Empire Company Annual Report 2018

FY2018 Annual Report · Empire Company
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Annual Report 2018

Trusted by 
Canadian 
Families

Empire Company Limited

COMPANY PROFILE

Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered 
in Stellarton, Nova Scotia. Empire’s key businesses are food retailing and related 
real estate. With approximately $24.2 billion in sales and $8.7 billion in assets, Empire 
and its subsidiaries, franchisees and afﬁ liates employ approximately 120,000 people.

Financial 
Highlights

($ in millions, except per share amounts) 

Sales 

Operating income (loss) 

Adjusted operating income(1) 

EBITDA(1) 

Adjusted EBITDA(1) 

Net earnings (loss)(2) 

  per share (fully diluted) 

Adjusted net earnings(1)(2) 

  per share (fully diluted) 

Book value per common share(1) 

Dividends per share  

52 weeks ended 
May 5, 2018 

52 weeks ended 
  May 6, 2017 

53 weeks ended
  May 7, 2016

$ 

24,214.6   $ 

23,806.2   $ 

24,618.8 

 346.5  

 601.7  

 785.7  

 1,014.7  

 159.5 

 0.59  

 344.3  

 1.27  

 13.62  

 0.42  

 333.0  

 378.5  

 777.2  

 796.9  

 158.5  

 0.58  

 191.3  

 0.70  

 13.40  

 0.41  

 (2,418.5)

 713.7 

 (1,944.7)

 1,161.4 

 (2,131.0)

 (7.78)

 410.2 

 1.50 

 13.23 

 0.40 

SALES
($ IN BILLIONS)

ADJUSTED NET EARNINGS (1)(2)
($ IN MILLIONS)

DIVIDENDS
($ PER SHARE)

25

20

15

10

5

0

CAGR (3)

5.6%

2008

2018

600

CAGR (3)

500

400

300

200

100

0

3.6%

2008

2018

0.5

CAGR (3)

6.7%

0.4

0.3

0.2

0.1

0

2008

2018

(1)  See “Non-GAAP Financial Measures & Financial Metrics” section of the Management’s Discussion and Analysis (“MD&A”).
(2) Net of non-controlling interest.
(3) Compound annual growth rate.

ABOUT THE COVER: This year’s cover image is taken from a Sobeys TV ad called “Hit Send on Summer.” A father and daughter plan a family backyard 
celebration and prepare the food they picked up at Sobeys, while keeping in touch with mom to see when she will be home from work to join the 
party. The ad is part of our “Get More Summer” campaign, which aims to inspire Canadians to make the most of every moment with their families.

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

TRUSTED BY CANADIAN FAMILIES

For 111 years, our customers have 
been at the heart of our business. 
Canadians know they can trust us 
to provide the fresh, quality products 
they need to nurture their families. 
We are proud to be ranked as the 
most trusted grocer in Canada.*

*  2018 Leger Corporate Reputation Study. Sobeys was ranked as the most 
admired company in the grocery/convenience store category, and sector 
champion for honesty and transparency.

1

Empire Company Limited

Message from  
the CEO

“ We want to be the best, most 

innovative and customer-focused 
retailer in Canada. We want 
customers to think of us first  
when they shop for groceries.”

  —   MICHAEL MEDLINE

On May 4th last year, Empire set out to rewrite the 
fundamentals of the Company through an ambitious 
three-year transformation program. Michael Medline, 
President & CEO of Empire Company Limited and its 
wholly-owned subsidiary Sobeys Inc., talks candidly  
about the transformation progress and the Company’s 
bold plans to take back market share, thrill its customers  
and excite its shareholders. 

Q.   Michael, it has been 18 months 
since you started at Empire.  
Has the Company made the 
progress you expected? 

Yes. I am very pleased with the progress 
we’ve made on our journey to turning 
around our company. In fact, we are a little 
bit ahead of where I thought we would  
be at this point. In the last 18 months  
we have stabilized the Company and 
found our bearings. We transformed our 
structure, sharpened our leadership team,  
stopped the market share bleeding, 
stabilized our margins, and improved  
our SG&A, EPS and EBITDA. Beyond  
the foundational changes, we also made 
strategic decisions to seize opportunities  
and set the Company up for future success.  
We announced the decision to expand

discount to the West and invested in  
a partnership with Ocado to build the 
finest e-commerce solution in Canada. 

Q.   You are one year into a three  
year transformation, Project 
Sunrise. Are you delivering  
on the commitments that you 
have made? 

Our first year of Project Sunrise was  
a success. We are on track to take  
out at least $500 million of costs from  
our business on a run rate basis by  
the end of fiscal 2020. As expected,  
in fiscal 2018, we successfully realized  
20% of our $500 million target, the 
majority of those savings coming from  
our organizational restructuring. 

80%

20%

  improvement in  
adjusted net earnings

savings realized towards total 
three-year target of $500 million 

Annual Report 2018

Completing the restructuring of our 
organization was a very important 
milestone for us. We have moved from 
a byzantine regional structure to a new, 
efﬁ cient operating model that drives 
our business on a national basis, while 
acknowledging differences across 
regions. This work was tough, but it was 
necessary. I’m pleased we are seeing 
more stability as the team settles in to 
the new structure. 

But what I’m really excited about is that 
our new structure will now allow us to go 
for sales and tonnage, and earn back our 
market share. It’s time we set our sights 
on the big prize – sales. We are pivoting 
from being laser-focused on stabilizing 
our business to making strategic 
decisions for the future and mobilizing 
our plans for growth. 

Q.   When you think about the future 
for Empire and Sobeys, what 
does it look like? 

I think about what this company can and 
will be most every waking hour of my day. 
We have not strayed from the vision that 
we set out for this company a year ago. 
We want to be the best, most innovative 
and customer-focused retailer in Canada. 
We want customers to think of us ﬁ rst 
when they shop for groceries. And I 
want our employees to feel the pride of 
working for a company that is making a 
difference in the lives of our customers.

Are we there yet? Not at all, but we’re 
making tangible progress. We have a lot 
of hard work in front of us. But, a year in, 
I am more conﬁ dent than ever that we 
now have the foundation, the strategy, 
the tactics and, most importantly, the 
team to execute on this vision. 

WIN IN OUR S TORES

We are committed to providing 
a great customer experience and 
carrying the items that customers 
want most.

We are working to thrill our 
customers and strengthen their 
connection with our brand.

3

Empire Company Limited

MESSAGE FROM THE CEO

Q.   What are your strategic priorities 

for ﬁ scal 2019? 

We have ﬁ ve strategic priorities for 
ﬁ scal 2019:

–   First, we have to continue our focus 

on Project Sunrise. And by that, I mean 
really starting to leverage the scale 
of our new structure in ﬁ scal 2019 to 
take more costs out of the business 
and get ready to go after sales and 
incremental margin.

–   Second, we’ll continue to bolster 
our brand. We need to be clearer 
about what we stand for to strengthen 
the emotional connection with 
consumers and continue to earn 
their conﬁ dence as their most trusted 
destination for their groceries.

–   Third, we absolutely need to win 

in our stores. The customer experience 
from the ﬁ rst steps into our 
conventional stores right through to 
the checkout experience needs to be 
great – not just good, great.

And then we have two speciﬁ c 
opportunities around which we have 
built solid strategies:

–   Our fourth priority is to expand 
discount, pushing west with our 
FreshCo banner and converting 
up to 25% of our Safeway and Sobeys 
stores in a market that is ripe for a 
discount offer.

–   And ﬁ nally, we are playing to win 
grocery e-commerce in Canada, 
through our exclusive deal with Ocado 
to bring the world’s ﬁ nest grocery 
e-commerce platform to our customers.

Q.   What does ‘Winning in our 

Stores’ look like in ﬁ scal 2019? 

Each of our strategies includes a myriad 
of activities to thrill our customers. In this 
case, the top initiatives for ﬁ scal 2019 
include the work we are doing to review 
our product categories, from top to 
bottom, to ensure we carry the items that 
customers want most. Next, the product 
must be on the shelf when the customer

Five Strategic 
Priorities

Reset our Foundation
Successful completion of 
Sunrise by end of ﬁ scal 2020

Bolster our Brand
Strengthen the emotional connection 
to our banner brands

Win in our Stores
Improve service and offering in our 
conventional stores

Enhance Discount
Expand discount to Western Canada 
and reﬁ ne our FreshCo model

Win E-commerce
Launch home delivery through 
Ocado partnership

We will continue to improve 
our service and product 
offering in our stores to 
give customers the best 
possible experience.

4

Annual Report 2018

120,000

   team members in over 

900 communities across Canada

“ Our culture is rooted in a commitment to putting our 
customers ﬁ rst, supporting one another and supporting 
the communities we serve. I guarantee you that these 
cultural attributes aren’t about to change.”

for us to strengthen our company to win 
in the future. We need to hold leaders 
more accountable for results and foster 
more of a culture of innovation. 

Q.   Do you have any ﬁ nal comments? 

I couldn’t end any conversation about our 
business without expressing my profound 
thanks to our customers, our Board of 
Directors and my teammates across the 
country. Sobeys has been built over the 
last ﬁ ve generations, community by 
community. Thank you to our customers 
in the over 900 communities that we serve 
coast-to-coast for visiting our stores. 
Thank you to our Board for their strong 
governance and support as we transform 
Sobeys; special thanks to Jim Dickson, 
our Chair, for his ongoing dedication 
to our company. Thanks goes to my 
120,000 colleagues; I have been so 
impressed and encouraged by the 
determination and commitment of the 
team at every level of the organization as 
we forge a new future for our company. 
It’s really hard work. It’s massive change 
– they have shown heart and tenacity. 

Sincerely,

signed “Michael Medline”

MICHAEL MEDLINE
President and Chief Executive Ofﬁ cer, 
Empire Company Limited

June 27, 2018

comes looking for it. We have a signiﬁ cant 
focus on service levels to the stores and 
we’re seeing improvements; customers 
need to trust that everything on their 
list is on our shelves. And ﬁ nally, we’re 
investing more capital to refresh some 
of our conventional stores in ﬁ scal 2019. 

Q.   You recently announced 

changes to your executive team. 
How will this better position the 
Company for the future? 

The key leadership changes we made 
really sharpen our focus on our ﬁ ve 
priorities and for the next phases of our 
transformation. The changes place 
strong leaders in key operations 
and merchandising roles and, for 
the ﬁ rst time, create a truly national 
merchandising team. We’ve also built 
Empire’s e-commerce and discount 
leadership for the long term. This 
leadership team will deliver results 
and strengthen our company to win 
in the future. 

Q.   Do you see the Sobeys 

culture changing, and what is 
most important to keep? 

Sobeys’ culture is one of the things that 
attracted me to this great company. 
There is so much about the rich history 
of this family company that makes it a 
truly iconic, Canadian business and a 
great place to work. Our culture is 
rooted in a commitment to putting our 
customers ﬁ rst, supporting one another 
and supporting the communities we 
serve. I guarantee you that these cultural 
attributes aren’t about to change. They 
will remain foundational to everything 
we do. However, there are certainly 
some aspects of our culture that we 
need to continue to develop in order 

E- COMMERCE PL ATFORM

Our world-class e-commerce 
offering will redeﬁ ne convenience 
for grocery customers. 

We will build on the success of our discount model by 
expanding the FreshCo banner in Western Canada.

5

Empire Company Limited

Message from 
the Chair

“ The Board will continue to work 

with the executive team on every 
step of the journey to provide 
counsel and oversight throughout 
the transformation of the business.”

  —  JAMES M. DICK SON

Fiscal 2018 was an exciting and transformational year 
for Empire Company Limited. During Michael Medline’s 
ﬁ rst full year as our President and CEO, he and his team 
have increased sales and reduced expenses, while also 
signiﬁ cantly improving operating margins, proﬁ tability and 
earnings per share.

Remarkably, these improvements were accomplished against a backdrop of major 
change as Sobeys rebuilt its complex regional operational structure into a more 
efﬁ cient, national, functionally-led team. The majority of ofﬁ ce employees at Sobeys 
ﬁ nished ﬁ scal 2018 in new roles or with new responsibilities. In addition, our team 
has set in motion key strategic initiatives such as the push west with our company’s 
FreshCo banner, and Sobeys’ exclusive agreement with Ocado to bring the world’s 
very best integrated grocery e-commerce platform to Canada. The leadership team 
is now well-poised to unlock the Company’s national scale, deliver signiﬁ cant cost 
savings and revitalize our relationsh
savings and revitalize our relationship with our customers. 

p

And yet, our company’s progress is
And yet, our company’s progress is not just evident in its ﬁ nancial results. It is showing 
up in a new energy and focus across the broad leadership team. It is translating into 
up in a new energy and focus acros
improvements in Sobeys’ corporate reputation as reﬂ ected in Leger’s 2018 ranking of 
improvements in Sobeys’ corporat
Canada’s 100 Most Admired Companies. It is palpable in the renewed conﬁ dence with 
Canada’s 100 Most Admired Comp
which the team is tackling strategic priorities and building a stronger foundation for 
which the team is tackling strategic
future growth.
future growth. 

13

  of our 14 directors 
are independent

More than 1⁄3

of our directors 
are women

Annual Report 2018

We were pleased to welcome Sharon Driscoll to our 
Board in January 2018. Sharon has senior ﬁ nancial experience 
at well-known Canadian retailers in the grocery, pharmacy 
and general merchandising segments. As an executive at 
a company operating innovative online marketplaces, Sharon 
strengthens our Board with e-commerce expertise at a time 
when online food retailing is becoming increasingly important 
to our business.

With Thanks

On behalf of the Board, I extend my appreciation to all the 
people in Empire’s and Sobeys’ operations, and our franchisees 
and afﬁ liates. I would also like to thank the Sobey family for their 
commitment to long-term value creation, and all of Empire’s 
shareholders for your ongoing support and conﬁ dence.

Sincerely,

signed “James M. Dickson”

JAMES M. DICK SON
Chair, Empire Company Limited

June 27, 2018

Change of this magnitude and duration requires strong 
governance. The Board of Directors is responsible for 
stewardship of the Company and, as such, we are overseeing 
the strategic plan and its execution. We established our 
Transformation Oversight Committee with a mandate to 
oversee the transformation effort, monitor progress and 
review management’s strategies for mitigating the risks 
inherent in any initiative of this size. The Board also tied 
a portion of executive compensation to the successful 
completion of certain of those strategic initiatives.

With the foundation in place, Michael Medline and our 
leadership team have set their focus on bolstering the brand, 
improving our conventional store offering, enhancing and 
expanding our successful discount model, and preparing to 
launch an e-commerce offering that will be superior to anything 
available today in the Canadian market.

To date, our Board has been very satisﬁ ed that the strategic 
plan reﬂ ects the bold steps that the Company must take, and 
that leadership is demonstrating great focus and capability in 
successfully managing the transformation. One year into this 
major transformation, we believe Empire is already a much 
stronger company with a brighter future. 

Strong Governance

I am proud to chair a Board that is highly engaged, 
experienced and diverse. The slate of directors we are 
proposing for election at this year’s annual general meeting 
consists of individuals with experience in the food business, 
retail, ﬁ nance, e-commerce and consumer businesses. All of 
our directors are independent except for our CEO. Nine new 
independent directors have joined within the past six years, 
resulting in strong board renewal. In addition, the Board is 
fortunate to have ﬁ ve members of the Sobey family, each of 
whom has, in the past, served in senior level positions within 
Empire or Sobeys.

Both the Board and the Empire leadership team remain 
committed to diversity and gender balance at all levels of 
the Company. We believe a range of skills, perspectives and 
backgrounds lead to more effective governance. This year, 
over a third of our nominees for election as directors are 
highly capable and accomplished women.

7

Empire Company Limited

Integral Part of
Our Communities

Proudly serving our communities is 
a deeply held core value at Sobeys. 
A great example of that pride shines 
through in our national partnership 
with Special Olympics – from 
providing employment opportunities 
to individuals with intellectual 
disabilities, to developing one of 
the most innovative nutrition 
programs in the global Special 
Olympics movement, to proudly 
co-presenting the Special Olympics 
Canada Summer Games 2018. 

Special Olympics Canada 
Summer Games 2018

At Sobeys we think of ourselves as Special 
Olympics’ #BiggestFans and could not 
be more excited to be one of the biggest 
supporters of this year’s Canada Summer 
Games. Hosted in Antigonish, Nova Scotia 
– just down the road from our Stellarton 
head ofﬁ ce – busloads of employees will 
make their way to the Games as part 
of our ‘Fans in the Stands Cheer Squad’. 
Sobeys will also make some noise at 
‘Sobeys Square’ in the middle of the 
action, with activities, entertainment, 

videos and food sampling for visitors, 
athletes and coaches alike. As we 
celebrate every moment, big and small, 
the Sobeys team will provide more 
than 10,000 meals and snacks to the 
900 athletes, 290 coaches and ofﬁ cials, 
and 600 volunteers.

Making Better Nutrition Possible for 
Special Olympics Athletes Year-Round

Empowering Special Olympics athletes 
to live healthier lives has been a mission 
for Sobeys from the earliest days of our 
national partnership. To that end, Sobeys 
and Special Olympics teamed up to create 
a truly innovative nutrition program, 
developed speciﬁ cally to address the 
unique health risks experienced by many 
individuals with intellectual disabilities. 
Our Better Food Nutrition Sessions are 
hands-on, fun and interactive workshops 
for Special Olympians, led by more than 
100 Sobeys employee volunteers across 
the country. With a focus on quick and 
easy recipes and nutrition education, 
our goal is to reach over 20,000 athletes, 
caregivers and coaches by the end of 2019.

EMPLOYEE PROFILE

Michael Jacques

Sobeys is proud to co-present the Special Olympics 
Canada 2018 Summer Games in Antigonish, Nova Scotia.

Gary, a Sobeys Vancouver, BC employee and Nutrition 
Session volunteer, says “Being part of an organization 
that helps educate our athletes on nutrition is exciting, 
fulﬁ lling and something I really identify with.”

As extraordinary young people go, Michael Jacques is one for the books! Diagnosed 
with autism and an intellectual disability at a young age, today Michael is an advocate, 
guest speaker, valued employee at Sobeys, a Special Olympics athlete, and the 
author of Can’t Read, Can’t Write, Here’s My Book. – an inspiring and heartwarming 
autobiography of looking past disabilities to ﬁ nd purpose in promoting inclusion. 

Michael is an ally for the Re:Action4Inclusion initiative, touring the province of Ontario 
and talking to students about the impact they could have in their own schools by 
being more accepting of others’ differences. He is also a member of Community 
Living Ontario’s Board of Directors.

Since 2010, Michael has been a valued member of the team at his local Sobeys in the 
Niagara region of Ontario. As much as Michael shares his love of his job and thanks 
Sobeys for giving him the opportunity, the store team is just as thankful to Michael for 
building their understanding of how to create diverse and inclusive teams, supporting 
all and celebrating different abilities. Fellow employees help Michael with new ways 
to do his job such as colour-coding product codes and using numbers to help him 
memorize different sections of the store.

“ My job does not feel like a job; 
it feels like a family.”

  —   MICHAEL JACQUES

8

Annual Report 2018

Directors of
Empire Company Limited

Cynthia Devine (2)(5)(7)
Toronto, Ontario 
Director since 2013 

Chief Financial Ofﬁ cer, 
Maple Leaf Sports & 
Entertainment

James M. Dickson 
Halifax, Nova Scotia 
Director since 2015 

Sharon Driscoll (1)
Vancouver, British Columbia
Director since 2018

Gregory Josefowicz (3)
Fennville, Michigan, USA 
Director since 2016

Sue Lee (3)
Calgary, Alberta
Director since 2014

Chair of Empire Company 
Limited

Chief Financial Ofﬁ cer, 
Ritchie Bros. Auctioneers Inc.

Corporate Director

Corporate Director

Counsel, Stewart McKelvey

William Linton (4)(5)(7)
Toronto, Ontario
Director since 2015

Corporate Director

Michael Medline
Toronto, Ontario
Director since 2017

Martine Reardon (1)
New York, New York, USA
Director since 2017

Frank C. Sobey(5)
Pictou County, Nova Scotia
Director since 2007

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

President & Chief Executive 
Ofﬁ cer, Empire Company 
Limited and Sobeys Inc.

Corporate Director

Chairman, Crombie REIT

Corporate Director

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

Paul D. Sobey (5)
Pictou County, Nova Scotia
Director since 1993

Rob G. C. Sobey (3)(5)
Stellarton, Nova Scotia
Director since 1998

Martine Turcotte (1)(6)(8)
Verdun, Québec
Director since 2012

Corporate Director

Corporate Director

Corporate Director

Vice Chair, Québec, BCE Inc. 
and Bell Canada

(1)  Audit Committee member
(2)  Audit Committee chair
(3)  Human Resources Committee member
(4)  Human Resources Committee chair

(5)  Corporate Governance Committee member
(6)  Corporate Governance Committee chair
(7)  Nominating Committee member
(8)  Nominating Committee chair

To learn more, please visit 
www.empireco.ca/governance

9

Empire Company Limited

Management’s 
Discussion & Analysis

TABLE OF CONTENTS

Forward-Looking Information 
Overview of the Business 
  Food Retailing 

Summary Results – Fourth Quarter 
  Sales 
  Gross Proﬁ t 
  Operating Income 
  EBITDA 
  Finance Costs 
Income Taxes 
  Net Earnings 
Operating Results – Full Year 
  Sales 
  Gross Proﬁ t 
  Operating Income 
  EBITDA 
  Finance Costs 
Income Taxes 
  Net Earnings 
Financial Performance by Segment 
  Food Retailing 

11
12
12
Investments and Other Operations  13
14
14
14
15
15
15
16
16
16
17
17
17
17
18
18
18
18
18
Investments and Other Operations  19
20
20
21
21
22
22

Quarterly Results of Operations 
Liquidity and Capital Resources 
  Operating Activities 
Investing Activities 
  Financing Activities 
  Free Cash Flow 
  Employee Future 

  Beneﬁ t Obligations 

  Guarantees and Commitments 

22
23

10

23
23
24
25

Consolidated Financial Condition 
  Key Financial Condition Measures 
  Shareholders’ Equity 
Accounting Standards and Policies 
  Changes to Accounting Standards 
  Adopted During Fiscal 2018 

25
25
  Future Standards 
  Critical Accounting Estimates 
27
  Disclosure Controls and Procedures  28

Internal Control Over 
  Financial Reporting 
Related Party Transactions 
  Key Management 

  Personnel Compensation 
Indemnities 
Contingencies 
Risk Management 
Designation for Eligible Dividends 
Non-GAAP Financial Measures & 
  Financial Metrics 
  Financial Measures 
  Food Segment Reconciliations 
  Financial Metrics 

28
29

29
29
30
30
35

35
35
37
38 

 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated ﬁ nancial results of Empire Company Limited 
(“Empire” or the “Company”) (TSX: EMP.A) and its subsidiaries, including wholly-owned Sobeys Inc. (“Sobeys”) for the 13 and 52 
weeks ended May 5, 2018 compared to the 13 and 52 weeks ended May 6, 2017. The MD&A should be read in conjunction with the 
Company’s audited consolidated ﬁ nancial statements and notes thereto for the 52 weeks ended May 5, 2018, and the 52 weeks 
ended May 6, 2017. 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.

The audited consolidated ﬁ nancial statements and the accompanying notes are prepared in accordance with International Financial 
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are reported in Canadian 
dollars (“CAD”). These consolidated ﬁ nancial statements include the accounts of Empire and its subsidiaries and structured entities 
(“SEs”) which the Company is required to consolidate. The information contained in this MD&A is current to June 27, 2018, unless 
otherwise noted. 

FORWARD-LOOKING INFORMATION
This document contains forward-looking statements which are presented for the purpose of assisting the reader to contextualize 
the Company’s ﬁ nancial position and understand management’s expectations regarding the Company’s strategic priorities, 
objectives and plans. These forward-looking statements may not be appropriate for other purposes. Forward-looking statements 
are identiﬁ ed by words or phrases such as “anticipates”, “expects”, “believes”, “estimates”, “intends”, “could”, “may”, “plans”, 
“predicts”, “projects”, “will”, “would”, “foresees” and other similar expressions or the negative of these terms. 

These forward-looking statements include, but are not limited to, the following items:

•    The Company’s expectations regarding the impact of Project Sunrise, including expected cost savings and efﬁ ciencies resulting 
from this transformation initiative, and the expected timing of the realization of ﬁ scal 2019 in-year incremental beneﬁ ts, which 
could be impacted by several factors, including the time required by the Company to complete the project as well as the factors 
identiﬁ ed under the heading “Risk Management”;

•    The Company’s expectations regarding the implementation of its online grocery shopping business including the timing of 

launching the business, the overall customer response to the service and the performance of its business partner, Ocado Group 
plc (“Ocado”);

•    The Company’s expectations regarding the impact of healthcare reform that came into effect on April 1, 2018 which may be 

impacted by factors described under the headings “Healthcare Reform” and “Risk Management – Drug Regulation, Legislation 
and Healthcare Reform”;

•    The Company’s expectations regarding the impact of minimum wage increases in Ontario and Alberta, other incremental 

impacts of the Fair Workplaces, Better Jobs Act, 2017 (“Bill 148”) and the Company’s ability to mitigate the ﬁ nancial impact of 
these increases which may be impacted by factors described under the heading “Minimum Wage Increases”;

•    The Company’s expected contributions to its registered deﬁ ned beneﬁ t plans, which could be impacted by ﬂ uctuations in 

capital markets;

•    The Company’s assessment that its operational and capital structure is sufﬁ cient to meet its ongoing business requirements, 

which could be impacted by changes in the current economic environment; and

•    The Company’s expectation that its cash and cash equivalents on hand, unutilized 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 sufﬁ cient funding in place to 
meet these requirements and other short and long-term obligations, all of which could be impacted by changes in the 
economic environment.

By its nature, forward-looking information requires the Company to make assumptions and is subject to inherent risks, uncertainties 
and other factors which may cause actual results to differ materially from forward-looking statements made. For more information 
on risks, uncertainties and assumptions that may impact the Company’s forward-looking statements, please refer to the Company’s 
materials ﬁ led with the Canadian securities regulatory authorities, including the “Risk Management” section.

Although the Company believes the predictions, forecasts, expectations or conclusions reﬂ ected in the forward-looking information 
are reasonable, it can provide no assurance that such matters will prove correct. 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. The forward-looking information in this document reﬂ ects the Company’s current 
expectations and is subject to change. The Company does not undertake to update any forward-looking statements that may be 
made by or on behalf of the Company other than as required by applicable securities laws.

11

Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

OVERVIEW OF THE BUSINESS
Empire’s key businesses and ﬁ nancial results are segmented into two separate reportable segments: (i) Food retailing and (ii) 
Investments and other operations. With approximately $24.2 billion in annualized sales and $8.7 billion in assets, Empire and its 
subsidiaries, franchisees and afﬁ liates employ approximately 120,000 people.

FOOD RETAILING

Empire’s Food retailing segment is carried out through Sobeys, a wholly-owned subsidiary. Proudly Canadian, with headquarters 
in Stellarton, Nova Scotia, Sobeys has been serving the food shopping needs of Canadians since 1907. Sobeys owns, afﬁ liates or 
franchises more than 1,500 stores in all 10 provinces under retail banners that include Sobeys, Safeway, IGA, Foodland, FreshCo, 
Thrifty Foods and Lawtons Drugs as well as more than 350 retail fuel locations.

Strategic Focus(1)

The Company has established a strategy that is designed to address an evolving retail environment while remaining focused on 
customer needs and improving the Company’s overall service offering. The strategy will evolve as the Company continues to 
reorganize and transform to a nationally led and focused organization. 

(i) Resetting the Foundation
 In the fourth quarter of ﬁ scal 2017, the Company launched Project Sunrise, a comprehensive three year transformation intended 
to simplify the organizational structure and reduce costs. The transformation is expected to result in at least $500.0 million in 
annualized cost savings by the end of ﬁ scal 2020.

 In ﬁ scal 2018, beneﬁ ts realized by the Company from the transformation initiative, were comprised of organizational design cost 
reductions, improvements in store operations and cost reductions from strategic sourcing. The in-year beneﬁ t was approximately 
20% of the total target, the majority of which was achieved in the second half of the year.

 For ﬁ scal 2019, management expects that beneﬁ ts will be derived from the annualized effect of initiatives during ﬁ scal 2018, plus 
other operational initiatives. Management estimates up to a further 30% of the Company’s target can be achieved during the year. 
The majority of the incremental beneﬁ t would accrue to the Company in the second half of ﬁ scal 2019.

Organizational Structure Changes
 Changes in the Company’s organizational structure included collapsing multiple independent regional businesses into a national, 
functionally-led structure, simplifying how the Company does business and enabling it to leverage its scale. The transformation 
initiative is intended to address the complex organizational structure that has resulted in signiﬁ cant duplication and lack of clear, 
deﬁ ned accountabilities. This initiative will reduce costs as a result of reduced headcount and consistent processes, and will result 
in an increased level of authority and scope for leadership, allowing for more nimble and responsive decision making to support 
the needs of customers and capitalize on changes in the marketplace.

 The Company incurred costs of $23.5 million and $209.0 million for the 13 and 52 weeks ended May 5, 2018, respectively, related 
to this transformational initiative. This phase of the Company’s three year transformation is complete. Cost beneﬁ ts related to 
this phase, which are included in the total beneﬁ ts estimate of at least $500.0 million, are expected to meet or exceed 
management’s expectations. 

(ii) Bolstering the Brand
 The Company is focused on improving customer connection with its banner brands and differentiating these brands in a highly 
competitive marketplace. Management has undertaken a comprehensive review of its customers and the relative positioning of its 
categories and store banners and is developing long-term strategic initiatives that will be implemented over the next several years. 

(iii) Improved Service and Offering in Conventional Stores
 Conventional stores will remain a key area of focus as management continues to evaluate and prioritize destination product 
categories designed to provide customers with the products they want at competitive prices while improving overall customer 
experience in conventional store banners. 

(1)  This section constitutes forward-looking information described under the “Forward-Looking Information” section of this MD&A.

12

Annual Report 2018

(iv) Enhance Discount
 Discount continues to be a high growth area in food retailing. Sobeys is reﬁ ning its existing discount model and in ﬁ scal 2018 
announced plans to expand its discount banner to Western Canada. The Company will convert up to 25% of its 255 Safeway and 
Sobeys full service format stores in Western Canada to its FreshCo banner over the next ﬁ ve years with the ﬁ rst discount stores 
opening by the third quarter of ﬁ scal 2019. In addition to the expansion of discount format stores to Western Canada, the Company 
is updating the branding of the current FreshCo banner with four pilot stores launching in London, Ontario during the ﬁ rst quarter 
of ﬁ scal 2019.

