Our
recipe
for success
Empire Company Limited
2013 Annual Report
Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered in
Stellarton, Nova Scotia. Empire’s key businesses include food retailing and related
real estate. With over $17 billion in annual sales and approximately $7.1 billion
in assets, Empire and its subsidiaries directly employ approximately 47,000 people.
Forward-Looking Statements
This annual report contains forward-looking
statements which reflect management’s
expectations regarding the Company’s objectives,
plans, goals, strategies, future growth, financial
condition, results of operations, cash flows,
performance, business prospects and opportunities.
All statements other than statements of historical
facts included in this annual report, including
statements regarding the Company’s objectives,
plans, goals, strategies, future growth, financial
condition, results of operations, cash flows,
performance, business prospects and opportunities
may constitute forward-looking information.
Expressions such as “anticipates”, “expects”,
“believes”, “estimates”, “could”, “intends”, “may”,
“plans”, “will”, “would” and other similar expressions,
or the negative of these terms, are generally
indicative of forward-looking statements.
For additional information and a caution on the
use of forward-looking information, see the
section in Management’s Discussion and Analysis
(“MD&A”) entitled “Forward-Looking Information”.
Note
There are measures included in this annual report
that do not have a standardized meaning under
GAAP. Additional information relating to non-GAAP
financial measures is provided in the section of the
MD&A entitled “Non-GAAP Financial Measures”.
2013 Financial Highlights
($ in millions, except per share amounts)
52 Weeks Ended
May 4, 2013
52 Weeks Ended
May 5, 2012
Operations
Sales
Operating income
Net earnings(1)
Adjusted net earnings(1)(2)
Per Share Information
Net earnings (fully diluted)(1)
Adjusted net earnings (fully diluted)(1)(2)
Book value
Dividends per share (“DPS”)
$ 17,612.7
584.8
384.8
367.3
$
5.65
5.39
54.84
0.96
$ 16,249.1
534.3
339.4
322.7
4.99
4.74
49.98
0.90
$
10-Year Sales CAGR (3)
SALES ($ in millions)
5.2%
18,000
15,000
12,000
9,000
10-Year Adjusted
Net Earnings(1)(2) CAGR (3)
8.7%
FY
03
04
05
06
07
08
09
10
11
12
13
ADJUSTED NET EARNINGS(1)(2) ($ in millions)
400
300
200
100
FY
03
04
05
06
07
08
09
10
11
12
13
10-Year DPS CAGR (3)
DIVIDENDS ($ per share)
11.3%
1.00
0.75
0.50
0.25
FY
03
04
05
06
07
08
09
10
11
12
13
(1) Net of non-controlling interest.
(2) Excludes items which are considered not indicative of underlying business operating performance.
(3) Compound Annual Growth Rate.
Cover image: Faye Hynes, Sobeys First Lake, Sackville, Nova Scotia
Empire Company Limited
Our recipe
for success
Empire is committed to maximizing sustainable long-term shareholder value by
supporting Sobeys’ goal to be widely recognized as the best food retailer and
workplace environment in Canada while also strengthening our related real estate
investments. This year’s report takes a look at the key ingredients of our strategy:
Engaging our
customers
Focusing
on food and
innovation
Improving our
productivity
Being the
best together
Annual Report 2013
1
Letter to Shareholders
Building value
together
Empire’s strategic direction is to build long-term sustainable growth in sales and
adjusted net earnings while prudently reinvesting the majority of our cash flow
to grow and strengthen our food retailing and related real estate businesses.
To our Shareholders
Empire posted a record performance in fiscal 2013 amid
continued intense competition in the food retailing industry.
Consolidated sales reached $17.6 billion, an increase of
8.4 percent from the previous year. Excluding the impact
of the acquisition of 236 retail gas locations and related
convenience store operations from Shell Canada in the
fourth quarter of fiscal 2012, consolidated sales increased
by 2.9 percent. Net earnings, net of non-controlling interest,
were $384.8 million or $5.65 per diluted share compared
to $339.4 million or $4.99 per diluted share in fiscal 2012,
an increase of 13.4 percent. Adjusted net earnings, net
of non-controlling interest, which excludes items which are
considered not indicative of underlying business operating
performance, were $367.3 million or $5.39 per diluted share
compared to $322.7 million or $4.74 per diluted share in
fiscal 2012, a 13.8 percent increase. These financial results
were reflected in Empire’s share price, which increased
19.0 percent during the fiscal year, capping a 20-year period
in which shareholders have received a compound average
annual total return on investment of 13.5 percent.
Our Recipe for Success
Empire’s success has come from continuous investment and
improvement in the businesses we know best – food retailing
and related real estate. From the onset of our business,
Frank H. Sobey began to capitalize on the strategic advantages
and investment potential that came from owning the property
associated with Sobeys’ growing retail network and ever since,
these two businesses have been the foundation of Empire’s
ability to create sustainable long-term value. Along the way,
we have been able to generate solid returns by reinvesting
our cash flow and excess capital to support the growth and
development of our food retailing and related real estate
operations, which now, in aggregate, represent 98.7 percent
of consolidated sales and 94.4 percent of adjusted net earnings.
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Empire Company Limited
Food Retailing
Sobeys’ sales increased 8.3 percent to $17.3 billion in fiscal
2013 driven by another year of positive same-store sales
growth and the previously mentioned Shell acquisition. This
is a solid performance given the intense level of promotional
activity, virtual absence of price inflation in a food retailing
market that continues to add new competitors and substantial
new retail space. At the same time, the food retailing
segment, through Sobeys, reported record operating income
of $515.3 million, an 8.3 percent increase over last year.
Sobeys’ performance is a testament to the effectiveness
of the food-focused growth strategy, strength and quality
of our people, and significant investments made over the
past six years in store and distribution infrastructure, business
processes and systems, and sales and cost productivity
initiatives. In the fast-paced food retailing business, however,
little time is spent reflecting on past accomplishments.
Consolidated Adjusted Net Earnings(1)
($ in millions)
$367.3
$284.5
$303.2
$322.7
$261.7
2009
2010
2011
2012
2013
(1) Net of non-controlling interest.
“ Sobeys’ performance is a testament to
the effectiveness of the food-focused
growth strategy, strength and quality of
our people, and significant investments
made over the past six years.”
Paul D. Sobey
President and CEO, Empire Company Limited
Marc Poulin (left)
Paul D. Sobey (right)
$367.3m
Empire posted record adjusted net
earnings in fiscal 2013
Fiscal 2013 was a busy year for Sobeys with the completion
of the transition to a format-based operating structure,
implementation of the SAP enterprise-wide business platform
at Thrifty Foods and in our Québec operations, and completion
of an automated distribution centre in Terrebonne, Québec.
As a result, Sobeys is positioned to harness its potential
as a $17 billion organization as never before. Opportunities to
enhance top and bottom line growth are abundant and include
the integration of core business processes from coast to
coast, the execution of nationally integrated commercial
programs with our suppliers, and the benefits of Sobeys’
leading customer insight capabilities in marketing and
merchandising programs. Over the past few years, Sobeys’
ability to consistently improve productivity has enabled the
company to maintain its competitive price position while
growing profitability. We expect that the important initiatives
undertaken during the past year will allow this trend
to continue.
Investments and Other Operations
Empire’s investments and other operations consist primarily
of our 42.8 percent equity accounted interest in Crombie
REIT, our equity interests in residential real estate through
Genstar and wholly-owned Empire Theatres. While all these
businesses have been solid investments, Crombie REIT
plays a particularly important role supporting the growth of
core operations given its strategic relationship with Sobeys.
For Empire, the creation of Crombie REIT has provided access
to capital that has accelerated the pace of Sobeys’ expansion
as a leading national retailer while enabling Sobeys to realize
the value of its real estate assets. For Crombie REIT investors,
the strategic relationship with Sobeys provides preferred access
to some of the steadiest performing assets in commercial real
estate – new, fully occupied grocery and drugstore-anchored
community plazas and freestanding stores. During fiscal 2013,
Crombie REIT purchased eight properties from Empire for
$106.0 million.
Crombie REIT has also proved to be an excellent investment
in its own right, setting new performance records in its
most recent fiscal year ending December 31, 2012. Crombie
REIT’s operating income contribution to Empire reached
$22.0 million, after adjusting for the impact of Crombie REIT’s
restatement in our fiscal 2013, compared to $19.7 million
the previous year, with cash flow contribution of $33.4 million.
At Empire’s fiscal year-end, the value of our 42.8 percent equity
accounted interest in Crombie REIT equalled $622.7 million
as Crombie REIT’s total market capitalization reached more
than $1.4 billion.
Since the IPO of Crombie REIT in March 2006, Crombie
REIT’s net property income has increased at a 12.7 percent
compound annual growth rate, while its market capitalization
has increased at an average annual rate of 19.0 percent.
While Sobeys’ development pipeline represents a unique
competitive advantage for Crombie REIT, the company has also
been steadily building its management capabilities and national
presence in the broader commercial real estate market. During
its fiscal year ending December 31, 2012, Crombie REIT acquired
26 grocery and drugstore-anchored plazas and freestanding
store properties, 24 of which were from third parties, and all
but one of which are located outside Atlantic Canada.
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Empire Company Limited
2013
Strategic
Priorities
2013
Strategic
Progress
• Execution of brand strategy for the full service format
• Opened automated distribution centre in Terrebonne, Québec
• Achieve operational excellence through harmonization and
• Ongoing training and development of employees, and investment
optimization of process and technology
in tools and processes
• Launch national employee engagement initiative
• Achieved nationwide SAP system implementation
• Focus on enhancing category management and merchandising
programs to deliver innovative food offerings
• Develop Sobeys’ property pipeline, first offering to Crombie REIT
• Completed FreshCo conversions, integrated Québec and
Atlantic Canada Shell retail gas locations and launched
Food for Fuel promotions
to support its geographic diversification strategy
• Eight Empire properties sold to Crombie REIT for $106.0 million
• Reinvest cash distribution from Crombie REIT to support
• Invested an additional $38.3 million in Crombie REIT
growth in related real estate
A Larger Platform for Growth
Outlook
On June 12, 2013, subsequent to year-end, Empire and Sobeys
announced a definitive agreement with Safeway Inc. to acquire
substantially all of the assets of Canada Safeway Limited for
a cash purchase price of $5.8 billion, subject to a working
capital adjustment, plus the assumption of certain liabilities.
This acquisition represents a unique and highly strategic
opportunity to significantly increase Sobeys’ scale, establish a
leading presence in Western Canada (including the number one
market position in fast-growing Alberta) and create meaningful
synergies and earnings accretion. More specifically, the acquisition
of Canada Safeway will create an organization with pro forma
sales of approximately $24 billion and an immediately positive
impact on adjusted net earnings per share. Management
estimates annual synergies of approximately $200 million and
expects the synergies to be achievable over a 36 month period.
Above all, Sobeys and Canada Safeway are an ideal fit with
highly compatible strategic objectives and similar corporate
cultures. Both companies are focused on fresh food and
superior service, with strong management and an operating
approach that depends on advanced customer insight and
loyalty program capabilities and an emphasis on employee
development, rigorous cost control and strong private label
programs. The acquisition of Canada Safeway includes owned
real estate valued at $1.8 billion.
Since the acquisition of The Oshawa Group in fiscal 1999,
we have established a strong track record of successfully
financing and integrating acquisitions to build shareholder
value, achieving average annual adjusted net earnings per
share growth of 14.8 percent per year over that time period.
The year ahead promises to be another active one for Empire,
but with 106 years in the business, we are used to that.
We recognize that Canadian consumers remain cautious and
that new retail space continues to be added to the market.
We remain confident that we will continue to be successful
as a result of our food-focused strategy and the substantial
investments we’ve made in Sobeys. Our food-focused
strategy and our passion for food, as well as the dedication
and commitment of our employees has struck a chord with
customers in each of Sobeys’ retail formats, allowing us to
deliver a more fulfilling shopping experience. Going forward,
we remain committed to further enriching the shopping
experience of our customers and investing in additional
infrastructure and productivity improvements.
Our greatest competitive strength of course, is the quality
of our people. We are fortunate to have truly exceptional
management teams in our operations and they are working
more closely than ever before to realize the full potential
of Empire’s food retailing and related real estate businesses.
I would also like to thank Marcel Côté for his many years of
valued contribution as he will not be standing for re-election
to the Board of Directors. His dedication and advice have been
invaluable over 15 years of outstanding service to both Sobeys
and Empire. Finally, I would also like to extend my sincere
appreciation to all of our employees, franchisees and affiliates
for helping Empire achieve record performance in fiscal 2013.
PAUL D. SOBEY
President and CEO
Empire Company Limited
June 27, 2013
Annual Report 2013
5
Integrated Strategy
Empire
at a glance
Food Retailing
Empire’s food retailing business is carried out through its
wholly-owned subsidiary Sobeys Inc., which serves the food
shopping needs of Canadians with 1,569 corporately owned
and franchised retail locations in more than 800 communities
across every province in Canada.
Sobeys’ food-focused strategy is targeted at delivering the
best food shopping experience to shoppers in the right-format,
right-sized stores, supported by superior customer service.
Sobeys remains focused on improving the product, service and
merchandising offering within each format through continuous
investment in retail store and distribution networks, innovation
in marketing and merchandising programs, optimization of
business processes, and the engagement of its people.
Investments and Other Operations
This segment consists primarily of our 42.8 percent equity
accounted interest in Crombie REIT, our equity interests
in residential real estate through Genstar and wholly-owned
Empire Theatres.
The strategic relationship between Sobeys and Crombie REIT
gives Empire the means to realize the value of Sobeys’ real
estate assets and accelerate the expansion of our food retailing
business. In turn, Crombie REIT benefits from both preferred
and steady access to new retail properties in Sobeys’ property
development pipeline while retaining the opportunity to
create value through accretive third party acquisitions.
Food Retailing
Sales
($ in millions)
Investments and Other Operations
Sales
($ in millions)
$14,764.8
$15,236.6
$15,756.3
$16,044.6
$17,391.0
$250.3
$279.6
$200.5
$204.5
$221.7
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Food Retailing
Operating Income
($ in millions)
$399.5
$425.3
Investments and Other Operations
Operating Income
($ in millions)
$473.4
$475.8
$515.3
$66.7
$69.5
$54.4
$52.3
$58.5
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
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Empire Company Limited
1,569
Total Stores*
Well Established, Differentiated Stores
Sobeys goes to market with differentiated stores and retail
banners to meet the needs of its customers. These include:
Full Service stores that serve total food shopping requirements
with a broad product assortment and complete range of
specialty departments supported with superior customer
service; Fresh Service stores that meet the “fresh fill-in and
today’s meal” needs with service and customized offerings;
Community Service stores that serve the “routine and
fill-in” food shopping occasions of customers in rural
and one-store communities; Discount Service stores that
deliver low prices every day in markets where price is the
driving factor for store selection; and Convenience Service
stores that serve our “on-the-go” customers.
Full
Service
Sobeys
IGA extra
Thrifty Foods
Fresh
Service
Sobeys Urban Fresh
IGA
Community
Service
IGA
Foodland
Marché Bonichoix
Les Marchés Tradition
Discount
Service
FreshCo
Convenience
Service
Needs
To learn more about each of our retail banners, including where
they are located, please visit http://www.sobeyscorporate.com/
en/Our-Company/At-A-glance.aspx
*Includes the 236 retail gas locations and related convenience store operations acquired in fiscal 2012.
Annual Report 2013
7
8
Empire Company Limited
Our recipe
for success
Continuous improvement is the price of admission in the
Canadian food retailing business. After more than a decade
of focused investment, Sobeys has established itself as a
leading and dynamic national food retailer. This year’s report
examines the key ingredients of our strategy which continues
to support Sobeys’ goal to be widely recognized as the
best food retailer and workplace environment in Canada.
Annual Report 2013
9
Our Recipe for Success
Engaging
our customers
Many things have changed in Empire’s food retailing business over the past
106 years, but our success still depends on building strong and enduring relationships,
one customer at a time. Doing that well requires a keen awareness of what
customers are looking for and a culture that is aimed at sharing our knowledge,
enthusiasm and passion for food every day.
Sobeys goes to market with differentiated stores and retail
banners that consistently deliver superior shopping experiences
in their respective markets. Each format has resonated
with the customers it serves. In our full service format, which
includes the Sobeys, IGA extra and Thrifty Foods banners,
and represents our primary engine for growth, we continue to
roll out marketing and merchandising initiatives that are aimed
at creating a more intimate and enduring relationship with
our customers.
As always, the disciplined application of new technology is
playing a key role in strengthening these relationships. While
the traditional weekly flyer is still the industry’s primary means
of driving customer traffic, Sobeys continues to harness
customer insight capabilities to create a new generation
of more personalized marketing initiatives. Over the past
two years, we’ve worked closely with Aimia, a global leader
in loyalty program management, to embed Self Serve, a
proprietary, best-in-class customer analytics tool, within our
operations. This initiative provides an unprecedented ability to
analyze the data generated by Club Sobeys, Club Thrifty Foods
and AIR MILES® reward programs to enable better strategic
business decisions around many aspects of our operations,
from assortment to promotions.
This commitment to individual customer engagement can be
seen in the launch of My Offers, the first digital offers program
in Canada. It allows customers to load Club Sobeys/Club Thrifty
Foods points promotions directly onto their club cards and
redeem them in-store without paper printouts. My Offers
provides members with exclusive offers customized to
their shopping history, with promotions for regular purchases
and the opportunity to earn bonus points on premium or
complementary products.
My Offers, the first digital offers program in Canada, allows
customers to load points promotions directly onto their club
cards and redeem them in-store without paper printouts.
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Empire Company Limited
The promise of individual customer engagement can also
be seen on the mobile communications front in the latest
of Sobeys’ innovative meal solution initiatives. Moodie Foodie
is a unique recipe inspiration app that helps busy customers
to quickly choose, prepare and share delicious meals based
on their individual mood and circumstances.
We are also working harder to engage our customers by
improving the impact of our commercial programs within
the four walls of our stores. Over the next year, we will build
upon the success of our best commercial programs from
each banner to feature compelling new products – and the
related expertise needed to create total, value-added meal
solutions – across our national store network.
Moodie Foodie, a unique recipe inspiration app, exemplifies the kind
of one-to-one marketing initiatives that are helping to build stronger
relationships with our customers.
Sobeys’ Cheese Specialist Andy Shay, a member of the Guilde
Internationale des Fromagers, uses his expertise to bring an enhanced
cheese selection to our stores and train in-store cheese experts to
help customers discover, appreciate and enjoy cheese.
Our Recipe for Success
Focusing on
food &innovation
Sobeys’ food-focused strategy is aimed at delighting our customers with the best
food shopping experience in Canada through continuous improvement to our product,
service and merchandising offerings. Our ability to deliver on that promise requires
the kind of fresh thinking that comes from continuously viewing our business through
the eyes of our customers.
Sobeys’ food-focused, fresh-driven offering has a natural appeal
for Canada’s increasingly health-conscious consumers. Inspired
by our successful Rachelle-Béry health boutiques located in
select IGA extra stores in Québec, we continued to build on our
natural health and well-being position by introducing Natural
Source departments to our Sobeys stores in Atlantic Canada.
Designed as a dedicated boutique within the store, Natural
Source serves as a one-stop convenient location for more than
2,000 grocery, dairy and frozen food items including more than
600 gluten-free products. All products offered in the Natural
Source department must either be organic, have minimally
processed natural ingredients or have a simple ingredient
list. The region’s largest Sobeys stores are also home to our
innovative Wellbeing departments, which offer customers
approximately 3,000 natural health, natural beauty, sports
nutrition and environmentally friendly cleaning products. Each
department is staffed by highly trained Wellbeing Counsellors
who conduct regular information sessions on healthy living
and provide advice on all products available in our Wellbeing
and Natural Source departments. Nine Sobeys stores in
Atlantic Canada currently feature Wellbeing departments and
we have plans to expand the program during the year ahead.
Sobeys also continues to play a leadership role in our industry’s
efforts to support Health Canada’s recommendation to reduce
sodium levels in processed foods. Today, more than 80 percent
of our private label products are compliant with 2016 sodium
targets as outlined by Health Canada, with efforts well
advanced on the balance of our portfolio.
A similar spirit of innovation can be seen at work in the continuous
development of our private label program. For more than five
years, we have benefited from our unique Sensory Taste Panel,
which utilizes everyday Canadian consumers to ensure that
our Compliments private label products reflect the evolving
tastes and increasingly discriminating palates of our customers
across the country. During the past year, we added profiling
and preference mapping to the product testing process.
Dedicated Wellbeing Counsellors such as Amanda Searle conduct
regular information sessions and provide advice on all products
available in our Wellbeing and Natural Source departments.
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Empire Company Limited
Our increasingly popular Sensations by Compliments and
other private label products are developed with input from
our consumer panelists.
Natural Source is a new in-store boutique in Sobeys’ Atlantic
Canada stores that features more than 2,000 natural health grocery,
dairy and frozen food items in one convenient location.
Using the expertise of our consumer panelists to describe and
rate attributes of specific products, we are able to create a
profile that helps us formulate products that are consistently
best in class.
We are also finding new ways to grow Sobeys’ business outside
the four walls of our traditional food stores. The past year
witnessed the introduction of a Food for Fuel promotion across
our network of 191 Shell stations in Québec. Designed to
drive additional traffic to our retail food stores and enhance
customer loyalty, the program offers valuable discounts and
other incentives with every purchase of fuel. Food for Fuel
builds on the success of a similar and highly popular promotion
in Atlantic Canada that rewards Sobeys shoppers with fuel
discount coupons that can be redeemed for purchases at
nearby Fast Fuel, Irving and Shell locations.
Our Recipe for Success
Improving
our productivity
Over the past five years, Sobeys has invested more than $2.3 billion in the expansion
and modernization of store and distribution networks, the implementation of advanced,
enterprise-wide business systems and processes, and the development and engagement
of our people. Today, we are ready to reach progressively higher levels of productivity.
At Sobeys, we are committed to maintaining our competitive
price position in each market we serve. Our ability to do
this profitably has been made possible by consistently
enhancing our customer offering and shopping experience
while maintaining a balanced focus on cost and productivity
initiatives. During fiscal 2013, we completed the rollout of
our integrated SAP platform at Thrifty Foods and in our Québec
operations. We are now able to exploit the standardization
of our business processes and our advanced SAP-enabled
productivity tools from coast to coast. These include:
Workforce Management, which optimizes labour deployment
based on historical shopping patterns; Fresh Item Management,
which enables the outstanding quality and consistency of
our fresh offerings; and Computer Assisted Ordering, which
helps to optimize inventory levels in our stores.
The implementation of our SAP platform further enables
us to improve the performance of our national distribution
network. In November 2012, we opened our second automated
distribution facility in Terrebonne, Québec. It features the latest
generation of WITRON Integrated Logistics warehousing and
picking technology that has improved service levels to stores
and reduced distribution costs in our Ontario operations.
The Terrebonne facility incorporates a number of technological
advancements including the ability to pick single boxes of
product, a distinct inventory management advantage in serving
the convenience stores in our Québec operations.
The standardization of our business processes across the country
also provides the foundation for important organizational
changes that will drive our growth, productivity and people
strategies going forward. Sobeys’ former regional management
structure was replaced with two business units, each of which
Simon St-Pierre, Operations Supervisor, demonstrates the
efficiency of technology at our second automated distribution
centre in Terrebonne, Québec. The completion of our SAP
platform implementation is enabling the optimization of our
national distribution network.
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Empire Company Limited
SAP productivity tools are enabling us to optimize labour
deployment, better control inventory and improve the
quality and consistency of our fresh offerings.
WITRON Integrated Logistics warehousing and picking
technology has improved service levels to stores while
reducing distribution costs.
goes to market with a more focused, format-based approach.
Both units are supported by newly standardized processes
focused on reducing complexity, eliminating duplication and
fully capitalizing on our scale as a national organization.
While these improvements have enhanced our ability to
remain price competitive in each of the markets we serve,
they also provide an important foundation for many of the
sales productivity initiatives designed to enhance customer
loyalty and drive Sobeys’ positive same-store sales growth.
The completion of an integrated, system-wide business
platform offers abundant opportunities to create value by
enabling stronger supplier relationships and the execution
of more effective marketing and merchandising programs
from coast to coast.
Our Recipe for Success
Being the best
together
Empire’s most important competitive advantage is the quality of the people in our
food retailing and related real estate businesses. The talented individuals in our stores,
distribution centres and offices help create a high-performance culture that is the
foundation of Sobeys’ goal to become widely recognized as the best food retailer and
workplace environment in Canada.
Being the best together takes more than a commitment to
teamwork. It requires an open and cooperative environment
that encourages all employees to take ownership of their
career planning, to become fully engaged with our vision and
make a positive impact on the success of the organization by
satisfying more and more customers everyday. That’s why we
work hard to attract and retain exceptional people who share
our goals and expectations and why we provide the skills and
on-the-job training they need to learn and grow and succeed.
We also ensure employees are supported with the opportunities
and resources to advance their ambitions. The Sobeys & Empire
Work Experience & Scholarship Program awards numerous
scholarships each year to our student employees across
Canada, including the Future Leader Awards, providing financial
support and summer internship employment opportunities.
In total, these scholarships currently support more than
80 employees with financial awards of more than $130,000.
Recognizing the contributions of employees and celebrating
their achievements is equally important, and in that spirit,
we are proud to profile several individuals who played an
important role in Empire’s success over the past year.
Now in its fifth year, Sobeys Inc.’s Chartered Accountant
Training Office (CATO) program provides new graduates a
chance to earn their CA designations while gaining experience
throughout Empire’s operations. Five students have successfully
completed the program to date and three of them – Michelle
Lamont, Alex Grant and Erika Bateman – now hold their
CA designations and are working within the organization.
Marcia Peters, Future Leader Award recipient (above left)
Krista Payne, Director of Operations, GTA, Sobeys Full Service Format,
recently named one of Canadian Grocer’s Star Women in Grocery (left)
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Empire Company Limited
Matthew Malek, Manager, Talent Management and
Organizational Development was recognized by Canadian
Grocer with its 2012 Generation Next Award in the retail
category. Generation “Next”, which stands for New Exciting
Thinkers, recognizes up-and-coming leaders in the grocery
and consumer packaged goods industries. These leaders,
who must be under the age of 40, are celebrated for their
innovation, leadership and commitment to the grocery
industry. Matthew Zook, Director of Marketing, Ontario,
was another of the eight 2012 Generation Next finalists.
Andy Shay, Sobeys’ Cheese Specialist, was inducted into
Guilde Internationale des Fromagers, an invitation only society
of professional cheese makers, dairy farmers, processors,
refiners, traders and retailers who share a common passion
and respect for the traditions of fine cheese. The society
has 33 chapters worldwide with more than 5,000 members.
Krista Payne, Director of Operations, GTA, Sobeys Full Service
Format in Ontario, was recently named one of Canadian
Grocer’s Star Women in Grocery. Canadian Grocer launched
the awards this year to recognize the important role women
play in the grocery and consumer packaged goods industries
in Canada. Krista was one of 16 women selected from across
Canada to receive this award; all are proven leaders, innovative
thinkers and have made significant contributions to the
grocery retail and vendor communities.
Matthew Malek, Manager, Talent Management
and Organizational Development (above left)
Matthew Zook, Director of Marketing, Ontario (above right)
Empire, Sobeys and Crombie REIT work closely together
to facilitate the growth of our retail network and realize
the full value of our real estate assets. Anchored by Sobeys,
and home to Lawtons Drugs and other leading retailers,
139,000 sq. ft. Hemlock Square in Bedford, Nova Scotia
exemplifies this strategic relationship (below)
Long-term Progress
A legacy of
value creation
Empire’s ability to create value comes from investment in core businesses
we understand best – food retailing and related real estate. Focused
on meeting the everyday needs of Canadian consumers, these
businesses have helped Empire achieve steady performance over time.
Fiscal
2004
Sales
($ in millions)
$11,284.0
Adjusted
Net Earnings
($ in millions)
$163.3
Book Value
($ per share)
$23.67
APRIL 2004
During the year Empire
increases its ownership
interest in Sobeys, from
62% to 65%.
AUGUST 2004
Sobeys introduces its
exclusive Compliments
private label offering.
JUNE 2005
Wajax converts to an
income trust. Empire
sells 2.875 million units,
for a $25.6 million gain.
MARCH 2006
Crombie REIT completes
its initial public offering.
Empire sells 44 properties
to Crombie REIT for
$468.5 million and
retains an initial 48.3%
ownership interest.
JUNE 2007
Empire acquires the
outstanding common
shares of Sobeys that
it did not own for
$1.06 billion, achieving
100% ownership.
SEPTEMBER 2007
Sobeys acquires Thrifty
Foods for $253.6 million.
AUGUST 2006
Sobeys acquires Achille
de la Chevrotière Ltée,
for $79.2 million.
APRIL 2008
Empire sells 61 properties
for $428.5 million to
Crombie REIT.
04 05 06 07 08
18
Empire Company Limited
Fiscal
2013
Sales
($ in millions)
$17,612.7
Adjusted
Net Earnings
($ in millions)
$367.3
Book Value
($ per share)
$54.84
Adjusted Net
Earnings CAGR
8.7%
from 2003
to 2013
MARCH 2009
Empire issues
2.713 million 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, reduce Empire’s
ratio of debt to capital
to 32.7% from 39.8%.
MAY 2010
Sobeys enjoys another
record year and receives
credit rating upgrades
from Standard & Poor’s
and DBRS, with both
ratings at investment
grade. Empire reduces its
ratio of debt to capital to
29.3% from 32.7%.
OCTOBER 2010
Empire sells its
investment in Wajax
for net proceeds of
$121.3 million.
MAY 2011
Sobeys completes the
first year of the FreshCo
discount banner in
Ontario with a network
of 57 stores in operation
by fiscal year-end.
OCTOBER 2011
Sobeys initiates an
organizational
realignment to optimize
productivity and fully
capitalize on its scale.
MARCH 2012
Sobeys purchases
236 retail gas locations
in Québec and
Atlantic Canada for
$214.9 million.
NOVEMBER 2012
Sobeys begins
shipping from its
second fully-automated
distribution centre in
Terrebonne, Québec.
MARCH 2013
Sobeys completes its
national implementation
of the SAP business
platform to fully
capitalize on Sobeys
scale as a $17 billion
organization.
09 10 11 12 13
Annual Report 2013
19
Community
Supporting
our communities
At Empire, we know that a strong commitment to the communities that welcome our
operations is fundamental to our long-term success. We strive to be a good neighbour
in all that we do and actively encourage and support our employees, franchisees and
affiliates to help make their communities better places to live and work.
Empire and its subsidiaries support a wide range of
important causes across Canada at the corporate, regional
and individual store levels. Most of these initiatives support
families and children – especially in the areas of health,
wellness and education. The major focus is placed on local
communities where our employees, franchisees and affiliates
generously give their time and talent in support of important
events and causes. Our dedication to community service
is closely tied to the legacy of the Sobey family and the
culture of the organization, which expresses itself through
our collective commitment of giving back and helping to
enhance the lives of Canadians.
Thanks to donations from employees and customers in Ontario, Sobeys
Store Operators Allen Foget and Pat Begbie, joined by General Walter
Natynczyk and members of the Canadian Forces, load product for Operation
Santa Claus, a program administered by the Department of National Defence
that helps deliver holiday care packages to soldiers overseas. (left)
The 2012 Maritime Philanthropy Award for Outstanding Corporate Philanthropist
was presented to Rob Sobey, President and CEO of Lawtons Drugs, by Rosalie
Courage, President, RBR Development Associates Ltd. and a member of the
Association of Fundraising Professionals - Nova Scotia Chapter. (below)
20
Empire Company Limited
At the Helping Hands event on December 18, 2012, more than
600 employees from Sobeys’ national and regional offices surprised
the residents of Pictou County, Nova Scotia with hundreds of random
acts of kindness throughout the community and spontaneous donations
in support of many local charities. (above left)
Orange you glad you helped a kid? Thrifty Foods and Buck Brand Organic
Oranges teamed up for three weeks to support 12 KidSport British
Columbia chapters over the past winter. Thrifty Foods presented $80,874
to KidSport, enabling 323 kids to register for a full season of support. (left)
Sobeys is a proud sponsor of Healthy U – a government of Alberta
public information and education campaign in support of healthy eating
and active living. Sobeys employees distribute school snacks to Edmonton
students. (below)
Community
Protecting
the environment
As a leading Canadian food retailer with operations from coast to coast, Sobeys
occupies a pivotal point in the supply chain. We have a unique responsibility to
not just conduct our own business more sustainably, but to promote solutions
to advance the environmental interests of our customers, suppliers and the
communities in which we operate.
Sobeys initiated a formal sustainability program in 2008
with a baseline analysis of its environmental footprint and
a thorough examination of opportunities to effect positive
change through closer cooperation with industry partners.
As evidenced by our annual Sustainability Scorecard, we
have continued to make solid progress.
• In September 2012, Supermarket News awarded Sobeys
with the 2012 Sustainability Excellence Award in the store
chain category.
• In October 2012, Efficiency Nova Scotia presented Sobeys
with the Bright Star Award, which recognizes outstanding
energy efficiency within a large business.
• In October 2012, BC Hydro awarded Jerry Wyshnowsky,
Director of Energy and the Environment at Thrifty Foods
with the Power Smart Excellence Award for his role as
a Power Smart Energy Manager and for partnering with
BC Hydro on 12 Power Smart employee engagement
events over the past year. The Power Smart Excellence
Awards program is a province-wide recognition program
that recognizes BC Hydro’s best-in-class energy-efficient
business customers, retail partners and trade allies.
Sobeys is a sponsor of Map Your Meal, an integral component of
Girl Guides of Canada’s National Service Project “Operation Earth
Action”. This program challenges and empowers girls to become
more environmentally aware and take action on the issues that
make an impact in their communities and in their world. Map
Your Meal is a hands-on activity that teaches girls the importance
of knowing where their food comes from, and explores the
environmental and health benefits of meal planning as well as
buying and cooking with food grown and raised closer to home.
2012 Scorecard
The following table summarizes Sobeys Inc.’s progress on key sustainability goals
and indicators in fiscal 2012 compared to our 2008 baseline. The measurements
are intensity based, except as otherwise noted, and direct operations boundaries
include our corporate owned stores, distribution centres and fleets.
For more information, please visit www.sobeyssustainability.com
Direct Operations
Goal 1: Reduce Greenhouse Gas (GHG) emissions by 15% by December 31, 2013
PROGRESS
KEy ACTIONS
COLLABORATIVE INITIATIVES
Carbon Footprint
• Retail stores (84% of total footprint):
a 9.4% decrease in kgs CO2e/ft2
• Distribution centres (9.5% of total footprint):
a 22% decrease in kgs CO2e/100 cases shipped
• Fleets (6.5% of total footprint):
a 12% decrease in kgs CO2e/100 kms travelled
• Used our web-based, carbon footprint and
waste/waste diversion measurement system to
measure progress towards our 2013 CO2e
emissions and waste reduction targets, engaged
management and employees in emissions reduction
activities, and identified improvement opportunities
• Expanded the introduction of measures proven
• Canadian supermarket industry shared
carbon footprint annual measurement
and reporting web tool, based on WBCSD/
WRI GHG Protocol: A Corporate Accounting
and Reporting Standard (Revised Edition)
to be effective in reducing our energy and
refrigerant leak CO2e emissions
• Outside the scope of our carbon footprint,
Sobeys’ corporate and third party fleets
travelled 4.1 million backhaul kilometres
(a 25.6% increase over fiscal 2011)
The two dominant contributors to our stores’ carbon footprint are: electricity consumption (68.2%) and refrigerant leaks (21.5%)
Goal 2: Reduce waste to landfill by 30% by December 31, 2013
• Fees of $11.43 million for 2011 will be
collected as our share of municipal bluebox
stewardship program costs in Québec, Ontario
and Manitoba
• Partnered with waste management companies
servicing our operations to identify new
opportunities to further expand our waste
diversion programs
Waste Diversion
In fiscal 2012, 48% of all waste diverted
from landfill:
• Retail stores: a 9.8% decrease in kgs
waste to landfill/ft2
• Distribution centres: a 30.4% decrease in
kgs waste to landfill per 100 cases shipped
Significant quantities of materials sent for
recycling and organic matter composting:
• Cardboard: 39,000 metric tonnes
• Organic waste: 13,500 metric tonnes
• Plastics: 1,500 metric tonnes
• Other materials (paper, metals,
and oils and fats): 1,000 metric tones
Over the past year, we have increased the
volume of material diverted from landfill
by more than 2,000 metric tonnes, or 3.9%
Since 2008, the annual volume sent to landfill has
been reduced by 5,600 metric tonnes in retail stores
and 2,000 metric tonnes in distribution centres.
