Empire Company Posts Q3 Results

STELLARTON, NS, March 10 /CNW/ - Empire Company Limited (TSX: EMP.A) today announced financial results for its third quarter ended January 30, 2010. For the quarter, the Company recorded earnings before capital gains (losses) and other items of $68.3 million ($0.99 per share) compared to $64.8 million ($0.98 per share) in the third quarter last year. Net earnings for the third quarter were $68.3 million ($0.99 per share) compared to $61.3 million ($0.93 per share) recorded in the third quarter last year.

Third Quarter Highlights

    
    - Revenue of $3.84 billion, up $36.2 million or 1.0 percent.
    - Sobeys Inc. ("Sobeys") same-store sales increased 0.3 percent.
    - Earnings before capital gains (losses) and other items of $68.3 million
      ($0.99 per share) compared to $64.8 million ($0.98 per share) last
      year.
    - Net earnings of $68.3 million ($0.99 per share) compared to $61.3
      million ($0.93 per share) last year.
    - Sobeys' net earnings increased 18.0 percent.
    - Net debt to capital of 26.4 percent, down from 28.6 percent at
      the end of the last fiscal year and 33.2 percent at the end of Q3 last
      year.
    - Sobeys' credit rating upgraded by Standard & Poor's ("S&P") to BBB-
      with a stable trend.
    --------------
    

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 third quarter ended January 30, 2010 compared to 65.7 million in the third quarter last year.

Paul Sobey, President and CEO stated, "Empire's consolidated earnings and improving financial condition continue to reflect the strong earnings performance of Sobeys. Together with above plan performance from our real estate division and our investments and other operations, we are pleased to report another solid quarter."

CONSOLIDATED FINANCIAL OVERVIEW

Revenue

Consolidated revenue for the third quarter of fiscal 2010 was $3.84 billion compared to $3.80 billion for the same quarter last year, an increase of $36.2 million or 1.0 percent. Sobeys' revenue equaled $3.77 billion versus $3.74 billion in the third quarter last year, an increase of $32.6 million or 0.9 percent. Sobeys' third quarter same-store sales increased 0.3 percent net of significant deflation in the quarter. Adjusted for the effect of a competitor's strike during the same period last year, Sobeys' same-store sales increased approximately 1.3 percent.

Real estate revenue in the third quarter was $14.0 million, a decrease of $5.6 million from the $19.6 million recorded in the third quarter last year. Commercial property revenue decreased by $1.7 million while residential property revenue decreased by $3.9 million from the third quarter of last year.

Investments and other operations reported revenue of $50.3 million in the third quarter of fiscal 2010 compared to $39.5 million in the third quarter of last year, an increase of $10.8 million.

Operating Income

Consolidated operating income in the third quarter was $110.3 million, a decrease of $5.0 million or 4.3 percent from the $115.3 million recorded in the third quarter last year.

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

    
    (i)   Sobeys' operating income contribution to Empire in the third
          quarter totalled $99.0 million, an increase of $0.7 million or
          0.7 percent from the $98.3 million recorded in the third quarter
          last year.

    (ii)  Residential property operating income contribution in the third
          quarter was $3.8 million, a decrease of $4.8 million from the
          $8.6 million recorded in the third quarter last year.

    (iii) Commercial property (including Crombie REIT) operating income for
          the quarter was $4.9 million compared to $7.1 million in the third
          quarter last fiscal year, a decrease of $2.2 million. Crombie REIT
          contributed $4.4 million to operating income in the third quarter
          versus a $6.5 million contribution in the third quarter last year.

    (iv)  Investments and other operations (net of corporate expenses)
          contributed operating income of $2.6 million in the third quarter
          compared to $1.3 million in the third quarter last year. Equity
          accounted earnings generated from the Company's 27.6 percent
          interest in Wajax Income Fund ("Wajax") amounted to $2.3 million in
          the third quarter versus $5.3 million in the third quarter last
          year. Operating income generated from other operations (net of
          corporate expenses) amounted to $0.3 million compared to
          $(4.0) million in the third quarter last year.
    

The table below presents a summary of financial performance for the 13 and 39 weeks ended January 30, 2010 compared to the 13 and 39 weeks ended January 31, 2009.

    
    Summary Table of Consolidated Financial Results

                                 13 Weeks Ended          39 Weeks Ended
                             ----------------------- -----------------------
                                January     January     January     January
    ($ in millions, except           30,         31,         30,         31,
     per share information)        2010      2009(1)       2010      2009(1)
                             ----------- ----------- ----------- -----------
    Segmented revenue
      Food retailing         $  3,774.4  $  3,741.8  $ 11,488.1  $ 11,113.4
                             ----------- ----------- ----------- -----------
      Real estate
        Residential                 8.9        12.8        34.3        46.5
        Commercial                  5.1         6.8        13.5        15.7
                             ----------- ----------- ----------- -----------
                                   14.0        19.6        47.8        62.2
                             ----------- ----------- ----------- -----------
      Investments and other
       operations                  50.3        39.5       149.9       132.2
                             ----------- ----------- ----------- -----------
                                3,838.7     3,800.9    11,685.8    11,307.8
      Elimination                  (2.5)       (0.9)       (6.4)       (1.7)
                             ----------- ----------- ----------- -----------
                             $  3,836.2  $  3,800.0  $ 11,679.4  $ 11,306.1
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    Segmented operating
     income
      Food retailing         $     99.0  $     98.3  $    326.9  $    299.2
                             ----------- ----------- ----------- -----------
      Real estate
        Residential                 3.8         8.6        16.2        29.8
        Crombie REIT(2)             4.4         6.5        14.2        14.9
        Commercial                  0.5         0.6         1.6         2.5
                             ----------- ----------- ----------- -----------
                                    8.7        15.7        32.0        47.2
                             ----------- ----------- ----------- -----------
      Investments and other
       operations
        Wajax(3)                    2.3         5.3         6.9        15.9
        Other investments
         and operations,
         net of corporate
         expenses                   0.3        (4.0)       (4.6)       (5.4)
                             ----------- ----------- ----------- -----------
                                    2.6         1.3         2.3        10.5
                             ----------- ----------- ----------- -----------
                             $    110.3  $    115.3  $    361.2  $    356.9
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    Earnings before capital
     gains (losses) and
     other items             $     68.3  $     64.8  $    212.6  $    198.8
    Capital gains (losses)
     and other items, net
     of tax                           -        (3.5)       15.8         3.8
                             ----------- ----------- ----------- -----------
    Net earnings             $     68.3  $     61.3  $    228.4  $    202.6
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    Basic earnings per share
    Operating earnings       $     1.00  $     0.99  $     3.11  $     3.03
    Capital gains (losses)
     and other items, net
     of tax                           -       (0.05)       0.23        0.06
                             ----------- ----------- ----------- -----------
    Net earnings             $     1.00  $     0.94  $     3.34  $     3.09
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    Basic weighted average
     number of shares
     outstanding (in
     millions)(4)                  68.4        65.6        68.4        65.6
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    Diluted earnings per
     share
    Operating earnings       $     0.99  $     0.98  $     3.10  $     3.02
    Capital gains (losses)
     and other items, net
     of tax                           -       (0.05)       0.23        0.06
                             ----------- ----------- ----------- -----------
    Net earnings             $     0.99  $     0.93  $     3.33  $     3.08
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    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 third quarter ended January 30, 2010.
    (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 third quarter of fiscal 2010 included in this release.