(v) Win E-commerce
 In January 2018, Sobeys announced it had signed an agreement with Ocado, an industry-leading grocery e-commerce company, to 
launch a central pick, home delivery online grocery shopping business. Management expects this online business will participate in 
the rapidly growing online grocery shopping channel. Sobeys and Ocado are developing the ﬁ rst Customer Fulﬁ llment Centre 
(“CFC”) in the Greater Toronto Area with delivery to customers expected in the Spring of 2020. Sobeys and Ocado expect to deploy 
additional CFCs in Canada’s major urban centres. 

Other Signiﬁ cant Items

Minimum Wage Increases
The Company expects to incur increased labour costs as a result of minimum wage increases in Ontario and Alberta and other 
effects associated with Bill 148 that was passed into law in Ontario on November 27, 2017. Management was successful in mitigating 
the ﬁ nancial impact of these increased labour costs in ﬁ scal 2018 and continues to develop further plans to mitigate the full year 
impacts for ﬁ scal 2019 onward. However, there is some risk that the Company may not be able to fully offset the effects on earnings 
considering the short transition period of the cost increases. The Company estimates the unmitigated ﬁ nancial impact of the 
minimum wage increases, and other impacts including wage parity could be up to $90 million in ﬁ scal 2019.

Commercial Bread Investigation
The Canadian Competition Bureau is currently investigating the practices of certain suppliers and retailers, including the Company, 
with regard to the supply and sale of commercial bread in Canada beginning in 2001. The Company is fully cooperating with the 
Competition Bureau. Based on the information available to date, the Company does not believe that it or any of its employees have 
violated the Competition Act.

Class action lawsuits have been ﬁ led against the Company, the suppliers and other retailers regarding the allegations. 

While both the Competition Bureau investigation and the class action lawsuits are in the early stages, at this time the Company 
does not believe that they will have a material adverse effect on the Company’s business or ﬁ nancial condition.

Healthcare Reform
On January 29, 2018, additional healthcare reform was introduced by the pan-Canadian Pharmaceutical Alliance with the Canadian 
Generic Pharmaceutical Association that came into effect on April 1, 2018. This resulted in the price reduction of almost 70 high 
volume generic drugs. The Company estimates that the effect, prior to any mitigation, of these changes may be to reduce annual 
income before taxes by up to $40 million.

INVESTMENTS AND OTHER OPERATIONS

Empire’s Investments and other operations segment, as of May 5, 2018, included:

1.   A 41.5% (40.3% fully diluted) equity accounted interest in Crombie Real Estate Investment Trust (“Crombie REIT”), an Ontario 

registered, unincorporated, open-ended real estate investment trust. Crombie REIT is one of the country’s leading national retail 
property landlords with a strategy to own, operate and develop a portfolio of high quality grocery and drug store anchored 
shopping centres, freestanding stores and mixed use developments primarily in Canada’s top urban and suburban markets; and

2.  A 40.7% equity accounted interest in Genstar Development Partnership, a 48.6% equity accounted interest in Genstar 

Development Partnership II, a 39.0% equity accounted interest in GDC Investments 4, L.P., a 42.1% equity accounted interest in 
GDC Investments 6, L.P., a 39.0% equity accounted interest in GDC Investments 7, L.P., a 37.1% equity accounted interest in GDC 
Investments 8, L.P., and a 49.0% equity accounted interest in The Fraipont Partnership (collectively referred to as “Genstar”). 

13

Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

SUMMARY RESULTS – FOURTH QUARTER 

13 Weeks Ended

($ in millions, except per share amounts)  

May 5, 2018 

May 6, 2017 

$ Change 

% Change

Sales 
Gross proﬁ t(1) 
Operating income 
Adjusted operating income(1) 
EBITDA(1) 
Adjusted EBITDA(1) 
Finance costs, net 
Income tax expense 
Non-controlling interest 
Net earnings(2) 
Adjusted net earnings(1)(2) 

Basic earnings per share  

Net earnings(2) 

Adjusted net earnings(1)(2) 

Basic weighted average number of shares outstanding (in millions) 

Diluted earnings per share  

Net earnings(2) 

Adjusted net earnings(1)(2) 

Diluted weighted average number of shares outstanding (in millions)  

1.5%
2.1%
80.1%
55.0%
26.8%
24.0%
(8.3)%
735.7%
(10.7)%
140.7%
85.3%

$  5,886.1 
1,451.3 
110.6 
139.7 
217.8 
240.4 
25.4 
11.7 
2.5 
71.0 
93.0 

$ 

$ 

$ 

$ 

0.26 

0.35 

271.8 

0.26 

0.35 

272.2 

$ 

$ 

$ 

$ 

$ 

5,798.9 
1,420.9 
61.4 
90.1 
171.7 
193.9 
27.7 
1.4 
2.8 
29.5 
50.2 

0.11 

0.18 

271.7 

0.11 

0.18 

271.7

$ 

$ 

$ 

$ 

$ 

87.2 
30.4 
49.2 
49.6 
46.1 
46.5 
(2.3) 
10.3 
(0.3) 
41.5 
42.8 

0.15 

0.17 

0.15

0.17

Dividend per share 

$ 

0.1050 

$ 

0.1025

(Consolidated operating results as a % of sales) 

Gross margin(1) 
Adjusted operating income(1) 
EBITDA(1) 
Adjusted EBITDA(1) 
Adjusted net earnings(1)(2) 

Same-store sales(1) growth (decline)   
Same-store sales growth (decline), excluding fuel 
Effective income tax rate 

(1)  See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
(2) Net of non-controlling interest.

Sales

13 Weeks Ended

May 5, 2018 

May 6, 2017

24.7% 
2.4% 
3.7% 
4.1% 
1.6% 

24.5%
1.6%
3.0%
3.3%
0.9%

13 Weeks Ended

May 5, 2018 

May 6, 2017

0.5% 
0.0% 
13.7% 

(1.1)%
(1.6)%
4.2%

Sales increased by 1.5% for the 13 weeks ended May 5, 2018. Food inﬂ ation was positive which contributed to the increase in sales, 
although same-store sales were consistent with last year. Sales were affected by an aggressive industry promotional environment 
and the effect of winding down 10 underperforming stores in British Columbia. These stores are scheduled to close in the ﬁ rst 
quarter of ﬁ scal 2019. Excluding related businesses, same-store sales for food increased and estimated food tonnage sold was 
consistent with last year. 

Gross Proﬁ t

Gross proﬁ t increased by 2.1% compared to last year due to increases in sales and stable margins as management focused on 
improved store execution and promotional strategies, in addition to stabilizing and improving margin rates which still continues. 
Gross margin increased from 24.5% to 24.7% in the fourth quarter of ﬁ scal 2018. 

14

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

Operating Income

($ in millions) 

Consolidated operating income 
  Sobeys contribution 
Investments and other operations 
  Crombie REIT 
  Real estate partnerships 
  Other operations, net of corporate expenses  

13 Weeks Ended

May 5, 2018 

May 6, 2017 

$ Change

$ 

95.2 

$ 

52.5 

$ 

42.7

10.8 
3.3 
1.3 

15.4 

$ 

110.6 

$ 

7.7 
4.9 
(3.7) 

8.9 

61.4 

3.1
(1.6)
5.0

6.5

$ 

49.2

For the 13 weeks ended May 5, 2018, operating income increased mainly as a result of improvements in sales and margins, beneﬁ ts 
related to Project Sunrise and other cost efﬁ ciencies and a gain on sale of assets to Crombie REIT. These results were partially offset 
by expenses related to Project Sunrise and increases in incentive compensation accruals due to improved performance.

Operating income from the Investments and other operations segment increased primarily as a result of improved earnings from 
Crombie REIT and other operations. The increase in income from other operations can be attributed primarily to losses incurred in 
the prior year including a dilution loss and a loss on disposal of property.

($ in millions) 

Operating income 

Adjustments: 
  Costs related to Project Sunrise 

Intangible amortization associated with the  Canada Safeway acquisition 

  West business unit store closures  
  Distribution centre restructuring   
  Network rationalization 
  Historical organizational realignment reversals 

13 Weeks Ended

May 5, 2018 

May 6, 2017 

$ Change

$ 

110.6 

$ 

61.4 

$ 

49.2

22.3 
6.5 
0.3 
– 
– 
– 

29.1 

15.8 
6.5
–
4.3
3.0
(0.9)

28.7 

90.1 

0.4

49.6

$ 

Adjusted operating income 

$ 

139.7 

$ 

EBITDA

EBITDA and adjusted EBITDA increased in the 13 weeks ended May 5, 2018 as a result of improvements in sales, beneﬁ ts related to 
Project Sunrise and the gain on sale of assets to Crombie REIT. Adjusted EBITDA as a percentage of sales increased from 3.3% to 
4.1% as a result of efﬁ ciencies realized from Project Sunrise and improved gross margins. 

($ in millions) 

EBITDA 

Adjustments: 
  Costs related to Project Sunrise 
  West business unit store closures  
  Distribution centre restructuring   
  Network rationalization 
  Historical organizational realignment reversals 

Adjusted EBITDA 

Finance Costs

13 Weeks Ended

May 5, 2018 

May 6, 2017 

$ Change

$ 

217.8 

$ 

171.7 

$ 

46.1

22.3 
0.3 
– 
– 
– 

22.6 

15.8 
– 
4.3
3.0
(0.9)

22.2 

$ 

240.4 

$ 

193.9 

$ 

0.4

46.5

For the 13 weeks ended May 5, 2018, net ﬁ nance costs decreased primarily due to a decrease in interest expense caused by 
repayment of $100.0 million Series C Medium term notes during the quarter. In addition, net borrowing levels, primarily drawn on 
Empire’s credit facility were lower in the fourth quarter of ﬁ scal 2018 compared to last year further decreasing interest expense. 
Adjusted interest coverage(1) increased to 6.5 times from 3.5 times in the fourth quarter of ﬁ scal 2018 as a result of an increase in 
adjusted operating income and lower ﬁ nancing costs.

(1)  See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.

15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

Income Taxes

The effective income tax rate for the 13 weeks ended May 5, 2018 was 13.7% compared to 4.2% in the same quarter last year. 
The current year’s effective tax rate is lower than the statutory rate primarily due to an internal reorganization that the Company 
undertook during the quarter to simplify its corporate structure resulting in an increase in the rate applied to deferred tax assets 
and gains on the sale of retail properties to Crombie REIT. The prior period’s effective rate was lower than the statutory rate due 
to the remeasurement of the Company’s deferred income tax provision and the impact of capital gain transactions. 

Net Earnings

The following is a reconciliation of adjusted net earnings:

($ in millions, except per share amounts) 

May 5, 2018 

May 6, 2017 

$ Change

13 Weeks Ended

Net earnings(1) 

EPS(2) (fully diluted) 

Adjustments (net of income taxes): 
  Costs related to Project Sunrise 

Intangible amortization associated with the Canada Safeway acquisition 

  West business unit store closures  
  Distribution centre restructuring   
  Network rationalization 
  Historical organizational realignment reversals 

Adjusted net earnings(1) 

Adjusted EPS (fully diluted) 

$ 

$ 

$ 

$ 

71.0 

0.26 

17.0 
4.8 
0.2 
– 
– 
– 

22.0 

93.0 

0.35 

Diluted weighted average number of shares outstanding (in millions)   

272.2 

(1)  Net of non-controlling interest.
(2) Earnings per share (“EPS”).

OPERATING RESULTS – FULL YEAR

($ in millions, except per share amounts)  

  52 Weeks Ended 
May 5, 2018 

52 Weeks Ended 
May 6, 2017 

53 Weeks Ended 
May 7, 2016 

Sales 
Gross proﬁ t 
Operating income (loss) 
Adjusted operating income 
EBITDA 
Adjusted EBITDA 
Finance costs, net 
Income tax expense 
Non-controlling interest 
Net earnings (loss)(1) 
Adjusted net earnings(1) 

Basic earnings per share  

Net earnings (loss)(1) 

Adjusted net earnings(1) 

Basic weighted average number 
  of shares outstanding (in millions)  

Diluted earnings per share  

Net earnings (loss)(1) 

Adjusted net earnings(1) 

Diluted weighted average number 
  of shares outstanding (in millions)  

$  24,214.6 
5,900.5 
346.5 
601.7 
785.7 
1,014.7 
110.5 
56.2 
20.3 
159.5 
344.3 

$ 

$ 

$ 

$ 

0.59 

1.27 

271.8 

0.59 

1.27 

$  23,806.2 
5,707.2 
333.0 
378.5 
777.2 
796.9 
118.0 
42.5 
14.0 
158.5 
191.3 

$  24,618.8 
5,957.6 
(2,418.5) 
713.7 
(1,944.7) 
1,161.4 
137.4 
(441.3) 
16.4 
(2,131.0) 
410.2 

$ 

$ 

$ 

$ 

0.58 

0.70 

271.9 

0.58 

0.70 

$ 

$ 

$ 

$ 

(7.78) 

1.50 

273.9 

(7.78) 

1.50 

274.0 

0.40 

Dividend per share 

$ 

0.42 

$ 

0.41 

$ 

16

272.1 

272.0 

$ 

$ 

29.5 

0.11 

$ 

$ 

41.5

0.15

11.3 
4.7 
– 
3.1 
2.2 
(0.6) 

20.7 

50.2 

0.18 

271.7 

1.3

42.8

0.17

$ 

$ 

2018 Compared to 2017

$ Change 

% Change

1.7%
3.4%
4.1%
59.0%
1.1%
27.3%
(6.4)%
32.2%
45.0%
0.6%
80.0%

408.4 
193.3 
13.5 
223.2 
8.5 
217.8 
(7.5) 
13.7 
6.3 
1.0 
153.0 

0.01 

0.57 

0.01 

0.57 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

(Consolidated operating results as a % of sales) 

Gross margin 
Adjusted operating income 
EBITDA 
Adjusted EBITDA 
Adjusted net earnings(1) 

Same-store sales growth (decline) 
Same-store sales growth (decline), excluding fuel 
Effective income tax rate 

(1)  Net of non-controlling interest.

Sales

  52 Weeks Ended 
May 5, 2018 

52 Weeks Ended 
May 6, 2017 

53 Weeks Ended 
May 7, 2016

24.4% 
2.5% 
3.2% 
4.2% 
1.4% 

24.0% 
1.6% 
3.3% 
3.3% 
0.8% 

24.2%
2.9%
(7.9)%
4.7%
1.7%

  52 Weeks Ended 
May 5, 2018 

52 Weeks Ended 
May 6, 2017 

53 Weeks Ended 
May 7, 2016

0.8% 
0.5% 
23.8% 

(2.1)% 
(2.2)% 
19.8% 

(0.2)%
0.3%
17.3%

Sales increased by 1.7% for the 52 weeks ended May 5, 2018, as same-store sales were higher in most areas of the country, driven 
by more disciplined pricing strategies compared to signiﬁ cant deﬂ ationary pricing strategies in the prior year. Food inﬂ ation was 
positive, contributing to the increase in sales.

Gross Proﬁ t

Gross proﬁ t increased by 3.4% compared to last year due to increases in sales and stable margins as management focused on 
improved store execution and promotional strategies in addition to stabilizing and improving margin rates which still continues. 
Gross margin increased from 24.0% to 24.4% in ﬁ scal 2018.

Operating Income 

For the 52 weeks ended May 5, 2018, operating income increased mainly as a result of improvements in sales and margins, beneﬁ ts 
related to Project Sunrise and other cost efﬁ ciencies and a gain on sale of assets to Crombie REIT. These results were partially offset 
by expenses related to Project Sunrise and increases in incentive compensation accruals due to improved performance.

($ in millions) 

Operating income 

Adjustments: 
  Costs related to Project Sunrise 

Intangible amortization associated with the Canada Safeway acquisition 

  West business unit store closures  
  Distribution centre restructuring   
  Gain on disposal of manufacturing facilities 
  Historical organizational realignment costs 
  Network rationalization reversals   

52 Weeks Ended

May 5, 2018 

May 6, 2017 

$ Change

$ 

346.5 

$ 

333.0 

$ 

13.5

207.8 
26.2 
21.2 
– 
– 
– 
– 

255.2 

15.8 
25.8 
–
9.6
(7.5)
3.4
(1.6)

45.5 

Adjusted operating income 

$ 

601.7 

$ 

378.5 

$ 

209.7

223.2

EBITDA

EBITDA increased in the 52 weeks ended May 5, 2018, mainly a result of the previously mentioned factors impacting operating income. 

($ in millions) 

EBITDA 

Adjustments: 
  Costs related to Project Sunrise 
  West business unit store closures  
  Distribution centre restructuring   
  Gain on disposal of manufacturing facilities 
  Historical organizational realignment costs 
  Network rationalization reversals   

52 Weeks Ended

May 5, 2018 

May 6, 2017 

$ Change

$ 

785.7 

$ 

777.2 

$ 

8.5

207.8 
21.2 
– 
– 
– 
– 

229.0 

15.8
–
9.6
(7.5)
3.4
(1.6)

19.7 

209.3

217.8

17

Adjusted EBITDA 

$  1,014.7 

$ 

796.9 

$ 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

Finance Costs

For the 52 weeks ended May 5, 2018, net ﬁ nance costs decreased primarily due to a decrease in interest expense caused by 
repayment of $100.0 million Series C Medium term notes and a signiﬁ cant decrease in Empire’s credit facility balance in ﬁ scal 2018 
compared to ﬁ scal 2017. Adjusted interest coverage increased to 6.2 times from 3.7 times during the same period in the prior year 
as a result of increased adjusted operating income.

Income Taxes

The effective income tax rate for the 52 weeks ended May 5, 2018 increased to 23.8% compared to 19.8% for the 52 weeks ended 
May 6, 2017. The increase in the effective rate compared to the prior year is primarily attributable to deferred tax expense related to 
a tax reorganization undertaken by Crombie REIT during the ﬁ rst quarter, partially offset by a recovery in the fourth quarter as a 
result of an internal reorganization undertaken to simplify its corporate structure, as well as a gain on sale of retail properties to 
Crombie REIT. Furthermore, Project Sunrise expenses impacted the mix of earnings between legal entities and tax jurisdictions 
contributing to a higher average effective tax rate in the current year. 

In the prior year, the effective tax rate of 19.8% was lower than the Company’s statutory rate due to tax consequences for properties 
sold to Crombie REIT on a tax deferred basis. The substantive enactment of legislation to modify the tax treatment of eligible 
capital expenditures in prior years also contributed to the lower effective tax rate. 

Net Earnings

The following is a reconciliation of adjusted net earnings:

($ in millions, except per share amounts) 

Net earnings(1) 

EPS(2) (fully diluted) 

Adjustments (net of income taxes): 
  Costs related to Project Sunrise 

Intangible amortization associated with the  Canada Safeway acquisition 

  West business unit store closures  
  Distribution centre restructuring   
  Gain on disposal of manufacturing facilities 
  Historical organizational realignment costs 
  Network rationalization reversals   

Adjusted net earnings(1) 

Adjusted EPS (fully diluted) 

Diluted weighted average number of shares outstanding (in millions)   

(1)  Net of non-controlling interest.
(2) Earnings per share (“EPS”).

FINANCIAL PERFORMANCE BY SEGMENT

FOOD RETAILING 

52 Weeks Ended

May 5, 2018 

May 6, 2017 

$ Change

$ 

$ 

159.5 

0.59 

$ 

$ 

158.5 

0.58 

$ 

$ 

1.0

0.01

150.1 
19.2 
15.5 
– 
– 
– 
– 

184.8 

344.3 

1.27 

272.1 

$ 

$ 

$ 

$ 

11.3
18.8
–
6.9
(5.5)
2.5
(1.2)

32.8 

191.3 

0.70 

272.0 

152.0

153.0

0.57

$ 

$ 

The following is a review of Empire’s Food retailing segment’s ﬁ nancial performance for the 52 weeks ended May 5, 2018 compared 
to the 52 weeks ended May 6, 2017 and 53 weeks ended May 7, 2016.

The following ﬁ nancial information is Sobeys’ contribution to Empire as the amounts are net of consolidation adjustments. For 
further analysis of these adjustments, see the “Operating Results – Full Year” section.

($ in millions)  

Sales 
Gross proﬁ t 
Operating income (loss) 
Adjusted operating income 
EBITDA 
Adjusted EBITDA 
Net earnings (loss)(1) 
Adjusted net earnings(1) 

(1)  Net of non-controlling interest.

18

  52 Weeks Ended 
May 5, 2018 

52 Weeks Ended 
May 6, 2017 

53 Weeks Ended 
May 7, 2016 

2018 Compared to 2017

$ Change 

% Change

$ 

$  24,214.6 
5,900.5 
273.6 
528.8 
712.5 
941.5 
116.5 
301.3 

$  23,806.2 
5,707.2 
259.3 
304.8 
703.2 
722.9 
112.7 
145.5 

$  24,618.8 
5,957.6 
(2,509.2) 
623.0 
(2,036.0) 
1,070.1 
(2,193.3) 
347.9 

408.4 
193.3 
14.3 
224.0 
9.3 
218.6 
3.8 
155.8 

1.7%
3.4%
5.5%
73.5%
1.3%
30.2%
3.4%
107.1%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

To assess its ﬁ nancial performance and condition, Sobeys’ management monitors a set of ﬁ nancial measures which evaluate sales 
growth, proﬁ tability and ﬁ nancial condition, and are set out below.

($ in millions) 

Sales growth (decline)  
Same-store sales growth (decline) 
Same-store sales growth (decline), excluding fuel 
Return on equity(2) 
Funded debt to total capital(2) 
Funded debt to adjusted EBITDA(2)   
Property, equipment and investment property purchases(3) 

  52 Weeks Ended 
May 5, 2018 

52 Weeks Ended 
May 6, 2017 

53 Weeks Ended

May 7, 2016(1)

1.7% 
0.8% 
0.5% 
5.4% 
37.1% 
1.7x 
239.6 

$ 

(3.3)% 
(2.1)% 
(2.2)% 
4.9% 
39.5% 
2.4x 
470.8 

2.9%
(0.2)%
0.3%
(55.4)%
46.0%
2.1x
616.2

$ 

$ 

(1)  Amounts have been reclassiﬁ ed to correspond to the current and comparable period presentation on the consolidated balance sheets.
(2) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.
(3)  This amount reﬂ ects property, equipment and investment property purchases by Sobeys, excluding amounts purchased from the Company and its 

wholly-owned subsidiaries.

INVESTMENTS AND OTHER OPERATIONS

($ in millions) 

Operating income 
  Crombie REIT 
  Real estate partnerships 
  Other operations, net of corporate expenses  

Operating Income

52 Weeks Ended

May 5, 2018 

May 6, 2017 

$ Change

$ 

$ 

39.5 
33.9 
(0.5) 

$ 

41.5 
35.1 
(2.9) 

$ 

72.9 

$ 

73.7 

$ 

(2.0)
(1.2)
2.4

(0.8)

For the 52 weeks ended May 5, 2018, operating income remained consistent as a result of stable equity earnings from Crombie REIT 
and the Real estate partnerships.

Investment Portfolio

At May 5, 2018, Empire’s investment portfolio, including equity accounted investments in Crombie REIT and Genstar, consisted of:

Fair 
Value 

May 5, 2018 

Carrying 
Value 

Unrealized 
Gain 

Fair 
Value 

May 6, 2017

Carrying 
Value 

Unrealized 
Gain

$ 

777.1 

$ 

448.5 

$ 

328.6 

$ 

883.6 

$ 

459.1 

$ 

424.5

($ in millions) 

Investment in associates 
  Crombie REIT(1) 
  Canadian real estate 
  partnerships(2) 

  U.S. real estate partnerships(2) 
Investment in joint ventures 
  Canadian Digital Cinema 

90.7 
23.2 

90.7 
23.2 

– 
– 

– 

143.0 
36.8 

143.0 
36.8 

9.5 

9.5 

–
–

–

  Partnership(2) 

9.4 

9.4 

(1)  Fair value is calculated based on the closing price of Crombie REIT units traded on the Toronto Stock Exchange as of May 4, 2018.
(2) Assumes fair value equals carrying value.

$ 

900.4 

$ 

571.8 

$ 

328.6 

$ 

1,072.9 

$ 

648.4 

$ 

424.5

19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

QUARTERLY RESULTS OF OPERATIONS

($ in millions, except per 

share amounts) 

Sales 
EBITDA(1) 
Operating income  
Net earnings (loss)(2) 

Per share information, 
  basic 
Net earnings (loss)(2) 

 Q4 
(13 Weeks) 
May 5, 2018 

 Q3 
(13 Weeks) 
Feb. 3, 2018 

 Q2 
(13 Weeks) 
Nov. 4, 2017 

 Q1 
(13 Weeks) 
Aug. 5, 2017 

Q4 
(13 Weeks) 
May 6, 2017 

Q3 
(13 Weeks) 
Feb. 4, 2017 

Q2 
(13 Weeks) 
Nov. 5, 2016 

Q1 
(13 Weeks) 

Aug. 6, 2016

Fiscal 2018 

Fiscal 2017

$  5,886.1  $  6,029.2  $  6,026.1  $  6,273.2  $  5,798.9  $  5,889.8  $  5,930.9  $  6,186.6
238.3
126.6
65.4

113.0 
2.6 
(23.6) 

217.8 
110.6 
71.0 

238.8 
125.2 
54.0 

216.1 
108.1 
58.1 

179.4 
68.6 
30.5 

187.8 
76.4 
33.1 

171.7 
61.4 
29.5 

$ 

0.26  $ 

0.21  $ 

(0.09)  $ 

0.20  $ 

0.11  $ 

0.11  $ 

0.12  $ 

0.24

Basic weighted average 
  number of shares 
  outstanding (in millions)   

271.8 

271.7 

271.8 

271.5 

271.7 

271.1 

271.6 

271.7

Per share information, 
  diluted 
Net earnings (loss)(2) 

$ 

0.26  $ 

0.21  $ 

(0.09)  $ 

0.20  $ 

0.11  $ 

0.11  $ 

0.12  $ 

0.24

Diluted weighted average 
  number of shares 
  outstanding (in millions)   

272.2 

272.2 

271.8 

271.6 

271.7 

271.7 

272.2 

271.7

(1)   EBITDA is reconciled to net earnings (loss) for the current and comparable period in the “Non-GAAP Financial Measures & Financial Metrics” section of this 

MD&A. 

(2) Net of non-controlling interest.

For the most recent eight quarters, results have ﬂ uctuated overall with sales consistently improving compared to the same period in 
the prior year.

Sales include ﬂ uctuations in quarter-to-quarter inﬂ ationary and deﬂ ationary market pressures. The Company does experience some 
seasonality, as evidenced in the results presented above, in particular during the summer months and over the holidays when retail 
sales trend higher and can result in stronger operating results. The sales, EBITDA, operating income and net earnings (loss), net of 
non-controlling interest, have been inﬂ uenced by one-time adjustments, other investing activities, the competitive environment, cost 
management initiatives, food price and general industry trends and by other risk factors as outlined in the “Risk Management” section.

LIQUIDITY AND CAPITAL RESOURCES 
The table below highlights signiﬁ cant cash ﬂ ow components for the relevant periods. For additional detail, please refer to the 
consolidated statement of cash ﬂ ows in the Company’s consolidated ﬁ nancial statements for the 52 weeks ended May 5, 2018.

($ in millions) 

May 5, 2018 

May 6, 2017 

$ Change 

May 5, 2018 

May 6, 2017 

$ Change

13 Weeks Ended 

52 Weeks Ended  

Cash ﬂ ows from operating activities  $ 
Cash ﬂ ows from (used in) 
investing activities 

313.5 

$ 

225.8 

$ 

87.7 

$ 

879.7 

$ 

708.5 

$ 

171.2

33.1 

(73.3) 

106.4 

(39.4) 

(35.7) 

(3.7)

Cash ﬂ ows used in 
  ﬁ nancing activities 

Increase (decrease) in cash and 
  cash equivalents 

(176.8) 

(148.5) 

(28.3) 

(419.7) 

(730.2) 

310.5

$ 

169.8 

$ 

4.0 

$ 

165.8 

$ 

420.6 

$ 

(57.4) 

$ 

478.0

20

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

Operating Activities 

Cash ﬂ ows from operating activities for the 13 weeks ended May 5, 2018 increased primarily as a result of an increase in net earnings 
from improved operations, increased distributions in equity investments and net change in non-cash working capital.

The increase in cash ﬂ ows from operating activities for the 52 weeks ended May 5, 2018 was attributable to increased distributions 
by equity investments and net change in non-cash working capital. This was partially offset by one-time Project Sunrise costs 
incurred in ﬁ scal 2018.

Investing Activities

The table below outlines details of investing activities of the Company during the 13 and 52 weeks ended May 5, 2018 compared to 
the 13 and 52 weeks ended May 6, 2017:

($ in millions) 

Investment 

Increase in investments  
  Property, equipment and 

13 Weeks Ended 

52 Weeks Ended  

May 5, 2018 

May 6, 2017 

$ Change 

May 5, 2018 

May 6, 2017 

$ Change

$ 

– 

$ 

(0.4) 

$ 

0.4 

$ 

– 

$ 

(0.4) 

$ 

0.4

investment property purchases  

  Proceeds on disposal of assets 
  Additions to intangibles 
  Loans and other receivables 
  Tenant inducements 
  Other assets and other 

long-term liabilities 
  Business acquisitions  

Interest received 

  Proceeds on redemption 

  of investment 

Cash ﬂ ows from (used in) 
investing activities 

(76.1) 
113.2 
(7.9) 
(0.4) 
– 

3.7 
(0.6) 
1.2 

– 

(91.8) 
36.8 
(20.1) 
(1.5) 
– 

3.3 
(0.2) 
0.6 

– 

15.7 
76.4 
12.2 
1.1 
– 

0.4 
(0.4) 
0.6 

– 

(239.8) 
217.2 
(48.2) 
6.1 
– 

2.9 
(3.8) 
1.9 

24.3 

(460.7) 
425.7 
(53.8) 
12.3 
58.8 

2.7 
(21.9) 
1.6 

– 

220.9
(208.5)
5.6
(6.2)
(58.8)

0.2
18.1
0.3

24.3

$ 

33.1 

$ 

(73.3) 

$ 

106.4 

$ 

(39.4) 

$ 

(35.7) 

$ 

(3.7)

For the 13 weeks ended May 5, 2018, cash from (used in) investing activities increased compared to prior year as a result of an 
increase in proceeds on the sale of assets due to Sobeys entering into an agreement with Crombie REIT to sell a portfolio of 
11 properties, nine of which were leased back.