Initiatives included:
• Installing on-site organic waste processing systems
at 44 stores across Ontario, on average, reducing
store waste to landfill volume by 34%
• Expanding our produce organic waste diversion
program in British Columbia to all stores resulting
in a combined diversion of 2,300 metric tonnes
of organic produce waste (24.5% year-over-year
increase in these stores’ organics diversion volume)
• Piloting an expansion of this program in British
Columbia to include other types of organic
materials (e.g. baked goods, dairy, meat)
• Piloting a plastics recycling program in five
distribution centres in Atlantic Canada expected
to result in diverting 60 metric tonnes of
plastics from landfill annually
• Implementing a variety of waste diversion programs
at the three Ontario distribution centres and
engaging employee participation enabling them
to increase the volume of materials diverted
from landfill by 31.5%, compared to last year
Supply Chain
Sustainable Seafood Goal: By 2013 stop selling any species with significant issues unless an improvement plan is in place
PROGRESS
KEy ACTIONS
COLLABORATIVE INITIATIVES
Baseline data still in progress
• De-listed all species of sharks, skates,
rays, orange roughy and bluefin tuna
• Sustainable Fisheries Partnership
www.sustainablefish.org
• Helped initiate British Columbia wild salmon
fishery improvement plan; supported and in
process of initiating several others
• 71 Compliments private label products eco-labeled
• Implemented decision support tool for seafood
buyers to assess relative sustainability of
products procured
Annual Report 2013
23
Chair’s Letter
Delivering
long-term value
In fiscal 2013, Empire shares generated a total return of 21.0 percent compared
to 8.1 percent for the S&P/TSX Composite Index and, subsequent to fiscal
year-end, rewarded investors with 18 consecutive years of increasing dividends.
Over the past 20 years, Empire shares have provided an annual average total
return of 13.5 percent.
This performance has been made possible by our steadfast
focus on food retailing and related real estate – businesses
that serve the essential, everyday needs of Canadians. We
have been at these businesses for many decades and with the
benefit of significant family ownership, have pursued a growth
strategy focused on long-term sustainable value creation
rather than short-term financial performance. This approach
can be seen in the careful investments behind Sobeys’ growth
into a leading national food retailer, the creation of Crombie
REIT to facilitate Sobeys’ expansion across the country and the
development of an increasingly effective partnership between
these two businesses.
As Paul Sobey mentioned in his letter, we recently announced
one of our most important investments yet with the planned
$5.8 billion purchase of Canada Safeway. This leading Western
Canada grocer is an excellent strategic fit given its similar
food-focused strategy, skilled management team, strong
corporate culture, and complementary market position in the
region’s largest and fastest growing population centres. Over
the past 15 years, the senior management teams at Empire
and Sobeys have done a great job acquiring, financing and
integrating several attractive businesses to support Sobeys’
growth into a leading national food retailer. Accordingly, we
are confident this most recent acquisition will make a strong
contribution to Empire’s ongoing record of value creation.
On behalf of the Company’s shareholders, the Board plays
an active role in establishing strategy and monitoring the
performance of all of Empire’s operations. A key responsibility is
to ensure that appropriate training, development and succession
planning policies and practices are in place. It is also our
responsibility to understand the major risks that could impact
24
Empire Company Limited
“ With the benefit of significant family ownership,
we have pursued a growth strategy focused on
long-term sustainable value creation rather than
short-term financial performance.”
Robert P. Dexter
Chair, Empire Company Limited
the Company’s performance. Empire has well-established enterprise risk
management policies and procedures, as well as risk mitigation strategies in
place throughout our operations and the Company’s Chief Internal Auditor
provides extensive reporting to the Audit Committee each quarter.
Going forward, the Board will continue to ensure our corporate governance
practices reflect the highest possible standards. Our progress is guided
by a capable group of seasoned Board members that includes Sobey family
representatives and a majority of independent directors. This unique mix
creates a healthy and challenging boardroom dynamic that serves the interests
of all shareholders while allowing us to focus on the long-term growth and
development of Empire’s businesses.
In closing, I would like to extend the Board’s heartfelt thanks to Marcel Côté
who will be retiring from Empire’s Board at this year’s Annual General Meeting
following 15 years of outstanding service to both Sobeys and Empire. I am
also very pleased to welcome Cynthia Devine, Chief Financial Officer of
Tim Hortons Inc., who joined the Board in January and Kevin Lynch, Vice Chair
of BMO Financial Group, both of whom will be standing for election at the Annual
General Meeting this September 2013. In addition, Bonnie Brooks, President
of Hudson’s Bay Company and Martine Turcotte, Vice Chair, Québec BCE Inc. and
Bell Canada, who joined our Board in 2012, will also be standing for re-election
in September 2013. These accomplished individuals add considerable retail and
financial expertise to our Board.
Finally, as Chair, and on behalf of the entire Board, I would like to thank the
thousands of people in Empire’s operating companies, franchisees, affiliates,
and the management teams at Empire and its direct and affiliated operations
for delivering another year of strong performance. Thanks to their efforts,
we have been able to keep delivering value to shareholders while strengthening
our foundation for continued success.
ROBERT P. DExTER
Chair
Empire Company Limited
June 27, 2013
Directors and Officers
The value of
good governance
Empire Company Limited Board of Directors (As of June 27, 2013)
Robert P. Dexter
Chair
Bonnie Brooks
Toronto, Ontario
Marcel Côté
Montréal, Québec
Cynthia Devine
Toronto, Ontario
David S. Ferguson
Atlanta, Georgia
Edward C. Harsant
Woodbridge, Ontario
Halifax, Nova Scotia
Director since 2012
Director since 2007
Director since 2013
Director since 2007
Director since 2003
Director since 1987
David Leslie
Toronto, Ontario
Marc Poulin
Montréal, Québec
Mel Rhinelander
Toronto, Ontario
Stephen J. Savidant
Calgary, Alberta
David F. Sobey
New Glasgow, Nova Scotia
Donald R. Sobey
Pictou County, Nova Scotia
Director since 2007
Director since 2012
Director since 2007
Director since 2004
Director since 1963
Director since 1963
Frank C. Sobey
Pictou County, Nova Scotia
John R. Sobey
Pictou County, Nova Scotia
Karl R. Sobey
Halifax, Nova Scotia
Paul D. Sobey
Pictou County, Nova Scotia
Robert G. C. Sobey
Stellarton, Nova Scotia
Martine Turcotte
Verdun, Québec
Director since 2007
Director since 1979
Director since 2001
Director since 1993
Director since 1998
Director since 2012
To learn more, please visit
www.empireco.ca/governance
26
Empire Company Limited
Officers of Empire Company Limited (As of June 27, 2013)
Robert P. Dexter
Chair
Paul D. Sobey
President and
Paul V. Beesley
Executive Vice President
Frank C. Sobey
Vice President,
Chief Executive Officer
and Chief Financial Officer
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 (As of June 27, 2013)
SOBEYS INC.
Robert P. Dexter
Chair
Marc Poulin
President and
François Vimard
Executive Vice President
Jason Potter
President, Sobeys
Claude Tessier
President, Sobeys IGA
Chief Executive Officer
Multi-Format Operations
Operations
Paul A. Jewer
Chief Financial Officer
Simon Gagné
Chief Human Resources
Karin McCaskill
Senior Vice President,
L. Jane McDow
Assistant Secretary
Officer
General Counsel
and Secretary
ECL PROPERTIES LIMITED
EMPIRE THEATRES LIMITED
Frank C. Sobey
Vice President
Stuart G. Fraser
President and
Chief Executive Officer
Valerie Ryan
Chief Operating Officer
Paul W. Wigginton
Vice President,
Chief Financial Officer
Annual Report 2013
27
Management’s discussion
and analysis
Table of Contents
Forward-Looking Information
Non-GAAP Financial Measures
Empire’s Strategic Direction
Overview
Consolidated Operating Results
Management’s Explanation of Consolidated
Operating Results
Sales
EBITDA
Operating Income
Finance Costs
Income Taxes
Net Earnings
Adjusted Net Earnings
Fiscal 2013 Financial Performance by Segment
Food Retailing
Investments and Other Operations
Quarterly Results of Operations
Consolidated Financial Condition
Capital Structure and Key Financial
Condition Measures
Shareholders’ Equity
Liabilities
Financing of the Canada Safeway
Proposed Acquisition
Financial Instruments
29
31
32
32
34
35
35
36
37
37
38
38
38
39
39
42
45
49
49
49
50
51
51
Liquidity and Capital Resources
Operations
Investment
Financing
Business Acquisitions
Guarantees and Commitments
Free Cash Flow
Accounting Standards and Policies
Accounting Standards and Policies Adopted
During Fiscal 2013
Future Changes in Accounting Standards
Critical Accounting Estimates
Disclosure Controls and Procedures
Internal Control over Financial Reporting
Related Party Transactions
Subsequent Events
Employee Future Benefit Obligations
Designation for Eligible Dividends
Contingencies
Risk Management
52
52
53
54
54
55
57
58
58
58
59
60
61
61
62
63
63
63
63
28
Empire Company Limited
Management’s Discussion and Analysis
The following Management’s Discussion and Analysis (“MD&A”) contains commentary from management on the consolidated
financial condition and results of operations of Empire Company Limited (“Empire” or the “Company”) for the 52 weeks ended
May 4, 2013 compared to the 52 weeks ended May 5, 2012. 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 two business segments, 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 or on the Company’s website at www.empireco.ca.
This discussion and analysis is the responsibility of management. The Board of Directors carries out its responsibilities 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 Company’s audited annual consolidated financial statements
and the accompanying notes for the 52 weeks ended May 4, 2013 compared to the 52 weeks ended May 5, 2012. The audited
annual consolidated financial statements and the accompanying notes are prepared in accordance with International Financial
Reporting Standards (“IFRS” or “GAAP”) as issued by the International Accounting Standards Board (“IASB”) and are reported
in Canadian dollars.
These consolidated financial statements include the accounts of Empire, its subsidiaries and Special Purpose Entities (“SPEs”),
which the Company is required to consolidate. The information contained in this MD&A is current to June 27, 2013, 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 operations, cash
flows, performance, business prospects and opportunities, may constitute forward-looking information. Expressions such as
“anticipates”, “expects”, “believes”, “estimates”, “could”, “intends”, “may”, “plans”, “will”, “would” and other similar expressions, or
the negative of these terms, are generally indicative of forward-looking statements.
These forward-looking statements include the following items:
• The Company’s expectation relating to timing and completion of the proposed Canada Safeway Limited (“Canada Safeway”)
acquisition which may be impacted by regulatory approval and other conditions in the acquisition agreement;
• The Company’s expectation relating to its ability to complete any sale-leaseback transaction and other asset sales and the
timing of such transactions which may be impacted by market conditions and the ability to negotiate acceptable terms with
third parties;
• The Company’s expectation relating to final financing breakdown, including the amount of bridge financing drawn and the
timing of paying back any bridge financing drawn, which may be impacted by the timing of closing, any sale-leaseback
transaction, other asset sales and cash flows;
• Anticipated benefits of the Canada Safeway proposed acquisition such as growth prospects, benefits from economies of scale,
future business strategy, and expectations regarding operations and strategic fit which may be impacted by the ability of the
Company to predict and adapt to changing consumer tastes, preferences and spending patterns and the anticipated retention
of Canada Safeway’s operational employees;
• The Company’s expectation relating to timing and completion of the proposed Empire Theatres sales which may be impacted
by regulatory approval and other conditions in the sale agreements;
• The value of the Company’s remaining equity interest and earn out relating to the Empire Theatres sale and its ability to realize
on either may be impacted by market conditions and Landmark’s ability to successfully operate the assets;
• Our expectation that the strength of Sobeys’ relationship with 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, which may be impacted by commercial real estate market conditions and the availability of mutually desirable properties
for development and sale by Sobeys and for purchase by Crombie REIT;
• The Company’s expectation that its operational and capital structure is sufficient to satisfy its ongoing business requirements,
which could be impacted by a significant change in the current economic environment in Canada;
Annual Report 2013
29
• The Company’s belief that its cash and cash equivalents on hand, unutilized bank credit facilities and cash generated from
operating activities will enable the Company to fund future capital investments, pension plan contributions, working capital,
current funded debt obligations and ongoing business requirements, and its belief that it has sufficient funding in place to
meet these requirements and other short-term and long-term obligations, all of which could be impacted by changes in the
economic environment;
• The Company’s expected contributions to its registered defined benefit plans, which could be impacted by fluctuations in asset
values due to market uncertainties;
• The Company’s expected use and estimated fair values of financial instruments, which could be impacted by, among other
things, changes in interest rates, foreign exchange rates and commodity prices;
• The Company’s expectation that ongoing litigation matters and claims arising from the ordinary course of business will have no
material impact on the Company;
• The Company’s expectations that the adoption of certain accounting standards and policies adopted during fiscal 2013 are not
expected to have a significant impact on the Company’s financial statements;
• Sobeys Inc.’s (“Sobeys”) expectations relating to administrative and business rationalization initiatives, which could be
impacted by the final scope and scale of these initiatives;
• Sobeys’ expectations of continued sales growth in fiscal 2014, which could be impacted by changes in the competitive environment;
• Sobeys’ expectations regarding the reduction in business costs related to the opening of the new distribution centre in
Québec, which could be impacted by the number of positions eliminated at other distribution centres; and
• Sobeys’ expectations relating to pending tax matters with Canada Revenue Agency (“CRA”), which could be determined
differently by CRA. This could cause the Company’s effective tax rate and its earnings to be affected positively or negatively in
the period in which the matter is resolved.
These statements are based on 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 operations 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 reflects 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
uncertainties 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 its 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 at June 27, 2013 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.
30
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 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:
• Adjusted sales are sales excluding the impact of the acquisition of 236 retail gas locations and related convenience store
operations in the fourth quarter of fiscal 2012.
• Same-store sales are sales from stores in the same location in both reporting periods.
• Gross profit is calculated as sales less cost of sales.
• Gross margin is gross profit divided by sales.
• Operating income, or earnings before interest and taxes (“EBIT”) is calculated as net earnings before non-controlling interest,
finance costs (net of finance income) and income taxes.
• Adjusted operating income is operating income excluding items which are considered not indicative of underlying business
operating performance.
• Operating income margin is operating income divided by sales.
• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as operating income plus depreciation
and amortization of intangibles, which is reconciled to the operating income measure as set out in the following table.
($ in millions)
Operating income
Depreciation
Amortization of intangibles
EBITDA
13 Weeks Ended
52 Weeks Ended
May 4, 2013
May 5, 2012 May 4, 2013
May 5, 2012
$
155.1
79.6
12.3
$
136.4 $
77.7
10.1
$
584.8
314.8
44.5
534.3
304.1
38.2
$
247.0
$
224.2 $
944.1
$
876.6
• Adjusted EBITDA is EBITDA excluding items which are considered not indicative of underlying business operating performance.
• EBITDA margin is EBITDA divided by sales.
• Interest expense is calculated as interest expense on financial liabilities measured at amortized cost plus losses on cash flow
hedges reclassified from other comprehensive income.
• Adjusted net earnings is net earnings excluding items which are considered not indicative of underlying business
operating performance.
• Funded debt is all interest bearing debt, which includes bank loans, bankers’ acceptances and long-term debt.
• Net funded debt is calculated as funded debt less cash and cash equivalents.
• Total capital is calculated as funded debt plus shareholders’ equity, net of non-controlling interest.
• Net total capital is total capital less cash and cash equivalents.
• Book value per common share is shareholders’ equity, net of non-controlling interest, divided by total common
shares outstanding.
• Free cash flow is calculated as cash flows from operating activities, plus proceeds on disposal of property, equipment and
investment property, less property, equipment and investment property purchases.
• Return on equity, as reported by Sobeys, is net earnings for the year attributable to owners of the parent, divided by average
shareholders’ equity.
Annual Report 2013
31
The following tables reconcile Empire’s funded debt, net funded debt, net total capital and total capital to GAAP measures
reported on the balance sheets as at May 4, 2013, May 5, 2012 and May 7, 2011, respectively.
($ in millions)
May 4, 2013
May 5, 2012
May 7, 2011
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, net of non-controlling interest
Net total capital
($ in millions)
Funded debt
Total shareholders’ equity, net of non-controlling interest
Total capital
EMPIRE’S STRATEGIC DIRECTION
$
6.0
47.6
–
915.9
969.5
455.2
514.3
3,726.2
$
4.4
237.3
–
889.1
1,130.8
510.2
620.6
3,396.3
$
–
49.4
12.7
1,090.3
1,152.4
615.9
536.5
3,162.1
$ 4,240.5
$ 4,016.9
$ 3,698.6
May 4, 2013
May 5, 2012
May 7, 2011
$
969.5
3,726.2
$ 1,130.8
3,396.3
$ 1,152.4
3,162.1
$ 4,695.7
$ 4,527.1
$ 4,314.5
Management’s primary objective is to maximize the long-term sustainable value of Empire through enhancing the worth of the
Company’s net assets. This is accomplished through direct ownership and equity participation in businesses that management
knows and understands and believes to have the potential for long-term sustainable growth and profitability, principally food
retailing and related real estate.
The Company continues to focus on its core strengths in food retailing and related real estate by continuing to direct its energy
and capital towards growing long-term sustainable value through cash flow and income growth. While our core businesses are
well established and profitable in their own right, they also offer Empire geographical diversification across Canada, which is
considered by management to be an additional source of strength. Together, our core businesses reduce risk and volatility,
thereby contributing to greater consistency in consolidated earnings growth over the long term. Going forward, the Company
intends to continue to direct its resources towards the most promising opportunities within these core businesses in order to
maximize long-term shareholder value.
In carrying out the Company’s strategic direction, Empire’s 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.
Subsequent to fiscal year-end, Sobeys entered into an agreement with Safeway Inc. and its subsidiaries, pursuant to which
Sobeys agreed to purchase substantially all of the assets of Canada Safeway. See “Subsequent Events”.
OVERVIEW
Empire’s key businesses include food retailing and related real estate. The Company’s financial results are segmented into two
separate operating segments: (1) Food Retailing and (2) Investments and Other Operations. With over $17 billion in annual sales
and approximately $7.1 billion in assets, Empire and its subsidiaries directly employ approximately 47,000 people.
Food Retailing
Empire’s food retailing segment is carried out through its wholly-owned subsidiary, Sobeys, which conducts business through
more than 1,500 retail stores (corporately owned and franchised), operating in every province and in over 800 communities
across Canada.
32
Empire Company Limited
Management’s Discussion and Analysis
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. Sobeys operates distinct store formats to better tailor its offering to the various
customer segments it serves and to satisfy its customers’ principal shopping requirements. 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. The primary focus of these format development efforts are Sobeys’ six major banners: Sobeys,
IGA extra, Thrifty Foods, IGA, Foodland and FreshCo.
During the year, Sobeys opened, replaced, expanded, renovated, acquired and/or converted the banners in 54 stores (fiscal 2012
– 324 stores). Fiscal 2012 included the March 15, 2012 acquisition of 236 retail gas locations and related convenience store
operations in Québec and Atlantic Canada from Shell Canada. The network acquired includes corporate owned and dealer
operated locations and during fiscal 2013 Sobeys recorded sales of approximately $1.0 billion.
In fiscal 2013, 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.
Investments and Other Operations
Empire’s investments and other operations segment consists of:
1. A 42.8 percent (40.8 percent fully diluted) equity accounted interest in Crombie REIT, a Canadian real estate investment
trust investing in income-producing retail, office and mixed-use properties in Canada, with a future growth strategy focused
primarily on the acquisition of retail properties. Crombie REIT currently owns a portfolio of 176 commercial properties in
nine provinces, comprising approximately 14.5 million square feet of gross leasable area;
2. A 40.7 percent equity accounted interest in Genstar Development Partnership, a 48.6 percent equity accounted interest in
Genstar Development Partnership II, a 42.1 percent equity accounted interest in each of GDC Investments 4, L.P., GDC
Investments 5, L.P., and GDC Investments 6, L.P., a 45.8 percent equity accounted interest in GDC Investments 7, L.P. and
a 43.7 percent equity accounted interest in GDC Investments 8, L.P. (collectively referred to as “Genstar”). Genstar is a
residential property developer with operations in select markets in Ontario, Western Canada and the United States; and
3. Wholly-owned ETL Canada Holdings Limited (“Empire Theatres”), which is the second largest movie exhibitor in Canada.
As of May 4, 2013, Empire Theatres owned 50 locations representing 421 screens.
Fiscal 2013 Financial Highlights
• Sales of $17.61 billion, up $1,363.6 million or 8.4 percent. After adjusting for the impact of the acquisition of 236 retail
gas locations and related convenience store operations in the fourth quarter of fiscal 2012, consolidated sales increased
$463.0 million or 2.9 percent.
• Sobeys’ same-store sales increased 1.3 percent.
• Net earnings, net of non-controlling interest, of $384.8 million ($5.65 per diluted share), a $45.4 million or 13.4 percent
increase from $339.4 million ($4.99 per diluted share) in fiscal 2012.
• Adjusted net earnings, net of non-controlling interest, of $367.3 million ($5.39 per diluted share), a $44.6 million or
13.8 percent increase from $322.7 million ($4.74 per diluted share) in fiscal 2012.
• Sobeys opened, acquired or relocated 45 corporate and franchised stores, expanded 2 stores, rebannered/redeveloped
7 stores and closed 37 stores.
• Free cash flow of $437.3 million versus $407.9 million last year.
• Funded debt to total capital of 20.6 percent, down 4.4 percentage points from 25.0 percent recorded at the end of last
fiscal year.
• Annual dividend per Non-Voting Class A and Class B common share increased to $0.96 from $0.90 last year.
Annual Report 2013
33
CONSOLIDATED OPERATING RESULTS
The consolidated financial overview provided below reports on the financial performance for the 52 weeks ended May 4, 2013
relative to the 52 weeks ended May 5, 2012 and the 53 weeks ended May 7, 2011.
($ in millions, except per share amounts)
Sales
EBITDA(1)(2)
Adjusted EBITDA(1)(3)
Operating income(1)(2)
Net earnings,
52 Weeks Ended
May 4, 2013
52 Weeks Ended
May 5, 2012
53 Weeks Ended
May 7, 2011
$ 17,612.7
944.1
921.7
584.8
% of Sales
100.00%
5.36%
5.23%
3.32%
% of Sales
$ 16,249.1
876.6
856.2
534.3
100.00%
5.39%
5.27%
3.29%
$ 15,956.8
863.0
837.7
525.7
% of Sales
100.00%
5.41%
5.25%
3.29%
net of non-controlling interest
384.8
2.18%
339.4
2.09%
400.6
2.51%
Adjusted net earnings,
net of non-controlling interest(1)(3)
367.3
2.09%
322.7
1.99%
303.2
1.90%
Basic earnings per share
Net earnings,
net of non-controlling interest
Adjusted net earnings,
net of non-controlling interest(1)(2)
Basic weighted average number
of shares outstanding (in millions)
Diluted earnings per share
Net earnings,
net of non-controlling interest
Adjusted net earnings,
net of non-controlling interest(1)(2)
Diluted weighted average number
of shares outstanding (in millions)
Dividend per share
(1) See Non-GAAP Financial Measures on page 31.
$
$
$
$
$
5.66
5.41
67.9
5.65
5.39
68.1
0.96
$
$
$
$
$
4.99
4.75
67.9
4.99
4.74
68.0
0.90
$
$
$
$
$
5.88
4.45
68.1
5.87
4.45
68.2
0.80
(2) Certain balances have been reclassified for changes to comparative figures (see Note 32 to the Company’s fiscal 2012 audited annual financial statements).
(3) Excludes items which are considered not indicative of underlying business operating performance.
Outlook
Management’s primary objective will continue to be to maximize the long-term sustainable value of Empire through enhancing
the worth of the Company’s net assets.
Management is clearly focused on directing its energy and capital towards growing the long-term sustainable value of its food
retailing and related real estate. In doing so, we remain committed to: (i) supporting Sobeys in its goal to be widely recognized
as the best food retailer and workplace environment in Canada; (ii) the profitable growth of Sobeys’ real estate development
operations as it develops new properties that are congruent with growing Sobeys and which, upon completion, will be offered for
sale to Crombie REIT; (iii) capitalizing on opportunities afforded as a result of the existing strong relationships between our food
retailing and our real estate businesses; and (iv) the continued strengthening of our financial condition through the prudent
management of working capital and free cash flow in each operating company.
34
Empire Company Limited
Management’s Discussion and Analysis
Food Retailing
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 while improving the customers’ in-store experience and our productivity.
Sobeys also plans to focus on its workforce management and in-store programs in fiscal 2014 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.
Investments and Other Operations
Empire remains committed to its investment in Crombie REIT. We are confident that the strength of Sobeys’ relationship with
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.
Empire expects to continue to benefit from the distinguishing advantage inherent in Sobeys’ real estate development operations,
whereby it provides robust in-house expertise in the selection and development of commercial locations, which will be offered
for sale to Crombie REIT.
Shareholder Return
The Company delivered a total shareholder return of 21.0 percent in fiscal 2013 as shown in the table below. The compound
annual return on the Company’s shares over the past five years has averaged 13.5 percent and over the past ten years has
averaged 12.7 percent. This compares to the compound annual return of the S&P/TSX Composite Index over the past five and
ten years of 0.2 percent and 9.3 percent, respectively.
In fiscal 2013, the Company increased its dividend by 6.7 percent to $0.96 per share. This was the seventeenth consecutive year
of dividend increases. On June 27, 2013, the Board approved a further dividend increase of 8.3 percent to $0.26 per share
quarterly, which amounts to $1.04 per share on an annualized basis. Empire’s dividends are declared quarterly at the discretion
of the Board.
For the fiscal year ended:
May 4, 2013
May 5, 2012
May 7, 2011
May 1, 2010
May 2, 2009
5-Year CAGR(1)
Closing market price
per share (TSX: EMP.A)
Dividend paid per share
Dividend yield on prior year closing price
Increase in closing share price
Total annual shareholder return(2)
(1) Compound annual growth rate (“CAGR”).
$
$
$
$
$
$
68.58
0.96
1.7%
19.0%
21.0%
57.62
0.90
1.7%
6.4%
8.1%
$
$
54.14
0.80
1.5%
2.2%
3.7%
$
$
52.98
0.74
1.5%
8.1%
9.9%
49.00
0.70
1.8%
24.8%
26.8%
11.8%
7.8%
13.5%
(2) Total annual shareholder return assumes reinvestment of quarterly dividends, and therefore may not equal the sum of dividend and share price returns in the table.
MANAGEMENT’S EXPLANATION OF CONSOLIDATED OPERATING RESULTS
The following is a review of Empire’s consolidated financial performance for the 52 weeks ended May 4, 2013 compared to the
52 weeks ended May 5, 2012.
The financial performance of each of the Company’s segments (food retailing and investments and other operations) is discussed
in detail in the section entitled “Fiscal 2013 Financial Performance by Segment” in this MD&A.
Sales
Consolidated sales for fiscal 2013 were $17.61 billion compared to $16.25 billion in fiscal 2012, an increase of $1,363.6 million
or 8.4 percent. During this period, sales from the food retailing segment increased $1,346.4 million or 8.4 percent.
Annual Report 2013
35
The following table reconciles sales reported by Sobeys to Empire’s food retailing segmented sales, and food retailing and
investments and other operations’ segmented sales to Empire’s consolidated sales.
($ in millions)
Food retailing segment
Sobeys’ reported sales
Reclassification of lease revenue from
owned property recorded by Sobeys
52 Weeks Ended
May 4, 2013
May 5, 2012
($)
Change
(%)
Change
$ 17,345.8
$ 16,021.9
$ 1,323.9
8.3%
56.9
33.6
17,402.7
16,055.5
1,347.2
8.4%
Elimination of inter-segment
(11.7)
(10.9)
Empire’s food retailing segmented sales
17,391.0
16,044.6
1,346.4
8.4%
Investments & other operations segment
Recorded sales
Elimination of inter-segment
Empire’s investments & other operations segmented sales
221.7
–
221.7
204.6
(0.1)
204.5
17.1
8.4%
17.2
8.4%
Empire consolidated sales
$ 17,612.7
$ 16,249.1
$ 1,363.6
8.4%
For the 52 weeks ended May 4, 2013, Sobeys reported sales of $17.35 billion, an increase of $1,323.9 million or 8.3 percent from
the $16.02 billion reported last year. Sobeys’ same-store sales increased 1.3 percent in fiscal 2013.
The growth in Sobeys’ reported sales in fiscal 2013 was a direct result of the acquisition of 236 retail gas locations and related
convenience store operations in the fourth quarter of fiscal 2012 and Sobeys’ continued investment in its retail network, coupled
with the continued implementation of sales and merchandising initiatives, improved consistency of store level execution and
product and services innovation.
The following table shows a reconciliation of sales reported by Sobeys for the 52 weeks ended May 4, 2013 compared to the prior
year. Excluding the impact of the acquisition of 236 retail gas locations and related convenience store operations in the fourth
quarter of fiscal 2012, Sobeys’ reported sales increased $423.3 million or 2.7 percent for the 52 weeks ended May 4, 2013.
($ in millions)
Sales (reported by Sobeys)
Adjustments:
52 Weeks Ended
May 4, 2013
May 5, 2012
($)
Change
(%)
Change
$ 17,345.8
$ 16,021.9
$ 1,323.9
8.3%
Impact of acquisition of 236 retail gas locations and
related convenience store operations
(1,031.6)
(131.0)
(900.6)
Adjusted sales(1)
(1) See Non-GAAP Financial Measures on page 31.
$ 16,314.2
$ 15,890.9
$
423.3
2.7%
Investments and other operations recorded sales of $221.7 million in fiscal 2013 compared to $204.5 million last year.
Please refer to the section entitled “Fiscal 2013 Financial Performance by Segment” for an explanation of the change in sales
by segment.
EBITDA
Consolidated EBITDA for the 52 weeks ended May 4, 2013 increased $67.5 million or 7.7 percent to $944.1 million from
$876.6 million in fiscal 2012. This increase primarily relates to increased sales, in particular fuel sales, and the corresponding
increase in gross profit for the 52 weeks ended May 4, 2013 compared to the same period in the prior year. During this period,
EBITDA margin decreased slightly to 5.36 percent from 5.39 percent in the prior year. The decrease in EBITDA margin is a result
of lower margins experienced on fuel sales at Sobeys. Adjusting for items which are considered not indicative of underlying
business operating performance, consolidated adjusted EBITDA for fiscal 2013 was $921.7 million compared to $856.2 million
last year, an increase of $65.5 million or 7.7 percent.
36
Empire Company Limited
Management’s Discussion and Analysis
($ in millions)
EBITDA(1) (consolidated)
Adjustments:
Sobeys’ organizational realignment costs
One-time charge from equity accounted investments(2)
Transaction costs for Canada Safeway proposed acquisition
Sobeys Québec distribution network restructuring
Dilution gains(3)
Gain on disposal of assets
Adjusted EBITDA(1)
(1) See Non-GAAP Financial Measures on page 31.
52 Weeks Ended
May 4, 2013
May 5, 2012
$
944.1
$
876.6
9.1
8.3
5.0
2.4
(18.2)
(29.0)
(22.4)
9.2
–
–
3.0
(10.4)
(22.2)
(20.4)
$
921.7
$
856.2
(2) Reflects a decrease in equity earnings from the investment in Crombie REIT to account for the fair value of Crombie REIT’s convertible debentures for the current year
and restatement of prior years.
(3) Includes an increase in previously recorded dilution gains as a result of the adjustment to Crombie REIT’s equity to account for the fair value of its convertible
debentures for the current year and the restatement of prior years.
Please refer to the section entitled “Fiscal 2013 Financial Performance by Segment” for an explanation of the change in EBITDA
for each segment.
Operating Income
For the 52 weeks ended May 4, 2013, Empire recorded operating income of $584.8 million, an increase of $50.5 million or
9.5 percent from the $534.3 million recorded for the 52 weeks ended May 5, 2012.
The contributors to the change in consolidated operating income from last year were as follows:
• Sobeys’ operating income contribution to Empire in fiscal 2013 totalled $515.3 million, an increase of $39.5 million or
8.3 percent from the $475.8 million recorded last year.
• Investments and other operations contributed operating income of $69.5 million in fiscal 2013 compared to $58.5 million
in fiscal 2012, an increase of $11.0 million or 18.8 percent.
– Equity accounted earnings generated by Crombie REIT during the year were $13.7 million compared to $19.7 million in
the prior year, a decrease of $6.0 million.
– Real estate partnerships (Genstar) contributed operating income of $29.6 million, a decrease of $0.4 million from the
$30.0 million recorded last year.
– Other operations (net of corporate expenses) contributed operating income of $26.2 million compared to $8.8 million
in fiscal 2012, an increase of $17.4 million.
Please refer to the section entitled “Fiscal 2013 Financial Performance by Segment” for an explanation of the change in
operating income for each segment.
Finance Costs
Finance costs, net of finance income, for the 52 weeks ended May 4, 2013 were $50.8 million, a decrease of $9.1 million or
15.2 percent from the $59.9 million recorded last year. This decrease is primarily the result of a decrease in interest expense
of $8.1 million and a decrease in net pension finance costs of $1.9 million, partially offset by an increase in fair value losses on
forward contracts of $0.8 million. The decrease in interest expense of $8.1 million is due to lower consolidated funded debt
levels which were partially associated with the repayment of Sobeys’ $200.0 million non-revolving term credit facility on
July 23, 2012. EBITDA to interest expense improved to 17.8 times at the end of fiscal 2013 from 14.4 times at the end of the
prior fiscal year.
Consolidated funded debt was $969.5 million at May 4, 2013 compared to $1,130.8 million at May 5, 2012, a decrease
of $161.3 million or 14.3 percent. The decrease in consolidated funded debt from the prior year was primarily due to a
$210.4 million decline in funded debt at Sobeys, partially offset by higher debt levels in investments and other operations
of $49.1 million. Please refer to the “Liabilities” sub-section under the “Consolidated Financial Condition” section of this
MD&A for further details on consolidated funded debt.
Annual Report 2013
37
Income Taxes
The Company’s effective income tax rate for fiscal 2013 was 26.2 percent compared to 25.8 percent reported in fiscal 2012.
The increase experienced in the effective income tax rate for the 52 weeks ended May 4, 2013 is primarily due to the nature of
capital items realized and provincial tax rate changes, offset with a previously enacted decrease in the federal statutory rate.
Net Earnings
Consolidated net earnings, net of non-controlling interest, for the 52 weeks ended May 4, 2013 equalled $384.8 million
($5.65 per diluted share) compared to $339.4 million ($4.99 per diluted share) in fiscal 2012. The increase of $45.4 million
or 13.4 percent is due to higher operating income and lower finance costs, net of finance income, partially offset by higher
income taxes, as mentioned.
The following table presents Empire’s segmented net earnings, net of non-controlling interest, for the 52 weeks ended May 4, 2013
compared to the 52 weeks ended May 5, 2012.
($ in millions, except per share amounts, net of tax)
May 4, 2013
May 5, 2012
52 Weeks Ended
($)
Change
(%)
Change
Food retailing
Investments and other operations
Consolidated
EPS (fully diluted)
Adjusted Net Earnings
$
339.9
44.9
$
384.8
$
5.65
$
$
$
304.1
35.3
339.4
4.99
$
$
$
35.8
9.6
45.4
0.66
11.8%
27.2%
13.4%
13.2%
The table below adjusts reported net earnings, net of non-controlling interest, for items which are considered not indicative of
underlying business operating performance.
