Empire Company Posts Q2 Results - Net Earnings before Capital Gains (Losses)
and Other Items of $72.1 Million (up 14.3 percent) and Net Earnings of $70.4
Million (up 7.3 percent)

STELLARTON, NS, Dec. 10 /CNW/ - Empire Company Limited (TSX: EMP.A) today announced financial results for its second quarter ended October 31, 2009. For the second quarter, the Company recorded earnings before capital gains (losses) and other items of $72.1 million ($1.06 per share) compared to $63.1 million ($0.96 per share) in the second quarter last year, a $9.0 million or 14.3 percent increase.

Second Quarter Highlights

    
    - Revenue of $3.87 billion, up $146.8 million or 3.9 percent.
    - Sobeys Inc. ("Sobeys") same-store sales increased 2.7 percent.
    - Earnings before capital gains (losses) and other items of $72.1 million
      ($1.06 per share) compared to $63.1 million ($0.96 per share) last
      year.
    - Capital gains (losses) and other items, net of tax, of ($1.7) million
      versus $2.5 million last year.
    - Net earnings of $70.4 million ($1.03 per share) compared to $65.6
      million ($1.00 per share) last year.
    - Net debt to total capital of 27.5 percent, down from 28.6 percent at
      the end of the last fiscal year and 34.5 percent at the end of Q2 last
      year.

    -------------
    Note: As a result of the equity issue completed on April 24, 2009, Empire
    had a diluted weighted average number of shares outstanding of 68.5
    million in the second quarter ended October 31, 2009 compared to 65.7
    million in the second quarter last year.
    

Commenting on the results, Paul Sobey, President and CEO stated, "Empire's consolidated earnings and financial condition continued to strengthen in the second quarter of fiscal 2010 compared to the second quarter last year. The key driver of Empire's growth continues to be Sobeys which recorded a 20.4 percent increase in operating earnings. The positive trend in earnings reflects ongoing growth in Sobeys' same-store sales, the impact of merchandising innovations and the disciplined implementation of supply chain and other productivity initiatives."

CONSOLIDATED FINANCIAL OVERVIEW

Revenue

Consolidated revenue for the second quarter equalled $3.87 billion compared to $3.73 billion last year, an increase of $146.8 million or 3.9 percent. Sobeys' revenue equalled $3.81 billion, an increase of $146.9 million or 4.0 percent compared to the second quarter last year. Sobeys' second quarter same-store sales increased 2.7 percent.

Real estate division revenue in the second quarter was $18.7 million, an increase of $1.0 million from the $17.7 million recorded in the second quarter last year. Commercial property revenue increased by $0.7 million while residential property revenue increased by $0.3 million from the second quarter last year.

Investments and other operations recorded revenue of $52.3 million in the second quarter versus $50.6 million in the second quarter last year, an increase of $1.7 million.

Operating Income

Consolidated operating income in the second quarter was $120.7 million, an increase of $7.4 million or 6.5 percent from the $113.3 million recorded in the second quarter last year.

The contributors to the change in consolidated operating income from the second quarter last year were as follows:

    
    (i)   Sobeys' operating income contribution to Empire in the second
          quarter totalled $106.3 million, an increase of $11.7 million or
          12.4 percent from the $94.6 million recorded in the second quarter
          last year.
    (ii)  Residential property operating income contribution in the second
          quarter was $7.3 million, a decrease of $0.2 million from the $7.5
          million recorded in the second quarter last year.
    (iii) Commercial property operating income for the quarter was
          $6.3 million compared to $4.5 million in the second quarter last
          fiscal year, an increase of $1.8 million. Crombie REIT contributed
          $4.9 million to operating income in the second quarter versus a
          $3.8 million contribution in the second quarter last year.
    (iv)  Investments and other operations (net of corporate expenses)
          contributed operating income of $0.8 million in the second quarter
          compared to $6.7 million in the second quarter last year. Equity
          accounted earnings generated from the Company's 27.6 percent
          interest in Wajax Income Fund ("Wajax") amounted to $1.9 million in
          the second quarter versus $5.1 million in the second quarter last
          year. Operating income generated from other operations (net of
          corporate expenses) amounted to ($1.1) million compared to
          $1.6 million in the second quarter last year.
    

The table below presents a summary of financial performance for the 13 and 26 weeks ended October 31, 2009 compared to the 13 and 26 weeks ended November 1, 2008.

    
    Summary Table of Consolidated Financial Results


                                  13 Weeks Ended           26 Weeks Ended
                             ----------------------   ----------------------
    ($ in millions, except      Oct. 31,     Nov. 1,    Oct. 31,     Nov. 1,
     per share information)        2009      2008(1)       2009      2008(1)
                             ----------  ----------  ----------  -----------
    Segmented revenue
      Food retailing         $  3,807.0  $  3,660.1  $  7,713.7  $  7,371.6
                             ----------  ----------  ----------  -----------
      Real estate
        Residential                14.0        13.7        25.4        33.7
        Commercial                  4.7         4.0         8.4         8.9
                             ----------  ----------  ----------  -----------
                                   18.7        17.7        33.8        42.6
                             ----------  ----------  ----------  -----------
      Investments and
       other operations            52.3        50.6        99.6        92.7
                             ----------  ----------  ----------  -----------
                                3,878.0     3,728.4     7,847.1     7,506.9
      Elimination                  (3.3)       (0.5)       (3.9)       (0.8)
                             ----------  ----------  ----------  -----------
                             $  3,874.7  $  3,727.9  $  7,843.2  $  7,506.1
                             ----------  ----------  ----------  -----------
                             ----------  ----------  ----------  -----------

    Segmented operating
     income
      Food retailing         $    106.3  $     94.6  $    227.9  $    200.9
                             ----------  ----------  ----------  -----------
      Real estate
        Residential                 7.3         7.5        12.4        21.2
        Crombie REIT(2)             4.9         3.8         9.8         8.4
        Commercial                  1.4         0.7         1.1         1.9
                             ----------  ----------  ----------  -----------
                                   13.6        12.0        23.3        31.5
                             ----------  ----------  ----------  -----------

      Investments and
       other operations
        Wajax(3)                    1.9         5.1         4.6        10.6
        Other investments
         and operations,
         net of corporate
         expenses                  (1.1)        1.6        (4.9)       (1.4)
                             ----------  ----------  ----------  -----------
                                    0.8         6.7        (0.3)        9.2
                             ----------  ----------  ----------  -----------
                             $    120.7  $    113.3  $    250.9  $    241.6
                             ----------  ----------  ----------  -----------
                             ----------  ----------  ----------  -----------

    Earnings before capital
     gains (losses) and
     other items             $     72.1  $     63.1  $    144.3  $    134.0
    Capital gains (losses)
     and other items, net
     of tax                        (1.7)        2.5        15.8         7.3
                             ----------  ----------  ----------  -----------
    Net earnings             $     70.4  $     65.6  $    160.1  $    141.3
                             ----------  ----------  ----------  -----------
                             ----------  ----------  ----------  -----------

    Basic earnings per share
    Operating earnings       $     1.06  $     0.96  $     2.11  $     2.04
    Capital gains (losses)
     and other items, net
     of tax                       (0.03)       0.04        0.23        0.11
                             ----------  ----------  ----------  -----------
    Net earnings             $     1.03  $     1.00  $     2.34  $     2.15
                             ----------  ----------  ----------  -----------
                             ----------  ----------  ----------  -----------
    Basic weighted average
     number of shares
     outstanding
     (in millions)(4)              68.4        65.6        68.4        65.6
                             ----------  ----------  ----------  -----------
                             ----------  ----------  ----------  -----------

    Diluted earnings per
     share
    Operating earnings       $     1.06  $     0.96  $     2.11  $     2.04
    Capital gains (losses)
     and other items, net
     of tax                       (0.03)       0.04        0.23        0.11
                             ----------  ----------  ----------  -----------
    Net earnings             $     1.03  $     1.00  $     2.34  $     2.15
                             ----------  ----------  ----------  -----------
                             ----------  ----------  ----------  -----------
    Diluted weighted average
     number of shares
     outstanding
     (in millions)(4)              68.5        65.7        68.5        65.7
                             ----------  ----------  ----------  -----------
                             ----------  ----------  ----------  -----------
    Annualized dividends
     per share               $     0.74  $     0.70
                             ----------  ----------
                             ----------  ----------
    ----------------
    (1) Amounts have been restated as a result of a change in accounting
        policy and a reclassification with respect to goodwill and intangible
        assets. Please refer to note 1 of the unaudited consolidated
        financial statements for the second quarter ended October 31, 2009.
    (2) 47.4 percent equity accounted interest in Crombie REIT.
    (3) 27.6 percent equity accounted interest in Wajax.
    (4) The increase in the weighted average number of shares outstanding
        reflects an equity issue completed on April 24, 2009 which resulted
        in a total of 2,713,000 shares being issued.
    

Additional segmented information is contained in note 12 of the unaudited consolidated financial statements for the second quarter of fiscal 2010 included in this release.

Interest Expense

Interest expense in the second quarter amounted to $18.0 million, a decrease of $2.4 million or 11.8 percent from the $20.4 million recorded in the same quarter last year. The decline in interest expense largely reflects lower funded debt levels which are principally related to repaying debt with the net proceeds of $129.1 million from the equity issue completed on April 24, 2009, as well as with free cash flow generated by Sobeys.

Consolidated funded debt was $1,284.1 million at the end of the second quarter of fiscal 2010 compared to $1,475.8 million at the end of the second quarter last year, a $191.7 million or 13.0 percent decrease.

Income Taxes

The Company's effective income tax rate for the second quarter was 29.6 percent compared to 29.4 percent in the second quarter of fiscal 2009.

Earnings before Capital Gains (Losses) and Other Items

For the 13 weeks ended October 31, 2009, Empire recorded earnings before capital gains (losses) and other items of $72.1 million ($1.06 per share) versus $63.1 million ($0.96 per share) last year, a $9.0 million or 14.3 percent increase. The increase in earnings before capital gains (losses) and other items is the result of a $7.4 million increase in operating income, a $2.4 million reduction in interest expense and a $2.3 million decline in minority interest, partially offset by an increase in income taxes of $3.1 million.