Interest Expense

Interest expense in the third quarter amounted to $18.1 million, a decrease of $2.2 million or 10.8 percent from the $20.3 million recorded in the third 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 from free cash flow generated by Sobeys which was used in part to reduce funded debt.

Consolidated funded debt was $1,290.2 million at the end of the third quarter of fiscal 2010 compared to $1,464.3 million at the end of the third quarter last year, a $174.1 million or 11.9 percent decrease.

Income Taxes

The effective income tax rate for the third quarter (excluding the impact of capital gains (losses) and other items) was 25.8 percent versus 30.8 percent in the third quarter last year. In the third quarter of fiscal 2010, there was a $3.0 million reduction in the net future tax liabilities and income tax expense as a result of the substantive enactment of Ontario's 2009 budget announcement in November 2009. The budget provides for incremental reductions in the Ontario corporate income tax rate from the current rate of 14 percent to 10 percent between July 1, 2010 and July 1, 2013. In the absence of this substantively enacted incremental rate reduction, the effective tax rate for the 13 weeks ended January 30, 2010 would have been 29.1 percent.

Earnings before Capital Gains (Losses) and Other Items

Empire recorded earnings before capital gains (losses) and other items for the third quarter of fiscal 2010 of $68.3 million ($0.99 per share) compared to $64.8 million ($0.98 per share) in the third quarter last year.

The following table presents Empire's segmented earnings before capital gains (losses) and other items by division for the 13 and 39 weeks ended January 30, 2010 compared to the 13 and 39 weeks ended January 31, 2009.

    
    -------------------------------------------------------------------------
                             13 Weeks Ended             39 Weeks Ended
                       -------------------------- ---------------------------
                           Jan.     Jan.              Jan.     Jan.
                            30,      31,      ($)      30,      31,      ($)
    ($ in millions)       2010   2009(1)  Change     2010   2009(1)  Change
    -------------------------------------------------------------------------
    Food retailing(2)  $  62.6  $  56.0  $   6.6  $ 196.7  $ 168.1  $  28.6
    Real estate            6.0     10.5     (4.5)    20.9     31.0    (10.1)
    Investments &
     other operations     (0.3)    (1.7)     1.4     (5.0)    (0.3)    (4.7)
    -------------------------------------------------------------------------
    Consolidated       $  68.3  $  64.8  $   3.5  $ 212.6  $ 198.8  $  13.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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 third quarter ended January 30, 2010.
    (2) Adjusted for the impact of depreciation and amortization related to
        the privatization of Sobeys in June 2007.
    

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 for the third quarter ended January 30, 2010 compared to 65.7 million in the third quarter last year, as a result of an equity issue completed on April 24, 2009.

Capital Gains (Losses) and Other Items

The Company recorded no capital gains (losses) and other items, net of tax in the third quarter compared to $(3.5) million in the third quarter last year, largely as a result of a Sobeys' fair value adjustment of $(3.1) million related to its asset-backed commercial paper investment.

The table below presents capital gains (losses) and other items, net of tax for the 13 and 39 weeks ended January 30, 2010 compared to the 13 and 39 weeks ended January 31, 2009.

    
    -------------------------------------------------------------------------
                             13 Weeks Ended             39 Weeks Ended
                       -------------------------- --------------------------
                           Jan.     Jan.              Jan.     Jan.
                            30,      31,      ($)      30,      31,      ($)
    ($ in millions)       2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Equity share of
     Crombie REIT's
     other expenses    $     -  $     -  $     -  $  (3.1)  $    -  $  (3.1)
    Change in fair
     value of Canadian
     third-party
     asset-backed
     commercial paper        -     (3.1)     3.1      1.1     (3.1)     4.2
    (Loss) gain on
     sale of
     properties              -     (0.2)     0.2      0.1      7.5     (7.4)
    Foreign exchange
     (losses) gains          -     (0.2)     0.2      0.7     (0.6)     1.3
    Tax recovery
     related to sale
     of shares in
     Hannaford Bros.
     Co.                     -        -        -     17.0        -     17.0
    -------------------------------------------------------------------------
                       $     -  $  (3.5)  $  3.5  $  15.8  $   3.8  $  12.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Net Earnings

Consolidated net earnings in the third quarter of fiscal 2010 equalled $68.3 million ($0.99 per share) compared to $61.3 million ($0.93 per share) in the third quarter last year. The increase in net earnings of $7.0 million is attributed to the $3.5 million increase in earnings before capital gains and other items and the $3.5 million decrease in capital losses and other items, net of tax, as discussed.

The following table presents Empire's segmented net earnings for the 13 and 39 weeks ended January 30, 2010 compared to the 13 and 39 weeks ended January 31, 2009.

    
    -------------------------------------------------------------------------
                             13 Weeks Ended             39 Weeks Ended
                       -------------------------- --------------------------
                           Jan.     Jan.              Jan.     Jan.
                            30,      31,      ($)      30,      31,      ($)
    ($ in millions)       2010   2009(1)  Change     2010   2009(1)  Change
    -------------------------------------------------------------------------
    Food retailing(2)  $  62.6  $  52.9  $   9.7  $ 197.8  $ 165.0  $  32.8
    Real estate            6.0     10.2     (4.2)    17.8     37.6    (19.8)
    Investments &
     other operations     (0.3)    (1.8)     1.5     12.8        -     12.8
    -------------------------------------------------------------------------
    Consolidated       $  68.3  $  61.3  $   7.0  $ 228.4  $ 202.6  $  25.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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 third quarter ended January 30, 2010.
    (2) Adjusted for 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.