For the 52 weeks ended May 5, 2018, the increase in cash used in investing activities was a result of decreased proceeds on disposal 
of assets due to a sale leaseback agreement entered into with Crombie REIT in ﬁ scal 2017 to sell and leaseback 19 retail properties 
and a 50% interest in each of its three automated distribution centres. The agreement also included a large volume of tenant 
inducements that further increased cash inﬂ ows from investing activities in ﬁ scal 2017. This was offset by reduced capital spend 
in ﬁ scal 2018. 

The Company spent approximately $288.0 million in capital expenditures which includes acquisitions of property, equipment and 
investment properties as well as additions to intangibles which was below the estimate of $350.0 million.

The table below outlines details of investments by Sobeys in its store network during the 13 and 52 weeks ended May 5, 2018 
compared to the 13 and 52 weeks ended May 6, 2017.

# of stores 

Opened/relocated/acquired 
Expanded 
Rebannered/redeveloped 
Closed in the normal course of operations 

13 Weeks Ended 

52 Weeks Ended 

May 5, 2018 

May 6, 2017 

May 5, 2018 

May 6, 2017

9 
3 
2 
8 

16 
– 
7 
11 

41 
11 
24 
40 

66
8
25
40

21

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

The following table shows Sobeys’ square footage changes for the 13 and 52 weeks ended May 5, 2018, by type:

Square feet (in thousands) 

Opened 
Relocated 
Acquired  
Expanded 
Closed in the normal course of operations  

Net change  

13 Weeks Ended  52 Weeks Ended
May 5, 2018

May 5, 2018 

124 
34 
– 
19 
(125) 

52 

338
97
–
91
(375)

151

At May 5, 2018, Sobeys’ square footage totaled 39.4 million, a 0.5% increase compared to 39.2 million square feet operated at 
May 6, 2017.

Financing Activities

Cash used in ﬁ nancing activities increased during the 13 weeks ended May 5, 2018 compared to last year primarily due to the 
repayment of long-term debt, speciﬁ cally the repayment of the $100.0 million Series C Medium term notes in the fourth quarter of 
ﬁ scal 2018.

The cash used in ﬁ nancing activities during the 52 weeks ended May 5, 2018 decreased in ﬁ scal 2018 primarily due to the repayment 
of $300.0 million in senior unsecured notes during ﬁ scal 2017.

Free Cash Flow

Management uses free cash ﬂ ow(1) as a measure to assess the amount of cash available for debt repayment, dividend payments and 
other investing and ﬁ nancing activities.

($ in millions) 

May 5, 2018 

May 6, 2017 

$ Change 

May 5, 2018 

May 6, 2017 

$ Change

13 Weeks Ended 

52 Weeks Ended  

Cash ﬂ ows from operating activities  $ 
Add: proceeds on disposal of 
  property, equipment and 

313.5 

$ 

225.8 

$ 

87.7 

$ 

879.7 

$ 

708.5 

$ 

171.2

investment property 

113.2 

36.8 

Less: property, equipment and 

investment property purchases 

(76.1) 

(91.8) 

76.4 

15.7 

217.2 

425.7 

(208.5)

(239.8) 

(460.7) 

220.9

183.6

Free cash ﬂ ow 

$ 

350.6 

$ 

170.8 

$ 

179.8 

$ 

857.1 

$ 

673.5 

$ 

(1)  See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.

Free cash ﬂ ow increased for the 13 weeks ended May 5, 2018 compared to the 13 weeks ended May 6, 2017 primarily due to 
improved operating earnings and an increase of proceeds on the sale of property to Crombie REIT. Sobeys entered into an 
agreement with Crombie REIT to sell a portfolio of 11 properties, nine of which were leased back.

Free cash ﬂ ow increased for the 52 weeks ended May 5, 2018 compared to the 52 weeks ended May 6, 2017 due to lower levels of 
capital investments as management was assessing future strategic priorities and improved operating activities. This was partially 
offset by proceeds received from the disposition of real estate assets to Crombie REIT in the prior year. 

Employee Future Beneﬁ t Obligations

For the 52 weeks ended May 5, 2018, the Company contributed $9.3 million (2017 – $9.8 million) to its registered deﬁ ned beneﬁ t 
pension plans. The Company expects to contribute approximately $26.7 million to these plans in ﬁ scal 2019.

22

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

Guarantees and Commitments

The following table presents the Company’s commitments and other obligations that will come due over the next ﬁ ve ﬁ scal years as 
at May 5, 2018.

($ in millions) 

2019 

2020 

2021 

2022 

2023 

Thereafter 

Total

Commitments 
Long-term debt(1) 
Finance lease liabilities(2) 
Third-party operating leases, 
  as lessee(3) 
Related party operating leases, 
  as lessee(3) 

Contractual obligations 
Operating leases, as lessor  

  $ 

520.1  $ 
7.3 

22.6  $ 

6.2 

52.1  $ 
4.2 

7.1  $ 
2.6 

6.3  $  1,028.7  $  1,636.9
36.0
13.1 
2.6 

256.0 

246.0 

224.0 

200.1 

171.8 

939.0 

2,036.9

166.2 

949.6 
(14.2) 

165.0 

439.8 
(13.0) 

165.9 

446.2 
(11.7) 

159.9 

369.7 
(10.8) 

161.0 

341.7 
(10.5) 

1,696.7 

2,514.7

3,677.5 
(62.4) 

6,224.5
(122.6)

Contractual obligations, net 

  $ 

935.4  $ 

426.8  $ 

434.5  $ 

358.9  $ 

331.2  $ 

3,615.1  $ 

6,101.9

(1)  Principal debt repayments.
(2) Present value of minimum lease payments (future minimum lease payments less interest).
(3) Net of sub-lease income.

For further information on guarantees and commitments, please see Note 15 and Note 23 of the Company’s audited annual 
consolidated ﬁ nancial statements for the 52 weeks ended May 5, 2018.

CONSOLIDATED FINANCIAL CONDITION
Key Financial Condition Measures

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

May 5, 2018 

May 6, 2017 

May 7, 2016(1)(2)

Shareholders’ equity, net of non-controlling interest   
Book value per common share(3) 
Long-term debt, including current portion 
Funded debt to total capital 
Net funded debt to net total capital(3) 
Funded debt to adjusted EBITDA 
Adjusted EBITDA to interest expense(3) 
Current assets to current liabilities    
Total assets 
Total non-current ﬁ nancial liabilities  

$  3,702.8 
$ 
13.62 
$  1,666.9 
31.0% 
21.9% 
1.6x 
10.5x 
0.8x 
$  8,662.0 
$  1,929.9 

$ 
$ 
$ 

$ 
$ 

3,644.2 
13.40 
1,870.8 
33.9% 
31.3% 
2.3x 
7.7x 
0.9x 
8,695.5 
2,502.1 

$ 
$ 
$ 

$ 
$ 

3,623.9
13.23
2,367.4
39.5%
36.7%
2.0x
10.2x
1.0x
9,138.5
2,735.9

(1)  Amounts have been reclassiﬁ ed to correspond to the current period presentation on the consolidated balance sheets.
(2) Amounts have been restated. See “Changes to Accounting Policies Adopted During Fiscal 2017” section of the ﬁ scal 2017 annual MD&A for further detail.
(3) See “Non-GAAP Financial Measures & Financial Metrics” section of this MD&A.

For the 52 weeks ended May 5, 2018, Dominion Bond Rating Service (“DBRS”) upgraded Sobeys’ trend from negative to stable, 
while Standard and Poor’s (“S&P”) remained unchanged. Sobeys’ credit metrics and ﬁ nancial proﬁ le continue to improve due to 
stronger operating performance and stable ﬁ nancial leverage.

Rating Agency 

DBRS 
S&P   

Credit Rating (Issuer rating) 

Trend/Outlook

  BB (high) 
BB+ 

Stable
Stable

On June 2, 2017, Sobeys entered a new, senior, unsecured non-revolving credit facility for $500.0 million. The facility bears ﬂ oating 
interest tied to Canadian prime rate or bankers’ acceptance rates. The facility is intended to be used to repay long-term debt due in 
calendar 2018.

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 sufﬁ cient funding in place to meet 
these requirements and other short and long-term ﬁ nancial obligations. The Company mitigates potential liquidity risk by ensuring 
various sources of funds are diversiﬁ ed by term to maturity and source of credit. 

23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

The Company’s ﬁ nancing facilities include certain ﬁ nancial and non-ﬁ nancial covenants. All covenants were complied with for 
the 13 and 52 weeks ended May 5, 2018.

For additional information on Empire’s long-term debt, see Note 15 of the Company’s audited annual consolidated ﬁ nancial 
statements for the 52 weeks ended May 5, 2018.

Shareholders’ Equity 

The Company’s share capital was comprised of the following on May 5, 2018:

Authorized 

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 

Number of Shares 

May 5, 2018 

May 6, 2017

991,980,000 
768,105,849 
122,400,000 

 991,980,000
 768,105,849
 122,400,000

Issued and outstanding ($ in millions) 

  Number of Shares 

May 5, 2018 

May 6, 2017

Non-Voting Class A shares, without par value 
Class B common shares, without par value, voting 
Shares held in trust 

Total 

173,547,591 
98,138,079 
(308,504) 

$  2,038.2 
7.3 
(6.0) 

$ 

2,037.8
7.3
(10.7)

$  2,039.5 

$ 

2,034.4

The Company’s share capital on May 5, 2018 compared to the same period in the last ﬁ scal year is shown in the table below.

(Number of Shares) 

Non-Voting Class A shares 
Issued and outstanding, beginning of year 

Issued during year 

Issued and outstanding, end of year  

Shares held in trust, beginning of year 
  Purchased for future settlement of equity settled plans 
Issued for future settlement of equity settled plans 

Shares held in trust, end of year 

52 Weeks Ended

May 5, 2018   

May 6, 2017  

173,537,901 
9,690 

173,537,901
–

173,547,591 

173,537,901

(555,409) 
(5,683) 
252,588 

(308,504) 

–
(555,409)
–

(555,409)

Issued and outstanding, net of shares held in trust, end of year 

173,239,087 

172,982,492

Class B common shares 
Issued and outstanding, beginning of year 

Issued during year 

Total issued and outstanding, end of year 

 98,138,079 
– 

  98,138,079
–

 98,138,079 

  98,138,079

The outstanding options at May 5, 2018 were granted at prices between $15.60 and $30.87 and expire between June 2018 and 
June 2025 with a weighted average remaining contractual life of 5.20 years. Stock option transactions during ﬁ scal 2018 and 2017 
were as follows:

Balance, beginning of year 
Granted 
Exercised 
Expired 
Forfeited 

Balance, end of year 

2018 

2017

Number of 
Options 

  4,949,863 
  1,338,980 
(122,805) 
(749,971) 
(729,912) 

$ 

Weighted 
Average 
Exercise 
Price 

24.27 
19.43 
22.26 
25.92 
23.45 

$ 

Number of 
Options 

  3,655,322 
  1,642,700 
– 
– 
(348,159) 

  4,686,155 

$ 

22.81 

  4,949,863 

$ 

Weighted 
Average
Exercise 
Price

25.94
20.40
–
–
23.51

24.27

Stock options exercisable, end of year 

  2,301,032 

  2,110,743 

For the 52 weeks ended May 5, 2018, the Company paid common dividends of $114.0 million (2017 – $111.3 million) to its equity 
holders. This represents a payment of $0.42 per share (2017 – $0.41 per share) for common shareholders. 

24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

As at June 26, 2018, the Company had Non-Voting Class A and Class B common shares outstanding of 173,548,969 and 98,138,079, 
respectively. Options to acquire 4,686,155 Non-Voting Class A shares were outstanding as of May 5, 2018 (May 6, 2017 – 4,949,863) 
which represents 1.7% (May 6, 2017 – 1.8%) of the outstanding Non-Voting Class A and Class B common shares. 

During the second quarter of ﬁ scal 2017, the Company established a trust fund to facilitate the purchase of Non-Voting Class A 
shares for the future settlement of vested units under the Company’s equity settled stock-based compensation plans. Contributions 
to the trust fund and the Non-Voting Class A shares purchased are held by AST Trust Company (Canada) as trustee. The trust fund is 
an SE and as such the accounts of the trust fund are included on the consolidated ﬁ nancial statements of the Company. The 
following represents the activity of shares held in trust:

Shares held in trust 

Balance, beginning of year 
Purchased 
Issued   

Balance, end of year 

  Number of Shares 

May 5, 2018 

May 6, 2017

$ 

(555,409) 
(5,683) 
252,588 

$ 

(10.7) 
(0.1) 
4.8 

(308,504) 

$ 

(6.0) 

$ 

–
(10.7)
–

(10.7)

ACCOUNTING STANDARDS AND POLICIES 
The audited consolidated ﬁ nancial statements were prepared using the same accounting policies as disclosed in the Company’s 
annual consolidated ﬁ nancial statements for the year ended May 6, 2017 with the exception of the following:

Changes to Accounting Standards Adopted During Fiscal 2018

(i) Statement of Cash Flows
In January 2016, the IASB issued Disclosure Initiative Amendments to IAS 7, “Statement of cash ﬂ ows”. These amendments require 
entities to provide additional disclosures that enable users of ﬁ nancial statements to evaluate changes in liabilities arising from 
ﬁ nancing activities, including changes arising from cash and non-cash changes. These amendments became effective during the 
ﬁ rst quarter of ﬁ scal 2018 and had no material impact on the Company’s consolidated ﬁ nancial statements. A reconciliation of 
long-term debt has been presented on Note 15 of the Company’s consolidated ﬁ nancial statements.

(ii) Share-based Payment
In June 2016, the IASB issued amendments to IFRS 2, “Share-based payment”. The amendments provide clariﬁ cation around the 
effects of vesting conditions on cash-settled share-based payment transactions, classiﬁ cation of share-based payment transactions 
with net settlement features and modiﬁ cation of the terms and conditions of a share-based payment that changes the classiﬁ cation 
of the transaction. These amendments are effective for annual periods beginning on or after January 1, 2018. The Company early 
adopted these amendments in the ﬁ rst quarter of ﬁ scal 2018.

Future Standards 

(i) Financial Instruments
In July 2014, the IASB issued IFRS 9, “Financial instruments” (“IFRS 9”), which replaces IAS 39, “Financial instruments: recognition 
and measurement” (“IAS 39”) and related interpretations. IFRS 9 provides revised guidance on the classiﬁ cation and measurement 
of ﬁ nancial assets and ﬁ nancial liabilities, including impairment. IFRS 9 also introduces a new hedge accounting model and 
amendments to clarify the treatment of modiﬁ cations of ﬁ nancial liabilities. The standard is effective for annual periods beginning 
on or after January 1, 2018 and is to be applied retrospectively, with the exception of the hedging component which is to be applied 
prospectively. Early adoption is permitted, however, the Company did not elect to do so. The standard will be applied in ﬁ scal 2019, 
and the Company does not expect a signiﬁ cant adjustment to its consolidated ﬁ nancial statements as a result of the adoption of 
this standard, as outlined below. 

Classiﬁ cation and Measurement
IFRS 9 requires ﬁ nancial assets to be classiﬁ ed and measured based on both the business model for managing the asset and the 
nature of the cash ﬂ ows. The classiﬁ cation and measurement of ﬁ nancial liabilities remains largely unchanged from IAS 39. The 
application of the new classiﬁ cation requirements under IFRS 9 are not expected to result in a signiﬁ cant adjustment to the 
Company’s consolidated ﬁ nancial statements.

Impairment
IFRS 9 introduces a new expected credit loss (“ECL”) impairment model. It is no longer necessary for a triggering event to have 
occurred before credit losses are recognized. Under the IFRS 9 ECL model, the Company will recognize upfront impairment losses 
based on past events, current conditions, and reasonable and supportable forecasts affecting collectability. The application of the 
ECL model under IFRS 9 is not expected to result in a signiﬁ cant adjustment to the Company’s consolidated ﬁ nancial statements.

25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

Hedge Accounting
IFRS 9 introduces a new hedge accounting model that aligns hedge accounting relationships with corresponding risk management 
activities. The new hedge accounting requirements are not expected to result in a signiﬁ cant adjustment to the Company’s 
consolidated ﬁ nancial statements. 

Modiﬁ cation of Financial Liabilities
In October 2017, the IASB issued “Prepayment features with negative compensation” as an amendment to IFRS 9. The amendment 
clariﬁ es the accounting treatment for modiﬁ cations of ﬁ nancial liabilities and requires a ﬁ nancial liability measured at amortized cost 
to be remeasured when a modiﬁ cation occurs. Any resulting gain or loss is required to be recognized in proﬁ t or loss at the date of 
modiﬁ cation. The amendment is effective for annual periods beginning on or after January 1, 2018 and is to be applied retrospectively. 
The Company does not expect this amendment to result in a signiﬁ cant adjustment to the Company’s consolidated ﬁ nancial statements.

Disclosure
Financial instrument disclosures continue to fall within the scope of IFRS 7 “Financial instruments: disclosures” (“IFRS 7”). IFRS 7 has 
been amended by IFRS 9 to include additional qualitative and quantitative disclosure requirements. The Company intends to apply 
these amendments in ﬁ scal 2019. The amendments are not expected to result in a signiﬁ cant adjustment to the Company’s 
consolidated ﬁ nancial statement disclosures. 

(ii) Revenue
In May 2014, the IASB issued IFRS 15, “Revenue from contracts with customers” (“IFRS 15”). IFRS 15 replaces IAS 18, “Revenue” 
(“IAS 18”), IAS 11, “Construction contracts”, and some revenue related interpretations. IFRS 15 establishes a new control-based 
revenue recognition model and provides a comprehensive framework for recognition, measurement and disclosure of revenue 
from contracts with customers, excluding contracts within the scope of the standards on leases, insurance contracts and ﬁ nancial 
instruments. The new standard is effective for annual periods beginning on or after January 1, 2018 and is to be applied 
retrospectively. Early adoption is permitted, however, the Company did not elect to do so.

In April 2016, the IASB published clariﬁ cations to IFRS 15 which addresses three topics (identifying performance obligations, 
principle versus agent considerations, and licensing) as well as provides some transition relief for modiﬁ ed and completed 
contracts. The implementation timelines for these clariﬁ cations are consistent with IFRS 15.

The Company expects to adopt IFRS 15 in ﬁ scal 2019 on a full retrospective basis and does not expect the implementation to result 
in a signiﬁ cant adjustment to the Company’s consolidated ﬁ nancial statements.

(iii) Leases
In January 2016, the IASB issued IFRS 16, “Leases” (“IFRS 16”), which replaces IAS 17, “Leases” (“IAS 17”) and related interpretations. 
IFRS 16 introduces a balance sheet recognition and measurement model for lessees, eliminating the distinction between operating 
and ﬁ nance leases. Lessors will continue to classify leases as operating and ﬁ nance leases. The standard is effective for annual 
periods beginning on or after January 1, 2019. IFRS 16 allows for early adoption for companies that apply IFRS 15, but the Company 
does not intend to do so. For leases where the Company is the lessee, the IFRS 16 transition requirements provide the option 
of adopting a full retrospective approach or a modiﬁ ed retrospective approach with optional practical expedients available. 
The Company has performed preliminary modeling as part of its assessment of IFRS 16 transition approaches, and intends to 
adopt the standard on a modiﬁ ed retrospective basis. The Company continues to ﬁ nalize its approach on the use of the optional 
practical expedients.

The Company expects that the adoption of IFRS 16 will have a material impact on its consolidated ﬁ nancial statements, given the 
current operating lease commitments held under IAS 17 as a lessee. New assets and liabilities will be recognized on the balance 
sheet for the Company’s operating property and equipment leases. On the statement of earnings, the Company will replace the 
current straight-line lease expense recognized in operating expenses with depreciation for right-of-use assets and ﬁ nance expense 
on lease liabilities. The presentation of lease related cash ﬂ ows on the statement of cash ﬂ ows will also change, with no change to 
the amount of cash exchanged as part of the underlying lease transaction. 

The Company continues to evaluate the impact of this standard on its consolidated ﬁ nancial statements. 

(iv) Investments in Associates and Joint Ventures
In October 2017, the IASB issued an amendment to IAS 28 “Investments in associates and joint ventures” to clarify that an entity 
must apply IFRS 9 to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint 
venture where the equity method is not applied. The amendment is effective for annual periods beginning on or after January 1, 
2019. The Company is assessing the potential impact of this amendment.

26

Annual Report 2018

(v) Annual Improvements 2015–2017
The IASB issued amendments to IFRS 3 “Business combinations”, IFRS 11 “Joint arrangements”, IAS 12 “Income taxes” and IAS 23 
“Borrowing costs” in December 2017. These amendments are effective for annual periods beginning on or after January 1, 2019. 
The Company is assessing the potential impacts of these amendments.

Critical Accounting Estimates

The preparation of consolidated ﬁ nancial statements, in conformity with generally accepted accounting principles (“GAAP”), 
requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated 
ﬁ nancial statements and accompanying notes. 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 beneﬁ ts, stock-based 
compensation, estimates of 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 ﬁ nancial statements. These estimates are based on management’s best knowledge of current events and 
actions the Company may undertake in the future. Management regularly evaluates the estimates and assumptions it uses. Actual 
results could differ from these estimates.

Impairments of Goodwill and Long-Lived Assets
Management assesses impairment of non-ﬁ nancial assets such as investments in associates and joint ventures, goodwill, intangible 
assets, property and equipment, and investment property. In assessing impairment, management estimates the recoverable 
amount of each asset or cash-generating unit (“CGU”) based on expected future cash ﬂ ows. When measuring expected future cash 
ﬂ ows, management makes assumptions about future growth of proﬁ ts which relate to future events and circumstances. Actual 
results could vary from these estimated future cash ﬂ ows. Estimation uncertainty relates to assumptions about future operating 
results and the application of an appropriate discount rate. 

Goodwill is subject to impairment testing on an annual basis. The Company performed its annual assessment of goodwill 
impairment during its third quarter. However, if indicators of impairment are present, the Company will review goodwill for 
impairment when such indicators arise. In addition, at each reporting period, the Company reviews whether there are indicators that 
the recoverable amount of long-lived assets may be less than their carrying amount. 

Goodwill and long-lived assets were reviewed for impairment by determining the recoverable amount of each CGU or groups of 
CGUs to which the goodwill or long-lived assets relate. Management estimated the recoverable amount of the CGUs based on the 
higher of value-in-use (“VIU”) and fair value less costs of disposal (“FVLCD”). The VIU calculations are based on expected future 
cash ﬂ ows. When measuring expected future cash ﬂ ows, management makes key assumptions about future growth of proﬁ ts which 
relate to future events and circumstances. Estimation uncertainty relates to assumptions about future operating results and the 
application of an appropriate discount rate. Actual results could vary from these estimates which may cause signiﬁ cant adjustments 
to the Company’s goodwill or long-lived assets in subsequent reporting periods.

Pension Beneﬁ t Plans and Other Beneﬁ t Plans
The cost of the Company’s pension beneﬁ ts for deﬁ ned contribution plans are expensed at the time active employees are 
compensated. The cost of deﬁ ned beneﬁ t pension plans and other beneﬁ t 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 salary escalation, 
retirement ages, and expected growth rate of health care costs. 

Current market values are used to value beneﬁ t plan assets. The obligation related to employee future beneﬁ ts 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.

To the extent that plan amendments increase the obligation related to past service, the Company will recognize a past service cost 
immediately as an expense.

In measuring its deﬁ ned beneﬁ t liability, the Company will recognize all of its actuarial gains and losses immediately into other 
comprehensive income. The key assumptions are disclosed in Note 17 of the Company’s consolidated ﬁ nancial statements.

Income Taxes 
Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to temporary 
differences between the ﬁ nancial 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 

27

Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

deferred income taxes requires management to make estimates and assumptions and to exercise a certain amount of judgment. 
The ﬁ nancial 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 ﬁ lings 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. Signiﬁ cant estimation or judgment is required in the 
determination of (i) estimated inventory provisions associated with vendor allowances and internal charges; (ii) estimated inventory 
provisions due to spoilage and shrinkage occurring between the last physical inventory count and the balance sheet dates; and (iii) 
inventories valued at retail and adjusted to cost. 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. 

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 beneﬁ ts 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 reﬂ ects the current market assessments of 
the time value of money and the risks speciﬁ c to the liability, if material. 

Business Acquisitions
For business acquisitions, the Company applies judgment on the recognition and measurement of assets and liabilities assumed 
and estimates are utilized to calculate and measure such adjustments. In measuring the fair value of an acquiree’s assets and 
liabilities, management uses estimates about future cash ﬂ ows and discount rates. Any measurement changes after initial 
recognition would affect the measurement of goodwill, except for deferred taxes. 

Supply Agreements
The Company has various long-term supply agreements for products, some of which contain minimum volume purchases. 
Signiﬁ cant estimation and judgment is required in the determination of (i) future operating results; and (ii) forecasted purchase 
volumes. When measuring whether a provision is required based on the expected future cash ﬂ ows associated with fulﬁ lling the 
contract, management makes assumptions which relate to future events and circumstances. Actual results could vary from these 
estimated future cash ﬂ ows.

Disclosure Controls and Procedures

Management of the Company, which includes the President & Chief Executive Ofﬁ cer (“CEO”) and Chief Financial Ofﬁ cer (“CFO”), 
is responsible for establishing and maintaining Disclosure Controls and Procedures (“DC&P”) to provide reasonable assurance that 
material information relating to the Company is made known to management by others, particularly during the period in which the 
annual ﬁ lings are being prepared, and that information required to be disclosed by the Company and its annual ﬁ lings, interim 
ﬁ lings and other reports ﬁ led or submitted by it under securities legislation is recorded, processed, summarized and reported within 
the time periods speciﬁ ed in securities legislation. The CEO and CFO have evaluated the effectiveness of the Company’s DC&P 
and, based on that evaluation, the CEO and CFO have concluded that the Company’s DC&P was effective as at May 5, 2018 and that 
there were no material weaknesses relating to the design or operation of the DC&P.

Internal Control Over Financial Reporting 

Management of the Company, which includes the CEO and CFO, is responsible for establishing and maintaining Internal Control 
over Financial Reporting (“ICFR”), as that term is deﬁ ned in National Instrument 52-109, “Certiﬁ cation of Disclosure in Issuers’ 
Annual and Interim Filings.” The control framework management used to design and assess the effectiveness of ICFR is “Internal 
Control Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission. 
The CEO and CFO have evaluated the effectiveness of the Company’s ICFR and, based on that evaluation, the CEO and CFO 
have concluded that the Company’s ICFR was effective as at May 5, 2018 and that there were no material weaknesses relating 
to the design or operation of the ICFR.

There have been no changes in the Company’s ICFR during the period beginning February 4, 2018 and ended May 5, 2018 that 
have materially affected, or are reasonably likely to materially affect, the Company’s ICFR.

28

Annual Report 2018

RELATED PARTY TRANSACTIONS
The Company has related party transactions with Crombie REIT and key management personnel. The Company holds a 41.5 percent 
ownership interest in Crombie REIT and accounts for its investment using the equity method.

The Company leased certain real property from Crombie REIT during the year at amounts which in management’s opinion 
approximate fair market value that would be incurred if leased from a third party. Management has determined these amounts to 
be fair value based on the signiﬁ cant number of leases negotiated with third parties in each market it operates. The aggregate net 
payments under these leases, which are measured at exchange amounts, totaled approximately $199.7 million (2017 – $195.8 million).

Crombie REIT provides administrative and management services to the Company on a fee for service basis pursuant to a 
Management Agreement effective January 1, 2016. The Management Agreement replaces the previous arrangement where charges 
incurred were on a cost recovery basis.

On July 4, 2017, Crombie REIT redeemed its 5.00% Series D Convertible Unsecured Subordinate Debentures. In exchange for its 
investment in the Series D convertible debentures, the Company received $24.3 million in principal and interest payments. There 
was no gain or loss recognized on the redemption. During the year ended May 5, 2018, the Company received interest from 
Crombie REIT of $0.2 million (2017 – $1.2 million).

On April 6, 2018, Sobeys and its wholly-owned subsidiaries entered into an agreement with Crombie REIT to sell a portfolio of 
1 properties, nine of which were leased back. Total cash proceeds to the Company and its wholly-owned subsidiaries from this 
transaction were $88.1 million, resulting in a pre-tax gain of $13.2 million.

On September 29, 2017, Sobeys sold a property to Crombie REIT for cash consideration of $6.4 million. This resulted in a pre-tax 
gain of $0.2 million.

On June 29, 2016, Sobeys and its wholly-owned subsidiaries entered into an agreement with Crombie REIT to sell and leaseback a 
portfolio of 19 retail properties and a 50 percent interest in each of its three automated distribution centres, as well as the sale of 
two parcels of development land which were previously owned by Empire. Crombie REIT also invested approximately $58.8 million 
in renovations or expansions of ten Sobeys retail locations already in Crombie REIT’s portfolio. In addition to cash, Crombie REIT 
issued to a subsidiary of the Company $93.4 million in value of Crombie Limited Partnership (“CLP”) Class B units with attached 
Crombie REIT special voting units at a price of $14.70 per unit. The subsidiary of the Company subsequently sold its CLP Class B 
units to Empire on a tax deferred basis. Total cash proceeds to the Company and its wholly-owned subsidiaries from these 
transactions with Crombie REIT and Empire were $323.8 million, resulting in a pre-tax loss of $0.8 million. Proceeds from the 
transactions were used to repay the senior unsecured notes. 

On July 29, 2016, Sobeys, through a wholly-owned subsidiary, sold and leased back an additional property from Crombie REIT for 
cash consideration of $26.4 million. This resulted in a pre-tax gain of $2.1 million. Sobeys also purchased one property from Crombie 
REIT for $9.1 million.

During ﬁ scal 2014, Sobeys entered into a loan agreement with Crombie REIT to partially ﬁ nance Sobeys’ acquisition of a property 
in British Columbia. The $11.9 million loan bore interest at a rate of 6.0 percent and had no principal repayments. On May 5, 2017, 
Sobeys sold the property to Crombie REIT for cash consideration of $31.1 million, resulting in a pre-tax gain of $1.0 million. Proceeds 
from the transaction were used to repay the loan.

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 is comprised of:

($ in millions) 

Salaries, bonus and other short-term employment beneﬁ ts 
Post-employment beneﬁ ts 
Termination beneﬁ ts 
Share-based payments 

52 Weeks Ended

May 5, 2018 

May 6, 2017

$ 

$ 

13.3 
1.5 
0.8 
9.8 

25.4 

$ 

$ 

9.7
1.6
8.7
14.8

34.8

Indemnities

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

29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

CONTINGENCIES 
The Company is subject to claims and litigation arising out of the ordinary course of business operations. The Company’s 
management does not consider the exposure to such litigation to be material.