Empire's per share earnings were impacted by an increase in the weighted average number of shares outstanding, to 68.5 million on a diluted basis from 65.7 million last year, as a result of an equity issue completed April 24, 2009.

The table below presents Empire's segmented earnings before capital gains (losses) and other items by division for the 13 and 26 weeks ended October 31, 2009 compared to the 13 and 26 weeks ended November 1, 2008.

    
    -------------------------------------------------------------------------
                           13 Weeks Ended                 26 Weeks Ended
                      -------------------------  ----------------------------
                      Oct. 31,  Nov. 1,      ($)  Oct. 31,   Nov. 1,     ($)
    ($ in millions)      2009   2008(1)  Change      2009    2008(1) Change
    -------------------------------------------------------------------------
    Food retailing(2)  $ 64.9   $ 53.9   $ 11.0    $134.1    $112.1  $ 22.0
    Real estate           8.8      7.4      1.4      14.9      20.5    (5.6)
    Investments &
     other operations    (1.6)     1.8     (3.4)     (4.7)      1.4    (6.1)
    -------------------------------------------------------------------------
    Consolidated       $ 72.1   $ 63.1   $  9.0    $144.3    $134.0  $ 10.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Amounts have been restated as a result of a change in accounting
        policy and a reclassification with respect to goodwill and intangible
        assets. Please refer to note 1 of the unaudited consolidated
        financial statements for the second quarter ended October 31, 2009.
    (2) Includes the impact of depreciation and amortization related to the
        privatization of Sobeys in June 2007.
    

Capital Gains (Losses) and Other Items

The Company recorded capital gains (losses) and other items, net of tax, of ($1.7) million in the second quarter compared to $2.5 million in the second quarter last year, largely as a result of Empire's equity share of an interest rate swap agreement which was settled by Crombie REIT during the quarter. This was partially offset by a $1.1 million fair value adjustment to Sobeys' asset-backed commercial paper. Capital gains and other items, net of tax, in the second quarter last year of $2.5 million were largely the result of the sale of non-core properties.

The table below presents capital gains (losses) and other items, net of tax, for the 13 and 26 weeks ended October 31, 2009 compared to the 13 and 26 weeks ended November 1, 2008.

    
    -------------------------------------------------------------------------
                          13 Weeks Ended                26 Weeks Ended
                      -------------------------  ----------------------------
                      Oct. 31,  Nov. 1,      ($)  Oct. 31,   Nov. 1,     ($)
    ($ in millions)      2009     2008   Change      2009      2008  Change
    -------------------------------------------------------------------------
    Equity share of
     Crombie REIT's
     other expenses    $ (3.1)  $    -   $ (3.1)   $ (3.1)    $   -  $ (3.1)
    Change in fair
     value of Canadian
     third-party
     asset-backed
     commercial paper     1.1        -      1.1       1.1         -     1.1
    (Loss) gain on
     sale of properties  (0.1)     2.9     (3.0)      0.1       7.7    (7.6)
    Foreign exchange
     gains (losses)       0.4     (0.4)     0.8       0.7      (0.4)    1.1
    Tax recovery
     related to sale
     of shares in
     Hannaford Bros.
     Co.                    -        -        -      17.0         -    17.0
    -------------------------------------------------------------------------
                       $ (1.7)  $  2.5   $ (4.2)   $ 15.8     $ 7.3  $  8.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Net Earnings

Consolidated net earnings in the second quarter equalled $70.4 million ($1.03 per share) compared to $65.6 million ($1.00 per share) last year. The increase of $4.8 million compared to the second quarter last year is attributed to the $9.0 million increase in earnings before capital gains (losses) and other items, partially offset by the $4.2 million decline in net capital gains and other items, as discussed.

The table below presents Empire's segmented net earnings for the 13 and 26 weeks ended October 31, 2009 compared to the 13 and 26 weeks ended November 1, 2008.

    
    -------------------------------------------------------------------------
                          13 Weeks Ended                26 Weeks Ended
                      -------------------------  ----------------------------
                      Oct. 31,  Nov. 1,      ($)  Oct. 31,   Nov. 1,     ($)
    ($ in millions)      2009   2008(1)  Change      2009    2008(1) Change
    -------------------------------------------------------------------------
    Food retailing(2)  $ 66.0   $ 53.9   $ 12.1    $135.2    $112.1  $ 23.1
    Real estate           5.7     10.3     (4.6)     11.8      27.4   (15.6)
    Investments &
     other operations    (1.3)     1.4     (2.7)     13.1       1.8    11.3
    -------------------------------------------------------------------------
    Consolidated       $ 70.4   $ 65.6   $  4.8    $160.1    $141.3  $ 18.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Amounts have been restated as a result of a change in accounting
        policy and a reclassification with respect to goodwill and intangible
        assets. Please refer to note 1 of the unaudited consolidated
        financial statements for the second quarter ended October 31, 2009.
    (2) Includes the impact of depreciation and amortization related to the
        privatization of Sobeys in June 2007.
    

QUARTERLY RESULTS OF OPERATIONS

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

    
                                                     ------------------------
                                                             Fiscal 2010
                                                     ------------------------
                                                             Q2          Q1
                                                      (13 Weeks)  (13 Weeks)
    ($ in millions, except                              Oct. 31,     Aug. 1,
     per share information)                                2009        2009
    -------------------------------------------------------------------------
    Revenue                                          $  3,874.7  $  3,968.5
    Operating income                                      120.7       130.2
    Operating earnings(2)                                  72.1        72.2
    Capital gains (losses)
     and other items, net
     of tax                                                (1.7)       17.5
    -------------------------------------------------------------------------
    Net earnings                                     $     70.4  $     89.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per share information,
     basic
    Operating earnings                               $     1.06  $     1.05
    Capital gains (losses)
     and other items,
     net of tax                                           (0.03)       0.26
    -------------------------------------------------------------------------
    Net earnings                                     $     1.03  $     1.31
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic weighted average
     number of shares
     outstanding
     (in millions)(3)                                      68.4        68.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per share information,
     diluted
    Operating earnings                               $     1.06  $     1.05
    Capital gains (losses)
     and other items,
     net of tax                                           (0.03)       0.26
    -------------------------------------------------------------------------
    Net earnings                                     $     1.03  $     1.31
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted weighted average
     number of shares
     outstanding
     (in millions)(3)                                       68.5        68.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                             ------------------------------------------------
                                               Fiscal 2009(1)
                             ------------------------------------------------
                                     Q4          Q3          Q2          Q1
                              (13 Weeks)  (13 Weeks)  (13 Weeks)  (13 Weeks)
    ($ in millions, except        May 2,    Jan. 31,     Nov. 1,     Aug. 2,
     per share information)        2009        2009        2008        2008
    -------------------------------------------------------------------------
    Revenue                  $  3,709.0  $  3,800.0  $  3,727.9  $  3,778.2
    Operating income              109.0       115.6       113.3       128.3
    Operating earnings(2)          62.6        65.0        63.1        70.9
    Capital gains (losses)
     and other items, net
     of tax                        (0.8)       (3.5)        2.5         4.8
    -------------------------------------------------------------------------
    Net earnings             $     61.8  $     61.5  $     65.6  $     75.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per share information,
     basic
    Operating earnings       $     0.95  $     0.99  $     0.96  $     1.08
    Capital gains (losses)
     and other items,
     net of tax                   (0.01)      (0.05)       0.04        0.07
    -------------------------------------------------------------------------
    Net earnings             $     0.94  $     0.94  $     1.00  $     1.15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic weighted average
     number of shares
     outstanding
     (in millions)(3)              65.9        65.6        65.6        65.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per share information,
     diluted
    Operating earnings       $     0.95  $     0.99  $     0.96  $     1.08
    Capital gains (losses)
     and other items,
     net of tax                   (0.01)      (0.05)       0.04        0.07
    -------------------------------------------------------------------------
    Net earnings             $     0.94  $     0.94  $     1.00  $     1.15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted weighted
     average number of
     shares outstanding
     (in millions)(3)              66.0        65.7        65.7        65.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                      -----------------------
                                                           Fiscal 2008(1)
                                                      -----------------------
                                                             Q4          Q3
                                                      (13 Weeks)  (13 Weeks)
    ($ in millions, except                                May 3,     Feb. 2,
     per share information)                                2008        2008
    -------------------------------------------------------------------------
    Revenue                                          $  3,557.8  $  3,503.0
    Operating income                                      136.2        90.7
    Operating earnings(2)                                  73.6        48.9
    Capital gains (losses)
     and other items,
     net of tax                                            (7.1)       (0.3)
    -------------------------------------------------------------------------
    Net earnings                                     $     66.5  $     48.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per share information,
     basic
    Operating earnings                               $     1.12  $     0.74
    Capital gains (losses)
     and other items,
     net of tax                                           (0.11)          -
    -------------------------------------------------------------------------
    Net earnings                                     $     1.01  $     0.74
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic weighted average
     number of shares
     outstanding
     (in millions)(3)                                      65.6        65.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per share information,
     diluted
    Operating earnings                               $     1.12  $     0.74
    Capital gains (losses)
     and other items,
     net of tax                                           (0.11)          -
    -------------------------------------------------------------------------
    Net earnings                                     $     1.01  $     0.74
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted weighted
     average number of
     shares outstanding
     (in millions)(3)                                      65.7        65.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Amounts have been restated as a result of a change in accounting
        policy and a reclassification with respect to goodwill and intangible
        assets. Please refer to note 1 of the unaudited consolidated
        financial statements for the second quarter ended October 31, 2009.
    (2) Operating earnings is earnings before capital gains (losses) and
        other items.
    (3) The increase in the weighted average number of shares outstanding
        reflects an equity issue completed on April 24, 2009 which resulted
        in a total of 2,713,000 shares being issued.
    

For the most recent eight quarters, the Company's financial results have continued to show improvement on a trailing four quarter basis compared to prior periods on the same basis. The Company does experience some seasonality, as evidenced in the results presented above, in particular, during the summer months and over holidays.

Consolidated sales and operating earnings growth have been influenced by the Company's investing activities, the competitive environment, general industry trends and by other risk factors as outlined in the fiscal 2009 annual MD&A, as contained on pages 23 - 60 of the Company's 2009 Annual Report.