($ in millions, except per share amounts, net of tax)
Net earnings, net of non-controlling interest
Adjustments:
Sobeys’ organizational realignment costs
One-time charge from equity accounted investments(1)
Transaction costs for Canada Safeway proposed acquisition
Sobeys Québec distribution network restructuring
Dilution gains(2)
Gain on disposal of assets
52 Weeks Ended
May 4, 2013
May 5, 2012
$
384.8
$
339.4
6.7
5.9
4.0
1.8
(13.0)
(22.9)
(17.5)
6.4
–
–
2.1
(7.3)
(17.9)
(16.7)
Adjusted net earnings, net of non-controlling interest(3)
$
367.3
$
322.7
Adjusted net earnings, net of non-controlling interest, by segment:
Food retailing
Investments and other operations
Adjusted net earnings, net of non-controlling interest(3)
Adjusted EPS (fully diluted)
$
331.0
36.3
$
367.3
$
5.39
$
$
$
294.6
28.1
322.7
4.74
(1) Reflects a decrease in equity earnings, net of tax, from the investment in Crombie REIT to account for the fair value of Crombie REIT’s convertible debentures for the
current year and restatement of prior years.
(2) Includes an increase in previously recorded dilution gains, net of tax, as a result of the adjustment to Crombie REIT’s equity to account for the fair value of its convertible
debentures for the current year and the restatement of prior years.
(3) See Non-GAAP Financial Measures on page 31.
For the 52 weeks ended May 4, 2013, after factoring in the impact of the above-noted items, Empire recorded adjusted net
earnings, net of non-controlling interest, of $367.3 million ($5.39 per diluted share) compared to $322.7 million ($4.74 per
diluted share) in fiscal 2012.
For a detailed discussion of financial performance by segment, see the section of this MD&A entitled “Fiscal 2013 Financial
Performance by Segment”.
38
Empire Company Limited
Management’s Discussion and Analysis
FISCAL 2013 FINANCIAL PERFORMANCE BY SEGMENT
Food Retailing
Highlights
• Sobeys achieved fiscal 2013 sales growth of $1,323.9 million or 8.3 percent to reach $17.35 billion and same-store sales
growth of 1.3 percent. After adjusting for the acquisition of 236 retail gas locations and related convenience store operations
in the fourth quarter of fiscal 2012, sales growth was $423.3 million or 2.7 percent.
• Free cash flow of $317.6 million versus $322.4 million in fiscal 2012.
• Total capital expenditures equalled $508.1 million in fiscal 2013 versus $579.9 million last year.
• Opened, acquired or relocated 45 corporate and franchised stores, expanded 2 stores, rebannered/redeveloped 7 stores and
closed 37 stores.
To assess its financial performance and condition, Sobeys’ management monitors a set of financial measures which evaluate sales
growth, profitability and financial condition. The primary financial performance and condition measures reported by Sobeys are
set out below.
($ in millions)
Sales growth
Same-store sales growth(1)
Return on equity(1)
Funded debt to total capital(1)
Funded debt to EBITDA(1)
Property, equipment and investment property purchases(2)
(1) See Non-GAAP Financial Measures on page 31.
52 Weeks
Ended
May 4, 2013
52 Weeks
Ended
May 5, 2012
53 Weeks
Ended
May 7, 2011
8.3%
1.3%
12.9%
20.9%
0.9x
508
$
1.8%
1.4%
12.9%
27.2%
1.2x
563
$
3.4%
0.2%
13.9%
29.4%
1.2x
521
$
(2) This amount reflects the property, equipment and investment property purchases by Sobeys, excluding amounts purchased from the Company and its
wholly-owned subsidiaries.
The table below summarizes Sobeys’ contribution to Empire’s consolidated sales, EBITDA, adjusted EBITDA, operating income,
adjusted operating income, net earnings, net of non-controlling interest, and adjusted net earnings, net of non-controlling interest.
($ in millions)
Sales
EBITDA(2)
Adjusted EBITDA(2)(3)
Operating income
Adjusted operating income(2)(3)
Net earnings, net of non-controlling interest
Adjusted net earnings, net of non-controlling interest(2)(3)
52 Weeks Ended(1)
May 4, 2013
May 5, 2012
($)
Change
(%)
Change
$ 17,391.0
859.5
848.9
515.3
504.7
339.9
331.0
$ 16,044.6
801.8
791.6
475.8
465.6
304.1
294.6
$ 1,346.4
57.7
57.3
39.5
39.1
35.8
36.4
8.4%
7.2%
7.2%
8.3%
8.4%
11.8%
12.4%
(1) Net of consolidation adjustments which includes a purchase price allocation from the privatization of Sobeys.
(2) See Non-GAAP Financial Measures on page 31.
(3) Excludes items which are considered not indicative of underlying business operating performance.
Sales
Empire’s food retailing segment achieved sales of $17.39 billion in fiscal 2013, an increase of $1,346.4 million or 8.4 percent
over fiscal 2012. During the fiscal year, same-store sales increased by 1.3 percent. Excluding the impact of sales relating to the
acquisition of 236 retail gas locations and related convenience store operations in the fourth quarter of fiscal 2012, the food
retailing segment realized a sales increase of $445.8 million or 2.8 percent. In addition to the acquisition of 236 retail gas
locations and related convenience store operations in the fourth quarter of fiscal 2012, the growth in Sobeys’ reported sales in
fiscal 2013 was a direct result of Sobeys’ continued investment in its retail network, coupled with the continued implementation
of sales and merchandising initiatives, improved consistency of store level execution and product and services innovation.
Sobeys expects sales growth to continue in fiscal 2014 as a result of continued capital investment in its retail store network,
and offering, merchandising, pricing and operational execution improvements across the country.
Annual Report 2013
39
Sobeys’ total store square footage increased by 2.0 percent in fiscal 2013 as a result of the opening, acquiring or relocating of
45 stores and the expansion of 2 stores. There were 7 stores rebannered or redeveloped and 37 stores closed in fiscal 2013.
Business Process and Information System Transformation and Rationalization Costs
During fiscal 2013, Sobeys continued to make progress in the implementation of system-wide business process optimization
and rationalization initiatives that are designed to reduce complexity and improve processes and efficiency. These system-wide
business process and rationalization initiatives support all aspects of the business including operations, merchandising, distribution,
human resources and administration. During the fiscal year, Sobeys completed an information systems implementation at Thrifty
Foods which resulted in streamlined business processes for those stores.
The business process and information systems implementation in Québec began during the first quarter of fiscal 2010 and
was completed in the third quarter of fiscal 2013. The business process and system initiative costs primarily include labour,
implementation and training costs associated with these initiatives. During the 52 weeks ended May 4, 2013, $8.6 million of
pre-tax costs were incurred related to these initiatives (fiscal 2012 – $13.2 million).
On January 28, 2011, Sobeys announced plans to build a new distribution centre in Terrebonne, Québec, utilizing the same
automated equipment and technology as the Vaughan, Ontario distribution centre. The new facility commenced operations
during the third quarter of fiscal 2013 and will allow Sobeys to significantly increase its warehouse and distribution capacity in
Québec, while reducing overall distribution costs and improving service to its store network and customers. For the 52 weeks
ended May 4, 2013, Sobeys recorded pre-tax severance costs associated with the distribution network in Québec of $2.4 million
(fiscal 2012 – $3.0 million).
On October 13, 2011, Sobeys announced an organizational realignment and corresponding leadership appointments. Total
pre-tax costs associated with this initiative for the 52 weeks ended May 4, 2013 were $9.1 million (fiscal 2012 – $9.2 million).
These expenses relate mainly to consulting and severance costs of $2.4 million and $6.7 million, respectively (fiscal 2012 –
$6.7 million and $2.5 million).
Gross Profit
Sobeys recorded gross profit for the 52 weeks ended May 4, 2013 of $4,013.1 million, an increase of $138.9 million or
3.6 percent compared to $3,874.2 million in fiscal 2012. For the year ended May 4, 2013, gross margin decreased 104 basis
points to 23.14 percent compared to 24.18 percent last year. The decrease in gross margin is primarily a result of lower
margins experienced on fuel sales. Excluding the impact of lower margin fuel sales, gross margin was 24.36 percent for the
52 weeks ended May 4, 2013 compared to 24.53 percent for the same period last year.
EBITDA
For the 52 weeks ended May 4, 2013, Sobeys contributed EBITDA to Empire of $859.5 million (4.94 percent of sales) compared
to $801.8 million (5.00 percent of sales) last year, an increase of $57.7 million or 7.2 percent. This increase relates to increased
sales, in particular fuel sales, and the corresponding increase in gross profit for the 52 weeks ended May 4, 2013 compared to
the same period in the prior year. The 6 basis point decline in EBITDA margin is primarily due to lower margins experienced on
fuel sales. Adjusting for items which are considered not indicative of underlying business operating performance, as presented
in the following table, Sobeys’ adjusted EBITDA contribution to Empire for the 52 weeks ended May 4, 2013 was $848.9 million
(4.88 percent of sales) compared to $791.6 million (4.93 percent of sales) last year, an increase of $57.3 million or 7.2 percent.
($ in millions)
EBITDA(1) (contributed by Sobeys)
Adjustments:
Sobeys’ organizational realignment costs
Transaction costs for Canada Safeway proposed acquisition
Sobeys Québec distribution network restructuring
Dilution gains
Gain on disposal of assets
Adjusted EBITDA(1)
(1) See Non-GAAP Financial Measures on page 31.
40
Empire Company Limited
52 Weeks Ended
May 4, 2013
May 5, 2012
$
859.5
$
801.8
9.1
5.0
2.4
(0.7)
(26.4)
(10.6)
9.2
-
3.0
(0.4)
(22.0)
(10.2)
$
848.9
$
791.6
Management’s Discussion and Analysis
Operating Income
Sobeys’ operating income contribution to Empire for the 52 weeks ended May 4, 2013 was $515.3 million (2.96 percent of sales)
compared to $475.8 million (2.97 percent of sales) last year, an increase of $39.5 million or 8.3 percent. Adjusting for items
which are considered not indicative of underlying business operating performance, as presented in the following table, Sobeys
contributed adjusted operating income to Empire in the 52 weeks ended May 4, 2013 of $504.7 million (2.90 percent of sales)
compared to $465.6 million (2.90 percent of sales) last year, an increase of $39.1 million or 8.4 percent.
($ in millions)
Operating income(1) (contributed by Sobeys)
Adjustments:
Sobeys’ organizational realignment costs
Transaction costs for Canada Safeway proposed acquisition
Sobeys Québec distribution network restructuring
Dilution gains
Gain on disposal of assets
Adjusted operating income(1)
(1) See Non-GAAP Financial Measures on page 31.
52 Weeks Ended
May 4, 2013
May 5, 2012
$
515.3
$
475.8
9.1
5.0
2.4
(0.7)
(26.4)
(10.6)
9.2
–
3.0
(0.4)
(22.0)
(10.2)
$
504.7
$
465.6
Combined with the items noted above, Sobeys continues to focus on disciplined cost management initiatives, supply chain and
retail productivity improvements, the migration of best practices, and planned capital investments to drive sales and improve
margins over time.
Net Earnings
Sobeys contributed net earnings, net of non-controlling interest, of $339.9 million to Empire for the 52 weeks ended May 4, 2013,
an increase of $35.8 million or 11.8 percent over the $304.1 million recorded in fiscal 2012. The increase was primarily a result
of higher operating income and lower finance costs, net of finance income, partially offset by higher income taxes.
Adjusted Net Earnings
Sobeys contributed adjusted net earnings, net of non-controlling interest, of $331.0 million to Empire for the 52 weeks ended
May 4, 2013 compared to $294.6 million last year, an increase of $36.4 million or 12.4 percent.
The table below details the adjustments made to calculate Sobeys’ contribution to adjusted net earnings, net of non-controlling
interest.
($ in millions)
52 Weeks Ended
May 4, 2013
May 5, 2012
Net earnings, net of non-controlling interest (contributed by Sobeys)
$
339.9
$
304.1
Adjustments:
Sobeys’ organizational realignment costs
Transaction costs for Canada Safeway proposed acquisition
Sobeys Québec distribution network restructuring
Dilution gains
Gain on disposal of assets
6.7
4.0
1.8
(0.5)
(20.9)
(8.9)
6.4
–
2.1
(0.3)
(17.7)
(9.5)
Adjusted net earnings, net of non-controlling interest(1)
$
331.0
$
294.6
(1) See Non-GAAP Financial Measures on page 31.
Annual Report 2013
41
Investments and Other Operations
Highlights
• Sales of $221.7 million, up $17.2 million or 8.4 percent.
• Operating income of $69.5 million, up $11.0 million or 18.8 percent.
• Acquired an additional $24.5 million in Crombie REIT Class B units.
• Crombie REIT’s market capitalization surpassed $1.4 billion with Empire’s investment carrying a fair value of $622.7 million.
• Equity earnings from Crombie REIT, before restatement as outlined in the table for EBITDA, of $22.0 million versus
$19.7 million last year.
• Equity earnings from real estate partnerships (Genstar) of $29.6 million compared to $30.0 million last year.
• Improved operating performance from Empire Theatres.
The table below presents sales, EBITDA, adjusted EBITDA, operating income, net earnings and adjusted net earnings for the
investments and other operations segment.
($ in millions)
Sales
EBITDA(1)
Adjusted EBITDA(1)(2)
Operating income(1)
Crombie REIT(3)
Real estate partnerships(4)
Other operations, net of corporate expenses(5)
Net earnings
Adjusted net earnings(2)
52 Weeks Ended
May 4, 2013
May 5, 2012
$
$
221.7
84.6
72.8
204.5
74.8
64.6
$
13.7
29.6
26.2
69.5
44.9
36.3
19.7
30.0
8.8
58.5
35.3
28.1
($)
Change
17.2
9.8
8.2
(6.0)
(0.4)
17.4
11.0
9.6
8.2
(1) See Non-GAAP Financial Measures on page 31.
(2) Excludes items which are considered not indicative of underlying business operating performance.
(3) 42.8 percent equity accounted interest in Crombie REIT (May 5, 2012 – 44.3 percent interest). Crombie REIT’s operating income contribution for fiscal 2013 was
impacted by a one-time charge of $8.3 million (fiscal 2012 – $nil); this charge accounts for the fair value of convertible debentures for the current year and the
restatement of prior years.
(4) Interests in Genstar.
(5) Other operations, net of corporate expenses, for the 52 weeks ended May 4, 2013 includes dilution gains of $17.5 million (fiscal 2012 – $10.0 million), which includes
an increase in previously recorded dilution gains of $6.1 million (fiscal 2012 – $nil) as a result of the adjustment to Crombie REIT’s equity to account for the fair value of
its convertible debentures for the current year and the restatement of prior years, and an impairment charge related to an investment of $nil (fiscal 2012 – $1.1 million).
On November 7, 2012, the Company sold its petroleum and natural gas properties for $17.3 million before costs. The purchase price
approximated the carrying value of these assets, therefore no gain or loss was recorded after the completion of post-closing
adjustments.
42
Empire Company Limited
Management’s Discussion and Analysis
At May 4, 2013, Empire’s investment portfolio, including equity accounted investments in Crombie REIT and Genstar, consisted of:
May 4, 2013
May 5, 2012
($ in millions)
Investment in Crombie REIT
Investment in Genstar(1)
Canadian Digital Cinema Partnership(1)
Other investments(1)(2)
$
Fair
Value
622.7
203.2
9.2
39.5
Carrying
Value
Unrealized
Gain
$
$
195.2
203.2
9.2
39.5
$
427.5
–
–
–
Fair
Value
520.7
138.8
7.2
13.0
Carrying
Value
Unrealized
Gain
$
$
167.4
138.8
7.2
13.0
353.3
–
–
–
$
874.6
$
447.1
$
427.5
$
679.7
$
326.4
$
353.3
(1) Assumes fair value equals carrying value.
(2) Includes an investment in Crombie REIT Series D convertible unsecured subordinated debentures (the “Debentures”) with a market value of $24.8 million (May 5, 2012 –
$nil). May 5, 2012 includes an investment in Crombie REIT Series B convertible unsecured subordinated debentures with a market value of $12.8 million. During the
first quarter of fiscal 2013, the Company purchased $24.0 million of Debentures, which as at May 4, 2013, had a market value of $24.8 million. On September 25, 2012,
the Company converted Crombie REIT Series B convertible unsecured subordinated debentures with a face value of $10.0 million into 909,090 units of Crombie REIT.
The units were recorded at the exchange amount of $13.8 million, resulting in a pre-tax gain of $3.8 million.
Sales
Investments and other operations’ sales equalled $221.7 million for the 52 weeks ended May 4, 2013 versus $204.5 million in
fiscal 2012, a $17.2 million or 8.4 percent increase. The increase in sales was primarily driven by an increase in sales at Empire
Theatres, partially offset by a decrease in sales by the Company’s other operations.
EBITDA
For the 52 weeks ended May 4, 2013, investments and other operations contributed EBITDA to Empire of $84.6 million
compared to $74.8 million last year, an increase of $9.8 million or 13.1 percent. Adjusting for items which are considered not
indicative of underlying business operating performance, as presented in the table below, investments and other operations’
adjusted EBITDA for fiscal 2013 was $72.8 million compared to $64.6 million last year, an increase of $8.2 million or 12.7 percent.
($ in millions)
EBITDA(1) (investments and other operations)
Adjustments:
One-time charge from equity accounted investments(2)
Gain on disposal of assets
Dilution gains(3)
Adjusted EBITDA(1)
(1) See Non-GAAP Financial Measures on page 31.
52 Weeks Ended
May 4, 2013
May 5, 2012
$
84.6
$
74.8
8.3
(2.6)
(17.5)
(11.8)
–
(0.2)
(10.0)
(10.2)
$
72.8
$
64.6
(2) Reflects a decrease in equity earnings from the investment in Crombie REIT to account for the fair value of Crombie REIT’s convertible debentures for the current year
and restatement of prior years.
(3) Includes an increase in previously recorded dilution gains as a result of the adjustment to Crombie REIT’s equity to account for the fair value of its convertible
debentures for the current year and the restatement of prior years.
Annual Report 2013
43
Operating Income
Investments and other operations contributed operating income of $69.5 million in the 52 weeks ended May 4, 2013 versus
$58.5 million in fiscal 2012, an increase of $11.0 million or 18.8 percent. The contributors to operating income in the 52 weeks
ended May 4, 2013 were as follows:
• Equity accounted earnings from the Company’s investment in Crombie REIT were $13.7 million in the 52 weeks ended
May 4, 2013, down $6.0 million from the $19.7 million recorded in the prior year. This decrease was driven primarily by a
one-time charge of $8.3 million (fiscal 2012 – $nil) relating to Crombie REIT’s restated earnings, partially offset by increased
property revenue and the resulting higher property net operating income. During the preparation of Crombie REIT’s fourth
quarter fiscal 2012 financial results, it was determined that the conversion feature and redemption option attached to its
convertible debentures represented a financial liability requiring fair value measurement over each reporting period, with
any adjustment to fair value being recognized through a decrease in net assets attributable to Unitholders. This resulted in
Crombie REIT’s restatement of financial results for prior years.
• Equity accounted earnings from the Company’s investments in real estate partnerships (Genstar) was $29.6 million in the
52 weeks ended May 4, 2013, a decrease of $0.4 million compared to $30.0 million recorded in the prior year.
• Other operations, net of corporate expenses, contributed operating income of $26.2 million, up $17.4 million from the
$8.8 million recorded in the 52 weeks ended May 5, 2012. Dilution gains of $17.5 million recorded in the 52 weeks ended
May 4, 2013 (fiscal 2012 – $10.0 million) include an adjustment of $6.1 million (fiscal 2012 – $nil) to previously recorded
dilution gains as a result of Crombie REIT’s restated net assets attributable to Unitholders, as mentioned. Fiscal 2012 included
an impairment charge of $1.1 million related to an investment.
Adjusting investments and other operations’ operating income for items which are considered not indicative of underlying
business operating performance, as presented in the preceding table for EBITDA, resulted in an adjusted operating income
contribution for the 52 weeks ended May 4, 2013 of $57.7 million compared to $48.3 million in fiscal 2012, an increase of
$9.4 million or 19.5 percent.
Net Earnings
During the 52 weeks ended May 4, 2013, investments and other operations contributed $44.9 million to Empire’s consolidated
net earnings compared to a contribution of $35.3 million in fiscal 2012. The $9.6 million increase is primarily attributed to higher
operating income, as discussed, partially offset by higher finance costs, net of finance income, and higher income taxes.
Adjusted Net Earnings
Investments and other operations contributed adjusted net earnings of $36.3 million for the 52 weeks ended May 4, 2013
compared to $28.1 million last year, an increase of $8.2 million. Included in net earnings for fiscal 2013 were dilution gains
of $12.5 million (fiscal 2012 – $7.0 million), which include an adjustment to previously recorded dilution gains of $4.4 million
(fiscal 2012 – $nil) as a result of Crombie REIT’s restated net assets attributable to Unitholders.
The following table adjusts reported net earnings for these and other items which are considered not indicative of underlying
business operating performance.
($ in millions)
Net earnings (investments and other operations)
Adjustments:
One-time charge from equity accounted investments(1)
Gain on disposal of assets
Dilution gains(2)
Adjusted net earnings(3)
52 Weeks Ended
May 4, 2013
May 5, 2012
$
44.9
$
35.3
5.9
(2.0)
(12.5)
(8.6)
–
(0.2)
(7.0)
(7.2)
$
36.3
$
28.1
(1) Reflects a decrease in equity earnings, net of tax, from the investment in Crombie REIT to account for the fair value of Crombie REIT’s convertible debentures for the
current year and restatement of prior years.
(2) Includes an increase in previously recorded dilution gains, net of tax, as a result of the adjustment to Crombie REIT’s equity to account for the fair value of its convertible
debentures for the current year and the restatement of prior years.
(3) See Non-GAAP Financial Measures on page 31.
44
Empire Company Limited
Management’s Discussion and Analysis
QUARTERLY RESULTS OF OPERATIONS
The following table is a summary of selected financial information from the Company’s unaudited, interim consolidated financial
statements for each of the eight most recently completed quarters.
Fiscal 2013
Fiscal 2012
($ in millions, except per share amounts)
Q3
Q4
Q1
(13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
Aug. 6,
2011
Nov. 5,
2011
Feb. 4,
2012
Aug. 4,
2012
Nov. 3,
2012
Feb. 2,
2013
May 4,
2013
May 5,
2012
Q4
Q3
Q2
Q2
Q1
Sales
Operating income(1)
Net earnings, net of
$ 4,308.9 $ 4,342.0 $ 4,404.1 $ 4,557.7 $ 4,073.8 $ 3,984.8 $ 4,036.3 $ 4,154.2
155.1
113.7
140.9
175.1
136.4
123.2
125.8
148.9
non-controlling interest
107.4
75.2
93.3
108.9
92.1
80.0
78.1
89.2
Per share information, basic
Net earnings, net of
non-controlling interest
$
1.58 $
1.11 $
1.37 $
1.60 $
1.35 $
1.18 $
1.15 $
1.31
Basic weighted average number of
shares outstanding (in millions)
Per share information, diluted
Net earnings, net of
67.9
67.9
67.9
67.9
67.9
67.9
67.9
67.9
non-controlling interest
$
1.58 $
1.11 $
1.37 $
1.60 $
1.35 $
1.17 $
1.15 $
1.31
Diluted weighted average number of
shares outstanding (in millions)
68.1
68.1
68.1
68.0
68.0
68.1
68.0
68.0
(1) See Non-GAAP Financial Measures on page 31.
As displayed in the table above, the Company’s sales on a comparable 13 week basis have continued to show improvement
compared with the same quarter of the prior year. The ongoing improvement in sales continues to be mainly driven by the
performance of Sobeys as a result of its adherence to a competitive pricing posture, increased retail selling square footage from
new stores and enlargements, improved store level execution, product and services innovation and, in the fourth quarter of fiscal
2012, the acquisition of 236 retail gas locations and related convenience store operations. The first quarter of fiscal 2013, ended
August 4, 2012, was the first full quarter to include fuel sales related to this acquisition. Sales include fluctuations in quarter-to-
quarter inflationary and deflationary market pressures.
Consolidated sales and net earnings, net of non-controlling interest, have been influenced by the Company’s investing activities,
the competitive environment, cost management initiatives, food price and general industry trends, the cyclicality of both
residential and commercial real estate, and by other risk factors as outlined in this MD&A.
The Company does experience some seasonality as evidenced in the results presented above, in particular during the summer
months and over the holidays.
Annual Report 2013
45
Summary Table of Consolidated Financial Results for the Fourth Quarter
($ in millions, except per share amounts)
Sales
EBITDA(1)
Adjusted EBITDA(1)(2)
Operating income(1)
Net earnings, net of non-controlling interest
Adjusted net earnings, net of non-controlling interest(1)(2)
13 Weeks Ended
May 4, 2013
May 5, 2012
% of
Sales
% of
Sales
$ 4,308.9
247.0
235.9
155.1
107.4
98.6
100.00%
5.73%
5.47%
3.60%
2.49%
2.29%
$ 4,073.8
224.2
222.2
136.4
92.1
89.6
100.00%
5.50%
5.45%
3.35%
2.26%
2.20%
Basic earnings per share
Net earnings, net of non-controlling interest
Adjusted net earnings, net of non-controlling interest(1)(2)
Basic weighted average number of shares outstanding (in millions)
Diluted earnings per share
Net earnings, net of non-controlling interest
Adjusted net earnings, net of non-controlling interest(1)(2)
$
$
$
$
Diluted weighted average number of shares outstanding (in millions)
(1) See Non-GAAP Financial Measures on page 31.
(2) Excludes items which are considered not indicative of underlying business operating performance.
1.58
1.45
67.9
1.58
1.45
68.1
$
$
$
$
1.35
1.32
67.9
1.35
1.32
68.0
Sales
Consolidated sales for the fourth quarter of fiscal 2013 were $4.31 billion compared to $4.07 billion last year, a $235.1 million
or 5.8 percent increase. Sales contributed by the food retailing segment equalled $4.26 billion compared to $4.02 billion in fiscal
2012. Excluding the impact of the acquisition of 236 retail gas locations and related convenience store operations in the fourth
quarter of fiscal 2012, consolidated sales increased $96.4 million or 2.4 percent. Sobeys’ same-store sales increased 0.6 percent
during the fourth quarter of fiscal 2013.
For the 13 weeks ended May 4, 2013, Sobeys reported sales of $4.24 billion, an increase of $229.2 million or 5.7 percent from
the $4.02 billion recorded last year. Excluding the impact of sales resulting from the acquisition of 236 retail gas locations and
related convenience store operations in the fourth quarter of fiscal 2012, Sobeys’ fourth quarter sales increased $90.5 million or
2.3 percent. The 2.3 percent growth in Sobeys’ fourth quarter sales was a direct result of continued increased retail selling square
footage from new store and enlargements, coupled with the continued implementation of sales and merchandising initiatives,
improved consistency of store level execution and product and services innovation.
The following table shows a reconciliation of fourth quarter sales recorded by Sobeys.
($ in millions)
Sales (reported by Sobeys)
Adjustments:
Impact of acquisition of 236 retail gas locations
and related convenience store operations
Adjusted sales(1)
(1) See Non-GAAP Financial Measures on page 31.
13 Weeks Ended
May 4, 2013
May 5, 2012
($)
Change
(%)
Change
$ 4,244.5
$ 4,015.3
$
229.2
5.7%
(269.7)
(131.0)
(138.7)
$ 3,974.8
$ 3,884.3
$
90.5
2.3%
Investments and other operations’ sales for the fourth quarter of fiscal 2013 equalled $52.1 million versus $50.6 million in fiscal
2012, an increase of $1.5 million or 3.0 percent. The increase primarily relates to higher sales recorded by Empire Theatres as a
result of higher attendance and concession revenues during the quarter.
46
Empire Company Limited
Management’s Discussion and Analysis
EBITDA
Consolidated EBITDA in the fourth quarter of fiscal 2013 was $247.0 million compared to $224.2 million last year, an increase of
$22.8 million or 10.2 percent. EBITDA margin increased 23 basis points to 5.73 percent in the fourth quarter of fiscal 2013 from
5.50 percent last year.
The contributors to the change in consolidated EBITDA from the fourth quarter last year were as follows:
• Sobeys contributed EBITDA to Empire of $217.9 million versus $203.7 million in the fourth quarter of fiscal 2012, an increase
of $14.2 million or 7.0 percent.
• Investments and other operations contributed EBITDA of $29.1 million in the 13 weeks ended May 4, 2013 compared to
$20.5 million last year, an increase of $8.6 million or 42.0 percent.
Adjusted EBITDA for the fourth quarter of fiscal 2013 was $235.9 million (5.47 percent of sales) versus $222.2 million
(5.45 percent of sales) last year. Included in EBITDA for the fourth quarter of fiscal 2013 were gains on the disposal of assets
of $17.4 million (fiscal 2012 – $5.1 million) and transaction costs associated with the Canada Safeway proposed acquisition of
$5.0 million (fiscal 2012 – $nil). These and other items which are considered not indicative of underlying business operating
performance are outlined in the table below.
($ in millions)
EBITDA(1) (consolidated)
Adjustments:
Transaction costs for Canada Safeway proposed acquisition
Sobeys’ organizational realignment costs
One-time charge from equity accounted investments(2)
Sobeys Québec distribution network restructuring
Dilution gains(3)
Gain on disposal of assets
Adjusted EBITDA(1)
(1) See Non-GAAP Financial Measures on page 31.
13 Weeks Ended
May 4, 2013
May 5, 2012
$
247.0
$
224.2
5.0
2.0
1.5
(0.7)
(1.5)
(17.4)
(11.1)
–
2.8
–
0.7
(0.4)
(5.1)
(2.0)
$
235.9
$
222.2
(2) Reflects a decrease in equity earnings from the investment in Crombie REIT to account for the fair value of Crombie REIT’s convertible debentures for the current year
and restatement of prior years.
(3) Includes an increase in previously recorded dilution gains as a result of the adjustment to Crombie REIT’s equity to account for the fair value of its convertible
debentures for the current year and the restatement of prior years.
Operating Income
The Company reported operating income of $155.1 million for the 13 weeks ended May 4, 2013 compared to $136.4 million
for the 13 weeks ended May 5, 2012. The increase in operating income of $18.7 million or 13.7 percent is a result of a higher
operating income contribution from the food retailing segment of $9.2 million or 7.7 percent, along with a higher contribution
from investments and other operations of $9.5 million or 57.9 percent.
• Equity earnings from the Company’s investment in Crombie REIT of $4.9 million were flat compared to the fourth quarter of
fiscal 2012. Included in equity earnings for the quarter was a one-time charge of $1.5 million (fiscal 2012 – $nil) relating to
Crombie REIT’s restated earnings, as discussed. Excluding this one-time charge, equity earnings from Crombie REIT for the
13 weeks ended May 4, 2013 were $6.4 million.
• Real estate partnerships (Genstar) contributed equity earnings of $13.7 million in the fourth quarter, up $0.5 million from the
fourth quarter of fiscal 2012.
• Other operations, net of corporate expenses, contributed operating income of $7.3 million versus $(1.7) million in the fourth
quarter of the prior year. Included in other operations, net of corporate expenses, in the fourth quarter were gains on the
disposal of assets of $2.6 million (fiscal 2012 – $0.2 million), dilution gains of $1.5 million (fiscal 2012 – $0.4 million) and
an impairment charge related to an investment of $nil (fiscal 2012 – $1.1 million).
Annual Report 2013
47
Finance Costs
Consolidated finance costs, net of finance income, in the fourth quarter of fiscal 2013 equalled $12.5 million versus $14.3 million
last year. The $1.8 million decrease is primarily a result of lower interest expense of $1.7 million. EBITDA to interest expense for
the 13 weeks ended May 4, 2013 increased to 19.8 times from 15.8 times in the same period of the prior year.
Income Taxes
The effective income tax rate for the 13 weeks ended May 4, 2013 was 24.0 percent versus 21.3 percent in the fourth quarter of
fiscal 2012. The increase in the effective income tax rate is primarily due to the timing of the realization of tax benefits in the
fourth quarter of fiscal 2012 compared to the same period in the current year, offset with a previously enacted decrease in the
federal statutory rate.
Net Earnings
Consolidated net earnings, net of non-controlling interest, for the 13 weeks ended May 4, 2013 were $107.4 million ($1.58 per
diluted share) compared to $92.1 million ($1.35 per diluted share) in fiscal 2012, an increase of $15.3 million or 16.6 percent.
The increase is primarily related to the increase in operating income and lower finance costs, net of finance income, as discussed,
partially offset by higher income taxes.
Adjusted Net Earnings
The table below adjusts fiscal 2013 and fiscal 2012 reported fourth quarter net earnings, net of non-controlling interest, for
items which are considered not indicative of underlying business operating performance.
($ in millions, except per share amounts, net of tax)
Net earnings, net of non-controlling interest
Adjustments:
Transaction costs for Canada Safeway proposed acquisition
Sobeys’ organizational realignment costs
One-time charge from equity accounted investments(1)
Sobeys Québec distribution network restructuring
Dilution gains(2)
Gain on disposal of assets
13 Weeks Ended
May 4, 2013
May 5, 2012
$
107.4
$
92.1
4.0
1.5
1.1
(0.5)
(1.1)
(13.8)
(8.8)
–
2.0
–
0.4
(0.3)
(4.6)
(2.5)
Adjusted net earnings, net of non-controlling interest(3)
$
98.6
$
89.6
Adjusted net earnings, net of non-controlling interest, by segment:
Food retailing
Investments and other operations
Adjusted net earnings, net of non-controlling interest(3)
Adjusted EPS (fully diluted)
$
$
$
82.3
16.3
98.6
1.45
$
$
$
79.2
10.4
89.6
1.32
(1) Reflects a decrease in equity earnings, net of tax, from the investment in Crombie REIT to account for the fair value of Crombie REIT’s convertible debentures for the
current year and restatement of prior years.
(2) Includes an increase in previously recorded dilution gains, net of tax, as a result of the adjustment to Crombie REIT’s equity to account for the fair value of its convertible
debentures for the current year and the restatement of prior years.
(3) See Non-GAAP Financial Measures on page 31.
For the 13 weeks ended May 4, 2013, excluding the impact of the above-noted items, Empire recorded adjusted net earnings,
net of non-controlling interest, of $98.6 million ($1.45 per diluted share) compared to $89.6 million ($1.32 per diluted share)
recorded in the 13 weeks ended May 5, 2012, an increase of $9.0 million or 10.0 percent.
48
Empire Company Limited
Management’s Discussion and Analysis
CONSOLIDATED FINANCIAL CONDITION
Capital Structure and Key Financial Condition Measures
The Company’s overall financial condition has improved since the start of the fiscal year as evidenced by the capital structure and
key financial condition measures presented in the table below.
($ in millions, except per share ratio calculations)
May 4, 2013
May 5, 2012
May 7, 2011
Shareholders’ equity, net of non-controlling interest
Book value per common share
Bank indebtedness
Long-term debt, including current portion
Funded debt to total capital
Net funded debt to net total capital
Funded debt to EBITDA
EBITDA to interest expense
Current assets to current liabilities
Total assets
$ 3,726.2
54.84
$
6.0
$
963.5
$
20.6%
12.1%
1.0x
17.8x
1.0x
$ 7,140.1
$ 3,396.3
49.98
$
$
4.4
$ 1,126.4
25.0%
15.4%
1.3x
14.4x
0.9x
$ 6,913.1
$ 3,162.1
46.48
$
$
–
$ 1,152.4
26.7%
14.5%
1.3x
11.9x
1.1x
$ 6,518.6
See Non-GAAP Financial Measures section in this MD&A for definitions of funded debt, net funded debt, total capital, net total
capital, interest expense and EBITDA.
Shareholders’ Equity
Book value per common share was $54.84 at May 4, 2013 compared to $49.98 at May 5, 2012. The increase in book value largely
reflects the Company’s earnings growth, as discussed.