    
    ------------------------------------------------------------------------
                                                       Fiscal 2010
                                        ------------------------------------
    ($ in millions,                              Q3          Q2          Q1
     except per                           (13 Weeks)  (13 Weeks)  (13 Weeks)
     share                                  Jan. 30,    Oct. 31,     Aug. 1,
     information)                              2010        2009        2009
    ------------------------------------------------------------------------
    Revenue                              $  3,836.2  $  3,874.7  $  3,968.5
    Operating
     income                                   110.3       120.7       130.2
    Operating
     earnings(2)                               68.3        72.1        72.2
    Capital gains
     (losses) and
     other items,
     net of tax                                   -        (1.7)       17.5
    ------------------------------------------------------------------------
    Net earnings                         $     68.3  $     70.4  $     89.7
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------
    Per share
     information,
     basic
    Operating
     earnings                            $     1.00  $     1.06  $     1.05
    Capital gains
     (losses) and
     other items,
     net of tax                                   -       (0.03)       0.26
    ------------------------------------------------------------------------
    Net earnings                         $     1.00  $     1.03  $     1.31
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------
    Basic
     weighted
     average
     number
     of shares
     outstanding
     (in mil-
     lions)(3)                                 68.4        68.4        68.4
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------
    Per share
     information,
     diluted
    Operating
     earnings                            $     0.99  $     1.06  $     1.05
    Capital gains
     (losses) and
     other items,
     net of tax                                   -       (0.03)       0.26
    ------------------------------------------------------------------------
    Net earnings                         $     0.99  $     1.03  $     1.31
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------
    Diluted
     weighted
     average
     number of
     shares
     outstanding
     (in mil-
     lions)(3)                                 68.5        68.5        68.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                                     Fiscal
                                    Fiscal 2009(1)                   2008(1)
                 ----------------------------------------------- ------------
    ($ in millions,      Q4          Q3          Q2          Q1          Q4
     except per   (13 Weeks)  (13 Weeks)  (13 Weeks)  (13 Weeks)  (13 Weeks)
     share            May 2,    Jan. 31,     Nov. 1,     Aug. 2,      May 3,
     information)      2009        2009        2008        2008        2008
    ------------------------------------------------------------ ------------
    Revenue      $  3,709.0  $  3,800.0  $  3,727.9  $  3,778.2  $  3,557.8
    Operating
     income           109.0       115.3       113.3       128.3       136.2
    Operating
     earnings(2)       62.6        64.8        63.1        70.9        73.6
    Capital gains
     (losses) and
     other items,
     net of tax        (0.8)       (3.5)        2.5         4.8        (7.1)
    ------------------------------------------------------------ ------------
    Net earnings $     61.8  $     61.3  $     65.6  $     75.7  $     66.5
    ------------------------------------------------------------ ------------
    ------------------------------------------------------------ ------------
    Per share
     information,
     basic
    Operating
     earnings    $     0.95  $     0.99  $     0.96  $     1.08  $     1.12
    Capital gains
     (losses) and
     other items,
     net of tax       (0.01)      (0.05)       0.04        0.07       (0.11)
    ------------------------------------------------------------ ------------
    Net earnings $     0.94  $     0.94  $     1.00  $     1.15  $     1.01
    ------------------------------------------------------------ ------------
    ------------------------------------------------------------ ------------
    Basic
     weighted
     average
     number
     of shares
     outstanding
     (in mil-
     lions)(3)         65.9        65.6        65.6        65.6        65.6
    ------------------------------------------------------------ ------------
    ------------------------------------------------------------ ------------
    Per share
     information,
     diluted
    Operating
     earnings    $     0.95  $     0.98  $     0.96  $     1.08  $     1.12
    Capital gains
     (losses) and
     other items,
     net of tax       (0.01)      (0.05)       0.04        0.07       (0.11)
    ------------------------------------------------------------ ------------
    Net earnings $     0.94  $     0.93  $     1.00  $     1.15  $     1.01
    ------------------------------------------------------------ ------------
    ------------------------------------------------------------ ------------
    Diluted
     weighted
     average
     number of
     shares
     outstanding
     (in mil-
     lions)(3)         66.0        65.7        65.7        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 third quarter ended January 30, 2010.
    (2) Operating earnings is earnings before capital gains (losses) and
        other items.
    (3) The increase in the weighted average number of shares outstanding in
        fiscal 2010 reflects an equity issue completed on April 24, 2009
        which resulted in a total of 2,713,000 shares being issued.
    

Consolidated sales and operating earnings growth have been influenced by the Company's investing activities, the competitive environment, food price and general industry trends, the cyclicality of both residential and commercial real estate 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.

The Company does experience some seasonality, as evidenced in the results presented above, in particular, during the summer months and over holidays.

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 April 30, 2010 to shareholders of record on April 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 revenue, operating income, capital gains (losses) and other items, net of tax and net earnings:

    
    -------------------------------------------------------------------------
                                  13 Weeks Ended           Year-over-Year
                             ----------------------- ------------------------
                                Jan. 30,    Jan. 31,         ($)         (%)
    ($ in millions)                2010      2009(1)     Change      Change
    -------------------------------------------------------------------------
    Sales                    $  3,774.4  $  3,741.8  $     32.6         0.9%
    Operating income(2)            99.0        98.3         0.7         0.7%
    Capital gains (losses)
     and other items, net
     of tax                           -        (3.1)        3.1       100.0%
    Net earnings(2)                62.6        52.9         9.7        18.3%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                  39 Weeks Ended           Year-over-Year
                             ----------------------- ------------------------
                                Jan. 30,    Jan. 31,         ($)         (%)
    ($ in millions)                2010      2009(1)     Change      Change
    -------------------------------------------------------------------------
    Sales                    $ 11,488.1  $ 11,113.4  $    374.7         3.4%
    Operating income(2)           326.9       299.2        27.7         9.3%
    Capital gains (losses)
     and other items, net
     of tax                         1.1        (3.1)        4.2       135.5%
    Net earnings(2)               197.8       165.0        32.8        19.9%
    -------------------------------------------------------------------------

    (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 third quarter ended January 30, 2010.
    (2) Adjusted for the impact of depreciation and amortization related to
        the privatization of Sobeys in June 2007.
    

Sales

Food retailing division sales for the third quarter of fiscal 2010 were $3.77 billion compared to $3.74 billion for the same quarter last year, an increase of $32.6 million or 0.9 percent. During the third quarter of fiscal 2010, Sobeys' same-store sales increased by 0.3 percent. In the current quarter, Sobeys experienced retail food price deflation. In addition, sales in the third quarter last year were favourably impacted by a competitor's strike and associated store closures.