Dividend Declaration

The Board of Directors declared a quarterly dividend of 18.5 cents per share on both the Non-Voting Class A shares and the Class B common shares that will be payable on January 29, 2010 to shareholders of record on January 15, 2010. The Board also declared regular dividends on the Company's outstanding preferred shares. The dividends are eligible dividends as defined for the purposes of the Income Tax Act (Canada) and applicable provincial legislation and, therefore, qualify for the favourable tax treatment applicable to such dividends.

OPERATING PERFORMANCE BY DIVISION

FOOD RETAILING

Sobeys, Empire's wholly-owned food division, conducts business through more than 1,300 retail grocery stores (corporately owned and franchised) which operate in every province across Canada under retail banners that include Sobeys, IGA, IGA extra, Foodland, Price Chopper and Thrifty Foods, as well as Lawtons Drug Stores.

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

    
    -------------------------------------------------------------------------
                                   13 Weeks Ended           Year-over-Year
                             -------------------------   --------------------
                                Oct. 31,     Nov. 1,         ($)         (%)
    ($ in millions)                2009      2008(1)     Change      Change
    -------------------------------------------------------------------------
    Sales                    $  3,807.0  $  3,660.1  $    146.9         4.0%
    Operating income(2)           106.3        94.6        11.7        12.4%
    Capital gains and
     other items                    1.1           -         1.1           -
    Net earnings(2)                66.0        53.9        12.1        22.4%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                   26 Weeks Ended           Year-over-Year
                             -------------------------   --------------------
                                Oct. 31,     Nov. 1,         ($)         (%)
    ($ in millions)                2009      2008(1)     Change      Change
    -------------------------------------------------------------------------
    Sales                    $  7,713.7  $  7,371.6  $    342.1         4.6%
    Operating income(2)           227.9       200.9        27.0        13.4%
    Capital gains and
     other items                    1.1           -         1.1           -
    Net earnings(2)               135.2       112.1        23.1        20.6%
    -------------------------------------------------------------------------

    (1) Amounts have been restated as a result of a change in accounting
        policy and a reclassification with respect to goodwill and intangible
        assets. Please refer to note 1 of the unaudited consolidated
        financial statements for the second quarter ended October 31, 2009.
    (2) Includes the impact of depreciation and amortization related to the
        privatization of Sobeys in June 2007.
    

Sales

Sobeys' sales for the second quarter of fiscal 2010 were $3.81 billion compared to $3.66 billion for the same quarter last year, an increase of $146.9 million or 4.0 percent. Sobeys' same-store sales increased by 2.7 percent during the second quarter of fiscal 2010. The growth in sales continues to be a direct result of the increased retail selling square footage from new stores and enlargements, coupled with the continued implementation of sales and merchandising initiatives, improved store level execution and product and services innovation.

Operating Income

Sobeys reported operating income of $107.6 million during the second quarter of fiscal 2010, an $11.7 million or 12.2 percent increase from the second quarter last year. Operating income margin in the second quarter equalled 2.83 percent compared to 2.62 percent in the second quarter last year.

After deducting the impact of depreciation and amortization related to the privatization, Sobeys' operating income contribution to Empire in the second quarter of fiscal 2010 was $106.3 million (second quarter of fiscal 2009 - $94.6 million). Sobeys' operating income margin in the second quarter after adjusting for the above items equalled 2.79 percent compared to 2.58 percent in the second quarter last year.

Capital Gains and Other Items

For the second quarter and first half of fiscal 2010, Sobeys reported capital gains and other items, net of tax, of $1.1 million compared to no capital gains or other items in the same quarter last year. Capital gains and other items reported in the current fiscal year relate to a fair value adjustment to Sobeys' investment in asset-backed commercial paper.

Net Earnings

Sobeys recorded second quarter net earnings of $66.9 million, an increase of $12.1 million or 22.1 percent compared to the $54.8 million recorded in the second quarter last year.

Deducting the impact of depreciation and amortization related to the privatization and the related tax impact, Sobeys contributed net earnings of $66.0 million to Empire for the second quarter of fiscal 2010, an increase of $12.1 million or 22.4 percent over the $53.9 million recorded in the second quarter last year.

REAL ESTATE

Empire's real estate operations are focused on: (i) the development of food-anchored shopping plazas; (ii) ownership of retail and office properties through a 47.4 percent ownership interest in Crombie REIT; and (iii) residential land development through an ownership interest in Genstar.

Commercial real estate operations are conducted through ECL Properties Limited ("ECL") and its wholly-owned subsidiary, ECL Developments Limited ("ECL Developments"), while residential land development is primarily conducted through Genstar, which operates principally in Ontario and Western Canada.

Revenue

Real estate division revenue amounted to $18.7 million for the second quarter ended October 31, 2009, a $1.0 million or 5.7 percent increase from the second quarter last year. The increase is attributed to both higher commercial and residential property revenues.

Operating Income

Second quarter real estate division operating income was $13.6 million versus $12.0 million in the same quarter last year. The $1.6 million increase in real estate division operating income is largely a result of a $1.1 million increase in equity earnings from Empire's 47.4 percent interest in Crombie REIT.

The table below presents revenue, operating income, net earnings and funds from operations for the real estate division's commercial operations and residential operations:

    

                      -------------------------  ----------------------------
                           13 Weeks Ended               26 Weeks Ended
                      --------------------------  ---------------------------
                      Oct. 31,  Nov. 1,      ($)  Oct. 31,   Nov. 1,     ($)
    ($ in millions)      2009     2008   Change      2009      2008  Change
    --------------------------------------------  ---------------------------
    Revenue
      Residential      $ 14.0   $ 13.7   $  0.3    $ 25.4    $ 33.7  $ (8.3)
      Commercial          4.7      4.0      0.7       8.4       8.9    (0.5)
    --------------------------------------------  ---------------------------
                       $ 18.7   $ 17.7   $  1.0    $ 33.8    $ 42.6  $ (8.8)
    --------------------------------------------  ---------------------------
    --------------------------------------------  ---------------------------

    Operating income
    --------------------------------------------  ---------------------------
      Residential      $  7.3   $  7.5   $ (0.2)   $ 12.4    $ 21.2  $ (8.8)
      Crombie REIT(1)     4.9      3.8      1.1       9.8       8.4     1.4
      Commercial          1.4      0.7      0.7       1.1       1.9    (0.8)
    --------------------------------------------  ---------------------------
                       $ 13.6   $ 12.0   $  1.6    $ 23.3    $ 31.5  $ (8.2)
    --------------------------------------------  ---------------------------
    --------------------------------------------  ---------------------------

    Net earnings
    --------------------------------------------  ---------------------------
      Residential      $  5.1   $  4.9   $  0.2    $  8.5    $ 14.5  $ (6.0)
      Commercial          3.7      2.5      1.2       6.4       6.0     0.4
      Capital gains
       (losses), net
       of tax            (3.1)     2.9     (6.0)     (3.1)      6.9   (10.0)
    --------------------------------------------  ---------------------------
                       $  5.7   $ 10.3   $ (4.6)   $ 11.8    $ 27.4  $(15.6)
    --------------------------------------------  ---------------------------
    --------------------------------------------  ---------------------------

    Funds from
     operations(2)
    --------------------------------------------  ---------------------------
      Residential      $  5.1   $  4.9   $  0.2    $  8.5    $ 14.5  $ (6.0)
      Commercial          4.1      2.6      1.5       7.3       6.1     1.2
    --------------------------------------------  ---------------------------
                       $  9.2   $  7.5   $  1.7    $ 15.8    $ 20.6  $ (4.8)
    --------------------------------------------  ---------------------------
    --------------------------------------------  ---------------------------

    (1) Equity accounted earnings in Crombie REIT during the period.
    (2) Operating earnings plus depreciation and amortization.
    

Capital Gains (Losses)

There were capital gains (losses), net of tax, of ($3.1) million for the real estate division in the second quarter of fiscal 2010 compared to $2.9 million related to the sale of non-core commercial properties during the second quarter last year. The capital losses recorded in the second quarter of fiscal 2010 are related to Empire's equity share of an interest rate swap agreement which was settled by Crombie REIT during the quarter.

Net Earnings

Real estate division net earnings contribution in the second quarter amounted to $5.7 million compared to $10.3 million last year, a $4.6 million decrease. The earnings decrease is the result of a $6.0 million reduction in net capital gains (losses) and a $0.2 million increase in interest expense, partially offset by a $1.6 million increase in operating income.

Funds from Operations

Funds from operations in the second quarter of $9.2 million increased $1.7 million or 22.7 percent compared to the second quarter of last year largely as a result of higher operating earnings. Trailing (last four quarters) funds from operations for the real estate division were $33.7 million, an increase of 5.3 percent from the trailing (last four quarters) funds from operations of $32.0 million reported on August 1, 2009.

INVESTMENTS AND OTHER OPERATIONS

The third component of Empire is its investments and other operations, consisting primarily of a 27.6 percent ownership interest in Wajax and wholly-owned Empire Theatres (the second largest movie exhibitor in Canada).

At October 31, 2009, Empire's investments (including equity accounted investments in Crombie REIT and Genstar U.S.) consisted of:

    
    -------------------------------------------------------------------------
                            Oct. 31, 2009                 May 2, 2009
                   ----------------------------- ----------------------------
                                      Unreali-                      Unreali-
                   Market  Carrying       zed    Market  Carrying       zed
    ($ in millions) Value     Value      Gain     Value     Value      Gain
    -------------------------------------------------------------------------
    Investment in
     Crombie REIT $ 304.0   $  14.1   $ 289.9   $ 175.6   $ (19.7)  $ 195.3
    Investment in
     Wajax           85.8      30.4      55.4      71.3      31.0      40.3
    Investment in
     Genstar
     U.S.(1)         11.9      11.9         -       7.5       7.5         -
    Other
     investments(2)  11.6      11.6         -       1.1       1.1         -
    -------------------------------------------------------------------------
                  $ 413.3   $  68.0   $ 345.3   $ 255.5   $  19.9   $ 235.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                        Nov. 1, 2008
                                                 ----------------------------
                                                                    Unreali-
                                                 Market  Carrying       zed
    ($ in millions)                               Value     Value      Gain
    -------------------------------------------------------------------------
    Investment in
     Crombie REIT                               $ 202.1   $   5.3   $ 196.8
    Investment in
     Wajax                                        109.9      32.7      77.2
    Investment in
     Genstar
     U.S.(1)                                        0.1       0.1         -
    Other
     investments(2)                                 1.3       1.3         -
    -------------------------------------------------------------------------
                                                $ 313.4   $  39.4   $ 274.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Assumes market value equals book value.
    (2) Includes a $10.4 million Crombie REIT convertible unsecured
        subordianted debenture.

