid portfolio in the
first quarter of fiscal 2008 as discussed.
2009 Annual Report
37
Quarterly Results of operations
The following table is a summary of selected financial information from the Company’s consolidated financial statements (unaudited)
for each of the eight most recently completed quarters.
Results by Quarter
Fiscal 2009
Fiscal 2008
($ in millions, except
per share information)
Q4
(13 Weeks)
May 2,
2009
Q3
(13 Weeks)
Jan. 31,
2009
Q2
(13 Weeks)
Nov. 1,
2008
Q1
(13 Weeks)
Aug. 2,
2008
Q4
(13 Weeks)
May 3,
2008
Q3
(13 Weeks)
Feb. 2,
2008
Q2
(13 Weeks)
Nov. 3,
2007
Q1
(13 Weeks)
Aug. 4,
2007
Revenue
$ 3,709.0 $ 3,800.0 $ 3,727.9 $ 3,778.2
$ 3,557.8 $ 3,503.0 $ 3,484.8 $ 3,519.4
Operating income
111.6
115.6
113.4
127.5
136.2
90.7
118.2
127.5
Operating earnings(1)
Capital gains (losses) and
other items, net of tax
64.4
65.0
63.2
70.3
73.6
48.9
59.9
60.4
(0.8)
(3.5)
2.5
4.8
(7.1)
(0.3)
(1.5)
81.9
Net earnings
$
63.6 $
61.5 $
65.7 $
75.1
$
66.5 $
48.6 $
58.4 $ 142.3
Per share information, diluted
Operating earnings
Capital gains (losses) and
other items, net of tax
$
0.97 $
0.99 $
0.96 $
1.07
$
1.12 $
0.74 $
0.91 $
0.92
(0.01)
(0.05)
0.04
0.07
(0.11)
–
(0.02)
1.24
Net earnings
$
0.96 $
0.94 $
1.00 $
1.14
$
1.01 $
0.74 $
0.89 $
2.16
Diluted weighted average
number of shares
outstanding (in millions)
66.0
65.7
65.7
65.7
65.7
65.7
65.7
65.7
(1) Operating earnings are 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.
38
empire Company limited Management’s Discussion and Analysis
summary Table of Consolidated Financial Results for the Fourth Quarter
($ in millions, except per share information)
13 Weeks Ended
May 2 , 2009
% of
Revenue
13 Weeks Ended
May 3, 2008
% 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)
$
3,709.0
100.00%
$
3,557.8
100.00%
3.83
2.07
(0.20)
1.87%
111.6
64.4
(0.8)
63.6
0.98
(0.01)
0.97
65.9
0.97
(0.01)
0.96
66.0
$
$
$
$
$
3.01
1.74
(0.02)
1.71%
$
$
$
$
$
136.2
73.6
(7.1)
66.5
1.12
(0.11)
1.01
65.6
1.12
(0.11)
1.01
65.7
Dividends per share
$
0.175
$
0.165
The following is a review of financial performance for the
13 weeks ended May 2, 2009 compared to the 13 weeks
ended May 3, 2008.
revenue
Revenue for the fourth quarter was $3.71 billion compared
to $3.56 billion last year, a $151.2 million or 4.2 percent
increase. Revenues for the food retailing division increased by
$170.8 million or 4.9 percent compared to the fourth quarter of
fiscal 2008. Same-store sales increased 4.6 percent during the
fourth quarter of fiscal 2009. The growth in retail sales was a
result of increased retail selling square footage from new stores
and enlargements, coupled with the continued implementation
of sales and merchandising initiatives, improved consistency of
store-level execution and retail food price inflation.
Real estate operations reported fourth quarter revenues,
net of elimination, of $10.5 million, a decrease of $23.3 million
or 68.9 percent compared to the fourth quarter last year.
Commercial property revenue decreased by $6.8 million or
73.9 percent while revenue from residential operations
decreased by $16.5 million or 67.1 percent. The decline in both
residential and commercial operations’ revenues was expected.
Empire management had previously cautioned that residential
lot sales in Western Canada, particularly in the Calgary and
Edmonton, Alberta markets, were not sustainable at the levels
observed in fiscal 2008. The decline in commercial operations’
revenue is due primarily to the sale of 61 properties to Crombie
REIT in the fourth quarter of fiscal 2008.
Revenue from investments and other operations in the fourth
quarter equalled $47.1 million, an increase of $3.7 million or
8.5 percent over the fourth quarter last year. This is primarily
related to higher revenue contribution from Empire Theatres.
oPeraTing inCome
Consolidated operating income in the fourth quarter was
$111.6 million, a decrease of $24.6 million or 18.1 percent from
the $136.2 million recorded in the fourth quarter last year.
The contributors to the change in consolidated operating
income from the fourth quarter last year are as follows:
Sobeys’ operating income contribution to Empire in
the fourth quarter totalled $102.6 million, a decrease of
$1.7 million or 1.6 percent from the $104.3 million recorded
in the fourth quarter last year. Included in Sobeys’ fourth
quarter fiscal 2009 operating income contribution to Empire
was a $5.4 million increase in depreciation and amortization
expense, reflecting Sobeys’ continued capital investment.
Residential property operating income contribution in the
fourth quarter was $3.8 million, a decrease of $11.8 million
from the $15.6 million recorded in the fourth quarter last
year as a result of lower residential lot sales activity in
Western Canada.
2009 Annual Report
39
Commercial property operating income for the quarter
earningS before CaPiTal gainS (loSSeS)
was $4.9 million compared to $11.6 million in the fourth
quarter last fiscal year, a decline of $6.7 million. This decline
is primarily attributed to the sale of certain Sobey Leased
Properties’ assets (61 properties) to Crombie REIT on
April 22, 2008, as Sobey Leased Properties accounted for
operating income of $8.2 million in the fourth quarter last
fiscal year. The reduction in operating income from Sobey
Leased Properties was partially offset by increased equity
accounted earnings from Crombie REIT which contributed
$4.9 million to operating income in the fourth quarter versus
a $3.1 million contribution in the fourth quarter last year.
Investments and other operations, net of corporate expenses,
contributed operating income of $0.3 million in the fourth
quarter compared to $4.7 million in the fourth quarter last
year. Equity accounted earnings generated from the
Company’s 27.6 percent interest in Wajax amounted to
$2.6 million in the fourth quarter versus $5.0 million in the
fourth quarter last year. Operating income generated from
other operations, net of corporate expenses, amounted to
negative $2.3 million as compared to negative $0.3 million
in the fourth quarter last year.
inTereST exPenSe
Interest expense in the fourth quarter amounted to $18.8 million,
a decrease of $8.7 million or 31.6 percent from the $27.5 million
recorded in the same quarter last year. The decrease in interest
expense is primarily due to the lower funded debt for the
reasons previously discussed.
inCome TaxeS
The effective income tax rate for the fourth quarter was
29.7 percent versus 31.1 percent in the fourth quarter last
year. Statutory enacted future income tax rate reductions have
lowered the overall effective income tax rate for the fourth
quarter of fiscal 2009 compared to the fourth quarter of
fiscal 2008.
and oTH er iTem S
For the 13 weeks ended May 2, 2009, Empire recorded
earnings before capital gains (losses) and other items of
$64.4 million ($0.97 per share) versus $73.6 million ($1.12 per
share) last year, a $9.2 million or 12.5 percent decrease. The
decline in earnings before capital gains (losses) and other items
is the result of a $24.6 million reduction in operating income,
partially offset by an $8.7 million reduction in interest expense,
a decrease in income taxes of $6.2 million and a decrease in
minority interest of $0.5 million.
CaPiTal loSSeS and oTH er iTem S
The Company reported capital losses and other items, net of tax,
of $0.8 million in the fourth quarter compared to capital losses
and other items, net of tax, of $7.1 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 of fiscal 2008, 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 ABCP is discussed in detail in the
section entitled “Other Matters” of this MD&A.
neT earningS
Consolidated net earnings in the fourth quarter equalled
$63.6 million ($0.96 per share) as compared to $66.5 million
($1.01 per share) last year, a decrease of $2.9 million or
4.4 percent. The decrease in net earnings is due to the
$9.2 million decrease in earnings before capital losses and
other items, offset by the decrease in capital losses and other
items, net of tax, of $6.3 million.
40
empire Company limited Management’s Discussion and Analysis
Financial Condition
Capital structure and Key Financial Condition Measures
The Company’s financial condition at the end of fiscal 2009 remained healthy as indicated by the following financial condition measures.
($ in millions, except per share and ratio calculations)
Shareholders’ equity
Book value per share
Bank indebtedness
Long-term debt, including current portion(1)
Funded debt to total capital
Net funded debt to capital ratio(2)
Funded debt to EBITDA(3)
EBITDA to interest expense(3)
Total assets
(1) Includes liabilities related to assets held for sale.
(2) Net funded debt to total capital reduces funded debt by cash and cash equivalents.
(3) Calculation uses trailing 12-month EBITDA and interest expense.
May 2,
2009
2,683.5
39.14
45.9
1,257.0
32.7%
28.5%
1.64x
9.84x
5,898.0
$
$
$
$
$
$
$
$
$
May 3,
2008
2,382.3
36.14
92.6
1,480.9
39.8%
36.7%
2.02x
7.35x
$
$
$
$
May 5,
2007
2,131.1
32.31
30.1
881.9
30.0%
22.5%
1.30x
11.65x
$
5,732.9
$
5,241.5
shareholders’ equity
Book value per common share was $39.14 at May 2, 2009, compared to $36.14 at May 3, 2008 and $32.31 at May 5, 2007.
The increase in book value largely reflects the Company’s earnings growth and the $135 million equity issue on April 24, 2009
as discussed.
The Company’s share capital on May 2, 2009 consisted of:
Authorized
Number of Shares
Issued and
Outstanding
Number of Shares
($ in millions)
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
2,682,100
992,000,000
259,107,435
40,800,000
168,000
–
34,197,498
34,260,763
$
Employees’ Share Purchase Plan
4.2
–
316.1
7.6
327.9
(3.4)
$
324.5
On April 24, 2009, the Company closed a bought-deal public
offering of Non-Voting Class A shares at a price of $49.75 per
share. The underwriters elected to exercise their over-allotment
option in full, resulting in a total of 2,713,000 shares being
issued for net proceeds of $129.1 million.
Total Non-Voting Class A and Class B common shares
outstanding at May 2, 2009 equalled 68,458,261, an increase
of 2,713,000 shares from the previous fiscal year-end,
May 3, 2008 as a result of the Non-Voting Class A shares
issued in the fourth quarter of fiscal 2009, as discussed. There
were 34,197,498 Non-Voting Class A and 34,260,763 Class B
common shares outstanding at May 2, 2009.
During fiscal 2008, 300,000 Class B common shares were
exchanged for 300,000 Non-Voting Class A shares of Empire.
During fiscal 2009, 189,967 options (2008 – 92,766 options)
were issued under Empire’s Long-Term Incentive Plan. The
options issued in fiscal 2009 allow the holder to purchase
2009 Annual Report
41
Non-Voting Class A shares at $40.26 per share (2008 –
$43.96 per share). Empire had 282,733 options outstanding
at May 2, 2009 compared to 92,766 options outstanding at
May 3, 2008. The outstanding options expire in June 2015 and
in June 2016. There were no options exercised during fiscal
2009 or fiscal 2008.
During fiscal 2009, the Company purchased for cancellation
90,200 Series 2 Preferred shares for $2.3 million compared to
41,800 preferred shares that were purchased for cancellation in
fiscal 2008 for $1.0 million. The Company plans to purchase, on a
best efforts basis, an additional 100,000 Series 2 Preferred
shares for cancellation by the end of calendar 2009.
During fiscal 2009, there were no Non-Voting Class A
shares issued under Empire’s Employee Share Purchase Plan
compared to 10,461 Non-Voting Class A shares issued in fiscal
2008 for $0.4 million. No Non-Voting Class A shares were
purchased for cancellation in either fiscal 2009 or fiscal 2008.
As at July 23, 2009, the Company had total Non-Voting
Class A and Class B common shares outstanding of 34,197,498
and 34,260,763, respectively as well as 445,132 options to
acquire Non-Voting Class A shares.
Dividends paid to Non-Voting Class A and Class B common
shareholders amounted to $46.1 million in fiscal 2009
($0.70 per share) versus $43.2 million ($0.66 per share) in
fiscal 2008. Subsequent to fiscal year-end, on June 26, 2009
the Company announced an increase in the dividend rate to
$0.74 per share annually.
SHAR E PR ICE
$ PE R SHAR E
BOOK VALU E PE R SHAR E
$ PE R SHAR E
COMMON DIVIDE N DS PE R SHAR E
$ PE R SHAR E
4 8
3 6
24
12
49.00
4 8
3 6
24
12
39.14
0 .72
0 . 5 4
0 . 3 6
0 .18
0.70
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
liabilities
At the end of fiscal 2009, the Company’s total long-term
debt (including the current portion long-term debt) was
$1,257.0 million, representing 96.5 percent of Empire’s total
funded debt of $1,302.9 million. Funded debt has decreased by
$270.6 million from the $1,573.5 million reported at the end
of fiscal 2008. The ratio of funded debt to total capital improved
to 32.7 percent from 39.8 percent at the end of fiscal 2008.
The significant decrease in funded debt over the end of the
previous fiscal year is primarily the result of repaying debt with
the net proceeds from the $135 million equity issue completed
on April 24, 2009 along with the use of free cash flow
generated by Sobeys to reduce its funded debt.
Historically, Empire has financed a significant portion of its
assets through the use of long-term debt. Longer-term assets
are generally financed with fixed rate, long-term debt, thereby
reducing both interest rate and refinancing risk.
The long-term debt is segmented by division as follows:
Long-term debt (including current portion)
($ in millions)
Food retailing
Real estate
Investments and other operations
Total
$
May 2,
2009
954.0
39.6
263.4
May 3,
2008
$
1,010.2
$
50.1
420.6
May 5,
2007
612.7
228.1
41.1
$
1,257.0
$
1,480.9
$
881.9
42
empire Company limited Management’s Discussion and Analysis
For additional disclosure on Empire’s bank indebtedness
and long-term debt, see Note 11 and 12 to the Company’s annual
audited consolidated financials statements for fiscal 2009 as
detailed on page 79 of the Company’s 2009 Annual Report.
In June 2007, both Standard & Poors (“S&P”) and Dominion
Bond Rating Service (“DBRS”) placed Sobeys’ credit ratings
under review when the privatization of Sobeys was announced.
Upon completion of their reviews in the first quarter of fiscal
2008, S&P and DBRS downgraded Sobeys’ credit rating to
BB+ with a negative trend and BBB– with a negative trend,
respectively. During the first quarter of fiscal 2009, based
on Sobeys’ improved fundamentals, both agencies changed
their trends from negative to stable. Subsequent to fiscal
year-end, both rating agencies improved their trends to positive
from stable.
Empire’s EBITDA to interest expense ratio in fiscal 2009
was 9.8 times, an improvement from the 7.4 times recorded
in fiscal 2008. The increase in the EBITDA to interest expense
ratio compared to fiscal 2008 was the result of the decline
in interest expense related to the repayment of funded debt
as discussed.
Empire and its subsidiaries have provided covenants to its
lenders in support of various financing facilities. All covenants
were complied with during fiscal 2009 and for fiscal 2008.
FU N DE D DE BT TO TOTAL CAPITAL
PE RCE NTAG E
E B ITDA TO INTE R EST EXPE NSE
TI M ES
4 0
3 0
20
10
32.7
12
9
6
3
9.84
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
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 2, 2009, there were four interest rate
hedges in place with Empire and 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.