Operating Income

Sobeys reported operating income of $100.3 million during the third quarter of fiscal 2010, a $0.7 million or 0.7 percent increase from the third quarter last year. Operating income margin in the third quarter equaled 2.66 percent, consistent with the same quarter last year.

After deducting the impact of the depreciation and amortization related to the privatization, Sobeys' operating income contribution to Empire in the third quarter of fiscal 2010 was $99.0 million (third quarter of fiscal 2009 - $98.3 million). Sobeys' operating income margin in the third quarter after adjusting for above items equaled 2.62 percent compared to 2.63 percent in the third quarter of fiscal 2009.

Capital Gains (Losses) and Other Items

For the third quarter of fiscal 2010, Sobeys reported no capital gains (losses) and other items, net of tax compared to $(3.1) million in the same quarter last year. Third quarter fiscal 2009 capital gains (losses) and other items relate to an additional provision by Sobeys around asset-backed commercial paper.

Net Earnings

Sobeys reported third quarter net earnings of $63.5 million, an increase of $9.7 million or 18.0 percent compared to the $53.8 million recorded in the third quarter of fiscal 2009.

Deducting the impact of the depreciation and amortization related to the privatization and the related tax impact, Sobeys contributed net earnings of $62.6 million to Empire for the third quarter of fiscal 2010, an increase of $9.7 million or 18.3 percent over the $52.9 million recorded in the same period last year.

REAL ESTATE

Empire's real estate operations are focused on (i) ownership of retail and office properties through a 47.4 percent ownership interest in Crombie REIT and (ii) 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 $14.0 million for the third quarter ended January 30, 2010, a $5.6 million or 28.6 percent decrease from the third quarter last year. The decrease is attributed to both lower commercial and residential property revenues.

Operating Income

Third quarter real estate division operating income was $8.7 million versus $15.7 million in the same quarter last year. The $7.0 million decrease in real estate division operating income was largely the result of a $4.8 million decline in residential operating income due to lower lot sales. Empire's 47.4 percent interest in Crombie REIT contributed operating income of $4.4 million which was $2.1 million below the third quarter last year largely due to a decrease in future income taxes recorded in the third quarter last year. Other commercial operating income decreased by $0.1 million in the third quarter of fiscal 2010 compared to the same quarter last year.

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

    
    --------------------------------------------- ---------------------------
                            13 Weeks Ended             39 Weeks Ended
                     ---------------------------- --------------------------
                      Jan. 30, Jan. 31,      ($)  Jan. 30, Jan. 31,      ($)
    ($ in millions)      2010     2009   Change      2010     2009   Change
    --------------------------------------------- ---------------------------
    Revenue
      Residential     $   8.9  $  12.8  $  (3.9)  $  34.3  $  46.5  $ (12.2)
      Commercial          5.1      6.8     (1.7)     13.5     15.7     (2.2)
    --------------------------------------------- ---------------------------
                      $  14.0  $  19.6  $  (5.6)  $  47.8  $  62.2  $ (14.4)
    --------------------------------------------- ---------------------------
    --------------------------------------------- ---------------------------

    Operating income
      Residential     $   3.8  $   8.6  $  (4.8)  $  16.2  $  29.8  $ (13.6)
      Crombie REIT(1)     4.4      6.5     (2.1)     14.2     14.9     (0.7)
      Commercial          0.5      0.6     (0.1)      1.6      2.5     (0.9)
    --------------------------------------------- ---------------------------
                      $   8.7  $  15.7  $  (7.0)  $  32.0  $  47.2  $ (15.2)
    --------------------------------------------- ---------------------------
    --------------------------------------------- ---------------------------

    Net earnings
      Residential     $   2.7  $   6.1  $  (3.4)  $  11.2  $  20.6  $  (9.4)
      Commercial          3.3      4.4     (1.1)      9.7     10.4     (0.7)
      Capital gains
       (losses), net
       of tax               -     (0.3)     0.3      (3.1)     6.6     (9.7)
    --------------------------------------------- ---------------------------
                      $   6.0  $  10.2  $  (4.2)  $  17.8  $  37.6  $ (19.8)
    --------------------------------------------- ---------------------------
    --------------------------------------------- ---------------------------

    Funds from
     operations(2)
      Residential     $   2.7  $   6.0  $  (3.3)  $  11.2  $  20.5  $  (9.3)
      Commercial          3.4      6.5     (3.1)     10.7     12.6     (1.9)
    --------------------------------------------- ---------------------------
                      $   6.1  $  12.5  $  (6.4)  $  21.9  $  33.1  $ (11.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

Capital Gains (Losses)

There were no capital gains (losses), net of tax, for the real estate division in the third quarter of fiscal 2010 compared to $(0.3) million related to the sale of non-core commercial properties during the third quarter last year.

Net Earnings

Real estate division net earnings contribution in the third quarter amounted to $6.0 million compared to $10.2 million last year, a $4.2 million decrease. The earnings decline is the result of a $7.0 million decrease in operating income, partially offset by a $1.9 million decrease in income taxes, a decrease in interest expense of $0.6 million and a $0.3 million decrease in capital losses, net of tax.

Funds from Operations

Funds from operations in the third quarter of $6.1 million decreased $6.4 million compared to the third quarter of last year due to a decrease in operating earnings of $4.5 million and a decrease in depreciation of $1.9 million. Trailing (last four quarters) funds from operations for the real estate division were $27.3 million, a decrease of 19.0 percent from the trailing (last four quarters) funds from operations of $33.7 million reported on October 31, 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 January 30, 2010, Empire's investments, including equity accounted investments in Crombie REIT and Genstar U.S., consisted of:

    
    -------------------------------------------------------------------------
                              Jan. 30, 2010                May 2, 2009
                       -------------------------- ---------------------------
                                  Carry-  Unreal-            Carry-  Unreal-
                        Market      ing     ized   Market      ing     ized
    ($ in millions)      Value    Value     Gain    Value    Value     Gain
    -------------------------------------------------------------------------
    Investment in
     Crombie REIT
     units             $ 328.3  $  12.6  $ 315.7  $ 175.6  $ (19.7) $ 195.3
    Investment in
     Wajax               105.3     30.8     74.5     71.3     31.0     40.3
    Investment in
     Genstar U.S.(1)      17.2     17.2        -      7.5      7.5        -
    Other
     investments(2)       11.9     11.9        -      1.1      1.1        -
    -------------------------------------------------------------------------
                       $ 462.7  $  72.5  $ 390.2  $ 255.5  $  19.9  $ 235.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                              Jan. 31, 2009
                                                  ---------------------------
                                                             Carry-  Unreal-
                                                   Market      ing     ized
    ($ in millions)                                 Value    Value     Gain
    -------------------------------------------------------------------------
    Investment in
     Crombie REIT
     units                                        $ 185.7  $ (13.0) $ 198.7
    Investment in
     Wajax                                           85.1     32.6     52.5
    Investment in
     Genstar U.S.(1)                                  5.6      5.6        -
    Other
     investments(2)                                   1.2      1.2        -
    -------------------------------------------------------------------------
                                                  $ 277.6  $  26.4  $ 251.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Assumes market value equals book value.
    (2) Includes a $10.6 million Crombie REIT convertible unsecured
        subordinated debenture.
    