    The table below presents investments and other operations' financial
highlights for the 13 and 26 weeks ended October 31, 2009 compared to the same
period last year:

    -------------------------------------------------------------------------
                           13 Weeks Ended               26 Weeks Ended
                      --------------------------  ---------------------------
                      Oct. 31,  Nov. 1,    ($)    Oct. 31,   Nov. 1,     ($)
    ($ in millions)      2009     2008   Change      2009      2008  Change
    --------------------------------------------  ---------------------------
    Revenue            $ 52.3   $ 50.6   $  1.7    $ 99.6    $ 92.7  $  6.9
    -------------------------------------------------------------------------
    Operating income
      Wajax               1.9      5.1     (3.2)      4.6      10.6    (6.0)
      Other operations,
       net of corporate
       expenses          (1.1)     1.6     (2.7)     (4.9)     (1.4)   (3.5)
    -------------------------------------------------------------------------
    Total operating
     income               0.8      6.7     (5.9)     (0.3)      9.2    (9.5)
    -------------------------------------------------------------------------
    Operating earnings   (1.6)     1.8     (3.4)     (4.7)      1.4    (6.1)
    Capital gains
     (losses) and other
     items, net of
     tax(1)               0.3     (0.4)     0.7      17.8       0.4    17.4
    -------------------------------------------------------------------------
    Net earnings       $ (1.3)  $  1.4   $ (2.7)   $ 13.1    $  1.8  $ 11.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) First quarter fiscal 2010 capital gains and other items, net of tax,
        includes $17.0 million related to the settlement of Canada Revenue
        Agency tax reassessment relating to the fiscal 2001 sale of Hannaford
        Bros. Co. shares.
    

Revenue

Investments and other operations' revenue, primarily generated by Empire Theatres, equalled $52.3 million in the second quarter ended October 31, 2009 versus $50.6 million in the second quarter last year, a $1.7 million increase.

Operating Income

Investments and other operations (net of corporate expenses) contributed operating income of $0.8 million in the second quarter compared to $6.7 million in the second quarter last year. Equity accounted earnings generated from the Company's 27.6 percent interest in Wajax amounted to $1.9 million in the second quarter versus $5.1 million last year. Operating income generated from other operations (net of corporate expenses) declined to ($1.1) million from $1.6 million in the second quarter last year.

Operating Earnings

Investments and other operations (net of corporate expenses) contributed operating earnings of ($1.6) million in the second quarter of fiscal 2010 compared to $1.8 million in the same quarter last year, a decrease of $3.4 million. This decrease was largely the result of lower equity earnings from Wajax due to the economic slowdown experienced since the second quarter last year.

Net Earnings

Investments and other operations (net of corporate expenses) contributed ($1.3) million to Empire's consolidated second quarter fiscal 2010 net earnings compared to a $1.4 million net earnings contribution in the second quarter last year.

CONSOLIDATED FINANCIAL CONDITION

The Company's financial condition has improved since the start of the fiscal year as evidenced by the capital structure and key financial condition measures in the table below.

    
    -------------------------------------------------------------------------
    ($ in millions, except per share and    Oct. 31,      May 2,     Nov. 1,
     ratio calculations)                       2009      2009(1)     2008(1)
    -------------------------------------------------------------------------
    Shareholders' equity                 $  2,827.0  $  2,678.8  $  2,466.8
    Book value per share                 $    41.23  $    39.07  $    37.46
    Bank indebtedness                    $     77.4  $     45.9  $     40.5
    Long-term debt, including current
     portion(2)                          $  1,206.7  $  1,257.0  $  1,435.3
    Funded debt to total capital               31.2%       32.7%       37.4%
    Net debt to capital ratio(3)               27.5%       28.6%       34.5%
    Debt to EBITDA(4)                          1.60x       1.64x       1.87x
    EBITDA to interest expense(4)             10.68x       9.84x       7.99x
    Total assets                         $  6,008.5  $  5,891.1  $  5,774.3
    -------------------------------------------------------------------------

    (1) Amounts have been restated as a result of a change in accounting
        policy and a reclassification with respect to goodwill and intangible
        assets. Please refer to note 1 of the unaudited consolidated
        financial statements for the second quarter ended October 31, 2009.
    (2) Includes liabilities related to assets held for sale.
    (3) Net debt to capital is net debt divided by total capital net of cash
    and cash equivalents.
    (4) Calculation uses trailing 12-month EBITDA and interest expense.
    

Total funded debt of $1,284.1 million has declined $18.8 million since the end of the fiscal year, May 2, 2009 ($1,302.9 million) and by $191.7 million since the second quarter last year ($1,475.8 million). The decrease over the second quarter last fiscal year is primarily the result of repaying debt with net proceeds of $129.1 million from the equity issue completed on April 24, 2009 and free cash flow generation by Sobeys. The ratio of funded debt to total capital has declined by 6.2 percentage points since the second quarter last year to 31.2 percent.

Liquidity and Capital Resources

The Company maintains the following sources of liquidity: (i) cash and cash equivalents on hand; (ii) unutilized bank credit facilities; and (iii) cash generated from operating activities. The Company anticipates that these sources of liquidity will be sufficient to meet expected cash outflows over the next year.

At October 31, 2009, consolidated cash and cash equivalents were $210.9 million versus $231.6 million at fiscal year-end, May 2, 2009 and $174.1 million at November 1, 2008.

At the end of the second quarter of fiscal 2010, on a non-consolidated basis, Empire directly maintained authorized bank lines for operating, general and corporate purposes of $650 million, of which approximately $289 million or 44 percent were utilized. On a consolidated basis, Empire's authorized bank credit facilities exceeded borrowings by approximately $941 million at October 31, 2009 versus $958 million at August 1, 2009.

Included in the current portion of long-term debt and bank indebtedness is $372.3 million of debt outstanding under three credit facilities that mature within the next twelve months. Empire's management intends to renew or replace each of the credit facilities governing this debt prior to their maturity. To that end, management has held preliminary discussions with the financial institutions providing each of the facilities and has developed a timeline for renegotiating each of the credit facilities to ensure the new facilities are in place prior to the maturity of the existing facilities. However, given the current credit environment, it is expected that the terms of the renewed or replacement credit facilities will not be as favorable as those of the in-place facilities.

The Company anticipates that the above mentioned in-place sources of liquidity will adequately meet its short-term and long-term financial requirements. The Company mitigates potential liquidity risk by ensuring its various sources of funds are diversified by term to maturity and source of credit.

The table below highlights major cash flow components for the 13 and 26 weeks ended October 31, 2009 compared to the 13 and 26 weeks ended November 1, 2008.

    
    Major Cash Flow Components
    -------------------------------------------------------------------------
                                  13 Weeks Ended         26 Weeks Ended
                           ------------------------- ------------------------
                                Oct. 31,     Nov. 1,    Oct. 31,     Nov. 1,
    ($ in millions)                2009      2008(1)       2009      2008(1)
    -------------------------------------------------------------------------
    Earnings for common
     shareholders               $  70.4     $  65.6     $ 160.1     $ 141.2
    Items not affecting cash       86.7        78.6       176.1       163.8
    -------------------------------------------------------------------------
                                  157.1       144.2       336.2       305.0
    Net change in non-cash
     working capital              (93.5)      (27.8)      (65.6)      (38.9)
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                    63.6       116.4       270.6       266.1
    Cash flows used in
     investing activities        (135.2)      (55.0)     (237.8)     (151.2)
    Cash flows used in
     financing activities         (18.1)      (57.7)      (53.5)     (132.2)
    -------------------------------------------------------------------------
    Increase (decrease) in cash
     and cash equivalents       $ (89.7)    $   3.7     $ (20.7)    $ (17.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Amounts have been restated as a result of a change in accounting
    policy and a reclassification with respect to goodwill and intangible
    assets. Please refer to note 1 of the unaudited consolidated financial
    statements for the second quarter ended October 31, 2009.
    

Operating Activities

Second quarter cash flows from operating activities equalled $63.6 million compared to $116.4 million in the comparable period last year. The decrease of $52.8 million is largely attributed to a decrease in the net change in non-cash working capital of $65.7 million, partially offset by an increase in items not affecting cash of $8.1 million and an increase in earnings available for common shareholders of $4.8 million.

Investing Activities

Cash used in investing activities of $135.2 million in the second quarter (2009 - $55.0 million) consisted primarily of purchases of property and equipment of $112.1 million compared to purchases of property and equipment of $76.2 million in the second quarter last year. Proceeds on disposal of property and equipment decreased $22.0 million from the second quarter last year to $6.9 million in the second quarter of the current year. Proceeds on disposal of property and equipment in the second quarter last year of $28.9 million were related to the sale of several non-core properties.

Cash used in investing activities for the second quarter of fiscal 2010 includes an investment of $10.0 million in Crombie REIT convertible unsecured subordinated debentures. The debentures mature on June 30, 2015 and have a coupon of 6.25 percent per annum.

The table below outlines the number of stores Sobeys invested in during the 13 and 26 weeks ended October 31, 2009 compared to the 13 and 26 weeks ended November 1, 2008:

Sobeys' Corporate and Franchised Store

Construction Activity

    
    -------------------------------------------------------------------------
                                  13 Weeks Ended           26 Weeks Ended
                             ----------------------- ------------------------
                                Oct. 31,     Nov. 1,    Oct. 31,     Nov. 1,
    Number of Stores               2009        2008        2009        2008
    ------------------------------------------------ ------------------------
    Opened/Acquired/Relocated        10          11          24          22
    Expanded                          2           3           5           7
    Rebannered/Redeveloped            -           5           5          10
    Closed                            2           7          24          18
    -------------------------------------------------------------------------

    The following table shows Sobeys' square footage changes for the 13 and 52
weeks ended October 31, 2009 by type:

    Sobeys' Square Footage Changes
    (in thousands)
    -------------------------------------------------------------------------
                                                      Q2 F10 vs.  Q2 F10 vs.
    Square Feet                                          Q1 F10      Q2 F09
    -------------------------------------------------------------------------
    Opened                                                  118         891
    Relocated                                                 6          79
    Acquired                                                  -          33
    Expanded                                                 28         120
    Closed                                                  (14)       (737)
    -------------------------------------------------------------------------
    Net Change                                              138         387
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

At October 31, 2009, Sobeys' square footage totalled 27.8 million square feet, a 1.5 percent increase over the 27.4 million square feet operated at the end of the second quarter last year.