The Company’s share capital on May 4, 2013 consisted of:
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
Issued and
Authorized Outstanding
Number of
Number of
Shares
Shares
$ in Millions
–
991,980,000
257,044,056
33,687,747
40,800,000 34,260,763
$
–
311.7
7.6
$
319.3
There were 33,687,747 Non-Voting Class A and 34,260,763 Class B common shares outstanding at May 4, 2013 for a total of
67,948,510 shares outstanding. This is unchanged from the previous fiscal year-end.
During fiscal 2013, 45,310 options (fiscal 2012 – 73,247 options) were issued under Empire’s long-term incentive plan. The
options issued in fiscal 2013 allow the holder to purchase Non-Voting Class A shares at $53.93 per share (fiscal 2012 – $54.40
per share). Empire had 684,128 options outstanding at May 4, 2013 compared to 638,818 options outstanding at May 5, 2012.
There were no options exercised during fiscal 2013 or fiscal 2012.
The table below presents the number of outstanding options and weighted average exercise price over the last two fiscal years.
Balance, beginning of year
Granted
Balance, end of year
Fiscal 2013
Fiscal 2012
Weighted
Average
# of Options Exercise Price
Weighted
Average
# of Options Exercise Price
638,818 $
45,310
46.57
53.93
565,571
73,247
$
45.55
54.40
684,128 $
47.06
638,818
$
46.57
Stock options exercisable, end of year
468,450
329,050
Annual Report 2013
49
The 684,128 stock options outstanding as at the fiscal year ended May 4, 2013 (May 5, 2012 – 638,818 stock options)
represents 1.0 percent (May 5, 2012 – 0.9 percent) of the outstanding Non-Voting Class A and Class B common shares.
During the third quarter of fiscal 2012, the Company redeemed all of its 164,900 Series 2 Preferred Shares outstanding in
accordance with their terms. The Series 2 Preferred Shares were redeemed at a price of $25 per share plus an amount equal
to all dividends accrued and unpaid to January 31, 2012.
As at June 27, 2013, the Company had Non-Voting Class A and Class B common shares outstanding of 33,687,747 and
34,260,763, respectively, as well as 684,128 options to acquire in aggregate 684,128 Non-Voting Class A shares.
Dividends paid to Non-Voting Class A and Class B common shareholders amounted to $65.2 million in fiscal 2013 ($0.96 per
share) versus $61.1 million ($0.90 per share) in fiscal 2012.
Liabilities
Historically, Empire has financed a significant portion of its assets through the use of long-term debt. Long-term assets are
generally financed with fixed rate, long-term debt, thereby reducing both interest rate and refinance risk. Total long-term debt
(including the current portion of long-term debt) at May 4, 2013 was $963.5 million, representing 99.4 percent of Empire’s
total funded debt.
The composition of funded debt by segment is as follows:
($ in millions)
Bank indebtedness
Investments and other operations
Long-term debt (including current portion)
Food retailing
Investments and other operations
Total funded debt(1)
(1) See Non-GAAP Financial Measures on page 31.
May 4, 2013
May 5, 2012
May 7, 2011
$
6.0
$
4.4
$
–
765.2
198.3
975.6
150.8
999.3
153.1
$
969.5
$ 1,130.8
$ 1,152.4
Consolidated funded debt has decreased $161.3 million from the $1,130.8 million reported at the start of the fiscal year. The
decrease in consolidated funded debt from fiscal 2012 was primarily due to a $210.4 million decline in funded debt at Sobeys,
partially offset by higher debt levels in investments and other operations of $49.1 million. During the first quarter of fiscal 2013,
Sobeys repaid its $200.0 million non-revolving term credit facility, as detailed below.
On August 22, 2011, Empire extended the term of its $450.0 million credit facility to a maturity date of June 30, 2014. On
September 26, 2012, Empire further extended the term of the credit facility to a maturity date of June 30, 2015.
On February 14, 2012, Sobeys entered into an amended and restated credit agreement. The agreement provides for an unsecured
revolving term credit facility of $450.0 million, and a $200.0 million unsecured non-revolving term credit facility resulting in total
authorized credit facilities of $650.0 million. In the fourth quarter of fiscal 2013, Sobeys extended the maturity date of the
revolving term credit facility from February 14, 2016 to February 14, 2017, and the non-revolving term credit facility matured
and was repaid on July 23, 2012. Interest payable on the revolving term credit facility fluctuates with changes in the bankers’
acceptance rate, Canadian prime rate or London InterBank Offered Rate (“LIBOR”). As at May 4, 2013, Sobeys had issued
$80.6 million (May 5, 2012 – $52.7 million) in letters of credit against the revolving term credit facility.
The ratio of funded debt to total capital has improved 4.4 percentage points to 20.6 percent from 25.0 percent at the end of
fiscal 2012. This improvement is mainly a result of lower consolidated funded debt levels due partially to the repayment of
Sobeys’ non-revolving term credit facility of $200.0 million, as mentioned, and higher shareholders’ equity levels due to growth
in retained earnings.
Empire’s funded debt to EBITDA ratio improved from 1.3 times at May 5, 2012 to 1.0 times at May 4, 2013 due to lower
consolidated funded debt levels as mentioned and a 7.7 percent increase in fiscal 2013 EBITDA.
Empire’s EBITDA to interest expense ratio improved from 14.4 times recorded at the beginning of the fiscal year to 17.8 times
at May 4, 2013. The improvement over fiscal 2012 is primarily due to a 13.3 percent decline in interest expense accompanied by
an increase in fiscal 2013 EBITDA of 7.7 percent, as discussed.
50
Empire Company Limited
Management’s Discussion and Analysis
As at May 4, 2013, Sobeys’ credit ratings were BBB with a stable trend from Dominion Bond Rating Service (“DBRS”) and BBB-
with a stable trend from Standard and Poor’s (“S&P”). Subsequent to the June 12, 2013 announcement regarding the Asset
Purchase Agreement to acquire substantially all of the assets and select liabilities of Canada Safeway, S&P reaffirmed their rating
of BBB- and downgraded the trend to negative. DBRS placed their rating under review with negative implications.
For additional disclosure on Empire’s bank indebtedness and long-term debt, see Notes 13 and 15 to the Company’s audited
annual consolidated financial statements for the 52 weeks ended May 4, 2013.
Financing of the Canada Safeway Proposed Acquisition
Subsequent to fiscal year-end, Sobeys entered into an agreement with Safeway Inc. and its subsidiaries, pursuant to which
Sobeys agreed to purchase substantially all of the assets of Canada Safeway. See “Subsequent Events” for a discussion of the
proposed financing for that transaction.
Financial Instruments
As part of Empire’s risk management strategy, the Company actively monitors its exposures to various financial risks including
interest rate risk, foreign exchange price risk and commodity risk. From time to time, the Company utilizes hedging instruments
as deemed appropriate to mitigate risk exposure to one or more types of financial risk. The Company does not use financial
instruments for speculative purposes. The Company’s use of these instruments has not had a material impact on consolidated
earnings for the 13 and 52 weeks ended May 4, 2013 or for the comparative periods in fiscal 2012.
When the Company enters into a financial instrument contract, it is exposed to potential credit risk associated with the
counterparty of the contract defaulting. To mitigate this risk exposure, the Company monitors the credit worthiness of the
various contract counterparties on an ongoing basis and will take corrective actions as deemed appropriate should a
counterparty’s credit profile change dramatically.
In-Place Financial Instruments
The Company 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. In July 2007, Sobeys entered into an interest rate
swap for $200.0 million to fix the interest rate on a portion of its floating rate debt. This credit facility matured and was repaid in
July 2012 with the interest rate swap being settled concurrently. On a consolidated basis, there were no interest rate
instruments outstanding at May 4, 2013.
In July 2008, Sobeys entered into a floating-for-floating currency swap with a fixed rate of $1.015 Canadian Dollar (“CAD”)/
United States Dollar (“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 4, 2013, Sobeys recognized a liability of $0.2 million relating to this instrument.
Sobeys estimates that a 10.0 percent increase/(decrease) in applicable foreign currency exchange rates would impact the fair
value of the swap by plus/(minus) $0.6 million and would impact other comprehensive income by plus/(minus) $0.4 million.
Fair Value Methodology
When a financial instrument is designated as a hedge for financial accounting purposes, it is classified as fair value through profit
and loss on the balance sheets and recorded at fair value. The estimated fair values of the financial instruments as at May 4, 2013
were based on relevant market prices and information available at the reporting date. The Company determines the fair value of
each financial instrument by reference to external and third party quoted bid, ask and mean prices, as appropriate, in an active
market. In inactive markets, fair values are based on internal and external valuation models, such as discounted cash flows using
market observed inputs. Fair values determined using valuation models require the use of assumptions to determine the amount
and timing of forecasted future cash flows and discount rates. The Company primarily uses external market inputs, including
factors such as interest yield curves and forward exchange rates. Changes in interest rates and exchange rates, along with other
factors, may cause the fair value amounts to change in subsequent periods. The fair value of these financial instruments reflects
the amount the Company would pay or receive if it were to settle the contracts at the reporting date.
For additional disclosure on Empire’s use of financial instruments, see Notes 3 and 25 to the Company’s annual audited financial
statements for the 52 weeks ended May 4, 2013.
Annual Report 2013
51
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains the following sources of liquidity:
• Cash and cash equivalents on hand;
• Unutilized bank credit facilities; and
• Cash generated from operating activities.
At May 4, 2013, consolidated cash and cash equivalents was $455.2 million versus $510.2 million at May 5, 2012.
At the end of the fourth quarter of fiscal 2013, on a non-consolidated basis, Empire directly maintained an authorized bank
line for operating, general and corporate purposes of $450.0 million, of which $181.0 million or 40.2 percent was utilized. On
a consolidated basis, Empire’s authorized bank credit facilities exceeded borrowings by $675.2 million at May 4, 2013.
The Company believes that its cash and cash equivalents on hand, unutilized bank credit facilities and cash generated from
operating activities will enable the Company to fund future capital investments, pension plan contributions, working capital,
current funded debt obligations and ongoing business requirements. The Company also believes it has sufficient funding in
place to meet these requirements and other short-term and long-term financial obligations. The Company mitigates potential
liquidity risk by ensuring its various sources of funds are diversified by term to maturity and source of credit.
Empire and its subsidiaries have provided covenants to its lenders in support of various financing facilities. All covenants were
complied with for the 52 weeks ended May 4, 2013 and for the fiscal year ended May 5, 2012.
The following table highlights major cash flow components for the 13 and 52 weeks ended May 4, 2013 compared to the 13 and
52 weeks ended May 5, 2012.
($ in millions)
May 4, 2013
May 5, 2012 May 4, 2013
May 5, 2012
13 Weeks Ended
52 Weeks Ended
Net earnings
Non-cash and other cash items
Net change in non-cash working capital
Income taxes paid, net
Dividends paid, preferred share
Cash flows from operating activities
Cash flows used in investing activities
Cash flows (used in) from financing activities
$
108.4
129.5
26.6
(25.0)
–
239.5
(91.3)
(63.5)
$
96.1 $
118.3
175.7
(22.7)
–
367.4
(428.0)
26.2
$
393.9
548.1
(67.4)
(86.5)
–
788.1
(555.3)
(287.8)
352.1
507.5
86.2
(131.1)
(0.1)
814.6
(768.3)
(152.0)
Increase (decrease) in cash and cash equivalents
$
84.7
$
(34.4) $
(55.0) $
(105.7)
Operations
The fourth quarter of fiscal 2013 generated cash flows from operating activities of $239.5 million compared to $367.4 million
in the comparable period last year. The $127.9 million decrease is primarily attributed to a $149.1 million decrease in the net
change in non-cash working capital and a $2.3 million increase in income taxes paid. These amounts were partially offset by an
increase in net earnings of $12.3 million and an increase in non-cash and other cash items of $11.2 million.
Cash flows from operating activities for the 52 weeks ended May 4, 2013 were $788.1 million compared to $814.6 million for
the 52 weeks ended May 5, 2012. The $26.5 million decrease was primarily a result of a decrease in the net change in non-cash
working capital of $153.6 million. This was partially offset by: (i) a $44.6 million decrease in income taxes paid; (ii) a $41.8 million
increase in net earnings; and (iii) a $40.6 million increase in non-cash and other cash items.
52
Empire Company Limited
Management’s Discussion and Analysis
The following table presents non-cash working capital changes on a quarter-over-quarter basis.
Non-Cash Working Capital (Quarter-Over-Quarter)
($ in millions)
May 4, 2013
13 Weeks
Ended
13 Weeks
Ended
May 4, 2013 May 5, 2012
Increase
Increase
(Decrease) in (Decrease) in
Cash Flows
Cash Flows
Feb. 2, 2013
Receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Provisions
Impact of reclassifications on working capital
Total
$
381.7
900.8
86.2
(1,765.8)
(30.6)
(1.3)
$
324.6 $
895.0
72.4
(1,657.0)
(37.4)
–
(57.1) $
(5.8)
(13.8)
108.8
(6.8)
1.3
(32.1)
25.2
(6.3)
182.5
3.2
3.2
$
(429.0) $
(402.4) $
26.6
$
175.7
The net change in non-cash working capital of $26.6 million in the fourth quarter is largely attributed to an increase in accounts
payable and accrued liabilities of $108.8 million. The increase in accounts payable and accrued liabilities was partially offset by:
(i) an increase in receivables of $57.1 million; (ii) an increase in prepaid expenses of $13.8 million; (iii) a decrease in provisions
of $6.8 million; and (iv) an increase in inventories of $5.8 million. The increase in inventories in the fourth quarter of fiscal 2013
compared to the decrease last year relates to increased fuel inventory compared to the prior year, combined with increased
inventory related to the opening of the new distribution centre in Terrebonne, Québec in the third quarter of fiscal 2013.
The Company’s ratio of current assets to current liabilities of 1.0 times was up slightly from the 0.9 times reported in the same
period last year.
Investment
Cash used in investing activities of $91.3 million in the fourth quarter of fiscal 2013 decreased $336.7 million compared to cash
used in investing activities of $428.0 million last year. The decrease was primarily the result of: (i) a decrease in cash used for
business acquisitions of $215.6 million; (ii) an increase in proceeds on disposal of property, equipment and investment property
of $56.4 million; (iii) a decrease in property, equipment and investment property purchases of $52.4 million; (iv) a decline in cash
used to fund a net increase in investments of $42.0 million; and (v) a decrease in additions to intangibles of $4.2 million. These
amounts were partially offset by an increase in cash used in loans and other receivables of $26.9 million and an increase in cash
used to fund other assets and other long-term liabilities of $7.3 million.
Consolidated purchases of property, equipment and investment properties totalled $131.6 million in the 13 weeks ended May 4,
2013 compared to $184.0 million in the 13 weeks ended May 5, 2012. Proceeds on the disposal of property, equipment and
investment properties increased $56.4 million from $25.0 million recorded in the fourth quarter of fiscal 2012 to $81.4 million
recorded in the fourth quarter of fiscal 2013. During the quarter, the Company sold four properties (fiscal 2012 – zero
properties) to Crombie REIT, three (fiscal 2012 – zero) of which were leased back. Cash consideration received for the
properties was recorded at the exchange amount of $53.3 million (fiscal 2012 – $nil).
For the 52 weeks ended May 4, 2013, cash used in investing activities was $555.3 million, a decrease of $213.0 million from
cash used in investing activities of $768.3 million last year. The decrease was primarily the result of: (i) a decrease in cash used
to fund business acquisitions of $229.8 million; (ii) a decrease in property, equipment and investment property purchases of
$70.8 million; (iii) an increase in cash generated from other assets and other long-term liabilities of $28.9 million; and (iv) a
decrease in additions to intangibles of $3.6 million. Partially offsetting these amounts were: (i) an increase in cash used to fund
a net increase in investments of $63.3 million; (ii) an increase in cash used to fund loans and other receivables of $41.6 million;
and (iii) a $14.9 million decrease in proceeds on disposal of property, equipment and investment property.
Annual Report 2013
53
For the 52 weeks ended May 4, 2013, consolidated purchases of property, equipment and investment properties totalled
$531.9 million compared to $602.7 million last year. Proceeds on the disposal of property, equipment and investment properties
decreased $14.9 million from $196.0 million recorded in fiscal 2012 to $181.1 million recorded in fiscal 2013. During fiscal 2013,
the Company sold eight properties (fiscal 2012 – nine properties) to Crombie REIT, seven (fiscal 2012 – seven) of which were
leased back. Cash consideration received for the properties was recorded at the exchange amount of $106.0 million (fiscal 2012 –
$123.9 million).
The table below outlines the number of stores Sobeys invested in during the 13 and 52 weeks ended May 4, 2013 compared to
the 13 and 52 weeks ended May 5, 2012.
Sobeys’ Corporate and Franchised Store Construction Activity
# of stores
May 4, 2013
May 5, 2012 May 4, 2013
May 5, 2012
13 Weeks Ended
52 Weeks Ended
Opened/acquired/relocated
Acquisition of retail gas locations and
related convenience store operations
Expanded
Rebannered/redeveloped
Closed
16
–
1
–
12
9
236
4
16
10
45
–
2
7
37
45
236
13
30
44
The following table shows Sobeys’ square footage changes for the 13 and 52 weeks ended May 4, 2013, by type.
Sobeys’ Square Footage Changes
Square feet (in thousands)
Opened
Relocated
Acquired
Expanded
Closed
Net change
13 Weeks
Ended
52 Weeks
Ended
May 4, 2013
May 4, 2013
297
67
13
10
(140)
247
933
67
14
27
(486)
555
At May 4, 2013, Sobeys’ square footage totalled 29.9 million square feet, a 2.0 percent increase over the 29.3 million square feet
operated at the end of fiscal 2012.
Financing
Financing activities during the fourth quarter used $63.5 million of cash compared to $26.2 million of cash generated in the same
quarter last year. The increase in cash used of $89.7 million is primarily the result of: (i) a decrease in the issuance of long-term
debt of $47.3 million; (ii) an increase in the repayment of long-term debt of $34.5 million; and (iii) an increase in interest paid of
$8.4 million.
During the 52 weeks ended May 4, 2013, financing activities used $287.8 million of cash compared to $152.0 million of cash
used in fiscal 2012. The increase of $135.8 million is primarily the result of an increase in the repayment of long-term debt of
$169.7 million and a decrease in bank indebtedness of $2.8 million. Partially offsetting these amounts were an increase in the
issuance of long-term debt of $31.1 million and a decrease in interest paid of $5.6 million.
Business Acquisitions
On March 15, 2012, Sobeys acquired 236 retail gas locations and related convenience store operations in Québec and Atlantic
Canada from Shell Canada for $214.9 million. The network acquired includes corporate owned and dealer operated locations.
The acquisition of these retail gas locations complements Sobeys’ convenience store operations.
The total consideration of $214.9 million was paid in cash. Acquisition costs of $3.9 million relating to external legal, consulting,
due diligence and other closing costs were incurred and have been included in selling and administrative expenses in the
consolidated statements of earnings for the 13 and 52 weeks ended May 5, 2012.
54
Empire Company Limited
Management’s Discussion and Analysis
The fair value of the identifiable assets acquired and liabilities assumed as at the acquisition date are as follows:
($ in millions)
Inventories
Property and equipment
Intangibles
Provisions
Other assets and liabilities
Total identifiable net assets
Excess consideration paid over identifiable net assets acquired
$
8.0
136.3
22.3
(23.2)
5.2
$
$
148.6
66.3
During fiscal 2013, management finalized the purchase price allocation related to this acquisition. As a result, the consolidated
balance sheet as at May 4, 2013 was adjusted by an increase to land of $1.7 million, a decrease to equipment of $3.4 million,
an increase to provisions of $0.6 million and an increase to goodwill of $2.3 million.
Guarantees and Commitments
Guarantees
Franchise Affiliates
Sobeys has a guarantee contract under the terms of which, should franchise affiliates be unable to fulfill their lease obligations,
Sobeys would be required to fund the greater of $7.0 million or 9.9 percent (fiscal 2012 – $7.0 million or 9.9 percent) of the
authorized and outstanding obligation. The terms of the guarantee contract are reviewed annually each August. As at May 4, 2013,
the amount of the guarantee was $7.0 million (fiscal 2012 – $7.0 million).
Sobeys has guaranteed certain equipment leases of its franchise affiliates. Under the terms of the guarantee, should franchise
affiliates be unable to fulfill their lease obligations, Sobeys would be required to fund the difference of the lease commitments up
to a maximum of $70.0 million on a cumulative basis. Sobeys approves each of the contracts.
During 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
franchisee affiliates be unable to fulfill their lease obligations or other remedy, Sobeys would be required to fund the greater of
$6.0 million or 10.0 percent (fiscal 2012 – $6.0 million or 10.0 percent) of the authorized and outstanding obligation annually.
Under the terms of the contract, 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 determined that there were no material implications with
respect to the consolidation of SPEs. As at May 4, 2013, the amount of the guarantee was $6.0 million (fiscal 2012 – $6.0 million).
The aggregate, annual, minimum rent payable under the guaranteed operating equipment leases for fiscal 2014 is approximately
$15.8 million. The guaranteed lease commitments over the next five fiscal years are:
($ in millions)
2014
2015
2016
2017
2018
Thereafter
Other
Third Parties
$
15.8
0.5
0.3
–
–
–
At May 4, 2013, the Company was contingently liable for letters of credit issued in the aggregate amount of $97.8 million (fiscal
2012 – $69.6 million).
Upon entering into the lease of its new Mississauga distribution centre in March 2000, Sobeys guaranteed to the landlord the
performance by SERCA Foodservice Inc. of all of its obligations under the lease. The remaining term of the lease is seven years
with an aggregate obligation of $22.6 million (fiscal 2012 – $25.6 million). At the time of the sale of assets of SERCA
Foodservice Inc. to Sysco Corp., the lease of the Mississauga distribution centre was assigned to and assumed by the purchaser,
and Sysco Corp. agreed to indemnify and hold Sobeys harmless from any liability it may incur pursuant to its guarantee.
Annual Report 2013
55
Commitments
Long-Term Debt
Principal debt retirement in each of the next five fiscal years is as follows:
($ in millions)
2014
2015
2016
2017
2018
Thereafter
Finance Leases
Finance lease liabilities are payable as follows:
($ in millions)
2014
2015
2016
2017
2018
Thereafter
$
37.0
41.0
199.2
10.0
105.7
534.2
Future
Minimum
Lease
Payments
$
$
12.3
8.0
6.2
6.1
4.0
9.6
Interest
$
1.7
1.2
1.0
0.7
0.5
2.4
$
46.2
$
7.5
$
Present
Value of
Minimum
Lease
Payments
10.6
6.8
5.2
5.4
3.5
7.2
38.7
During fiscal 2013, the Company increased its finance lease obligation by $8.8 million (fiscal 2012 – $4.2 million) with a similar
increase in assets under finance leases. These additions are non-cash in nature, therefore have been excluded from the
statements of cash flows.
Operating Leases, as Lessee
The Company leases various retail stores, distribution centres, theatres, offices and equipment under non-cancellable operating
leases. These leases have varying terms, escalation clauses, renewal options and basis on which contingent rent is payable.
The total net, future minimum rent payable under the Company’s operating leases as of May 4, 2013 is approximately
$2,748.9 million. This reflects a gross lease obligation of $3,730.1 million reduced by expected sub-lease income of
$981.2 million. The net commitments over the next five fiscal years are:
Third Parties
Related Parties
Net Lease
Obligation
Gross Lease
Obligation
Net Lease
Obligation
Gross Lease
Obligation
$
$
228.8
214.4
198.6
180.8
163.3
888.1
$
338.6
315.6
293.6
266.2
237.1
1,404.1
$
65.8
65.7
64.8
58.0
57.2
563.4
65.8
65.7
64.8
58.0
57.2
563.4
($ in millions)
2014
2015
2016
2017
2018
Thereafter
56
Empire Company Limited
Management’s Discussion and Analysis
The Company recorded $440.0 million (fiscal 2012 – $411.6 million) as an expense for minimum lease payments for the
fiscal year ended May 4, 2013 in the consolidated statements of earnings. The expense was offset by sub-lease income of
$129.9 million (fiscal 2012 – $118.3 million), and a further $9.2 million (fiscal 2012 – $4.5 million) of expense was recognized
for contingent rent.
Operating Leases, as Lessor
The Company also leases most investment properties, under operating leases. These leases have varying terms, escalation
clauses, renewal options and basis on which contingent rent is receivable.
Rental income for the fiscal year ended May 4, 2013 was $59.2 million (fiscal 2012 – $41.7 million) and was included in sales in
the consolidated statements of earnings. In addition, the Company recognized $1.0 million of contingent rent for the fiscal year
ended May 4, 2013 (fiscal 2012 – $1.5 million).
The lease payments expected to be received over the next five fiscal years are:
($ in millions)
2014
2015
2016
2017
2018
Thereafter
Free Cash Flow
Third Parties
$
7.1
5.9
5.5
5.2
4.4
24.6
Free cash flow 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 from operating activities for the 13 and 52 weeks
ended May 4, 2013 and the 13 and 52 weeks ended May 5, 2012.
13 Weeks Ended
52 Weeks Ended
($ in millions)
May 4, 2013
May 5, 2012 May 4, 2013
May 5, 2012
Cash flow from operating activities
Add: proceeds on disposal of property, equipment
and investment property
Less: property, equipment and investment property purchases
Free cash flow(1)
(1) See Non-GAAP Financial Measures on page 31.
$
239.5
$
367.4 $
788.1
$
814.6
81.4
(131.6)
25.0
(184.0)
181.1
(531.9)
196.0
(602.7)
$
189.3
$
208.4 $
437.3
$
407.9
Free cash flow generation in the fourth quarter of fiscal 2013 was $189.3 million compared to $208.4 million generated in
the fourth quarter last year. The $19.1 million decrease in free cash flow was due to a $127.9 million decrease in cash flow
from operating activities, partially offset by a $56.4 million increase in proceeds on the disposal of property, equipment and
investment property and a $52.4 million decrease in property, equipment and investment property purchases. The $127.9 million
decrease in cash flow from operating activities is primarily attributed to a $149.1 million decrease in the net change in non-cash
working capital and an increase in income taxes paid of $2.3 million, partially offset by an increase in net earnings of $12.3 million
and an increase in non-cash and other cash items of $11.2 million.
For the 52 weeks ended May 4, 2013, free cash flow generation was $437.3 million compared to $407.9 million generated last
year. The $29.4 million increase in free cash flow was primarily the result of a $70.8 million decrease in property, equipment
and investment property purchases, partially offset by a decline in cash flow from operating activities of $26.5 million and a
decline in proceeds on the disposal of property, equipment and investment property of $14.9 million. The $26.5 million decrease
in cash flow from operating activities was primarily a result of a decrease in the net change in non-cash working capital of
$153.6 million, partially offset by: (i) a $44.6 million decrease in income taxes paid; (ii) a $41.8 million increase in net earnings;
and (iii) a $40.6 million increase in non-cash and other cash items.
Annual Report 2013
57
ACCOUNTING STANDARDS AND POLICIES
Accounting Standards and Policies Adopted During Fiscal 2013
(i) Financial Instruments: Disclosures
In October 2010, the IASB issued amendments to IFRS 7, “Financial Instruments: Disclosures”, which require increased
disclosure for transactions involving the transfer of financial assets. The amendments became effective in the Company’s first
quarter of fiscal 2013. No new disclosures were required for the consolidated financial statements as a result of implementing
these amendments.
(ii) Deferred Tax: Recovery of Underlying Assets
In December 2010, the IASB issued amendments to International Accounting Standard (“IAS”) 12, “Income Taxes”, which
introduce an exception to the general measurement requirements of IAS 12 in respect of investment properties measured at
fair value. The amendments became effective in the Company’s first quarter of fiscal 2013. These amendments did not impact
the Company, as its investment properties are not measured at fair value.
Future Changes in Accounting Standards
(i) Financial Instruments
In November 2009, the IASB issued IFRS 9, “Financial Instruments”, which will ultimately replace IAS 39, “Financial Instruments:
Recognition and Measurement”. The replacement is a multi-phase project with the objective of improving and simplifying the
reporting for financial instruments. The issuance of IFRS 9 is the first phase of the project, which provides guidance on the
classification and measurement of financial assets and financial liabilities. IFRS 9 is effective for annual periods beginning on or
after January 1, 2015.
(ii) Consolidated Financial Statements
In May 2011, the IASB issued IFRS 10, “Consolidated Financial Statements”, which establishes principles for the presentation
and preparation of consolidated financial statements when an entity controls one or more other entities. The objective of
IFRS 10 is to define principles of control and to establish the basis of determining when and how an entity should be included
within a set of consolidated financial statements. It replaces portions of IAS 27, “Consolidated and Separate Financial
Statements”, and supersedes Standing Interpretations Committee (“SIC”) 12, “Consolidation – Special Purpose Entities”,
completely and is effective for annual periods beginning on or after January 1, 2013. The Company has evaluated the impact
of this standard on its “Investments in associates” and has determined that while having significant influence on these
investments, the criteria for control are not met and therefore equity accounting for these investments continues to be
appropriate. Management has also evaluated the impact of this standard as it applies to SPE’s, and does not expect it to have
a significant impact.
(iii) Joint Arrangements
In May 2011, the IASB issued IFRS 11, “Joint Arrangements”, which establishes principles for financial reporting by entities that
have an interest in a joint arrangement. IFRS 11 supersedes IAS 31, “Interest in Joint Ventures”, and SIC 13, “Jointly Controlled
Entities – Non Monetary Contributions by Venturers”. Through an assessment of the rights and obligations in an arrangement,
this IFRS establishes principles to determine the type of joint arrangement and guidance for financial reporting activities
required by the entities that have an interest in arrangements that are jointly controlled and is effective for annual periods
beginning on or after January 1, 2013. The adoption of this standard is not expected to have a significant impact on the
Company’s financial statements.
(iv) Disclosure of Interests in Other Entities
In May 2011, the IASB issued IFRS 12, “Disclosure of Interests in Other Entities”, which outlines disclosure requirements for
an entity that has interests in a subsidiary, a joint arrangement, an associate and an unconsolidated structured entity. IFRS 12
requires an entity to disclose information that enables users of its financial statements to evaluate the nature of, and risks
associated with, its interest in other entities and the effects of those interests on its financial position, financial performance
and cash flows. It is effective for annual periods beginning on or after January 1, 2013. The adoption of this standard will result
in additional financial statement note disclosures relating to the Company’s investments in associates and joint ventures.
58
Empire Company Limited
Management’s Discussion and Analysis (v) Fair Value Measurement
In May 2011, the IASB issued IFRS 13, “Fair Value Measurement”, which defines fair value, sets out in a single IFRS a framework
for measuring fair value and identifies required disclosures about fair value measurements. This IFRS is effective for annual
periods beginning on or after January 1, 2013.
(vi) Employee Benefits
In June 2011, the IASB issued amendments to IAS 19, “Employee Benefits”, which eliminate the option to defer the recognition
of actuarial gains and losses, streamline the presentation of changes in assets and liabilities arising from defined benefit plans to
be presented in other comprehensive income and enhance disclosure requirements around the characteristics of the defined
benefit plans and risks associated with participation in those plans. The amendments are effective for annual periods beginning on
or after January 1, 2013. The preliminary expected impact of the changes to this standard for the 52 weeks ended May 4, 2013
is a reduction in pre-tax earnings of $7.1 million and a pre-tax increase to other comprehensive income of $6.4 million.
(vii) Presentation of Financial Statements
In May 2012, the IASB issued amendments to IAS 1, “Presentation of Financial Statements”, clarifying the requirements for
comparative information. The amendments are effective for annual periods beginning on or after January 1, 2013.
The Company is currently evaluating the impact of these new standards and amendments on its consolidated financial statements.
Critical Accounting Estimates
The preparation of consolidated financial statements, in conformity with IFRS, requires management to make judgments,
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
The use of estimates, judgments and assumptions are all interrelated. Certain of these estimates require subjective or complex
judgments by management that may be uncertain. Some of these items include the valuation of inventories, goodwill, employee
future benefits, stock-based compensation, valuation of asset-backed commercial paper, provisions, impairments, customer
loyalty programs, useful lives of property, equipment, investment property and intangibles for purposes of depreciation and
amortization, 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.
Management regularly evaluates the estimates and assumptions it uses. Actual results could differ from these estimates.
Impairment of Non-Financial Assets
Goodwill is reviewed for impairment at least annually by assessing the recoverable amount of each cash generating unit or groups
of cash generating units to which the goodwill relates. The recoverable amount is the higher of fair value less costs to sell and
value in use. When the recoverable amount of the cash generating units is less than the carrying amount an impairment loss is
recognized immediately as selling and administrative expenses. Impairment losses related to goodwill cannot be reversed.
Long-lived tangible and intangible assets are reviewed for impairment when events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable. If such an indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of fair value less costs
to sell and value in use. Where the asset does not generate cash flows that are independent from other assets, the Company
estimates the recoverable amount of the cash generating unit(s) to which the asset belongs. The Company has primarily
determined a cash generating unit to be an individual store or theatre. Corporate assets, such as head offices and distribution
centres, do not individually generate separate cash inflows and are therefore aggregated for testing with the locations they
service. When the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the
carrying amount (or cash generating unit) is reduced to the recoverable amount. An impairment loss is recognized as selling and
administrative expenses or cost of sales immediately in net earnings or loss.
Where an impairment loss subsequently reverses, other than related to goodwill, the carrying amount of the asset (or cash
generating unit) is increased to the revised estimate, but is limited to the carrying amount that would have been determined if
no impairment loss had been recognized in prior periods. A reversal of impairment loss is recognized immediately in net earnings
or loss.
In the process of measuring expected future cash flows, management makes assumptions about the future growth of profits.
These assumptions relate to future events and circumstances. The actual results may vary and may cause significant adjustments
to the Company’s assets within subsequent financial years.
Annual Report 2013
59
Pension Benefit Plans and Other Benefit Plans
The cost of the Company’s pension benefits for defined contribution plans are expensed at the time active employees are
compensated. The cost of defined benefit pension plans and other benefit plans is accrued based on actuarial valuations, which
are determined using the projected unit credit method pro-rated on service and management’s best estimate of the expected
long-term rate of return on plan assets, salary escalation, retirement ages and expected growth rate of health care costs.
Current market values are used to value benefit plan assets. The obligation related to employee future benefits is measured using
current market interest rates, assuming a portfolio of Corporate AA bonds with terms to maturity that, on average, match the
terms of the obligation.
The impact of plan amendments is recognized as an expense and amortized on a straight-line basis over the average period until
the benefits are vested. To the extent that increases in the obligation related to past service have vested immediately following
the changes in the original plan, the Company recognizes past service cost immediately.
In measuring its defined benefit liability the Company will recognize all of its actuarial gains and losses immediately into other
comprehensive income.
Income Taxes
Deferred 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.
Deferred income tax assets or liabilities are measured using enacted or substantively enacted income tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The calculation of
current and deferred 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 deferred 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 deferred income tax balances
on the consolidated balance sheets.
Valuation of Inventories
Inventories are valued at the lower of cost and estimated net realizable value. Significant estimation or judgment is required in
the determination of: (i) inventories valued at retail and adjusted to cost; (ii) estimated inventory provisions due to spoilage and
shrinkage occurring between the last physical inventory count and the balance sheet dates; 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 sheets and a charge or credit to operating income in the consolidated
statements 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 dates. To the extent that actual losses
experienced vary from those estimated, both inventories and operating income may be impacted.
Provisions
Provisions are recognized when there is a present legal or constructive obligation as a result of a past event, for which it is
probable that a transfer of economic benefits will be required to settle the obligation, and where a reliable estimate can be made
of the amount of the obligation. Provisions are discounted using a pre-tax discount rate that reflects the current market
assessments of the time value of money and the risks specific to the liability, if material.