The table below presents investments and other operations' financial highlights, excluding Crombie REIT and Genstar U.S. equity earnings, for the 13 and 39 weeks ended January 30, 2010 compared to the same period last year:

    
    -------------------------------------------------------------------------
                             13 Weeks Ended             39 Weeks Ended
                       ------------------------------------------------------
                       Jan. 30, Jan. 31,      ($) Jan. 30, Jan. 31,      ($)
    ($ in millions)       2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Revenue            $  50.3  $  39.5  $  10.8  $ 149.9  $ 132.2  $  17.7
    -------------------------------------------------------------------------
    Operating income
      Wajax                2.3      5.3     (3.0)     6.9     15.9     (9.0)
      Other operations,
       net of corporate
       expenses            0.3     (4.0)     4.3     (4.6)    (5.4)     0.8
    -------------------------------------------------------------------------
    Total operating
     income                2.6      1.3      1.3      2.3     10.5     (8.2)
    -------------------------------------------------------------------------
    Operating earnings    (0.3)    (1.7)     1.4     (5.0)    (0.3)    (4.7)
    Capital gains
     (losses) and
     other items, net
     of tax(1)               -     (0.1)     0.1     17.8      0.3     17.5
    -------------------------------------------------------------------------
    Net earnings       $  (0.3) $  (1.8) $   1.5  $  12.8  $     -  $  12.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Fiscal 2010 year-to-date capital gains (losses) 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, equaled $50.3 million in the third quarter ended January 30, 2010 versus $39.5 million in the third quarter last year, a $10.8 million or 27.3 percent increase. The increase in revenue was largely related to the stronger box office attendance recorded by Empire Theatres in addition to an extra week of operations in the current fiscal year.

Operating Income

Investments and other operations (net of corporate expenses) contributed operating income of $2.6 million compared to $1.3 million in the third quarter last year. Equity accounted earnings generated from the Company's 27.6 percent interest in Wajax amounted to $2.3 million in the third quarter versus $5.3 million last year. Operating income generated from other operations (net of corporate expenses) improved to $0.3 million from $(4.0) million in the third quarter last year.

Operating Earnings

Investments and other operations (net of corporate expenses) contributed operating earnings of $(0.3) million in the third quarter of fiscal 2010 compared to $(1.7) million in the same quarter last year, an improvement of $1.4 million. This improvement is largely attributed to higher earnings from Empire Theatres as well as increased dividend and interest income which more than offset a decline in equity earnings from Wajax in the quarter.

Net Earnings

Investments and other operations (net of corporate expenses) contributed $(0.3) million to Empire's consolidated third quarter fiscal 2010 net earnings compared to a $(1.8) million net earnings contribution in the third quarter last year. The increase is due to the improvement in operating earnings of $1.4 million as mentioned along with no capital gains (losses) and other items, net of tax being recorded in the third quarter compared to $(0.1) million during the third 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    Jan. 30,      May 2,    Jan. 31,
     ratio calculations)                       2010      2009(1)     2009(1)
    -------------------------------------------------------------------------
    Shareholders' equity                 $  2,886.5  $  2,678.8  $  2,499.1
    Book value per share                 $    42.10  $    39.07  $    37.95
    Bank indebtedness                    $     89.2  $     45.9  $     38.0
    Long-term debt, including
     current portion(2)                  $  1,201.0  $  1,257.0  $  1,426.3
    Funded debt to total capital               30.9%       32.7%       36.9%
    Net debt to capital ratio(3)               26.4%       28.6%       33.2%
    Debt to EBITDA(4)                          1.61x       1.64x       1.86x
    EBITDA to interest expense(4)             10.61x       9.84x       8.29x
    Total assets                         $  6,073.7  $  5,891.1  $  5,780.9
    -------------------------------------------------------------------------

    (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 third quarter ended January 30, 2010.
    (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 has decreased $12.7 million since the end of the fiscal year, May 2, 2009 ($1,302.9 million) and by $174.1 million since the third quarter last year ($1,464.3 million). The significant decrease over the third 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 along with the free cash flow generated by Sobeys which was used in part to reduce funded debt. The ratio of funded debt to total capital has declined by 6.0 percentage points since the third quarter last year to 30.9 percent as a result of the repayment of debt, the issuance of equity and growth in retained earnings.

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 January 30, 2010, consolidated cash and cash equivalents were $256.5 million versus $231.6 million at fiscal year-end, May 2, 2009 and $224.3 million at January 31, 2009.

At the end of the third 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 $281 million or 43 percent were utilized. On a consolidated basis, Empire's authorized bank credit facilities exceeded borrowings by approximately $884 million at January 30, 2010.

Included in the current portion of long-term debt and bank indebtedness is $374.4 million of debt outstanding under three credit facilities that mature within the next twelve months. Empire management intends to renegotiate sufficient credit facilities 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 sufficient credit facilities prior to their maturity. 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.

During the third quarter of fiscal 2010, on January 12, 2010, S&P upgraded its credit rating on Sobeys from BB+ with a positive trend to BBB- with a stable trend.

Empire's EBITDA to interest expense ratio in the third quarter was 10.6 times, an increase from the 9.8 times reported at the prior fiscal year-end and up significantly from the 8.3 times recorded for the third quarter last fiscal year. The increase over the same quarter last year is due to the reduction in funded debt which resulted in lower interest expense in the third quarter of fiscal 2010, partially offset by a decline in trailing 12-month EBITDA.

Empire and its subsidiaries have provided covenants to its lenders in support of various financing facilities. All covenants were complied with for the 39 weeks ended January 30, 2010 and for the fiscal year ended May 2, 2009.