The fair value of these four interest rate swaps at May 2, 2009
was negative $36.3 million.
The Company also uses forward contracts to fix the
exchange rate on some of its expected requirements for
Euros and U.S. dollars (“USD”). As of May 2, 2009, due to an
appreciation of the Euro relative to the Canadian dollar (“CAD”),
Sobeys had recognized an asset of $0.4 million representing the
fair value of one Euro denominated forward currency contract.
In July 2008, Sobeys entered into a floating-for-floating
currency swap with a fixed rate of $1.015 CAD/USD to mitigate
the currency risk associated with a USD denominated variable
rate lease. The terms of the swap match the lease terms. As of
May 2, 2009, Sobeys recognized an asset of $1.3 million relating
to this instrument.
To mitigate the risk of changes in the market price of
electricity, Sobeys uses financial derivative swap contracts
with varying maturities as hedges against the rising costs.
As of May 2, 2009, Sobeys recognized a liability of $3.5 million
relating to these instruments.
Empire and its subsidiaries utilize hedging instruments
as deemed appropriate to mitigate risk exposure, not for
speculative purposes.
2009 Annual Report
43
liquidity and Capital Resources
Empire’s liquidity remained strong at May 2, 2009 as a result
of the following sources:
Cash and cash equivalents on hand;
Unutilized bank credit facilities; and
Cash generated from operating activities.
The Company anticipates that these sources of liquidity will be
sufficient to meet expected cash outflows over the next year.
At May 2, 2009, consolidated cash and cash equivalents were
$231.6 million versus $191.4 million at the prior fiscal year-end
on May 3, 2008.
At the end of the fourth quarter of fiscal 2009, on a
non-consolidated basis, Empire maintained an authorized
bank line for operating, general and corporate purposes of
$650 million, of which approximately $248 million or 38 percent
was utilized. Empire’s non-consolidated credit facility of
$650 million matures on June 8, 2010. It is Empire’s intention
to renew or replace this credit facility prior to its maturity.
However, given the current credit environment, the terms of the
renewed or replacement credit facility may not be as favourable
as those of the in-place facility.
On a consolidated basis, Empire’s authorized bank credit
facilities exceeded borrowings by approximately $930 million
at May 2, 2009 compared to $691 million at May 3, 2008.
Given the recent developments in the financial markets, the
Company’s access to new avenues of credit, both short-term
and long-term, may be limited for the foreseeable future. The
Company anticipates that the above mentioned in-place sources
of liquidity will adequately meet its short-term and long-term
financial requirements. The Company mitigates potential liquidity
risk by ensuring its various sources of funds are diversified by
term to maturity and source of credit.
The following table highlights major cash flow components for the 13 and 52 weeks ended May 2, 2009 compared to the 13 and
52 weeks ended May 3, 2008.
($ in millions)
13 Weeks Ended
May 2, 2009
13 Weeks Ended
May 3, 2008
52 Weeks Ended
May 2, 2009
52 Weeks Ended
May 3, 2008
Earnings for common shareholders
Items not affecting cash
$
Net change in non-cash working capital
Cash flows from operating activities
Cash flows (used in) from investing activities
Cash flows (used in) from financing activities
63.6
94.7
158.3
42.1
200.4
(135.1)
(58.0)
$
66.5
$
105.7
172.2
93.0
265.2
210.7
(407.6)
265.8
346.1
611.9
46.3
658.2
(404.1)
(213.9)
$
315.5
360.1
675.6
(45.7)
629.9
(1,353.9)
620.5
Increase (decrease) in cash and cash equivalents
$
7.3
$
68.3
$
40.2
$
(103.5)
operating Activities
Fourth quarter cash flows from operating activities equalled
$200.4 million compared to $265.2 million in the comparable
period last year. The decrease of $64.8 million is due to
a decline in the net change in non-cash working capital
of $50.9 million, a decline in the items not affecting cash
of $11.0 million and a decline in net earnings available for
common shareholders of $2.9 million.
In fiscal 2009, cash flows from operating activities equalled
$658.2 million compared to $629.9 million last year. The
increase of $28.3 million is attributed to an increase in the net
change in non-cash working capital of $92.0 million, partially
offset by a decrease in net earnings available for common
shareholders of $49.7 million and a decrease in items not
affecting cash of $14.0 million.
44
empire Company limited Management’s Discussion and Analysis
The following tables present non-cash working capital changes on a quarter-over-quarter basis and on a year-over-year basis.
non-CaSH Working CaP iTal (QuarTer-over-QuarTer)
($ in millions)
Receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Income taxes receivable (payable)
Impact of reclassifications on working capital(1)
$
May 2,
2009
318.7
842.8
70.8
(1,487.1)
4.9
(3.8)
$
Jan. 31,
2009
294.5
860.7
37.1
(1,391.7)
(12.2)
–
13 Weeks Ended
May 2, 2009
Increase
(Decrease) in
Cash Flows
13 Weeks Ended
May 3, 2008
Increase
(Decrease) in
Cash Flows
$
$
(24.2)
17.9
(33.7)
95.4
(17.1)
3.8
(2.3)
26.8
(0.3)
76.7
14.8
(22.7)
Total
$
(253.7)
$
(211.6)
$
42.1
$
93.0
(1) Reclassifications primarily relate to business acquisitions and rationalization costs and the adoption of the new inventory policy further explained
on page 49 of this annual report.
non-CaSH Working CaP iTal (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 2,
2009
318.7
842.8
70.8
(1,487.1)
4.9
13.0
52 Weeks Ended
May 2, 2009
Increase (Decrease)
in Cash Flows
$
(27.6)
(22.6)
(8.8)
138.7
(20.4)
(13.0)
$
May 3,
2008
291.1
820.2
62.0
(1,348.4)
(15.5)
–
Total
$
(236.9)
$
(190.6)
$
46.3
(1) Reclassifications primarily relate to business acquisitions and rationalization costs and the adoption of the new inventory policy further explained
on page 49 of this annual report.
The net change in non-cash working capital of $42.1 million in
the fourth quarter was largely due to a $95.4 million increase in
payables, a $17.9 million decrease in inventories and the impact
of reclassifications on working capital of $3.8 million, partially
offset by an increase in prepaid expenses of $33.7 million,
an increase in receivables of $24.2 million and an increase in
income taxes receivable of $17.1 million. 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
increase in prepaid expenses largely reflects the increase
recorded in the food retailing division as a result of the prior
quarter ending before the first of the month. The increase in
taxes receivable compared to the third quarter reflects the
timing of tax remittances.
Year-over-year non-cash working capital increased
$46.3 million. This is primarily the result of a $138.7 million
increase in accounts payable and accrued liabilities, partially
offset by a $27.6 million increase in receivables, a $22.6 million
increase in inventories, an increase in income taxes receivable
of $20.4 million, a $13.0 million impact of reclassifications on
working capital and a $8.8 million increase in prepaid expenses
compared to the prior year. The increase in inventories and
related accounts payable and accrued liabilities is necessary
to support Sobeys’ higher sales volumes due to the increased
amount of square footage in its expanded store network.
The increase in inventory is partially offset by the adoption of
the new inventory policy as explained in the “Accounting Policy
Changes” section of this MD&A. The impact of this policy
on cash flow is reflected in the impact of reclassifications
on working capital.
2009 Annual Report
45
Investing Activities
Cash used in investing activities of $135.1 million in the
fourth quarter compares to cash flows generated from investing
activities of $210.7 million in the fourth quarter last fiscal year.
The change in cash from investing activities of $345.8 million
was largely the result of proceeds of $373.5 million from the
sale of 61 properties to Crombie REIT in the fourth quarter
last year, an increase in cash used in business acquisitions
of $21.3 million and an increase in loans and other receivables
of $15.5 million, partially offset by a decline in the cash used
for investments of $57.9 million and a decrease in the purchase
of property and equipment of $22.9 million.
For the 52 weeks ended May 2, 2009, cash used in
investing activities of $404.1 million was $949.8 million lower
than last fiscal year. The decrease in cash used in investing
activities was largely the result of the privatization of Sobeys
in the first quarter of last fiscal year for $1,065.7 million,
the decrease in cash used for business acquisitions by
$221.8 million (primarily the acquisition of Thrifty Foods
in the second quarter of last year for $243.4 million),
the decrease of $119.7 million in property and equipment
purchases, a decrease in cash invested in other assets by
$54.9 million and an increase in proceeds on disposal of
property and equipment by $25.8 million, partially offset by
proceeds of $373.5 million from the sale of 61 properties to
Crombie REIT in the fourth quarter last fiscal year, the decrease
in cash from investments of $135.5 million and a decrease in
cash from loans and other receivables of $29.1 million.
Consolidated purchases of property and equipment totalled
$126.6 million in the fourth quarter of fiscal 2009 compared to
$149.5 million in the fourth quarter last year. Consolidated
purchases of property and equipment totalled $431.0 million in
fiscal 2009 compared to $550.7 million in the same period last
year. The decline in both the current quarter and the fiscal year
is largely associated with fewer stores opened, acquired or
expanded relative to the prior year.
The table below outlines the number of stores Sobeys invested in during the fourth quarter of fiscal 2009 compared to the same
quarter of fiscal 2008, as well as for the 52 weeks ended May 2, 2009 compared to the 52 weeks ended May 3, 2008.
SobeyS’ Cor PoraTe and f ranCHiSed STore ConSTruCTion aCTiviT y
# of Stores
Opened/Acquired/Relocated
Expanded
Rebannered/Redeveloped
Closed
13 Weeks Ended
May 2, 2009
13 Weeks Ended
May 3, 2008
52 Weeks Ended
May 2, 2009
52 Weeks Ended
May 3, 2008
13
3
2
20
15
10
9
17
47
11
16
52
66
31
60
67
F OOD R ETAILING
CAPITAL EXPE N DITU R ES
$ I N M I LLIONS
R EAL ESTATE
CAPITAL EXPE N DITU R ES
$ I N M I LLIONS
4 8 0
3 6 0
24 0
120
382.7
6 0
4 5
3 0
15
36.9
FISCAL YEAR
05
06
07
08
09
FISCAL YEAR
05
06
07
08
09
46
empire Company limited Management’s Discussion and Analysis
The following table shows Sobeys’ square footage changes for
the 13 and 52 weeks ended May 2, 2009 by type.
SobeyS’ SQuare f ooTage CHangeS
Square Feet (in thousands)
May 2, 2009
vs. Jan. 31, 2009
May 2, 2009
vs. May 3, 2008
Opened
Relocated
Acquired
Expanded
Closed
Net Change
221
16
–
41
(199)
79
773
82
33
103
(733)
258
At May 2, 2009, Sobeys’ square footage totalled 27.5 million
square feet, a 1.1 percent increase over the 27.2 million square
feet in operation at the end of the fourth quarter of last year.
Capital expenditures for the real estate division equalled
$36.9 million in fiscal 2009 ($47.3 million in fiscal 2008) as
a result of ongoing property developments and land additions.
Capital spending by investments and other operations equalled
$11.4 million in fiscal 2009 ($22.2 million in fiscal 2008)
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 2009 and fiscal 2008
was to modernize and develop various movie theatre locations.
Financing Activities
Financing activities during the fourth quarter of fiscal 2009 used
$58.0 million of cash compared to $407.6 million in the same
quarter last year. The reduction of $349.6 million in cash flows
from financing activities when compared to the same quarter
last year is primarily the result of: (i) a decrease in the repay-
ment of long-term debt of $246.4 million; (ii) the issuance of
Non-Voting Class A shares in the fourth quarter of fiscal 2009
for net proceeds of $129.1 million; partially offset by an
increase in bank indebtedness of $7.4 million in the fourth
quarter of fiscal 2009 compared to an increase in bank
indebtedness of $35.0 million in the same quarter last year.
Financing activities during the 52 weeks ended May 2, 2009
used $213.9 million of cash compared to $620.5 million of cash
generated from financing activities in the same period last year.
The variance of $834.4 million in cash flows from financing
activities in the 52 weeks ended May 2, 2009 when compared
to the same period last year is primarily the result of: (i) a
decrease in long-term debt issuance of $1,033.0 million; (ii) a
decrease in bank indebtedness of $46.7 million during the fiscal
year-to-date compared to an increase in bank indebtedness
of $60.9 million in the same period last year; partially offset by
(i) a decrease in repayment of long-term debt of $199.8 million;
and (ii) the issuance of Non-Voting Class A shares in the fourth
quarter of fiscal 2009 for net proceeds of $129.1 million.
As discussed above, on April 24, 2009 Empire closed the
issuance of 2,713,000 Non-Voting Class A shares (including
the 200,000 shares issued under the over-allotment option)
on a bought-deal basis with a syndicate of underwriters at a
price of $49.75 per share. The total net proceeds raised of
$129.1 million (gross proceeds of $135.0 million) were used
to repay a portion of Empire’s non-consolidated bank facility.
Guarantees and Commitments
The following illustrates the Company’s significant contractual obligations, over the next five fiscal years and thereafter.
groSS obligaTionS exCluding leaSe inCome
($ in millions)
Long-term debt
Capital leases
Operating leases
Third Parties
Related Parties
2010
2011
2012
2013
2014
Thereafter
Total
$ 117.8
$ 305.9
$
21.8
$ 216.8
$
25.0
$ 512.0
$ 1,199.3
15.2
13.4
10.6
6.6
3.9
11.0
60.7
270.0
38.4
246.2
37.6
228.7
34.5
215.5
34.0
203.9
35.4
1,354.3
407.0
2,518.6
586.9
Total operating leases
308.4
283.8
263.2
249.5
239.3
1,761.3
3,105.5
Total contractual obligations
$ 441.4
$ 603.1
$ 295.6
$ 472.9
$ 268.2
$ 2,284.3
$ 4,365.5
oPeraTing leaS eS, neT of exPeCTed leaS e inCome reCeived by TH e ComPany
($ in millions)
Third Parties
Related Parties
2010
2011
2012
2013
2014
Thereafter
Total
$ 196.7
38.4
$ 176.3
37.6
$ 162.6
34.5
$ 154.2
34.0
$ 147.7
35.4
$ 965.3
407.0
$ 1,802.8
586.9
$ 235.1
$ 213.9
$ 197.1
$ 188.2
$ 183.1
$ 1,372.3
$ 2,389.7
2009 Annual Report
47
franCHiSe affiliaTeS
Sobeys has guaranteed certain bank loans contracted by
franchise affiliates. As at May 2, 2009, these loans amounted
to $0.5 million (May 3, 2008 – $1.3 million).
During 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 $6.0 million
or 9.9 percent (2008 – $5.0 million or 9.9 percent) of the
authorized and outstanding obligation. As at May 2, 2009, the
amount of the guarantee was $6.0 million (May 3, 2008 –
$5.0 million).
Sobeys 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.
During the third quarter of fiscal 2009, Sobey entered into
an additional credit enhancement in the form of a standby letter
of credit for certain independent franchisees for the purchase
and installation of equipment. Under the terms of the contract,
should a franchisee affiliate be unable to fulfill their lease
obligation or other remedy, Sobeys would be required to fund
the greater of $4.0 million or 10 percent of the authorized
and outstanding obligation annually. Under the terms of the
agreement, Sobeys is required to obtain a letter of credit in
the amount of the outstanding guarantee, to be revisited
each calendar year. This credit enhancement allows Sobeys to
provide favourable financing terms to certain independent
franchisees. The contract terms have been reviewed and Sobeys
has determined that there were no material implications with
Free Cash Flow
respect to the consolidation of VIEs. As of May 2, 2009, the
amount of the guarantee was $4.0 million.