Financing Activities

Financing activities during the second quarter of fiscal 2010 used $18.1 million of cash compared to $57.7 million of cash used in financing activities in the same quarter last year. The decrease of $39.6 million in cash flows used in financing activities when compared to the same quarter last year is primarily the result of an increase in bank indebtedness of $7.6 million during the second quarter of fiscal 2010 compared to a decrease in bank indebtedness of $11.6 million last year and a decrease in the repayment of long-term debt of $31.9 million, partially offset by a $13.7 million decrease in the issuance of long-term debt.

Accounting Policy Changes

The accounting policy changes are explained in note 1 to the unaudited consolidated financial statements included in this release.

Additional Information

Additional information about the Company has been filed electronically with various securities regulators in Canada through the System for Electronic Document Analysis and Retrieval ("SEDAR") and is available online at www.sedar.com.

Definition of Non-GAAP Measures

Certain measures included in this news release do not have a standardized meaning under Canadian Generally Accepted Accounting Principles ("GAAP") and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies. The Company includes these measures because it believes certain investors use these measures as a means of assessing Empire's financial performance.

Empire's definition of the non-GAAP terms are as follows: (i) operating earnings is net earnings before capital gains (losses) and other items; (ii) operating income or earnings before interest and taxes ("EBIT") is calculated as operating earnings before minority interest, interest expense and income taxes; (iii) earnings before interest, taxes, depreciation and amortization ("EBITDA") is calculated as EBIT plus depreciation and amortization; (iv) funded debt is all interest-bearing debt which includes bank loans, bankers' acceptances, long-term debt and debt related to assets held for sale; (v) total capital is calculated as funded debt plus equity; (vi) net debt is calculated as funded debt less cash and cash equivalents; (vii) funds from operations are calculated as operating earnings plus depreciation and amortization; and (viii) same-store sales are sales from stores in the same location in both reporting periods.

Forward-Looking Statements

This news release contains forward-looking statements which reflect management's expectations regarding the Company's objectives, plans, goals, strategies, future growth, financial condition, results of operations, cash flows, performance, business prospects and opportunities. All statements other than statements of historical facts included in this news release, including statements regarding the Company's objectives, plans, goals, strategies, future growth, financial condition, results of operations, cash flows, performance, business prospects and opportunities, may constitute forward-looking information. Expressions such as "anticipates", "expects", "believes", "estimates", "intends", "could", "may", "plans", "predicts", "projects", "will", "would", "foresees", "remain confident that" and other similar expressions or the negative of these terms are generally indicative of forward-looking statements.

These forward looking statements include the following items: (a) the Company's expectation that its sources of liquidity will be sufficient to meet expected cash outflows over the next year and its short-term and long-term financial instruments, both of which could be impacted by changing capital market conditions as well as uncertainties that could cause the outcome to differ significantly from expectation; and (b) the Company's intention to renew or replace its credit facilities which mature within the next twelve months, which could be impacted by the credit environment. These statements are based on Empire management's reasonable assumptions and beliefs in light of the information currently available to them. The forward-looking information contained in this news release is presented for the purpose of assisting the Company's security holders in understanding its financial position and results of operation as at and for the periods ended on the dates presented and the Company's strategic priorities and objectives and may not be appropriate for other purposes. By its very nature, forward-looking information requires the Company to make assumptions and is subject to inherent risks and uncertainties, which give rise to the possibility that the Company's predictions, forecasts, expectations or conclusions will not prove to be accurate, that the Company's assumptions may not be correct and that the Company's objectives, strategic goals and priorities will not be achieved. Although the Company believes that the predictions, forecasts, expectations or conclusions reflected in the forward-looking information are reasonable, it can give no assurance that such matters will prove to have been correct. Such forward-looking information is not fact but only reflections of management's estimates and expectations. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These factors include but are not limited to: changes in general industry, market and economic conditions, competition from existing and new competitors, energy prices, supply issues, inventory management, changes in demand due to seasonality of the business, interest rates, changes in laws and regulations, operating efficiencies and cost saving initiatives. In addition, these uncertainties and risks are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Risk Management section of the annual Management Discussion and Analysis included in the Company's Annual Report.

Empire cautions that the list of important factors is not exhaustive and other factors could also adversely affect our results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such forward-looking information. Forward-looking statements may not take into account the effect on the Company's business of transactions occurring after such statements have been made. For example, dispositions, acquisitions, asset write-downs or other changes announced or occurring after such statements are made may not be reflected in forward-looking statements. The forward-looking information in this news release reflects the Company's expectations as of December 10, 2009, and is subject to change after this date. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the Company other than as required by applicable securities laws.

Conference Call Invitation

The Company will hold an analyst call on Thursday, December 10, 2009 beginning at 2:30 p.m. (Eastern Standard Time) during which senior management will discuss the Company's financial results for the second quarter of fiscal 2010 ended October 31, 2009. To join this conference call dial 1-888-231-8191 outside of the Toronto area or 647-427-7450 from within the Toronto area. You may also listen to a live audiocast of the conference call by visiting the Company's website located at www.empireco.ca. Replay will be available by dialling 1-800-642-1687 and entering passcode 43860955 until midnight December 17, 2009, or on the Company's website for 90 days after the meeting.

About Empire

Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered in Stellarton, Nova Scotia. Empire's core businesses include food retailing and related real estate. With over $15 billion in annual revenue and approximately $6.0 billion in assets, Empire and its related companies, including its franchisees and affiliates, employ over 90,000 people.

    
                           EMPIRE COMPANY LIMITED
                           ----------------------
                         CONSOLIDATED BALANCE SHEETS
                         ---------------------------
                                (in millions)


                                         October 31       May 2  November 1
                                               2009        2009        2008
                                          Unaudited     Audited   Unaudited
                                                       Restated    Restated
                                                        (Note 1)    (Note 1)
                                         ----------- ----------- -----------
    ASSETS

    Current
      Cash and cash equivalents          $    210.9  $    231.6  $    174.1
      Receivables                             329.8       318.7       311.0
      Loans and other receivables              78.7        55.8        63.7
      Income taxes receivable                  17.0         4.9           -
      Inventories (Note 2)                    891.8       842.8       875.5
      Prepaid expenses                         53.4        63.9        56.3
                                         ----------------------- -----------
                                            1,581.6     1,517.7     1,480.6
    Investments, at realizable value           11.6         1.1         1.3
    Investments, at equity (realizable
     value $401.7; May 2, 2009 - $254.4;
     November 1, 2008 - $312.1) (Note 4)       56.4        18.8        38.1
    Loans and other receivables                78.0        75.3        57.6
    Other assets (Note 5)                      86.8        89.0        98.1
    Property and equipment                  2,554.6     2,567.8     2,482.6
    Assets held for sale                       20.4         8.5        22.3
    Intangibles                               447.5       441.5       433.5
    Goodwill                                1,171.6     1,171.4     1,160.2
                                         ----------- ----------- -----------
                                         $  6,008.5  $  5,891.1  $  5,774.3
                                         ----------- ----------- -----------
                                         ----------- ----------- -----------
    LIABILITIES

    Current
      Bank indebtedness                  $     77.4  $     45.9  $     40.5
      Accounts payable and accrued
       liabilities                          1,481.6     1,487.1     1,392.3
      Income taxes payable                        -           -        30.4
      Future income taxes                      42.3        40.5        33.6
      Long-term debt due within one
       year (Note 6)                          366.3       133.0        59.7
      Liabilities relating to assets
       held for sale                              -           -         6.2
                                         ----------- ----------- -----------
                                            1,967.6     1,706.5     1,562.7
    Long-term debt (Note 6)                   840.4     1,124.0     1,369.4
    Employee future benefits
     obligation                               121.5       118.4       114.3
    Future income taxes                        84.6        89.5       108.7
    Other long-term liabilities               128.4       135.0       115.4
    Minority interest                          39.0        38.9        37.0
                                         ----------- ----------- -----------
                                            3,181.5     3,212.3     3,307.5
                                         ----------- ----------- -----------
    SHAREHOLDERS' EQUITY

    Capital stock                             324.5       324.5       193.5
    Contributed surplus                         2.4         1.7         1.1
    Retained earnings                       2,535.8     2,401.1     2,300.7
    Accumulated other comprehensive
     loss (Note 7)                            (35.7)      (48.5)      (28.5)
                                         ----------- ----------- -----------
                                            2,827.0     2,678.8     2,466.8
                                         ----------- ----------- -----------
                                         $  6,008.5  $  5,891.1  $  5,774.3
                                         ----------- ----------- -----------
                                         ----------- ----------- -----------

    Contingent liabilities (Note 16)
    Subsequent event (Note 19)

    See accompanying notes to the unaudited interim period consolidated
financial statements.


                           EMPIRE COMPANY LIMITED
                           ----------------------
                 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                 --------------------------------------------
                               26 WEEKS ENDED
                               --------------
                           (Unaudited, in millions)


                                                     October 31  November 1
                                                           2009        2008
                                                                   Restated
                                                                    (Note 1)
                                                     ----------- -----------

    Balance, beginning of period as previously
     reported                                        $  2,405.8  $  2,207.6

    Adjustment due to implementation of new
     accounting standard (Note 1)                          (4.7)      (25.0)
                                                     ----------- -----------
    Balance, beginning of period as restated            2,401.1     2,182.6

    Net earnings                                          160.1       141.3

    Dividends
      Preferred shares                                        -        (0.1)
      Common shares                                       (25.4)      (23.1)
                                                     ----------- -----------
    Balance, end of period                           $  2,535.8  $  2,300.7
                                                     ----------- -----------
                                                     ----------- -----------

    See accompanying notes to the unaudited interim period consolidated
financial statements.