Disclosure Controls and Procedures
Management of Empire, which includes the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), is responsible
for establishing and maintaining Disclosure Controls and Procedures (“DC&P”) as that term is defined in National Instrument
52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings”. As at May 4, 2013, the CEO and CFO have evaluated,
or caused to be evaluated under our supervision, the design and operation of the Company’s DC&P. Based on that evaluation,
the CEO and CFO have concluded that Empire’s DC&P was effective as at May 4, 2013.
60
Empire Company Limited
Management’s Discussion and Analysis Internal Control over Financial Reporting
Management of Empire, which includes the CEO and CFO, is responsible for establishing and maintaining Internal Control over
Financial Reporting (“ICFR”), as that term is defined in National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual
and Interim Filings”. 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 Organizations of the Treadway Commission. As at
May 4, 2013, the CEO and CFO have evaluated, or caused to be evaluated under our supervision, the design and operating
effectiveness of the Company’s ICFR. Based on the evaluation, the CEO and CFO have concluded that Empire’s ICFR was
effective as at May 4, 2013.
There have been no changes in Empire’s ICFR during the period beginning February 3, 2013 and ended May 4, 2013 that have
materially affected, or are reasonably likely to materially affect, Empire’s ICFR.
RELATED PARTY TRANSACTIONS
The Company has related party transactions with various associates. The Company holds a 42.8 percent ownership interest in
Crombie REIT which is accounted for using the equity method. As a result of the issuance of Crombie REIT units during the
current fiscal year, partially offset by the Company’s subscription of Class B limited partnership units and the conversion of
Crombie REIT debentures, the Company’s interest in Crombie REIT was reduced from 44.3 percent to 42.8 percent. On a fully
diluted basis (assuming conversion of all outstanding convertible securities of Crombie REIT) the Company’s interest in Crombie
REIT would be approximately 40.8 percent.
The Company rents premises from Crombie REIT at amounts which, in management’s opinion, approximate fair market value.
Based upon the significant number of leases negotiated with third parties operating in the same markets in which the Company
rents premises from Crombie REIT, management has determined the rental payments to Crombie REIT to be indicative of fair
value. During the fiscal year 2013, the aggregate net payments under these leases, which are measured at exchange amount,
were $80.6 million (fiscal 2012 – $75.1 million).
In addition, Crombie REIT provides administrative and management services to the Company. The charges incurred for
administrative and management services are on a cost recovery basis. For the 52 weeks ended May 4, 2013, charges incurred
for administrative and management services were $1.0 million (fiscal 2012 – $1.5 million).
The Company has non-interest bearing notes payable to Crombie REIT in the amount of $2.4 million (fiscal 2012 – $3.2 million)
related to the subsidy payments to Crombie REIT pursuant to an omnibus subsidy agreement dated March 23, 2006 between
certain subsidiaries of Crombie REIT and ECL Properties Limited.
During fiscal 2013, the Company sold eight properties (fiscal 2012 – nine properties) to Crombie REIT, seven (fiscal 2012 –
seven) of which were leased back. Cash consideration received for the properties was recorded at the exchange amount of
$106.0 million (fiscal 2012 – $123.9 million), resulting in a pre-tax gain of $15.0 million (fiscal 2012 – $12.4 million), which was
recognized in the consolidated statements of earnings. During fiscal 2012, the Company acquired a property from Crombie REIT
for $5.0 million which is equal to the fair market value of the property. As the property was leased by the Company from Crombie
REIT, an additional $2.0 million was paid for the cancellation of the lease and recognized in the consolidated statements of
earnings, with total cash consideration paid of $7.0 million. No properties were acquired during fiscal 2013.
The Company owns Crombie REIT Debentures with a market value of $24.8 million (May 5, 2012 – $nil). At May 5, 2012, the
Company owned Crombie REIT Series B convertible unsecured subordinated debentures with a market value of $12.8 million.
During the 52 weeks ended May 4, 2013, the Company received income related to these securities of $1.2 million (fiscal 2012 –
$0.6 million).
On October 20, 2011, Crombie REIT closed a bought-deal public offering of units at a price of $12.85 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 limited partnership
units (which are convertible on a one-for-one basis into units of Crombie REIT).
During the quarter ended November 5, 2011, fixed rate secured mortgages provided to Crombie REIT in the amount of $5.6 million
were repaid in their entirety. During the 52 weeks ended May 5, 2012, the Company received income related to these mortgages
of $0.2 million.
On March 29, 2012, Crombie REIT closed a bought-deal public offering of units at a price of $14.50 per unit. Concurrent with the
public offering, the Company subscribed for approximately $53.0 million of Class B limited partnership units (which are convertible
on a one-for-one basis into units of Crombie REIT).
Annual Report 2013
61
On July 3, 2012, the Company purchased $24.0 million of Debentures from Crombie REIT, pursuant to a $60.0 million bought-
deal prospectus offering. The Debentures have a maturity date of September 30, 2019. The Debentures have a coupon of
5.00 percent per annum and each $1,000 principal amount of Debenture is convertible into approximately 49.7512 units of
Crombie REIT, at any time, at the option of the holder, based on a conversion price of $20.10 per unit.
On September 25, 2012, the Company converted Series B convertible unsecured subordinated debentures of Crombie REIT
with a face value of $10.0 million into 909,090 units of Crombie REIT. The units were recorded at the exchange amount of
$13.8 million, resulting in a pre-tax gain of $3.8 million.
During the quarter ended November 3, 2012, the Company acquired a parcel of land from Genstar Development Partnership,
in which the Company holds a 40.7 percent interest. Cash consideration paid for the land was $7.6 million. The gain realized of
$1.6 million was eliminated from property and equipment.
On December 14, 2012, Crombie REIT closed a bought-deal public offering of units at a price of $14.75 per unit. Concurrent with
the public offering, the Company subscribed for $24.5 million of Class B limited partnership units (which are convertible on a
one-for-one basis into units of Crombie REIT).
SUBSEQUENT EVENTS
On June 12, 2013, the Company and Sobeys announced that Sobeys entered in an Asset Purchase Agreement with Safeway Inc.
and its subsidiaries to acquire substantially all of the assets and select liabilities of Canada Safeway for a cash purchase price of
Cdn. $5.8 billion, subject to a working capital adjustment, plus the assumption of certain liabilities. The agreement provides for
the purchase of the following:
• 213 full service grocery stores under the Safeway banner in Western Canada;
• 199 in-store pharmacies;
• 62 co-located fuel stations;
• 10 liquor stores;
• 4 primary distribution centres; and
• 12 manufacturing facilities.
The Company’s and Sobeys’ announcement included their intention that financing for the acquisition will come from a
combination of the following: (i) a planned $1.5 billion Empire equity offering; (ii) a planned $1.0 billion sale-leaseback of
acquired real estate assets; (iii) a $1.825 billion term loan and the issuance of $800 million in unsecured notes by Sobeys;
(iv) other real estate and non-core asset sales; and (v) available cash on hand. As some of these transactions may not be
completed by the time of closing, Scotiabank has provided Empire and Sobeys with fully committed credit facilities for the full
purchase price plus transaction expenses required to close the transaction. Crombie REIT has a right of first offer in respect of
any real estate sales undertaken by Sobeys. The closing of the acquisition is expected during the Company’s second quarter of
fiscal 2014, and is subject to the fulfillment or waiver of certain customary closing conditions as well as the receipt of required
regulatory approvals, including that of the Competition Bureau.
Acquisition costs of $5.0 million relating to external legal, consulting, due diligence and other closing costs were incurred to
May 4, 2013.
On June 27, 2013, the Company announced that Empire Theatres has reached a definitive agreement with Cineplex Inc. for
the sale of 24 theatres in Atlantic Canada and 2 theatres in Ontario. Empire Theatres has also reached a separate definitive
agreement with Landmark Cinemas for the sale of 20 theatres in Ontario and Western Canada.
The purchase price for the Cineplex transaction is $200 million to be paid in cash, subject to certain adjustments to be made
at closing.
The purchase price for the Landmark transaction is approximately $55 million subject to certain adjustments to be made at
closing, with the purchase price to be paid as follows: $31 million in cash on closing; $19 million in equity; and an earn out right
which management estimates has a potential value of approximately $5 million. Upon closing, the assets will be held by a new
entity with the Empire Theatres’ equity being the controlling interest. The new entity will be consolidated into the Company’s
financial statements, including $30 million of debt in the new entity. Landmark will manage the business and have a right to buy
out Empire Theatres’ equity interest for $19 million in cash until December 31, 2013, following which Empire Theatres can agree
to sell its equity interest in the entity and require Landmark to sell on the same terms.
Closing of the transaction with Cineplex and also with Landmark is subject to satisfaction of customary conditions and relevant
regulatory approvals, which includes approval from the Competition Bureau. Closing of each transaction is expected to occur by
late summer of 2013. Empire Theatres is not obligated to close either transaction without closing the other.
62
Empire Company Limited
Management’s Discussion and Analysis EMPLOYEE FUTURE BENEFIT OBLIGATIONS
For the 52 weeks ended May 4, 2013, the Company contributed $9.6 million to its registered defined benefit plans (fiscal 2012
– $10.7 million). The Company expects to contribute approximately $8.4 million in fiscal 2014 to these plans. The Company
continues to assess the impact of the capital markets on its funding requirements.
DESIGNATION FOR ELIGIBLE DIVIDENDS
“Eligible dividends” receive favourable treatment for income tax purposes. To be an eligible dividend, a dividend must be
designated as such at the time of payment.
Empire has, in accordance with the administrative position of CRA, included the appropriate language on its website to designate
the dividends paid by Empire as eligible dividends unless otherwise designated.
CONTINGENCIES
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.
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.
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 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 the Company.
Competition
Empire’s food retailing business, 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, operating in over 800
communities in Canada. The most significant risk to Sobeys is the potential for reduced revenues and profit margins as a result of
increased competition. To mitigate this risk, Sobeys’ strategy is to be geographically diversified with the benefits of national scale
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
to meet a broader spectrum of needs of its customers in order to enhance profitability by region and target market.
Sobeys’ real estate development operations and Empire, through its investment in Crombie REIT, compete with numerous other
managers and owners of real estate properties in seeking tenants and new properties to acquire. The existence of competing
managers and owners could affect their ability to: (i) acquire property in compliance with their investment criteria; (ii) lease space
in their 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 sales and cash flows. To
mitigate these risks, Sobeys and Crombie REIT maintain strategic relationships with developers to ensure an adequate supply of
prospective attractive properties. In addition, Crombie REIT maintains strategic relationships with existing and potential tenants
to help ensure high occupancy levels are maintained at each of its properties.
Continued growth of rental income is dependent on renewing expiring leases and locating 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. To mitigate this risk, Crombie REIT and Sobeys utilize
staggered lease maturities to ensure that there are not unusually large amounts of leasable space coming up for renewal in any
given year.
Annual Report 2013
63
Genstar faces competition from other residential land developers in securing attractive sites for new residential lot development.
Although Genstar holds land for future development, it faces significant competition when looking to acquire new land for future
development. To mitigate this risk, Genstar maintains a geographically diverse inventory of well located land for development to
alleviate periods of intense competition for the acquisition of new land. In addition, Genstar management has intimate knowledge
of the residential markets where Genstar operates and in markets where it seeks new land investments.
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. The majority of Company debt is at fixed rates;
accordingly, there is limited exposure to interest rate risk until debt maturity.
Liquidity
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.
Interest Rate
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. At May 4, 2013, bank indebtedness and approximately 31.4 percent
of the Company’s long-term debt was 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 purchases excess
insurance coverage from financially stable third party insurance companies. In addition to maintaining comprehensive loss
prevention programs, the Company maintains management programs to mitigate the financial impact of operational risks.
Human Resources
Empire is exposed to the risk of labour disruption in its operations. Labour disruptions pose a moderate operational risk as
Sobeys operates an integrated network of 24 distribution centres across the country for the food retailing segment. Sobeys has
good relations with its employees and unions and does not anticipate any material labour disruptions in fiscal 2014. 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 are reviewed annually by the Human
Resources Committee.
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 event and natural hazard is the risk of a pandemic. Sobeys has worked with industry
and government sources to develop a pandemic preparedness plan. Responsibility for business continuity planning has been
designated to the Human Resources Committee of Empire’s Board of Directors.
64
Empire Company Limited
Management’s Discussion and Analysis Environmental Health and Safety
The Company is continually enhancing its programs in the 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.
Sobeys’ retail fuel locations operate underground storage tanks. Environmental contamination resulting from leaks or damages
to these tanks is possible. To mitigate this environmental risk, Sobeys engages in several monitoring procedures, as well as risk
assessment activities, to minimize potential environmental hazards.
These activities mitigate but do not eliminate the Company’s environmental risk, and as such, along with the risk of changes to
existing environmental protection regulatory requirements, there remains exposure for negative financial and operational impacts
to the Company in future years.
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.
Occupational Health and Safety
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, theatres, distribution centres and
offices. These policies and programs are reviewed regularly by the Human Resources Committee of the Board.
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 Sobeys’ financial performance. Procedures are in place to manage food crises, should they occur. These procedures
identify risks, provide clear communication to employees and consumers and ensure that potentially harmful products are
removed from inventory immediately. Food safety related liability exposures are insured by the Company’s insurance program. In
addition, Sobeys has food safety procedures and programs which address safe food handling and preparation standards. Sobeys
employs best practices for the storage and distribution of its food products.
Technology
The Company and each of its operating companies are committed to improving their operating systems, tools and procedures in
order to become more efficient and effective. The implementation of major information technology projects carries with it various
risks, including the risk of realization of benefits, that must be mitigated by disciplined change management and governance
processes. Sobeys has a business process optimization team staffed with knowledgeable internal and external resources that is
responsible for implementing the various initiatives.
Real Estate
The Company utilizes a capital allocation process which is focused on obtaining the most attractive real estate locations for its
retail stores and theatres, as well as for its commercial property and residential development operations, with direct or indirect
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 the successful
negotiation of operating leases with these developers and Sobeys’ ability to purchase these sites.
Annual Report 2013
65
Legal, Taxation and Accounting
Changes to any of the various federal and provincial laws, rules and regulations related to the Company’s business could have
a material impact on its financial results. Compliance with any proposed changes could also result in significant cost to the
Company. Failure to fully comply with various laws, rules and regulations may expose the Company to proceedings which may
materially affect its performance.
Similarly, income tax regulations and/or accounting pronouncements may be changed in ways which could negatively affect the
Company. The Company mitigates the risk of not being in compliance with the various laws, rules and regulations by monitoring
for newly adopted activities, improving technology systems and controls, improving internal controls to detect and prevent
errors, and overall, application of more scrutiny to ensure compliance. 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
The success of Empire 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
affiliate 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.
Drug Regulation
Legislated changes to generic prescription drug prices continued to impact Sobeys in fiscal 2013. On January 18, 2013, it was
announced that in all provinces, with the exception of Québec, the reimbursement rate for the top six generic prescription drugs
would be significantly reduced as of April 1, 2013 impacting fiscal 2013 and onward. Other amendments, the impacts of which
vary province by province, continue to be announced. Sobeys will continue to identify opportunities to mitigate the negative
impact on financial performance resulting from these changes.
Seasonality
The Company’s operations as they relate to food, specifically inventory levels, sales volume and product mix, are impacted to
some degree by certain holiday periods in the year.
Product Costs
Sobeys is a significant purchaser of food product which may be at risk of cost inflation given rising commodity prices and other
costs of production to food manufacturers. Should rising cost of product materialize in excess of expectations and should Sobeys
not be able to offset such cost inflation through higher retail prices and/or other cost savings, there could be a negative impact
on sales and margin performance. Sobeys has various procurement and merchandising programs in place to mitigate this risk.
Utility and Fuel Prices
The Company is a significant consumer of electricity, other utilities and fuel. Unanticipated cost increases in these items could
negatively affect the Company’s financial performance. The Company has various consumption and procurement programs in
place to minimize utility risk.
Foreign Currency
The Company conducts the majority of its operating business in CAD and its foreign exchange risk is mainly limited to currency
fluctuations between the CAD, the Euro and the USD. USD purchases of product by the food retailing segment 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 counterparties to fix the exchange rate
on some of its expected requirements for Euros and USD.
66
Empire Company Limited
Management’s Discussion and Analysis Ethical Business Conduct
Any failure of the Company to adhere to its policies, the law or ethical business practices could significantly affect its reputation
and brands and could therefore negatively impact the Company’s financial performance. The Company’s framework for managing
ethical business conduct includes the adoption of a Code of Business Conduct and Ethics which directors and employees of the
Company are required to acknowledge and agree to on a regular basis and, as part of an independent audit and security function,
maintenance of a whistle-blowing hotline.
Information Management
The integrity, reliability and security of information in all its forms is critical to the Company’s daily and strategic operations.
Inaccurate, incomplete or unavailable information and/or inappropriate access to information could lead to incorrect financial
and/or operational reporting, poor decisions, privacy breaches and/or inappropriate disclosure or leaks of sensitive information.
Information management is identified as a risk in its own right, separate from the technology risk. The Company recognizes that
information is a critical enterprise asset. Currently, the information management risk is being managed at the regional and
national levels through the development of policies and procedures pertaining to security access, system development, change
management and problem and incident management. With a view to enhancing and standardizing the controls to manage the
information management risk, the Company is developing corporate operating policies which establish minimum standards for
the usage, security and appropriate destruction of information. Furthermore, enterprise metrics are being identified to assist in
monitoring significant information management risks.
Capital Allocation
It is important that 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 the Board review of significant capital allocation
decisions. The Company has established prudent hurdle rates for capital investments that are evaluated through a prudent due
diligence process.
Access to Capital
Access to capital risk refers to Empire or its operating companies 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 banks.
Empire mitigates these risks by maintaining strong relationships with its banks and continuously monitors its credit ratings.
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 requirements.
Dividend Practice
The Board of Directors of Empire reviews from time to time the adequacy of Empire’s dividend practice with the objective of
allowing sufficient financial flexibility to continue investing in our business while growing returns to shareholders. Under the
current dividend practice, increases in the Non-Voting Class A and Class B common share dividends are directly linked to growth
in Empire’s adjusted net earnings. Empire’s dividend practice and the declaration of dividends are subject to the discretion of
Empire’s Board of Directors and, consequently, there can be no guarantee that Empire’s dividend practice will be maintained or
that dividends will be declared.
Additional financial information relating to Empire, including the Company’s Annual Information Form, can be found on the
Company’s website www.empireco.ca or on the SEDAR website for Canadian regulatory filings at www.sedar.com.
Dated: June 27, 2013
Stellarton, Nova Scotia, Canada
Annual Report 2013
67
Consolidated financial
statements
Table of Contents
MANAGEMENT’S STATEMENT OF RESPONSIBILITY
FOR FINANCIAL REPORTING
INDEPENDENT AUDITOR’S REPORT
69
70
CONSOLIDATED FINANCIAL STATEMENTS
71
71
Consolidated Balance Sheets
72
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income 72
Consolidated Statements of Changes
in Shareholders’ Equity
Consolidated Statements of Cash Flows
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
ELEVEN-YEAR FINANCIAL REVIEW
GLOSSARY
SHAREHOLDER AND INVESTOR INFORMATION
73
74
75
116
118
IBC
68
Empire Company Limited
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 International Financial Reporting Standards or Generally Accepted Accounting Principles and reflect management’s best
estimates and judgments. 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 27, 2013
Paul V. Beesley
Executive Vice President and
Chief Financial Officer
June 27, 2013
Annual Report 2013
69
Independent
auditor’s report
To the shareholders of Empire Company Limited
We have audited the accompanying consolidated financial statements of Empire Company Limited, which comprise the
consolidated balance sheets as at May 4, 2013 and May 5, 2012 and the consolidated statements of earnings, comprehensive
income, changes in shareholders’ equity, and cash flows for the 52 week fiscal years then ended, and a summary of significant
accounting policies and other explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position
of Empire Company Limited as at May 4, 2013 and May 5, 2012, and its consolidated financial performance and its consolidated
cash flows for the 52 week fiscal years then ended, in accordance with International Financial Reporting Standards.
Chartered Accountants
Halifax, Canada
June 27, 2013
70
Empire Company Limited
Consolidated Financial Statements CONSOLIDATED BALANCE SHEETS
As At
(in millions of Canadian dollars)
Assets
Current
Cash and cash equivalents
Receivables
Inventories (Note 4)
Prepaid expenses
Loans and other receivables (Note 5)
Investments
Income taxes receivable
Assets held for sale
Loans and other receivables (Note 5)
Investments
Investments, at equity (Note 6)
Other assets (Note 7)
Property and equipment (Note 8)
Investment property (Note 9)
Intangibles (Note 10)
Goodwill (Note 11)
Deferred tax assets (Note 12)
Liabilities
Current
Bank indebtedness (Note 13)
Accounts payable and accrued liabilities
Income taxes payable
Provisions (Note 14)
Long-term debt due within one year (Note 15)
Provisions (Note 14)
Long-term debt (Note 15)
Other long-term liabilities (Note 16)
Deferred tax liabilities (Note 12)
Shareholders’ Equity
Capital stock (Note 18)
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Non-controlling interest
See accompanying notes to the consolidated financial statements.
On Behalf of the Board
May 4, 2013
May 5, 2012
$
455.2 $
381.7
900.8
86.2
66.2
14.5
33.8
22.0
1,960.4
53.8
25.0
407.6
50.5
2,703.0
96.9
490.5
1,310.4
42.0
510.2
362.0
825.3
77.6
41.0
–
46.8
28.2
1,891.1
60.6
13.0
313.4
68.5
2,679.2
86.9
461.8
1,302.1
36.5
$ 7,140.1
$ 6,913.1
6.0
1,765.8
75.2
30.6
47.6
1,925.2
52.9
915.9
308.0
180.6
4.4
1,729.8
16.7
30.1
237.3
2,018.3
59.7
889.1
324.6
190.0
3,382.6
3,481.7
319.3
6.7
3,408.3
(8.1)
3,726.2
31.3
319.3
6.1
3,081.7
(10.8)
3,396.3
35.1
3,757.5
3,431.4
$ 7,140.1
$ 6,913.1
Director
Director
Annual Report 2013
71
CONSOLIDATED STATEMENTS OF EARNINGS
52 Weeks Ended
(in millions of Canadian dollars, except per share amounts)
Sales
Other income (Note 19)
Share of earnings from investments, at equity (Note 6)
Operating expenses
Cost of sales
Selling and administrative expenses
Operating income
Finance costs, net (Note 21)
Earnings before income taxes
Income taxes (Note 12)
Net earnings
Earnings for the year attributable to:
Non-controlling interest
Owners of the parent
Earnings per share (Note 22)
Basic
Diluted
Weighted average number of common shares outstanding, in millions (Note 22)
Basic
Diluted
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
52 Weeks Ended
(in millions of Canadian dollars)
Net earnings
Other comprehensive income
Unrealized gains (losses) on derivatives designated as cash flow hedges
May 4, 2013
May 5, 2012
$ 17,612.7 $ 16,249.1
33.8
49.3
56.8
44.0
13,411.8
3,716.9
12,220.5
3,577.4
584.8
50.8
534.0
140.1
534.3
59.9
474.4
122.3
$
393.9
$
352.1
$
9.1 $
384.8
12.7
339.4
$
393.9
$
352.1
$
$
5.66 $
5.65 $
67.9
68.1
4.99
4.99
67.9
68.0
May 4, 2013
May 5, 2012
$
393.9 $
352.1
(net of income taxes of $(0.3) (2012 – $0.3))
0.5
(0.7)
Reclassification of losses on derivative instruments designated as cash flow hedges to earnings
(net of income taxes of $(0.5) (2012 – $(2.4)))
Unrealized gains on available for sale financial assets
(net of income taxes of $(0.3) (2012 – $(0.1)))
Reclassification of (gains) losses on available for sale financial assets to earnings
(net of income taxes of $0.6 (2012 – $nil))
Actuarial gains (losses) on defined benefit plans
(net of income taxes of $(1.8) (2012 – $16.7)) (Note 17)
Share of other comprehensive income of investments, at equity
(net of income taxes of $(0.7) (2012 – $(0.5)))
Exchange differences on translation of foreign operations
1.2
1.3
(3.0)
5.2
0.6
0.1
7.0
(48.6)
1.7
1.0
1.2
0.9
Total comprehensive income
$
403.6
$
310.8
Total comprehensive income for the year attributable to:
Non-controlling interest
Owners of the parent
See accompanying notes to the consolidated financial statements.
72
Empire Company Limited
$
9.1 $
394.5
12.7
298.1
$
403.6
$
310.8
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EqUITY
(in millions of Canadian dollars)
Accumulated
Other
Contributed Comprehensive
Loss
Surplus
Capital
Stock
Retained
Earnings
Total
Attributable
to Parent
Non-
Controlling
Interest
Total Equity
Balance at May 7, 2011
$ 323.4
$
Dividends
Employee share options
Redemption of capital stock
Capital transactions with special
purpose entities
Transactions with owners
Net earnings
Other comprehensive income
Unrealized losses on derivatives
designated as cash flow hedges
Reclassification of losses on
derivative instruments
designated as cash flow
hedges to earnings
Unrealized gains on available
for sale financial assets
Reclassification of losses on
available for sale financial
assets to earnings
Actuarial losses on defined
benefit plans
Share of other comprehensive
income of investments,
at equity
Exchange differences on
translation of foreign
operations
Total comprehensive income
for the year
–
–
(4.1)
–
(4.1)
–
–
–
–
–
–
–
–
–
4.7
–
1.4
–
–
1.4
–
–
–
–
–
–
–
–
–
$
(18.1)
$ 2,852.1
$ 3,162.1
$
35.8
$ 3,197.9
–
–
–
–
–
–
(0.7)
5.2
0.6
0.1
–
1.2
0.9
7.3
(61.2)
–
–
–
(61.2)
339.4
–
–
–
–
(61.2)
1.4
(4.1)
–
(63.9)
339.4
(0.7)
5.2
0.6
0.1
(48.6)
(48.6)
–
–
1.2
0.9
–
–
–
(13.4)
(13.4)
12.7
–
–
–
–
–
–
–
(61.2)
1.4
(4.1)
(13.4)
(77.3)
352.1
(0.7)
5.2
0.6
0.1
(48.6)
1.2
0.9
290.8
298.1
12.7
310.8
Balance at May 5, 2012
$ 319.3
$
6.1
$
(10.8)
$ 3,081.7
$ 3,396.3
$
35.1
$ 3,431.4
Dividends
Employee share options
Capital transactions with special
purpose entities
Transactions with owners
Net earnings
Other comprehensive income
Unrealized gains on derivatives
designated as cash flow hedges
Reclassification of losses on
derivative instruments
designated as cash flow
hedges to earnings
Unrealized gains on available
for sale financial assets
Reclassification of gains on
available for sale financial
assets to earnings
Actuarial gains on defined
benefit plans
Share of other comprehensive
income of investments,
at equity
Exchange differences on
translation of foreign
operations
Total comprehensive income
for the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
1.2
1.3
(3.0)
(65.2)
–
–
(65.2)
384.8
–
–
–
–
–
7.0
1.7
1.0
–
–
(65.2)
0.6
–
(64.6)
384.8
0.5
1.2
1.3
(3.0)
7.0
1.7
1.0
–
–
(12.9)
(12.9)
9.1
–
–
–
–
–
–
–
(65.2)
0.6
(12.9)
(77.5)
393.9
0.5
1.2
1.3
(3.0)
7.0
1.7
1.0
2.7
391.8
394.5
9.1
403.6
Balance at May 4, 2013
$
319.3
$
6.7
$
(8.1)
$ 3,408.3
$ 3,726.2
$
31.3
$ 3,757.5
See accompanying notes to the consolidated financial statements.
Annual Report 2013
73
CONSOLIDATED STATEMENTS OF CASH FLOWS
52 Weeks Ended
(in millions of Canadian dollars)
Operations
Net earnings
Adjustments for:
Depreciation
Income taxes
Finance costs, net (Note 21)
Amortization of intangibles
Gain on disposal of assets (Note 19)
Impairment of non-financial assets (Note 8, 9 and 10)
Amortization of deferred items
Equity in earnings of other entities, net of dividends received
Employee future benefits obligation
Increase in long-term lease obligation
(Decrease) increase in long-term provisions
Stock-based compensation
Net change in non-cash working capital
Income taxes paid, net
Dividends paid, preferred shares
Cash flows from operating activities
Investment
Net increase in investments
Property, equipment and investment property purchases
Proceeds on disposal of property, equipment and investment property
Additions to intangibles
Loans and other receivables
Other assets and other long-term liabilities
Business acquisitions (Note 23)
Interest received
Non-controlling interest
Cash flows used in investing activities
Financing
Increase in bank indebtedness
Issue of long-term debt
Repayment of long-term debt
Redemption of preferred shares
Interest paid
Dividends paid, common shares
Cash flows used in financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements.
74
Empire Company Limited
May 4, 2013
May 5, 2012
$
393.9 $
352.1
314.8
140.1
50.8
44.5
(47.2)
6.9
0.9
37.8
2.7
4.2
(8.0)
0.6
(67.4)
(86.5)
–
788.1
(150.4)
(531.9)
181.1
(12.3)
(19.1)
5.1
(17.9)
3.0
(12.9)
(555.3)
1.6
133.7
(303.0)
–
(54.9)
(65.2)
(287.8)
(55.0)
510.2
304.1
122.3
59.9
38.2
(32.6)
5.2
1.1
(1.6)
3.4
3.3
2.8
1.4
86.2
(131.1)
(0.1)
814.6
(87.1)
(602.7)
196.0
(15.9)
22.5
(23.8)
(247.7)
3.8
(13.4)
(768.3)
4.4
102.6
(133.3)
(4.1)
(60.5)
(61.1)
(152.0)
(105.7)
615.9
$
455.2
$
510.2
Consolidated Financial Statements
Notes to the consolidated
financial statements
May 4, 2013
(in millions of Canadian dollars, except per share amounts)
1. REPORTING ENTITY
Empire Company Limited (“Empire” or the “Company”) is a diversified Canadian company whose key businesses include food
retailing and corporate investment activities. The Company is incorporated in Canada and the address of its registered office of
business is 115 King Street, Stellarton, Nova Scotia, B0K 1S0, Canada. The consolidated financial statements for the year ended
May 4, 2013 include the accounts of Empire, all subsidiary companies, including 100 percent owned Sobeys Inc. (“Sobeys”),
and certain enterprises considered special purpose entities (“SPEs”), 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 and investments in
significant joint ventures are accounted for using the equity method. 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.
2. BASIS OF PREPARATION
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS” or “GAAP”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were authorized for issue by the Board of Directors on June 27, 2013.
Basis of measurement
The consolidated financial statements are prepared on the historical cost basis, except the following assets and liabilities which
are stated at their fair value: derivative financial instruments, financial instruments classified as fair value through profit and loss,
financial instruments classified as available for sale, and stock based compensation plans.
Use of estimates and judgments
The preparation of consolidated financial statements, in conformity with IFRS, requires management to make judgments,
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
The use of estimates, judgments and assumptions are all interrelated. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future
periods affected.
The Company has applied judgment in its assessment of the appropriateness of consolidation of SPEs, the appropriateness of
equity accounting for its investments in associates and joint ventures, the classification of leases and financial instruments, the
level of componentization of property and equipment, the determination of cash generating units, the identification of indicators
of impairment for property and equipment, investment property and intangible assets, the allocation of purchase price
adjustments on business combinations, and the recognition of provisions.
Estimates and assumptions that could have a significant impact on the amounts recognized in the consolidated financial
statements are summarized below. 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.
(a) Inventories
Inventories are valued at the lower of cost and estimated net realizable value. Significant estimation or judgement is required in
the determination of (i) inventories valued at retail and adjusted to cost; (ii) estimated inventory provisions due to spoilage and
shrinkage occurring between the last physical inventory count and the balance sheet dates; and (iii) estimated inventory
provisions associated with vendor allowances and internal charges.
Annual Report 2013
75
(b) Impairment
Management assesses impairment of non-financial assets such as goodwill, intangible assets, property and equipment, and
investment property. In assessing impairment, management estimates the recoverable amount of each asset or cash-generating
unit based on expected future cash flows. When measuring expected future cash flows, management makes assumptions about
future growth of profits which relate to future events and circumstances. Actual results could vary from these estimated future
cash flows. Estimation uncertainty relates to assumptions about future operating results and the application of an appropriate
discount rate. Impairment losses and reversals are disclosed in the consolidated financial statements in Notes 8, 9, 10, and 11.
(c) Employee future benefits
Accounting for the costs of defined benefit pension plans and other post-employment benefits requires the use of a number of
assumptions. Pension obligations are based on current market conditions and actuarial determined data such as medical cost
trends, mortality rates, and future salary increases. Estimates are also made for the expected return on plan assets which are
based on current market conditions, the asset portfolio mix, the active management of plan assets and historical returns. A
sensitivity analysis and more detail of key assumptions used in measuring the pension obligation and post-employment benefit
obligations are disclosed in Note 17.
(d) Income taxes
Assumptions are applied when management assesses the timing and reversal of temporary differences and estimates the
Company’s future earnings to determine the recognition of current and deferred income taxes. Judgments are also made by
management when interpreting the tax rules in jurisdictions where the Company operates. Note 12 details the current and
deferred income taxes and deferred tax assets and liabilities.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of consolidation
The financial statements for the Company include the accounts of the Company and all of its subsidiary undertakings drawn up
to the reporting date. Subsidiaries, including SPEs, are all entities over which the Company has the power to control the financial
and operating policies so as to benefit from its activities. All subsidiaries have a reporting date within five weeks of the Company’s
reporting date. Where necessary, adjustments have been made to reflect transactions between the reporting dates of the
Company and its subsidiaries.
All intercompany transactions, balances, income, and expenses are eliminated in preparing the consolidated financial statements.
Earnings or losses and other comprehensive income of subsidiaries acquired or disposed of during the period are recognized
from the effective date of acquisition, or up to the effective date of disposal, as applicable.
Non-controlling interest represents the portion of a subsidiary’s earnings and losses and net assets that is not held by the
Company. If losses in a subsidiary applicable to a non-controlling interest exceed the non-controlling interest in the subsidiary’s
equity, the excess is allocated to the non-controlling interest except to the extent that the majority has a binding obligation and is
able to cover the losses.
(b) Business combinations
Business combinations are accounted for by applying the acquisition method. The acquisition method involves the recognition of
the acquiree’s identifiable assets and liabilities, including contingent liabilities, regardless of whether they were recorded in the
financial statements prior to acquisition. The acquiree’s identifiable assets, liabilities, and contingent liabilities that meet the
conditions for recognition under IFRS 3, “Business Combinations”, are recognized at their fair value at the acquisition date, except
for: (i) deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements which are recognized
and measured in accordance with IAS 12, “Income Taxes”, and IAS 19, “Employee Benefits”, respectively; and (ii) assets (or
disposal groups) that are classified as held for sale in accordance with IFRS 5, “Non-Current Assets Held for Sale and Discontinued
Operations”, which are measured and recognized at fair value less costs to sell. Goodwill arising on acquisition is recognized as an
asset and represents the excess of acquisition cost over the fair value of the Company’s share of the identifiable net assets of the
acquiree at the date of the acquisition. Any excess of identifiable net assets over the acquisition cost is recognized in net earnings
or loss immediately after acquisition. Transaction costs related to the acquisition are expensed as they are incurred.
76
Empire Company Limited
Notes to the Consolidated Financial Statements In measuring the fair value of an acquiree’s assets and liabilities management uses estimates about future cash flows and
discount rates. Any measurement changes upon initial recognition would affect the measurement of goodwill, except for
deferred taxes.
(c) Foreign currency translation
Assets and liabilities of foreign operations with a different functional currency than the Company are translated at exchange
rates in effect at each reporting period end date. The revenues and expenses are translated at average exchange rates for the
period. Cumulative gains and losses on translation are shown in accumulated other comprehensive income or loss.
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the foreign currency
exchange rate in effect at each reporting period end date. Non-monetary items are translated at the historical exchange rate
at the date of transaction. 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 foreign currency exchange rate for the period.
(d) Cash and cash equivalents
Cash and cash equivalents are defined as cash, and guaranteed investments with a maturity less than 90 days at date of acquisition.