The aggregate, annual, minimum rent payable under the
guaranteed operating equipment leases for fiscal 2010 is
approximately $25.5 million. The guaranteed lease commitments
over the next five fiscal years are:
($ in millions)
2010
2011
2012
2013
2014
Thereafter
Guaranteed
Lease Commitments
$
25.5
14.8
16.7
11.4
4.2
2.0
oTHer
At May 2, 2009, the Company was contingently liable for letters
of credit issued in the aggregate amount of $55.3 million
(May 3, 2008 – $60.3 million).
Upon entering the lease of its new Mississauga, Ontario
distribution centre in March 2000, Sobeys guaranteed to the
landlord the performance by Serca Foodservice Inc. all of
its obligations under the lease. The remaining term of the lease
is 11 years with an aggregate obligation of $34.6 million
(May 3, 2008 – $37.5 million). At the time of the sale of assets
of Serca Foodservice Inc. to SYSCO Corp., the lease of the
Mississauga distribution centre was assigned to and assumed
by a subsidiary of the purchaser and SYSCO Corp. agreed to
indemnify and hold Sobeys harmless from any liability it may
incur pursuant to its guarantee.
Free cash flow (see Non-GAAP measures section at the end of this MD&A) is used to measure the change in the Company’s cash
available for additional investing, dividends and/or debt reduction. The following table reconciles free cash flow to GAAP cash flows
used in operating activities for the 13 and 52 week periods ended May 2, 2009 and May 3, 2008.
($ in millions)
13 Weeks Ended
May 2, 2009
13 Weeks Ended
May 3, 2008
52 Weeks Ended
May 2, 2009
52 Weeks Ended
May 3, 2008
Cash flow from operating activities
Less: Property and equipment purchases
Free cash flow
$
$
200.4
126.6
73.8
$
$
265.2
149.5
115.7
$
$
658.2
431.0
227.2
$
$
629.9
550.7
79.2
Free cash flow generation in the fourth quarter of fiscal 2009
was $73.8 million compared to free cash flow of $115.7 million
in the fourth quarter last year. The $41.9 million decrease in
free cash flow from the fourth quarter last fiscal year was due
to a $64.8 million decrease in cash flow from operations,
partially offset by a $22.9 million decrease in property and
equipment purchases.
For the 52 weeks ended May 2, 2009, free cash flow
equalled $227.2 million, an increase of $148.0 million over
the free cash flow recorded for the same period last year.
The improvement is due to a $28.3 million increase in cash
flow from operating activities and a decrease of $119.7 million
in property and equipment purchases.
48
empire Company limited Management’s Discussion and Analysis
Accounting policy Changes
aCCounTing STandardS adoPTed
during fiSCal 2009
In June 2007, the Canadian Institute of Chartered Accountants
(“CICA”) issued Section 3031 of the CICA Handbook, “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, including allocation of
overheads and other costs incurred in bringing the inventories to
their present location and condition. Costs such as storage costs
are specifically excluded from the cost of inventories and are
expensed in the period incurred. The standard also requires the
use of either first-in, first-out or weighted average cost formula
to measure the cost of inventories of similar nature and use.
Techniques, such as the retail method, used to measure the cost
of inventory may be used if the results approximate cost. This
standard is effective for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2008.
The Company applied the standard to the opening inventory for
the fiscal year beginning May 4, 2008 and adjusted retained
earnings by the difference in the measurement of cost in
opening inventory of a similar nature and use (prior periods
were not restated).
Following adoption of Section 3031, warehouse inventories
are valued at the lower of cost and net realizable value with cost
being determined on a weighted average cost basis. Retail
inventories are valued at the lower of cost and net realizable
value. Cost is determined using a weighted average cost using
either the standard cost method or a retail method. The retail
method uses the anticipated selling price less normal profit
margins, on a weighted average cost basis. Real estate inventory
of residential properties is valued at the lower of cost and net
realizable value.
The cost of inventories is comprised of directly attributable
costs and includes the purchase price plus other costs incurred
in bringing the inventories to their present location and
condition, such as freight. The cost is reduced by the value of
rebates and allowances received from vendors. The Company
estimates net realizable value as the amount that inventories
are expected to be sold, taking into consideration fluctuations
of retail price due to seasonality less estimated costs necessary
to make the sale. Inventories are written down to net realizable
value when the cost of inventories is estimated to not be
recoverable due to obsolescence, damage or declining selling
prices. When circumstances that previously caused inventories
to be written down below cost no longer exist or when there is
clear evidence of an increase in retail selling price, the amount
of the write-down previously recorded is reversed. Costs that
do not contribute to bringing inventories to their present location
and condition, such as storage and administrative overheads,
are specifically excluded from the cost of inventories and are
expensed in the period incurred.
The initial impact of measuring inventories under the new
standard is a decrease to the carrying amount of opening
inventories as at May 4, 2008 of $27.9 million and a decrease in
income taxes payable of $6.4 million. Opening retained earnings
have been adjusted by $21.5 million, equal to the change in
opening inventories, net of tax.
The cost of inventory recognized as an expense during
the fourth quarter and fiscal 2009 was $2,740.7 million and
$11,232.5 million, respectively. The cost of inventories recog-
nized as an expense during the fourth quarter and fiscal 2009
includes $11.4 million and $45.5 million respectively for the
write-down of inventories below cost to net realizable value.
There were no reversals of inventories written down previously.
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
(see Note 15 to the audited annual consolidated fiscal 2009
financial statements). The adoption of Section 1535 did not
have an impact on the Company’s financial results or position.
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”. 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 (see Note 22 to the audited annual
consolidated fiscal 2009 financial statements). 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. In accordance with the transitional provision
of Section 3862, comparative information about the nature and
extent of risks arising from financial instruments is not required
in the year of adoption. 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 and has
no significant impact on the Company’s financial statements.
Financial Instruments –
Recognition and Measurement
In January 2009, the CICA issued Emerging Issue Committee
Abstract 173 (“EIC 173”), “Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities”. EIC 173 requires that
2009 Annual Report
49
a company take into account its own credit risk and the credit
risk of its counterparty in determining the fair value of financial
assets and financial liabilities. This Abstract must be applied
retrospectively without restatement of prior periods to all
financial assets and liabilities measured at fair value in interim
and annual financial statements for periods ending on or after
January 20, 2009. The adoption of EIC 173 did not have a
significant impact on the Company’s financials results, position
or disclosures.
The following accounting standards were implemented
during fiscal 2008:
On May 6, 2007 the Company adopted CICA Sections 3855,
“Financial Instruments – Recognition and Measurement”, 3865,
“Hedges”, 1530, “Comprehensive Income”, 3251, “Equity” and
3861, “Financial Instruments – Disclosure and Presentation”.
These standards were applied without restatement of prior
periods and the transitional adjustments resulting from these
standards were recognized in the opening balances of retained
earnings and accumulated other comprehensive income.
The following table summarizes the transition adjustments
recorded upon implementation of financial instruments:
($ in millions)
Consolidated Balance Sheet
Investments
Other assets
Other liabilities
Long-term debt
Future income taxes
Minority interest
Accumulated other comprehensive income
Transition
Adjustments
$
94.4
(4.5)
2.5
2.7
(18.5)
0.6
(77.2)
Upon adoption of Section 3855, Section 3070 was withdrawn.
As a result, the Company reviewed its accounting policy for
deferred charges. This change in accounting policy was applied
retrospectively resulting in a $4.3 million decrease in retained
earnings at May 3, 2008.
fuTure C HangeS in aCC ounTing PoliCieS
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 well 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.
Business Combinations,
Consolidated Financial Statements
and Non-controlling Interests
In January 2009, the CICA issued three new accounting
standards which are based on the International Accounting
Standards Board’s International Financial Reporting Standard 3
“Business Combinations”. Section 1582, “Business Combinations”,
which replaces Section 1581 with the same title, aims to
improve the relevance, reliability and comparability of the
information provided in financial statements about business
combinations. This Section is to be applied prospectively to
business combinations for which the acquisition date is on or
after January 1, 2011 and assets and liabilities that arose from
business combinations that preceded the adoption of this
standard should not be adjusted upon adoption. Section 1601,
“Consolidated Financial Statements”, and Section 1602,
“Non-controlling Interests”, replace Section 1600, “Consolidated
Financial Statements”, and establish standards for the preparation
of consolidated financial statements and accounting for a
non-controlling interest in a subsidiary in consolidated financial
statements subsequent to a business combination. These
standards apply to interim and annual consolidated financial
statements beginning on or after January 1, 2011. Earlier
adoption of all three standards is permitted as of the beginning
of a fiscal year, however if an entity chooses to early adopt all
three standards must be adopted concurrently. The Company
is currently evaluating the impact of these new standards.
International Financial Reporting Standards
On February 13, 2008, the Accounting Standards Board
of Canada announced that GAAP for publicly accountable
enterprises will be replaced by International Financial Reporting
Standards (“IFRS”). IFRS must be adopted for interim and
annual financial statements related to fiscal years beginning
on or after January 1, 2011, with restatement of comparative
periods. Accordingly, the conversion from GAAP to IFRS will be
applicable to the Company’s reporting for the first quarter of
fiscal 2012 for which the current and comparative information
will be prepared under IFRS.
The Company has launched an internal initiative to govern
the conversion process and is currently evaluating the potential
impact of the conversion to IFRS on its financial statements.
At this time, the impact on the Company’s future financial
position and results of operations is not reasonably determinable
or estimable. The Company expects the transition to IFRS to
impact accounting, financial reporting, internal control over
financial reporting, information systems and business processes.
The Company has developed a formal project governance
structure including a structured steering committee, as well as
providing regular progress reports to senior management,
50
empire Company limited Management’s Discussion and Analysis
including the Audit Committee. The Company has also completed
a diagnostic impact assessment, which involves a high level
review of the major differences between current GAAP
and IFRS, as well as establishing an implementation guideline.
In accordance with this guideline, the Company has established
a staff training program and is in the process of completing
analysis of the key decision areas and making recommendations
on the same.
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, stock based
compensation, valuation of ABCP, customer loyalty programs
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 b enefiTS
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
The Company will continue to assess the impact of the
transition to IFRS and to review all of the proposed and ongoing
projects of the International Accounting Standards Board to
determine their impact on the Company. Additionally, the
Company will continue to invest in training and resources
throughout the transition period to facilitate a timely conversion.
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 2009, the discount rate used for calcula-
tion of pension and other benefit plan expense was 6.25 percent
and 6.00 percent, respectively (fiscal 2008 – 5.25 percent for
both plans). The expected long-term rate of return on plan
assets for pension benefit plans for each of fiscal 2009 was
7.0 percent (fiscal 2008 – 7.0 percent). The expected growth
rate in health care costs was 9.0 percent for fiscal 2009 (fiscal
2008 – 9.0 percent). The cumulative growth rate in health
care costs to 2019 is expected to be 5.0 percent. The expected
future growth rate is evaluated on an annual basis.
2009 Annual Report
51
The table below outlines the sensitivity of the 2009 key economic assumptions used in measuring the accrued benefit plan
obligation 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
Obligation
Benefit
Cost(1)
Benefit
Obligation
Benefit
Cost(1)
7.00%
(2.0)
2.0
6.25%
0.2
(0.5)
$
$
$
$
6.25%
$
$
(25.9)
29.1
6.00%
(15.1)
18.1
9.00%
14.5
(12.2)
$
$
$
$
6.00%
(0.9)
1.0
9.00%
1.8
(1.4)
$
$
$
$
(1) Reflects the impact on the current service cost, the interest cost and the expected return on assets.
(2) 6.00 percent for the Employee Pension Plan and the Post Retirement Benefit Plan.
(3) Gradually decreasing to 5.00 percent in 2019 and remaining at that level thereafter.
goodWill and long-lived aSS eTS
Goodwill is not amortized and is assessed for impairment
at the reporting unit level. This is done annually at a minimum.
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 calcula-
tion 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.
52
empire Company limited Management’s Discussion and Analysis
valuaTion of i nvenTorieS
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 at retail and
adjusted to cost and (ii) estimated inventory reductions due
to spoilage and shrinkage occurring between the last physical
inventory count and the balance sheet date, and (iii) estimated
inventory provisions associated with vendor allowances and
internal charges. Changes or differences in any of these estimates
may result in changes to inventories on the consolidated
balance sheet and a charge or credit to operating income in
the consolidated statement of earnings.
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.
Disclosure Controls and procedures
Management is responsible for establishing and maintaining
disclosure controls and procedures (“DC&P”). This is done to
provide reasonable assurance that material information relating to
Empire is made known to management by others, particularly
during the period in which the annual filings are being prepared,
and that information required to be disclosed by the Company
and its annual filings, interim filings and other reports filed or
submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods
specified in securities legislation. The CEO and CFO have
evaluated the effectiveness of the Company’s DC&P and have
concluded as at May 2, 2009 that Empire’s DC&P were designed
and operating effectively, and that there were no material
weaknesses relating to the design or operation of the DC&P.
Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting (“ICFR”) to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP. The control
framework management used to design and assess the
effectiveness of ICFR is The Internal Control Integrated
Framework published by the Committee of Sponsoring
Organization of the Treadway Commission (“COSO”). The CEO
and CFO have evaluated the effectiveness of Empire’s ICFR
and have concluded as of May 2, 2009 that Empire’s ICFR
was designed and operating effectively, and that there were no
material weaknesses relating to the design or operations of the
ICFR. There have been no changes in the Company’s ICFR
during the period beginning on February 1, 2009 and ended
on May 2, 2009 that have materially affected, or are reasonably
likely to materially affect, Empire’s ICFR.
Due to inherent limitations common to all ICFR and DC&P,
Management acknowledges that its ICFR and DC&P may not
prevent or detect all misstatements. In addition, Management’s
evaluation of ICFR and DC&P can provide only reasonable,
not absolute, assurance, that misstatements will be detected
when resulting from fraud or error.
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
($58.7 million in fiscal 2009) and the charges incurred for
administrative and management services are on a cost recovery
basis ($3.0 million in fiscal 2009). The Company has non-
interest bearing notes payable to Crombie REIT in the amount
of $10.5 million.
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 of Crombie REIT totalling
$55.0 million, which was fair market value. In accordance with
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. See Note 3 to
the Company’s annual audited financial statements for fiscal
2009 as detailed on page 74 of the Company’s 2009 Annual
Report for more information.
2009 Annual Report
53
On December 30, 2008, the Company entered into an
agreement to provide Crombie REIT with additional financing
through a $20.0 million demand loan facility with substantially
the same terms and conditions that govern Crombie REIT’s
floating rate revolving credit facility. On December 30, 2008, the
Company had advanced $10.0 million to Crombie REIT under
this facility. On January 29, 2009, the $10.0 million advance
was repaid in full.
On February 12, 2009, coincident with Crombie REIT
completing mortgage financing on eight properties with a
Schedule I Canadian bank, Empire provided Crombie REIT with
additional financial support through subordinate mortgages on
the eight properties totalling $6.2 million. The terms and
conditions of the subordinate mortgages are substantially the
same as those governing the first mortgages from the Schedule I
bank with one exception: the interest rate on the second
mortgages from the Company will be 50 basis points higher
than the interest rate charged on the first mortgages from the
Schedule I bank. Concurrent with placing the $6.2 million in
mortgage financing, the authorized amount of the demand loan
facility between Empire and Crombie REIT was reduced from
$20.0 million to $13.8 million.
subsequent events
On June 12, 2009, Sobeys repaid, although did not cancel, the
$75.0 million credit facility which matures on November 8, 2010.