                           EMPIRE COMPANY LIMITED
                           ----------------------
               CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
               -----------------------------------------------
                                PERIODS ENDED
                                -------------
                           (Unaudited, in millions)


                             October 31  November 1  October 31  November 1
                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------

    Net earnings             $     70.4  $     65.6  $    160.1  $    141.3
                             ----------- ----------- ----------- -----------

    Other comprehensive
     income

      Unrealized gains
       (losses) on
       available-for-sale
       financial assets,
       net of income taxes
       of $0.1; $(0.1);
       $0.1; $(0.1)                 0.3        (0.3)        0.4        (0.3)

      Unrealized gains
       (losses) on
       derivatives
       designated as cash
       flow hedges, net of
       income taxes of $1.0;
       $(3.2); $2.2; $(3.2)         2.2        (6.4)        4.2        (6.5)

      Reclassification of
       loss on derivative
       instruments
       designated as cash
       flow hedges to
       earnings, net of
       income taxes of
       $0.7; $0.3; $1.5;
       $0.6                         1.5         0.6         3.0         1.2

      Share of comprehensive
       income of entities
       accounted using the
       equity method, net of
       income taxes of $0.7;
       $(1.2); $3.8; $(0.7)         1.3        (2.3)        6.8        (1.4)

      Foreign currency
       translation
       adjustment                  (1.0)          -        (1.6)          -
                             ----------- ----------- ----------- -----------
                                    4.3        (8.4)       12.8        (7.0)
                             ----------- ----------- ----------- -----------
    Comprehensive income     $     74.7  $     57.2  $    172.9  $    134.3
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    See accompanying notes to the unaudited interim period consolidated
financial statements.


                           EMPIRE COMPANY LIMITED
                           ----------------------
                     CONSOLIDATED STATEMENTS OF EARNINGS
                     -----------------------------------
                                PERIODS ENDED
                                -------------
             (Unaudited, in millions, except per share amounts)


                             October 31  November 1  October 31  November 1
                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------

    Revenue                  $  3,874.7  $  3,727.9  $  7,843.2  $  7,506.1
    Operating expenses
      Cost of sales,
       selling and
       administrative
       expenses                 3,675.2     3,540.6     7,439.1     7,118.0
      Depreciation and
       amortization                85.8        83.0       167.8       165.6
                             ----------- ----------- ----------- -----------
                                  113.7       104.3       236.3       222.5
    Investment income
     (Note 8)                       7.0         9.0        14.6        19.1
                             ----------- ----------- ----------- -----------
    Operating income              120.7       113.3       250.9       241.6
                             ----------- ----------- ----------- -----------
    Interest expense
      Long-term debt               16.8        19.3        34.2        39.4
      Short-term debt               1.2         1.1         2.0         2.1
                             ----------- ----------- ----------- -----------
                                   18.0        20.4        36.2        41.5
                             ----------- ----------- ----------- -----------
                                  102.7        92.9       214.7       200.1
    Capital (losses) gains
     and other items
     (Note 9)                      (3.0)        2.0        (2.4)        8.1
                             ----------- ----------- ----------- -----------
    Earnings before income
     taxes and minority
     interest                      99.7        94.9       212.3       208.2
                             ----------- ----------- ----------- -----------
    Income taxes (Note 10)
      Current                      38.9        36.2        57.8        73.4
      Future                       (9.8)       (9.4)      (10.8)      (13.1)
                             ----------- ----------- ----------- -----------
                                   29.1        26.8        47.0        60.3
                             ----------- ----------- ----------- -----------
    Earnings before
     minority interest             70.6        68.1       165.3       147.9
    Minority interest               0.2         2.5         5.2         6.6
                             ----------- ----------- ----------- -----------
    Net earnings             $     70.4  $     65.6  $    160.1  $    141.3
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    Earnings per share
     (Note 3)
      Basic                  $     1.03  $     1.00  $     2.34  $     2.15
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
      Diluted                $     1.03  $     1.00  $     2.34  $     2.15
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    Weighted average number
     of common shares
     outstanding, in
     millions

      Basic                        68.4        65.6        68.4        65.6

      Diluted                      68.5        65.7        68.5        65.7


    See accompanying notes to the unaudited interim period consolidated
financial statements.


                           EMPIRE COMPANY LIMITED
                           ----------------------
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                    -------------------------------------
                                PERIODS ENDED
                                -------------
                           (Unaudited, in millions)


                             October 31  November 1  October 31  November 1
                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------
    Operating Activities
      Net earnings           $     70.4  $     65.6  $    160.1  $    141.3
      Items not affecting
       cash (Note 11)              86.7        78.6       176.1       163.8
      Preferred dividends             -           -           -        (0.1)
                             ----------- ----------- ----------- -----------
                                  157.1       144.2       336.2       305.0
      Net change in non-
       cash working
       capital                    (93.5)      (27.8)      (65.6)      (38.9)
                             ----------- ----------- ----------- -----------
    Cash flows from
     operating activities          63.6       116.4       270.6       266.1
                             ----------- ----------- ----------- -----------

    Investing Activities
      Net increase in
       investments                (10.4)          -       (46.0)          -
      Purchase of property
       and equipment             (112.1)      (76.2)     (213.8)     (197.8)
      Proceeds on disposal
       of property and
       equipment                    6.9        28.9        64.5        57.9
      Loans and other
       receivables                  1.7         6.0       (25.4)        4.9
      Increase in other
       assets                      (9.9)       (8.3)       (2.6)       (4.4)
      Business acquisitions
       (Note 15)                  (11.4)       (5.4)      (14.5)      (11.8)
                             ----------- ----------- ----------- -----------
    Cash flows used in
     investing activities        (135.2)      (55.0)     (237.8)     (151.2)
                             ----------- ----------- ----------- -----------

    Financing Activities
      Increase (decrease)
       in bank indebtedness         7.6       (11.6)       31.5       (50.2)
      Issue of long-term
       debt                        21.9        35.6        66.5        41.0
      Repayment of long-
       term debt                  (33.5)      (65.4)     (121.0)      (90.4)
      Minority interest            (1.4)       (3.8)       (5.1)       (7.2)
      Repurchase of
       preferred shares               -        (0.9)          -        (2.3)
      Common dividends            (12.7)      (11.6)      (25.4)      (23.1)
                             ----------- ----------- ----------- -----------
    Cash flows used in
     financing activities         (18.1)      (57.7)      (53.5)     (132.2)
                             ----------- ----------- ----------- -----------

    (Decrease) increase
     in cash and cash
     equivalents                  (89.7)        3.7       (20.7)      (17.3)
    Cash and cash
     equivalents, beginning
     of period                    300.6       170.4       231.6       191.4
                             ----------- ----------- ----------- -----------
    Cash and cash
     equivalents, end of
     period                  $    210.9  $    174.1  $    210.9  $    174.1
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    See accompanying notes to the unaudited interim period consolidated
financial statements.


                           EMPIRE COMPANY LIMITED
                           ----------------------
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               ----------------------------------------------
                               OCTOBER 31, 2009
                               ----------------
              (Unaudited, in millions except per share amounts)
    

1. Summary of Significant Accounting Policies

The unaudited interim period consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and include the accounts of Empire Company Limited (the "Company"), all subsidiary companies, including 100% owned Sobeys Inc. ("Sobeys") and its subsidiaries and variable interest entities ("VIEs") which the Company is required to consolidate.

Interim consolidated financial statements

These interim consolidated financial statements do not include all of the disclosures included in the Company's annual consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended May 2, 2009, as set out in the 2009 Annual Report. The Consolidated Statements of Accumulated Other Comprehensive Loss which were previously disclosed on page 63 of the 2009 Annual Report are replaced by Note 7 to the interim consolidated financial statements.

Generally accepted accounting principles

The accounting standards and policies used in the preparation of these interim consolidated financial statements conform with those used in the Company's 2009 annual consolidated financial statements except as noted below:

    
    Adopted during fiscal 2010

      Goodwill and intangible assets

      In February 2008, the CICA issued Section 3064, "Goodwill and
      Intangible Assets", which replaced existing Section 3062, "Goodwill and
      Other Intangible Assets", and Section 3450, "Research and Development".
      The new standard provides guidance on the recognition, measurement,
      presentation and disclosure of goodwill and intangible assets. As a
      result of adopting Section 3064, Emerging Issues Committee Abstract 27,
      "Revenues and Expenditures During the Pre-operating Period", no longer
      applies. The Company has implemented these requirements effective for
      the first quarter of fiscal 2010 retroactively with restatement of the
      comparative period in accordance with the transitional provisions. The
      initial impact under the new standard as at May 2, 2009 was a decrease
      to prepaid expenses of $6.9, a decrease to other assets of $62.4, a
      decrease in property and equipment of $33.7, an increase to intangibles
      of $96.1, a decrease of future tax liabilities of $2.2 as well as a
      reduction of retained earnings of $4.7. The impact of implementation on
      the balance sheet as at November 1, 2008 was a decrease of prepaid
      expenses of $4.3, a decrease to other assets of $60.3, a decrease in
      property and equipment of $26.8, an increase to intangibles of $87.1, a
      decrease in future tax liabilities of $1.3 and an opening retained
      earnings reduction of $3.5. For the 13 and 26 weeks ended November 1,
      2008, cost of sales, selling and administrative expenses decreased $2.6
      and $6.0, depreciation and amortization expense increased $2.7 and $5.3
      and income taxes increased $Nil and $0.2 respectively.

    Adopted during fiscal 2009

      Inventories

      In June 2007, the CICA issued Section 3031, "Inventories", which
      replaced section 3030 with the same title. The Company applied the
      standard prospectively to opening inventory and retained earnings for
      fiscal 2009 in accordance with the transitional provisions. The initial
      impact of measuring inventories under the new standard using a
      consistent cost formula for inventories with a similar nature and use
      was a decrease to the carrying amount of opening inventories of $27.9
      and a decrease to income taxes payable of $6.4. Opening retained
      earnings was reduced by $21.5, equal to the change in opening
      inventories, net of tax.