In the ordinary course of business, the Company is subject to ongoing audits by tax authorities. While the Company believes that 
its tax ﬁ ling 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. 

Project Sunrise
On May 4, 2017, the Company announced a major transformation initiative to streamline the organization and enhance the efﬁ ciency 
of its operations. Failure to execute change management during this transition could result in disruptions to the operations of the 
business or the ability of the Company to implement and achieve its long-term strategic objectives. The implementation of a major 
transformation initiative has the ability to create labour strife, negative publicity and business disruption. 

There is the risk that the Company will not realize the $500.0 million in annualized savings by the completion of the three year 
reorganization in 2020. 

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, warehouse clubs, and online retailers, 
represent a competitive risk to Sobeys’ ability to attract customers and operate proﬁ tably in its markets.

Sobeys maintains a strong national presence in the Canadian retail food and food distribution industry, operating in over 900 
communities in Canada. The most signiﬁ cant risk to Sobeys is the potential for reduced revenues and proﬁ t margins as a result of 
increased competition. A failure to maintain geographic diversiﬁ cation to reduce the effects of localized competition could have 
an adverse impact on Sobeys’ operating margins and results of operations. To successfully compete, Sobeys believes it must be 
customer and market driven, be focused on superior execution and have efﬁ cient, cost-effective operations. It also believes it must 
invest in its existing store network, as well as its merchandising, marketing and operational execution to evolve its strategic platform 
to better meet the needs of consumers looking for more affordable, better food options. The Company further believes it must 
invest in merchandising initiatives to better forecast and respond to changing consumer trends. Any failure to successfully execute 
in these areas could have a material adverse impact on Sobeys’ ﬁ nancial results.

Empire’s real estate operations, 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 the Company’s ﬁ nancial results and cash ﬂ ows. A failure by 
Crombie REIT to maintain strategic relationships with developers to ensure an adequate supply of prospective attractive properties 
or to maintain strategic relationships with existing and potential tenants to help achieve high occupancy levels at each of its 
properties could adversely affect the Company.

Product 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, including pharmaceuticals. 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 signiﬁ cant 
outbreak of food-borne illness or increased public health concerns in connection with certain food products. Such an event 
could materially affect Sobeys’ ﬁ nancial performance. Procedures are in place to manage food crises, should they occur. These 
procedures are intended to identify risks, provide clear communication to employees and consumers and ensure that potentially 
harmful products are removed from sale 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. However, there can be no assurance that such measures will prevent the occurrence of any such 
contamination, and insurance may not be sufﬁ cient to cover any resulting ﬁ nancial liability or reputational harm.

30

Annual Report 2018

Drug Regulation, Legislation and Healthcare Reform
The Company currently operates 352 in-store pharmacies and 74 freestanding pharmacies which are subject to federal, provincial, 
territorial and local legislation as well as regulations governing the sale of prescription drugs. Changes or failure to comply with 
these laws and regulations could have a negative impact on operations, ﬁ nancial performance and reputation. These laws and 
regulations typically regulate prescription drug coverage for public plans including patient and product eligibility as well as 
elements of drug pricing and reimbursements including product cost, markup, dispensing fee, distribution allowances and in some 
provinces the ability to negotiate manufacturers allowances. In some provinces, legislation requires the selling price for prescription 
drugs to third-party insurance plans and cash customers will not be higher than the price established for the provincial drug plan. In 
addition to reimbursement, these laws and regulations govern drug approval and distribution, allowable packaging and labeling, 
marketing, handling, storage and disposal.

In ﬁ scal 2018, provincial governments and private plans continued to implement measures to manage the cost of their drug plans, 
the impact of which varied by province and by plan. The most signiﬁ cant of these measures implemented April 1, 2018 was the 
signiﬁ cant price reduction of almost 70 high volume generic drugs which was the result of an agreement between the pan-Canadian 
Pharmaceutical Alliance and the Canadian Generic Pharmaceutical Association on behalf of the federal, provincial and territorial 
drug plans. The Council of the Federation, a joint collaboration created by the provincial premiers continues to work on cost 
reduction initiatives within the pharmaceutical sector. In the fall of 2017, actions by the Alberta College of Pharmacy resulted 
in a ban on the ability of pharmacies to offer inducements on prescription drugs. 

It is anticipated that healthcare reform and regulation will continue to put pressure on pharmacy reimbursement through changes 
to patient and drug eligibility, prescription drug pricing including cost, dispensing fee, allowable markup, manufacturer allowance 
funding, distribution as well as potential restriction around customer inducements. The Company has and will continue to identify 
opportunities to mitigate the negative impact these changes have on ﬁ nancial performance. 

Free Trade
The Company is susceptible to risks associated with trade relationships between Canada and other countries including the United 
States. Changes to trade agreements and tariffs between Canada and other countries could increase the costs of certain products 
and some items could become unavailable thereby having a negative impact on customer experience. While the Company can 
mitigate these risks to a certain extent through the use of alternative suppliers, international trade by its nature can be 
unpredictable and the Company may not be able to fully mitigate the negative impact of changes in trade agreements and tariffs.

Loyalty Program
The Company utilizes a third-party loyalty program to provide additional value to customers. The decisions made by the third party 
can adversely affect the reputation and ﬁ nancial operations of the Company. Promotional and other activities related to possible 
changes in the loyalty programs must be effectively managed and coordinated to ensure a positive customer perception. Failure 
to effectively manage and communicate changes to the loyalty program may negatively impact the Company’s reputation.

Human Resources
A signiﬁ cant percentage of the Company’s store and distribution centre workforce, particularly in Western Canada, is unionized. 
While overall the Company has and works to maintain good relationships with its employees and unions, the renegotiation of 
collective agreements always presents the risk of labour disruption. The Company has consistently stated it will accept the short-
term costs of labour disruption to support a commitment to building and sustaining a competitive cost structure for the long term. 
Any prolonged or widespread work stoppages or other labour disputes could have an adverse impact on the Company’s 
ﬁ nancial results.

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 identiﬁ ed for key roles including the 
depth of management talent throughout the Company and its subsidiaries; these plans are overseen by the Human Resources 
Committee and reviewed at least annually by the Board of Directors.

Workplace health and safety is a top priority for the Company, which has robust programs and reporting mechanisms in place 
designed to ensure regulatory compliance and mitigate the risks associated with workplace injury and illness.

Recent announcements of minimum wage increases in several provinces will have an impact on labour costs and the labour force 
of the Company.

31

Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

Operations
The success of Empire is closely tied to the performance of Sobeys’ network of retail stores. Franchisees and afﬁ liates operate 
approximately 52 percent of Sobeys’ retail stores. Sobeys relies on its franchisees, afﬁ liates 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, franchisees 
and afﬁ liates agree 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 speciﬁ ed under franchise and operating agreements 
which expire at various times for individual franchisees and afﬁ liates. Despite these franchise and operating agreements, Sobeys 
may have limited ability to control a franchisees’ and afﬁ liates’ business operations. A breach of these franchise and operating 
agreements or operational failures by a signiﬁ cant number of franchisees and afﬁ liates may adversely affect Sobeys’ reputation 
and ﬁ nancial performance.

Technology
The Company operates extensive and complex information technology systems that are vital to the successful operation of its 
business and marketing strategies. Any interruption to these systems or the information collected by them would have a signiﬁ cant 
adverse impact on the Company, its operations and its ﬁ nancial results. The Company is committed to improving its operating 
systems, tools and procedures in order to become more efﬁ cient and effective. The implementation of major information 
technology projects carries with it various risks, including the risk of realization of functionality.

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 or inappropriate access to information could lead to incorrect ﬁ nancial and/or 
operational reporting, poor decisions, privacy breaches or inappropriate disclosure or leaks of sensitive information. Gathering and 
analyzing information regarding customers’ purchasing preferences is an important part of the Company’s strategy to attract and 
retain customers and effectively compete. Any failure to maintain privacy of customer information or to comply with applicable 
privacy laws or regulations could adversely affect the Company’s reputation, competitive position and results of operations.

The Company recognizes that information is a critical enterprise asset. Currently, the information management risk is 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.

Supply Chain
The Company is exposed to potential supply chain disruptions and errors that could result in obsolete merchandise or an excess 
or shortage of merchandise in its retail store network. A failure to implement and maintain effective supplier selection and 
procurement practices could adversely affect Sobeys’ ability to deliver desired products to customers and adversely affect the 
Company’s ability to attract and retain customers. A failure to maintain an efﬁ cient supply and logistics chain may adversely affect 
Sobeys’ ability to sustain and meet growth objectives and maintain margins.

Product Costs
Sobeys is a signiﬁ cant purchaser of food product which is at risk of cost inﬂ ation given rising commodity prices and other costs of 
production to food manufacturers. Should rising costs of product materialize in excess of expectations and should Sobeys not be 
able to offset such cost inﬂ ation through higher retail prices or other cost savings, there could be a negative impact on sales and 
margin performance.

Economic Environment
Management continues to closely monitor economic conditions, including foreign exchange rates, interest rates, inﬂ ation, 
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 sufﬁ cient to meet its ongoing business requirements.

Liquidity Risk
The Company’s business is dependent in part on having access to sufﬁ cient capital and ﬁ nancial resources to fund its growth 
activities and investment in operations. Any failure to maintain adequate ﬁ nancial resources could impair the Company’s growth or 
ability to satisfy ﬁ nancial obligations as they come due. The Company actively maintains committed credit facilities to ensure that it 
has sufﬁ cient available funds to meet current and foreseeable future ﬁ nancial requirements. The Company monitors capital markets 
and the related economic conditions and maintains access to debt capital markets for long-term debt issuances as deemed prudent 
in order to minimize risk and optimize pricing. However, there can be no assurance that adequate capital resources will be available 
in the future on acceptable terms or at all.

Interest Rate Fluctuation
The Company’s long-term debt objective is to maintain the majority of its debt at ﬁ xed interest rates. Any increase in the applicable 
interest rates could increase interest expense and have a material adverse effect on the Company’s cash ﬂ ow and results of 
operations. There can be no assurance that risk management strategies, if any, undertaken by the Company will be effective.

32

Annual Report 2018

Business Continuity
The Company may be subject to unexpected events and natural hazards, including severe weather events, interruption of utilities 
and infrastructure or occurrence of pandemics, which could cause sudden or complete cessation of its day to day operations. The 
Company has worked with industry and government sources to develop preparedness plans. However, no such plan can eliminate 
the risks associated with events of this magnitude. Any failure to respond effectively or appropriately to such events could adversely 
affect the Company’s operations, reputation and ﬁ nancial results.

Insurance
The Company and its subsidiaries are self-insured on a limited basis with respect to certain operational risks and also purchase 
excess insurance coverage from ﬁ nancially stable third-party insurance companies. In addition to maintaining comprehensive loss 
prevention programs, the Company maintains management programs to mitigate the ﬁ nancial impact of operational risks. Such 
programs may not be effective to limit the Company’s exposure to these risks, and to the extent that the Company is self-insured 
or liability exceeds applicable insurance limits, the Company’s ﬁ nancial position could be adversely affected.

Ethical Business Conduct
Any failure of the Company to adhere to its policies, the law or ethical business practices could signiﬁ cantly affect its reputation 
and brands and could therefore negatively impact the Company’s ﬁ nancial 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 the Company maintains an anonymous, conﬁ dential 
whistle blowing hotline. There can be no assurance that these measures will be effective to prevent violations of law or ethical 
business practices.

Environmental
The Company operates its business locations across the country, including numerous fuel stations. Each of these sites has the 
potential to experience environmental contamination or other issues as a result of the Company’s operations or the activities of 
third parties, including neighbouring properties.

When environmental issues are identiﬁ ed, any required environmental site remediation is completed using appropriate, qualiﬁ ed 
internal and external resources. The Company may be required to absorb all costs associated with such remediation, which may 
be substantial.

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 ﬁ nancial and operational impacts 
to the Company in future years.

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

Real Estate
The Company utilizes a capital allocation process which is focused on obtaining the most attractive real estate locations for its retail 
stores, as well as for its commercial property and residential development operations, with direct or indirect Company ownership 
being an important, but not overriding, consideration. The Company 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 the ability to expand existing stores are therefore in large part contingent upon the successful negotiation of 
operating leases with these developers and the Company’s ability to purchase high potential sites.

Legal, Taxation and Accounting
Changes to any of the various federal and provincial laws, rules and regulations related to the Company’s business could have a 
material impact on its ﬁ nancial results. Compliance with any proposed changes could also result in signiﬁ cant cost to the Company. 
Failure to fully comply with various laws and 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 and 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 ﬁ ling positions are appropriate and supportable, from 
time to time certain matters are reviewed and challenged by the tax authorities.

33

Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

Utility and Fuel Prices
The Company is a signiﬁ cant consumer of electricity, other utilities and fuel. The costs of these items have been subject to 
signiﬁ cant volatility. Unanticipated cost increases in these items could negatively affect the Company’s ﬁ nancial performance. 
A failure to maintain effective consumption and procurement programs could adversely affect the Company’s ﬁ nancial results. 
In addition, Sobeys operates a large number of fuel stations. Signiﬁ cant increases in wholesale prices or availability could 
adversely affect operations and ﬁ nancial results of the fuel retailing business.

Credit Rating
There can be no assurance that the credit ratings assigned to the various debt instruments issued by Sobeys will remain in effect for 
any given period of time or that the rating will not be lowered, withdrawn or revised by DBRS or S&P at any time. Real or anticipated 
changes in credit ratings can affect the cost at which Sobeys can access the capital markets. The likelihood that Sobeys’ creditors 
will receive payments owing to them will depend on Sobeys’ ﬁ nancial health and creditworthiness. Credit ratings assigned by a 
ratings agency provide an opinion of that ratings agency on the risk that an issuer will fail to satisfy its ﬁ nancial obligations in 
accordance with the terms under which an obligation has been issued. Receipt of a credit rating provides no guarantee of Sobeys’ 
future creditworthiness.

Foreign Currency
The Company conducts the majority of its operating business in CAD and its foreign exchange risk is mainly limited to currency 
ﬂ uctuations between the CAD, the Euro and the USD. USD purchases of products represent approximately 4.1 percent of Sobeys’ 
total annual purchases. Euro purchases are primarily limited to speciﬁ c contracts for capital expenditures. A failure to adequately 
manage the risk of exchange rate changes could adversely affect the Company’s ﬁ nancial results.

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 of Directors’ review of signiﬁ cant capital 
allocation decisions.

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

Foreign Operations
The Company has certain foreign operations. The Company’s foreign operations are limited to a produce sourcing operation and 
residential real estate partnerships based in the United States.

Pension Plans
The Company has certain retirement beneﬁ t obligations under its registered deﬁ ned beneﬁ t plans. New regulations and market-
driven changes may result in the Company being required to make contributions that differ from estimates, which could have an 
adverse affect on the ﬁ nancial performance of the Company.

The Company participates in various multi-employer pension plans, providing pension beneﬁ ts to unionized employees pursuant 
to provisions in collective bargaining agreements. Approximately 16 percent of the employees of Sobeys and its franchisees and 
afﬁ liates participate in these plans. The responsibility of Sobeys, its franchisees, and afﬁ liates to make contributions to these plans 
is limited to the amounts established in the collective bargaining agreements and other associated agreements, however poor 
performance of these plans could have a negative effect on the participating employees or could result in changes to the terms 
and conditions of participation in these plans, which in turn could negatively affect the ﬁ nancial performance of the Company.

Leverage Risk
The Company’s degree of leverage, particularly since the increases to long-term debt facilities to complete the Canada Safeway 
acquisition, could have adverse consequences for the Company. These include limiting the Company’s ability to obtain additional 
ﬁ nancing for working capital and activities such as capital expenditures, product development, debt service requirements, and 
acquisitions. Higher leveraging restricts the Company’s ﬂ exibility and discretion to operate its business by limiting the Company’s 
ability to declare dividends due to having to dedicate a portion of the Company’s cash ﬂ ows from operations to the payment of 
interest on its existing indebtedness. Utilizing cash ﬂ ows for interest payments also limits capital available for other purposes 
including operations, capital expenditures and future business opportunities. Increased levels of debt expose the Company to 
increased interest expense on borrowings at variable rates thereby limiting the Company’s ability to adjust to changing market 
conditions. This could place the Company at a competitive disadvantage compared to its competitors that have less debt, by 
making the Company vulnerable during downturns in general economic conditions and limiting the Company’s ability to make 
capital expenditures that are important to its growth and strategies.

34

Annual Report 2018

DESIGNATION FOR ELIGIBLE DIVIDENDS 
“Eligible dividends” receive favourable treatment for income tax purposes. To be considered 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.

NON-GAAP FINANCIAL MEASURES & FINANCIAL METRICS
There are measures and metrics included in this MD&A that do not have a standardized meaning under GAAP and therefore may 
not be comparable to similarly titled measures and metrics presented by other publicly traded companies. Management believes 
that certain of these measures and metrics, including gross proﬁ t and EBITDA, are important indicators of Empire’s ability to 
generate liquidity through operating cash ﬂ ow to fund future working capital requirements, service outstanding debt and fund 
future capital expenditures and uses these metrics for these purposes. 

In addition, management adjusts measures and metrics, including EBITDA and net earnings in an effort to provide investors and 
analysts with a more comparable year-over-year performance metric than the basic measure by excluding certain items. These items 
may impact the analysis of trends in performance and affect the comparability of the Company’s core ﬁ nancial results. By excluding 
these items, management is not implying they are non-recurring.

Financial Measures

The intent of non-GAAP Financial Measures is to provide additional useful information to investors and analysts. Non-GAAP 
Financial Measures should not be considered in isolation or used as a substitute for measures of performance prepared in 
accordance with GAAP. The Company’s deﬁ nitions of the non-GAAP terms included in this MD&A are as follows: 

•   Gross proﬁ t is calculated as sales less cost of sales. 

•   Adjusted operating income is operating income excluding certain items to better analyze trends in performance. These 

adjustments result in a truer economic representation on a comparative basis. The Company no longer adjusts for items that are 
insigniﬁ cant to current period results or the comparative period. Adjusted operating income is reconciled to operating income in 
its respective subsection of the “Summary Results – Fourth Quarter” and “Operating Results – Full Year” sections. Adjusted 
operating income for the Food Retailing Segment is reconciled to operating income in the “Food Segment Reconciliations” 
section of this MD&A.

•   Earnings before interest, taxes, depreciation and amortization (“EBITDA”), is calculated as net earnings, before ﬁ nance costs 
(net of ﬁ nance income), income tax expense, depreciation and amortization of intangibles. The exclusion of depreciation and 
amortization of intangibles partially eliminates the non-cash impact from operating income.

The following table reconciles net earnings to EBITDA:

($ in millions) 

Net earnings 
Income tax expense 
Finance costs, net 

Operating income 
Depreciation  
Amortization of intangibles 

EBITDA 

13 Weeks Ended  

52 Weeks Ended

May 5, 2018 

May 6, 2017 

May 5, 2018 

May 6, 2017

$ 

$ 

73.5 
11.7 
25.4 

110.6 
85.6 
21.6 

217.8 

$ 

$ 

32.3 
1.4 
27.7 

61.4 
88.6 
21.7 

$ 

179.8 
56.2 
110.5 

346.5 
351.8 
87.4 

$ 

171.7 

$ 

785.7 

$ 

172.5
42.5
118.0

333.0
355.5
88.7

777.2

•   Adjusted EBITDA is EBITDA excluding certain items to better analyze trends in performance. These adjustments result in a truer 

economic representation on a comparative basis. The Company no longer adjusts for items that are insigniﬁ cant to current 
period results or the comparative period. Adjusted EBITDA is reconciled to EBITDA in its respective subsection of the “Summary 
Results – Fourth Quarter” and “Operating Results – Full Year” sections. Adjusted EBITDA for the Food Retailing Segment is 
reconciled to EBITDA in the “Food Segment Reconciliations” section of this MD&A.

•   Management calculates interest expense as interest expense on ﬁ nancial liabilities measured at amortized cost plus losses on 

cash ﬂ ow hedges reclassiﬁ ed from other comprehensive income or losses. Management believes that interest expense 
represents a true measure of the Company’s debt service expense, without the offsetting total ﬁ nance income.

35

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

The following table reconciles ﬁ nance costs, net to interest expense:

($ in millions) 

May 5, 2018 

May 6, 2017 

May 5, 2018 

May 6, 2017

13 Weeks Ended  

52 Weeks Ended

Finance costs, net 
Plus: ﬁ nance income 
Less: net pension ﬁ nance costs 
Less: accretion expense on provisions 

Interest expense 

$ 

$ 

25.4 
2.3 
(3.2) 
(2.9) 

$ 

27.7 
1.0 
(2.9) 
(0.3) 

$ 

110.5 
6.0 
(11.9) 
(7.7) 

118.0
6.1
(11.5)
(9.5)

$ 

21.6 

$ 

25.5 

$ 

96.9 

$ 

103.1

•   Adjusted net earnings are net earnings, net of non-controlling interest, excluding certain items to better analyze trends in 

performance and ﬁ nancial results. These adjustments result in a truer economic representation of the underlying business on a 
comparative basis. The Company no longer adjusts for items that are insigniﬁ cant to current period results or the comparative 
period. Adjusted net earnings is reconciled to net earnings in its respective subsection of the “Summary Results – Fourth 
Quarter” and “Operating Results – Full Year” sections. Adjusted net earnings for the Food Retailing Segment is reconciled 
to net earnings in the “Food Segment Reconciliations” section of this MD&A.

•   Adjusted EPS (fully diluted) is calculated as adjusted net earnings divided by diluted weighted average number of shares 

outstanding.

•   Free cash ﬂ ow is calculated as cash ﬂ ows from operating activities, plus proceeds on disposal of property, equipment and 
investment property, less property, equipment and investment property purchases. Management uses free cash ﬂ ow as a 
measure to assess the amount of cash available for debt repayment, dividend payments and other investing and ﬁ nancing 
activities. Free cash ﬂ ow is reconciled to GAAP measures as reported on the consolidated statements of cash ﬂ ows, and is 
presented in the “Free Cash Flow” section of this MD&A. 

•   Funded debt is all interest bearing debt, which includes bank loans, bankers’ acceptances and long-term debt. Management 

believes that funded debt represents the best indicator of the Company’s total ﬁ nancial obligations on which interest payments 
are made.

•   Net funded debt is calculated as funded debt less cash and cash equivalents. Management believes that the deduction of cash 
and cash equivalents from funded debt represents a more accurate measure of the Company’s ﬁ nancial obligations after 100% 
of cash and cash equivalents are applied against the total obligation.

•   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. 

The following tables reconcile the Company’s funded debt, net funded debt, net total capital and total capital to GAAP measures 
as reported on the balance sheets as at May 5, 2018, May 6, 2017 and May 7, 2016, respectively:

($ in millions) 

Long-term debt due within one year  
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 

May 5, 2018 

May 6, 2017 

May 7, 2016(1)(2)

$ 

527.4 
1,139.5 

$ 

1,666.9 
(627.9) 

1,039.0 
3,702.8 

134.0 
1,736.8 

1,870.8 
(207.3) 

1,663.5 
3,644.2 

$ 

350.4
2,017.0

2,367.4
(264.7)

2,102.7
3,623.9

$  4,741.8 

$ 

5,307.7 

$ 

5,726.6

May 5, 2018 

May 6, 2017 

May 7, 2016(1)(2)

$  1,666.9 
3,702.8 

$ 

1,870.8 
3,644.2 

$ 

2,367.4
3,623.9

$  5,369.7 

$ 

5,515.0 

$ 

5,991.3

(1)  Amounts have been reclassiﬁ ed to correspond to the current period presentation on the consolidated balance sheets.
(2) Amounts have been restated. See “Changes to Accounting Policies Adopted During Fiscal 2017” section of the ﬁ scal 2017 annual MD&A for further detail.

36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

Food Segment Reconciliations 

The following tables adjust Sobeys’ contributed operating income, EBITDA, and net earnings, net of non-controlling interest, for 
items which are considered not indicative of underlying business operating performance:

52 Weeks Ended

May 5, 2018 

May 6, 2017 

$ Change

$ 

273.6 

$ 

259.3 

$ 

14.3

($ in millions) 

Operating income 

Adjustments:
  Costs related to Project Sunrise 

Intangible amortization associated with the Canada Safeway acquisition 

  West business unit store closures  
  Distribution centre restructuring   
  Gain on disposal of manufacturing facilities 
  Historical organizational realignment costs 
  Network rationalization reversals   

Adjusted operating income 

$ 

528.8 

$ 

304.8 

$ 

52 Weeks Ended

May 5, 2018 

May 6, 2017 

$ Change

$ 

712.5 

$ 

703.2 

$ 

9.3

($ in millions) 

EBITDA 

Adjustments: 
  Costs related to Project Sunrise 
  West business unit store closures  
  Distribution centre restructuring   
  Gain on disposal of manufacturing facilities 
  Historical organizational realignment costs 
  Network rationalization reversals   

Adjusted EBITDA 

$ 

941.5 

$ 

722.9 

$ 

52 Weeks Ended

May 5, 2018 

May 6, 2017 

$ Change

$ 

116.5 

$ 

112.7 

$ 

3.8

($ in millions) 

Net earnings 

Adjustments: 
  Costs related to Project Sunrise 

Intangible amortization associated with the Canada Safeway acquisition 

  West business unit store closures  
  Distribution centre restructuring   
  Gain on disposal of manufacturing facilities 
  Historical organizational realignment costs 
  Network rationalization reversals   

Adjusted net earnings 

$ 

301.3 

$ 

145.5 

$ 

207.8 
26.2 
21.2 
– 
– 
– 
– 

255.2 

15.8 
25.8 
– 
9.6
(7.5) 
3.4 
(1.6) 

45.5 

207.8 
21.2 
– 
– 
– 
– 

229.0 

15.8 
– 
9.6 
(7.5) 
3.4 
(1.6) 

19.7 

150.1 
19.2 
15.5 
– 
– 
– 
– 

184.8 

11.3 
18.8 
– 
6.9 
(5.5) 
2.5 
(1.2)

32.8 

209.7

224.0

209.3

218.6

152.0

155.8

37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

MANAGEMENT’S DISCUSSION & ANALYSIS

Financial Metrics 

The intent of the following non-GAAP Financial Metrics is to provide additional useful information to investors and analysts. 
Management uses ﬁ nancial metrics for decision making, internal reporting, budgeting and forecasting. The Company’s deﬁ nitions 
of the metrics included in this MD&A are as follows:

•   Same-store sales are sales from stores in the same location in both reporting periods.

•   Gross margin is gross proﬁ t divided by sales. Management believes that gross margin is an important indicator of cost control 

and can help management, analysts and investors assess the competitive landscape and promotional environment of the industry 
in which the Company operates. An increasing percentage indicates lower cost of sales as a percentage of sales.

•   Adjusted interest coverage is calculated as adjusted operating income divided by interest expense.

•   Return on equity, as reported by Sobeys, is net earnings for the year attributable to owners of the parent, divided by average 

shareholder’s equity.

•   Funded debt to total capital ratio is funded debt divided by total capital.

•   Net funded debt to net total capital ratio is net funded debt divided by net total capital. Management believes that funded debt 
to total capital and net funded debt to net total capital ratios represent measures upon which the Company’s changing capital 
structure can be analyzed over time. Increasing ratios would indicate that the Company is using an increasing amount of debt in 
its capital structure to fund its operations.

•   Funded debt to adjusted EBITDA ratio is funded debt divided by trailing four-quarter adjusted EBITDA. Management uses this 
ratio to partially assess the ﬁ nancial condition of the Company. An increasing ratio would indicate that the Company is utilizing 
more debt per dollar of adjusted EBITDA generated.

•   Adjusted EBITDA to interest expense ratio is trailing four-quarter adjusted EBITDA divided by trailing four-quarter interest 
expense. Management uses this ratio to partially assess the coverage of its interest expense on ﬁ nancial obligations. An 
increasing ratio would indicate that the Company is generating more adjusted EBITDA per dollar of interest expense, resulting 
in greater interest coverage.

•   Book value per common share is shareholders’ equity, net of non-controlling interest, divided by total common shares outstanding. 

The following table shows the calculation of Empire’s book value per common share as at May 5, 2018, May 6, 2017 and May 7, 2016:

($ in millions, except per share information) 

Shareholders’ equity, net of minority interest 
Shares outstanding (basic) 

Book value per common share 

May 5, 2018 

May 6, 2017 

May 7, 2016(1)

$  3,702.8 
271.8 

$ 

13.62 

$ 

$ 

3,644.2 
271.9 

13.40 

$ 

$ 

3,623.9
273.9

13.23

(1)  Amounts have been restated. See “Changes to Accounting Policies Adopted During Fiscal 2017” section of the ﬁ scal 2017 annual MD&A for further detail.

Additional ﬁ nancial 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 ﬁ lings at www.sedar.com.

Approved by Board of Directors: June 27, 2018.
Stellarton, Nova Scotia, Canada

38

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

Consolidated 
Financial Statements

TABLE OF CONTENTS

Management’s Statement of 

  Responsibility for Financial Reporting 

Independent Auditor’s Report 

Consolidated Financial Statements 

  Consolidated Balance Sheets 

  Consolidated Statements of Earnings  

  Consolidated Statements of

  Comprehensive Income  

  Consolidated Statements of 

  Changes in Shareholders’ Equity  

  Consolidated Statements of 

  Cash Flows  

Notes to the Consolidated 

  Financial Statements  

40

41

42

42

 43

 44

 45

 46

 47

39

 
 
 
Empire Company Limited

MANAGEMENT’S STATEMENT OF RESPONSIBILIT Y FOR FINANCIAL REPORTING

Preparation of the consolidated ﬁ nancial statements accompanying this annual report and the presentation of all other information 
in the report is the responsibility of management. The consolidated ﬁ nancial statements have been prepared in accordance with 
International Financial Reporting Standards or Generally Accepted Accounting Principles and reﬂ ect management’s best estimates 
and judgments. 

All other ﬁ nancial information in the report is consistent with that contained in the consolidated ﬁ nancial 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 ﬁ nancial statements, the safeguarding of Company assets, and the prevention and detection 
of fraudulent ﬁ nancial reporting.

The Board of Directors, through its Audit Committee, oversees management in carrying out its responsibilities for ﬁ nancial 
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 ﬁ nancial management and external auditors to satisfy itself 
as to reliability and integrity of ﬁ nancial information and the safeguarding of assets. The Audit Committee reports its ﬁ ndings to 
the Board of Directors for consideration in approving the annual consolidated ﬁ nancial statements to be issued to shareholders.