On June 25, 2009, Crombie REIT closed a bought-deal
public offering of units at a price of $7.80 per unit. In satisfaction
of its pre-emptive right with respect to the public offering, the
Company subscribed for $30.0 million of Class B Units (which
are convertible on a one-for-one basis into units of Crombie
REIT). Consequently the Company’s interest in Crombie REIT
was reduced from 47.9 percent to 47.4 percent.
other Matters
aSSeT baCked CommerCial PaPer
At the end of fiscal 2009, the Company included in other
assets $30.0 million (2008 – $30.0 million) of third-party ABCP
against which the Company has taken a pre-tax impairment
provision in the amount of $12.2 million (2008 – $7.5 million).
On January 21, 2009, the Company derecognized the existing
available for sale assets and received restructured ABCP MAV II
notes: A1 – $7.8 million, A2 – $17.5 million, B – $3.2 million,
C – $0.9 million and $0.6 million of tracking notes (the
“restructured notes”) as designated in the Montreal Accord
as well as accrued interest. The A1 and A2 notes received
an A rating from DBRS. The remaining notes have not yet
been rated. The restructured notes are floating rate notes with
expected payouts in January 2017. Accrued interest owed
from August 2007 to the restructuring date is expected in
two payments; the first was received on January 23, 2009 for
$1.0 million and a second interest payment for the remainder
is expected to be received at a future date. The Company has
classified these notes as held for trading and as a result will be
calculating the fair value of the notes at each reporting period.
The Company updated its analysis of the fair value of the
restructured notes, including factors such as estimated cash
flow scenarios and risk adjusted discount rates, and an
additional pre-tax provision, of $3.7 million, net of interest
On July 23, 2009, Sobeys finalized an agreement to sell and
leaseback a retail support centre located in Milton, Ontario to a
third party. Proceeds on the sale will be $51.0 million resulting in
a pre-tax gain of $5.6 million. A long-term lease agreement has
been agreed to for the use of the property with the gain being
amortized over the term of the lease.
received, was recorded. The total charge for impairment is
approximately 41 percent (2008 – 25 percent) of the original
value of the ABCP and the Company does not believe the fair
value of these restructured notes is materially different.
Discount rates vary depending upon the credit rating of the
restructured 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. The Company has performed a sensitiv-
ity analysis on estimated discount rates used in the fair value
analysis and determined that a change of one percent would
result in a pre-tax change in the fair value of these investments
of approximately $1.3 million (2008 – $2.0 million).
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 future 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.
54
empire Company limited Management’s Discussion and Analysis
Designation for eligible Dividends
The new dividend regime for the favourable tax treatment of
“eligible dividends” came into effect on February 21, 2007
as a result of Bill C-28. 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 at the time of payment.
Contingencies
Empire has, in accordance with the administrative position
of the CRA, 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 CRA for fiscal years 1999 and 2000 related to Lumsden
Brothers Limited (a wholesale subsidiary of the Company) and
the Goods and Service Tax (“GST”). The reassessment related to
GST on sales of tobacco products to status Indians. CRA
asserts that Sobeys was obliged to collect GST on the sales of
these tobacco products to status Indians. The total tax, interest
and penalties in the reassessment amounts to $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 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 an other long-term receivable from
CRA pending resolution of the matter.
The Company and a subsidiary had been reassessed in
respect to the tax treatment of gains realized on the sale of
shares in Hannaford Bros. Co. (“Hannaford”) in fiscal 2001. The
Company had appealed the reassessments in respect of the
Hannaford shares. Subsequent to May 2, 2009, the Company
and CRA concluded negotiations and jointly requested a court
order which, if approved, would result in a reduction of income
tax expense of approximately $17.0 million in the first quarter of
fiscal 2010.
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 of Directors 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.
ComPeTiTion
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
2009 Annual Report
55
benefits of national scale and regional management deployment,
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 2009,
our real estate operations encountered challenging economic
conditions. However, real estate operations maintained relatively
stable occupancy levels and healthy rental renewal rates. During
fiscal 2009, capitalization rates were negatively impacted by
general economic slowdown and the tightening in the credit
markets 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, it faces significant competition when looking
to acquire new land for future development.
finanCial
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.
liQuidiTy r iSk
Liquidity risk is the risk that the Company may not have cash
available to satisfy financial obligations as they come due.
The Company actively maintains committed credit facilities
to ensure that it has sufficient available funds to meet current
and foreseeable future financial requirements at a reasonable
cost. The Company monitors capital markets and the related
economic conditions. Market conditions allowing, the Company
will access debt capital markets for various long-term debt
maturities and as other liabilities come due or as assessed
to be appropriate in order to minimize risk and optimize pricing.
inTere ST r aTe r iSk
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 20 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 reSour CeS
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
23 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 2010. However, Sobeys has stated that it will accept
the short-term costs of a labour disruption to support a
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.
56
empire Company limited Management’s Discussion and 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
deligated to the Human Resources Committee of Empire’s
Board of Directors.
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.
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 and SeCuriTy
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.
TeCH nology
The Company and each of its operating companies are committed
to improving their respective operating systems, tools and
procedures to become more efficient and effective. The
implementation of major information technology projects carries
with it various risks, including the risk to 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 has 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 aCC ounTing
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
2009 Annual Report
57
detect and prevent errors and overall, application of more
scrutiny to ensure compliance. 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.
oPeraTionS
Empire’s success is closely tied to the performance of
Sobeys’ network of 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 strategies and programs.
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.
uTiliT y 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 operate outside of Canada, however
Sobeys does maintain a small produce brokerage office in the
United States. As Empire does not consider this operation to be
material, the Company does not have any material risks
associated with foreign operations.
foreign Curren Cy
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
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 Com-
pany’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.
58
empire Company limited Management’s Discussion and Analysis
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 allo CaTion
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 an appropriate return on capital.
The Company has a number of strong mitigation strategies
in place regarding the allocation of capital, including review by
the Board of Directors.
employee Future Benefit obligations
The Company has established prudent hurdle rates for
capital investments that are evaluated through a strong due
diligence process.
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.
eConomiC environmenT
Management continues to closely monitor economic conditions,
including interest rates, inflation, employment rates and capital
markets. Management believes that although a weakening
economy has an impact on all businesses and industries, the
Company has an operational and capital structure that is
sufficient to meet its ongoing business needs.
Due to recent losses caused by current capital market activities,
the Company was required to contribute $5.8 million (2008 –
nil) to its registered defined benefit plans in the fourth quarter of
fiscal 2009. The Company expects to contribute approximately
$4.1 million in fiscal 2010 to these plans. The Company
continues to assess the impact of the capital markets
on its funding requirement.
non-GAAp Financial Measures
There are measures included in this MD&A that do not have a
standardized meaning under GAAP and therefore may not be
comparable to similarly titled measures presented by other
publicly traded companies. The Company includes these
measures because it believes certain investors use these
measures as a means of assessing financial performance.
Empire’s definition of the non-GAAP terms are as follows:
Operating income or earnings before interest and taxes
(“EBIT”) is calculated as operating earnings before minority
interest, interest expense and income taxes.
Earnings before interest, taxes, depreciation and amortization
(“EBITDA”) is calculated as EBIT plus depreciation
and amortization.
Operating earnings is calculated as net earnings before
capital gains (losses) and other items, net of tax.
Return on equity is calculated as net earnings divided by
average equity for the reporting period.
Funds from operations is calculated as operating earnings plus
depreciation and amortization.
Funded debt is all interest bearing debt, which includes bank
loans, bankers’ acceptances, long-term debt and debt related
to assets held for sale.
Total capital is calculated as funded debt plus shareholders’ equity.
Same-store sales are sales from stores in the same locations
in both reporting periods.
Free cash flow is calculated as cash flows from operating
activities, less property and equipment purchases.
2009 Annual Report
59
The following table reconciles Empire’s funded debt and total capital to GAAP measures reported on the balance sheets as at
May 2, 2009, May 3, 2008 and May 5, 2007:
($ in millions)
Bank indebtedness
Long-term debt due within one year
Liabilities relating to assets held for sale
Long-term debt
Funded debt
Less: cash and cash equivalents
Net funded debt
Total shareholders’ equity
Total capital under management
$
May 2,
2009
45.9
133.0
–
1,124.0
1,302.9
(231.6)
1,071.3
2,683.5
$
May 3,
2008
92.6
60.4
6.4
1,414.1
1,573.5
(191.4)
1,382.1
2,382.3
$
May 5,
2007
30.1
82.5
6.8
792.6
912.0
(294.9)
617.1
2,131.1
$
3,754.8
$
3,764.4
$
2,748.2
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: July 23, 2009
Stellarton, Nova Scotia, Canada
60
empire Company limited Management’s Discussion and 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, 2009
Paul V. Beesley
Executive Vice President and
Chief Financial Officer
June 26, 2009
auditors’ report
To the shareholders of Empire Company Limited
We have audited the consolidated balance sheets of Empire Company Limited as at May 2, 2009 and May 3, 2008, 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 2, 2009 and May 3, 2008, 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, 2009 (except for Note 30 (b) which is as of June 25, 2009 and Note 30 (c) which is as of July 23, 2009)
2009 Annual Report
61
consolidated financial statements
Consolidated Balance sheets
(in millions)
aSSeTS
Current
Cash and cash equivalents
Receivables
Loans and other receivables (Note 6)
Income taxes receivable
Inventories
Prepaid expenses
Investments (realizable value $1.1; 2008 – $1.6)
Investments, at equity (realizable value $254.4; 2008 – $429.6) (Note 5)
Loans and other receivables (Note 6)
Other assets (Note 7)
Property and equipment (Note 8)
Assets held for sale (Note 9)
Intangibles (Note 10)
Goodwill
liabiliTie S
Current
Bank indebtedness (Note 11)
Accounts payable and accrued liabilities
Income taxes payable
Future income taxes (Note 18)
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 25)
Future income taxes (Note 18)
Other long-term liabilities (Note 13)
Minority interest
SHare HolderS’ eQ uiTy
Capital stock (Note 14)
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Guarantees, commitments and contingent liabilities (Note 23)
Subsequent events (Note 30)
Approved on behalf of the Board
Director
Director
See accompanying notes to the consolidated financial statements
62
empire Company limited Consolidated Financial statements
May 2, 2009
May 3, 2008
$
231.6
318.7
55.8
4.9
842.8
70.8
1,524.6
1.1
18.8
75.3
151.4
2,601.5
8.5
345.4
1,171.4
$
191.4
291.1
69.9
–
820.2
62.0
1,434.6
1.6
41.4
56.3
175.5
2,457.3
60.3
346.8
1,159.1
$
5,898.0
$
5,732.9
$
45.9
1,487.1
–
42.7
133.0
–
1,708.7
1,124.0
118.4
89.5
135.0
38.9
3,214.5
324.5
1.7
2,405.8
(48.5)
2,683.5
$
92.6
1,348.4
15.5
32.9
60.4
6.4
1,556.2
1,414.1
110.7
125.5
106.5
37.6
3,350.6
195.7
0.5
2,207.6
(21.5)
2,382.3
$
5,898.0
$
5,732.9
Consolidated statements of Retained earnings
52 Weeks Ended
(in millions)
Balance, beginning of year as previously reported
Adjustment due to implementation of new accounting standard (Note 1)
Adjustment due to change in accounting policy (Note 1)
Balance, beginning of year as restated
Net earnings
Dividends
Preferred shares
Common shares
Balance, end of year
See accompanying notes to the consolidated financial statements
May 2, 2009
May 3, 2008
$
2,207.6
(21.5)
–
2,186.1
265.9
(0.1)
(46.1)
$
1,939.6
–
(4.3)
1,935.3
315.8
(0.3)
(43.2)
$
2,405.8
$
2,207.6
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 for the year
Balance, end of year
See accompanying notes to the consolidated financial statements
May 2, 2009
May 3, 2008
$
$
(21.5)
–
(21.5)
–
(27.0)
(48.5)
$
$
(0.6)
77.2
76.6
(0.6)
(97.5)
(21.5)
2009 Annual Report
63
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 16)
Operating income
Interest expense
Long-term debt
Short-term debt
Capital gains and other items (Note 17)
Earnings before income taxes and minority interest
Income taxes (Note 18)
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 2, 2009
May 3, 2008
$ 15,015.1
$
14,065.0
14,261.1
324.8
13,322.3
304.6
429.2
38.9
468.1
75.9
4.7
80.6
387.5
2.8
390.3
129.6
(13.5)
116.1
274.2
8.3
265.9
4.05
4.04
65.7
65.8
$
$
$
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
$
$
$
64
empire Company limited Consolidated Financial statements
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,
net of income taxes of $nil (2008 – $(17.7))
Unrealized losses on available-for-sale financial assets,
net of income taxes of $(0.1) (2008 – $nil)
Unrealized losses on derivatives designated as cash flow hedges,
net of income taxes of $(7.3) (2008 – $(6.3))
Reclassification of loss on derivative instruments designated as cash flow hedges
to earnings, net of income taxes of $1.5 (2008 – $(0.3))
Share of comprehensive loss of entities accounted using the equity method,
net of income taxes of $(7.3) (2008 – $(2.4))
Foreign currency translation adjustment
May 2, 2009
May 3, 2008
$
265.9
$
315.8
–
(78.7)
(0.4)
(16.2)
3.5
(14.1)
0.2
(27.0)
–
(14.0)
(0.6)
(4.6)
0.4
(97.5)
Comprehensive income
$
238.9
$
218.3
See accompanying notes to the consolidated financial statements
2009 Annual Report
65
Consolidated statements of Cash Flows
52 Weeks Ended
(in millions)
oPeraTing aCTiviTie S
Net earnings
Items not affecting cash (Note 19)
Preferred dividends
Net change in non-cash working capital
Cash flows from operating activities
inveSTing aCTiviTie S
Net (increase) 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
Loans and other receivables
Increase in other assets
Business acquisitions, net of cash acquired of $nil (2008 – $10.2) (Note 26)
Cash flows used in investing activities
finanCing aCTiviTie S
(Decrease) increase in bank indebtedness
Issue of long-term debt
Repayment of long-term debt
Minority interest
Repurchase of preferred shares
Issue of Non-Voting Class A shares (Note 14)
Common dividends
Cash flows (used in) from financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements
May 2, 2009
May 3, 2008
$
$
265.9
346.1
(0.1)
611.9
46.3
658.2
(1.9)
–
–
(431.0)
78.0
(4.9)
(2.9)
(41.4)
(404.1)
(46.7)
66.8
(307.7)
(7.0)
(2.3)
129.1
(46.1)
(213.9)
40.2
191.4
231.6
$
$
315.8
360.1
(0.3)
675.6
(45.7)
629.9
133.6
(1,065.7)
373.5
(550.7)
52.2
24.2
(57.8)
(263.2)
(1,353.9)
60.9
1,099.8
(507.5)
11.1
(1.0)
0.4
(43.2)
620.5
(103.5)
294.9
191.4
66
empire Company limited Consolidated Financial statements
notes to the consolidated financial statements
MAy 2, 2009 (In M I llIons exCepT pe R shAR e AMoUnTs, K ey RATI os An D pe RCenTAG e AM oUnTs)
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 percent 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, the fiscal year is usually 52 weeks but results in a
duration of 53 weeks every five to six years.
CHangeS in aCCounTing P oliCieS
ADopTe D DURI nG FI sCAl 2009
Inventories
In June 2007, the Canadian Institute of Chartered Accountants
(“CICA”) issued Section 3031 of the CICA Handbook, “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, including allocation of
overheads and other costs incurred in bringing the inventories
to their present location and condition. Costs such as storage
costs are specifically excluded from the cost of inventories and
are expensed in the period incurred. The standard also requires
the use of either first-in, first-out or weighted average cost
formula to measure the cost of inventories of similar nature and
use. Techniques, such as the retail method, used to measure
the cost of inventory may be used if the results approximate
cost. This standard was effective for interim and annual financial
statements relating to fiscal years beginning on or after
January 1, 2008. The Company applied the standard to the
opening inventory for the fiscal year beginning May 4, 2008
and adjusted retained earnings by the difference in the
measurement of cost in opening inventory of a similar
nature and use (prior periods were not restated).