(e) Inventories
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 retail method. The retail method uses the anticipated selling price less normal
profit margins, on a weighted average cost basis. 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 not estimated to 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.
(f) Income taxes
Tax expense recognized in net earnings or loss comprises the sum of deferred income tax and current income tax not recognized
in other comprehensive income.
Current income tax assets and liabilities are comprised of obligations to, or claims from, fiscal authorities relating to the current
or prior reporting periods, that are unpaid at the reporting date. Current tax is payable on taxable earnings, which differs from
net earnings or loss in the consolidated financial statements. The calculation of current income tax is based on tax rates and tax
laws that have been enacted or substantively enacted at the end of the reporting period.
Deferred income taxes are calculated using the asset and liability method on temporary differences between the carrying
amounts of assets and liabilities and their related tax bases. However, deferred tax is not provided on the initial recognition of
goodwill or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax
or accounting profit. The deferred tax assets and liabilities have been measured using substantively enacted tax rates that will be
in effect when the amounts are expected to settle. Deferred tax assets are only recognized to the extent that it is probable that
they will be able to be utilized against future taxable income. The assessment of the probability of future taxable income in which
deferred tax assets can be utilized is based on the Company’s latest approved forecast, which is adjusted for significant non-
taxable income and expenses and specific limits to the use of any unused tax loss or credit. If a positive forecast of taxable
income indicates the probable use of a deferred tax asset, especially when it can be used without a time limit, that deferred tax
asset is usually recognized in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or
uncertainties are assessed individually by management based on the specific facts and circumstances.
Annual Report 2013
77
Deferred tax assets and liabilities are offset only when the Company has a right and intention to offset current tax assets and
liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognized as a component of income
or expense in net earnings or loss, except where they relate to items that are recognized in other comprehensive income (such as
the unrealized gains and losses on cash flow hedges) or directly in equity.
(g) Assets held for sale
Certain land and buildings have been listed for sale and reclassified as assets held for sale on the consolidated balance sheets.
These assets are expected to be sold within a twelve month period and are no longer productive assets with no intent to develop
them for future use. Assets held for sale are valued at the lower of carrying amount 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.
(h) Investments in associates
Associates are those entities over which the Company is able to exert significant influence but which are neither subsidiaries nor
interests in a joint venture. Investments in associates are initially recognized at cost and subsequently accounted for using the
equity method.
Acquired investments in associates are also subject to the acquisition method as explained above. However, any goodwill or
fair value adjustment attributable to the Company’s share in the associate is included in the amount recognized as investments
in associates.
All subsequent changes to the Company’s share of interest in the equity of the associate are recognized in the carrying amount of
the investment. Changes resulting from the earnings or losses generated by the associate are reported within share of earnings
from investments, at equity on the Company’s consolidated statements of earnings. These changes include subsequent
depreciation, amortization or impairment of the fair value adjustments of assets and liabilities.
Changes resulting from earnings of the associate or items recognized directly in the associate’s equity are recognized in earnings
or equity of the Company, as applicable. However, when the Company’s share of losses in an associate equals or exceeds its
interest in the associate, including any unsecured receivables, the Company does not recognize further losses, unless it has
incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports
earnings, the Company resumes recognizing its share of those earnings only after its share of the earnings exceeds the
accumulated share of losses that had previously not been recognized.
Unrealized gains and losses on transactions between the Company and its associates are eliminated to the extent of the
Company’s interest in those entities. Where unrealized losses are eliminated, the underlying asset is also tested for impairment
losses from a Company perspective.
At each reporting period end date, the Company assesses whether there are any indicators of impairment in its investment in
associates. For investments in publicly traded entities, carrying value of the investment is compared to the current market value
of the investment based on its quoted price at the balance sheet date. For entities which are not publicly traded, value-in-use of
the investment is determined by estimating the Company’s share of the present value of the estimated cash flow’s expected to
be generated by the investee. If impaired, the carrying value of the Company’s investment is written down to its estimated
recoverable amount, being the higher of fair value less cost to sell and value-in-use.
In the process of measuring future cash flows, management makes assumptions about future growth of profits. These
assumptions relate to future events and circumstances. The actual results may vary and may cause significant adjustments to
the Company’s investments in associates in the subsequent financial years.
Each of the associates identified by the Company has a reporting year-end of December 31. For purposes of the Company’s
consolidated year-end financial statements, each of the associates results are included based on financial statements prepared as
at March 31, with any changes occurring between March 31 and the Company’s year-end that would materially affect the results
being taken into account.
(i) Investments in joint ventures
The Company undertakes some business activities through joint ventures. Joint ventures are established through contractual
arrangements that require the unanimous consent of each of the venturers regarding the strategic, financial and operating
policies of the venture (joint control).
78
Empire Company Limited
Notes to the Consolidated Financial Statements The Company’s joint venture is classified as a jointly controlled entity:
A jointly controlled entity is a corporation, partnership or other entity in which each participant holds an interest. A jointly
controlled entity operates in the same way as other entities, controlling the assets of the joint venture, generating its own
earnings and incurring its own liabilities and expenses.
Interests in jointly controlled entities are accounted for using the equity method. Under the equity method, the investment in
a jointly controlled entity is carried in the consolidated balance sheets at cost, plus post-acquisition changes in the Company’s
share of net assets of the jointly controlled entity, less distributions received and less any impairment in value of the investment.
The share of jointly controlled entities’ results is recognized in the Company’s consolidated financial statements from the date
that joint control commences until the date at which it ceases.
Unrealized gains and losses on transactions between the Company and joint ventures are eliminated to the extent of the
Company’s interest in those entities. Where unrealized losses are eliminated, the underlying asset is also tested for impairment
losses from a Company perspective.
Each joint venture identified by the Company has a reporting year-end of December 31. For purposes of the Company’s
consolidated year-end financial statements, the results of the joint venture are included based on financial statements prepared
as at March 31, with any changes occurring between March 31 and the Companys year-end that would materially affect the
results being taken into account.
(j) Financial instruments
Financial instruments are recognized on the consolidated balance sheets when the Company becomes a party to the contractual
provisions of a financial instrument. The Company is required to initially recognize all of its financial assets and liabilities, including
derivatives and embedded derivatives in certain contracts, at fair value. Loans and receivables, held to maturity financial assets
and other financial liabilities are subsequently measured at amortized cost. Derivatives and non-financial derivatives must be
recorded at fair value on the consolidated balance sheets 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 purpose of ongoing measurements. Classification choices for financial assets include: a) fair value through
profit and loss (“FVTPL”) – 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) FVTPL – measured at fair value with changes in fair value recorded in net earnings and
b) other liabilities – measured at amortized cost with gains and losses recognized in net earnings in the period that the liability
is derecognized.
The Company’s financial assets and liabilities are generally classified and measured as follows:
Asset/Liability
Classification
Measurement
Cash and cash equivalents
Receivables
Loans and other receivables
Investments – Current
Investments
Derivative financial liabilities
Non-derivative other assets
Bank indebtedness
Accounts payable and accrued liabilities
Long-term debt
Loans and receivables
Loans and receivables
Loans and receivables
FVTPL
Available for sale
FVTPL
FVTPL
Other liabilities
Other liabilities
Other liabilities
Amortized cost
Amortized cost
Amortized cost
Fair value
Fair value
Fair value
Fair value
Amortized cost
Amortized cost
Amortized cost
All financial assets are reviewed for impairment at each reporting date, except those classified as FVTPL. Loans and receivables
are reviewed for past due balances from independent accounts and based on an evaluation of recoverability net of security
assigned for franchisee or affiliate locations.
Annual Report 2013
79
Transaction costs other than those related to financial instruments classified as FVTPL, which are expensed as incurred, are
added to or deducted from the fair value of the financial asset or financial liability, as appropriate, on initial recognition and
amortized using the effective interest method.
Fair value measurements are classified within a hierarchy that prioritizes the inputs to fair value measurement. The hierarchy
gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The three levels of the fair value hierarchy are: level 1 – inputs that reflect unadjusted quoted prices in
active markets for identical assets or liabilities; level 2 – inputs, other than quoted prices, that are observable for the asset or
liability either directly or indirectly, including inputs in markets that are not considered to be active; or level 3 – inputs that are not
based on observable market data. Inputs into the determination of the fair value require management judgment or estimation.
If different levels of inputs are used to measure a financial instrument’s fair value, the classification within the hierarchy is based
on the lowest level of input that is significant to the fair value measurement. Changes to valuation methods may result in
transfers into or out of an investment’s assigned level.
A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or if the Company
transfers the financial asset to another party without retaining control or substantially all the risks and rewards of ownership of
the financial asset. A financial liability is derecognized when its contractual obligations are discharged, cancelled or expire.
(k) Hedges
The Company has cash flow hedges which are used to manage exposure to fluctuations in foreign currency exchange and variable
interest rates. 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 long-term
liability as required based on their fair value determination.
Significant derivatives include the following:
(1) Foreign currency forward contracts and foreign currency swaps for the primary purpose of limiting exposure to exchange
rate fluctuations relating to the purchase of goods or expenditures denominated in foreign currencies. Certain of these
contracts are designated as hedging instruments for accounting purposes. Accordingly, the effective portion of the change
in the fair value of the contracts are accumulated in other comprehensive income until the variability in cash flows being
hedged is recognized in earnings in future accounting periods.
(2) 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. Accordingly, the effective portion of the change in the fair value of the
contracts are accumulated in other comprehensive income until the variability in cash flows being hedged is recognized in
earnings in future accounting periods.
(l) Property and equipment
Owner-occupied land, buildings, equipment, leasehold improvements, and assets under construction are carried at acquisition
cost less accumulated depreciation and impairment losses.
Buildings that are leasehold property are also included in property and equipment if they are held under a finance lease. Such
assets are depreciated over their expected useful lives (determined by reference to comparable owned assets) or over the term
of the lease, if shorter.
Depreciation on real estate buildings is calculated using the straight-line method with reference to each property’s carrying 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.
80
Empire Company Limited
Notes to the Consolidated Financial Statements
When significant parts of property and equipment have different useful lives, they are accounted for as separate components.
Depreciation is recorded on a straight-line basis from the time the asset is available or when assets under construction become
available for use over the estimated useful lives of the assets as follows:
Buildings
Equipment
Leasehold improvements
10 – 40 years
3 – 20 years
Lesser of lease term and 7 – 20 years
Depreciation has been included within selling and administrative expenses in the consolidated statements of earnings. Material
residual value estimates and estimates of useful life are reviewed and updated as required, or annually at a minimum.
Gains or losses arising on the disposal of property and equipment are determined as the difference between the disposal
proceeds and the carrying amount of the assets and are recognized in net earnings or loss within other income. If the sale is to
a Company’s investment, at equity, a portion of the gain would reduce the carrying value of the investment.
(m) Investment property
Investment properties are properties which are held either to earn rental income or for capital appreciation or for both, rather
than for the principal purpose of the Company’s operating activities. Investment properties are accounted for using the cost
model. The depreciation policies for investment property are consistent with those described for property and equipment.
Any gain or loss arising from the sale of an investment property is immediately recognized in net earnings or loss, unless the sale
is to an investment, at equity, in which case a portion of the gain would reduce the carrying value of the Company’s investment.
Rental income and operating expenses from investment property are reported within sales and selling and administrative
expenses, respectively, in the consolidated statements of earnings.
(n) Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
(i) The Company as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct
costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and
recognized on a straight-line basis over the lease term.
(ii) The Company as lessee
Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the
lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in
the consolidated balance sheets as a finance lease obligation in long-term debt.
Lease payments are apportioned between finance charges and reduction of the lease obligation to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are recognized in net earnings or loss immediately.
Contingent rentals are recognized as expenses in the periods in which they are incurred.
Lease allowances and incentives are recognized as other long-term liabilities. The aggregate benefit of incentives is recognized
as a reduction of rental expense on a straight-line basis over the term of the lease.
Real estate lease expense is amortized on a straight-line basis over the entire term of the lease.
(iii) Sale and leaseback transactions
A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. If a sale and leaseback
transaction results in a finance lease for the Company, any excess of sales proceeds over the carrying amount is recognized as
deferred revenue and amortized over the term of the new lease. Any profit or loss in a sale and leaseback transaction resulting
in an operating lease that is transacted at fair value is recognized immediately. If the sale price is above fair value, the excess
over fair value is deferred and amortized over the term of the new lease.
Annual Report 2013
81
(o) Intangibles
Intangibles arise on the purchase of a new business, existing franchises, software, and the acquisition of pharmacy prescription
files. They are accounted for using the cost model whereby capitalized costs are amortized on a straight-line basis over their
estimated useful lives, as these assets are considered finite. Useful lives are reviewed annually and intangibles are subject to
impairment testing. The following useful lives are applied:
Deferred purchase agreements
Franchise rights/agreements
Lease rights
Patient files
Software
Other
5 – 10 years
10 years
5 – 10 years
15 years
3 – 7 years
5 – 10 years
Amortization has been included within selling and administrative expenses in the consolidated statements of earnings. Included
in intangibles are brand names, loyalty programs, and private labels, the majority of which have indefinite useful lives. Subsequent
expenditures made by the Company relating to intangible assets that do not meet the capitalization criteria are expensed in the
period incurred.
(p) Goodwill
Goodwill represents the excess of the purchase price of the business acquired over the fair value of the underlying net tangible
and intangible assets acquired at the date of acquisition.
(q) Impairment of non-financial assets
Goodwill and intangibles with indefinite useful lives are reviewed for impairment at least annually by assessing the recoverable
amount of each cash generating unit or groups of cash generating units to which the goodwill or the indefinite life intangible
relates. The recoverable amount is the higher of fair value less costs to sell and value in use. When the recoverable amount of the
cash generating units is less than the carrying amount an impairment loss is recognized immediately as selling and administrative
expenses. Impairment losses related to goodwill cannot be reversed.
Long-lived tangible and intangible assets are reviewed for impairment when events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable. If such an indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of fair value less costs to
sell and value in use. Where the asset does not generate cash flows that are independent from other assets, the Company
estimates the recoverable amount of the cash generating unit(s) to which the asset belongs. The Company has primarily
determined a cash generating unit to be an individual store or theatre. Corporate assets such as head offices and distribution
centres do not individually generate separate cash inflows and are therefore aggregated for testing with the locations they
service. When the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the
carrying amount (or cash generating unit) is reduced to the recoverable amount. An impairment loss is recognized as selling and
administrative expenses immediately in net earnings or loss.
Where an impairment loss subsequently reverses, other than related to goodwill, the carrying amount of the asset (or cash
generating unit) is increased to the revised estimate, but is limited to the carrying amount that would have been determined if no
impairment loss had been recognized in prior years. A reversal of impairment loss is recognized immediately in net earnings or loss.
In the process of measuring expected future cash flows, management makes assumptions about future growth of profits. These
assumptions relate to future events and circumstances. The actual results may vary and may cause significant adjustments to the
Company’s assets in the subsequent financial years.
(r) 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. During fiscal 2010, a loyalty card program, Club Thrifty Foods, was launched. It follows a
similar point earning and redemption structure as the Club Sobeys loyalty card program. The fair value of loyalty points awarded
is accounted for as a separate element of the sales transaction and recognition of revenue is deferred until the awards are
82
Empire Company Limited
Notes to the Consolidated Financial Statements redeemed after adjustment for the number of points expected never to be redeemed based on the expected future activity. Fair
value is determined by reference to the value for which the points can be redeemed. The program deferred revenue is included
in accounts payable and accrued liabilities on the Company’s consolidated balance sheets.
An AIR MILES® loyalty program is also used by the Company. AIR MILES® are earned by certain Sobeys customers based on
purchases in stores. The Company pays a per point fee under the terms of the agreement with AIR MILES®.
(s) Provisions
Provisions are recognized when there is a present legal or constructive obligation as a result of a past event, for which it is
probable that a transfer of economic benefits will be required to settle the obligation, and where a reliable estimate can be
made of the amount of the obligation. Provisions are discounted using a pre-tax discount rate that reflects the current market
assessments of the time value of money and the risks specific to the liability, if material. Where discounting is used, the increase
in the provision due to passage of time (“unwinding of the discount”) is recognized within finance costs in the consolidated
statements of earnings.
(t) Borrowing costs
Borrowing costs primarily comprise interest on the Company’s debts. Borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset are capitalized as a component of the cost of the asset to which it is related.
All other borrowing costs are expensed in the period in which they are incurred and are reported within finance costs.
(u) Deferred revenue
Deferred revenue consists of long-term supplier purchase agreements and gains on sale and leaseback transactions relating to
certain finance leases. Deferred revenue is included in other long-term liabilities and is taken into income on a straight-line basis
over the term of the related agreements.
(v) Employee benefits
(i) Short-term employment benefits
Short-term employee benefits include wages, salaries, compensated absences, profit-sharing and bonuses. Short-term
employee benefits are measured on an undiscounted basis and are recorded as selling and administrative expenses as the
related service is provided.
(ii) Post-employment benefits
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 unit credit method pro-rated on service and management’s best estimate of the
expected long-term rate of return on plan assets, salary escalation, retirement ages, and expected growth rate of health
care costs.
Current market values are used to value benefit plan assets. The obligation related to employee future benefits is measured
using current market interest rates, assuming a portfolio of Corporate AA bonds with terms to maturity that, on average,
match the terms of the obligation.
The impact of plan amendments is recognized as an expense and amortized on a straight-line basis over the average period
until the benefits are vested. To the extent that increases in the obligation related to past service have vested immediately
following the changes in the original plan, the Company recognizes past service cost immediately.
In measuring its defined benefit liability the Company will recognize all of its actuarial gains and losses immediately into other
comprehensive income.
(iii) Termination benefits
When the Company has committed to a formalized plan to either terminate employment prior to normal retirement or to
provide termination benefits as a result of offers made from the rationalization of business processes, termination benefits are
recognized as an expense.
Annual Report 2013
83
(w) Revenue recognition
Sales are recognized at the point-of-sale. Sales include revenues from customers through corporate stores and theatres operated
by the Company and consolidated SPEs, and revenue from sales to non-SPE franchised stores, affiliated stores and independent
accounts. Revenue received from non-SPE 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.
(x) Vendor allowances
The Company receives allowances from certain vendors whose products are purchased for resale. Included in these vendor
programs are allowances for volume purchases, exclusivity allowances, listing fees, and other allowances. The Company
recognizes these allowances as a reduction of cost of sales and related inventories. Certain allowances are contingent on the
Company achieving minimum purchase levels and these allowances are recognized when it is probable that the minimum
purchase level will be met, and the amount of allowance can be estimated.
(y) Interest and dividend income
Interest income and expenses are reported on an accrual basis using the effective interest method. Dividend income is
recognized when the right to receive payment has been established.
(z) Earnings per share
Basic earnings per share is calculated by dividing the earnings available to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted earnings per share is calculated by adjusting the weighted
average number of common shares outstanding for the dilutive effect of employee stock options.
(aa) Stock-based compensation
The Company operates equity settled stock-based compensation plans for certain employees.
All goods and services received in exchange for the grant of any stock-based payments are measured at their fair values. Where
employees are rewarded using stock-based payments, the fair values of employees’ services are determined indirectly by
reference to the fair value of the equity instruments granted (Note 27).
(bb) Accounting standards and policies adopted during fiscal 2013
(i) Financial instruments: disclosures
In October 2010, the IASB issued amendments to IFRS 7, “Financial Instruments: Disclosures”, which require increased
disclosure for transactions involving the transfer of financial assets. The amendments became effective in the Company’s first
quarter of fiscal 2013. No new disclosures were required for these consolidated financial statements as a result of
implementing these amendments.
(ii) Deferred tax: recovery of underlying assets
In December 2010, the IASB issued amendments to IAS 12, “Income Taxes”, which introduce an exception to the general
measurement requirements of IAS 12 in respect of investment properties measured at fair value. The amendments became
effective in the Company’s first quarter of fiscal 2013. These amendments did not impact the Company as its investment
properties are not measured at fair value.
(cc) Future accounting policies
(i) Financial instruments
In November 2009, the IASB issued IFRS 9, “Financial Instruments”, which will ultimately replace IAS 39, “Financial Instruments:
Recognition and Measurement”. The replacement is a multi-phase project with the objective of improving and simplifying the
reporting for financial instruments. The issuance of IFRS 9 is the first phase of the project, which provides guidance on the
classification and measurement of financial assets and financial liabilities. IFRS 9 is effective for annual periods beginning on
or after January 1, 2015.
84
Empire Company Limited
Notes to the Consolidated Financial Statements
(ii) Consolidated financial statements
In May 2011, the IASB issued IFRS 10, “Consolidated Financial Statements”, which establishes principles for the presentation
and preparation of consolidated financial statements when an entity controls one or more other entities. The objective of IFRS
10 is to define principles of control and establish the basis of determining when and how an entity should be included within
a set of consolidated financial statements. It replaces portions of IAS 27, “Consolidated and Separate Financial Statements”,
and supersedes Standing Interpretations Committee (“SIC”) 12, “Consolidation – Special Purpose Entities”, completely and is
effective for annual periods beginning on or after January 1, 2013. The Company has evaluated the impact of this standard on
its “Investments in associates” and has determined that while having significant influence on these investments, the criteria for
control are not met and therefore equity accounting for these investments continues to be appropriate. Management has also
evaluated the impact of this standard as it applies to SPE’s, and does not expect it to have a significant impact.
(iii) Joint arrangements
In May 2011, the IASB issued IFRS 11, “Joint Arrangements”, which establishes principles for financial reporting by entities that
have an interest in a joint arrangement. IFRS 11 supersedes IAS 31, “Interest in Joint Ventures”, and SIC 13, “Jointly Controlled
Entities – Non Monetary Contributions by Venturers”. Through an assessment of the rights and obligations in an arrangement,
the IFRS establishes principles to determine the type of joint arrangement and guidance for financial reporting activities
required by the entities that have an interest in arrangements that are jointly controlled and is effective for annual periods
beginning on or after January 1, 2013. The adoption of this standard is not expected to have a significant impact on the
Company’s financial statements.
(iv) Disclosure of interests in other entities
In May 2011, the IASB issued IFRS 12, “Disclosure of Interests in Other Entities”, which outlines disclosure requirements for
an entity that has interests in a subsidiary, a joint arrangement, an associate and an unconsolidated structured entity. IFRS 12
requires an entity to disclose information that enables users of its financial statements to evaluate the nature of, and risks
associated with, its interest in other entities and the effects of those interests on its financial position, financial performance
and cash flows. It is effective for annual periods beginning on or after January 1, 2013. The adoption of this standard will result
in additional financial statement note disclosures relating to the Company’s investments in associates and joint ventures.
(v) Fair value measurement
In May 2011, the IASB issued IFRS 13, “Fair Value Measurement”, which defines fair value, sets out in a single IFRS a framework
for measuring fair value and identifies required disclosures about fair value measurements. This IFRS is effective for annual
periods beginning on or after January 1, 2013.
(vi) Employee benefits
In June 2011, the IASB issued amendments to IAS 19, “Employee Benefits”, which eliminate the option to defer the recognition
of actuarial gains and losses, streamline the presentation of changes in assets and liabilities arising from defined benefit plans
to be presented in other comprehensive income and enhance disclosure requirements around the characteristics of the
defined benefit plans and risks associated with participation in those plans. The amendments are effective for annual periods
beginning on or after January 1, 2013. The preliminary expected impact of the changes to this standard for the 52 weeks
ended May 4, 2013 are a reduction in pre-tax earnings of $7.1 and a pre-tax increase to other comprehensive income of $6.4.
(vii) Presentation of financial statements
In May 2012, the IASB issued amendments to IAS 1, “Presentation of Financial Statements”, clarifying the requirements for
comparative information. The amendments are effective for annual periods beginning on or after January 1, 2013.
The Company is currently evaluating the impact of these new standards and amendments on its consolidated financial statements.
4. INVENTORIES
The cost of inventories recognized as an expense during the year was $13,350.1 (2012 – $12,159.7). The Company has recorded
during the year $8.6 (2012 – $13.1) as an expense for the write-down of inventories below cost to net realizable value for
inventories on hand as at May 4, 2013. There were no reversals of inventories written down previously (2012 – $nil).
Annual Report 2013
85
5. LOANS AND OTHER RECEIVABLES
Loans and mortgages receivable
Notes receivable and other
Less amount due within one year
May 4, 2013
May 5, 2012
$
$
60.3
59.7
120.0
66.2
70.5
31.1
101.6
41.0
$
53.8
$
60.6
Loans and mortgages receivable represent long-term financing to certain retail associates. These loans and mortgages are primarily
secured by inventory, fixtures and equipment, bear various interest rates, and have repayment terms up to 10 years. The carrying
amount of the loans and mortgages receivable approximates fair value based on the variable interest rates charged on the loans.
Loans receivable from officers and employees of $2.6 (2012 – $2.7) under the Company’s share purchase plan are classified as
notes receivable and other. Loan repayments will result in a corresponding decrease in notes receivable and other. The loans are
non-interest bearing and non-recourse, secured by 96,489 (2012 – 96,489) Non-Voting Class A shares. The market value of the
shares at May 4, 2013 was $6.6 (2012 – $5.5).
6. INVESTMENTS, AT EqUITY
The carrying values of the investments, at equity are as follows:
Investment in associates
Crombie Real Estate Investment Trust (“Crombie REIT”)
Canadian real estate partnerships
U.S. real estate partnerships
Investment in joint ventures
Canadian Digital Cinema Partnership (Note 23)
Total
The fair values of the investments based on a stock exchange are as follows:
Crombie REIT
May 4, 2013
May 5, 2012
$
$
195.2
136.0
67.2
167.4
99.7
39.1
9.2
7.2
$
407.6
$
313.4
May 4, 2013
May 5, 2012
$
622.7
$
520.7
The Canadian and U.S. real estate partnerships and Canadian Digital Cinema Partnership are not publicly listed on a stock
exchange and hence published price quotes are not available.
86
Empire Company Limited
Notes to the Consolidated Financial Statements
The Company’s carrying value of its investment in Crombie REIT is as follows:
Balance, beginning of year
Equity earnings
Share of other comprehensive income
Distributions
Deferral of gains on sale of property
Interest acquired in Crombie REIT
Dilution gain (Note 19)
Balance, end of year
May 4, 2013
May 5, 2012
$
$
167.4
13.7
2.4
(33.4)
(11.4)
38.3
18.2
91.0
19.7
1.8
(28.2)
(10.3)
83.0
10.4
$
195.2
$
167.4
The Company’s carrying value of its investment in Canadian real estate partnerships is as follows:
Balance, beginning of year
Equity earnings
Distributions
Investment
Deferral of gains on sale of property to Sobeys
Balance, end of year
The Company’s carrying value of its investment in U.S. real estate partnerships is as follows:
Balance, beginning of year
Equity earnings
Distributions
Foreign currency translation adjustment
Investment
Balance, end of year
May 4, 2013
May 5, 2012
$
$
99.7
23.5
(34.6)
45.8
1.6
88.0
28.9
(18.3)
1.1
–
$
136.0
$
99.7
May 4, 2013
May 5, 2012
$
$
39.1
6.1
(13.8)
1.0
34.8
33.1
1.1
(1.2)
0.9
5.2
$
67.2
$
39.1
The Company’s carrying value of its investment in Canadian Digital Cinema Partnership is as follows:
Balance, beginning of year
Transfer of equipment
Equity earnings
Share of other comprehensive income
Investment
Balance, end of year
May 4, 2013
May 5, 2012
$
$
7.2
–
0.7
(0.1)
1.4
$
9.2
$
–
7.7
(0.4)
(0.1)
–
7.2
Annual Report 2013
87
The aggregate amounts of the investments, at equity can be summarized as follows:
Investment in Associates
Assets
Current
Non-current
Liabilities
Current
Non-current
Revenues
Expenses
Earnings before income taxes
Earnings attributable to the Company
Investment in Joint Ventures
Assets
Current
Non-current
Liabilities
Current
Non-current
Revenues
Expenses
Earnings before income taxes
Earnings attributable to the Company
7. OTHER ASSETS
Asset-backed commercial paper
Restricted cash
Deferred lease assets
Other
Total
88
Empire Company Limited
May 4, 2013
May 5, 2012
$
504.9
2,268.1
$
454.3
1,720.3
$
225.3
1,418.8
$
156.6
1,045.4
May 4, 2013
May 5, 2012
$
450.6
331.7
$
118.9
$
43.3
$
$
$
388.0
278.2
109.8
49.7
May 4, 2013
May 5, 2012
$
6.4
100.1
$
2.2
66.3
$
$
5.5
89.5
9.5
51.7
May 4, 2013
May 5, 2012
$
$
$
22.3
19.2
3.1
0.7
$
$
$
10.5
12.5
(2.0)
(0.4)
May 4, 2013
May 5, 2012
$
$
24.8
2.1
11.0
12.6
$
50.5
$
23.8
23.0
9.8
11.9
68.5
Notes to the Consolidated Financial Statements
8. PROPERTY AND EqUIPMENT
May 4, 2013
Land
Buildings
Food Retailing Segment
Assets
Under
Leasehold
Equipment Improvements Construction
Total
Cost
Opening balance
Additions
Additions from business
acquisitions
Transfers
Disposals
Closing balance
Accumulated
depreciation and
impairment losses
Opening balance
Disposals
Transfers
Depreciation
Impairment losses
Impairment reversals
Closing balance
Net carrying value
as at May 4, 2013
$
402.9 $
972.9 $ 2,006.0 $
458.1 $
49.1
43.6
136.4
32.5
342.0 $ 4,181.9
493.4
231.8
2.1
(10.9)
(22.4)
2.1
54.6
(40.0)
0.4
203.6
(157.0)
–
27.4
(31.1)
–
(355.5)
(26.0)
4.6
(80.8)
(276.5)
$
420.8 $ 1,033.2 $ 2,189.4 $
486.9 $
192.3 $ 4,322.6
$
– $
–
–
–
–
–
280.8 $ 1,145.6 $
(16.0)
(3.1)
40.9
0.2
(1.2)
(156.4)
–
210.9
4.7
(0.9)
228.4 $
(29.3)
–
48.2
1.6
(0.7)
– $ 1,654.8
(201.7)
–
(3.1)
–
300.0
–
6.5
–
(2.8)
–
$
– $
301.6 $ 1,203.9 $
248.2 $
– $ 1,753.7
$
420.8 $
731.6 $
985.5 $
238.7 $
192.3 $ 2,568.9
May 4, 2013
Land
Buildings
Investments and Other Operations Segment
Assets
Under
Leasehold
Equipment Improvements Construction
Petroleum
and
Natural Gas
Total
Cost
Opening balance
Additions
Additions from business
acquisitions
Disposals
$
6.7 $
51.8 $
95.1 $
109.0 $
1.1 $
–
0.1
7.7
12.7
13.0
70.5 $
–
334.2
33.5
–
(4.1)
–
(9.4)
2.6
(1.0)
2.9
–
–
(10.6)
–
(70.5)
5.5
(95.6)
Closing balance
$
2.6 $
42.5 $
104.4 $
124.6 $
3.5 $
– $
277.6
Accumulated
depreciation and
impairment losses
Opening balance
Disposals
Depreciation
Impairment losses
Impairment reversals
Closing balance
Net carrying value
as at May 4, 2013
$
$
$
– $
–
–
–
–
24.1 $
(2.6)
2.3
–
–
62.5 $
–
5.4
1.6
(0.5)
42.9 $
–
6.1
1.9
(0.2)
– $
23.8 $
69.0 $
50.7 $
– $
–
–
–
–
– $
52.6 $
(53.0)
0.4
–
–
182.1
(55.6)
14.2
3.5
(0.7)
– $
143.5
2.6 $
18.7 $
35.4 $
73.9 $
3.5 $
– $
134.1
Annual Report 2013
89
May 5, 2012
Land
Buildings
Equipment
Assets
Under
Improvements Construction
Leasehold
Total
Food Retailing Segment
Cost
Opening balance
Additions
Additions from business
acquisitions
Transfers
Disposals
Closing balance
Accumulated
depreciation and
impairment losses
Opening balance
Disposals
Depreciation
Impairment losses
Closing balance
Net carrying value
as at May 5, 2012
$
318.7
27.4
$
932.7
49.8
$ 2,182.2
124.3
$
494.4
25.7
$
185.9
311.2
$ 4,113.9
538.4
88.9
(13.6)
(18.5)
35.3
13.2
(58.1)
17.4
71.4
(389.3)
1.6
27.4
(91.0)
–
(125.2)
(29.9)
143.2
(26.8)
(586.8)
$
402.9
$
972.9
$ 2,006.0
$
458.1
$
342.0
$ 4,181.9
$
$
–
–
–
–
–
$
$
276.8
(31.4)
35.4
–
$ 1,312.2
(375.6)
207.2
1.8
$
270.5
(88.4)
45.6
0.7
$
280.8
$ 1,145.6
$
228.4
$
–
–
–
–
–
$ 1,859.5
(495.4)
288.2
2.5
$ 1,654.8
$
402.9
$
692.1
$
860.4
$
229.7
$
342.0
$ 2,527.1
May 5, 2012
Land
Buildings
Equipment
Assets
Under
Improvements Construction
Leasehold
Petroleum
and
Natural Gas
Total
Investments and Other Operations Segment
Cost
Opening balance
Additions
Additions from business
acquisitions
Transfers
Disposals
$
$
6.9
–
$
50.5
1.3
$
91.5
12.2
$
90.9
14.5
$
4.7
16.1
$
66.3
4.2
310.8
48.3
–
–
(0.2)
–
–
–
1.1
–
(9.7)
3.6
–
–
–
(5.9)
(13.8)
–
–
–
4.7
(5.9)
(23.7)
Closing balance
$
6.7
$
51.8
$
95.1
$
109.0
$
1.1
$
70.5
$
334.2
Accumulated
depreciation and
impairment losses
Opening balance
Disposals
Depreciation
Impairment losses
Impairment reversals
Closing balance
Net carrying value
as at May 5, 2012
Consolidated property
and equipment
Net carrying value
as at May 4, 2013
Net carrying value
as at May 5, 2012
$
$
$
$
$
90
Empire Company Limited
–
–
–
–
–
–
$
$
22.0
–
2.2
–
(0.1)
$
58.6
(1.0)
5.1
0.9
(1.1)
$
38.0
–
4.9
0.1
(0.1)
$
24.1
$
62.5
$
42.9
$
–
–
–
–
–
–
$
$
48.5
–
3.0
1.1
–
167.1
(1.0)
15.2
2.1
(1.3)
$
52.6
$
182.1
6.7
$
27.7
$
32.6
$
66.1
$
1.1
$
17.9
$
152.1
423.4 $
750.3 $ 1,020.9 $
312.6 $
195.8 $
– $ 2,703.0
409.6
$
719.8
$
893.0
$
295.8
$
343.1
$
17.9
$ 2,679.2
Notes to the Consolidated Financial Statements
Finance leases
The Company has various property leases for store locations that are held under finance leases with a net carrying value of $4.3
as at May 4, 2013 (2012 – $4.6). These leases are included in buildings.
The Company has equipment leases under finance leases with a net carrying value of $22.1 as at May 4, 2013 (2012 – $30.3).
These leases are included in equipment.
Assets under construction
During the year the Company capitalized borrowing costs of $6.0 (2012 – $6.1) on indebtedness related to property and
equipment under construction. The Company used capitalization rates from 3.5% to 6.0% (2012 – 5.8% to 7.0%).
Security
As at May 4, 2013 the net carrying value of property pledged as security for borrowings is $111.3 (2012 – $113.7).
Impairment of property and equipment
Property and equipment is reviewed each reporting period for events or changes in circumstances which indicate that the
carrying value of the assets may not be recoverable. The review is performed by assessing the recoverable amount of each cash
generating unit or groups of cash generating units to which the property and equipment relates. The recoverable amount is the
higher of fair value less costs to sell and value in use. When the recoverable amount of the cash generating units is less than the
carrying amount an impairment loss is recognized.