The external auditors have full and free access to the Audit Committee.

signed “Michael Medline”  

signed “Michael Vels”

Michael Medline  
President and Chief Executive Ofﬁ cer 

Michael Vels
Chief Financial Ofﬁ cer

June 27, 2018  

June 27, 2018 

40

Annual Report 2018

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Empire Company Limited

We have audited the accompanying consolidated ﬁ nancial statements of Empire Company Limited and its subsidiaries, which 
comprise the consolidated balance sheets as at May 5, 2018 and May 6, 2017 and the consolidated statements of earnings, 
comprehensive income, changes in shareholders’ equity and cash ﬂ ows for the 52-week periods ended May 5, 2018 and May 6, 2017, 
and the related notes, which comprise a summary of signiﬁ cant accounting policies and other explanatory information.

Management’s responsibility for the consolidated ﬁ nancial statements 

Management is responsible for the preparation and fair presentation of these consolidated ﬁ nancial statements in accordance 
with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable 
the preparation of consolidated ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial statements 
are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated ﬁ nancial 
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material 
misstatement of the consolidated ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial statements. 

We believe that the audit evidence we have obtained in our audits is sufﬁ cient and appropriate to provide a basis for our 
audit opinion.

Opinion

In our opinion, the consolidated ﬁ nancial statements present fairly, in all material respects, the ﬁ nancial position of Empire Company 
Limited and its subsidiaries as at May 5, 2018 and May 6, 2017 and their ﬁ nancial performance and their cash ﬂ ows for the 52-week 
periods ended May 5, 2018 and May 6, 2017 in accordance with International Financial Reporting Standards.

signed “PricewaterhouseCoopers LLP”

Chartered Professional Accountants, 
Licensed Public Accountants

Halifax, Canada
June 27, 2018

41

Empire Company Limited

CONSOLIDATED BALANCE SHEET

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) 

Income taxes receivable 
  Assets held for sale (NOTE 6) 

Loans and other receivables (NOTE 5)  
Investments 
Investments, at equity (NOTE 7) 
Other assets (NOTE 8) 
Property and equipment (NOTE 9) 
Investment property (NOTE 10) 
Intangibles (NOTE 11)  
Goodwill (NOTE 12) 
Deferred tax assets (NOTE 13) 

LIABILITIES 
Current 
  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) 
Employee future beneﬁ ts (NOTE 17) 
Deferred tax liabilities (NOTE 13)  

SHAREHOLDERS’ EQUITY
Capital stock (NOTE 18) 
Contributed surplus 
Retained earnings 
Accumulated other comprehensive income 

Non-controlling interest 

See accompanying notes to the consolidated ﬁ nancial statements.

On Behalf of the Board

signed “James Dickson” 

signed “Michael Medline”

James Dickson 
Director 

Michael Medline
Director

42

May 5, 2018 

May 6, 2017

$ 

627.9 
433.2 
1,251.6 
126.8 
20.9 
15.2 
20.4 

2,496.0 

80.6 
– 
571.8 
34.1 
2,787.3 
93.9 
842.0 
1,001.9 
754.4 

$ 

207.3
413.6
1,322.2
117.5
25.5
31.9
48.5

2,166.5

82.1
25.1
648.4
43.3
3,033.3
103.0
880.5
1,003.4
709.9

$  8,662.0 

$ 

8,695.5

$ 

$  2,253.8 
53.5 
127.6 
527.4 

2,962.3 

129.3 
1,139.5 
158.6 
361.2 
141.3 

4,892.2 

2,039.5 
22.9 
1,627.9 
12.5 

3,702.8 
67.0 

3,769.8 

2,230.2
38.4
88.1
134.0

2,490.7

105.8
1,736.8
141.7
374.0
143.8

4,992.8

2,034.4
25.3
1,572.8
11.7

3,644.2
58.5

3,702.7

$  8,662.0 

$ 

8,695.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

CONSOLIDATED STATEMENTS OF EARNINGS

52 Weeks Ended  
(in millions of Canadian dollars, except share and per share amounts) 

Sales 
Other income (NOTE 19) 
Share of earnings from investments, at equity (NOTE 7) 

Operating expenses
  Cost of sales 
  Selling and administrative expenses 

Operating income 

Finance costs, net (NOTE 21) 

Earnings before income taxes 

Income tax expense (NOTE 13) 

Net earnings 

Earnings for the year attributable to:
  Non-controlling interest 
  Owners of the Company 

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 ﬁ nancial statements.

May 5, 2018 

May 6, 2017

$  24,214.6 
61.2 
74.3 

$  23,806.2
48.2
77.5

18,314.1 
5,689.5 

346.5 

18,099.0
5,499.9

333.0

110.5 

236.0 

56.2 

179.8 

20.3 
159.5 

179.8 

0.59 
0.59 

271.8 
272.1 

$ 

$ 

$ 

$ 
$ 

$ 

$ 

$ 

$ 
$ 

118.0

215.0

42.5

172.5

14.0
158.5

172.5

0.58
0.58

271.9
272.0

43

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

52 Weeks Ended 
(in millions of Canadian dollars) 

Net earnings 
Other comprehensive income (loss)

Items that will be reclassiﬁ ed subsequently to net earnings
  Unrealized gains (losses) on derivatives designated as cash ﬂ ow hedges 

(net of taxes of $(0.3) (2017 – $0.2)) 

  Unrealized (losses) gains on available for sale ﬁ nancial assets 

(net of taxes of $0.2 (2017 – $(0.1))) 

  Share of other comprehensive income of investments, at equity 

(net of taxes of $(0.9) (2017 – $(0.2))) 

  Exchange differences on translation of foreign operations 

(net of taxes of $(0.4) (2017 – $0.6)) 

Items that will not be reclassiﬁ ed subsequently to net earnings
  Actuarial gains (losses) on deﬁ ned beneﬁ t plans 
(net of taxes of $(4.9) (2017 – $7.9)) (NOTE 17) 

Total comprehensive income 

Total comprehensive income for the year attributable to:
  Non-controlling interest 
  Owners of the Company 

See accompanying notes to the consolidated ﬁ nancial statements.

May 5, 2018 

May 6, 2017

$ 

179.8 

$ 

172.5

1.2 

(0.8) 

2.0 

(1.6) 

0.8 

9.6 

190.2 

20.3 
169.9 

190.2 

$ 

$ 

$ 

$ 

$ 

$ 

(0.7)

0.3

0.5

1.7

1.8

(20.8)

153.5

14.0
139.5

153.5

44

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUIT Y

(in millions of Canadian dollars) 

Accumulated 
Other 
Contributed  Comprehensive 
Income 

Surplus 

Total
Attributable 
to Owners of 
the Company 

Retained 
Earnings 

Capital 
Stock 

Non-
controlling 
Interest 

Total
Equity

  $  2,045.1  $ 

9.9  $  1,546.4  $  3,623.9  $ 

Balance at May 7, 2016 
Dividends declared on common shares   
Equity based compensation, net 
Acquisition of shares held in trust (NOTE 18) 
Capital transactions with 
structured entities 

Transactions with owners 

Net earnings 
Other comprehensive loss   

Total comprehensive income for the year 

– 
– 
(10.7) 

– 

(10.7) 

– 
– 

– 

22.5  $ 
– 
2.8 
– 

– 

2.8 

– 
– 

– 

– 
– 
– 

– 

– 

– 
1.8 

1.8 

(111.3) 
– 
– 

– 

(111.3) 

158.5 
(20.8) 

137.7 

(111.3) 
2.8 
(10.7) 

59.1  $  3,683.0
(111.3)
2.8
(10.7)

– 
– 
– 

– 

(14.6) 

(14.6)

(119.2) 

158.5 
(19.0) 

139.5  

(14.6)    

(133.8)

14.0 
– 

14.0 

172.5
(19.0)

153.5

Balance at May 6, 2017 

  $  2,034.4  $ 

25.3  $ 

11.7  $  1,572.8  $  3,644.2  $ 

58.5  $  3,702.7

Dividends declared on common shares   
Equity based compensation, net 
Shares held in trust, net (NOTE 18) 
Capital transactions with 
structured entities 

Transactions with owners 

Net earnings 
Other comprehensive income 

Total comprehensive income for the year 

– 
0.4 
4.7 

– 

5.1 

– 
– 

– 

– 
(2.4) 
– 

– 

(2.4) 

– 
– 

– 

– 
– 
– 

– 

– 

– 
0.8 

0.8 

(114.0) 
– 
– 

(114.0) 
(2.0) 
4.7 

– 

– 

(114.0) 

(111.3) 

159.5 
9.6 

169.1 

159.5 
10.4 

169.9 

– 
– 
– 

(11.8) 

(11.8) 

20.3 
– 

20.3 

(114.0)
(2.0)
4.7

(11.8)

(123.1)

179.8
10.4

190.2

Balance at May 5, 2018 

  $  2,039.5  $ 

22.9  $ 

12.5  $  1,627.9  $  3,702.8  $ 

67.0  $  3,769.8

See accompanying notes to the consolidated ﬁ nancial statements.

45

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

CONSOLIDATED STATEMENTS OF CASH FLOWS

52 Weeks Ended 
(in millions of Canadian dollars) 

Operations
  Net earnings 
  Adjustments for:
  Depreciation 

Income tax expense 

  Finance costs, net (NOTE 21) 
  Amortization of intangibles 
  Net gain on disposal of assets   

Impairment of non-ﬁ nancial assets, net 

  Amortization of deferred items  
  Equity in earnings of other entities, net of distributions received  
  Employee future beneﬁ ts 

Increase in long-term lease obligation 
Increase (decrease) in long-term provisions  

  Equity based compensation, net 

  Net change in non-cash working capital 

Income taxes paid, net 

Cash ﬂ ows from operating activities  

Investment

Increase in investments 

  Property, equipment and investment property purchases 
  Proceeds on disposal of assets 
  Additions to intangibles 
  Loans and other receivables 
  Tenant inducements 
  Other assets and other long-term liabilities 
  Business acquisitions 
Interest received 

  Proceeds on redemption of investment 

Cash ﬂ ows used in investing activities 

Financing

Issue of long-term debt 

  Repayment of long-term debt 
  Net repayment of credit facilities   

Interest paid 

  Acquisition of shares held in trust (NOTE 18) 
  Dividends paid, common shares 
  Non-controlling interest 

Cash ﬂ ows used in ﬁ nancing activities 

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

Cash and cash equivalents, end of year 

See accompanying notes to the consolidated ﬁ nancial statements.

46

May 5, 2018 

May 6, 2017

$ 

179.8 

$ 

172.5

351.8 
56.2 
110.5 
87.4 
(37.3) 
9.2 
7.2 
69.1 
1.5 
11.2 
15.8 
6.9  
88.1 
(77.7) 

879.7 

– 
(239.8) 
217.2 
(48.2) 
6.1 
– 
2.9 
(3.8) 
1.9 
24.3 

(39.4) 

63.7 
(188.2) 
(81.9) 
(87.4) 
(0.1) 
(114.0) 
(11.8) 

(419.7) 

420.6 
207.3 

355.5
42.5
118.0
88.7
(21.3)
27.5
12.8
19.9
8.5
13.9
(35.4)
3.3
0.5
(98.4)

708.5

(0.4)
(460.7)
425.7
(53.8)
12.3
58.8
2.7
(21.9)
1.6
–

(35.7)

55.6
(397.2)
(165.0)
(87.0)
(10.7)
(111.3)
(14.6)

(730.2)

(57.4)
264.7

$ 

627.9 

$ 

207.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 5, 2018 (in millions of Canadian dollars, except share and per share amounts)

1.  Reporting entity
Empire Company Limited (“Empire” or the “Company”) is a Canadian company whose key businesses are food retailing and related 
real estate. The Company is incorporated in Canada and the address of its registered ofﬁ ce of business is 115 King Street, Stellarton, 
Nova Scotia, B0K 1S0, Canada. The consolidated ﬁ nancial statements for the period ended May 5, 2018 include the accounts of 
Empire, all subsidiary companies, including 100% owned Sobeys Inc. (“Sobeys”), and certain enterprises considered structured 
entities (“SEs”), where control is achieved on a basis other than through ownership of a majority of voting rights. Investments in 
which the Company has signiﬁ cant inﬂ uence and its joint ventures are accounted for using the equity method. As at May 5, 2018 the 
Company’s business operations were conducted through its two reportable segments: Food retailing and Investments and other 
operations, as further described in Note 25, Segmented Information. The Company’s Food retailing business is affected by 
seasonality and the timing of holidays. Retail sales are traditionally higher in the Company’s ﬁ rst quarter. The Company’s ﬁ scal 
year ends on the ﬁ rst Saturday in May.

2.  Basis of preparation

STATEMENT OF COMPLIANCE

The consolidated ﬁ nancial 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 ﬁ nancial statements were authorized for issue by the Board of Directors on June 27, 2018.

BASIS OF MEASUREMENT

The consolidated ﬁ nancial statements are prepared on the historical cost basis, except the following assets and liabilities which 
are stated at their fair value: ﬁ nancial instruments (including derivatives) at fair value through proﬁ t and loss (“FVTPL”), ﬁ nancial 
instruments classiﬁ ed as available for sale and cash settled stock-based compensation plans. Assets held for sale are stated at 
the lower of their carrying amount and fair value less costs to sell.

USE OF ESTIMATES AND JUDGMENTS

The preparation of the consolidated ﬁ nancial statements requires management to make judgments, estimates and assumptions 
that affect the amounts reported on the consolidated ﬁ nancial statements and accompanying notes. 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 SEs, the appropriateness of equity 
accounting for its investments in associates and joint ventures, the classiﬁ cation of leases and ﬁ nancial instruments, the level of 
componentization of property and equipment, the determination of cash generating units (“CGUs”), the identiﬁ cation of indicators 
of impairment for property and equipment, investment property, intangible assets and goodwill, the recognition and measurement 
of assets acquired and liabilities assumed, and the recognition of provisions.

Estimates, judgments and assumptions that could have a signiﬁ cant impact to the amounts recognized on the consolidated ﬁ nancial 
statements are summarized below. Estimates are based on management’s best knowledge of current events and actions 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. Signiﬁ cant estimation or judgment is required in the 
determination of (i) estimated inventory provisions associated with vendor allowances and internal charges; (ii) estimated inventory 
provisions due to spoilage and shrinkage occurring between the last physical inventory count and the balance sheet dates; and 
(iii) inventories valued at retail and adjusted to cost.

(B) 

IMPAIRMENT

Management assesses impairment of non-ﬁ nancial assets such as investments in associates and joint ventures, goodwill, intangible 
assets, property and equipment, and investment property. In assessing impairment, management estimates the recoverable 
amount of each asset or CGU based on expected future cash ﬂ ows. When measuring expected future cash ﬂ ows, management 
makes assumptions about future growth of proﬁ ts which relate to future events and circumstances. Actual results could vary 
from these estimated future cash ﬂ ows. Estimation uncertainty relates to assumptions about future operating results and the 
application of an appropriate discount rate. Impairment losses and reversals are disclosed on the consolidated ﬁ nancial statements 
in Notes 9, 10, 11 and 12.

47

Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Goodwill is subject to impairment testing on an annual basis. The Company performed its annual assessment of goodwill 
impairment during its third quarter. However, if indicators of impairment are present, the Company will review goodwill for 
impairment when such indicators arise. In addition, at each reporting period, the Company reviews whether there are indicators 
that the recoverable amount of long-lived assets may be less than their carrying amount.

Goodwill and long-lived assets were reviewed for impairment by determining the recoverable amount of each CGU or groups of 
CGUs to which the goodwill or long-lived assets relate. Management estimated the recoverable amount of the CGUs based on the 
higher of value-in-use (“VIU”) and fair value less costs of disposal (“FVLCD”). The VIU calculations are based on expected future 
cash ﬂ ows. When measuring expected future cash ﬂ ows, management makes key assumptions about future growth of proﬁ ts which 
relate to future events and circumstances. Estimation uncertainty relates to assumptions about future operating results and the 
application of an appropriate discount rate. Actual results could vary from these estimates which may cause signiﬁ cant adjustments 
to the Company’s goodwill or long-lived assets in subsequent reporting periods.

(C)  EMPLOYEE FUTURE BENEFITS

Accounting for the costs of deﬁ ned beneﬁ t pension plans and other post-employment beneﬁ ts 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. A sensitivity analysis and more detail of key assumptions used in measuring 
the pension and post-employment beneﬁ t obligations are disclosed in Note 17.

(D) 

INCOME TA XES

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 13 details the current and 
deferred income tax expense and deferred tax assets and liabilities.

(E)  BUSINESS ACQUISITIONS

For business acquisitions, the Company applies judgment on the recognition and measurement of assets acquired and liabilities 
assumed, and estimates are utilized to calculate and measure such adjustments. In measuring the fair value of an acquiree’s assets 
and liabilities management uses estimates about future cash ﬂ ows and discount rates. Any measurement changes after initial 
recognition would affect the measurement of goodwill.

(F)  PROVISIONS

Estimates and assumptions are used to calculate provisions when the Company estimates the expected future cash ﬂ ows relating 
to the obligation and applies an appropriate discount rate.

(G)  SUPPLY AGREEMENTS

The Company has various long-term supply agreements for products, some of which contain minimum volume purchases. 
Signiﬁ cant estimation and judgment is required in the determination of (i) future operating results; and (ii) forecasted purchase 
volumes. When measuring whether a provision is required based on the expected future cash ﬂ ows associated with fulﬁ lling the 
contract, management makes assumptions which relate to future events and circumstances. Actual results could vary from these 
estimated future cash ﬂ ows.

3. Summary of significant accounting policies

(A)  BASIS OF CONSOLIDATION

The ﬁ nancial statements for the Company include the accounts of the Company and all of its subsidiary undertakings up to the 
reporting date. Subsidiaries, including SEs, are all entities the Company controls. All subsidiaries have a reporting date within 
six weeks of the Company’s reporting date. Where necessary, adjustments have been made to reﬂ ect transactions between the 
reporting dates of the Company and its subsidiaries.

Control exists when the Company has existing rights that give it the current ability to direct the activities that signiﬁ cantly affect 
the entity’s returns. The Company reassesses control on an ongoing basis.

48

Annual Report 2018

SEs are entities controlled by the Company which were designed so that voting or similar rights are not the dominant factor in 
deciding who controls the entity. SEs are consolidated if, based on an evaluation of the substance of its relationship with the 
Company, the Company concludes that it controls the SE. SEs controlled by the Company were established under terms that 
impose strict limitations on the decision making powers of the SEs management and that results in the Company receiving the 
majority of the beneﬁ ts related to the SEs operations and net assets, being exposed to the majority of risks incident to the SEs 
activities, and retaining the majority of the residual or ownership risks related to the SEs or their assets.

All intercompany transactions, balances, income and expenses are eliminated in preparing the consolidated ﬁ nancial statements.

Earnings or losses and other comprehensive income or losses 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 ACQUISITIONS

Business acquisitions are accounted for by applying the acquisition method. The acquisition method involves the recognition of 
the acquiree’s identiﬁ able assets and liabilities, including contingent liabilities, regardless of whether they were recorded on the 
ﬁ nancial statements prior to acquisition. The acquiree’s identiﬁ able 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 beneﬁ t arrangements which are recognized 
and measured in accordance with International Accounting Standard (“IAS”) 12, “Income taxes”, and IAS 19, “Employee beneﬁ ts”, 
respectively; and (ii) assets (or disposal groups) that are classiﬁ ed 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 identiﬁ able net assets of the acquiree at the date of the acquisition. Any excess of identiﬁ able 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.

(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 or loss. 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 deﬁ ned 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 proﬁ t 
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 ﬂ uctuations 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 speciﬁ cally excluded from the cost of 
inventories and are expensed in the period incurred.

49

Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(F) 

INCOME TA XES

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 or loss.

Current income tax assets and liabilities are comprised of claims from, or obligations to, ﬁ scal 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 on the consolidated ﬁ nancial 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 acquisition or affects tax or accounting 
proﬁ t. 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 signiﬁ cant non-taxable income 
and expenses and speciﬁ c 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 speciﬁ c facts and circumstances.

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 or loss 
(such as the unrealized gains and losses on cash ﬂ ow hedges) or directly in equity.

(G)  ASSETS HELD FOR SALE

Certain property and equipment have been listed for sale and reclassiﬁ ed as assets held for sale on the consolidated balance 
sheets. These assets are expected to be sold within a twelve month period. Assets held for sale are valued at the lower of carrying 
value and fair value less costs to sell.

(H) 

INVESTMENTS IN ASSOCIATES

Associates are those entities over which the Company is able to exert signiﬁ cant inﬂ uence but which it does not control and which 
are not interests in a joint venture. Control is reassessed on an ongoing basis. 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 or loss. 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 
losses 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 ﬂ ows 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.

50

Annual Report 2018

In the process of measuring future cash ﬂ ows, management makes assumptions about future growth of proﬁ ts. These assumptions 
relate to future events and circumstances. The actual results may vary and may cause signiﬁ cant adjustments to the Company’s 
investments in associates in the subsequent ﬁ nancial years.

Each of the associates identiﬁ ed by the Company has a reporting year end of December 31. For purposes of the Company’s 
consolidated year end ﬁ nancial statements, each of the associates’ results are included based on ﬁ nancial 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

Investments in joint ventures are joint arrangements whereby the Company and the other parties to the arrangements have joint 
control and therefore have rights to the net assets of the arrangement. Investments in joint ventures are initially recognized at cost 
and subsequently accounted for using the equity method.

(J)  FINANCIAL INSTRUMENTS

Financial instruments are recognized on the consolidated balance sheets when the Company becomes a party to the contractual 
provisions of a ﬁ nancial instrument. The Company is required to initially recognize all of its ﬁ nancial assets and liabilities, including 
derivatives and embedded derivatives in certain contracts, at fair value. Loans and receivables, held to maturity ﬁ nancial assets and 
other ﬁ nancial liabilities are subsequently measured at amortized cost. Derivatives and non-ﬁ nancial 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 classiﬁ es ﬁ nancial assets and liabilities according to their characteristics and management’s choices and intentions 
related thereto for the purpose of ongoing measurements. Classiﬁ cation choices for ﬁ nancial assets include: (i) FVTPL – measured at 
fair value with changes in fair value recorded in net earnings or loss; (ii) held to maturity – recorded at amortized cost with gains and 
losses recognized in net earnings or loss in the period that the asset is derecognized or impaired; (iii) available for sale – measured 
at fair value with changes in fair value recognized in other comprehensive income or loss for the current period until realized 
through disposal or impairment; and (iv) loans and receivables – recorded at amortized cost with gains and losses recognized in net 
earnings or loss in the period that the asset is no longer recognized or impaired. Classiﬁ cation choices for ﬁ nancial liabilities include: 
(i) FVTPL – measured at fair value with changes in fair value recorded in net earnings or loss and (ii) other liabilities – measured at 
amortized cost with gains and losses recognized in net earnings or loss in the period that the liability is derecognized.

The Company’s ﬁ nancial assets and liabilities are generally classiﬁ ed and measured as follows:

Asset/Liability 

Cash and cash equivalents 
Receivables 
Loans and other receivables 
Investments 
Derivative ﬁ nancial assets and liabilities 
Non-derivative other assets 
Accounts payable and accrued liabilities 
Long-term debt 

Classiﬁ cation 

Loans and receivables 
Loans and receivables 
Loans and receivables 
Available for sale 
FVTPL 
FVTPL 
Other liabilities 
Other liabilities  

Measurement

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

All ﬁ nancial assets are reviewed for impairment at each reporting date, except those classiﬁ ed 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 afﬁ liate locations.

Transaction costs other than those related to ﬁ nancial instruments classiﬁ ed as FVTPL, which are expensed as incurred, are added 
to or deducted from the fair value of the ﬁ nancial asset or ﬁ nancial liability, as appropriate, on initial recognition and amortized 
using the effective interest method.

Fair value determination is classiﬁ ed within a three-level hierarchy, based on observability of signiﬁ cant inputs, as follows: 
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs other than quoted prices 
included within Level 1 that are observable for the asset or liability, either directly or indirectly; or Level 3 – unobservable inputs 
for the asset or liability. Inputs into the determination of the fair value require management judgment or estimation.

If different levels of inputs are used to measure a ﬁ nancial instrument’s fair value, the classiﬁ cation within the hierarchy is based on 
the lowest level of input that is signiﬁ cant to the fair value measurement. Changes to valuation methods may result in transfers into 
or out of an investment’s assigned level.

51

Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A ﬁ nancial asset is derecognized when the contractual rights to the cash ﬂ ows from the ﬁ nancial asset expire or if the Company 
transfers the ﬁ nancial asset to another party without retaining control or substantially all the risks and rewards of ownership of the 
ﬁ nancial asset. A ﬁ nancial liability is derecognized when its contractual obligations are discharged, cancelled or expire.

(K)  HEDGES

The Company has cash ﬂ ow hedges which are used to manage exposure to ﬂ uctuations in foreign currency exchange and energy 
prices. For cash ﬂ ow hedges, the effective portion of the change in fair value of the hedging item is recorded in other comprehensive 
income or loss. To the extent the change in fair value of the derivative does not completely offset the change in fair value of the 
hedged item, the ineffective portion of the hedging relationship is recorded in net earnings or loss. Amounts accumulated in other 
comprehensive income or loss are reclassiﬁ ed to net earnings or loss when the hedged item is recognized in net earnings or loss. 
When a hedging instrument in a cash ﬂ ow 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 or loss relating to the hedge is carried forward 
until the hedged item is recognized in net earnings or loss. 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 
or loss is immediately reclassiﬁ ed to net earnings or loss.

Financial derivatives assigned as part of a cash ﬂ ow hedging relationship are classiﬁ ed as either an other asset or other long-term 
liability as required based on their fair value determination.

Signiﬁ cant derivatives include the following:

(i) 

Foreign currency forward contracts and foreign currency swaps for the primary purpose of limiting exposure to exchange rate 
ﬂ uctuations 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 is accumulated in other comprehensive income or loss until the variability in cash ﬂ ows being hedged 
is recognized in earnings or loss in future accounting periods.

(ii)  Electricity forward contracts for the primary purpose of limiting exposure to ﬂ uctuations in the market prices of electricity. 
These contracts are designated as hedging instruments for accounting purposes. Accordingly, the effective portion of the 
change in fair value of the contracts is accumulated in other comprehensive income or loss until the variability in cash ﬂ ows 
being hedged is recognized in earnings or loss in future accounting periods.

(iii)  Natural gas forward contracts for the primary purpose of limiting exposure to ﬂ uctuations in the market prices of natural gas. 

These contracts are designated as hedging instruments for accounting purposes. Accordingly, the effective portion of the 
change in fair value of the contracts is accumulated in other comprehensive income or loss until the variability in cash ﬂ ows 
being hedged is recognized in earnings or loss in future accounting periods.

(L)  PROPERT Y 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 classiﬁ ed as a ﬁ nance 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.

When signiﬁ cant 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 on 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 or loss is deferred and reduces the carrying value of the investment.

52

 
Annual Report 2018

(M)  INVESTMENT PROPERT Y

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 or loss is deferred and would reduce the carrying value of the 
Company’s investment. Rental income and operating expenses from investment property are reported within other income and 
selling and administrative expenses, respectively, on the consolidated statements of earnings.

(N)  LEASES

Leases are classiﬁ ed as ﬁ nance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership 
to the lessee. All other leases are classiﬁ ed 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 ﬁ nance 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 
on the consolidated balance sheets as a ﬁ nance lease obligation in long-term debt.

 Lease payments are apportioned between ﬁ nance 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 beneﬁ t 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 ﬁ nance 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 proﬁ t 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.

(O) 

INTANGIBLES

Intangibles arise on the purchase of a new business, existing franchises, software, and the acquisition of pharmacy prescription ﬁ les. 
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 ﬁ nite. 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 
Off market leases 
Prescription ﬁ les 
Software 
Other 

5 – 10 years
10 years
5 – 10 years
Lesser of lease term and 40 years
15 years
3 – 7 years
5 – 10 years

Amortization has been included within selling and administrative expenses on the consolidated statements of earnings. 
Subsequent expenditures made by the Company relating to intangible assets that do not meet the capitalization criteria are 
expensed in the period incurred.

Included in intangibles are brand names, loyalty programs, and private labels, the majority of which have indeﬁ nite useful lives. 
Intangibles with indeﬁ nite useful lives are measured at cost less any accumulated impairment losses. These intangibles are tested 
for impairment on an annual basis or more frequently if there are indicators that intangibles may be impaired.

53

  
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(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 indeﬁ nite life intangibles are reviewed for impairment at least annually by assessing the recoverable amount of each 
CGU or groups of CGUs to which the goodwill or indeﬁ nite life intangible relates. The recoverable amount is the higher of FVLCD 
and VIU. When the recoverable amount of the CGU(s) is less than the carrying amount, an impairment loss is recognized 
immediately in net earnings or loss. Impairment losses related to goodwill cannot be reversed.

Long-lived tangible and intangible assets are reviewed each reporting period 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 FVLCD and VIU. Where the asset does not generate cash ﬂ ows that are independent from other assets, the Company 
estimates the recoverable amount of the CGU(s) to which the asset belongs. The Company has determined a CGU to be primarily 
an individual store. Corporate assets such as head ofﬁ ces and distribution centres do not individually generate separate cash 
inﬂ ows and are therefore aggregated for testing with the stores they service. When the recoverable amount of an asset (or CGU) 
is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to the recoverable amount. 
An impairment loss is recognized immediately in selling and administrative expenses on the consolidated statements of earnings.

Where an impairment loss subsequently reverses, other than related to goodwill, the carrying amount of the asset (or CGU) 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.

(R)  CUSTOMER LOYALT Y PROGRAMS

The AIR MILES® loyalty program is used by the Company. AIR MILES® are earned by 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 beneﬁ ts 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 reﬂ ects the current market assessments of the 
time value of money and the risks speciﬁ c 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 ﬁ nance costs, net on the consolidated statements of earnings.

(T)  BORROWING COSTS

Borrowing costs are primarily comprised of 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 ﬁ nance costs.

(U)  DEFERRED REVENUE

Deferred revenue consists of long-term supplier purchase agreements and gains on sale and leaseback transactions relating to 
certain ﬁ nance 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 beneﬁ ts

 Short-term employee beneﬁ ts include wages, salaries, compensated absences, proﬁ t-sharing and bonuses expected 
to be settled within 12 months from the end of the reporting period. Short-term employee beneﬁ ts are measured on 
an undiscounted basis and are recorded as selling and administrative expenses as the related service is provided.