Following adoption of Section 3031, warehouse inventories
are valued at the lower of cost and net realizable value with cost
being determined on a weighted average cost basis. Retail
inventories are valued at the lower of cost and net realizable
value. Cost is determined using a weighted average cost using
either the standard cost method or a retail method. The retail
method uses the anticipated selling price less normal profit
margins, on a weighted average cost basis. Real estate inventory
of residential properties is valued at the lower of cost and net
realizable value.
The cost of inventories is comprised of directly attributable
costs and includes the purchase price plus other costs incurred
in bringing the inventories to their present location and
condition, such as freight. The cost is reduced by the value of
rebates and allowances received from vendors. The Company
estimates net realizable value as the amount that inventories
are expected to be sold taking into consideration fluctuations
of retail price due to seasonality less estimated costs necessary
to make the sale. Inventories are written down to net realizable
value when the cost of inventories is estimated to not be
recoverable due to obsolescence, damage or declining selling
prices. When circumstances that previously caused inventories
to be written down below cost no longer exist or when there is
clear evidence of an increase in retail selling price, the amount
of the write-down previously recorded is reversed. Costs that
do not contribute to bringing inventories to their present location
and condition, such as storage and administrative overheads,
are specifically excluded from the cost of inventories and are
expensed in the period incurred.
The initial impact of measuring inventories under the
new standard is a decrease to the carrying amount of opening
inventories as at May 4, 2008 of $27.9 and a decrease in
income taxes payable of $6.4. Opening retained earnings
has been adjusted by $21.5, equal to the change in opening
inventories net of tax.
The cost of inventory recognized as an expense during fiscal
2009 was $11,232.5. The cost of inventories recognized as an
expense during fiscal 2009 includes $45.5 for the write-down
of inventories below cost to net realizable value. There were no
reversals of inventories written down previously.
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
(see Note 15). The adoption of Section 1535 did not have an
impact on the Company’s financial results or position.
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”.
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 (see Note 22). Section 3862 requires
increased disclosures regarding the risks associated with
financial instruments such as credit risk, liquidity risk and market
risk and the techniques used to identify, monitor and manage
2009 Annual Report
67
these risks. In accordance with the transitional provision of
Section 3862, comparative information about the nature and
extent of risks arising from financial instruments is not required
in the year of adoption. 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 and has
no significant impact on the Company’s financial statements.
Financial instruments – recognition and measurement
In January 2009, the CICA issued Emerging Issue Committee
Abstract 173 (“EIC 173”) “Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities”. EIC 173 requires that
a company take into account its own credit risk and the credit
risk of its counterparty in determining the fair value of financial
assets and financial liabilities. This Abstract must be applied
retrospectively without restatement of prior periods to all
financial assets and liabilities measured at fair value in interim
and annual financial statements for periods ending on or after
January 20, 2009. The adoption of EIC 173 did not have
a material impact on the Company’s financial results, financial
position or disclosures.
ADopTe D DURI nG FI sCAl 2008
On May 6, 2007, the Company adopted CICA Sections 3855,
“Financial Instruments – Recognition and Measurement”, 3865,
“Hedges”, 1530, “Comprehensive Income”, 3251, “Equity” and
3861, “Financial Instruments – Disclosure and Presentation”.
These standards were applied without restatement of prior
periods and the transition adjustments resulting from these
standards were recognized in the opening balances of retained
earnings and accumulated other comprehensive income.
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)
Upon adoption of Section 3855, Section 3070, “Deferred
Charges”, was withdrawn. As a result, the Company reviewed
its accounting policy for deferred charges. This change in
accounting policy was applied retrospectively, resulting in a
$4.3 decrease in retained earnings at May 3, 2008.
FUTURe ChAn Ges I n ACCoUnTI nG polICIes
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.
Business combinations, consolidated
financial statements and non-controlling interests
In January 2009, the CICA issued three new accounting
standards which are based on the International Accounting
Standards Board’s International Financial Reporting Standard 3,
“Business Combinations”. Section 1582, “Business Combinations”,
which replaces Section 1581 with the same title, aims to
improve the relevance, reliability and comparability of the
information provided in financial statements about business
combinations. This Section is to be applied prospectively to
business combinations for which the acquisition date is on or
after January 1, 2011 and assets and liabilities that arose from
business combinations that preceded the adoption of this
standard should not be adjusted upon adoption. Section 1601,
“Consolidated Financial Statements”, and Section 1602,
“Non-controlling Interests”, replace Section 1600, “Consolidated
Financial Statements”, and establish standards for the prepara-
tion of consolidated financial statements and for accounting
for a non-controlling interest in a subsidiary in consolidated
financial statements subsequent to a business combination.
These standards apply to interim and annual consolidated
financial statements beginning on or after January 1, 2011.
Earlier adoption of all three standards is permitted as of the
beginning of a fiscal year, however if an entity chooses to
early adopt all three standards must be adopted concurrently.
The Company is currently evaluating the impact of these
new standards.
CAsh An D CAsh e QUIvAlenTs
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
In fiscal 2009, as a result of the implementation of CICA
Section 3031, “Inventories”, which replaced Section 3030 of the
same name, warehouse inventories are valued at the lower of
cost and net realizable value with cost being determined on a
weighted average cost basis. Retail inventories are valued at the
lower of cost and net realizable value. Cost is determined using
a weighted average cost using either the standard cost method
68
empire Company limited notes to the Consolidated Financial statements
or a retail method. The retail method uses the anticipated selling
price less normal profit margins, on a weighted average cost
basis. Real estate inventory of residential properties is valued
at the lower of cost and net realizable value.
The cost of inventories is comprised of directly attributable
costs and includes the purchase price plus other costs incurred
in bringing the inventories to their present location and
condition, such as freight. The cost is reduced by the value of
rebates and allowances received from vendors. The Company
estimates net realizable value as the amount that inventories
are expected to be sold taking into consideration fluctuations
of retail price due to seasonality less estimated costs necessary
to make the sale. Inventories are written down to net realizable
value when the cost of inventories is estimated to not be
recoverable due to obsolescence, damage or permanent
declines in selling prices. When circumstances that previously
caused inventories to be written down below cost no longer
exist or when there is clear evidence of an increase in retail
selling price, the amount of the write-down previously recorded
is reversed. Costs that do not contribute to bringing inventories
to their present location and condition, such as storage and
administrative overheads, are specifically excluded from the
cost of inventories and are expensed in the period incurred.
In fiscal 2008, warehouse inventories were valued at the
lower of cost and net realizable value with cost being deter-
mined on a first-in, first-out or a weighted average cost basis.
Retail inventories were valued at the lower of cost and net
realizable value. Cost was determined using weighted average
cost or the retail method. In fiscal 2009 and 2008, real estate
inventory consisting of residential properties is valued at the
lower of cost and net realizable value.
lonG-lIve D AsseT s
Long-lived assets are reviewed for impairment when events or
changes in circumstances indicate that the book value of the
assets may not be recoverable, as measured by comparing their
net book value to the estimated undiscounted future cash flows
generated by their use. Impaired assets are recorded at the
lower of carrying and fair value, determined principally using
discounted future cash flows expected from their use and
eventual disposition, with the impairment loss charged to cost
of sales, selling and administrative expenses.
pRope RTy AnD eQUI pM enT
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.
CApITAlIzATIon oF C osTs
(a) Construction projects
Certain subsidiary companies 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 $3.1 (2008 – $1.5).
(b) Development properties and
land held for future development
Interest, real estate taxes and other expenses are expensed,
with the exception of property taxes which are capitalized during
the construction period. Capitalization of all costs ceases when
the development property is substantially complete and ready
for productive use, at which time the properties are classified
as commercial properties. No amounts were capitalized in fiscal
2009 ($0.8 in fiscal 2008).
DeF eRReD ChARGes
Deferred store marketing costs, primarily comprised of store
renovation and expansion costs, are included with equipment,
fixtures and vehicles as part of the Company’s property and
equipment balance sheet group.
sToR e openInG expenses
Opening expenses of new stores and store conversions
are written off on a straight-line basis during the first year
of operation.
2009 Annual Report
69
leAses
GooDwIll
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.
AsseTs helD F oR 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 and are no longer productive
assets with no interest to develop them for future use. 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”.
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
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 its 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.
FInAn CIAl I nsTRUMenTs
The Company is required to recognize and measure all
of its financial assets and liabilities, including derivatives and
embedded derivatives in certain contracts, at fair value except
for loans and receivables, held to maturity financial assets
and other financial liabilities which are measured at cost or
amortized cost. Derivatives and 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.
The Company classifies 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 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. Any
financial asset or liability can be classified as held for trading
as long as its fair value is reliably determinable.
70
empire Company limited notes to the Consolidated Financial statements
The Company’s financial assets and liabilities are generally classified and measured as follows:
Asset/Liability
Cash and cash equivalents
Receivables
Loans and other receivables
Investments
Derivative other assets and liabilities
Non-derivative other assets and liabilities
Bank indebtedness
Accounts payable and accrued liabilities
Long-term debt
Classification
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
Amortized cost
Amortized cost
Fair value
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
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.
Guarantees
Obligations undertaken through issuance of a guarantee that
meets the definition of a guarantee pursuant to Accounting
Guideline 14, “Disclosure Guarantees”, are recognized at fair
value at inception with no subsequent re-measurement at fair
value required unless the financial guarantee qualifies as
a derivative.
Hedges
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.
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 market value
determination.
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.
CUsToMeR loyAlTy pRoGRAMs
A Club Sobeys loyalty card program (the “Program”) was
launched during fiscal 2009. The Program allows members to
earn points on their purchases in certain Sobeys stores. As well,
a Club Sobeys credit card entitles the customer to earn points
for their purchases on the credit card. Members can redeem
these points, in accordance with the Program rewards schedule,
for discounts on future grocery purchases, purchase products
or services or elect to convert the points into Aeroplan miles
which is a loyalty program run by a third party. When points are
earned by Program members, the Company records an expense
in its consolidated statement of earnings and establishes a
liability for future redemptions by multiplying the number of points
issued by the estimated cost per point. The Program liability is
included in accrued liabilities on the Company’s consolidated
balance sheet. The actual cost of Program redemptions is
charged against the liability account.
2009 Annual Report
71
The estimated cost per point is determined based on many
factors, primarily related to the expected future redemption
patterns and associated costs. The Company monitors, on an
ongoing basis, trends in redemption rates (points redeemed as
a percentage of points issued) and net cost per point redeemed
and adjusts the estimated cost per point based upon expected
future activity. Any difference in the cost per point is recognized
in cost of sales, selling and administrative expenses in the
Company’s consolidated statement of earnings. To the extent
that estimates differ from actual experience, the Program
expense could be higher or lower. The Company continues to
evaluate and revise certain assumptions used to calculate the
Program liability, based on redemption experience and expected
future activity.
An AIR MILES® reward program is also used by the Company.
AIR MILES® are earned by certain Sobeys customers based on
purchases in stores. The cost of this program is expensed as
incurred as cost of sales, selling and administrative expenses in
the consolidated statement of earnings.
FUTUR e InCoM e TAxes
The Company uses the asset and liability method of accounting
for income taxes, under which future tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases.
Future tax assets and liabilities are measured using enacted
or substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on future tax
assets and liabilities of a change in tax rates is recognized
in income in the year that includes the date of enactment
or substantive enactment.
DeF eRReD 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.
FoR eIGn 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.
RevenUe Re CoGnITI on
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 B eneFIT pl Ans An D oThe R B eneFIT pl Ans
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 changes in plan amendments is amortized
on a straight-line basis over the expected average remaining
service life (“EARSL”) of active members. For pension benefit
plans, the actuarial gains and losses and the impact of changes
in the actuarial basis in excess of 10 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. For the Company’s Supplemental Executive
Retirement Plan (“SERP”), the impact of changes in the plan
provisions are amortized over five years.
ven DoR AllowAnCes
The Company receives allowances from certain vendors whose
products are purchased for resale. Included in these vendor
programs are allowances for volume purchases, exclusivity
allowances, listing fees and other allowances. 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”.
72
empire Company limited notes to the Consolidated Financial statements
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 2, 2009, the Company has recognized
$5.7 (2008 – $5.1) 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 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, stock-based compensation, valuation
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 share-
holders’ 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 to measure and allocate the
of asset-backed commercial paper, loyalty programs and income
taxes. Changes to these estimates could materially impact the
financial statements. These estimates are based on manage-
ment’s best knowledge of current events and actions that the
Company may undertake in the future. Actual results could differ
from these estimates.
eARnInGs peR shAR e
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.
excess consideration paid over net assets acquired. The final
purchase price allocation, incorporating management’s
assessment of fair value, was 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/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, received
primarily from sale of certain portfolio investments, and by
advances of $787.7 under new credit facilities (see Note 12).
2009 Annual Report
73
noTe 3 sale of property to Crombie R eIT
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 maintained the Company’s interest in Crombie REIT
at 47.8 percent. 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 were 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). 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.
74
empire Company limited notes to the Consolidated Financial statements
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 $(0.2) (2008 – $14.7)
Net earnings
Preferred share dividends
Earnings applicable to common shares
Earnings per share is comprised of the following:
Operating earnings
Net capital gains and other items
Basic earnings per share
Operating earnings
Net capital gains and other items
Diluted earnings per share
noTe 5 Investments, at equity
Wajax Income Fund (27.6% interest)
Crombie REIT (47.9% 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
2009
262.9
3.0
265.9
(0.1)
265.8
4.00
0.05
4.05
3.99
0.05
4.04
$
$
$
$
$
$
2008
242.8
73.0
315.8
(0.3)
315.5
3.69
1.11
4.80
3.69
1.11
4.80
$
$
$
$
$
$
May 2, 2009
May 3, 2008
$
$
31.0
(19.7)
7.5
$
18.8
$
31.6
9.5
0.3
41.4
May 2, 2009
May 3, 2008
$
$
31.6
18.5
(0.5)
(18.6)
$
31.0
$
32.2
19.7
(0.2)
(20.1)
31.6
2009 Annual Report
75
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
noTe 6 loans and other Receivables
Loans receivable
Mortgages receivable
Other
Less amount due within one year
May 2, 2009
May 3, 2008
$
$
9.5
19.8
(20.8)
(21.8)
–
(6.4)
(19.7)
$
109.3
13.6
(6.8)
(17.0)
55.0
(144.6)
$
9.5
May 2, 2009
May 3, 2008
$
$
65.5
21.2
44.4
131.1
55.8
$
75.3
$
58.1
26.4
41.7
126.2
69.9
56.3
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 purchase agreements
Accrued benefit asset (Note 25)
Asset-backed commercial paper
Restricted cash
Derivative assets
Other
May 2, 2009
May 3, 2008
$
$
37.2
63.1
17.8
3.6
1.7
28.0
35.9
58.2
22.5
3.9
2.3
52.7
$
151.4
$
175.5
aSSeT-baCked CommerCial PaPer
Included in other assets is $30.0 (2008 – $30.0) of third-party
asset-backed commercial paper (“ABCP”) against which the
Company has taken a pre-tax impairment provision in the
amount of $12.2 (2008 – $7.5). On January 21, 2009, the
Company derecognized the existing available-for-sale assets
and received restructured ABCP MAV II notes: A1 – $7.8,
A2 – $17.5, B – $3.2, C – $0.9 and $0.6 of tracking notes (the
“restructured notes”) as designated in the Montreal Accord
as well as accrued interest. The A1 and A2 notes received an
A rating from the Dominion Bond Rating Service. The remaining
notes have not yet been rated. The restructured notes are
floating rate notes with expected payouts in January 2017.