The table below highlights major cash flow components for the 13 and 39 weeks ended January 30, 2010 compared to the 13 and 39 weeks ended January 31, 2009.

    
    Major Cash Flow Components

    -------------------------------------------------------------------------
                                   13 Weeks Ended          39 Weeks Ended
                             ---------------------- -------------------------
                                Jan. 30,    Jan. 31,    Jan. 30,    Jan. 31,
    ($ in millions)                2010      2009(1)       2010      2009(1)
    -------------------------------------------------------------------------
    Earnings for common
     shareholders            $     68.2  $     61.3  $    228.3  $    202.5
    Items not affecting
     cash                         109.1        86.1       285.2       249.9
    -------------------------------------------------------------------------
                                  177.3       147.4       513.5       452.4
    Net change in non-cash
     working capital               16.4        49.3       (50.2)       10.4
    -------------------------------------------------------------------------
    Cash flows from
     operating activities         193.7       196.7       463.3       462.8
    Cash flows used in
     investing activities        (136.5)     (122.8)     (373.3)     (274.0)
    Cash flows used in
     financing activities         (11.6)      (23.7)      (65.1)     (155.9)
    -------------------------------------------------------------------------
    Increase in cash and
     cash equivalents        $     45.6  $     50.2  $     24.9  $     32.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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 third quarter ended January 30, 2010.
    

Operating Activities

Third quarter cash flows from operating activities equaled $193.7 million compared to $196.7 million in the comparable period last year. The decrease of $3.0 million is attributed to a decrease in the net change in non-cash working capital of $32.9 million, partially offset by an increase in items not affecting cash of $23.0 million and an increase in earnings available for common shareholders of $6.9 million.

Investing Activities

Cash used in investing activities of $136.5 million in the third quarter (2009 - $122.8 million) consisted primarily of purchases of property and equipment of $104.7 million compared to purchases of property and equipment of $105.4 million in the third quarter last year.

The table below outlines the number of stores Sobeys invested in during the 13 and 39 weeks ended January 30, 2010 compared to the 13 and 39 weeks ended January 31, 2009:

    
    Sobeys' Corporate and Franchised Store
    Construction Activity
    -------------------------------------------------------------------------
                                 13 Weeks Ended           39 Weeks Ended
                             ----------------------- ------------------------
                                Jan. 30,    Jan. 31,    Jan. 30,    Jan. 31,
    Number of Stores               2010        2009        2010        2009
    ------------------------------------------------ ------------------------
    Opened/Acquired/Relocated         6          11          30          34
    Expanded                          4           1           9           8
    Rebannered/Redeveloped            3           4           8          14
    Closed                            7          14          35          32
    -------------------------------------------------------------------------
    

The following table shows Sobeys' square footage changes for the 13 and 52 weeks ended January 30, 2010 by type:

    
    Sobeys' Square Footage Changes
    (in thousands)
    -------------------------------------------------------------------------
                                                         Q3 F10      Q3 F10
    Square Feet                                      vs. Q2 F10  vs. Q3 F09
    -------------------------------------------------------------------------
    Opened                                                  175         892
    Relocated                                                 -          68
    Acquired                                                  -           -
    Expanded                                                 27         136
    Closed                                                  (90)       (560)
    -------------------------------------------------------------------------
    Net Change                                              112         536
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

At January 30, 2010, Sobeys' square footage totalled 27.9 million square feet, a 1.8 percent increase over the 27.4 million square feet operated at the end of the third quarter last year.

Financing Activities

Financing activities during the third quarter of fiscal 2010 used $11.6 million of cash compared to $23.7 million of cash used in financing activities in the same quarter last year. The decrease of $12.1 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 $11.8 million during the third quarter of fiscal 2010 compared to a decrease in bank indebtedness of $3.9 million last year.

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 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 its results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such forward-looking information. Forward-looking statements may not take into account the effect on the Company's business of transactions occurring after such statements have been made. For example, dispositions, acquisitions, asset write-downs or other changes announced or occurring after such statements are made may not be reflected in forward-looking statements. The forward-looking information in this news release reflects the Company's expectations as of March 10, 2010, 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 Wednesday, March 10, 2010 beginning at 3:30 p.m. Eastern Standard Time during which senior management will discuss the Company's financial results for the third quarter of fiscal 2010 ended January 30, 2010. 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 58877154 until midnight March 17, 2010, 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)


                                         January 30       May 2  January 31
                                               2010        2009        2009
                                          Unaudited     Audited   Unaudited
                                                       Restated    Restated
                                                        (Note 1)    (Note 1)
                                         ----------- ----------- -----------
    ASSETS

    Current
      Cash and cash equivalents          $    256.5  $    231.6  $    224.3
      Receivables                             291.0       308.9       289.5
      Loans and other receivables              84.2        65.6        59.6
      Income taxes receivable                     -         4.9           -
      Inventories (Note 2)                    924.0       842.8       860.7
      Prepaid expenses                         51.1        63.9        32.4
                                         ----------- ----------- -----------
                                            1,606.8     1,517.7     1,466.5

    Investments, at realizable value           11.9         1.1         1.2
    Investments, at equity (realizable
     value $450.8; May 2, 2009 - $254.4;
     January 31, 2009 - $276.4) (Note 4)       60.6        18.8        25.2
    Loans and other receivables                85.3        75.3        62.6
    Other assets (Note 5)                      84.2        89.0        83.1
    Property and equipment                  2,552.5     2,567.8     2,526.9
    Assets held for sale                       47.7         8.5         7.1
    Intangibles                               453.1       441.5       434.3
    Goodwill                                1,171.6     1,171.4     1,174.0
                                         ----------- ----------- -----------
                                         $  6,073.7  $  5,891.1  $  5,780.9
                                         ----------- ----------- -----------
                                         ----------- ----------- -----------
    LIABILITIES

    Current
      Bank indebtedness                  $     89.2  $     45.9  $     38.0
      Accounts payable and accrued
       liabilities                          1,463.6     1,487.1     1,391.7
      Income taxes payable                      7.3           -        12.2
      Future income taxes                      49.8        40.5        39.4
      Long-term debt due within one
       year (Note 6)                          359.5       133.0        51.5
                                         ----------- ----------- -----------
                                            1,969.4     1,706.5     1,532.8
    Long-term debt (Note 6)                   839.2     1,124.0     1,374.8
    Long-term debt relating to assets
     held for sale                              2.3           -           -
    Employee future benefits obligation       123.0       118.4       116.0
    Future income taxes                        84.9        89.5        98.1
    Other long-term liabilities               130.9       135.0       122.6
    Minority interest                          37.5        38.9        37.5
                                         ----------- ----------- -----------
                                            3,187.2     3,212.3     3,281.8
                                         ----------- ----------- -----------
    SHAREHOLDERS' EQUITY