(ii)  Post-employment beneﬁ ts

 The cost of the Company’s pension beneﬁ ts for deﬁ ned contribution plans are expensed at the time active employees are 
compensated. The cost of deﬁ ned beneﬁ t pension plans and other beneﬁ t 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 salary 
escalation, and retirement ages.

54

 
 
 
 
Annual Report 2018

 The liability recognized on the consolidated balance sheets for deﬁ ned beneﬁ t plans is the present value of the deﬁ ned 
beneﬁ t obligation at the reporting date less the fair market value of plan assets. Current market values are used to value 
beneﬁ t plan assets. The obligation related to employee future beneﬁ ts 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.

 Re-measurements, comprising of actuarial gains and losses and the return on plan assets (excluding amounts in net interest), 
are  recognized immediately on the consolidated balance sheets with a corresponding charge to retained earnings through 
other comprehensive income or loss in the period in which they occur. Re-measurements are not reclassiﬁ ed to net earnings 
or loss in subsequent periods.

 Past service costs are recognized in net earnings or loss on the earlier of the date of the plan amendment or curtailment, 
and the date that the Company recognizes restructuring-related costs.

 Service cost on the net deﬁ ned beneﬁ t liability, comprising current service costs, past-service costs, gains and losses on 
curtailments and non-routine settlements, is included in selling and administrative expenses. Net interest expense on the 
net deﬁ ned beneﬁ t liability is included in ﬁ nance costs, net.

(iii)  Termination beneﬁ ts

 Termination beneﬁ ts are recognized as an expense at the earlier of when the Company recognizes related restructuring costs 
and  when the Company can no longer withdraw the offer of those beneﬁ ts.

(W)  REVENUE RECOGNITION

Sales are recognized at the point-of-sale. Sales include revenues from customers through corporate stores operated by the 
Company and consolidated SEs, and revenue from sales to non-SE franchised stores, afﬁ liated stores and independent accounts. 
Revenue received from non-SE franchised stores, afﬁ liated 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 and performance share units. When a loss 
is recorded, the weighted average number of shares used for the purpose of basic and diluted loss per share is equal, as the impact 
of all potential common shares would be anti-dilutive.

(AA) STOCK-BASED COMPENSATION

The Company operates both equity and cash 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 26).

55

 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(AB) CHANGES TO ACCOUNTING STANDARDS ADOPTED DURING FISCAL 2018

(i) 

Statement of cash ﬂ ows

 In January 2016, the IASB issued Disclosure Initiative Amendments to IAS 7, “Statement of cash ﬂ ows”. These amendments 
require entities to provide additional disclosures that enable users of ﬁ nancial statements to evaluate changes in liabilities 
arising from ﬁ nancing activities, including changes arising from cash and non-cash changes. These amendments became 
effective during the ﬁ rst quarter of ﬁ scal 2018 and had no material impact on the Company’s consolidated ﬁ nancial statements. 
A reconciliation of long-term debt has been presented in Note 15.

(ii)  Share-based payment

 In June 2016, the IASB issued amendments to IFRS 2, “Share-based payment”. The amendments provide clariﬁ cation around 
the effects of vesting conditions on cash-settled share-based payment transactions, classiﬁ cation of share-based payment 
transactions with net settlement features and modiﬁ cation of the terms and conditions of a share-based payment that changes 
the classiﬁ cation of the transaction. These amendments are effective for annual periods beginning on or after January 1, 2018. 
The Company early adopted these amendments in the ﬁ rst quarter of ﬁ scal 2018.

(AC) FUTURE STANDARDS

(i)  Financial instruments

 In July 2014, the IASB issued IFRS 9, “Financial instruments” (“IFRS 9”), which replaces IAS 39, “Financial instruments: 
recognition and measurement” (“IAS 39”) and related interpretations. IFRS 9 provides revised guidance on the classiﬁ cation 
and measurement of ﬁ nancial assets and ﬁ nancial liabilities, including impairment. IFRS 9 also introduces a new hedge 
accounting model and amendments to clarify the treatment of modiﬁ cations of ﬁ nancial liabilities. The standard is effective 
for annual periods beginning on or after January 1, 2018 and is to be applied retrospectively, with the exception of the hedging 
component which is to be applied prospectively. Early adoption is permitted, however, the Company did not elect to do so. 
The standard will be applied in ﬁ scal 2019, and the Company does not expect a signiﬁ cant adjustment to its consolidated 
ﬁ nancial statements as a result of the adoption of this standard, as outlined below.

  Classiﬁ cation and measurement

 IFRS 9 requires ﬁ nancial assets to be classiﬁ ed and measured based on both the business model for managing the asset, and 
the nature of the cash ﬂ ows. The classiﬁ cation and measurement of ﬁ nancial liabilities remains largely unchanged from IAS 39. 
The application of the new classiﬁ cation requirements under IFRS 9 are not expected to result in a signiﬁ cant adjustment to 
the Company’s consolidated ﬁ nancial statements.

Impairment
 IFRS 9 introduces a new expected credit loss (“ECL”) impairment model. It is no longer necessary for a triggering event to have 
occurred before credit losses are recognized. Under the IFRS 9 ECL model, the Company will recognize upfront impairment 
losses based on past events, current conditions, and reasonable and supportable forecasts affecting collectability. The 
application of the ECL model under IFRS 9 is not expected to result in a signiﬁ cant adjustment to the Company’s consolidated 
ﬁ nancial statements.

  Hedge accounting

 IFRS 9 introduces a new hedge accounting model that aligns hedge accounting relationships with corresponding risk 
management activities. The new hedge accounting requirements are not expected to result in a signiﬁ cant adjustment 
to the Company’s consolidated ﬁ nancial statements.

  Modiﬁ cation of ﬁ nancial liabilities

 In October 2017, the IASB issued “Prepayment features with negative compensation” as an amendment to IFRS 9. The 
amendment clariﬁ es the accounting treatment for modiﬁ cations of ﬁ nancial liabilities and requires a ﬁ nancial liability measured 
at amortized cost to be remeasured when a modiﬁ cation occurs. Any resulting gain or loss is required to be recognized in proﬁ t 
or loss at the date of modiﬁ cation. The amendment is effective for annual periods beginning on or after January 1, 2018 and is 
to be applied retrospectively. The Company does not expect this amendment to result in a signiﬁ cant adjustment to the 
Company’s consolidated ﬁ nancial statements.

  Disclosure

 Financial instrument disclosures continue to fall within the scope of IFRS 7 “Financial instruments: disclosures” (“IFRS 7”). 
IFRS 7 has been amended by IFRS 9 to include additional qualitative and quantitative disclosure requirements. The Company 
intends to apply these amendments in ﬁ scal 2019. The amendments are not expected to result in a signiﬁ cant adjustment to 
the Company’s consolidated ﬁ nancial statement disclosures.

56

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

(ii)  Revenue

 In May 2014, the IASB issued IFRS 15, “Revenue from contracts with customers” (“IFRS 15”). IFRS 15 replaces IAS 18, “Revenue” 
(“IAS 18”), IAS 11, “Construction contracts”, and some revenue related interpretations. IFRS 15 establishes a new control-based 
revenue recognition model and provides a comprehensive framework for recognition, measurement and disclosure of revenue 
from contracts with customers, excluding contracts within the scope of the standards on leases, insurance contracts and 
ﬁ nancial instruments. The new standard is effective for annual periods beginning on or after January 1, 2018 and is to be 
applied retrospectively. Early adoption is permitted, however, the Company did not elect to do so.

 In April 2016, the IASB published clariﬁ cations to IFRS 15 which addresses three topics (identifying performance obligations, 
principle versus agent considerations, and licensing) as well as provides some transition relief for modiﬁ ed and completed 
contracts. The implementation timelines for these clariﬁ cations are consistent with IFRS 15.

 The Company expects to adopt IFRS 15 in ﬁ scal 2019 on a full retrospective basis and does not expect the implementation 
to result in a signiﬁ cant adjustment to the Company’s consolidated ﬁ nancial statements.

(iii)  Leases

 In January 2016, the IASB issued IFRS 16, “Leases” (“IFRS 16”), which replaces IAS 17, “Leases” (“IAS 17”) and related 
interpretations. IFRS 16 introduces a balance sheet recognition and measurement model for lessees, eliminating the distinction 
between operating and ﬁ nance leases. Lessors will continue to classify leases as operating and ﬁ nance leases. The standard 
is effective for annual periods beginning on or after January 1, 2019. IFRS 16 allows for early adoption for companies that 
apply IFRS 15, but the Company does not intend to do so. For leases where the Company is the lessee, the IFRS 16 transition 
requirements provide the option of adopting a full retrospective approach or a modiﬁ ed retrospective approach with 
optional practical expedients available. The Company has performed preliminary modeling as part of its assessment of 
IFRS 16 transition approaches, and intends to adopt the standard on a modiﬁ ed retrospective basis. The Company continues 
to ﬁ nalize its approach on the use of the optional practical expedients.

 The Company expects that the adoption of IFRS 16 will have a material impact on its consolidated ﬁ nancial statements, given 
the current operating lease commitments held under IAS 17 as a lessee. New assets and liabilities will be recognized on the 
balance sheet for the Company’s operating property and equipment leases. On the statement of earnings, the Company will 
replace the current straight-line lease expense recognized in operating expenses with depreciation for right-of-use assets 
and ﬁ nance expense on lease liabilities. The presentation of lease related cash ﬂ ows on the statement of cash ﬂ ows will also 
change, with no change to the amount of cash exchanged as part of the underlying lease transaction.

  The Company continues to evaluate the impact of this standard on its consolidated ﬁ nancial statements.

(iv) 

Investments in associates and joint ventures

 In October 2017, the IASB issued an amendment to IAS 28 “Investments in associates and joint ventures” to clarify that an 
entity must apply IFRS 9 to long-term interests in an associate or joint venture that form part of the net investment in the 
associate or joint venture where the equity method is not applied. The amendment is effective for annual periods beginning 
on or after January 1, 2019. The Company is assessing the potential impact of this amendment.

(v)  Annual improvements 2015–2017

 The IASB issued amendments to IFRS 3 “Business combinations”, IFRS 11 “Joint arrangements”, IAS 12 “Income taxes” and IAS 
23 “Borrowing costs” in December 2017. These amendments are effective for annual periods beginning on or after January 1, 
2019. The Company is assessing the potential impacts of these amendments.

4.  Inventories
The cost of inventories recognized as an expense during the year was $18,314.1 (2017 – $18,099.0). The Company recorded $1.5 
(2017 – $3.5) as an expense for the write-down of inventories below cost to net realizable value for inventories on hand as at 
May 5, 2018. There were no reversals of inventories written down previously (2017 – $ nil).

57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

5.  Loans and other receivables

Loans receivable 
Notes receivable and other 

Less amount due within one year 

May 5, 2018 

May 6, 2017

$ 

$ 

64.1 
37.4 

101.5 
20.9 

$ 

80.6 

$ 

64.8
42.8

107.6
25.5

82.1

Loans receivable represent long-term ﬁ nancing to certain retail associates. These loans are primarily secured by inventory, ﬁ xtures 
and equipment; bear various interest rates, and have repayment terms up to 10 years. The carrying amount of the loans receivable 
approximates fair value based on the variable interest rates charged on the loans.

Included in notes receivable and other as at May 5, 2018, is $11.8 (2017 – $13.2) due from a third party related to equipment sales.

6.  Assets held for sale
As at May 5, 2018, assets held for sale relates to land, buildings and equipment expected to be sold in the next 12 months. These 
assets were previously used in the Company’s retail and retail support operations.

During ﬁ scal 2018, Sobeys sold nine properties to third parties. Total proceeds from these transactions were $56.7, resulting in 
a pre-tax gain of $8.5 which has been recognized on the consolidated statements of earnings.

During ﬁ scal 2017, Sobeys sold 13 properties and leased back four from third parties. Total proceeds from these transactions were 
$66.9, resulting in a pre-tax gain of $4.5 which has been recognized on the consolidated statements of earnings.

On June 29, 2016, Sobeys and its wholly-owned subsidiaries closed an agreement with Crombie Real Estate Investment Trust 
(“Crombie REIT”), an entity in which the Company has a 41.5% ownership, to sell and leaseback a portfolio of 19 retail properties and 
a 50% interest in each of its three automated distribution centres, as well as the sale of two parcels of development land which were 
previously owned by Empire (Note 27).

7.  Investments, at equity

Investment in associates
Crombie REIT 
Canadian real estate partnerships 
U.S. real estate partnerships 

Investment in joint ventures
Canadian Digital Cinema Partnership (“CDCP”) 

Total 

May 5, 2018 

May 6, 2017

$ 

$ 

448.5 
90.7 
23.2 

459.1
143.0
36.8

9.4 

9.5

$ 

571.8 

$ 

648.4

The fair value of the investment in Crombie REIT, which is based on a published price quoted on the stock exchange, is as follows:

Crombie REIT 

May 5, 2018 

May 6, 2017

$ 

777.1 

$ 

883.6

The Canadian and U.S. real estate partnerships and CDCP are not publicly listed on a stock exchange and hence published price 
quotes are not available.

The Company owns 61,864,162 Class B LP units and attached special voting units of Crombie REIT, along with 909,090 REIT units, 
representing a 41.5% (2017 – 41.5%) economic and voting interest in Crombie REIT.

Crombie REIT has instituted a distribution reinvestment plan (“DRIP”) whereby Canadian resident REIT unitholders may elect to 
have their distributions automatically reinvested in additional REIT units. The Company is enrolled in the DRIP.

58

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

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

Balance, beginning of year 
Equity earnings 
Share of comprehensive income 
Distributions, net of DRIP 
Deferral of gains on sale of property 
Reversal of deferred gain on sale of property to unrelated party 
Interest acquired in Crombie REIT 

Balance, end of year 

The Company’s carrying value of its investment in Canadian real estate partnerships is as follows:

Balance, beginning of year 
Equity earnings 
Distributions 

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 
Dilution loss (NOTE 19) 

Balance, end of year 

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

Balance, beginning of year 
Equity earnings 
Distributions 

Balance, end of year 

May 5, 2018 

May 6, 2017

$ 

$ 

459.1 
39.5 
2.9 
(43.7) 
(9.3) 
– 
– 

366.8
41.5
0.7
(42.8)
(2.2)
1.7
93.4

$ 

448.5 

$ 

459.1

May 5, 2018 

May 6, 2017

$ 

$ 

143.0 
24.6 
(76.9) 

$ 

90.7 

$ 

148.5
28.2
(33.7)

143.0 

May 5, 2018 

May 6, 2017

$ 

$ 

36.8 
9.3 
(21.7) 
(1.2) 
– 
– 

$ 

23.2 

$ 

50.2
6.9
(20.1)
1.1
0.4
(1.7)

36.8 

May 5, 2018 

May 6, 2017

$ 

$ 

$ 

9.5 
0.9 
(1.0) 

9.4 

$ 

9.4
0.9
(0.8)

9.5 

The following amounts represent the revenues, expenses, assets, and liabilities of Crombie REIT as at and for the 12 months ended 
March 31, 2018, as well as a reconciliation of the carrying amount of the Company’s investment in Crombie REIT to the net assets 
attributable to unitholders of Crombie REIT:

Revenues 
Expenses 

Earnings before income taxes 

Income (loss) from continuing operations 
Other comprehensive income 

Total comprehensive income (loss) 

March 31, 2018 

March 31, 2017

$ 

$ 

$ 

$ 

415.4 
323.4 

92.0 

36.7 
6.7 

43.4 

$ 

$ 

$ 

$ 

407.2
305.7

101.5

(28.3)
1.3

(27.0)

59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Assets
Current 
Non-current 

Total 

Liabilities
Current 
Non-current 

Total 

Unitholders’ net assets
REIT Units 
Class B LP Units 

Less total REIT Units outstanding as at March 31, 2018 
Cumulative changes since acquisition of Crombie REIT
  Variances in timing of distributions 

Issue costs related to Class B LP Units 

  Deferred gains (net of depreciation addback) 
  Dilution gains 
  Write off of portion of AOCI on dilution of interest in Crombie REIT 
  Crombie REIT tax reorganization – deferred tax adjustment 

Carrying amount attributable to investment in Class B LP Units 
REIT Units owned by Empire 
Cumulative equity earnings on REIT Units 
Cumulative distributions on REIT Units 

March 31, 2018 

March 31, 2017

$ 

22.9 
4,026.7 

$ 

35.7
3,916.6

$  4,049.6 

$ 

3,952.3

$ 

359.1 
2,234.9 

$ 

205.1
2,363.2

$  2,594.0 

$ 

2,568.3

$ 

872.3 
583.3 

1,455.6 
(872.3) 

$ 

830.5
553.5

1,384.0
(830.5)

4.6 
12.6 
(172.4) 
38.6 
0.7 
(31.7) 

435.7 
13.8 
3.4 
(4.4) 

4.5
12.6
(163.4)
38.6
0.7
–

446.5
13.8
2.4
(3.6)

Empire’s carrying amount of investment in Crombie REIT 

$ 

448.5 

$ 

459.1

The Company has interests in various Canadian real estate partnerships ranging from 40.7% to 49.0% which are involved in 
residential property developments in Ontario and Western Canada.

The following amounts represent the revenues, expenses, assets, and liabilities of the Canadian real estate partnerships as at and 
for the 12 months ended March 31, 2018:

Revenues 
Expenses 

Net earnings from continuing operations 
Net earnings from discontinued operations 

Net earnings 

Current assets 
Current liabilities 

Net assets 

Carrying amount of investment 

March 31, 2018 

March 31, 2017

$ 

$ 

$ 

161.9 
103.2 

58.7 
– 

58.7 

$ 

$ 

$ 

131.6
77.9

53.7
15.4

69.1

March 31, 2018 

March 31, 2017

$ 

$ 

$ 

270.3 
61.7 

208.6 

90.7 

$ 

$ 

$ 

330.4
36.1

294.3

143.0 

The Company has interests in various U.S. real estate partnerships ranging from 37.1% to 42.1% which are involved in residential 
property developments in the United States.

60

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

The following amounts represent the revenues, expenses, assets, and liabilities of the U.S. real estate partnerships as at and for the 
12 months ended March 31, 2018:

Revenues 
Expenses 

Net earnings 

Current assets 
Current liabilities 

Net assets 

Carrying amount of investment 

8.  Other assets

Deferred lease assets 
Derivative assets 
Deferred ﬁ nancing costs 
Other   

Total 

March 31, 2018 

March 31, 2017

$ 

$ 

67.7 
44.6 

23.1 

$ 

$ 

51.9
34.3

17.6

March 31, 2018 

March 31, 2017

$ 

$ 

$ 

67.3 
5.2 

62.1 

23.2 

$ 

$ 

$ 

104.7
6.0

98.7

36.8 

May 5, 2018 

May 6, 2017

$ 

$ 

18.5 
– 
1.8 
13.8 

34.1 

$ 

$ 

20.3
1.1
5.5
16.4

43.3

9.  Property and equipment

May 5, 2018 

Land 

Buildings 

Equipment 

Leasehold 
Improvements 

Assets Under
Construction 

Total

Cost
Opening balance 
Additions 
Additions from 
  business acquisitions 
Transfers 
Disposals and write downs 

$ 

537.8 
2.5 

$ 

1,313.3 
9.4 

$  2,427.3 
101.5 

$ 

700.3 
13.4 

$ 

348.1 
147.9 

$  5,326.8
274.7

– 
(16.6) 
(12.5) 

– 
27.2 
(40.6) 

1.3 
221.1 
(203.8) 

– 
39.8 
(52.6) 

– 
(417.2) 
– 

1.3
(145.7)
(309.5)

Closing balance 

$ 

511.2 

$  1,309.3 

$ 

2,547.4 

$ 

700.9 

$ 

78.8 

$ 

5,147.6

Accumulated depreciation 
  and impairment losses
Opening balance 
Disposals and write downs 
Transfers 
Depreciation 
Impairment losses 

Closing balance 

Net carrying value 
  as at May 5, 2018 

$ 

$ 

– 
– 
– 
– 
– 

– 

$ 

448.9 
(17.1) 
(29.7) 
59.5 
2.4 

$ 

1,411.3 
(188.9) 
(9.4) 
239.8 
6.6 

$ 

$ 

433.3 
(50.2) 
2.4 
50.9 
0.5 

$ 

464.0 

$ 

1,459.4 

$ 

436.9 

$ 

– 
– 
– 
– 
– 

– 

$  2,293.5 
(256.2)
(36.7)
350.2
9.5

$  2,360.3

$ 

511.2 

$ 

845.3 

$  1,088.0 

$ 

264.0 

$ 

78.8 

$ 

2,787.3

61

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 6, 2017 

Land 

Buildings 

Equipment 

Leasehold 
Improvements 

Assets Under
Construction 

Total

Cost
Opening balance 
Additions 
Additions from 
  business acquisitions 
Transfers 
Disposals and write downs 

$ 

625.1 
10.6 

$ 

1,295.5 
10.6 

$ 

2,499.3 
125.6 

$ 

703.9 
34.6 

$ 

296.8 
299.6 

$ 

5,420.6 
481.0

– 
(45.8) 
(52.1) 

– 
32.4 
(25.2) 

5.6 
20.3 
(223.5) 

– 
3.3 
(41.5) 

– 
(246.4) 
(1.9) 

5.6
(236.2)
(344.2)

Closing balance 

$ 

537.8 

$ 

1,313.3 

$ 

2,427.3 

$ 

700.3 

$ 

348.1 

$ 

5,326.8

Accumulated depreciation 
  and impairment losses
Opening balance 
Disposals and write downs 
Transfers 
Depreciation 
Impairment losses 
Impairment reversals 

Closing balance 

Net carrying value 
  as at May 6, 2017 

FINANCE LEASES

$ 

$ 

– 
– 
– 
– 
– 
– 

– 

$ 

$ 

403.5 
(11.5) 
(7.7) 
61.3 
3.3 
– 

$ 

1,438.0 
(214.8) 
(66.2) 
240.5 
14.1 
(0.3) 

$ 

434.4 
(40.3) 
(15.3) 
53.0 
1.6 
(0.1) 

$ 

448.9 

$ 

1,411.3 

$ 

433.3 

$ 

– 
– 
– 
– 
– 
– 

– 

$ 

2,275.9 
(266.6)
(89.2)
354.8
19.0
(0.4)

$ 

2,293.5

$ 

537.8 

$ 

864.4 

$ 

1,016.0 

$ 

267.0 

$ 

348.1 

$ 

3,033.3

The Company has various property leases for store locations classiﬁ ed as ﬁ nance leases with a net carrying value of $9.8 as at 
May 5, 2018 (2017 – $11.3). These leases are included in Buildings.

The Company has equipment leases classiﬁ ed as ﬁ nance leases with a net carrying value of $11.2 as at May 5, 2018 (2017 – $15.8). 
These leases are included in Equipment.

ASSETS UNDER CONSTRUCTION

During the year, the Company capitalized borrowing costs of $0.5 (2017 – $2.2) on indebtedness related to property and equipment 
under construction. The Company used a capitalization rate of 4.7% (2017 – 4.8%).

SECURIT Y

As at May 5, 2018, the net carrying value of property pledged as security for borrowings is $57.1 (2017 – $62.2).

IMPAIRMENT OF PROPERT Y AND EQUIPMENT

The Company performed the impairment test for property and equipment and determined recoverable amounts based on VIU 
calculations using cash ﬂ ow projections from the Company’s latest internal forecasts. Key assumptions used in determining 
VIU include discount rates, growth rates, and expected changes in cash ﬂ ows. Management estimates discount rates using pre-tax 
rates that reﬂ ect current market assessments of the time value of money and risks speciﬁ c to the CGUs. Forecasts are projected 
beyond three years based on long-term growth rates ranging from 2.0% to 5.0%. Discount rates are calculated on a pre-tax basis 
and range from 9.0% to 12.0%.

Impairment losses of $9.5 and reversals of $ nil were recorded during the year ended May 5, 2018 (2017 – $19.0 and $0.4).

All impairment losses and reversals relate to the food retailing segment.

62

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

10. Investment property
Investment property is primarily comprised 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 
Disposals and write downs 

Closing balance 

Accumulated depreciation and impairment losses
Opening balance 
Depreciation 
Impairment expense 
Transfers 
Disposals and write downs 

Closing balance 

Net carrying value 
Fair value 

May 5, 2018 

May 6, 2017

$ 

$ 

119.0 
3.0 
(5.6) 
(3.6) 

91.4
0.2
29.5
(2.1)

$ 

112.8 

$ 

119.0

$ 

$ 

$ 
$ 

16.0 
1.6 
0.4 
0.9 
– 

18.9 

93.9 
158.2 

$ 

$ 

$ 
$ 

8.5
0.7
2.3
5.0
(0.5)

16.0

103.0
136.7

The fair value of investment property is classiﬁ ed as Level 3 on the fair value hierarchy. The fair value represents the price that would 
be received to sell the assets in an orderly transaction between market participants at the measurement date.

An external, independent valuation company, having appropriate recognized professional qualiﬁ cations and experience, assisted 
in determining the fair value of investment property at May 5, 2018 and May 6, 2017. Additions to investment property through 
acquisition are transacted at fair value and therefore carrying value equals fair value at the time of acquisition. Properties reclassiﬁ ed 
from property and equipment are valued for disclosure purposes using comparable market information or the use of an external 
independent valuation company.

Rental income from investment property included on the consolidated statements of earnings amounted to $3.0 for the year ended 
May 5, 2018 (2017 – $3.6).

Direct operating expenses (including repairs and maintenance but excluding depreciation expense) arising from investment 
property that generated rental income amounted to $2.0 for the year ended May 5, 2018 (2017 – $2.3). Direct operating expenses 
(including repairs and maintenance but excluding depreciation expense) arising from non-income producing investment property 
amounted to $1.9 for the year ended May 5, 2018 (2017 – $1.0). 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 3(q)). Impairment losses 
of $0.4 and reversals of $ nil were recorded during the year ended May 5, 2018 (2017 – $2.3 and $ nil).

63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. Intangibles

May 5, 2018 

Cost
Opening balance 
Additions, separately acquired 
Transfers 
Disposals and write downs  

Deferred 
Purchase 
Brand 
Names  Agreements 

Prescription 
Files 

Software 

Off
Market
Leases 

Other 

Total

  $ 

201.0  $ 
– 
– 
– 

151.2  $ 

14.7 
0.7 
(5.6) 

303.3  $ 
– 
0.8 
– 

277.6  $ 

14.9 
14.0 
(18.6) 

173.1  $ 
– 
(0.2) 
(0.5) 

209.2  $  1,315.4
31.7
15.5
(29.0)

2.1 
0.2 
(4.3) 

Closing balance 

  $ 

201.0  $ 

161.0  $ 

304.1  $ 

287.9  $ 

172.4  $ 

207.2  $  1,333.6

Accumulated amortization 
  and impairment losses
Opening balance 
Amortization 
Impairment reversals 
Transfers 
Disposals and write downs  

  $ 

28.1  $ 

0.1 
– 
– 
– 

72.5  $ 
15.9 
– 
(1.9) 
(5.3) 

86.6  $ 
19.5 
(0.7) 
1.4 
(1.1) 

146.2  $ 

25.2  $ 

76.3  $ 

35.6 
– 
(1.6) 
(18.6) 

7.5 
– 
– 
(0.5) 

8.8 
– 
1.9 
(4.3) 

434.9
87.4
(0.7)
(0.2)
(29.8)

Closing balance 

  $ 

28.2  $ 

81.2  $ 

105.7  $ 

161.6  $ 

32.2  $ 

82.7  $ 

491.6

Net carrying value as at May 5, 2018    $ 

172.8  $ 

79.8  $ 

198.4  $ 

126.3  $ 

140.2  $ 

124.5  $ 

842.0

May 6, 2017 

Cost
Opening balance 
Additions, separately acquired 
Additions from 
  business acquisitions 
Transfers 
Disposals and write downs  

Brand 
Names 

Deferred 
Purchase 
Agreements 

Prescription 
Files 

Software 

Off
Market
Leases 

Other 

Total

  $ 

201.0  $ 
– 

143.0  $ 

10.5 

305.2  $ 
– 

258.8  $ 
1.1 

179.8  $ 
– 

199.5  $ 
12.5 

1,287.3
24.1

– 
– 
– 

– 
0.7 
(3.0) 

0.5 
(1.9) 
(0.5) 

– 
35.5 
(17.8) 

– 
0.5 
(7.2) 

3.0 
0.3 
(6.1) 

3.5
35.1
(34.6)

Closing balance 

  $ 

201.0  $ 

151.2  $ 

303.3  $ 

277.6  $ 

173.1  $ 

209.2  $  1,315.4

Accumulated amortization 
  and impairment losses
Opening balance 
Amortization 
Impairment reversals 
Transfers 
Disposals and write downs  

  $ 

26.1  $ 
2.0 
– 
– 
– 

58.9  $ 
16.3 
– 
0.1 
(2.8) 

68.7  $ 
20.5 
(0.4) 
(1.7) 
(0.5) 

128.8  $ 

18.9  $ 

74.4  $ 

35.1 
– 
(0.1) 
(17.6) 

7.0 
– 
0.5 
(1.2) 

7.8 
– 
0.1 
(6.0) 

375.8 
88.7
(0.4)
(1.1)
(28.1)

Closing balance 

  $ 

28.1  $ 

72.5  $ 

86.6  $ 

146.2  $ 

25.2  $ 

76.3  $ 

434.9

Net carrying value as at May 6, 2017    $ 

172.9  $ 

78.7  $ 

216.7  $ 

131.4  $ 

147.9  $ 

132.9  $ 

880.5

Included in other intangibles at May 5, 2018 are liquor licenses of $5.4 (2017 – $5.4). These licenses have options to renew and 
it is the Company’s intention to renew these licenses at each renewal date indeﬁ nitely. Therefore, cash inﬂ ows are expected to 
be generated at each store location for which the license is valid, and these assets are considered to have indeﬁ nite useful lives. 
Also included in other intangibles as at May 5, 2018 and May 6, 2017 are the following amounts with indeﬁ nite useful lives: 
Loyalty programs – $11.4 (2017 – $11.4) and Private labels – $59.5 (2017 – $59.5). The Company has also determined that Brand names 
with a net carrying value of $172.8 (2017 – $172.8) have indeﬁ nite useful lives. All intangibles with indeﬁ nite useful lives relate to the 
food retailing segment. Impairment of these intangibles is assessed at least annually on the same basis as goodwill (Note 12).

Impairment of intangibles follows the same methodology as property and equipment (Note 3(q)). For the year ended May 5, 2018, 
impairment losses of $ nil (2017 – $ nil) and reversals of $0.7 were recorded (2017 – $0.4).