Accrued interest owed from August 2007 to the restructuring
76
empire Company limited notes to the Consolidated Financial statements
date is expected in two payments; the first was received on
January 23, 2009 for $1.0 and a second interest payment for
the remainder is expected to be received at a future date. The
Company has classed these notes as held for trading and as a
result will be fair valued at each reporting period. The Company
updated its analysis of the fair value of the restructured notes,
including factors such as estimated cash flow scenarios and
risk-adjusted discount rates, and an additional pre-tax provision,
net of interest received, of $3.7 was recorded in fiscal 2009.
The total charge for impairment is approximately 41 percent
(2008 – 25 percent) of the original value of the ABCP.
Discount rates vary depending upon the credit rating of the
restructured 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. The Company has performed a sensitivity
analysis on estimated discount rates used in the fair value analysis
and determined that a change of one percent would result in a
pre-tax change in the fair value of these investments of
approximately $1.3 (2008 – $2.0).
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 future 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.
noTe 8 property and equipment
Food 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
Cost
Accumulated
Depreciation
May 2, 2009
Net
Book Value
$
270.7
57.2
909.8
2,286.4
488.2
227.1
113.8
4,353.2
6.5
57.5
72.9
80.9
59.1
54.1
83.9
$
–
–
238.0
1,471.2
288.2
–
52.1
2,049.5
–
–
25.1
42.5
19.7
–
29.8
$
270.7
57.2
671.8
815.2
200.0
227.1
61.7
2,303.7
6.5
57.5
47.8
38.4
39.4
54.1
54.1
414.9
117.1
297.8
$
4,768.1
$
2,166.6
$
2,601.5
2009 Annual Report
77
Food 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
Accumulated
Depreciation
May 3, 2008
Net
Book Value
$
$
–
–
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
$
Cost
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
359.5
105.3
254.2
$
4,515.1
$
2,057.8
$
2,457.3
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 $8.5 (2008
– $60.3). Included in liabilities related to these assets held for
sale is $nil (2008 – $6.4). 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 Intangibles
Brand names
Franchise rights/agreements
Loyalty programs
Patient files
Private labels
Other
$
Cost
201.0
52.8
11.4
26.6
59.5
26.2
$
377.5
$
78
empire Company limited notes to the Consolidated Financial statements
Accumulated
Amortization
May 2, 2009
Net Book Value
$
5.3
13.4
–
6.6
–
6.8
32.1
$
$
195.7
39.4
11.4
20.0
59.5
19.4
345.4
Brand names
Franchise rights/agreements
Loyalty programs
Patient files
Private labels
Other
noTe 11 Bank Indebtedness
Cost
Accumulated
Amortization
May 3, 2008
Net Book Value
$
201.0
$
46.7
11.4
23.4
59.5
26.1
1.9
10.5
–
4.6
–
4.3
$
199.1
36.2
11.4
18.8
59.5
21.8
$
368.1
$
21.3
$
346.8
As security for certain bank loans, the Company has provided
an assignment of certain marketable securities and, in certain
subsidiaries and joint ventures, 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 was subsequently extended to
August 15, 2008 and October 14, 2008. On October 22, 2008,
Sobeys established a new unsecured revolving term credit
facility of $30.0 replacing the non-revolving facility that matured
on October 14, 2008. This facility matured January 15, 2009,
and was subsequently extended to April 15, 2009. This facility
had not been utilized and was not renewed; however, any
interest payable would have fluctuated with changes in the
bankers’ acceptance rate, Canadian prime rate or London
InterBank Offered Rate (“LIBOR”).
noTe 12 long-Term Debt
May 2, 2009
Total
May 3, 2008
Total
First mortgage loans, average interest rate 9.6%, due 2009-2026
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 10.1%, due 2009–2016
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
Unamortized financing costs
Capital lease obligations, net of imputed interest
$
71.5
125.0
175.0
100.0
62.6
146.2
244.0
200.0
75.0
(3.0)
60.7
$
72.2
125.0
175.0
100.0
75.4
154.2
395.0
250.0
75.0
(3.8)
56.5
Less amount due within one year
1,257.0
133.0
1,474.5
60.4
$
1,124.0
$
1,414.1
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 fiscal 2008, 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
2009 Annual Report
79
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 4.998%.
The second swap, in an amount of $200.0, is for a period of
five years at a fixed interest rate of 5.051%. 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. At May 2, 2009, the Credit Facilities have been reduced
to $244.0 (May 3, 2008 – $395.0).
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 2, 2009, $200.0 (May 3, 2008
– $250.0) of this new credit facility has been drawn down and
classified as long-term debt and $Nil (May 3, 2008 – $25.0)
has been drawn down and classified as bank indebtedness.
Sobeys has also issued $40.1 in letters of credit against the
facility at May 2, 2009 ($41.7 at May 3, 2008).
On November 8, 2007, Sobeys established and utilized
a new unsecured revolving credit facility of $75.0. The maturity
date is November 8, 2010. The interest rate is floating and
fluctuates with the bankers’ acceptance rate, Canadian prime
rate or LIBOR.
During fiscal 2009, the Company increased its capital lease
obligation by $12.6 (2008 – $8.9) 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:
Long-Term Debt
Capital Leases
$
$
117.8
305.9
21.8
216.8
25.0
512.0
15.2
13.4
10.6
6.6
3.9
11.0
May 2, 2009
May 3, 2008
$
$
54.4
7.8
24.3
39.8
8.7
53.2
5.3
23.5
21.7
2.8
$
135.0
$
106.5
2010
2011
2012
2013
2014
Thereafter
noTe 13 other long-Term liabilities
Deferred lease obligation
Deferred revenue
Accrued benefit liability (Note 25)
Derivative liabilities
Other
80
empire Company limited notes to the Consolidated Financial statements
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.
2,682,100
992,000,000
259,107,435
40,800,000
No. of Shares
May 2, 2009
May 3, 2008
Issued and outstanding:
Preferred shares, Series 2
Non-Voting Class A
Class B common
Employees’ share purchase plan
$
168,000
34,197,498
34,260,763
4.2
316.1
7.6
327.9
(3.4)
$
6.5
185.1
7.6
199.2
(3.5)
$
324.5
$
195.7
On April 24, 2009, the Company closed a bought-deal public
offering of Non-Voting Class A shares at a price of $49.75 per
share. The underwriters elected to exercise their over-allotment
option in full resulting in a total of 2,713,000 shares being
issued for net proceeds of $129.1.
During the year, the Company purchased for cancellation
90,200 (2008 – 41,800) Series 2 preferred shares for
$2.3 (2008 – $1.0).
During the year, nil (2008 – 10,461) Non-Voting Class A
shares were issued under the Company’s share purchase plan
to certain officers and employees for $nil (2008 – $0.4), 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 189,967 (2008 – 92,766)
options were issued. Options allow holders to purchase
Non-Voting Class A shares at $40.26 (2008 – $43.96) per
share. Options expire in June 2015 and in June 2016.
Loans receivable from officers and employees of
$3.4 (2008 – $3.5) 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 110,148 (2008 – 111,971) Non-Voting Class A
shares. The market value of the shares at May 2, 2009 was
$5.5 (May 3, 2008 – $4.4).
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.
noTe 15 Capital Management
The Company’s objectives when managing capital are: (i) to
ensure sufficient liquidity to support its financial obligations and
execute its operating and strategic plans; (ii) to minimize the
cost of capital while taking into consideration current and future
industry, market and economic risks and conditions; (iii) to
maintain an optimal capital structure that provides necessary
financial flexibility while also ensuring compliance with any
financial covenants; and (iv) to maintain an investment grade
credit rating with each rating agency that assesses the credit
worthiness of Sobeys Inc. No changes were made to these
objectives in the current year.
The Company monitors and makes adjustments to its
capital structure, when necessary, in light of changes in
economic conditions, the objectives of its shareholders, the
cash requirements of the business and the condition of
capital markets.
2009 Annual Report
81
The Company considers its total capitalization to include all interest bearing debt, including bank loans, bankers’ acceptances, long-term
debt (including the current portion thereof) and shareholders’ equity, net of cash. The calculation is set out in the following table:
Bank indebtedness
Long-term debt due within one year
Liabilities relating to assets held for sale
Long-term debt
Funded debt
Less cash and cash equivalents
Net funded debt
Shareholders’ equity
Capital under management
May 2, 2009
May 3, 2008
$
45.9
133.0
–
1,124.0
1,302.9
(231.6)
1,071.3
2,683.5
$
92.6
60.4
6.4
1,414.1
1,573.5
(191.4)
1,382.1
2,382.3
$
3,754.8
$
3,764.4
Although the Company does not include operating leases
in its definition of capital, the Company does give consideration
to its obligations under operating leases when assessing its
total capitalization.
The primary investments undertaken by the Company include
additions to the selling square footage of its store network
via the construction of new, relocated and expanded stores,
including related leasehold improvements and features and
the purchase of land bank sites for future store construction.
The Company makes capital investments in information technology
and its distribution capabilities to support an expanding store
network. In addition, the Company makes capital expenditures in
support of its real estate and other operations. The Company
largely relies on its cash flow from operations to fund its capital
investment program and dividend distributions to its shareholders.
This cash flow is supplemented, when necessary, through
additional debt or the issuance of additional capital stock.
Management monitors certain key ratios to effectively manage capital:
Funded debt to total capital (1)
Funded debt to EBITDA(2)
EBITDA to interest expense
(1) Total capital is funded debt plus shareholders’ equity.
May 2, 2009
May 3, 2008
32.7%
1.64x
9.84x
39.8%
2.02x
7.35x
(2) EBITDA and interest expense are comprised of EBITDA and interest expense for each of the 52 week periods then ended. EBITDA (operating
income plus depreciation and amortization) is a non-GAAP financial measure. Non-GAAP financial measures do not have standardized meanings
prescribed by GAAP and therefore may not be comparable to similar measures presented by other reporting issuers.
As part of existing debt agreements, two financial covenants are
monitored and communicated, as required by the terms of credit
agreements, on a quarterly basis by management to ensure
compliance with the agreements. The covenants are: (i) adjusted
total debt/EBITDA – calculated as funded debt plus letters
of credit, guarantees and commitments divided by EBITDA
(for previous 52 weeks); and (ii) debt service coverage ratio
– calculated as EBITDA divided by interest expense plus
repayments of long-term debt (all amounts are based on
previous 52 weeks).
The Company was in compliance with these covenants
during the year.
82
empire Company limited notes to the Consolidated Financial statements
noTe 16 Investment Income
Dividend and interest income
Share of earnings of entities accounted using the equity method
noTe 17 Capital Gains and other Items
Gain on sale of investments
Gain on sale of property
Other items
Change in fair value of Canadian third party asset-backed commercial paper (Note 7)
Reduction of book value of real estate assets
2009
0.5
38.4
38.9
$
$
2008
1.2
33.3
34.5
2009
2008
–
7.5
(1.0)
(3.7)
–
2.8
$
100.9
0.9
(0.6)
(7.5)
(6.0)
$
87.7
$
$
$
$
noTe 18 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 29.9% (2008 – 31.9%)
Increase (decrease) in income taxes resulting from
Rate changes effect on timing differences
Non-taxable dividends
Capital gains and other items
2009
2008
$
116.0
$
116.8
0.3
–
116.3
(0.2)
$
116.1
$
(5.5)
(0.1)
111.2
14.7
125.9
2009 Annual Report
83
May 2, 2009 income tax expense attributable to net earnings consists of:
Operations
Capital gains and other items
May 3, 2008 income tax expense attributable to net earnings consists of:
Operations
Capital gains and other items
Current
128.9
0.7
129.6
Future
(12.6)
(0.9)
(13.5)
$
$
Current
Future
102.2
18.6
120.8
$
$
9.0
(3.9)
5.1
$
$
$
$
Total
116.3
(0.2)
116.1
Total
111.2
14.7
125.9
$
$
$
$
The tax effect of temporary differences that give rise to significant portions of future income taxes is 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 2, 2009
May 3, 2008
$
$
$
$
119.4
6.5
(33.3)
(7.6)
14.4
(4.9)
37.4
34.0
(33.7)
132.2
42.7
89.5
132.2
$
$
$
$
125.9
8.1
(30.9)
(8.4)
12.6
3.2
35.7
29.8
(17.6)
158.4
32.9
125.5
158.4
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.
84
empire Company limited notes to the Consolidated Financial statements
noTe 19 supplementary Cash Flow Information
a) Items not affecting cash
Depreciation and amortization
Future income taxes
(Gain) loss on disposal of assets
Amortization of other assets
Provision on asset-backed commercial paper
Equity in earnings of other entities, net of dividends received
Minority interest
Stock-based compensation
Long-term lease obligation
Employee future benefits obligation
Rationalization costs (Note 28)
Reduction of book value of real estate assets
b) Other cash flow information
Net interest paid
Net income taxes paid
noTe 20 Joint ventures
2009
2008
$
$
$
$
324.8
(13.5)
(5.1)
3.2
3.7
2.4
8.3
1.2
7.1
7.7
6.3
–
346.1
80.5
117.2
$
304.6
5.1
1.3
5.1
7.5
4.7
12.8
2.5
11.9
4.8
(6.2)
6.0
360.1
103.9
157.5
$
$
$
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
May 2, 2009
May 3, 2008
$
$
$
$
$
$
$
116.7
26.5
90.2
116.7
2009
58.3
23.9
34.4
35.4
(5.3)
(9.7)
20.4
$
$
$
$
$
$
$
139.4
67.8
71.6
139.4
2008
88.7
36.8
51.9
74.8
(14.6)
(2.3)
57.9
2009 Annual Report
85
noTe 21 segmented Information
Revenue
Food retailing
Real estate
Sobey Leased Properties Limited
Other commercial
Inter-segment
Residential
Investment and other operations
Elimination
Operating income
Food retailing
Real estate
Sobey Leased Properties Limited
Crombie REIT
Other commercial
Residential
Investment and other operations
Wajax Income Fund
Other operations, net of corporate expenses
Identifiable assets
Food retailing
Goodwill
Real estate
Investment and other operations (including goodwill of $40.8; May 3, 2008 – $40.1)
Inventories
Food retailing
Real estate – residential
Other operations
86
empire Company limited notes to the Consolidated Financial statements
2009
2008
$ 14,764.8
$
13,768.1
–
16.4
2.9
54.6
73.9
179.3
20.6
19.9
34.9
85.2
160.6
171.2
15,018.0
(2.9)
14,099.9
(34.9)
$ 15,015.1
$
14,065.0
2009
2008
$
401.4
$
359.0
–
19.8
2.5
33.6
18.5
(7.7)
30.0
13.6
5.7
50.7
19.7
(6.1)
$
468.1
$
472.6
May 2, 2009
May 3, 2008
$
4,279.0
1,130.6
5,409.6
223.1
265.3
$
4,052.7
1,119.0
5,171.7
282.0
279.2
$
5,898.0
$
5,732.9
May 2, 2009
May 3, 2008
$
$
750.7
90.4
1.7
842.8
$
731.9
86.6
1.7
$
820.2
Depreciation and amortization
Food retailing
Real estate
Investment and other operations
Capital expenditures
Food retailing
Real estate
Investment and other operations
2009
2008
301.8
1.8
21.2
324.8
$
276.2
5.4
23.0
$
304.6
2009
2008
382.7
36.9
11.4
431.0
$
481.2
47.3
22.2
$
550.7
$
$
$
$
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 the development of food-anchored retail strip plazas.