    Future changes in accounting policies

      Business combinations, consolidated financial statements and non-
      controlling interests

      In January 2009, the CICA issued three new accounting standards which
      are based on the International Accounting Standards Board's
      International Financial Reporting Standard 3, "Business Combinations".
      Section 1582, "Business Combinations", which replaces Section 1581 with
      the same title, aims to improve the relevance, reliability and
      comparability of the information provided in financial statements about
      business combinations. This section is to be applied prospectively to
      business combinations for which the acquisition date is on or after
      January 1, 2011 and assets and liabilities that arose from business
      combinations that preceded the adoption of this standard should not be
      adjusted upon adoption. Section 1601, "Consolidated Financial
      Statements", and Section 1602, "Non-controlling Interests", replace
      Section 1600, "Consolidated Financial Statements", and establish
      standards for the preparation of consolidated financial statements and
      for accounting for a non-controlling interest in a subsidiary in
      consolidated financial statements subsequent to a business combination.
      These standards apply to interim and annual consolidated financial
      statements beginning on or after January 1, 2011. Earlier adoption of
      all three standards is permitted as of the beginning of a fiscal year,
      however if an entity chooses to early adopt, all three standards must
      be adopted concurrently. The Company is currently evaluating the impact
      of these new standards.

      Financial Instruments - Disclosures

      In June 2009, the CICA issued amendments to the existing Section 3862,
      "Financial Instruments - Disclosures", to more closely align the
      section with those required under IFRS. The amendments include enhanced
      disclosure requirements relating to fair value measurements of
      financial instruments and liquidity risks. These amendments apply for
      annual financial statements with fiscal years ending after
      September 30, 2009. The adoption of the amendments to Section 3862 are
      not expected to have a material impact on the disclosures of the
      Company.
    

2. Inventories

The cost of inventories recognized as an expense during the 13 and 26 weeks ended October 31, 2009 was $2,909.4 and $5,890.6 respectively (2008 - $2,802.0 and $5,641.0). The cost of inventories recognized as an expense during the second quarter and year-to-date included $7.2 and $20.3 respectively (2008 - $12.0 and $22.9) for the write-down of inventories below cost to net realizable value. There were no reversals of inventories written down previously.

    
    3. Earnings Per Share

    Earnings applicable to common shares is comprised of the following:


                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------

    Operating earnings       $     72.1  $     63.1  $    144.3  $    134.0
    Capital (losses)
     gains and other items,
     net of income taxes
     of $(1.3); $(0.5);
     $(18.2); $0.8                 (1.7)        2.5        15.8         7.3
                             ----------- ----------- ----------- -----------
    Net earnings                   70.4        65.6       160.1       141.3
    Preferred share
     dividends                        -           -           -        (0.1)
                             ----------- ----------- ----------- -----------
    Earnings applicable to
     common shares           $     70.4  $     65.6  $    160.1  $    141.2
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    Included in income taxes of $(18.2) for the 26 weeks ended October 31,
2009 is an income tax recovery of $17.0 (see Note 10).


    Earnings per share is comprised of the following:

    Operating earnings       $     1.06  $     0.96  $     2.11  $     2.04
    Net capital (losses)
     gains and other items        (0.03)       0.04        0.23        0.11
                             ----------- ----------- ----------- -----------
    Basic earnings per
     share                   $     1.03  $     1.00  $     2.34  $     2.15
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    Operating earnings       $     1.06  $     0.96  $     2.11  $     2.04
    Net capital (losses)
     gains and other items        (0.03)       0.04        0.23        0.11
                             ----------- ----------- ----------- -----------
    Diluted earnings per
     share                   $     1.03  $     1.00  $     2.34  $     2.15
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------


    4. Investments, at Equity

                                         October 31       May 2  November 1
                                               2009        2009        2008
                                         ----------- ----------- -----------
    Wajax Income Fund (27.6% interest)   $     30.4  $     31.0  $     32.7
    Crombie REIT (47.4% interest)              14.1       (19.7)        5.3
    U.S. residential real estate
     partnerships                              11.9         7.5         0.1
                                         ----------- ----------- -----------
                                         $     56.4  $     18.8  $     38.1
                                         ----------- ----------- -----------
                                         ----------- ----------- -----------

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

                                                     October 31  November 1
                                                           2009        2008
                                                     ----------- -----------
    Balance, beginning of period                     $     31.0  $     31.6
    Equity earnings                                         4.6        10.6
    Share of comprehensive loss                            (0.1)       (0.1)
    Distributions received                                 (5.1)       (9.4)
                                                     ----------- -----------
    Balance, end of period                           $     30.4  $     32.7
                                                     ----------- -----------
                                                     ----------- -----------

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

                                                     October 31  November 1
                                                           2009        2008
                                                     ----------- -----------
    Balance, beginning of period                     $    (19.7) $      9.5
    Equity earnings
      Continuing operations                                 9.8         8.4
      Other expenses                                       (4.7)          -
    Share of comprehensive income                          10.7        (2.0)
    Distributions received                                (12.0)      (10.6)
    Interest acquired in Crombie REIT                      30.0           -
                                                     ----------- -----------
    Balance, end of period                           $     14.1  $      5.3
                                                     ----------- -----------
                                                     ----------- -----------
    

On June 25, 2009, Crombie REIT closed a bought-deal public offering of units at a price of $7.80 per unit. In satisfaction of its pre-emptive right with respect to the public offering, the Company subscribed for $30.0 of Class B Units (which are convertible on a one-for-one basis into units of Crombie REIT). Consequently the Company's interest in Crombie REIT was reduced from 47.9% to 47.4%.

5. Other Assets

Asset-backed commercial paper

Included in other assets is $30.0 (May 2, 2009 - $30.0) of third-party asset-backed commercial paper ("ABCP") which the Company estimates the fair value to be $19.1 (May 2, 2009 - $17.8), approximately 64 percent (May 2, 2009 - 59 percent) of the face value. On January 21, 2009, the Company derecognized the existing held-to-maturity assets and received restructured ABCP MAV II notes: A1 - $7.8, A2 - $17.5, B - $3.2, C - $0.9 and $0.6 of tracking notes (the "restructured notes") as designated in the Montreal Accord as well as accrued interest. The A1 and A2 notes received an A rating from the Dominion Bond Rating Service ("DBRS"). The remaining notes have not yet been rated. The restructured notes are floating rate notes with expected payouts in January 2017. The Company has classed these notes as held for trading and as a result will be fair valued at each reporting period. During fiscal 2009, the Company received $1.0 of interest and recorded a $4.7 pre-tax provision. The Company updated its analysis of the fair value of the restructured notes, including factors such as estimated cash flow scenarios and risk adjusted discount rates, and a pre-tax gain of $1.3 was recorded during the 13 weeks ended October 31, 2009. This increase in value is primarily due to a decrease in credit spreads which resulted in a lower discount rate assumption.

Discount rates vary depending upon the credit rating of the restructured long-term floating rate notes. Discount rates have been estimated using Government of Canada benchmark rates plus expected spreads for similarly rated instruments with similar maturities and structure. The Company has performed a sensitivity analysis on estimated discount rates used in the fair value analysis and determined that a change of one percent would result in a pre-tax change in the fair value of these investments of approximately $1.5 (May 2, 2009 - $1.3).

On August 11, 2009, DBRS downgraded the A2 notes from A to BBB (low) under a negative watch. The downgrade did not have a material change in the fair value of the notes. Continuing uncertainties regarding the value of assets which underlie the ABCP, the amount and timing of cash flows and the outcome of the restructuring process could give rise to a further material change in the value of the Company's investment in ABCP which could impact the Company's future earnings. The Company believes it has sufficient credit facilities to satisfy its financial obligations as they come due and does not expect there will be a material adverse impact on its business as a result of this current third-party ABCP liquidity issue.

6. Long-Term Debt

During the first quarter, the Company's credit facility ($285.0 as of October 31, 2009) was classified as current as it matures on June 8, 2010.

On November 8, 2007, Sobeys established a revolving credit facility of $75.0 that is currently unutilized. The maturity date is November 8, 2010. The interest rate was floating and fluctuated with changes in the bankers' acceptance rate, Canadian prime rate or LIBOR. On June 12, 2009, Sobeys repaid, although did not cancel, this facility.

7. Accumulated Other Comprehensive Loss

The following table provides further detail regarding the composition of accumulated other comprehensive loss:

    
                                         October 31       May 2  November 1
                                               2009        2009        2008
                                         ----------- ----------- -----------

    Balance, beginning of period         $    (48.5) $    (21.5) $    (21.5)
    Other comprehensive income (loss)
     for the period                            12.8       (27.0)       (7.0)
                                         ----------- ----------- -----------
    Balance, end of period               $    (35.7) $    (48.5) $    (28.5)
                                         ----------- ----------- -----------
                                         ----------- ----------- -----------
    

An estimated net loss of $10.7 recorded in accumulated other comprehensive loss related to the cash flow hedges as at October 31, 2009 (November 1, 2008 - $8.0), is expected to be reclassified to net earnings during the next 12 months. Remaining amounts will be reclassified to net earnings over periods up to nine years.

8. Investment Income

    
                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                             ----------- ----------- ----------- -----------

    Dividend and interest
     income                  $      0.2  $      0.1  $      0.2  $      0.1
    Share of earnings of
     entities accounted
     using the equity
     method                         6.8         8.9        14.4        19.0
                             ----------- ----------- ----------- -----------
                             $      7.0  $      9.0  $     14.6  $     19.1
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------


    9. Capital (Losses) Gains and Other Items

                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                             ----------- ----------- ----------- -----------

    Equity share of Crombie
     REIT's other expenses   $     (4.7) $        -  $     (4.7) $        -
    Change in fair value
     of Canadian third-
     party asset-backed
     commercial paper
     (Note 5)                       1.3           -         1.3           -
    (Loss) gain on sale of
     property                      (0.1)        2.4         0.1         8.5
    Foreign exchange
     gains (losses)                 0.5        (0.4)        0.9        (0.4)
                             ----------- ----------- ----------- -----------
                             $     (3.0) $      2.0  $     (2.4) $      8.1
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

10. Income Taxes

The effective tax rate for the 26 weeks ended October 31, 2009 of 22.1% differs from the combined statutory rate of 30.4% due to the settlement negotiated with Canada Revenue Agency relating to the tax treatment of gains realized on the sale of shares in Hannaford Bros. Co. in fiscal 2001. Income tax expense was reduced in the first quarter by $17.0 as a result of this settlement.