64

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

12. Goodwill

Opening balance 
Additions from business acquisitions 
Impairments 
Other adjustments 

Closing balance 

May 5, 2018 

May 6, 2017

$ 

$  1,003.4 
0.4 
– 
(1.9) 

998.7
5.8
(0.9)
(0.2)

$ 

1,001.9 

$ 

1,003.4

Goodwill arising from business acquisitions 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 ﬁ ve food retailing operating segments:

Atlantic 
Lawtons 
Ontario 
Quebec 
West 

Total 

May 5, 2018 

May 6, 2017

$ 

$ 

193.8 
17.1 
173.0 
615.6 
2.4 

193.8
17.1
172.6
617.5
2.4

$ 

1,001.9 

$ 

1,003.4

IMPAIRMENT OF GOODWILL

Goodwill arising on business acquisitions is not amortized but is reviewed for impairment on an annual basis, or more frequently, 
if indicators that goodwill may be impaired exist. The Company’s annual review of goodwill was performed during the third quarter 
of ﬁ scal 2018, and resulted in an impairment of $ nil being recorded (2017 – $0.9). In performing the review, the Company 
determined the recoverable amount of the CGU to which goodwill relates based on FVLCD. The key assumptions used by 
management to determine the fair value of the CGU includes industry earnings multiples in a range from 7.0 to 14.0 and is classiﬁ ed 
as Level 2 on the fair value hierarchy.

13. 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 
  Non-taxable items 
  Change in tax rates and subsidiary rate differential 
  Change in tax legislation 

Impact of equity investment transaction 

  Other 

May 5, 2018 

May 6, 2017

$ 

236.0 
27.1% 

64.0 

$ 

215.0
27.0%

58.1

0.1 
(2.9) 
(12.8) 
– 
5.0 
2.8 

1.3
(4.0)
(1.8)
(7.7)
–
(3.4)

Total income tax expense, combined effective tax rate of 23.8% (2017 – 19.8%) 

$ 

56.2 

$ 

42.5 

Current year income tax expense attributable to net earnings consists of:

Current tax expense 
Deferred tax recovery:
  Origination and reversal of temporary differences 
  Change in tax rates 

Total 

May 5, 2018 

May 6, 2017

$ 

109.5 

$ 

96.3

(40.5) 
(12.8) 

$ 

56.2 

$ 

(52.0)
(1.8)

42.5 

65

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Deferred taxes arising from temporary differences and unused tax losses can be summarized as follows:

May 5, 2018 

Accounts payable and accrued liabilities 
Employee future beneﬁ ts 
Equity   
Goodwill and intangibles 
Inventory 
Investments 
Long-term debt 
Other assets 
Other long-term liabilities 
Property, equipment, and investment property   
Provisions 
Partnership deferral reserve 
Tax loss carry forwards 
Other   

Recognized as:
Deferred tax assets 
Deferred tax liabilities 

May 6, 2017 

Accounts payable and accrued liabilities 
Employee future beneﬁ ts 
Equity   
Goodwill and intangibles 
Inventory 
Investments 
Long-term debt 
Other assets 
Other long-term liabilities 
Property, equipment, and investment property   
Provisions 
Partnership deferral reserve 
Tax loss carry forwards 
Other   

Recognized as:
Deferred tax assets 
Deferred tax liabilities 

Recognized in:

Other
Comprehensive
Income and 
Equity 

Opening 
Balance 

Business 
Acquisitions 

Net 
Earnings 

$ 

$ 

$ 
$ 

$ 

$ 

$ 
$ 

(3.7) 
104.6 
7.9 
248.0 
5.1 
(34.0) 
10.7 
(0.4) 
27.2 
(38.1) 
60.0 
8.2 
170.5 
0.1 

566.1 

709.9 
(143.8) 

$ 

$ 

$ 
$ 

– 
(5.2) 
– 
– 
– 
(1.1) 
– 
– 
– 
– 
– 
– 
– 
– 

(6.3) 

– 
(6.3) 

$ 

$ 

$ 
$ 

– 
– 
– 
– 
– 
– 
– 
– 
– 
– 
– 
– 
– 
– 

– 

– 
– 

Other
Comprehensive
Income and 
Equity 

Opening 
Balance 

Recognized in:

Business 
Acquisitions 

3.6 
91.9 
12.3 
293.6 
4.9 
(33.1) 
14.2 
(0.6) 
20.6 
(58.4) 
86.9 
(8.2) 
76.6 
0.2 

504.5 

646.2 
(141.7) 

$ 

$ 

$ 
$ 

– 
8.2 
– 
– 
– 
(0.2) 
– 
– 
– 
– 
– 
– 
– 
– 

8.0 

8.2 
(0.2) 

$ 

$ 

$ 
$ 

– 
– 
– 
(0.2) 
– 
– 
– 
– 
– 
– 
– 
– 
– 
– 

(0.2) 

– 
(0.2) 

$ 

$ 

$ 
$ 

$ 

$ 

$ 
$ 

(5.1) 
0.7 
(4.1) 
36.5 
(0.2) 
(4.8) 
(3.4) 
0.1 
2.6 
(67.1) 
14.4 
3.4 
81.0 
(0.7) 

53.3 

44.5 
8.8 

Net 
Earnings 

(7.3) 
4.5 
(4.4) 
(45.4) 
0.2 
(0.7) 
(3.5) 
0.2 
6.6 
20.3 
(26.9) 
16.4 
93.9 
(0.1) 

53.8 

55.5 
(1.7) 

Closing
Balance

(8.8)
100.1
3.8
284.5
4.9
(39.9)
7.3
(0.3)
29.8
(105.2)
74.4
11.6
251.5
(0.6)

613.1

754.4
(141.3)

Closing
Balance

(3.7)
104.6
7.9
248.0
5.1
(34.0)
10.7
(0.4)
27.2
(38.1)
60.0
8.2
170.5
0.1

566.1

709.9
(143.8)

$ 

$ 

$ 
$ 

$ 

$ 

$ 
$ 

As at May 5, 2018, the Company had approximately $909.0 of Canadian non-capital tax loss carry forwards, which expire between 
ﬁ scal 2033 and 2038. The remaining deductible temporary differences do not expire under current income tax legislation. All 
deferred tax assets (including tax losses and other tax credits) have been recognized in the consolidated balance sheets as it is 
probable that future taxable income will be available to the Company to utilize the beneﬁ ts of those assets. The amount of 
deferred tax assets and deferred tax liabilities that are expected to be recovered or settled beyond the next 12 months is $478.1.

66

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

14. Provisions

May 5, 2018 

Opening balance 
Provisions made 
Provisions used 
Provisions reversed 
Change due to discounting 

Closing balance 

Current 
Non-current 

Total 

LEASE CONTRACTS

Lease 
Contracts 

Legal 

Environmental 

Restructuring 

Onerous
Contracts 

$ 

$ 

$ 

$ 

29.9 
10.3 
(11.1) 
(3.2) 
1.9 

27.8 

12.8 
15.0 

27.8 

$ 

$ 

$ 

$ 

6.7 
7.4 
(4.7) 
(1.4) 
– 

8.0 

8.0 
– 

8.0 

$ 

$ 

$ 

$ 

$ 

49.0 
0.9 
(1.4) 
(0.6) 
1.5 

96.3 
149.4 
(72.4) 
(14.4) 
4.3 

49.4 

$ 

163.2 

2.4 
47.0 

49.4 

$ 

101.3 
61.9 

$ 

163.2 

$ 

$ 

$ 

$ 

12.0 
– 
(0.8) 
(2.7) 
– 

8.5 

3.1 
5.4 

8.5 

$ 

$ 

$ 

$ 

Total

193.9
168.0
(90.4)
(22.3)
7.7

256.9 

127.6
129.3

256.9 

Lease contract provisions are recorded when the expected beneﬁ ts 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 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 
sublease income received. Once the store is closed, a liability is recorded to reﬂ ect the present value of the expected liability 
associated with any lease contract and other contractually obligated costs. Onerous contract provisions for planned store or 
distribution centre closures as part of the Company’s rationalization activities are classiﬁ ed as restructuring provisions and are 
measured and recorded using the same methodology. Discounting of provisions resulting from lease contracts has been calculated 
using pre-tax discount rates ranging between 7.0% and 9.0%.

LEGAL COSTS

Legal provisions relate to claims of $8.0 that are outstanding as at May 5, 2018 (2017 – $6.7) that arose in the ordinary course of business.

ENVIRONMENTAL COSTS

In accordance with legal and environmental policy requirements, the Company has recorded provisions for locations requiring 
environmental restoration. These provisions relate to decommissioning liabilities recorded for gas station locations owned by the 
Company and other sites where restoration will be incurred 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 6.0%.

RESTRUCTURING

Restructuring provisions relate to the Company’s initiatives to simplify organizational structures and reduce costs. As a result of 
these initiatives, a $149.4 restructuring provision has been recorded during the ﬁ scal year ended May 5, 2018. Of this amount, 
$121.0 relates to a single organizational restructuring initiative and is expected to be utilized until ﬁ scal 2021. These costs have been 
recorded in selling and administrative expenses on the consolidated statement of earnings. Discounting of restructuring related 
provisions has been calculated using a pre-tax discount rate of 7.0%.

ONEROUS CONTRACTS

The Company disposed of certain manufacturing facilities in ﬁ scal 2015 and as part of the asset purchase agreement, long-term 
supply agreements were entered into that contain minimum purchase volume requirements. Under the terms of this asset purchase 
agreement, should actual purchases for the calendar year ending 2016 differ from minimum volume requirements, the sales price 
is adjusted up or down based on a volume-driven formula. During the year ended May 6, 2017, the Company paid $55.2 related to 
these long-term supply agreements where minimum purchase volume requirements for calendar 2016 were not met. The remaining 
obligation will be recognized until ﬁ scal 2021. Discounting of the sales price adjustment provision has been calculated using a 
pre-tax discount rate of 7.0%.

67

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. Long-term debt

First mortgage loans, weighted average interest rate 6.05%, due 2021 – 2033 
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 
Series 2013-1 Notes, interest rate 3.52%, due August 8, 2018 
Series 2013-2 Notes, interest rate 4.70%, due August 8, 2023 
Notes payable and other debt primarily at interest rates ﬂ uctuating with the prime rate 
Credit facilities due November 4, 2020, ﬂ oating interest rate tied to bankers’ acceptance rates 

Unamortized transaction costs 
Finance lease obligations, weighted average interest rate 6.04%, due 2019 – 2040 

Less amount due within one year 

May 5, 2018 

May 6, 2017

$ 

6.7 
– 
175.0 
125.0 
150.0 
500.0 
500.0 
137.1 
43.1 

1,636.9 
(6.0) 
36.0 

1,666.9 
527.4 

$ 

13.3
100.0
175.0
125.0
150.0
500.0
500.0
139.0
125.0

1,827.3
(8.5)
52.0

1,870.8
134.0

$ 

1,139.5 

$ 

1,736.8 

First mortgage loans are secured by land, buildings, and speciﬁ c charges on certain assets. Finance lease obligations are secured 
by the related ﬁ nance lease asset. Medium term notes and Series 2013-1 and 2013-2 Notes are unsecured.

On April 22, 2016, the Company extended the term of its $250.0 credit facility to a maturity date of November 4, 2020. As of May 5, 
2018, the outstanding amount of the credit facility was $43.1 (2017 – $125.0). Interest payable ﬂ uctuates with changes in the bankers’ 
acceptance rate, Canadian prime rate, or the London Interbank Offered Rate (“LIBOR”).

On June 2, 2017, Sobeys entered a new, senior, unsecured non-revolving credit facility for $500.0. The facility bears ﬂ oating interest 
tied to Canadian prime rate or bankers’ acceptance rates. The facility is intended to be used to repay long-term debt due in 
calendar 2018.

Pursuant to an agreement dated April 29, 2016, Sobeys amended and restated its revolving term credit facility (“RT Facility”). 
The principal amount was increased from $450.0 to $650.0 and Sobeys’ previous non-revolving, amortizing term credit facility was 
fully repaid and cancelled. As of May 5, 2018, the outstanding amount of the RT Facility was $ nil (2017 – $ nil), and Sobeys issued 
$39.5 in letters of credit against the RT Facility (2017 – $46.3). Interest payable on the RT Facility ﬂ uctuates with changes in the 
bankers’ acceptance rate, Canadian prime rate, or LIBOR, and the facility matures on November 4, 2020.

The following table reconciles the changes in cash ﬂ ows from ﬁ nancing activities for long-term debt.

Opening balance 

Issuance of debt 
Repayments 
Net repayment of credit facilities 

Total cash ﬂ ow used in long-term debt ﬁ nancing activities 
Finance lease additions 
Deferred ﬁ nancing costs 

Closing balance 

Principal debt retirement in each of the next ﬁ ve ﬁ scal years is as follows:

2019 
2020 
2021 
2022 
2023 
Thereafter 

68

May 5, 2018 

May 6, 2017

$  1,870.8 

$ 

2,367.4

63.7 
(188.2) 
(81.9) 

(206.4) 
– 
2.5 

55.6
(397.2)
(165.0)

(506.6)
7.5
2.5

$  1,666.9 

$ 

1,870.8

$ 

520.1
22.6
52.1
7.1
6.3
1,028.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

FINANCE LEASE LIABILITIES

Finance lease liabilities are payable in each of the next ﬁ ve ﬁ scal years as follows:

2019  
2020  
2021  
2022  
2023  
Thereafter 

Total 

Future Minimum 
Lease Payments 

Present Value of
  Minimum Lease
Payments

Interest 

$ 

$ 

9.2 
7.8 
5.4 
3.6 
3.5 
18.2 

47.7 

$ 

$ 

1.9 
1.6 
1.2 
1.0 
0.9 
5.1 

7.3
6.2
4.2
2.6
2.6
13.1

$ 

11.7 

$ 

36.0 

During ﬁ scal 2018, there were no additions to the Company’s ﬁ nance lease obligation (2017 – $7.5).

16. Other long-term liabilities

Deferred lease obligation 
Deferred revenue 
Other   

Total 

May 5, 2018 

May 6, 2017

$ 

$ 

148.2 
7.0 
3.4 

$ 

158.6 

$ 

127.2
9.1
5.4

141.7

17. Employee future benefits
The Company has a number of deﬁ ned contribution, deﬁ ned beneﬁ t, and multi-employer plans providing pension and other 
post-retirement beneﬁ ts to most of its employees.

DEFINED CONTRIBUTION PENSION PLANS

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

DEFINED BENEFIT PENSION PLANS

The ultimate retirement beneﬁ t is deﬁ ned by a formula that provides a unit of beneﬁ t for each year of service. Employee 
contributions, if required, pay for part of the cost of the beneﬁ t, and employer contributions fund the balance. The employer 
contributions are not speciﬁ ed or deﬁ ned within the plan text, but 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 deﬁ ned beneﬁ t plan typically exposes the Company to actuarial risks such as interest rate risk, mortality risk and salary risk.

Interest rate risk

The present value of the deﬁ ned beneﬁ t liability is calculated using a discount rate that reﬂ ects the average yield, as at the 
measurement date, on high quality corporate bonds of similar duration to the plans’ liabilities. A decrease in the market yield 
on high quality corporate bonds will increase the Company’s deﬁ ned beneﬁ t liability.

Mortality risk

The present value of the deﬁ ned beneﬁ t plan is calculated by reference to the best estimate of the mortality of plan participants 
both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.

Salary risk

The present value of the deﬁ ned beneﬁ t plan liability is calculated by reference to the future salary of the plan participants. As such, 
an increase in the salary of plan participants will increase the plan’s liability.

69

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company uses either January 1 or December 31 as an actuarial valuation date and May 1 as a measurement date for accounting 
purposes, for its deﬁ ned beneﬁ t pension plans.

Retirement Pension Plans 
Senior Management Pension Plans 
Other Beneﬁ t Plans 

MULTI-EMPLOYER PLANS

Most Recent Valuation Date 

Next Required Valuation Date

December 31, 2017 
December 31, 2016 
January 1, 2016 

December 31, 2020
December 31, 2019
January 1, 2019

The Company participates in various multi-employer pension plans which are administered by independent boards of trustees 
generally consisting of an equal number of union and employer representatives. Approximately 16% of employees in the Company 
and of its franchisees and afﬁ liates participate in these plans. Deﬁ ned beneﬁ t multi-employer pension plans are accounted for as 
deﬁ ned contribution plans as adequate information to account for the Company’s participation in the plans is not available due to 
the size and number of contributing employers in the plans. The Company’s responsibility to make contributions to these plans is 
limited by amounts established pursuant to its collective agreements. The contributions made by the Company to multi-employer 
plans are expensed as contributions are due.

During the year ended May 5, 2018, the Company recognized an expense of $46.3 (2017 – $45.1) in operating income, which 
represents the contributions made in connection with multi-employer pension plans. During ﬁ scal 2019, the Company expects 
to continue to make contributions into these multi-employer pension plans.

OTHER BENEFIT PLANS

The Company also offers certain employee post-retirement and post-employment beneﬁ t plans which are not funded and include 
health care, life insurance, and dental beneﬁ ts.

DEFINED CONTRIBUTION PLANS

The total expense, and cash contributions, for the Company’s deﬁ ned contribution plans was $32.1 for the year ended May 5, 2018 
(2017 – $32.1).

DEFINED BENEFIT PLANS

Information about the Company’s deﬁ ned beneﬁ t plans, in aggregate, is as follows:

Deﬁ ned beneﬁ t obligation
Balance, beginning of year 
Current service cost, net of employee contributions   
Interest cost 
Beneﬁ ts paid 
Past service costs – plan amendments 
Past service costs – curtailments 
Settlements 
Termination beneﬁ ts 
Remeasurement – actuarial (gains) losses included 

in other comprehensive income (loss) 

Pension Beneﬁ t Plans 

Other Beneﬁ t Plans

May 5, 2018 

May 6, 2017 

May 5, 2018 

May 6, 2017

$ 

$ 

890.3 
1.6 
27.3 
(58.7) 
– 
(2.9) 
1.3 
– 

$ 

871.2 
2.3 
29.4 
(57.7) 
1.5 
– 
1.0 
2.8 

$ 

164.3 
3.3 
5.3 
(5.6) 
– 
(0.4) 
– 
– 

152.6
3.2
5.2
(5.2)
–
–
–
–

(25.7) 

39.8 

(8.2) 

8.5

Balance, end of year 

$ 

833.2 

$ 

890.3 

$ 

158.7 

$ 

164.3

70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

Plan assets
Fair value, beginning of year 
Interest income on plan assets 
Remeasurement (loss) return on plan assets

(excluding amount in net interest)  

Employer contributions 
Beneﬁ ts paid 
Administrative costs 

Fair value, end of year 

Funded status
Total fair value of plan assets 
Present value of unfunded obligations 
Present value of partially funded obligations 

Pension Beneﬁ t Plans 

Other Beneﬁ t Plans

May 5, 2018 

May 6, 2017 

May 5, 2018 

May 6, 2017

$ 

680.6 
20.7 

$ 

687.0 
23.1 

$ 

$ 

– 
– 

(19.4) 
9.3 
(58.7) 
(1.8) 

19.6 
9.8 
(57.7) 
(1.2) 

– 
5.6 
(5.6) 
– 

$ 

630.7 

$ 

680.6 

$ 

– 

$ 

–
–

–
5.2
(5.2)
–

–

Pension Beneﬁ t Plans 

Other Beneﬁ t Plans

May 5, 2018 

May 6, 2017 

May 5, 2018 

May 6, 2017

$ 

630.7 
(93.2) 
(740.0) 

$ 

680.6 
(95.7) 
(794.6) 

$ 

– 
(158.7) 
– 

$ 

–
(164.3)
–

Accrued beneﬁ t liabilities 

$ 

(202.5) 

$ 

(209.7) 

$ 

(158.7) 

$ 

(164.3)

Expenses
Current service cost, net of employee contributions 
Net interest on net deﬁ ned beneﬁ t liability 
Administrative costs 
Past service costs – plan amendments 
Past service costs – curtailments 
Termination beneﬁ ts 
Settlement loss 

Expenses 

Pension Beneﬁ t Plans 

Other Beneﬁ t Plans

May 5, 2018 

May 6, 2017 

May 5, 2018 

May 6, 2017

$ 

$ 

1.6 
6.6 
1.8 
– 
(2.9) 
– 
1.3 

8.4 

$ 

$ 

2.3 
6.3 
1.2 
1.5 
– 
2.8 
1.0 

$ 

3.3 
5.3 
– 
– 
(0.4) 
– 
– 

$ 

15.1 

$ 

8.2 

$ 

3.2
5.2
–
–
–
–
–

8.4

Current and past service costs have been recognized within selling and administrative expenses, whereas interest costs and return 
on plan assets (excluding amounts in net interest costs) have been recognized within ﬁ nance costs, net on the consolidated 
statements of earnings.

Actuarial gains and losses recognized directly in other comprehensive income (loss):

Pension Beneﬁ t Plans 

Other Beneﬁ t Plans

May 5, 2018 

May 6, 2017 

May 5, 2018 

May 6, 2017

Remeasurement effects recognized 

in other comprehensive income (loss)

Loss (return) on plan assets (excluding amounts in net interest) 
Actuarial gain – experience changes 
Actuarial loss – demographic assumptions 
Actuarial (gain) loss – ﬁ nancial assumptions 

$ 

$ 

19.4 
(4.1) 
– 
(21.6) 

$ 

(19.6) 
(1.2) 
2.4 
38.6 

$ 

– 
– 
– 
(8.2) 

–
(0.1)
–
8.6

Remeasurement effects recognized 

in other comprehensive income (loss) 

$ 

6.3 

$ 

(20.2) 

$ 

8.2 

$ 

(8.5)

71

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The signiﬁ cant actuarial assumptions adopted in measuring the Company’s accrued beneﬁ t obligations are as follows 
(weighted-average assumptions as of May 5, 2018):

Discount rate 
Rate of compensation increase 

Pension Beneﬁ t Plans 

Other Beneﬁ t Plans

May 5, 2018 

May 6, 2017 

May 5, 2018 

May 6, 2017

3.40% 
3.50% 

3.25% 
3.50%

3.40% 

3.25%

For measurement purposes, a 5.50% ﬁ scal 2018 annual rate of increase in the per capita cost of covered health care beneﬁ ts was 
assumed (2017 – 5.75%). The cumulative rate expectation to 2020 and thereafter is 5.00%.

These assumptions were developed by management under consideration of expert advice provided by independent actuarial 
appraisers. These assumptions are used in the determination of the Company’s deﬁ ned beneﬁ t obligations and should be 
regarded as management’s best estimate. However, the actual outcome may vary. Estimation uncertainties exist especially 
in regard to medical cost trends, which may vary signiﬁ cantly in future appraisals of the Company’s obligations.

The table below outlines the sensitivity of the ﬁ scal 2018 key economic assumptions used in measuring the accrued beneﬁ t plan 
obligations and related expenses of the Company’s pension and other beneﬁ t plans. The sensitivity of each key assumption has 
been calculated independently. Changes to more than one assumption simultaneously may amplify or reduce impact on the 
accrued beneﬁ t obligations or beneﬁ t plan expenses.

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 Beneﬁ t Plans 

Other Beneﬁ t Plans

Beneﬁ t 
Obligations 

3.40% 
(103.0) 
130.2 

$ 
$ 

Beneﬁ t 

Cost(1) 

3.40% 
(2.8) 
1.3 

$ 
$ 

Beneﬁ t 
Obligations 

3.40% 
(19.4) 
24.0 
5.50% 
19.7 
(16.3) 

$ 
$ 

$ 
$ 

$ 
$ 

$ 
$ 

Beneﬁ t

Cost(1)

3.40%
0.3
(0.4)
5.50%
1.2
(1.0)

(1) Reﬂ ects the impact on the current service cost, interest cost, and net interest on deﬁ ned beneﬁ t liability (asset).
(2) Based on weighted average of discount rates related to all plans.
(3) Gradually decreasing to 5.00% in 2020 and remaining at that level thereafter.

The asset mix of the deﬁ ned beneﬁ t pension plans as at year end is as follows:

Canadian equity funds 
Foreign equity funds 
Fixed income funds 
Net working capital 

Total investments 

May 5, 2018 

May 6, 2017

6.6% 
14.1% 
79.1% 
0.2% 

8.8%
11.7%
79.2%
0.3%

100.0% 

100.0%

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

Empire Company Limited Non-Voting Class A shares  

May 5, 2018 

$ 

9.9 

% of Plan 
Assets 

May 6, 2017 

1.5% 

$ 

8.9 

% of Plan
Assets

1.3%

All of the securities are valued based on quoted prices (unadjusted) in active markets for identical assets or liabilities or based on 
inputs other than quoted prices in active markets that are observable for the asset or liability, either directly (as prices) or indirectly 
(derived from prices).

The actual (loss) return on plan assets was $(0.5) for the year ended May 5, 2018 (2017 – $41.5).

Management’s best estimate of contributions expected to be paid to the deﬁ ned beneﬁ t pension plans during the annual period 
beginning on May 6, 2018 and ending on May 4, 2019 is $26.7.

72

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

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 shares, without par value, voting 

Number of Shares

May 5, 2018 

May 6, 2017

991,980,000 
768,105,849 
122,400,000 

991,980,000
768,105,849
122,400,000

Issued and outstanding 

  Number of Shares 

May 5, 2018 

May 6, 2017

Non-Voting Class A shares, without par value 
Class B common shares, without par value, voting 
Shares held in trust 

Total 

173,547,591 
98,138,079 
(308,504) 

$  2,038.2 
7.3 
(6.0) 

$ 

2,037.8
7.3
(10.7)

$  2,039.5 

$ 

2,034.4

Under certain circumstances, where an offer (as deﬁ ned 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 ﬁ scal 2018, the Company paid common dividends of $114.0 (2017 – $111.3) to its equity holders. This represents a payment 
of $0.42 per share (2017 – $0.41 per share) for common share holders.

During the second quarter of ﬁ scal 2017, the Company established a trust fund to facilitate the purchase of Non-Voting Class A shares 
for the future settlement of vested units under the Company’s equity settled stock-based compensation plans. Contributions to 
the trust fund and the Non-Voting Class A shares purchased are held by AST Trust Company (Canada) as trustee. The trust fund is an 
SE and as such the accounts of the trust fund are included on the consolidated ﬁ nancial statements of the Company. The following 
represents the activity of shares held in trust:

Shares held in trust 

Balance, beginning of year 
Purchased 
Issued   

Balance, end of year 

19. Other income

Net gain on disposal of assets 
Lease revenue from owned property 
Dilution losses 

Total 

20. Employee benefits expense

Wages, salaries and other short-term employment beneﬁ ts 
Post-employment beneﬁ ts 
Termination beneﬁ ts 

Total 

  Number of Shares 

May 5, 2018 

May 6, 2017

$ 

(555,409) 
(5,683) 
252,588 

$ 

(10.7) 
(0.1) 
4.8 

(308,504) 

$ 

(6.0) 

$ 

–
(10.7)
–

(10.7)

May 5, 2018 

May 6, 2017

$ 

$ 

37.3 
23.9 
– 

61.2 

$ 

$ 

23.0
26.9
(1.7)

48.2 

May 5, 2018 

May 6, 2017

$ 

3,101.7 
36.8 
121.6 

$ 

3,078.3
44.2
14.9

$  3,260.1 

$ 

3,137.4

73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

21. Finance costs, net

Finance income
Interest income from cash and cash equivalents 
Fair value gains on forward contracts 
Investment income 
Accretion income on loans and other receivables 

Total ﬁ nance income 

Finance costs
Interest expense on ﬁ nancial liabilities measured at amortized cost 
Net pension ﬁ nance costs 
Accretion expense on provisions 

Total ﬁ nance costs 

Finance costs, net 

22. Earnings per share

Weighted average number of shares – basic (Note 18) 
Shares deemed to be issued for no consideration in respect of stock-based payments 

Weighted average number of shares – diluted 

23. Guarantees, commitments and contingent liabilities

GUARANTEES

Franchisees and afﬁ liates

May 5, 2018 

May 6, 2017

$ 

$ 

1.9 
3.2 
0.2 
0.7 

6.0 

96.9 
11.9 
7.7 

116.5 

110.5 

$ 

$ 

0.4
3.3
1.2
1.2

6.1

103.1
11.5
9.5

124.1

118.0

May 5, 2018 

May 6, 2017

271,783,850 
278,417 

271,948,133
3,374

272,062,267 

271,951,507

Sobeys is party to a number of franchise and operating agreements as part of its business model. These agreements contain 
clauses which require Sobeys to provide support to franchisee and afﬁ liate operators to offset or mitigate retail store losses, reduce 
store rental payments, minimize the impact of promotional pricing, and assist in covering other store related operating expenses. 
Not all of the ﬁ nancial support noted above will apply in each instance as the provisions of the agreements vary. Sobeys will 
continue to provide ﬁ nancial support pursuant to the franchise and operating agreements in future years.

During ﬁ scal 2017, Sobeys had a guarantee contract under the terms of which, should certain franchisees and afﬁ liates be unable 
to fulﬁ ll their lease obligations, Sobeys would be required to fund the greater of $7.0 or 9.9% of the authorized and outstanding 
obligation. During the year ended May 6, 2017, the guarantee contract expired.

During ﬁ scal 2017, Sobeys had guaranteed certain equipment leases of its franchisees and afﬁ liates. Under the terms of the 
guarantee, should franchisees and afﬁ liates be unable to fulﬁ ll their equipment lease obligations, Sobeys would be required to fund 
the difference of the lease commitments up to a maximum of $145.0 on a cumulative basis. During the year ended May 6, 2017, the 
guarantee contract expired.

During ﬁ scal 2009, Sobeys entered into an additional credit enhancement contract in the form of a standby letter of credit for 
certain franchisees and afﬁ liates for the purchase and installation of equipment. Under the terms of the contract, should franchisees 
and afﬁ liates be unable to fulﬁ ll their lease obligations or provide an acceptable remedy, Sobeys would be required to fund the 
greater of $6.0 or 10.0% (2017 – $6.0 or 10.0%) of the authorized and outstanding obligation annually. Under the terms of the 
contract, Sobeys is required to provide 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 ﬁ nancing terms to certain franchisees and afﬁ liates. The contract 
terms have been reviewed and Sobeys determined that there were no material implications with respect to the consolidation of SEs. 
As at May 5, 2018, the amount of the guarantee was $6.0 (2017 – $6.0).

74

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

Other

At May 5, 2018, the Company had entered into letters of credit issued in the aggregate amount of $52.7 (2017 – $62.2) to support 
the Company’s obligations.

Sobeys, through its subsidiaries, has guaranteed the payment of obligations under certain commercial development agreements. 
As at May 5, 2018, Sobeys has guaranteed $43.5 (2017 – $43.5) in obligations related to these agreements.