Residential real estate is the development of housing lots for resale. Inter-segment transactions are recorded at amounts equivalent
to transactions with outside parties.
noTe 22 Financial Instruments
CrediT ri Sk
Credit risk is the risk of an unexpected loss if a customer
or counterparty to a financial instrument fails to meet its
contractual obligations. The Company’s financial instruments
that are exposed to concentrations of credit risk are primarily
ABCP (Note 7), accounts receivable, loans and other receivables,
derivative contracts and guarantees.
The Company’s maximum exposure to credit risk corre-
sponds to the carrying amount for all loans and receivables,
the fair market value of derivative contracts represented on the
balance sheet and guarantee contracts for franchise affiliates.
The Company mitigates credit risk associated with its trade
accounts receivable, loans and other receivables through
established credit approvals, limits and a regular monitoring
process. The Company generally considers the credit quality of
its financial assets that are neither past due or impaired to be
solid. The Company regularly monitors collection performance
and pledged security for all of its accounts receivable, loans
and other receivables to ensure adequate payments are being
received and adequate security is available. Pledged security
can vary by agreement, but generally includes inventory, fixed
assets including land and/or building, as well as personal
guarantees. Credit risk is further mitigated due to the large
number of customers and their dispersion across geographic
areas. The Company only enters into derivative contracts with
Canadian chartered banks to minimize credit risk.
Receivables are substantially comprised of balances due
from independent accounts, franchisee or affiliate locations as
well as rebates and allowances from vendors. The due date of
these amounts can vary by agreement but in general balances
over 30 days are considered past due. The aging of the
receivables is as follows:
0 – 30 days
31 – 90 days
Greater than 90 days
Total receivables before allowance
for doubtful accounts
Less: allowance for doubtful accounts
May 2, 2009
$
248.9
32.5
68.5
349.9
(31.2)
Receivables
$
318.7
Interest earned on past due accounts is recorded as a reduction
to cost of sales, selling and administrative expenses in the
statement of earnings. Loans and other receivables are all
current as of May 2, 2009.
2009 Annual Report
87
Allowance for doubtful accounts is reviewed at each balance
sheet date. An allowance is taken on accounts receivable from
independent accounts, as well as accounts receivable, loans
and other receivables from franchise or affiliate locations, and
is recorded as a reduction to its respective receivable account
on the balance sheet. The Company updates its estimate of
allowance for doubtful accounts based on past due balances
from independent accounts and based on an evaluation of
recoverability net of security assigned for franchise or affiliate
locations. Current and long-term accounts receivable, loans
and other receivables are reviewed on a regular basis and are
written-off when collection is considered unlikely. The change
in allowance for doubtful accounts is recorded as cost of sales,
selling and administrative expenses in the statement of earnings
and is presented as follows:
52 Weeks Ended
May 2, 2009
Allowance, beginning of year
Provision for losses
Recoveries
Write-offs
Allowance, end of year
$
$
28.7
11.6
(2.4)
(6.7)
31.2
liQuidiTy riSk
Liquidity risk is the risk that the Company may not have cash
available to satisfy financial liabilities as they come due. The
Company actively maintains committed credit facilities to
ensure that it has sufficient available funds to meet current and
foreseeable future financial requirements at a reasonable cost.
The Company monitors capital markets and the related
conditions. Market conditions allowing, the Company will access
debt capital markets for various long-term debt maturities and
as other liabilities come due or as assessed to be appropriate
in order to minimize risk and optimize pricing.
The following table summarizes the carrying amount and the contractual maturities of both the interest and principal portion of
significant financial liabilities on an undiscounted basis as at May 2, 2009:
2010
2011
2012
2013
2014
Thereafter
Total
Accounts payable
Bank indebtedness
Interest rate swaps payable(1)
Long-term debt
$
$ 1,487.1
45.9
20.7
205.3
$
–
–
13.6
372.7
–
–
11.0
82.8
$
–
–
2.6
261.8
$
–
–
–
62.5
$
–
–
–
1,044.3
$ 1,487.1
45.9
47.9
2,029.4
(1) Represents the payable fixed interest (will be partially offset by the floating interest received).
fair value of finanCial inSTrumenTS
The fair value of a financial instrument is the estimated amount
that the Company would receive or pay to settle the financial
assets and financial liabilities as at the reporting date.
The book value of cash and cash equivalents, receivables,
loans and other receivables, and accounts payable and accrued
liabilities approximate fair values at the balance sheet date.
The fair value of the variable rate long-term debt is assumed
to approximate its carrying amount. The fair value of other
long-term liabilities has been estimated by discounting future
cash flows at a rate offered for debt of similar maturities and
credit quality.
88
empire Company limited notes to the Consolidated Financial statements
The following table summarizes the classification of the Company’s financial instruments, as well as their carrying amounts and
fair values:
Held for
Trading
(Required)
Held for
Trading
(Designated)
Available-
Loans and
for-Sale Receivables
Other
Financial
Liabilities
Total
Carry
Amount
Fair Value
May 2, 2009
Financial assets
Cash and cash equivalents
Receivables
Loans and other receivables
Investments
Other assets(1)
$
$
–
–
–
–
1.7
$ 231.6
–
–
–
21.4
$
–
–
–
1.1
–
$
–
318.7
131.1
–
–
–
–
–
–
–
–
$ 231.6
318.7
131.1
1.1
23.1
$ 231.6
318.7
131.1
1.1
23.1
$ 705.6
$ 705.6
Total financial assets
$
1.7
$ 253.0
$
1.1
$ 449.8
$
Financial liabilities
Bank indebtedness
Accounts payable
and accrued liabilities
Long-term debt
Other long-term liabilities(2)
$
–
$
–
$
–
$
–
$
45.9
$
45.9
$
45.9
–
–
39.8
–
–
–
–
–
–
–
–
–
1,487.1
1,257.0
–
1,487.1
1,257.0
39.8
1,487.1
1,168.8
39.8
Total financial liabilities
$
39.8
$
– $
– $
– $ 2,790.0
$ 2,829.8
$ 2,741.6
(1) The total carrying value of financial assets included in other assets is $23.1.
(2) Only the derivative liability portion is presented here.
May 3, 2008
Financial assets
Cash and cash equivalents
Receivables
Loans and other receivables
Investments
Other assets(1)
Held for
Trading
(Required)
Held for
Trading
(Designated)
Available-
for-Sale
Loans and
Receivables
Other
Financial
Liabilities
Total
Carry
Amount
Fair Value
$
–
–
–
–
$ 191.4
$
–
–
–
2.3
26.4
–
–
–
1.6
–
$
–
$
291.1
126.2
–
–
–
–
–
–
–
–
$ 191.4
$ 191.4
291.1
126.2
291.1
126.2
1.6
28.7
1.6
28.7
$ 639.0
$ 639.0
Total financial assets
$
2.3
$ 217.8
$
1.6
$ 417.3
$
Financial liabilities
Bank indebtedness
Accounts payable
and accrued liabilities
Long-term debt
Other long-term liabilities(2)
$
–
$
–
$
–
$
–
$
92.6
$
92.6
$
92.6
–
–
21.7
–
–
–
–
–
–
–
–
–
1,348.4
1,348.4
1,480.9
1,480.9
–
21.7
1,348.4
1,415.0
21.7
Total financial liabilities
$
21.7
$
– $
– $
– $ 2,921.9
$ 2,943.6
$ 2,877.7
(1) The total carrying value of financial assets included in other assets is $28.7.
(2) Only the derivative liability portion is presented here.
2009 Annual Report
89
derivaTive finanCial inSTrumenTS
Derivative financial instruments are recorded on the consoli-
dated balance sheet at fair value unless the derivative instru-
ment 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 instru-
ments 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.
inTere ST raTe riSk
Interest rate risk is the potential for financial loss arising from
changes in interest rates. Financial instruments that potentially
subject the Company to interest rate risk include financial
liabilities with floating interest rates. The majority of the
Company’s long-term debt is at a fixed interest rate or hedged
with interest rate swaps. Bank indebtedness and approximately
20 percent of the Company’s long-term debt is exposed to
interest rate risk due to floating rates.
Net earnings is sensitive to the impact of a change in
interest rates on the average balance of interest bearing
financial liabilities during the period. For the year ending
May 2, 2009, the Company’s average floating-rate indebtedness
was $772.2 of which $420.0 has been hedged with interest
rate swaps. Accordingly, a difference of 0.25 percent in the
applicable interest rate would impact net earnings by $0.6 and
other comprehensive income by $1.5.
foreign CurrenCy exCHange riSk
The Company conducts the vast majority of its business in
Canadian dollars. The Company’s foreign currency exchange risk
principally relates to purchases made in U.S. dollars. In addition,
the Company also 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. The Company estimates
that a 10 percent increase (decrease) in applicable foreign
currency exchange rates would impact net earnings by $6.1
and other comprehensive income by $1.6.
CommodiTy PriCe riSk
Commodity price risk is the risk that the fair value of certain
financial instruments or the Company’s future cash flows will
fluctuate as a result of changes in the market price of commodi-
ties. The Company has attempted to mitigate commodity price
risk to electricity prices through the use of financial derivative
swap contracts while closely monitoring other commodity prices
to determine the appropriate course of action. The Company
estimates that a 10 percent increase (decrease) in applicable
commodity prices would impact other comprehensive income
by $0.6.
noTe 23 Guarantees, Commitments and Contingent liabilities
guaranTee S and C ommiTmenTS
At May 2, 2009, the Company was contingently liable for
letters of credit issued in the aggregate amount of $55.3
(May 3, 2008 – $60.3).
Sobeys has guaranteed certain bank loans contracted by
franchise affiliates. As at May 2, 2009, these loans amounted
to approximately $0.5 (May 3, 2008 – $1.3).
During 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 $6.0 or 9.9
percent (2008 – $5.0 or 9.9 percent) of the authorized and
outstanding obligation. The terms of the guarantee contract are
reviewed annually each August. As at May 2, 2009, the amount
of the guarantee was $6.0 (May 3, 2008 – $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.
During the third quarter of fiscal 2009, Sobeys entered
into an additional credit enhancement contract in the form of
a standby letter of credit for certain independent franchisees for
the purchase and installation of equipment. Under the terms of
the contract should a franchisee affiliate be unable to fulfill their
lease obligation or other remedy, Sobeys would be required to
fund the greater of $4.0 or 10 percent of the authorized
90
empire Company limited notes to the Consolidated Financial statements
and outstanding obligation annually. Under the terms of the
agreement, Sobeys is required to obtain a letter of credit in
the amount of the outstanding guarantee, to be revisited each
calendar year. This credit enhancement allows Sobeys to provide
favorable financing terms to certain independent franchisees.
The contract terms have been reviewed and Sobeys determined
that there were no material implications with respect to the
consolidation of VIEs. As at May 2, 2009, the amount of the
guarantee was $4.0.
The aggregate, annual, minimum rent payable under the
guaranteed operating equipment leases for fiscal 2010 is
approximately $25.5. The guaranteed lease commitments over
the next five years are:
2010
2011
2012
2013
2014
Thereafter
Third Parties
$
25.5
14.8
16.7
11.4
4.2
2.0
The net aggregate, annual, minimum rent payable under operating leases for fiscal 2010 is approximately $235.1 ($308.4 gross less
expected sub-lease income of $73.3). The commitments over the next five fiscal years are:
2010
2011
2012
2013
2014
Thereafter
Third Parties
Related Parties
Net Lease
Obligation
Gross Lease
Obligation
Net Lease
Obligation
Gross Lease
Obligation
$
196.7
176.3
162.6
154.2
147.7
965.3
$
270.0
246.2
228.7
215.5
203.9
1,354.3
$
38.4
37.6
34.5
34.0
35.4
407.0
$
38.4
37.6
34.5
34.0
35.4
407.0
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 of its obligations
under the lease. The remaining term of the lease is 11 years
with an aggregate obligation of $34.6 (2008 – $37.5). 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 had been reassessed in
respect to the tax treatment of gains realized on the sale of
shares in Hannaford Bros. Co. (“Hannaford”) in fiscal 2001.
The Company had appealed the reassessments in respect of
the sale of Hannaford shares. Subsequent to May 2, 2009,
the Company and CRA concluded negotiations and jointly
requested a court order which, if approved, would result in a
reduction of income tax expense of approximately $17.0 in the
first quarter of fiscal 2010.
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.
2009 Annual Report
91
The Company has agreed to indemnify its directors and
There are various claims and litigation, which the Company
officers and particular employees in accordance with the
Company’s policies. The Company maintains insurance policies
that may provide coverage against certain claims.
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.
noTe 24 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 provided
Crombie REIT with fixed rate second mortgages in the amount
of $6.2. The second mortgages have a weighted average
interest rate of 5.38% with a maturity date of March 2014.
In addition, the Company has non-interest bearing notes payable
to Crombie REIT in the amount of $10.5.
noTe 25 employee Future Benefits
The Company has a number of defined benefit and defined
contribution plans providing pension and other retirement
benefits to most of its employees.
oTHer benefiT P lanS
The Company also offers certain employee post-retirement
and post-employment benefit plans which are not funded and
include health care, life insurance and dental benefits.
defined ConTribuTion P enSion 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 P enSion 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.
Most Recent
Valuation Date
Next Required
Valuation Date
May 1, 2008
May 1, 2008
May 1, 2008
May 1, 2011
May 1, 2011
May 1, 2011
Retirement Pension Plan
Senior Management Pension Plan
Other Benefit Plans
defined ConTribuTion P lanS
The total expense and cash contributions for the Company’s defined
contribution plans are as follows:
2009
2008
$
19.1
18.6
92
empire Company limited notes to the Consolidated Financial statements
defined benefiT P lanS
Information about the Company’s defined benefits plans, in aggregate, is as follows:
Pension
Benefit Plans
2009
Pension
Benefit Plans
2008
Other
Benefit Plans
2009
Other
Benefit Plans
2008
$
288.7
$
$
116.6
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
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 (gains)
Accrued benefit asset (liability)
Expense
Current service cost, net of employee contributions
Interest cost
Actual return on plan assets
Actuarial gains
Past service costs
Surplus payments to members
Expense (income) before adjustments
Expected vs. actual return on plan assets
Recognized vs. actual past service costs
Recognized vs. actuarial gains (losses)
Net expense (income)
Classification of accrued benefit asset (liability)
Other asset
Other liability
Accrued benefit asset (liability)
$
$
$
$
$
$
$
$
$
$
269.1
1.8
14.3
0.3
(20.2)
0.2
(15.7)
249.8
252.5
(36.4)
5.8
0.3
(20.1)
–
202.1
(47.7)
0.4
86.1
38.8
1.8
14.3
36.4
(15.6)
0.1
–
37.0
(53.4)
0.1
18.0
1.7
63.1
(24.3)
38.8
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
$
$
$
$
$
$
$
$
$
116.4
3.8
6.7
–
(3.3)
–
(15.1)
108.5
–
–
3.3
–
(3.3)
–
$
$
2.7
6.1
–
(3.5)
–
(5.5)
116.4
–
–
3.4
–
(3.4)
–
–
$
$
$
$
–
$
(108.5)
0.6
(10.5)
$
(116.4)
0.6
5.1
$
(118.4)
$
(110.7)
$
$
$
$
3.8
6.6
–
(15.0)
–
–
(4.6)
–
0.1
15.5
11.0
–
(118.4)
(118.4)
$
$
$
$
2.6
6.1
–
(5.5)
–
–
3.2
–
0.1
5.0
8.3
–
(110.7)
(110.7)
2009 Annual Report
93
Included in the accrued benefit obligation at year-end are the following amounts in respect of plans that are not funded:
Accrued benefit obligation
$
24.3
$
23.5
$
118.4
$
110.7
Pension
Benefit Plans
2009
Pension
Benefit Plans
2008
Other
Benefit Plans
2009
Other
Benefit Plans
2008
The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligation are as follows
(weighted-average assumptions as of May 2, 2009):
Pension
Benefit Plans
2009
Pension
Benefit Plans
2008
Other
Benefit Plans
2009
Other
Benefit Plans
2008
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
6.25%
7.00%
4.00%
5.25%
7.00%
4.00%
6.00%
5.25%
For measurement purposes, a 9 percent fiscal 2009 annual rate
of increase in the per capita cost of covered health care benefits
was assumed. The cumulative rate expectation to 2019 is
5 percent. The EARSL 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 EARSL of the
active employees covered by the other benefit plans range from
11 to 15 years with a weighted average of 14 years at year end.