11. Supplementary Cash Flow Information

    
                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------
    a) Items not affecting
       cash

    Depreciation and
     amortization            $     85.8  $     83.0  $    167.8  $    165.6
    Future income taxes            (9.8)       (9.4)      (10.8)      (13.1)
    Gain on disposal of
     assets                        (1.7)       (1.8)       (1.5)       (6.2)
    Amortization of other
     assets                         2.5        (2.2)        0.3        (3.7)
    Equity in earnings of
     other entities, net
     of dividends received          6.7         1.6         7.4         1.2
    Minority interest               0.2         2.5         5.2         6.6
    Stock-based
     compensation                   0.3           -         0.7         0.6
    Long-term lease
     obligation                     1.1         0.8         3.9         2.4
    Employee future
     benefits obligation            1.6         2.0         3.1         3.6
    Rationalization
     costs (Note 18)                  -         2.1           -         6.8
                             ----------- ----------- ----------- -----------
                             $     86.7  $     78.6  $    176.1  $    163.8
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    b) Other cash flow
       information

    Interest paid            $     24.3  $     22.2  $     34.2  $     34.2
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    Income taxes paid        $     28.0  $     12.5  $     73.4  $     49.7
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------


    12. Segmented Information

                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                             ----------- ----------- ----------- -----------
    Segmented revenue
    Food retailing           $  3,807.0  $  3,660.1  $  7,713.7  $  7,371.6
                             ----------- ----------- ----------- -----------
    Real estate
      Residential                  14.0        13.7        25.4        33.7
      Commercial                    4.7         4.0         8.4         8.9
                             ----------- ----------- ----------- -----------
                                   18.7        17.7        33.8        42.6
                             ----------- ----------- ----------- -----------
    Investment and other
     operations                    52.3        50.6        99.6        92.7
                             ----------- ----------- ----------- -----------
                                3,878.0     3,728.4     7,847.1     7,506.9
    Elimination of inter-
     segment                       (3.3)       (0.5)       (3.9)       (0.8)
                             ----------- ----------- ----------- -----------
                             $  3,874.7  $  3,727.9  $  7,843.2  $  7,506.1
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------


                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------
    Segmented operating
     income
    Food retailing           $    106.3  $     94.6  $    227.9  $    200.9
    Real estate
      Residential                   7.3         7.5        12.4        21.2
      Crombie REIT                  4.9         3.8         9.8         8.4
      Commercial                    1.4         0.7         1.1         1.9
    Investment and other
     operations
      Wajax Income Fund             1.9         5.1         4.6        10.6
      Other operations,
       net of corporate
       expenses                    (1.1)        1.6        (4.9)       (1.4)
                             ----------- ----------- ----------- -----------
                             $    120.7  $    113.3  $    250.9  $    241.6
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------


                                         October 31       May 2  November 1
                                               2009        2009        2008
                                                       Restated    Restated
                                                        (Note 1)    (Note 1)
                                         ----------- ----------- -----------
    Identifiable assets
    Food retailing (excluding goodwill)  $  4,292.6  $  4,272.1  $  4,144.1
    Goodwill                                1,130.8     1,130.6     1,120.1
                                         ----------- ----------- -----------
    Food retailing                          5,423.4     5,402.7     5,264.2
    Real estate                               295.9       223.1       254.1
    Investment and other operations
     (including goodwill of $40.8;
     May 2, 2009 - $40.8;
     November 1, 2008 - $40.1)                289.2       265.3       256.0
                                         ----------- ----------- -----------
                                         $  6,008.5  $  5,891.1  $  5,774.3
                                         ----------- ----------- -----------
                                         ----------- ----------- -----------


                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------
    Depreciation and
     amortization
    Food retailing           $     80.5  $     77.6  $    157.2  $    153.9
    Real estate                     0.4         0.1         0.9         0.1
    Investment and other
     operations                     4.9         5.3         9.7        11.6
                             ----------- ----------- ----------- -----------
                             $     85.8  $     83.0  $    167.8  $    165.6
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------


                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------
    Capital expenditures
    Food retailing           $     96.8  $     71.8  $    176.6  $    176.9
    Real estate                    12.9         4.1        30.4        17.1
    Investment and other
     operations                     2.4         0.3         6.8         3.8
                             ----------- ----------- ----------- -----------
                             $    112.1  $     76.2  $    213.8  $    197.8
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

13. Related-Party Transaction

On September 30, 2009, the Company purchased $10.0 of convertible unsecured subordinated debentures (the "Debentures") from Crombie REIT, pursuant to a bought-deal prospectus offering for a total of $85.0. The Debentures have a maturity date of June 30, 2015. The Debentures have a coupon of 6.25% per annum and each $1,000 principal amount of Debenture is convertible into approximately 90.9091 units of Crombie REIT, at any time, at the option of the holder, based on a conversion price of $11.00 per unit. The Debentures have been classified as available-for-sale and are included in investments, at realizable value.

14. Employee Future Benefits

During the 13 and 26 weeks ended October 31, 2009 , the net employee future benefit expense was $10.3 and $20.5 respectively (2008 - $8.7 and $16.8). The expense included costs for the Company's defined contribution pension plans, defined benefit pension plans, post-retirement benefit plans and post-employment benefit plans.

15. Business Acquisitions

Sobeys acquires franchisee and non-franchisee stores and prescription files. The results of these acquisitions have been included in the consolidated financial results of the Company, and were accounted for through the use of the purchase method. As illustrated in the table below, the acquisition of certain franchisee and non-franchisee stores resulted in the acquisition of intangible assets. The method of amortization of limited life intangibles is on a straight-line basis over its estimated useful life.

    
                                   2009        2008        2009        2008
                              (13 weeks)  (13 weeks)  (26 weeks)  (26 weeks)
                             ----------- ----------- ----------- -----------
    Stores
    ------
    Inventory                $      2.2  $      1.5  $      3.2  $      3.2
    Property and equipment          1.3         0.3         3.0         1.4
    Intangibles                     3.7         0.5         3.7         2.9
    Goodwill                          -         0.3         0.2         1.2
    Other (liabilities)
     assets                        (1.6)        0.1        (1.4)        0.4
                             ----------- ----------- ----------- -----------
    Cash consideration       $      5.6  $      2.7  $      8.7  $      9.1
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    Prescription files
    ------------------
    Intangibles              $      5.8  $      2.7  $      5.8  $      2.7
                             ----------- ----------- ----------- -----------
    Cash consideration       $      5.8  $      2.7  $      5.8  $      2.7
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

16. Contingent Liabilities

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

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

17. Stock-Based Compensation

Deferred share units

Members of the Board of Directors may elect to receive all or any portion of their fees in deferred share units ("DSUs") in lieu of cash. The number of DSUs received is determined by the market value of the Company's Non-Voting Class A shares on each director's fee payment date. Additional DSUs are received as dividend equivalents. DSUs cannot be redeemed for cash until the holder is no longer a director of the Company. The redemption value of a DSU equals the market value of an Empire Company Limited Non-Voting Class A share at the time of the redemption. On an ongoing basis, the Company values the DSU obligation at the current market value of a corresponding number of Non-Voting Class A shares and records any increase in the DSU obligation as an operating expense. At October 31, 2009, there were 95,372 (May 2, 2009 - 84,195) DSUs outstanding. During the second quarter and first half of the current fiscal year, the compensation expense was $0.4 and $0.4 respectively (2008 - $0.3 and $1.0).

Stock option plan

During the first quarter, the Company granted an additional 162,399 options under the stock option plan for employees of the Company whereby options are granted to purchase Non-Voting Class A Shares. These options allow holders to purchase Non-Voting Class A Shares at $46.04 per share and expire in June 2017. The options vest over four years with 50 percent of the options vesting only if certain financial targets are attained in a given fiscal year. These options have been treated as stock-based compensation.

The compensation cost relating to the 13 and 26 weeks ended October 31, 2009 was $0.3 and $0.7 respectively (2008 - $Nil and $0.6) with amortization of the cost over the vesting period. The total increase in contributed surplus in relation to the stock option compensation cost was $0.7 (2008 - $0.6). The compensation cost was calculated using the Black-Scholes model with the following assumptions:

    
                 Expected life                      5.25 years
                 Risk-free interest rate            2.625%
                 Expected volatility                22.8%
                 Dividend yield                     1.60%
    

Phantom performance option plan

In June 2007, the Board of Directors approved a Phantom Performance Option Plan for eligible employees of Sobeys. Under the plan, units are granted at the discretion of the Board based on a notional equity value of Sobeys tied to a specified formula. Upon implementation, the units had a three year vesting period with 33.3 percent of the units vesting each year. Subsequent issuances have a four year vesting period with 25.0 percent of the units vesting each year. As the notional fair value of Sobeys changes, the employees are entitled to the incremental increase in the notional equity value over a five year period. The Company recognizes a compensation expense equal to the change in notional value over the original grant value on a straight-line basis over the vesting period. After the vesting period, any change in incremental notional equity value is recognized as a compensation expense immediately. This is recorded as an accrued liability until settlement and is remeasured at each interim and annual reporting period of the Company. As at October 31, 2009, 1,411,994 units (November 1, 2008 - 1,027,611) were outstanding. For the 13 and 26 weeks ended October 31, 2009, the Company recognized $3.9 and $6.0 respectively (2008 - $1.1 and $1.8) of compensation expense associated with this plan.

18. Business Rationalization Costs

For the 13 and 26 weeks ended October 31, 2009, severance costs of $Nil have been incurred and recognized (2008 - $2.6 and $9.6). The costs associated with the organizational change are recorded as incurred as cost of sales, selling and administrative expenses in the statement of earnings. The liability as of October 31, 2009 was $12.2 (November 1, 2008 - $12.7). Costs incurred as of October 31, 2009 were $27.7.

19. Subsequent Event

On November 5, 2009, a subsidiary of the Company agreed to sell eight commercial properties to Crombie REIT. The selling price of the properties is approximately $62.0, excluding closing and transaction costs. The sales are expected to close in stages over the next six months as due diligence and mortgage financing for the properties are finalized. The properties are classified as property and equipment as they are at various stages of completion.

20. Comparative Figures

Comparative figures have been reclassified, where necessary, to reflect the current period's presentation.

SOURCE Empire Company Limited

For further information: For further information: Paul V. Beesley, Executive Vice President and Chief Financial Officer, (902) 755-4440


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