Upon entering into the lease of its Mississauga distribution centre, in March 2000, Sobeys guaranteed to the landlord the performance, 
by SERCA Foodservice Inc. (formerly a subsidiary of Sobeys Inc.), of all its obligations under the lease. The remaining term of the 
lease is two years with an aggregate obligation of $7.4 (2017 – $10.4). 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, ofﬁ ces, and equipment under non-cancellable operating leases. 
These leases have varying terms, escalation clauses, renewal options, and bases on which contingent rent is payable.

The total net, future minimum rent payable under the Company’s operating leases as of May 5, 2018 is approximately $4,551.6. This 
reﬂ ects a gross lease obligation of $5,534.0 reduced by expected sub-lease income of $982.4. The net commitments over the next 
ﬁ ve ﬁ scal years are:

2019  
2020  
2021  
2022  
2023  
Thereafter 

Third Parties 

Related Parties

Net Lease 
Obligation 

Gross Lease 
Obligation 

Net Lease 
Obligation 

Gross Lease
Obligation

$ 

256.0 
246.0 
224.0 
200.1 
171.8 
939.0 

$ 

366.0 
348.5 
321.4 
290.5 
256.4 
1,436.5 

$ 

166.2 
165.0 
165.9 
159.9 
161.0 
1,696.7 

$ 

166.2
165.0
165.9
159.9
161.0
1,696.7

The Company recorded $575.6 (2017 – $566.1) as an expense for minimum lease payments for the year ended May 5, 2018 on the 
consolidated statements of earnings. The expense was partly offset by sub-lease income of $118.3 (2017 – $104.9), and a further 
$5.3 (2017 – $13.1) 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 bases on which contingent rent is receivable.

Rental income for the year ended May 5, 2018 was $23.6 (2017 – $26.2) and was recognized within other income on the consolidated 
statements of earnings. In addition, the Company recognized $0.3 of contingent rent for the year ended May 5, 2018 (2017 – $0.3).

The lease payments expected to be received over the next ﬁ ve ﬁ scal years are:

2019 
2020 
2021 
2022 
2023 
Thereafter 

Third Parties

$ 

14.2
13.0
11.7
10.8
10.5
62.4

75

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CONTINGENT LIABILITIES

On June 21, 2005, Sobeys received a notice of reassessment from Canada Revenue Agency (“CRA”) for ﬁ scal years 1999 and 2000 
related to Lumsden Brothers Limited, a wholesale subsidiary of Sobeys, and the Goods and Service Tax (“GST”). The reassessment 
related to GST on sales of tobacco products to status Indians. CRA asserts that Sobeys was obliged to collect GST on sales of 
tobacco products to status Indians. The total tax, interest and penalties in the reassessment was $13.6 (2017 – $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 ﬁ scal 
2006, Sobeys ﬁ led a Notice of Objection with CRA. The matter is still under dispute and Sobeys has ﬁ led a Notice of Appeal with 
the Tax Court of Canada. Accordingly, Sobeys has not recorded on its statements of earnings any of the tax, interest or penalties in 
the notice of reassessment. Sobeys has deposited with CRA funds equal to 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, with which the Company is involved, 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 ﬁ ling positions are appropriate and supportable, from time to time certain matters are reviewed and challenged 
by the tax authorities.

24. Financial instruments 

CREDIT RISK

Credit risk is the risk of an unexpected loss if a customer or counterparty to a ﬁ nancial instrument fails to meet its contractual 
obligations. The Company’s ﬁ nancial instruments that are exposed to concentrations of credit risk are primarily cash and cash 
equivalents, receivables, loans and other receivables, 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, and guarantee contracts for franchisees and afﬁ liates (Note 23).

The Company mitigates credit risk associated with its trade receivables and loans receivables through established credit approvals, 
limits and a regular monitoring process. The Company generally considers the credit quality of its ﬁ nancial 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, ﬁ xed 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 by recognized credit rating 
agencies and have a credit rating of “A” or better to minimize credit risk.

Receivables are substantially comprised of balances due from independent accounts, franchisee or afﬁ liate 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 5, 2018 

May 6, 2017

$ 

$ 

344.9 
24.3 
91.5 

460.7 
(27.5) 

$ 

433.2 

$ 

342.7
23.3
75.2

441.2
(27.6)

413.6 

Interest earned on past due accounts is recorded as a reduction to selling and administrative expenses on the consolidated 
statements of earnings. Receivables are classiﬁ ed as current on the consolidated balance sheet as of May 5, 2018.

76

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

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 franchisee or afﬁ liate 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 franchisee or afﬁ liate 
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 on the 
consolidated statements of earnings and is presented as follows:

Allowance, beginning of year 
Provision for losses 
Recoveries 
Write-offs 

Allowance, end of year 

LIQUIDIT Y RISK

May 5, 2018 

May 6, 2017

$ 

$ 

27.6 
4.1 
(1.7) 
(2.5) 

$ 

27.5 

$ 

25.9
5.4
(0.4)
(3.3)

27.6 

Liquidity risk is the risk that the Company may not have cash available to satisfy ﬁ nancial liabilities as they come due. The Company 
actively maintains a committed credit facility to ensure that it has sufﬁ cient available funds to meet current and foreseeable future 
ﬁ nancial requirements at a reasonable cost.

The Company monitors capital markets and the related conditions, and monitors its cash ﬂ ows 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 signiﬁ cant 
ﬁ nancial liabilities on an undiscounted basis as at May 5, 2018:

2019 

2020 

2021 

2022 

2023 

Thereafter 

Total

Derivative ﬁ nancial liabilities
  Foreign currency swaps   
Non-derivative ﬁ nancial liabilities
  Accounts payable and 
  accrued liabilities 

  Long-term debt 

  $ 

2.5  $ 

12.9  $ 

–  $ 

–  $ 

–  $ 

–  $ 

15.4

2,253.8 
595.6 

– 
87.0 

– 
112.6 

– 
64.4 

– 
64.1 

– 
1,260.0 

2,253.8
2,183.7

Total 

  $ 

2,851.9  $ 

99.9  $ 

112.6  $ 

64.4  $ 

64.1  $  1,260.0  $  4,452.9

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a ﬁ nancial instrument is the estimated amount that the Company would receive to sell ﬁ nancial assets or pay to 
transfer ﬁ nancial liabilities in an orderly transaction between market participants at the measurement date.

The book value of cash and cash equivalents, receivables, current portion of 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, and investments 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 based on current market rates and 
consistency of credit spread. The fair value of long-term debt has been estimated by discounting future cash ﬂ ows at a rate offered 
for borrowings of similar maturities and credit quality.

The fair value of derivative ﬁ nancial assets and liabilities, classiﬁ ed as Level 2, is estimated using valuation models that utilize market 
based observable inputs. Management believes that its valuation technique is appropriate.

There were no transfers between classes of the fair value hierarchy during the year ended May 5, 2018.

The carrying amount of the Company’s ﬁ nancial instruments approximates their fair values with the following exception:

Long-term debt 

Total carrying amount 
Total fair value 

May 5, 2018 

May 6, 2017

$  1,666.9 
1,707.6 
$ 

$ 
$ 

1,870.8
1,893.0

77

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As at May 5, 2018, the fair value hierarchy includes ﬁ nancial assets at fair value through proﬁ t or loss of $ nil, $ nil, and $ nil for 
Levels 1, 2 and 3 respectively (2017 – $ nil, $1.1, and $ nil).

As at May 5, 2018, the fair value hierarchy includes ﬁ nancial assets at available for sale of $ nil in Level 1 (2017 – $25.1).

As at May 5, 2018, the fair value hierarchy includes ﬁ nancial liabilities at fair value through proﬁ t or loss of $ nil, $0.2, and $ nil 
for Levels 1, 2 and 3 respectively (2017 – $ nil, $0.9, and $ nil).

DERIVATIVE FINANCIAL INSTRUMENTS

Derivative ﬁ nancial instruments are recorded on the consolidated balance sheets at fair value unless the derivative instrument is 
a contract to buy or sell a non-ﬁ nancial 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 ﬁ nancial instruments are recognized 
in net earnings or loss unless it qualiﬁ es and is designated as an effective cash ﬂ ow 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 ﬁ nancial instrument designated as a cash ﬂ ow hedge are recorded in other assets and other 
long-term liabilities with the effective portion recorded in other comprehensive income or loss.

CASH FLOW HEDGES

The Company’s cash ﬂ ow hedges consist principally of foreign currency swaps, electricity sales agreements, and natural gas sales 
agreements. Foreign exchange contracts are used to hedge future purchases or expenditures of foreign currency denominated 
goods or services. Electricity and natural gas sales agreements are used to mitigate the risk of changes in market prices of 
electricity and natural gas. Gains and losses are initially recognized directly in other comprehensive income or loss and are 
transferred to net earnings or loss when the forecast cash ﬂ ows affect income or expense for the year.

As of May 5, 2018, the fair values of the outstanding derivatives designated as cash ﬂ ow hedges of forecast transactions were assets 
of $ nil (2017 – $1.1) and liabilities of $0.2 (2017 – $0.9).

Cash ﬂ ows from cash ﬂ ow hedges are expected to ﬂ ow over the next two years until ﬁ scal 2020, and are expected to be recognized 
in net earnings or loss over this period, and, in the case of foreign currency swaps, over the life of the related debt in which a portion 
of the initial cost is being hedged.

INTEREST RATE RISK

Interest rate risk is the potential for ﬁ nancial loss arising from changes in interest rates. Financial instruments that potentially subject 
the Company to interest rate risk include ﬁ nancial liabilities with ﬂ oating interest rates.

The Company manages interest rate risk by monitoring market conditions and the impact of interest rate ﬂ uctuations on its debt. 
The majority of the Company’s long-term debt is at ﬁ xed interest rates. Approximately 8.4% (2017 – 23.1%) of the Company’s 
long-term debt is exposed to interest rate risk due to ﬂ oating rates.

Net earnings or loss is sensitive to the impact of a change in interest rates on the average balance of interest bearing ﬁ nancial 
liabilities during the year. For the year ending May 5, 2018, the Company’s average outstanding unhedged ﬂ oating rate debt was 
$151.5 (2017 – $493.1). An increase (decrease) of 25 basis points would have impacted net earnings by $0.3 ($0.3) (2017 – $0.9 ($0.9)) 
as a result of the Company’s exposure to interest rate ﬂ uctuations on its unhedged ﬂ oating 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 ﬁ x the exchange rate on some of 
its expected requirements for foreign currencies. 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 ﬂ uctuations 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 or loss until the variability in cash ﬂ ows being hedged is recognized in 
net earnings or loss in future accounting periods.

The Company estimates that a 10% increase (decrease) in applicable foreign currency exchange rates would impact net earnings by 
$ nil ($ nil) (2017 – $ nil ($ nil)) and other comprehensive income (loss) by $1.1 ($1.1) (2017 – $1.3 ($1.3)) for foreign currency derivatives 
in place at year end.

78

Annual Report 2018

During the year ended May 7, 2016, Sobeys entered into seven Euro/Canadian dollar forward contracts at an approximate Canadian 
dollar value at inception of $68.6. The forward contracts were entered into to hedge and limit exposure to exchange rate 
ﬂ uctuations relating to future expenditures in Euros. The forward contracts matured on March 1, 2017.

MARKET RISK

Market risk is the risk that the fair value of investments will ﬂ uctuate as a result of changes in the price of the investment. The Company 
estimates that a 10% change in the market value of its investments that trade on a recognized stock exchange would impact net 
earnings by $ nil (2017 – $ nil) and other comprehensive income (loss) by $ nil (2017 – $2.2).

25. Segmented information
The Company’s reportable segments are Food retailing and Investments and other operations. The Food retailing segment is 
comprised of ﬁ ve operating segments: Sobeys West, Sobeys Ontario, Sobeys Quebec, Sobeys Atlantic, and Sobeys Pharmacy 
Group. These operating segments have been aggregated into one reportable segment, “Food retailing”, as they all share similar 
economic characteristics such as: product offerings, customer base and distribution methods. The Investments and other 
operations segment principally consists of investments, at equity, in Crombie REIT, real estate partnerships, and various other 
corporate operations.

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 on its 
consolidated ﬁ nancial statements.

No asymmetrical allocations of income, expense or assets have been applied between segments.

All sales are generated by the Food retailing segment. Operating income generated by each of the Company’s business segments 
is summarized as follows:

Segmented operating income
Food retailing 

Investments and other operations
  Crombie REIT 
  Real estate partnerships 
  Other operations, net of corporate expenses 

Total 

May 5, 2018 

May 6, 2017

$ 

273.6 

$ 

259.3

39.5 
33.9 
(0.5) 

72.9 

41.5
35.1
(2.9)

73.7

$ 

346.5 

$ 

333.0

Segment operating income can be reconciled to the Company’s earnings before income taxes as follows:

Total operating income 
Finance costs, net 

Total 

Total assets by segment
Food retailing 
Investments and other operations 

Total 

May 5, 2018 

May 6, 2017

$ 

$ 

346.5 
110.5 

236.0 

$ 

$ 

333.0
118.0

215.0 

May 5, 2018 

May 6, 2017

$  8,010.4 
651.6 

$ 

7,949.9
745.6

$  8,662.0 

$ 

8,695.5

79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26. Stock-based compensation

PERFORMANCE SHARE UNIT PLAN

The Company has awarded performance share units (“PSUs”) to certain employees. The number of PSUs that vest under an award, for 
the most part, is dependent on time and the achievement of speciﬁ c performance measures. Upon vesting, each employee is entitled 
to receive Non-Voting Class A shares equal to the number of their vested PSUs. The weighted average fair value of $20.75 per PSU 
issued during the current year was determined using the Black Scholes model with the following weighted average assumptions:

 Share price 
Expected life 
Risk-free interest rate 
Expected volatility 
Dividend yield 

$21.60
2.04 years
1.19%
26.65%
1.95%

At May 5, 2018, there were 471,693 (2017 – 861,933) PSUs outstanding. The compensation expense for the year ended May 5, 2018 
related to PSUs was $4.3 (2017 – $ nil).

STOCK OPTION PLAN

During ﬁ scal 2018, the Company granted 1,338,980 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 $3.62 per option issued during the 
year was determined using the Black Scholes model with the following weighted average assumptions:

 Share price 
Expected life 
Risk-free interest rate 
Expected volatility 
Dividend yield 

$19.43
7.99 years
1.33%
22.44%
2.17%

The compensation expense for the year ended May 5, 2018 related to the issuance of options was $2.6 (2017 – $3.3). The total 
increase in contributed surplus related to stock options during the year ended May 5, 2018 was $2.6 (2017 – $3.3).

The outstanding options at May 5, 2018 were granted at prices between $15.60 and $30.87 and expire between June 2018 and 
June 2025 with a weighted average remaining contractual life of 5.20 years. Stock option transactions during ﬁ scal 2018 and 2017 
were as follows:

Balance, beginning of year 
Granted 
Exercised 
Expired 
Forfeited 

Balance, end of year 

2018 

2017

Number of 
Options 

  4,949,863 
  1,338,980 
(122,805) 
(749,971) 
(729,912) 

$ 

Weighted 
Average 
Exercise 
Price 

24.27 
19.43 
22.26 
25.92 
23.45 

$ 

Number of 
Options 

  3,655,322 
  1,642,700 
– 
– 
(348,159) 

  4,686,155 

$ 

22.81 

  4,949,863 

$ 

Weighted
Average
Exercise
Price

25.94
20.40
–
–
23.51

24.27

Stock options exercisable, end of year 

  2,301,032 

  2,110,743

80

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

The following table summarizes information related to stock options outstanding at May 5, 2018:

Year Granted 

2011  
2012  
2013  
2014  
2015  
2016  
2017  
2018  

Total 

Options Outstanding 

Options Exercisable

Weighted
Average 
Remaining 
Contractual 

Weighted 
Average 
Life(1)  Exercise Price 

Number 
Exercisable at 
May 5, 2018 

Weighted
Average
Exercise Price

$ 

0.15 
1.16 
2.16 
3.16 
4.17 
5.17 
6.18 
7.18 

$ 

17.33 
18.13 
17.98 
26.30 
22.44 
30.04 
20.28 
19.46 

14,418 
10,392 
14,262 
  1,387,806 
401,000 
179,871 
293,283 
– 

5.20 

$ 

22.81 

  2,301,032 

$ 

17.33
18.13
17.98
26.30
22.44
30.04
20.29
–

25.01

Number of 
Outstanding 
Options 

14,418 
10,392 
14,262 
  1,387,806 
530,337 
354,659 
  1,138,136 
  1,236,145 

  4,686,155 

(1)  Weighted average remaining contractual life is expressed in years.

DEFERRED STOCK UNIT PLANS

In the ﬁ rst quarter of ﬁ scal 2017, the Company implemented a new employee deferred stock unit (“DSU”) plan. The DSUs issued 
to employees vest dependent on time and the achievement of speciﬁ c performance measures. At May 5, 2018, there were 803,777 
(2017 – 578,444) DSUs outstanding related to this plan and the total carrying amount of the liability was $8.2 (2017 – $1.9). The 
compensation expense for the year ended May 5, 2018 related to DSUs was $7.4 (2017 – $1.9).

Members of the Board of Directors may elect to receive all or any portion of their fees in 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’ or employees’ fee 
payment date. At May 5, 2018, there were 198,240 (2017 – 263,199) DSUs outstanding and the total carrying amount of the liability 
was $4.9 (2017 – $5.7). During the year ended May 5, 2018, the compensation expense recorded was $2.1 (2017 – $1.5).

Under both DSU plans, vested DSUs cannot be redeemed until the employee has left the Company or the holder is no longer a 
director of the Company, respectively. 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.

27. Related party transactions
The Company has related party transactions with Crombie REIT and key management personnel. The Company holds a 41.5% 
ownership interest in Crombie REIT and accounts for its investment using the equity method.

The Company leased certain real property from Crombie REIT during the year at amounts which in management’s opinion 
approximate fair market value that would be incurred if leased from a third party. Management has determined these amounts 
to be fair value based on the signiﬁ cant number of leases negotiated with third parties in each market it operates. The aggregate 
net payments under these leases, which are measured at exchange amounts, totaled approximately $199.7 (2017 – $195.8).

Crombie REIT provides administrative and management services to the Company on a fee for service basis pursuant to a 
Management Agreement effective January 1, 2016. The Management Agreement replaces the previous arrangement where 
charges incurred were on a cost recovery basis.

On July 4, 2017, Crombie REIT redeemed its 5.00% Series D Convertible Unsecured Subordinate Debentures. In exchange for its 
investment in the Series D convertible debentures, the Company received $24.3 in principal and interest payments. There was no 
gain or loss recognized on the redemption. During the year ended May 5, 2018, the Company received interest from Crombie REIT 
of $0.2 (2017 – $1.2).

On April 6, 2018, Sobeys and its wholly-owned subsidiaries entered into an agreement with Crombie REIT to sell a portfolio of 
11 properties, nine of which were leased back. Total cash proceeds to the Company and its wholly-owned subsidiaries from this 
transaction were $88.1, resulting in a pre-tax gain of $13.2 which has been recognized on the consolidated statements of earnings.

On September 29, 2017, Sobeys sold a property to Crombie REIT for cash consideration of $6.4. This resulted in a pre-tax gain 
of $0.2, which has been recognized in other income on the consolidated statements of earnings.

81

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On June 29, 2016, Sobeys and its wholly-owned subsidiaries entered into an agreement with Crombie REIT to sell and leaseback 
a portfolio of 19 retail properties and a 50% interest in each of its three automated distribution centres, as well as the sale of 
two parcels of development land which were previously owned by Empire. Crombie REIT also invested approximately $58.8 in 
renovations or expansions of ten Sobeys retail locations already in Crombie REIT’s portfolio. In addition to cash, Crombie REIT 
issued to a subsidiary of the Company $93.4 in value of Crombie Limited Partnership (“CLP”) Class B units with attached Crombie 
REIT special voting units at a price of $14.70 per unit. The subsidiary of the Company subsequently sold its CLP Class B units to 
Empire on a tax deferred basis. Total cash proceeds to the Company and its wholly-owned subsidiaries from these transactions with 
Crombie REIT and Empire were $323.8, resulting in a pre-tax loss of $0.8 which has been recognized on the consolidated statements 
of earnings. Proceeds from the transactions were used to repay the senior unsecured notes.

On July 29, 2016, Sobeys, through a wholly-owned subsidiary, sold and leased back an additional property from Crombie REIT for 
cash consideration of $26.4. This resulted in a pre-tax gain of $2.1, which has been recognized on the consolidated statements of 
earnings. Sobeys also purchased one property from Crombie REIT for $9.1.

During ﬁ scal 2014, Sobeys entered into a loan agreement with Crombie REIT to partially ﬁ nance Sobeys’ acquisition of a property 
in British Columbia. The $11.9 loan bore interest at a rate of 6.0% and had no principal repayments. On May 5, 2017, Sobeys sold 
the property to Crombie REIT for cash consideration of $31.1, resulting in a pre-tax gain of $1.0, which has been recognized on 
the consolidated statements of of earnings. Proceeds from the transaction were used to repay the loan.

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 is comprised of:

Salaries, bonus and other short-term employment beneﬁ ts 
Post-employment beneﬁ ts 
Termination beneﬁ ts 
Share-based payments 

Total 

INDEMNITIES

May 5, 2018 

May 6, 2017

$ 

$ 

13.3 
1.5 
0.8 
9.8 

25.4 

$ 

$ 

9.7
1.6
8.7
14.8

34.8

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

28. Capital management
The Company’s objectives when managing capital are: (i) ensure sufﬁ cient liquidity to support its ﬁ nancial 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 ﬁ nancial ﬂ exibility 
while also ensuring compliance with any ﬁ nancial covenants; and (iv) to maintain an investment grade credit rating with each rating 
agency that assesses the credit worthiness of the Company. There have been no changes to the Company’s objectives during the 
year ended May 5, 2018.

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:

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 

82

May 5, 2018 

May 6, 2017

$ 

527.4 
1,139.5 

1,666.9 
(627.9) 

1,039.0 
3,702.8 

$ 

134.0
1,736.8

1,870.8
(207.3)

1,663.5
3,644.2

$ 

4,741.8 

$ 

5,307.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

Although the Company does not include operating leases in its deﬁ nition 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, renovation, expansion, and improvements to existing stores. These additions and modiﬁ cations to the store network 
include related leasehold improvements 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 ﬂ ow from operations to fund its capital investment program and dividend distributions to its shareholders. The cash ﬂ ow is 
supplemented, when necessary, through the incurrence of additional debt or the issuance of additional capital stock. No changes 
were made to these objectives in the current year.

Management monitors certain key ratios to effectively manage the capital structure and debt obligations of the Company:

Funded debt to total capital(1) 
Funded debt to EBITDA(2) 
EBITDA to interest expense(2) 

May 5, 2018 

May 6, 2017

31.0% 
2.1 x 
8.1 x 

33.9%
2.4 x
7.5 x

(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 consists of operating 

income plus depreciation and amortization of intangibles, while interest expense consists of interest expense on ﬁ nancial liabilities measured at amortized 
cost plus losses on cash ﬂ ow hedges reclassiﬁ ed from other comprehensive income or loss.

Under the terms of existing debt agreements, three ﬁ nancial covenants are monitored 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 deﬁ ned by the credit agreements and for the previous 
52 weeks); (ii) lease adjusted debt/EBITDAR – calculated as adjusted total debt plus eight times rent divided by EBITDAR (as deﬁ ned 
by the credit agreements and for the previous 52 weeks); and (iii) debt service coverage ratio – calculated as EBITDA divided by 
interest expense plus repayments of long-term debt (as deﬁ ned by the credit agreements and for the previous 52 weeks). The 
Company was in compliance with these covenants during the year.

83

 
 
 
 
 
 
 
 
 
 
 
ELEVEN-YEAR FINANCIAL REVIEW

Year Ended(1) 

Financial Results ($ in millions)
Sales 
Operating income (loss) 
Finance costs, net 
Income tax expense (recovery) 
Non-controlling interest 
Net earnings (loss)(5) 
Adjusted net earnings(5) 

Financial Position ($ in millions) 
Total assets 
Long-term debt (excluding current portion) 
Shareholders’ equity(5) 

Per Share Data on a Fully Diluted Basis ($ per share)  
Net earnings (loss)(5) 
Adjusted net earnings(5) 
Dividends 
  Non-Voting Class A shares 
  Class B common shares 
Book value 

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

Empire Company Limited

2018 

2017 

2016 (2)(3) 

2015 

$  24,214.6 
346.5 
110.5 
56.2 
20.3 
159.5 
344.3 

$  23,806.2 
333.0 
118.0 
42.5 
14.0 
158.5 
191.3 

$  24,618.8 
(2,418.5) 
137.4 
(441.3) 
16.4 
(2,131.0) 
410.2 

$  23,928.8 
742.4 
155.1 
150.4 
17.9 
419.0 
511.0 

8,662.0 
1,139.5 
3,702.8 

8,695.5 
1,736.8 
3,644.2 

9,138.5 
2,017.0 
3,623.9 

11,497.2 
2,230.2 
5,986.7 

0.59 
1.27 

0.420 
0.420 
13.62 

26.15 
18.74 
25.01 

272.1 

0.58 
0.70 

0.410 
0.410 
13.40 

22.56 
15.00 
21.50 

272.0 

(7.78) 
1.50 

0.400 
0.400 
13.23 

30.79 
20.23 
21.09 

274.0 

1.51 
1.84 

0.360 
0.360 
21.61 

31.60 
21.67 
29.15 

277.2 

Diluted weighted average number of shares outstanding (in millions)   

(1)  Fiscal years end the ﬁ rst Saturday in May, consistent with the ﬁ scal year-end of Sobeys Inc. Financial data for ﬁ scal 2008 to 2010, with the exception of the 

balances noted for ﬁ nancial position for ﬁ scal 2010, were prepared using CGAAP and have not been restated to IFRS. Fiscal 2011 and 2016 are 53-week years.

(2) Amounts have been reclassiﬁ ed to correspond to the current period presentation on the consolidated balance sheets.
(3) Amounts have been restated. See “Changes to Accounting Policies Adopted During Fiscal 2017” section of the ﬁ scal 2017 annual MD&A for further detail.
(4)  Certain balances have been reclassiﬁ ed for changes to comparative ﬁ gures for ﬁ scal 2011. See Note 32 to the Company’s ﬁ scal 2012 audited annual 

consolidated ﬁ nancial statements.

(5) Net of non-controlling interest.

84

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2018

2014 

2013 

2012 

2011(4) 

2010 

2009 

2008

$  20,957.8 
326.7 
131.4 
36.3 
8.0 
235.4 
390.6 

$  17,343.9 
573.2 
55.4 
136.4 
9.1 
379.5 
390.7 

$  16,249.1 
534.3 
59.9 
122.3 
12.7 
339.4 
322.7 

$  15,956.8 
525.7 
75.4 
122.0 
9.0 
400.6 
303.2 

$  15,516.2 
479.7 
72.5 
99.1 
5.6 
301.9 
284.5 

$  15,015.1 
466.2 
80.6 
115.4 
8.3 
264.7 
261.7 

$  14,065.0 
472.6 
105.8 
125.9 
12.8 
315.8 
242.8 

12,236.6 
3,282.1 
5,700.5 

7,140.4 
915.9 
3,724.8 

6,913.1 
889.1 
3,396.3 

6,518.6 
1,090.3 
3,162.1 

6,248.3 
821.6 
2,952.4 

5,891.1 
1,124.0 
2,678.8 

5,729.4 
1,414.1 
2,378.8 

0.98 
1.62 

0.347 
0.347 
20.59 

27.75 
21.68 
22.88 

240.6 

1.86 
1.91 

0.320 
0.320 
18.27 

22.88 
17.85 
22.86 

204.2 

1.66 
1.58 

0.300 
0.300 
16.66 

21.00 
17.57 
19.21 

204.2 

1.96 
1.48 

0.267 
0.267 
15.49 

19.71 
17.02 
18.05 

204.6 

1.47 
1.39 

0.247 
0.247 
14.36 

17.98 
13.23 
17.66 

205.4 

1.34 
1.33 

0.233 
0.233 
13.02 

18.26 
12.21 
16.33 

197.4 

1.60 
1.23 

0.220 
0.220 
12.03 

18.40 
11.80 
13.08 

197.2

85

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Empire Company Limited

SHAREHOLDER AND INVESTOR INFORMATION

Empire Company Limited
115 King Street
Stellarton, Nova Scotia
B0K 1S0
Telephone: (902) 752-8371
Fax: (902) 755-6477
www.empireco.ca

Dividend Record and Payment Dates for Fiscal 2019

Record Date 

July 13, 2018 
October 15, 2018* 
January 15, 2019* 
April 15, 2019* 

Payment Date

July 31, 2018
October 31, 2018*
January 31, 2019*
April 30, 2019*

* Subject to approval by the Board of Directors.

Investor Relations and Inquiries
Shareholders, analysts and investors should direct their 
ﬁ nancial inquiries or requests to:

Outstanding Shares

As at June 28, 2018

E-mail: investor.relations@empireco.ca

Communication regarding investor records including changes 
of address or ownership, lost certiﬁ cates or tax forms, should 
be directed to the Company’s transfer agent and registrar, 
AST Trust Company (Canada).

Afﬁ liated Company Web Address
www.sobeyscorporate.com

Transfer Agent
AST Trust Company (Canada)
Investor Correspondence
P.O. Box 700, Station B
Montreal, Québec
H3B 3K3
Telephone: 1-800-387-0825
E-mail: inquiries@astﬁ nancial.com

Multiple Mailings
If you have more than one account, you may receive a 
separate mailing for each. If this occurs, please contact 
AST Trust Company (Canada) at 1-800-387-0825 to 
eliminate the multiple mailings.

Shareholders’ Annual General Meeting
September 13, 2018 at 11:00 a.m. (ADT)
Cineplex Cinemas
612 East River Road
New Glasgow, Nova Scotia

Non-Voting Class A shares 
Class B common shares, voting 

173,548,969
98,138,079

Stock Exchange Listing
The Toronto Stock Exchange

Stock Symbol
Non-Voting Class A shares – EMP.A

Bankers
The Bank of Nova Scotia
Bank of Montreal
MUFG Bank, Ltd.
Canadian Imperial Bank of Commerce
National Bank of Canada
Rabobank Nederland
Royal Bank of Canada
The Toronto-Dominion Bank
Caisse Centrale Desjardins

Solicitors
Stewart McKelvey
Halifax, Nova Scotia

Auditor
PricewaterhouseCoopers, LLP
Halifax, Nova Scotia

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www.empireco.ca