Recoverable amounts are based on value in use calculations, determined using three year cash flow projections from the Company’s
latest internal forecasts as presented to the Board of Directors. Key assumptions used in determining value in use include those
regarding discount rates, growth rates, and expected changes in cash flows. Management estimates discount rates using pre-tax
rates that reflect current market assessments of the time value of money and risks specific to the cash generating units.
Forecasts are projected beyond three years based on long-term growth rates ranging from 3.0 to 5.0 percent. Discount rates are
calculated on a pre-tax basis and range from 8.0 to 15.0 percent.
Impairment losses arise when the carrying amount of the assets is higher than the greater of the present value of cash flows of a
cash generating unit and its fair value less costs to sell. Impairment losses of $10.0 were recorded in the year ended May 4, 2013
(2012 – $4.6).
Impairment reversals of $3.5 were recorded in the year ended May 4, 2013 (2012 – $1.3).
Annual Report 2013
91
9. INVESTMENT PROPERTY
Investment property is comprised primarily of commercial properties owned by the Company held for income generating
purposes, rather than for the principal purpose of the Company’s operating activities.
Cost
Opening balance
Additions
Transfers
Assets held for sale
Disposals
Closing balance
Accumulated depreciation and impairment losses
Opening balance
Depreciation
Impairment losses
Disposals
Closing balance
Net carrying value
Fair value
May 4, 2013
May 5, 2012
$
$
102.2
10.7
4.6
(4.0)
(1.4)
90.2
13.8
18.7
(1.2)
(19.3)
$
112.1
$
102.2
$
15.3
0.6
0.4
(1.1)
$
15.2
$
$
96.9
136.9
$
$
$
$
16.4
0.7
–
(1.8)
15.3
86.9
131.0
An external, independent valuation company, having appropriate recognized professional qualifications and experience assisted in
determining the fair value of investment property at May 4, 2013 and at May 5, 2012. Additions to investment property through
acquisition are transacted at fair value and therefore carrying value equals fair value. Properties reclassified from property and
equipment are valued for disclosure purposes using comparable market information, internal valuation methodologies, or the use
of an external independent valuation company.
Rental income from investment property included in the consolidated statements of earnings amounted to $3.8 for the year
ended May 4, 2013 (2012 – $4.1).
Direct operating expenses (including repairs and maintenance but excluding depreciation expense) arising from investment
property that generated rental income amounted to $2.2 for the year ended May 4, 2013 (2012 – $1.5). Direct operating
expenses (including repairs and maintenance but excluding depreciation expense) arising from non-income producing investment
property amounted to $1.4 for the year ended May 4, 2013 (2012 – $1.7). All direct operating expenses for investment
properties are included in selling and administrative expenses on the consolidated statements of earnings.
Impairment of investment property follows the same methodology as property and equipment (Note 8). For the year ended
May 4, 2013 impairment losses of $0.4 (2012 – $nil) and reversals of $nil (2012 – $nil) were recorded.
92
Empire Company Limited
Notes to the Consolidated Financial Statements
10. INTANGIBLES
May 4, 2013
Cost
Opening balance
Additions, separately
acquired
Additions from business
acquisitions
Transfers
Disposals
Deferred Franchise
Rights/
Brand
Purchase
Names Agreements Agreements
Patient
Files
Software
Loyalty
Lease
Rights Programs
Private
Labels
Other
Total
$ 201.0
$ 89.9
$ 58.8
$ 32.8
$ 119.8
$ 49.7
$ 11.4
$ 59.5
$ 25.2
$ 648.1
–
–
–
–
13.2
–
–
–
–
–
(5.5)
(4.5)
–
0.2
0.8
0.2
–
–
–
60.8
–
–
–
(1.8)
–
–
–
–
–
–
–
–
1.5
15.7
–
–
0.2
60.8
(0.7)
(12.5)
Closing balance
$ 201.0
$ 97.6
$ 54.3
$ 33.0
$ 180.8
$ 48.7
$ 11.4
$ 59.5
$ 26.0
$ 712.3
Accumulated
amortization and
impairment losses
Opening balance
$ 14.2
$ 25.5
$ 29.4
$ 18.0
$ 63.6
$ 22.8
$
Amortization
Disposals
3.0
–
9.8
(4.4)
5.2
(2.7)
2.0
–
19.7
–
3.1
(1.4)
Closing balance
$ 17.2
$ 30.9
$ 31.9
$ 20.0
$ 83.3
$ 24.5
$
–
–
–
–
$
$
–
–
–
–
$ 12.8
$ 186.3
1.7
(0.5)
44.5
(9.0)
$ 14.0
$ 221.8
Net carrying value
as at May 4, 2013
$ 183.8
$ 66.7
$ 22.4
$ 13.0
$ 97.5
$ 24.2
$ 11.4
$ 59.5
$ 12.0
$ 490.5
May 5, 2012
Names Agreements Agreements
Files
Software
Rights
Programs
Brand
Purchase
Rights/
Patient
Lease
Loyalty
Private
Labels
Other
Total
Deferred
Franchise
Cost
Opening balance
Additions, separately
acquired
Additions, internally
developed
Additions from business
acquisitions
Transfers
Disposals
$ 201.0
$ 62.2
$ 58.1
$ 32.3
$ 105.1
$ 49.1
$ 11.4
$ 59.5
$ 29.5
$ 608.2
–
–
–
–
–
7.8
–
20.7
–
(0.8)
–
–
0.8
–
–
–
0.6
–
(0.1)
(0.1)
0.1
6.7
–
13.2
(5.3)
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.5
10.0
–
6.7
1.6
–
23.7
13.2
(7.4)
(13.7)
Closing balance
$ 201.0
$ 89.9
$ 58.8
$ 32.8
$ 119.8
$ 49.7
$ 11.4
$ 59.5
$ 25.2
$ 648.1
Accumulated
amortization and
impairment losses
Opening balance
$ 11.2
$ 19.6
$ 23.2
$ 14.0
$ 53.7
$ 19.8
$
Amortization
Impairment losses
Disposals
3.0
–
–
6.7
–
6.3
–
2.2
1.9
(0.8)
(0.1)
(0.1)
15.2
–
(5.3)
3.0
–
–
Closing balance
$ 14.2
$ 25.5
$ 29.4
$ 18.0
$ 63.6
$ 22.8
$
–
–
–
–
–
$
$
–
–
–
–
–
$ 17.5
$ 159.0
1.8
–
38.2
1.9
(6.5)
(12.8)
$
12.8
$ 186.3
Net carrying value
as at May 5, 2012
$ 186.8
$ 64.4
$ 29.4
$ 14.8
$ 56.2
$ 26.9
$ 11.4
$ 59.5
$ 12.4
$ 461.8
In addition to development costs capitalized related to software, the Company included in selling and administrative expenses
$6.7 of research and development costs (2012 – $4.7).
Impairment of intangibles follows the same methodology as property and equipment (Note 8). For the year ended May 4, 2013
impairment losses of $nil (2012 – $1.9) and reversals of $nil (2012 – $nil) were recorded.
Annual Report 2013
93
Included in intangibles as at May 4, 2013, and May 5, 2012 are the following amounts with indefinite useful lives: Brand names
– $172.8; Loyalty programs $11.4; and Private labels $59.5 all of which relate to the food retailing segment. Impairment of these
intangibles is assessed annually on the same basis as goodwill as noted in Note 11 below.
11. GOODWILL
Opening balance
Additions from business acquisitions
Closing balance
May 4, 2013
May 5, 2012
$ 1,302.1
8.3
$ 1,220.0
82.1
$ 1,310.4
$ 1,302.1
Goodwill arising from business combinations is allocated at the lowest level within the organization at which it is monitored by
management to make business decisions and should not be larger than an operating segment before aggregation. Therefore,
goodwill has been allocated to the following operating segments:
Food retailing
Investments and other operations
Total
Impairment of goodwill
May 4, 2013
May 5, 2012
$ 1,268.7
41.7
$ 1,260.9
41.2
$ 1,310.4
$ 1,302.1
Goodwill is subject to impairment testing on an annual basis. However, if indicators of impairment are present, the Company will
review goodwill for impairment when such indicators arise. The Company performs an annual review during its first quarter and
no impairment was recorded (2012 – $nil). In performing the review, the Company determined the recoverable amount of
goodwill based on fair value less any costs that would be incurred should the Company sell a cash generating unit to which
goodwill would be apportioned from the operating segment. The key assumption used by management to determine the fair
value of the cash generating unit includes industry earnings multiples in a range from 7.0 to 12.5.
12. 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:
Earnings before income taxes
Effective combined statutory income tax rate
Income tax expense according to combined statutory income tax rate
Income taxes resulting from:
Non-deductible items
Capital items
Non-taxable items
Change in tax rates
Other
May 4, 2013
May 5, 2012
$
$
534.0
26.9%
143.7
474.4
27.6%
130.9
1.3
(3.1)
(1.2)
1.2
(1.8)
1.2
(3.2)
(0.5)
–
(6.1)
Total income taxes, combined effective tax rate of 26.2% (2012 – 25.8%)
$
140.1
$
122.3
94
Empire Company Limited
Notes to the Consolidated Financial Statements
Current year income tax expense attributable to net earnings consists of:
Current tax expense
Deferred tax expense:
Origination and reversal of temporary differences
Change in tax rates
Total
May 4, 2013
May 5, 2012
$
156.8
$
102.0
(17.9)
1.2
20.3
–
$
140.1
$
122.3
Deferred taxes arising from temporary differences and unused tax losses can be summarized as follows:
May 4, 2013
Accounts payable and accrued liabilities
Goodwill and intangibles
Inventory
Investments
Long-term debt
Other assets
Other long-term liabilities
Property, equipment and investment property
Provisions
Partnership deferral reserve
Losses
Other
Recognized as:
Deferred tax assets
Deferred tax liabilities
May 5, 2012
Accounts payable and accrued liabilities
Goodwill and intangibles
Inventory
Investments
Long-term debt
Other assets
Other long-term liabilities
Property, equipment and investment property
Provisions
Partnership deferral reserve
Losses
Other
Recognized as:
Deferred tax assets
Deferred tax liabilities
$
Recognized in:
Other
Opening Comprehensive
Income
Balance
Net
Earnings
Closing
Balance
$
3.8
(100.0)
3.6
(18.9)
3.8
4.4
76.9
(66.1)
21.6
(87.2)
1.5
3.1
– $
–
–
(0.3)
–
–
(2.7)
–
–
–
–
–
(0.6) $
(2.0)
(1.4)
(10.4)
3.5
(4.4)
3.8
(12.9)
0.9
43.5
2.3
(4.4)
3.2
(102.0)
2.2
(29.6)
7.3
–
78.0
(79.0)
22.5
(43.7)
3.8
(1.3)
$
(153.5)
$
(3.0) $
17.9 $
(138.6)
$
$
36.5
$
(190.0) $
– $
(3.0) $
5.5 $
12.4 $
42.0
(180.6)
Recognized in:
Other
Opening Comprehensive
Income
Balance
Net
Earnings
$
$
5.1
(97.4)
4.1
(16.1)
0.4
4.3
66.4
(74.0)
14.8
(63.1)
2.8
5.5
– $
–
–
(0.6)
–
–
14.6
–
–
–
–
–
(1.3) $
(2.6)
(0.5)
(2.2)
3.4
0.1
(4.1)
7.9
6.8
(24.1)
(1.3)
(2.4)
Closing
Balance
3.8
(100.0)
3.6
(18.9)
3.8
4.4
76.9
(66.1)
21.6
(87.2)
1.5
3.1
$
(147.2)
$
14.0 $
(20.3) $
(153.5)
$
$
29.8
(177.0)
$
$
– $
14.0 $
6.7
$
(27.0) $
36.5
(190.0)
Annual Report 2013
95
All deferred tax assets (including tax losses and other tax credits) have been recognized in the consolidated balance sheets. The
amount of deferred tax assets and deferred tax liabilities that are expected to be settled beyond the next 12 months is $117.5.
13. BANk INDEBTEDNESS
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. The interest rate at May 4, 2013 was 3.9% (2012 – 4.7%).
14. PROVISIONS
The provisions carrying amounts are comprised of the following:
May 4, 2013
Opening balance
Assumed in business combination
Provisions made
Provisions used
Provisions reversed
Change due to discounting
Closing balance
Current
Non–current
Total
May 5, 2012
Opening balance
Assumed in business combination
Provisions made
Provisions used
Provisions reversed
Change due to discounting
Closing balance
Current
Non-current
Total
Lease contracts
Lease
Contracts
Legal Environmental
Other
$
$
$
32.3 $
–
6.6
(10.3)
(3.8)
1.7
6.9 $
30.9 $
–
2.7
(2.6)
(1.4)
–
1.2
3.6
(0.5)
–
1.2
19.7 $
–
15.6
(17.5)
(3.0)
0.2
26.5 $
5.6 $
36.4 $
15.0 $
7.8 $
5.6 $
3.1 $
14.1 $
18.7
–
33.3
0.9
$
26.5 $
5.6 $
36.4 $
15.0 $
Lease
Contracts
Legal Environmental
Other
$
$
$
$
$
$
$
32.9
0.8
16.4
(10.5)
(9.3)
2.0
32.3
12.5
19.8
$
$
$
7.1
–
3.5
(3.0)
(0.7)
–
6.9
6.9
–
$
$
$
5.4
21.8
5.1
(0.3)
(2.0)
0.9
30.9
0.9
30.0
$
$
$
18.8
–
11.5
(10.4)
(0.4)
0.2
19.7
9.8
9.9
32.3
$
6.9
$
30.9
$
19.7
$
Total
89.8
1.2
28.5
(30.9)
(8.2)
3.1
83.5
30.6
52.9
83.5
Total
64.2
22.6
36.5
(24.2)
(12.4)
3.1
89.8
30.1
59.7
89.8
Lease contract provisions are recorded when the expected benefits to be derived by the Company from a contract are lower
than the unavoidable costs of meeting the obligations under the contract. The Company records onerous contract provisions
for closed store and theatre locations where it has entered into a lease contract. The provision is measured at the lower of the
expected cost to terminate the lease and the expected net cost of continuing the contract. The net cost is derived by considering
both the lease payment and sub-lease income received. Once the store or theatre is closed, a liability is recorded to reflect the
present value of the expected liability associated with any lease contract and other contractually obligated costs. Discounting of
provisions resulting from lease contracts has been calculated using pre-tax discount rates ranging between 7.0 and 9.0 percent.
Legal costs
Legal provisions relate to claims of $5.6 that are outstanding as at May 4, 2013 (2012 – $6.9) that arose in the ordinary course
of business.
96
Empire Company Limited
Notes to the Consolidated Financial Statements
Environmental costs
In accordance with legal and environmental policy requirements the Company has recorded provisions for locations requiring
environmental restoration. These provisions primarily relate to decommissioning liabilities recorded for gas station locations
owned by the Company at the net present value of the estimated future remediation costs. Discounting of environmental related
provisions has been calculated using pre-tax discount rates ranging between 4.0 and 15.0 percent.
Other costs
The Company continues to complete the rationalization of administration functions and has incurred costs associated with
the development of a new distribution centre in Terrebonne, Québec. These provisions relate mainly to severance costs.
The Company has obligations to provide various forms of support to Crombie REIT pursuant to various agreements between
the parties. These amounts are included in other provisions.
15. LONG-TERM DEBT
First mortgage loans, weighted average interest rate 7.87%, due 2013 – 2021
Medium term notes, Series C, interest rate 7.16%, due February 26, 2018
Medium term notes, Series D, interest rate 6.06%, due October 29, 2035
Medium term notes, Series E, interest rate 5.79%, due October 6, 2036
Medium term notes, Series F, interest rate 6.64%, due June 7, 2040
Sinking fund debentures, weighted average interest rate 9.33%, due 2013 – 2016
Notes payable and other debt primarily at interest rates fluctuating with the prime rate
Credit facility, due July 23, 2012, floating interest rate tied to bankers’ acceptance rates
Credit facility, due June 30, 2015, floating interest rate tied to bankers’ acceptance rates
Unamortized transaction costs
Finance lease obligations, weighted average interest rate 5.84%, due 2013 – 2040
Less amount due within one year
Balance, end of year
May 4, 2013
May 5, 2012
$
$
41.9
100.0
175.0
125.0
150.0
28.3
125.9
–
181.0
927.1
(2.3)
38.7
963.5
47.6
44.4
100.0
175.0
125.0
150.0
31.4
133.6
200.0
129.0
1,088.4
(2.7)
40.7
1,126.4
237.3
$
915.9
$
889.1
First mortgage loans are secured by land, buildings and specific charges on certain assets. Finance lease obligations are secured
by the related finance lease asset. Medium term notes are unsecured.
Sobeys Group Inc., an indirect subsidiary of Sobeys, has provided its debenture holders with a floating charge over all its assets,
subject to permitted encumbrances, a general assignment of book debts, and the assignment of proceeds of insurance policies.
Sinking fund debenture payments are required on an annual basis. The proportionate share of related debt is retired with
these repayments.
On July 23, 2007, Sobeys established a new unsecured revolving term credit facility maturing July 23, 2012. Under the terms
of the credit agreement entered into between Sobeys and a banking syndicate, a revolving term credit facility of $300.0 was
established and increased by an additional $300.0, resulting in a total authorized credit facility of $600.0. On February 14, 2012,
Sobeys entered into an amended and restated credit agreement. The agreement provides for an unsecured revolving term credit
facility of $450.0, and a $200.0 unsecured non-revolving term credit facility resulting in total authorized credit facilities of
$650.0. The revolving term credit facility matures on February 14, 2017, and the non-revolving term credit facility matured and
was repaid on July 23, 2012. Interest payable on the revolving term credit facility fluctuates with changes in the bankers’
acceptance rate, Canadian prime rate or London InterBank Offered Rate (“LIBOR”). Sobeys had also issued $80.6 in letters of
credit against the facility at May 4, 2013 (2012 – $52.7).
On June 4, 2010, the Company renewed its credit facilities which were reduced from $650.0 to $450.0. On August 22, 2011, the
Company extended the term of its credit facilities to a maturity date of June 30, 2014. On September 26, 2012, the Company
further extended the term of its credit facilities to a maturity date of June 30, 2015. At May 4, 2013, the credit facilities had a
balance outstanding of $181.0 (May 5, 2012 – $129.0). 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.
Annual Report 2013
97
Principal debt retirement in each of the next five fiscal years is as follows:
2014
2015
2016
2017
2018
Thereafter
Finance lease liabilities
Finance lease liabilities are payable as follows:
2014
2015
2016
2017
2018
Thereafter
Total
$
37.0
41.0
199.2
10.0
105.7
534.2
Future
Minimum
Lease
Payments
$
$
12.3
8.0
6.2
6.1
4.0
9.6
Interest
$
1.7
1.2
1.0
0.7
0.5
2.4
$
46.2
$
7.5
$
Present
Value of
Minimum
Lease
Payments
10.6
6.8
5.2
5.4
3.5
7.2
38.7
During fiscal 2013 the Company increased its finance lease obligation by $8.8 (2012 – $4.2) with a similar increase in assets
under finance leases. These additions are non-cash in nature, therefore have been excluded from the statements of cash flows.
16. OTHER LONG-TERM LIABILITIES
Deferred lease obligation
Accrued benefit liability (Note 17)
Employee future benefits (Note 17)
Deferred revenue
Other
Total
May 4, 2013
May 5, 2012
$
$
104.0
61.3
133.9
5.3
3.5
99.8
69.1
143.3
7.0
5.4
$
308.0
$
324.6
17. EMPLOYEE FUTURE BENEFITS
The Company has a number of defined benefit and defined contribution plans providing pension and other post-retirement
benefits to most of its employees.
Defined contribution pension plans
The contributions required by the employee and the employer are specified. The employee’s pension depends on what level of
retirement income (for example, annuity purchase) that can be achieved with the combined total of employee and employer
contributions and investment income over the period of plan membership, and the annuity purchase rates at the time of the
employee’s retirement.
Other benefit plans
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.
98
Empire Company Limited
Notes to the Consolidated Financial Statements
Defined benefit pension plans
The ultimate retirement benefit is defined by a formula that provides a unit of benefit for each year of service. Employee
contributions, if required, pay for part of the cost of the benefit, but the employer contributions fund the balance. The employer
contributions are not specified or defined within the plan text, they are based on the result of actuarial valuations which
determine the level of funding required to meet the total obligation as estimated at the time of the valuation.
The Company uses April 30 as an actuarial valuation date and May 1 as a measurement date for accounting purposes, for its
defined benefit pension plans.
Retirement Pension Plan
Senior Management Pension Plan
Other Benefit Plans
Defined contribution plans
Most Recent Next Required
Valuation Date Valuation Date
May 1, 2011
May 1, 2011
May 1, 2012
May 1, 2014
May 1, 2014
May 1, 2015
The total expense, and cash contributions, for the Company’s defined contribution plans was $25.2 for the year ended
May 4, 2013 (2012 – $25.3).
Defined benefit plans
Information about the Company’s defined benefit plans, in aggregate, is as follows:
Pension Benefit Plans
Other Benefit Plans
May 4, 2013
May 5, 2012 May 4, 2013
May 5, 2012
Accrued benefit obligation
Balance, beginning of year
Current service cost, net of employee contributions
Interest cost
Employee contributions
Benefits paid
Past service costs
Actuarial losses (gains) included in other comprehensive income
$
$
301.0
1.7
12.3
0.1
(22.4)
1.0
16.9
268.4 $
1.7
13.6
0.1
(19.7)
–
36.9
$
143.3
1.4
5.4
–
(4.3)
–
(11.9)
122.3
1.8
6.3
–
(4.5)
–
17.4
Balance, end of year
$
310.6
$
301.0 $
133.9
$
143.3
Plan assets
Market value, beginning of year
Expected return on plan assets
Employer contributions
Employee contributions
Benefits paid
Actuarial gains (losses) included in other comprehensive income
$
230.9
15.8
9.6
0.1
(22.4)
13.6
$
234.4 $
16.1
10.7
0.1
(19.7)
(10.7)
$
–
–
4.3
–
(4.3)
–
Market value, end of year
$
247.6
$
230.9
$
–
$
–
–
4.5
–
(4.5)
–
–
Funded status
Total market value of plan assets
Present value of unfunded obligations
Present value of partially funded obligations
Deficit
Unamortized past service cost
Accrued benefit liabilities
Pension Benefit Plans
Other Benefit Plans
May 4, 2013
May 5, 2012 May 4, 2013
May 5, 2012
$
$
$
247.6
(46.1)
(264.5)
(63.0)
1.7
230.9
(42.7)
(258.2)
(70.0)
0.9
$
–
(133.9)
–
(133.9)
–
–
(143.3)
–
(143.3)
–
$
(61.3) $
(69.1) $
(133.9) $
(143.3)
Accrued benefit liabilities have been recognized within other long-term liabilities on the consolidated balance sheets.
Annual Report 2013
99
Pension Benefit Plans
Other Benefit Plans
May 4, 2013
May 5, 2012 May 4, 2013
May 5, 2012
Expenses
Current service cost, net of employee contributions
Interest cost
Expected return on plan assets
Acturial loss (gain) recognized
Past service costs
$
1.7
12.3
(15.8)
–
0.3
$
1.7 $
13.6
(16.1)
–
0.1
$
1.4
5.4
–
0.1
–
(Income) expense before adjustments
$
(1.5) $
(0.7) $
6.9
$
1.8
6.3
–
(0.4)
–
7.7
Current and past service costs have been recognized within selling and administrative expenses, whereas interest costs and
expected return on plan assets have been recognized within finance costs, net in the consolidated statements of earnings.
Actuarial gains and losses recognized directly in equity:
Actuarial gain (losses) recognized directly in other comprehensive income
May 4, 2013
May 5, 2012
Cumulative amount, beginning of year
Recognized during the year
Cumulative amount, end of year
$
(63.4) $
8.8
1.9
(65.3)
$
(54.6) $
(63.4)
The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations are as follows (weighted
average assumptions as of May 4, 2013):
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
Pension Benefit Plans
Other Benefit Plans
May 4, 2013
May 5, 2012 May 4, 2013
May 5, 2012
3.75%
7.00%
4.00%
4.25%
7.00%
4.00%
4.00%
4.25%
For measurement purposes, an 8.00 percent fiscal 2013 annual rate of increase in the per capita cost of covered health care
benefits was assumed (2012 – 8.50 percent). The cumulative rate expectation to 2019 is 5.00 percent.
These assumptions were developed by management under consideration of expert advice provided by independent actuarial
appraisers. These assumptions have led to the amounts determined as the Company’s accrued benefit obligations and should
be regarded as management’s best estimate. However, the actual outcome may vary. Estimation uncertainties exist especially
in regards to medical cost trends, which may vary significantly in future appraisals of the Company’s defined benefit and other
benefit obligations.
Expected returns on plan assets is based on a weighted average of expected returns of the various assets in the plan and include
an analysis of historical returns and predictions about future returns. The expected long-term rate of return is based on the
portfolio as a whole and not the sum of the individual asset categories. Expected returns on plan assets are estimated by the
independent actuaries in close co-ordination with plan administrators.
The table below outlines the sensitivity of the fiscal 2013 key economic assumptions used in measuring the accrued benefit plan
obligations and related expenses of the Company’s pension and other benefit plans. The sensitivity of each key assumption has
been calculated independently. Changes to more than one assumption simultaneously may amplify or reduce the impact on the
accrued benefit obligations or benefit plan expenses.
100
Empire Company Limited
Notes to the Consolidated Financial Statements
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 Benefit Plans
Other Benefit Plans
Benefit
Obligations
Benefit
Benefit
Cost(1) Obligations
Benefit
Cost(1)
$
$
3.75%
(35.6) $
$
40.3
$
$
7.00%
(2.2)
2.2
3.75%
$
0.9
(1.4) $
$
$
4.00%
(18.5) $
23.1
$
8.00%
18.2
$
(14.9) $
4.00%
0.1
(0.1)
8.00%
1.0
(0.8)
(1) Reflects the impact on the current service cost, interest cost, and expected return on assets.
(2) 3.75 percent for the Senior Management Plan, Oshawa Sobeys Employee Pension Plan, and Post-Retirement Benefits and 3.50 percent for the Post-Employment
Benefits Plan.
(3) Gradually decreasing to 5.00 percent in 2019 and remaining at that level thereafter.
The asset mix of the defined benefit pension plans as at year end is as follows:
Debt securities, cash and cash equivalents
Equity securities
Total investments
May 4, 2013
May 5, 2012
25.0%
75.0%
25.0%
75.0%
100.0%
100.0%
Within these securities are investments in Empire Non-Voting Class A shares. The market value of these shares at year end is
as follows:
May 4, 2013
% of
Plan Assets
May 5, 2012
% of
Plan Assets
Empire Company Limited Non-Voting Class A shares
$
102.8
8.6%
$
87.2
8.2%
The actual return on plan assets was $29.3 for the year ended May 4, 2013 (2012 – $5.4).
The historical movement and history of experience gains and losses in the defined benefit pension plans and other benefit plans
are as follows:
Market value of plan assets
Present value of accrued benefit obligations
Plan deficit
Experience adjustments arising on plan assets
Experience adjustments arising on plan liabilities
May 4, 2013
May 5, 2012
$
247.6
(444.5)
$
230.9
(444.2)
$
(196.9) $
(213.3)
$
$
13.6
15.8
$
$
(10.7)
0.6
Management’s best estimate of contributions expected to be paid to the defined benefit plans during the annual period beginning
on May 5, 2013 and ending on May 3, 2014 is $8.4.
Annual Report 2013
101
18. CAPITAL STOCk
Authorized
2002 Preferred shares, par value of $25 each, issuable in series
Non-Voting Class A shares, without par value
Class B common share, without par value, voting
Issued and outstanding
Preferred shares, Series 2
Non-Voting Class A
Class B common
Total
Number of Shares
May 4, 2013
May 5, 2012
991,980,000 991,980,000
257,044,056 258,593,856
40,800,000
40,800,000
Number of
Shares May 4, 2013
May 5, 2012
$
33,687,747
34,260,763
$
–
311.7
7.6
–
311.7
7.6
$
319.3
$
319.3
The Series 2 Preferred shares were redeemable at par. During fiscal 2012, the Company redeemed all of its Preferred shares,
Series 2 at a cost of $4.1.
Under certain circumstances, where an offer (as defined in the share conditions) is made to purchase Class B common shares,
the holders of the Non-Voting Class A shares shall be entitled to receive a follow-up offer at the highest price per share paid,
pursuant to such offer to purchase Class B common shares.
During fiscal 2013, the Company paid preferred dividends of $nil (2012 – $0.1) and common dividends of $65.2 (2012 – $61.1)
to its equity holders. This represents a payment of $0.42 per share in 2012 for preference share holders, and $0.96 per share
(2012 – $0.90 per share) for common share holders.
19. OTHER INCOME
Gain on disposal of assets
Dilution gains
Investment income
Total
20. EMPLOYEE BENEFITS ExPENSE
Wages, salaries and other short-term employment benefits
Post-employment benefits
Termination benefits
Total
102
Empire Company Limited
May 4, 2013
May 5, 2012
$
$
29.0
18.2
9.6
$
56.8
$
22.2
10.4
1.2
33.8
May 4, 2013
May 5, 2012
$ 2,012.5
28.7
10.2
$ 1,946.4
28.4
5.9
$ 2,051.4
$ 1,980.7
Notes to the Consolidated Financial Statements
21. FINANCE COSTS, NET
Finance income and finance costs are reported on a net basis in the consolidated statements of earnings.
Finance income
Interest income from cash and cash equivalents
Fair value gain on cash flow hedges
Fair value gains on other financial assets
Total finance income
Finance costs
Interest expense on financial liabilities measured at amortized cost
Fair value losses on forward contracts
Losses on cash flow hedges reclassified from other comprehensive income
Net pension finance costs
Total finance costs
Finance costs, net
22. EARNINGS PER SHARE
Earnings applicable to common shares are comprised of the following:
Net earnings
Preferred share dividend
Earnings applicable to common shares
Earnings per share is comprised of the following:
Basic earnings per share
Diluted earnings per share
May 4, 2013
May 5, 2012
$
$
3.0
0.2
1.6
4.8
51.2
0.8
1.7
1.9
55.6
$
50.8
$
3.8
–
1.1
4.9
53.4
–
7.6
3.8
64.8
59.9
May 4, 2013
May 5, 2012
$
$
384.8
–
339.4
(0.1)
$
384.8
$
339.3
May 4, 2013
May 5, 2012
$
5.66
$
$
5.65
$
4.99
4.99
The weighted average number of outstanding shares as at May 4, 2013 used for basic earnings per share amounted to
67,948,510 (2012 – 67,948,510) shares.
The weighted average number of shares for the purpose of diluted earnings per share can be reconciled to the weighted average
number of ordinary shares used in the calculation of basic earnings per share as follows:
Weighted average number of shares used in basic earnings per share
Shares deemed to be issued for no consideration in respect of stock-based payments
Weighted average number of shares used in diluted earnings per share
May 4, 2013
May 5, 2012
67,948,510 67,948,510
111,477
134,746
68,083,256 68,059,987
23. BUSINESS ACqUISITIONS AND FORMATIONS
The Company acquired franchise and non-franchise stores, retail gas locations, prescription files and theatres. The results of
these acquisitions have been included in the consolidated financial results of the Company since their acquisition dates, and were
accounted for through the use of the acquisition method. Goodwill recorded on the acquisitions of franchise and non-franchise
stores and retail gas locations relate to the acquired work force and customer base of the existing store location, along with the
synergies expected from combining the efforts of the acquired stores with existing stores.
Annual Report 2013
103
The following table represents the amounts of identifiable assets from resulting acquisitions for the respective periods:
Stores, retail gas locations and theatres
Inventories
Property and equipment
Intangibles
Goodwill
Provisions
Other assets and liabilities
Prescription files
Intangibles
Cash consideration
May 4, 2013
May 5, 2012
$
$
1.7
10.1
–
8.3
(1.2)
(1.2)
11.6
147.9
23.1
82.1
(22.6)
5.0
$
17.7
$
247.1
$
$
0.2
17.9
$
$
0.6
247.7
The businesses acquired contributed sales of $33.8 and earnings of $1.9 for the year ended May 4, 2013.
Shell acquisition
During fiscal 2013, management finalized the purchase price allocation related to the March 2012 acquisition of 236 retail gas
locations and related convenience store operations in Québec and Atlantic Canada from Shell Canada. As a result, the consolidated
balance sheet as at May 4, 2013 was adjusted by an increase to land of $1.7, a decrease to equipment of $3.4, and increase to
provisions of $0.6, and goodwill increased $2.3.
Canadian Digital Cinema Partnership
During fiscal 2012, the Company formed Canadian Digital Cinema Partnership (“CDCP”), a joint venture with Cineplex Inc.
(“Cineplex”). The costs of implementing digital projection systems in the venturers’ theatres will be funded by CDCP, through
a separate credit facility, which is non-recourse to the venturers, and the collection of virtual print fees from distributors.
Empire transferred digital projectors valued at $7.6 in exchange for a 21.8 percent interest in CDCP. Cineplex and Empire each
have 50 percent of the voting rights of CDCP. Empire accounts for its investment in CDCP using the equity method.
The digital projection systems leased from CDCP will replace most of Empire’s remaining 35 millimeter projection systems and
allow Empire to add additional 3D screens to the circuit.
24. GUARANTEES, COMMITMENTS, AND CONTINGENT LIABILITIES
Guarantees
Franchise affiliates
Sobeys has a guarantee contract under the terms of which, should franchise affiliates be unable to fulfill their lease obligations,
Sobeys would be required to fund the greater of $7.0 or 9.9 percent (2012 – $7.0 or 9.9 percent) of the authorized and
outstanding obligation. The terms of the guarantee contract are reviewed annually each August. As at May 4, 2013, the amount
of the guarantee was $7.0 (2012 – $7.0).
Sobeys has guaranteed certain equipment leases of its franchise affiliates. Under the terms of the guarantee should franchise
affiliates be unable to fulfill their lease obligations, Sobeys would be required to fund the difference of the lease commitments up
to a maximum of $70.0 on a cumulative basis. Sobeys approves each of the contracts.
104
Empire Company Limited
Notes to the Consolidated Financial Statements
During 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
franchisee affiliates be unable to fulfill their lease obligations or other remedy, Sobeys would be required to fund the greater of
$6.0 or 10.0 percent (2012 – $6.0 or 10.0 percent) of the authorized and outstanding obligation annually. Under the terms of
the contract, 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 determined that there were no material implications with respect to the
consolidation of SPEs. As at May 4, 2013 the amount of the guarantee was $6.0 (2012 – $6.0).
The aggregate, annual, minimum rent payable under the guaranteed operating equipment leases for fiscal 2014 is approximately
$15.8. The guaranteed lease commitments over the next five fiscal years are:
2014
2015
2016
2017
2018
Thereafter
Other
Third Parties
$
15.8
0.5
0.3
–
–
–
At May 4, 2013, the Company was contingently liable for letters of credit issued in the aggregate amount of $97.8 (2012 – $69.6).
Upon entering into the lease of its new Mississauga distribution centre, in March 2000, Sobeys guaranteed to the landlord the
performance, by SERCA Foodservice Inc., of all of its obligations under the lease. The remaining term of the lease is 7 years with
an aggregate obligation of $22.6 (2012 – $25.6). 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 the purchaser, and Sysco Corp. agreed to indemnify
and hold Sobeys harmless from any liability it may incur pursuant to its guarantee.
Commitments
Operating leases, as lessee
The Company leases various retail stores, distribution centres, theatres, offices, and equipment under non-cancellable operating
leases. These leases have varying terms, escalation clauses, renewal options, and basis on which contingent rent is payable.
The total net, future minimum rent payable under the Company’s operating leases as of May 4, 2013 is approximately $2,748.9.