    Capital stock                             325.0       324.5       193.5
    Contributed surplus                         2.7         1.7         1.1
    Retained earnings                       2,591.4     2,401.1     2,350.5
    Accumulated other comprehensive
     loss (Note 7)                            (32.6)      (48.5)      (46.0)
                                         ----------- ----------- -----------
                                            2,886.5     2,678.8     2,499.1
                                         ----------- ----------- -----------

                                         $  6,073.7  $  5,891.1  $  5,780.9
                                         ----------- ----------- -----------
                                         ----------- ----------- -----------
    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
                 --------------------------------------------
                               39 WEEKS ENDED
                               --------------
                           (Unaudited, in millions)


                                                     January 30  January 31
                                                           2010        2009
                                                                   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                                          228.4       202.6

    Dividends
      Preferred shares                                     (0.1)       (0.1)
      Common shares                                       (38.0)      (34.6)
                                                     ----------- -----------
    Balance, end of period                           $  2,591.4  $  2,350.5
                                                     ----------- -----------
                                                     ----------- -----------
    

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

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


                             January 30  January 31  January 30  January 31
                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------

    Net earnings             $     68.3  $     61.3  $    228.4  $    202.6
                             ----------- ----------- ----------- -----------

    Other comprehensive
     income (loss)

      Unrealized gains
       (losses) on
       available-for-sale
       financial assets,
       net of income taxes
       of $Nil; $Nil;
       $0.1; $(0.1)                 0.2           -         0.6        (0.3)

      Unrealized gains
       (losses) on
       derivatives
       designated as cash
       flow hedges, net of
       income taxes of $0.4;
       $(2.9); $2.6; $(6.2)         0.8        (5.8)        5.0       (12.3)

      Reclassification of
       loss on derivative
       instruments
       designated as cash
       flow hedges to
       earnings, net of
       income taxes of $0.8;
       $0.4; $2.3; $1.0             1.7         0.8         4.7         2.0

      Share of comprehensive
       income (loss) of entities
       accounted for using the
       equity method, net of
       income taxes of $0.2;
       $(6.4); $4.0; $(7.1)         0.6       (12.5)        7.4       (13.9)

      Foreign currency
       translation
       adjustment                  (0.2)          -        (1.8)          -
                             ----------- ----------- ----------- -----------

                                    3.1       (17.5)       15.9       (24.5)
                             ----------- ----------- ----------- -----------

    Comprehensive income     $     71.4  $     43.8  $    244.3  $    178.1
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

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)


                             January 30  January 31  January 30  January 31
                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------

    Revenue                  $  3,836.2  $  3,800.0  $ 11,679.4  $ 11,306.1
    Operating expenses
      Cost of sales,
       selling and
       administrative
       expenses                 3,650.5     3,611.5    11,089.6    10,729.5
      Depreciation and
       amortization                84.9        85.3       252.7       250.9
                             ----------- ----------- ----------- -----------
                                  100.8       103.2       337.1       325.7
    Investment income
     (Note 8)                       9.5        12.1        24.1        31.2
                             ----------- ----------- ----------- -----------
    Operating income              110.3       115.3       361.2       356.9
                             ----------- ----------- ----------- -----------
    Interest expense
      Long-term debt               17.0        19.3        51.2        58.7
      Short-term debt               1.1         1.0         3.1         3.1
                             ----------- ----------- ----------- -----------
                                   18.1        20.3        54.3        61.8
                             ----------- ----------- ----------- -----------
                                   92.2        95.0       306.9       295.1

    Capital (losses) gains
     and other items
     (Note 9)                         -        (4.2)       (2.4)        3.9
                             ----------- ----------- ----------- -----------
    Earnings before income
     taxes and minority
     interest                      92.2        90.8       304.5       299.0
                             ----------- ----------- ----------- -----------
    Income taxes (Note 10)
      Current                      10.2        29.0        68.0       102.4
      Future                       13.6        (0.4)        2.8       (13.5)
                             ----------- ----------- ----------- -----------
                                   23.8        28.6        70.8        88.9
                             ----------- ----------- ----------- -----------
    Earnings before
     minority interest             68.4        62.2       233.7       210.1
    Minority interest               0.1         0.9         5.3         7.5
                             ----------- ----------- ----------- -----------
    Net earnings             $     68.3  $     61.3  $    228.4  $    202.6
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    Earnings per share
     (Note 3)
      Basic                  $     1.00  $     0.94  $     3.34  $     3.09
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
      Diluted                $     0.99  $     0.93  $     3.33  $     3.08
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    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)

                             January 30  January 31  January 30  January 31
                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------

    Operating Activities
      Net earnings           $     68.3  $     61.3  $    228.4  $    202.6
      Items not affecting
       cash (Note 11)             109.1        86.1       285.2       249.9
      Preferred dividends          (0.1)          -        (0.1)       (0.1)
                             ----------- ----------- ----------- -----------
                                  177.3       147.4       513.5       452.4
      Net change in non-
       cash working
       capital                     16.4        49.3       (50.2)       10.4
                             ----------- ----------- ----------- -----------
    Cash flows from
     operating activities         193.7       196.7       463.3       462.8
                             ----------- ----------- ----------- -----------

    Investing Activities
      Net increase in
       investments                 (5.5)       (4.8)      (51.5)       (4.8)
      Purchase of property
       and equipment             (104.7)     (105.4)     (306.0)     (288.6)
      Proceeds on disposal
       of property and
       equipment                    7.0         6.9        71.5        64.8
      Additions to
       intangibles                (11.9)       (9.8)      (26.5)      (24.4)
      Loans and other
       receivables                 (4.2)       (0.9)      (28.6)        4.0
      Decrease in other
       assets                       1.9        12.6         1.4         8.2
      Business acquisitions
       (Note 15)                  (19.1)      (21.4)      (33.6)      (33.2)
                             ----------- ----------- ----------- -----------
    Cash flows used in
     investing activities        (136.5)     (122.8)     (373.3)     (274.0)
                             ----------- ----------- ----------- -----------