The table below outlines the sensitivity of the fiscal 2009 key economic assumptions used in measuring the accrued benefit plan
obligation and related expense 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
obligation or benefit plan expense.
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
Obligation
6.25%
$
$
(25.9)
29.1
Benefit
Cost(1)
7.00%
(2.0)
2.0
6.25%
0.2
(0.5)
$
$
$
$
Benefit
Obligation
Benefit
Cost(1)
6.00%
(15.1)
18.1
9.00%
14.5
(12.2)
$
$
$
$
6.00%
(0.9)
1.0
9.00%
1.8
(1.4)
$
$
$
$
(1) Reflects the impact on the current service cost, the interest cost and the expected return on assets.
(2) 6.00% for the Employee Pension Plan and the Post Retirement Benefit Plan
(3) Gradually decreasing to 5.00% in 2019 and remaining at that level thereafter.
94
empire Company limited notes to the Consolidated Financial statements
The asset mix of the defined benefit pension plans as at year end is as follows:
Cash and short-term investments
Bonds, debentures, fixed income pooled funds and real estate funds
Equities and pooled equities fund
Accrued interest and dividends
Foreign currency hedges
2009
3.43%
36.09%
60.52%
0.21%
(0.25%)
2008
2.91%
25.51%
70.26%
0.26%
1.06%
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:
2009
% of Plan
Assets
2008
% of Plan
Assets
$
104.4
13.7%
$
80.8
9.0%
noTe 26 Business Acquisitions
Sobeys acquires franchisee and non-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 and non-franchise stores resulted in the
acquisition of intangible assets. The method of amortization of
limited life intangibles is on a straight-line basis over its
estimated useful life.
Franchisees
Inventory
Property and equipment
Intangibles
Goodwill
Other assets (liabilities)
Cash consideration
Prescription files
Intangibles
Net assets acquired
Less promissory note issued
Cash consideration
2009
2008
$
$
8.7
5.9
7.6
14.3
0.9
37.4
3.2
40.6
(3.5)
37.1
$
$
6.6
5.1
5.9
1.2
(1.5)
17.3
2.5
19.8
–
19.8
ETL Canada Holdings Limited (a subsidiary of the Company)
acquired all of the outstanding shares of an incorporated joint
venture already co-owned by the Company for cash consideration
of $4.3. The acquisition was accounted for using the purchase
method with net identifiable assets recorded at $3.6 (including
intangible assets of $0.2) and goodwill at $0.7.
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
2009 Annual Report
95
method with the results of Thrifty being consolidated since the acquisition date. Management carried out a detailed analysis to measure
and allocate the excess consideration paid over net assets acquired. The final purchase price allocation, incorporating management’s
assessment of fair value, was 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
noTe 27 stock-Based Compensation
deferred SHare uniTS
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 correspond-
ing number of Non-Voting Class A shares and records any
increase in the DSU obligation as an operating expense. At
May 2, 2009, there were 84,195 (May 3, 2008 – 64,877) DSUs
outstanding. During the year, the compensation expense was
$1.8 (2008 – $0.5).
SToCk oPTion P lan
During fiscal 2009, the Company granted an additional
189,967 options under the stock option plan for employees
of the Company whereby options are granted to purchase
Non-Voting Class A Shares. These options allow holders to
purchase Non-Voting Class A Shares at $40.26 per share
and expire in June 2016. The options vest over four years
with 50 percent of the options vesting only if certain financial
96
empire Company limited notes to the Consolidated Financial statements
$
$
$
$
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
targets are attained in a given fiscal year. These options have
been treated as stock-based compensation.
The compensation cost relating to the year was determined
to be $1.2 (2008 – $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 was $1.2. The
compensation cost was calculated using the Black-Scholes
model with the following assumptions:
Expected life
Risk-free interest rate
Expected volatility
Dividend yield
8 years
3.50%
20.1%
1.75%
SHare PurCHaSe Plan
The Company has a share purchase 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 Company’s current practice is to use only the stock
option plan to provide long-term incentive for employees. As a
result, outstanding loans under the stock purchase plan will
be repaid at the employees’ option, but no later than the expiry
date of the loans which were originally set for 10 years.
PHanTom PerformanCe oPTion P lan
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. Upon implementation, the units had a three year
vesting period with 33.3 percent of the units vesting each year.
Subsequent issuances have a four year vesting period with
25.0 percent 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 change in notional value over the original grant
value on a straight-line basis over the vesting period. After the
vesting period, any change in incremental notional equity value
is recognized as a compensation expense immediately. This
is recorded as an accrued liability until settlement and is
remeasured at each interim and annual reporting period of the
Company. As at May 2, 2009, 1,069,413 (May 3, 2008 –
518,579) units were outstanding and the Company recognized
$6.1 (2008 – $0.1) of compensation expense associated with
this plan.
noTe 28 Business Rationalization Costs
For the year ended May 2, 2009, severance costs of $10.7 (2008 – $(1.8)) have been incurred and recognized. The costs associated
with the organizational change are recorded as incurred as cost of sales, selling and administrative expenses in the statement of
earnings. The liability as of May 2, 2009 is $12.2 (May 3, 2008 – $5.9). Costs incurred as of May 2, 2009 were $27.7.
noTe 29 variable Interest entities
Variable interest entities are defined under Accounting Guideline
15 (“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 VIEs expected losses and its
expected residual returns.
The Company has identified the following entities as VIEs:
franCHiSe affiliaTeS
The Company has identified 271 (May 3, 2008 – 292) 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.
WareHouSe and diSTribuTion a greemenT
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 30 subsequent events
a) On June 12, 2009, Sobeys repaid, although did not cancel, the
$75.0 credit facility which matures on November 8, 2010.
Crombie REIT). Consequently the Company’s interest in
Crombie REIT was reduced from 47.9% to 47.4% .
b) On June 25, 2009, Crombie REIT closed a bought-deal
public offering of units at a price of $7.80 per unit. In
satisfaction of its pre-emptive right with respect to the public
offering, the Company subscribed for $30.0 of Class B Units
(which are convertible on a one-for-one basis into units of
c) On July 23, 2009, Sobeys finalized an agreement to sell and
leaseback a retail support centre located in Milton, Ontario
to a third party. Proceeds on the sale will be $51.0 resulting
in a pre-tax gain of $5.6. A long-term lease agreement has
been agreed to for the use of the property with the gain being
amortized over the term of the lease.
noTe 31 Comparative Figures
Comparative figures have been reclassified, where necessary, to reflect the current year’s presentation.
2009 Annual Report
97
eleven-year financial review
Years Ended(1)
2009
2008
2007
Restated
2006
Restated
2005
2004
2003
2002
2001
2000
1999
Financial Results ($ 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)
$ 15,015.1
468.1
80.6
116.1
8.3
262.9
–
262.9
3.0
265.9
10.5%
5,898.0
1,124.0
2,683.5
3.99
0.05
4.04
0.700
0.700
39.14
55.05
35.00
49.00
65.8
$ 14,065.0
$ 13,366.7
$ 13,063.6
$ 12,435.2
$ 11,284.0
$ 10,624.2
$
9,926.5
$
9,331.1
$
9,100.1
$
5,362.7
472.6
105.8
125.9
12.8
242.8
–
242.8
73.0
315.8
14.0%
5,732.9
1,414.1
2,382.3
3.69
1.11
4.80
0.660
0.660
36.14
55.19
35.40
39.25
431.1
60.1
116.9
55.4
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
491.4
83.8
153.1
67.1
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
65.7
65.7
65.7
65.7
65.8
65.8
65.7
65.6
75.6
463.7
86.7
131.2
63.6
182.9
–
182.9
3.7
186.6
11.4%
4,929.2
727.4
1,709.0
2.78
0.05
2.83
0.480
0.480
25.87
38.00
24.25
36.66
422.8
92.4
111.0
58.5
163.3
-
163.3
9.2
172.5
11.6%
2.47
0.14
2.61
0.400
0.400
23.67
29.50
23.10
26.65
444.4
93.7
120.0
67.5
159.3
-
159.3
(6.0)
153.3
11.4%
2.42
(0.09)
2.33
0.330
0.330
21.41
33.25
23.70
23.85
416.2
111.6
104.8
50.0
123.5
8.7
132.2
63.7
195.9
16.4%
2.00
0.97
2.97
0.214
0.214
19.47
33.30
15.75
28.88
341.1
145.8
131.9
34.3
78.5
10.0
88.5
491.5
580.0
69.1%
1.33
7.49
8.82
0.170
0.170
16.82
18.25
13.88
17.00
309.7
159.6
68.1
32.9
78.8
5.9
84.7
2.1
86.8
13.3%
1.10
0.03
1.13
0.140
0.140
8.73
16.98
12.33
16.05
4,679.7
913.0
1,567.6
4,519.3
923.1
1,418.5
4,318.0
975.0
1,290.6
4,254.3
1,107.2
1,115.0
4,171.0
1,332.0
602.8
4,023.5
1,391.8
737.5
184.4
112.6
49.1
9.2
59.0
1.1
60.1
74.9
135.0
21.7%
0.78
1.00
1.78
0.136
0.136
9.03
16.27
12.50
13.00
75.0
(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, fiscal 2008, which ended May 3, 2008, and fiscal 2009, which ended May 2, 2009, 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 fiscal 2002.
(3) Operating earnings equals net earnings before capital gains (losses) and other items, net of tax.
98
empire Company limited
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
Share Price, Non-Voting Class A Shares ($ per share)
Book value
High
Low
Close
Diluted weighted average number
of shares outstanding (in millions)
468.1
80.6
116.1
8.3
262.9
–
262.9
3.0
265.9
10.5%
5,898.0
1,124.0
2,683.5
3.99
0.05
4.04
0.700
0.700
39.14
55.05
35.00
49.00
65.8
472.6
105.8
125.9
12.8
242.8
–
242.8
73.0
315.8
14.0%
5,732.9
1,414.1
2,382.3
3.69
1.11
4.80
0.660
0.660
36.14
55.19
35.40
39.25
431.1
60.1
116.9
55.4
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
491.4
83.8
153.1
67.1
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
(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, fiscal 2008, which ended May 3, 2008, and fiscal 2009, which ended May 2, 2009, 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 fiscal 2002.
(3) Operating earnings equals net earnings before capital gains (losses) and other items, net of tax.
Years Ended(1)
2009
2008
2005
2004
2003
2002
2001
2000
1999
2007
Restated
2006
Restated
$ 15,015.1
$ 14,065.0
$ 13,366.7
$ 13,063.6
$ 12,435.2
$ 11,284.0
$ 10,624.2
$
9,926.5
$
9,331.1
$
9,100.1
$
5,362.7
65.7
65.7
65.7
65.7
65.8
65.8
65.7
65.6
75.6
463.7
86.7
131.2
63.6
182.9
–
182.9
3.7
186.6
11.4%
4,929.2
727.4
1,709.0
2.78
0.05
2.83
0.480
0.480
25.87
38.00
24.25
36.66
422.8
92.4
111.0
58.5
163.3
-
163.3
9.2
172.5
11.6%
444.4
93.7
120.0
67.5
159.3
-
159.3
(6.0)
153.3
11.4%
416.2
111.6
104.8
50.0
123.5
8.7
132.2
63.7
195.9
16.4%
341.1
145.8
131.9
34.3
78.5
10.0
88.5
491.5
580.0
69.1%
309.7
159.6
68.1
32.9
78.8
5.9
84.7
2.1
86.8
13.3%
184.4
112.6
49.1
9.2
59.0
1.1
60.1
74.9
135.0
21.7%
4,679.7
913.0
1,567.6
4,519.3
923.1
1,418.5
4,318.0
975.0
1,290.6
4,254.3
1,107.2
1,115.0
4,171.0
1,332.0
602.8
4,023.5
1,391.8
737.5
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
2.00
0.97
2.97
0.214
0.214
19.47
33.30
15.75
28.88
1.33
7.49
8.82
0.170
0.170
16.82
18.25
13.88
17.00
1.10
0.03
1.13
0.140
0.140
8.73
16.98
12.33
16.05
0.78
1.00
1.78
0.136
0.136
9.03
16.27
12.50
13.00
75.0
2009 Annual Report
99
glossary
BooK vAlUe peR shARe
opeRATInG eARnInGs
Shareholders’ equity less preferred shares divided by Non-Voting
Class A shares and Class B common shares outstanding
Net earnings before capital gains (losses) and other items,
net of tax
CAGR
Compound Annual Growth Rate
CApITAl expenDITURes
opeRATInG InCoMe
Operating earnings before minority interest, interest expense
and income taxes
Payments made for the acquisition of property and equipment
opeRATInG MARGIn
Operating income divided by sales
eBITDA
Operating income plus depreciation and amortization
pRIvATe lABel
expAnDeD sToRes
A brand of products that is marketed, distributed and owned by
the Company
Stores that undergo construction resulting in a square footage
increase during the year
RenovATeD sToRes
FUnDeD DeBT
All interest bearing debt, which includes bank loans, bankers’
acceptances, long-term debt and liabilities relating to assets
held for sale
Stores that undergo construction, resulting in no increase in
square footage
Roe (ReTURn on eQUITy)
Net earnings available for common shares divided by average
common shareholders’ equity
FUnDs FRoM opeRATIons
Operating earnings plus depreciation and amortization
sAMe-sToRe sAles
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
leTTeRs oF CReDIT
Financial instruments issued by a financial institution to
guarantee the Company’s payments to a third party
neT DeBT To ToTAl CApITAl
Funded debt less cash and cash equivalents divided by funded
debt less cash and cash equivalents plus shareholders’ equity
Sales from stores in the same location in both reporting periods
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
we IGhTe D AveRAGe nUMBeR oF shAR es
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
100
empire Company limited
shareholder and
investor information
Empire Company Limited
Head Office:
115 King St.
Stellarton, Nova Scotia
B0K 1S0
Telephone: (902) 755-4440
Fax: (902) 755-6477
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, 2009, 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)
88,262
Dividend Record and Payment Dates for Fiscal 2010
Record Date
Payment Date
July 15, 2009
October 15, 2009*
January 15, 2010*
April 15, 2010*
* Subject to approval by Board of Directors
July 31, 2009
October 30, 2009*
January 29, 2010*
April 30, 2010*
34,197,498
34,260,763
Outstanding Shares
As of June 26, 2009
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.
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C O M P A N Y L I M I T E D
At Sobeyscareers.com it is all about “Careers that fit your life”.
Launched in 2009, the site allows visitors to explore the endless opportunities and
benefits offered by a career in our stores, distribution centres and offices.
www.empireco.ca