This reflects a gross lease obligation of $3,730.1 reduced by expected sub-lease income of $981.2. The net commitments over
the next five fiscal years are:
2014
2015
2016
2017
2018
Thereafter
Third Parties
Related Parties
Net Lease
Obligation
Gross Lease
Obligation
Net Lease
Obligation
Gross Lease
Obligation
$
$
228.8
214.4
198.6
180.8
163.3
888.1
$
338.6
315.6
293.6
266.2
237.1
1,404.1
$
65.8
65.7
64.8
58.0
57.2
563.4
65.8
65.7
64.8
58.0
57.2
563.4
The Company recorded $440.0 (2012 – $411.6) as an expense for minimum lease payments for the year ended May 4, 2013 in
the consolidated statements of earnings. The expense was offset by sub-lease income of $129.9 (2012 – $118.3), and a further
$9.2 (2012 – $4.5) of expense was recognized for contingent rent.
Annual Report 2013
105
Operating leases, as lessor
The Company also leases most investment properties, under operating leases. These leases have varying terms, escalation
clauses, renewal options and basis on which contingent rent is receivable.
Rental income for the year ended May 4, 2013 was $59.2 (2012 – $41.7) and was included in sales in the consolidated statements
of earnings. In addition, the Company recognized $1.0 of contingent rent for the year ended May 4, 2013 (2012 – $1.5).
The lease payments expected to be received over the next five fiscal years are:
2014
2015
2016
2017
2018
Thereafter
Contingent liabilities
Third Parties
$
7.1
5.9
5.5
5.2
4.4
24.6
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 Service 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 statements 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.
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.
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.
25. FINANCIAL INSTRUMENTS
Credit risk
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 cash and cash
equivalents, receivables, loans and other receivables, asset-backed commercial paper, derivative contracts and guarantees.
The Company’s maximum exposure to credit risk corresponds to the carrying amount for all cash and cash equivalents, loans
and receivables, the carrying value of asset-backed commercial paper (Note 7) and guarantee contracts for franchise affiliates
(Note 24).
The Company mitigates credit risk associated with its trade receivables, mortgage and loans 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 receivables and 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 counterparties that are dual rated and have a
credit rating of “A” or better to minimize credit risk.
106
Empire Company Limited
Notes to the Consolidated Financial Statements
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 credit losses
Less: allowance for credit losses
Receivables
May 4, 2013
May 5, 2012
$
$
320.5
36.3
44.1
400.9
(19.2)
315.4
28.7
39.7
383.8
(21.8)
$
381.7
$
362.0
Interest earned on past due accounts is recorded as a reduction to selling and administrative expenses in the consolidated
statements of earnings. Receivables are all current as of May 4, 2013.
Allowance for credit losses is reviewed at each balance sheet date. An allowance is taken on receivables from independent
accounts, as well as receivables, loans and other receivables from franchise or affiliate locations and is recorded as a reduction to
its respective receivable account on the consolidated balance sheets. The Company updates its estimate for credit losses 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 receivables, loans and other receivables are reviewed on a regular basis and
are written-off when collection is considered unlikely. The change in allowance for credit losses is recorded as selling and
administrative expenses in the consolidated statements of earnings and is presented as follows:
Allowance, beginning of year
Provision for losses
Recoveries
Write-offs
Allowance, end of year
Liquidity risk
May 4, 2013
May 5, 2012
$
$
21.8
2.7
(1.1)
(4.2)
13.1
14.4
(1.1)
(4.6)
$
19.2
$
21.8
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 a committed credit facility 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, and monitors its cash flows in order to assist in optimizing its
cash position and evaluate longer term cash and funding requirements. 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 amount and the contractual maturities of both the interest and principal portion of
significant financial liabilities on an undiscounted basis as at May 4, 2013:
2014
2015
2016
2017
2018
Thereafter
Total
Derivative financial
liabilities
Foreign currency swaps $
Non-derivative financial
liabilities
Bank indebtedness
Accounts payable and
1.3
$
1.3
$
1.4
$
1.5
$
1.4
$
–
$
6.9
accrued liabilities
Long-term debt
1,765.8
97.6
6.0
–
–
94.9
–
–
245.8
–
–
54.4
–
–
6.0
–
147.6
–
1,100.5
1,765.8
1,740.8
Total
$ 1,870.7
$
96.2
$
247.2
$
55.9
$
149.0
$ 1,100.5
$ 3,519.5
Annual Report 2013
107
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 dates due to the short term maturity of these instruments.
The book value of the long-term portion of loans and other receivables, investments and financial assets included in other
assets classified as FVTPL approximate fair values at the balance sheet dates due to the current market rates associated with
these instruments.
The fair value of the variable rate long-term debt is assumed to approximate its carrying amount. The fair value of long-term debt
has been estimated by discounting future cash flows at a rate offered for borrowings of similar maturities and credit quality.
The fair value of derivative financial liabilities are estimated using valuation models that utilize market based observable inputs.
The following table summarizes the classification of the Company’s financial instruments, as well as their carrying amounts and
fair values:
May 4, 2013
Financial Assets
Cash and cash equivalents
Receivables
Investments – current
Loans and other receivables
Investments
Other assets(1)
Total financial assets
Fair value level 1
Fair value level 2
Fair value level 3
$
$
$
16.6 $
–
24.8
Financial Liabilities
Bank indebtedness
Accounts payable and accrued liabilities
Long-term debt
Derivative financial liabilities(2)
Total financial liabilities
Fair value level 1
Fair value level 2
Fair value level 3
$
41.4 $
$
$
$
– $
–
–
(0.2)
(0.2) $
– $
(0.2)
–
$
(0.2) $
FVTPL
Available
Loans and
for Sale Receivables
Other
Financial
Liabilities
Total
Carrying
Amount
Fair Value
– $
–
14.5
–
–
26.9
– $
–
–
–
25.0
–
455.2 $
381.7
–
120.0
–
–
– $
–
–
–
–
–
455.2 $
381.7
14.5
120.0
25.0
26.9
455.2
381.7
14.5
120.0
25.0
26.9
41.4 $
25.0 $
956.9 $
– $ 1,023.3 $ 1,023.3
25.0
–
–
25.0
– $
–
–
–
– $
–
–
–
–
$
$
41.6
–
24.8
66.4
– $
–
–
–
(6.0) $
(6.0) $
(1,765.8)
(963.5)
–
(1,765.8)
(963.5)
(0.2)
(6.0)
(1,765.8)
(1,060.0)
(0.2)
– $ (2,735.3) $ (2,735.5) $ (2,832.0)
$
$
–
(0.2)
–
(0.2)
(1) The total carrying value of financial assets included in other assets is $26.9.
(2) Derivative financial liabilities are included in other long-term liabilities on the consolidated balance sheets.
108
Empire Company Limited
Notes to the Consolidated Financial Statements
May 5, 2012
Financial Assets
Cash and cash equivalents
Receivables
Loans and other receivables
Investments
Other assets(1)
Total financial assets
Fair value level 1
Fair value level 2
Fair value level 3
Financial Liabilities
Bank indebtedness
Accounts payable and accrued liabilities
Long-term debt
Derivative financial liabilities(2)
Total financial liabilities
Fair value level 1
Fair value level 2
Fair value level 3
FVTPL
Available
for Sale
Loans and
Receivables
Other
Financial
Liabilities
Total
Carrying
Amount
Fair Value
$
$
$
$
$
$
–
–
–
–
46.8
46.8
23.0
–
23.8
$
46.8
$
$
$
$
$
–
–
–
(2.8)
(2.8) $
$
–
(2.8)
–
$
(2.8) $
$
–
–
–
13.0
–
$
510.2
362.0
101.6
–
–
13.0
$
973.8
$
–
–
–
–
–
–
$
$
510.2
362.0
101.6
13.0
46.8
510.2
362.0
101.6
13.0
46.8
$ 1,033.6
$ 1,033.6
–
–
–
–
–
–
–
–
–
–
–
–
–
$
$
23.0
–
23.8
46.8
$
$
–
–
–
–
–
$
(4.4) $
(4.4) $
(1,729.8)
(1,126.4)
–
(1,729.8)
(1,126.4)
(2.8)
(4.4)
(1,729.8)
(1,209.7)
(2.8)
$ (2,860.6) $ (2,863.4) $ (2,946.7)
$
$
–
(2.8)
–
(2.8)
(1) The total carrying value of financial assets included in other assets is $46.8.
(2) Derivative financial liabilities are included in other long-term liabilities on the consolidated balance sheets.
Derivative financial instruments
Derivative financial instruments are recorded on the consolidated balance sheets at fair value unless the derivative instrument is
a contract to buy or sell a non-financial item in accordance with the Company’s expected purchase, sale or usage requirements,
referred to as a “normal purchase” or “normal sale”. Changes in the fair values of derivative financial instruments are recognized
in net earnings or loss 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 other
long-term liabilities with the effective portion recorded in other comprehensive income.
Cash flow hedges
The Company’s cash flow hedges consists principally of interest rate swaps, foreign currency forward contracts, and foreign
currency swaps. Interest rate swaps are used to protect against exposure to variability in future interest cash flows on non-
trading assets and liabilities which bear interest at variable rates. Foreign exchange contracts are used to hedge future purchases
or expenditures of foreign currency denominated goods or services. Gains and losses are initially recognized directly in equity and
are transferred to net earnings or loss when the forecast cash flows affect income or expense for the year.
As of May 4, 2013, the fair values of the outstanding derivatives designated as cash flow hedges of forecast transactions were
assets of $nil (2012 – $nil) and liabilities of $0.2 (2012 – $2.8).
Cash flows from cash flow hedges are expected to flow over the next five years until fiscal 2018, and are expected to be
recognized in net earnings over this period, and, in the case of foreign currency swaps, over the life of the related assets in which
a portion of the initial cost is being hedged.
The gains and losses on ineffective portions of such derivatives are recognized immediately in net earnings for the year. During
the year, the Company recognized $nil (2012 – $nil) directly into net earnings as a result of ineffective hedging contracts.
Annual Report 2013
109
Interest 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 Company manages interest rate risk by monitoring market conditions and the impact of interest rate fluctuations on its debt.
The Company utilizes interest rate swaps designated as cash flow hedges to manage variable interest rates associated with some
of the Company’s long-term debt. Hedge accounting treatment resulted in interest expense on the related borrowings being
reflected at hedged rates rather than at variable 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 31.4 percent (2012 – 22.9 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 year. For the year ending May 4, 2013, the Company’s average outstanding unhedged floating rate debt was $312.6
(2012 – $241.1). An increase (decrease) of 25 basis points would have impacted net earnings by $0.5 ($0.5) (2012 – $0.4
($0.4)) and other comprehensive income by $nil ($nil) (2012 – $0.1 ($0.1)) as a result of the Company’s exposure to interest rate
fluctuations on its hedged and unhedged floating rate debt.
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 does not consider its
exposure to foreign currency exchange risk to be material.
The Company has entered into foreign currency forward contracts and foreign currency swaps 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 net
earnings in future accounting periods.
The Company estimates that a 10 percent increase (decrease) in applicable foreign currency exchange rates would impact net
earnings by $nil ($nil) (2012 – $0.9 ($0.9)) and other comprehensive income by $0.4 ($0.4) (2012 – $1.2 ($1.2)) for foreign
currency derivatives in place at year end.
Market risk
Market risk is the risk that the fair value of investments will fluctuate as a result of changes in the price of the investment. The
Company estimates that a 10 percent change in the market value of its investments that trade on a recognized stock exchange
would impact net earnings by $1.2 (2012 – $nil) and other comprehensive income by $2.1 (2012 – $1.1).
26. SEGMENTED INFORMATION
The Board of Directors has determined that the primary segmental reporting format is by business segment, based on the
Company’s management and internal reporting structure. The Company operates principally in two business segments:
food retailing and investments and other operations. The food segment consists of distribution of food products in Canada.
Inter-segment transactions are carried out at market prices.
Segment results and assets include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis.
Each of these operating segments is managed separately as each of these segments requires different technologies and other
resources as well as marketing approaches. All inter-segment transfers are carried out at arm’s length prices. The measurement
policies the Company uses for segment reporting under IFRS 8, “Operating Segments”, are the same as those used in its
consolidated financial statements.
No asymmetrical allocations have been applied between segments.
110
Empire Company Limited
Notes to the Consolidated Financial Statements The sales and operating income generated by each of the group’s business segments are summarized as follows:
Segmented sales
Food retailing
Investments and other operations
Elimination of inter-segment
Total
Segmented operating income
Food retailing
Investments and other operations
Crombie REIT
Real estate partnerships
Other operations, net of corporate expenses
Total
Total assets by segment
Food retailing
Investments and other operations
Total
Segment operating income can be reconciled to group profit as follows:
Total operating income
Finance costs, net
Total
May 4, 2013
May 5, 2012
$ 17,402.7
221.7
$ 16,055.5
204.6
17,624.4
11.7
16,260.1
11.0
$ 17,612.7
$ 16,249.1
May 4, 2013
May 5, 2012
$
515.3
$
475.8
13.7
29.6
26.2
69.5
19.7
30.0
8.8
58.5
$
584.8
$
534.3
May 4, 2013
May 5, 2012
$ 6,440.1
700.0
$ 6,327.7
585.4
$ 7,140.1
$ 6,913.1
May 4, 2013
May 5, 2012
$
$
584.8
50.8
534.3
59.9
$
534.0
$
474.4
The investments and other operations consists of the investments, at equity in Crombie REIT, real estate partnerships, and
various other corporate operations.
27. STOCk-BASED COMPENSATION
Deferred stock units
Members of the Board of Directors may elect to receive all or any portion of their fees in deferred stock 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
directors’ 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 Non-Voting
Class A share at the time of redemption. On an ongoing basis, the Company values the DSU obligation at the current market
value of a corresponding number of Non-Voting Class A shares and records any increase or decrease in the DSU obligation as
selling and administrative expenses on the consolidated statements of earnings. At May 4, 2013 there were 131,175 (2012 –
120,093) DSUs outstanding. During the 52 weeks ended May 4, 2013, the compensation expense was $2.6 (2012 – $1.4).
Annual Report 2013
111
Performance share unit plan
Commencing in fiscal 2012, the Company awarded certain employees a target number of performance share units (“PSUs”) that
track the Company’s Non-Voting Class A share prices over a three-year period. The number of PSUs that vest under an award is
dependent on time and the achievement of specific performance measures. On the vesting date, each employee is entitled to
receive a cash payout amount equal to the number of their vested PSUs multiplied by the market value of the Non-Voting Class A
shares. At May 4, 2013, there were 41,461 (2012 – 18,311) PSUs outstanding. During the 52 weeks ended May 4, 2013, the
compensation expense was $0.9 (2012 – $0.6).
The total carrying amount of liability for DSUs and PSUs at May 4, 2013 was $10.5 (2012 – $7.5).
Stock option plan
During fiscal 2013, the Company granted an additional 45,310 options under the stock option plan for employees of the Company
whereby options are granted to purchase Non-Voting Class A shares. The weighted average fair value of $8.23 per option (2012
– $9.76 per option) was determined using the Black Scholes model with the following weighted average assumptions:
Share price
Expected life
Risk-free interest rate
Expected volatility (based on recent 5-year history)
Dividend yield
$
53.93
5.25 years
1.40%
19.4%
1.78%
The compensation cost relating to the 52 weeks ended May 4, 2013 was $0.6 (2012 – $1.4) with amortization of the cost over
the vesting period of four years. The total increase in contributed surplus in relation to the stock option compensation cost was
$0.6 (2012 – $1.4).
The outstanding options at May 4, 2013 were granted at prices between $40.26 and $54.40 and expire between June 2015 and
June 2020. Stock option transactions during fiscal 2013 and 2012 were as follows:
Balance, beginning of year
Granted
Balance, end of year
2013
2012
Weighted
Average
Exercise
Price
Number of
Options
Weighted
Average
Exercise
Price
Number of
Options
638,818 $
45,310
46.57
53.93
565,571
73,247
$
45.55
54.40
684,128 $
47.06
638,818
$
46.57
Stock options exercisable, end of year
468,450
329,050
The following table summarizes information about stock options outstanding at May 4, 2013:
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Outstanding Contractual
Number of
Options
Life (1)
Weighted
Average
Number
Exercise Exercisable at
Price May 4, 2013
Weighted
Average
Exercise
Price
81,218
173,086
160,803
150,464
73,247
45,310
2.17 $
3.17
4.17
5.17
6.17
7.17
43.96
40.26
46.04
51.99
54.40
53.93
81,218 $
173,086
120,602
75,232
18,312
–
43.96
40.26
46.04
51.99
54.40
–
684,128
4.31 $
47.06
468,450 $
44.83
Year Granted
2008
2009
2010
2011
2012
2013
Total
(1) Weighted average remaining contractual life is expressed in years.
112
Empire Company Limited
Notes to the Consolidated Financial Statements
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.
The Company’s current practice is to use only the performance share unit plan and the stock option plan to provide medium-term
and long-term incentive for employees. As a result, outstanding loans under the share 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.
28. RELATED PARTY TRANSACTIONS
The Company has related party transactions with various associates and key management personnel. The Company holds a
42.8 percent ownership interest in Crombie REIT and accounts for its investment using the equity method.
As as result of the Company’s subscription of Class B units and the conversion of Crombie REIT debentures during the current
fiscal year, the Company’s interest in Crombie REIT decreased from 44.3 to 42.8 percent.
On October 20, 2011, Crombie REIT closed a bought-deal public offering of units at a price of $12.85 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 Crombie REIT). On March 29, 2012, Crombie REIT closed an additional bought-
deal public offering of units at a price of $14.50 per unit. Concurrent with this public offering, the Company subscribed for
approximately $53.0 of Class B units.
On July 3, 2012, the Company purchased $24.0 of convertible unsecured subordinated debentures (the “Debentures”) from
Crombie REIT, pursuant to a bought-deal prospectus offering for a total of $60.0. The Debentures have a maturity date of
September 30, 2019. The Debentures have a coupon of 5.00% per annum and each $1,000 principal amount of Debenture is
convertible into approximately 49.7512 units of Crombie REIT, at any time, at the option of the holder, based on a conversion
price of $20.10 per unit.
On September 25, 2012, the Company converted convertible unsecured subordinated debentures with a face value of $10.0 into
909,090 units of Crombie REIT. The units were recorded at the exchange amount of $13.8, resulting in a pre-tax gain of $3.8.
On December 14, 2012, Crombie REIT closed a bought-deal public offering of units at a price of $14.75 per unit. Concurrent with
the public offering, the Company subscribed for $24.5 of Class B units (which are convertible on a one-for-one basis into units of
Crombie REIT).
During the year, the Company sold eight (2012 – nine) properties to Crombie REIT, seven (2012 – seven) of which were leased
back. Cash consideration received for the properties was recorded at the exchange amount of $106.0 (2012 – $123.9), resulting
in a pre-tax gain of $15.0 (2012 – $12.4), which has been recognized in the consolidated statements of earnings. During fiscal
2012, the Company acquired a property from Crombie REIT for $5.0, which is equal to the fair market value of the property. As
the property was leased by the Company from Crombie REIT, an additional $2.0 was paid for the cancellation of the lease and
recognized in the consolidated statements of earnings, with total cash consideration paid of $7.0.
The Company rents premises from Crombie REIT, at amounts in management’s opinion which approximate fair market value.
Management has determined these amounts to be fair value due to the significant number of leases negotiated with third parties
in each market it operates. During fiscal year 2013, the aggregate net payments under these leases, which are measured at
exchange amounts, were $80.6 (2012 – $75.1).
In addition, Crombie REIT provides administrative and management services to the Company. The charges incurred for
administrative and management services are on a cost recovery basis.
At May 4, 2013, investments included $24.8 (2012 – $12.8) of Crombie REIT convertible unsecured subordinated debentures.
During fiscal 2012, fixed rate secured mortgages provided to Crombie REIT in the amount of $5.6 were repaid in their entirety.
The Company received interest from Crombie REIT of $1.2 for the year ended May 4, 2013 (2012 – $0.8). These amounts are
included in other income in the consolidated statements of earnings.
During the quarter ended November 3, 2012, the Company acquired a parcel of land from an associate in which the Company
holds a 40.7 percent interest. Cash consideration paid for the land was $7.6. The gain realized of $1.6 was eliminated from
property and equipment.
Annual Report 2013
113
key management personnel compensation
Key management personnel include the Board of Directors and members of the Company’s executive team that have authority
and responsibility for planning, directing and controlling the activities of the Company.
Key management personnel compensation was as follows:
Salary, bonus and other short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
Total
Indemnities
May 4, 2013
May 5, 2012
$
$
17.8
3.8
–
1.8
$
23.4
$
16.5
1.3
1.0
1.9
20.7
The Company has agreed to indemnify its directors, officers and particular employees in accordance with the Company’s policies.
The Company maintains insurance policies that may provide coverage against certain claims.
29. CAPITAL MANAGEMENT
The Company’s objectives when managing capital are: (i) 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 the Company.
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.
The Company considers its total capitalization to include all interest bearing debt, including bank loans, long-term debt
(including the current portion thereof) and shareholders’ equity, net of cash and cash equivalents. The calculation is set out
in the following table:
Bank indebtedness
Long-term debt due within one year
Long-term debt
Funded debt
Less: cash and cash equivalents
Net funded debt
Shareholders’ equity, net of non-controlling interest
Capital under management
May 4, 2013
May 5, 2012
$
$
6.0
47.6
915.9
4.4
237.3
889.1
969.5
(455.2)
514.3
3,726.2
1,130.8
(510.2)
620.6
3,396.3
$ 4,240.5
$ 4,016.9
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
investments 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. The cash flow is supplemented, when necessary, through the borrowing
of additional debt or the issuance of additional capital stock. No changes were made to these objectives in the current year.
114
Empire Company Limited
Notes to the Consolidated Financial Statements
Management monitors certain key ratios to effectively manage capital:
Funded debt to total capital(1)
Funded debt to EBITDA(2)
EBITDA to interest expense(2)
May 4, 2013
May 5, 2012
20.6%
1.0x
17.8x
25.0%
1.3x
14.4x
(1) Total capital is funded debt plus shareholders’ equity, net of non-controlling interest.
(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 of intangibles) and interest expense (interest expense on financial liabilities measured at amortized cost plus losses on cash flow hedges reclassified
from other comprehensive income) are non-GAAP financial measures. 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 net funded debt plus letters of credit, guarantees and commitments divided by EBITDA (as
defined by the credit agreements and for the 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 the previous 52 weeks). The Company
was in compliance with these covenants during the year.
30. SUBSEqUENT EVENTS
On June 12, 2013, the Company entered into an Asset Purchase Agreement with Safeway Inc. and its subsidiaries to purchase
assets and select liabilities of Canada Safeway for cash consideration of $5,800.0. The agreement provides for the purchase
of 213 full service grocery stores under the Safeway banner in Western Canada, 199 in-store pharmacies, 62 co-located fuel
stations, 10 liquor stores, 4 primary distribution centres and 12 manufacturing facilities plus the assumption of certain liabilities.
The Company’s and Sobeys’ announcement included their intention that financing for the acquisition will come from a
combination of the following: (i) a planned $1,500.0 Empire equity offering; (ii) a planned $1,000.0 sale-leaseback of acquired
real estate assets; (iii) a $1,825.0 term loan; (iv) the issuance of $800.0 in unsecured notes by Sobeys; (v) other real estate and
non-core asset sales; and (vi) available cash on hand. As some of these transactions may not be completed by the time of closing,
Scotiabank has provided Empire and Sobeys with fully committed credit facilities for the full purchase price plus transaction
expenses required to close the transaction. Crombie REIT has a right of first offer in respect of any real estate sales undertaken
by Sobeys. The closing of the acquisition is expected during the company’s second quarter, and is subject to the fulfillment or
waiver of certain customary closing conditions as well as the receipt of required regulatory approvals, including that of the
Competition Bureau.
Acquisition costs of $5.0 relating to external legal, consulting, due diligence and other closing costs incurred to May 4, 2013 have
been included in selling and administrative expenses in the consolidated statements of earnings.
On June 27, 2013, the Company announced that Empire Theatres has reached a definitive agreement with Cineplex Inc. for the
sale of 24 theatres in Atlantic Canada and 2 theatres in Ontario. Empire Theatres has also reached a separate definitive
agreement with Landmark Cinemas for the sale of 20 theatres in Ontario and Western Canada.
The purchase price for the Cineplex transaction is $200.0 to be paid in cash, subject to certain adjustments to be made at closing.
The purchase price for the Landmark transaction is approximately $55.0 subject to certain adjustments to be made at closing,
with the purchase price to be paid as follows: $31.0 in cash on closing; $19.0 in equity; and an earn out right which management
estimates has a potential value of approximately $5.0. Upon closing, the assets will be held by a new entity with Empire Theatres’
equity being the controlling interest. The new entity will be consolidated into the Company’s financial statements, including
$30.0 of debt in the new entity. Landmark will manage the business and have a right to buy out Empire Theatres’ equity interest
for $19.0 in cash until December 31, 2013, following which Empire Theatres can agree to sell its equity interest in the entity and
require Landmark to sell on the same terms.
Closing of the transactions is subject to satisfaction of customary conditions and relevant regulatory approvals, which includes
approval from the Competition Bureau. Closing of each transaction is expected to occur by late summer of 2013. Empire Theatres
is not obligated to close either transaction without closing the other.
Annual Report 2013
115
Eleven-year
financial review
Years Ended(1)
2013
2012
2011
2010
Financial Results ($ in millions; except ROE)
Sales
Operating income(2)
Interest expense
Income taxes
Non-controlling interest
Adjusted net earnings, net of non-controlling interest(2)(3)
Net earnings, net of non-controlling interest
Return on equity
$ 17,612.7
584.8
50.8
140.1
9.1
367.3
384.8
10.3%
$ 16,249.1
534.3
59.9
122.3
12.7
322.7
339.4
10.6%
$ 15,956.8
525.7
75.4
122.0
9.0
303.2
400.6
13.5%
$ 15,516.2
479.7
72.5
99.1
5.6
284.5
301.9
10.7%
Financial Position ($ in millions)
Total assets
Long-term debt (excluding current portion)
Shareholders’ equity(4)
Per Share Data on a Fully Diluted Basis ($ per share)
Adjusted net earnings, net of non-controlling interest(3)
Net earnings, net of non-controlling interest
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)
7,140.1
915.9
3,726.2
6,913.1
889.1
3,396.3
6,518.6
1,090.3
3,162.1
6,176.8
821.6
2,832.9
5.39
5.65
0.960
0.960
54.84
68.63
53.56
68.58
4.74
4.99
0.900
0.900
49.98
62.99
52.72
57.62
4.45
5.87
0.800
0.800
46.48
59.12
51.07
54.14
4.15
4.40
0.740
0.740
43.07
53.95
39.70
52.98
68.1
68.0
68.2
68.5
(1) Fiscal years 2003 and 2004 ended April 30th. Subsequent fiscal years ended the first Saturday in May, consistent with the fiscal year-end of Sobeys Inc. Financial data
for fiscal 2003 to 2010, with the exception of the balances noted for financial position for fiscal 2010, was prepared using CGAAP and has not been restated to IFRS.
Fiscal 2005 and 2011 were 53-week years.
(2) Certain balances have been reclassified for changes to comparative figures for fiscal 2011. See Note 32 to the Company’s fiscal 2012 audited annual consolidated
financial statements.
(3) Adjusted net earnings, net of non-controlling interest, excludes items which are considered not indicative of underlying business operating performance.
(4) Shareholders’ equity before non-controlling interest for fiscal 2010 to 2013.
116
Empire Company Limited
Years Ended(1)
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
Financial Results ($ in millions; except ROE)
Sales
Operating income(2)
Interest expense
Income taxes
Non-controlling interest
Adjusted net earnings, net of non-controlling interest(2)(3)
Net earnings, net of non-controlling interest
Return on equity
Financial Position ($ in millions)
Total assets
Long-term debt (excluding current portion)
Shareholders’ equity(4)
Per Share Data on a Fully Diluted Basis ($ per share)
Adjusted net earnings, net of non-controlling interest(3)
Net earnings, net of non-controlling interest
Share Price, Non-Voting Class A Shares ($ per share)
Dividends
Non-Voting Class A shares
Class B common shares
Book value
High
Low
Close
Diluted weighted average number of
shares outstanding (in millions)
Fiscal 2005 and 2011 were 53-week years.
financial statements.
$ 17,612.7
$ 16,249.1
$ 15,956.8
$ 15,516.2
584.8
50.8
140.1
9.1
367.3
384.8
10.3%
5.39
5.65
0.960
0.960
54.84
68.63
53.56
68.58
534.3
59.9
122.3
12.7
322.7
339.4
10.6%
4.74
4.99
0.900
0.900
49.98
62.99
52.72
57.62
525.7
75.4
122.0
9.0
303.2
400.6
13.5%
4.45
5.87
0.800
0.800
46.48
59.12
51.07
54.14
479.7
72.5
99.1
5.6
284.5
301.9
10.7%
4.15
4.40
0.740
0.740
43.07
53.95
39.70
52.98
(1) Fiscal years 2003 and 2004 ended April 30th. Subsequent fiscal years ended the first Saturday in May, consistent with the fiscal year-end of Sobeys Inc. Financial data
for fiscal 2003 to 2010, with the exception of the balances noted for financial position for fiscal 2010, was prepared using CGAAP and has not been restated to IFRS.
(2) Certain balances have been reclassified for changes to comparative figures for fiscal 2011. See Note 32 to the Company’s fiscal 2012 audited annual consolidated
(3) Adjusted net earnings, net of non-controlling interest, excludes items which are considered not indicative of underlying business operating performance.
(4) Shareholders’ equity before non-controlling interest for fiscal 2010 to 2013.
$ 15,015.1
466.2
80.6
115.4
8.3
261.7
264.7
10.5%
$ 14,065.0
472.6
105.8
125.9
12.8
242.8
315.8
14.0%
$ 13,366.7
431.1
60.1
116.9
55.4
200.1
205.8
10.0%
$ 13,063.6
491.4
83.8
153.1
67.1
202.0
296.8
16.2%
$ 12,435.2
463.7
86.7
131.2
63.6
182.9
186.6
11.4%
$ 11,284.0
$
422.8
92.4
111.0
58.5
163.3
172.5
11.6%
7,140.1
915.9
3,726.2
6,913.1
889.1
3,396.3
6,518.6
1,090.3
3,162.1
6,176.8
821.6
2,832.9
5,891.1
1,124.0
2,678.8
5,732.9
1,414.1
2,382.3
5,241.5
792.6
2,131.1
5,051.5
707.3
1,965.2
4,929.2
727.4
1,709.0
4,679.7
913.0
1,567.6
3.97
4.02
0.700
0.700
39.07
55.05
35.00
49.00
3.69
4.80
0.660
0.660
36.08
55.19
35.40
39.25
3.04
3.13
0.600
0.600
32.31
45.25
39.49
42.33
3.07
4.51
0.560
0.560
29.77
44.35
33.37
43.29
2.78
2.83
0.480
0.480
25.87
38.00
24.25
36.66
2.47
2.61
0.400
0.400
23.67
29.50
23.10
26.65
10,624.2
444.4
93.7
120.0
67.5
159.3
153.3
11.3%
4,519.3
923.1
1,418.5
2.42
2.33
0.330
0.330
21.41
33.25
23.70
23.85
68.1
68.0
68.2
68.5
65.8
65.7
65.7
65.7
65.7
65.8
65.8
Annual Report 2013
117
Glossary
ADJUSTED EBITDA
EBITDA excluding items which are
considered not indicative of underlying
business operating performance
ADJUSTED NET EARNINGS
Net earnings excluding items which are
considered not indicative of underlying
business operating performance
ADJUSTED OPERATING INCOME
Operating income excluding items
which are considered not indicative
of underlying business operating
performance
ADJUSTED SALES
Sales excluding the impact of the
acquisition of 236 retail gas locations
and related convenience store
operations in the fourth quarter of
fiscal 2012
BOOk VALUE PER COMMON SHARE
Shareholders’ equity, net of non-
controlling interest, less preferred
shares, divided by total common
shares outstanding
CAGR
Compound Annual Growth Rate
CAPITAL ExPENDITURES
Payments made for the acquisition of
property, equipment and investment
property purchases
EBIT
Earnings before interest and taxes
(also called “operating income”)
EBITDA MARGIN
EBITDA divided by sales
NET TOTAL CAPITAL
Total capital less cash and cash
equivalents
FREE CASH FLOW
Cash flows from operating activities,
plus proceeds on disposal of property,
equipment and investment property,
less property, equipment and investment
property purchases
FUNDED DEBT
All interest bearing debt, which includes
bank indebtedness, long-term debt and
liabilities relating to assets held for sale
GROSS MARGIN
Gross profit divided by sales
GROSS PROFIT
Sales less costs of sales
HEDGE
A financial instrument used to
manage foreign exchange, interest
rate, energy or other commodity risk
by making a transaction which offsets
the existing position
INTEREST ExPENSE
Interest expense on financial liabilities
measured at amortized cost plus losses
on cash flow hedges reclassified from
other comprehensive income
NET FUNDED DEBT TO
NET TOTAL CAPITAL
Funded debt, less cash and cash
equivalents, divided by funded debt,
less cash and cash equivalents, plus
shareholders’ equity, net of non-
controlling interest
OPERATING INCOME
Also called earnings before interest
and taxes (“EBIT”). Calculated as net
earnings before non-controlling interest,
finance costs (net of finance income)
and income taxes
OPERATING INCOME MARGIN
Operating income divided by sales
PRIVATE LABEL
A brand of products that is marketed,
distributed and owned by the Company
RETURN ON EqUITY (“ROE”)
Net earnings available for common
shares divided by average common
shareholders’ equity, net of non-
controlling interest
SAME-STORE SALES
Sales from stores in the same location
in both reporting periods
TOTAL CAPITAL
Funded debt plus shareholders’ equity,
net of non-controlling interest
WEIGHTED AVERAGE NUMBER
OF SHARES
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
EBITDA
EBIT plus depreciation and amortization
of intangibles
NET FUNDED DEBT
Funded debt less cash and
cash equivalents
118
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 & 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, c/o Canadian Stock Transfer
Company Inc.*
Affiliated Company Web Addresses
www.sobeyscorporate.com
Transfer Agent
CIBC Mellon Trust Company
c/o Canadian Stock Transfer Company Inc.*
Investor Correspondence
P.O. Box 700 Station B
Montréal, Québec
H3B 3K3
Telephone: (800) 387-0825
E-mail: inquiries@canstockta.com
*Canadian Stock Transfer Company Inc. is operating the
transfer agency business in the name of CIBC Mellon Trust
Company for a transitional period.
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, c/o Canadian Stock Transfer Company Inc. at
(800) 387-0825 to eliminate the multiple mailings.
Dividend Record And Payment Dates For Fiscal 2014
Record Date
July 15, 2013
October 15, 2013*
January 15, 2014*
April 15, 2014*
*Subject to approval by the Board of Directors
Payment Date
July 31, 2013
October 31, 2013*
January 31, 2014*
April 30, 2014*
Outstanding Shares
As of June 27, 2013
Non-Voting Class A shares
Class B common shares, voting
33,687,747
34,260,763
Shareholders’ Annual General Meeting
September 12, 2013, at 11:00 a.m. (ADT)
Empire Studio 7 Cinemas
612 East River Road
New Glasgow, Nova Scotia
Stock Exchange Listing
The Toronto Stock Exchange
Stock Symbol
Non-Voting Class A shares – EMP.A
52-Week Average Daily Trading Volume (TSx: EMP.A)
62,598
Bankers
Bank of Montreal
Bank of Nova Scotia
Bank of Tokyo-Mitsubishi
Canadian Imperial Bank of Commerce
National Bank of Canada
Rabobank
TD Bank Financial Group
Solicitors
Stewart McKelvey
Halifax, Nova Scotia
Auditors
Grant Thornton, LLP
Halifax, Nova Scotia
Thank you
Special thanks to the employees who
participated in the annual report
photography showing how our business
comes to life each and every day.
A passion
for food
A passion for food has been the key ingredient of our success since J.W. Sobey
opened for business in Stellarton, Nova Scotia more than a century ago. Today,
Empire is a leading Canadian public company with annual sales of more than
$17 billion and steady prospects for continuing growth. We’ll continue to make
the most of our opportunities by concentrating our energy and resources on
the businesses we know best – food retailing and related real estate.
www.empireco.ca