    Financing Activities
      Increase (decrease)
       in bank indebtedness        11.8        (3.9)       43.3       (54.1)
      Issue of long-term
       debt                        13.1         9.9        79.6        50.9
      Repayment of long-
       term debt                  (22.3)      (17.8)     (143.3)     (108.2)
      Minority interest            (1.6)       (0.4)       (6.7)       (7.6)
      Repurchase of
       preferred shares               -           -           -        (2.3)
      Common dividends            (12.6)      (11.5)      (38.0)      (34.6)
                             ----------- ----------- ----------- -----------
    Cash flows used in
     financing activities         (11.6)      (23.7)      (65.1)     (155.9)
                             ----------- ----------- ----------- -----------

    Increase in cash and
     cash equivalents              45.6        50.2        24.9        32.9
    Cash and cash
     equivalents,
     beginning of period          210.9       174.1       231.6       191.4
                             ----------- ----------- ----------- -----------
    Cash and cash
     equivalents, end of
     period                  $    256.5  $    224.3  $    256.5  $    224.3
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

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

    
                           EMPIRE COMPANY LIMITED
                           ----------------------
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               ----------------------------------------------
                               JANUARY 30, 2010
                               ----------------
             (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 Canadian Institute of Chartered Accountants
      ("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, in compliance with transitional
      provisions, effective for the first quarter of fiscal 2010
      retroactively with restatement of the comparative periods. 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 January 31, 2009 was a decrease of prepaid
      expenses of $4.7, a decrease to other assets of $60.7, a decrease in
      property and equipment of $29.7, an increase to intangibles of $90.4, a
      decrease in future tax liabilities of $1.5 and an opening retained
      earnings reduction of $3.5. For the 13 and 39 weeks ended January 31,
      2009, cost of sales, selling and administrative expenses decreased $3.0
      and $9.0, depreciation and amortization expense increased $3.3 and $8.6
      and income taxes decreased $0.1 and increased $0.1 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, in accordance
      with transitional provisions, applied the standard prospectively to
      opening inventory and retained earnings for fiscal 2009. 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
      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 International Financial Reporting
      Standards. 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 Company will
      implement these enhanced disclosures in its annual financial
      statements.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 39 weeks ended January 30, 2010 was $2,886.3 and $8,776.9 respectively (2009 - $2,850.8 and $8,491.8). The cost of inventories recognized as an expense during the third quarter and year-to-date included $9.1 and $29.4 respectively (2009 - $11.2 and $34.1) 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:

    
                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------

    Operating earnings       $     68.3   $    64.8   $   212.6   $   198.8
    Capital (losses)
     gains and other items,
     net of income taxes
     of $Nil; $(0.7);
     $(18.2); $0.1                    -        (3.5)       15.8         3.8
                             ----------- ----------- ----------- -----------
    Net earnings                   68.3        61.3       228.4       202.6
    Preferred share
     dividends                     (0.1)          -        (0.1)       (0.1)
                             ----------- ----------- ----------- -----------
    Earnings applicable to
     common shares           $     68.2  $     61.3  $    228.3  $    202.5
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

Included in income taxes of $(18.2) for the 39 weeks ended January 30, 2010 is an income tax recovery of $17.0 (see Note 10).

Earnings per share is comprised of the following:

    
    Operating earnings       $     1.00  $     0.99  $     3.11  $     3.03
    Net capital (losses)
     gains and other items            -       (0.05)       0.23        0.06
                             ----------- ----------- ----------- -----------
    Basic earnings per
     share                   $     1.00  $     0.94  $     3.34  $     3.09
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    Operating earnings       $     0.99  $     0.98  $     3.10  $     3.02
    Net capital (losses)
     gains and other items            -       (0.05)       0.23        0.06
                             ----------- ----------- ----------- -----------
    Diluted earnings per
     share                   $     0.99  $     0.93  $     3.33  $     3.08
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

4. Investments, at Equity

    
                                         January 30       May 2  January 31
                                               2010        2009        2009
                                         ----------- ----------- -----------
    Wajax Income Fund (27.6% interest)   $     30.8  $     31.0  $     32.6
    Crombie REIT (47.4% interest)              12.6       (19.7)      (13.0)
    U.S. residential real estate
     partnerships                              17.2         7.5         5.6
                                         ----------- ----------- -----------
                                         $     60.6  $     18.8  $     25.2
                                         ----------- ----------- -----------
                                         ----------- ----------- -----------
    

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

    
                                                     January 30  January 31
                                                           2010        2009
                                                     ----------- -----------
    Balance, beginning of period                     $     31.0  $     31.6
    Equity earnings                                         6.9        15.9
    Share of comprehensive loss                               -        (0.5)
    Distributions received                                 (7.1)      (14.4)
                                                     ----------- -----------
    Balance, end of period                           $     30.8  $     32.6
                                                     ----------- -----------
                                                     ----------- -----------
    

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

    
                                                     January 30  January 31
                                                           2010        2009
                                                     ----------- -----------

    Balance, beginning of period                     $    (19.7) $      9.5
    Equity earnings
      Continuing operations                                14.2        14.9
      Other expenses                                       (4.7)          -
    Share of comprehensive income (loss)                   11.3       (20.5)
    Distributions received                                (18.5)      (16.2)
    Deferral of gains on sale of property                     -        (0.7)
    Interest acquired in Crombie REIT                      30.0           -
                                                     ----------- -----------
    Balance, end of period                           $     12.6  $    (13.0)
                                                     ----------- -----------
                                                     ----------- -----------
    

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. A pre-tax gain of $1.3 was recorded during the 13 week period ended October 31, 2009. 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 no change in the value has occurred in the 13 weeks ended January 30, 2010.

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 ($277.5 as of January 30, 2010) 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:

    
                                         January 30       May 2  January 31
                                               2010        2009        2009
                                         ----------- ----------- -----------

    Balance, beginning of period         $    (48.5) $    (21.5) $    (21.5)
    Other comprehensive income (loss)
     for the period                            15.9       (27.0)      (24.5)
                                         ----------- ----------- -----------
    Balance, end of period               $    (32.6) $    (48.5) $    (46.0)
                                         ----------- ----------- -----------
                                         ----------- ----------- -----------
    

An estimated net loss of $8.9 recorded in accumulated other comprehensive loss related to the cash flow hedges as at January 30, 2010 (January 31, 2009 - $9.7), 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

    
                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                             ----------- ----------- ----------- -----------

    Dividend and interest
     income                  $      2.8  $      0.3  $      3.0  $      0.4
    Share of earnings of
     entities accounted
     using the equity
     method                         6.7        11.8        21.1        30.8
                             ----------- ----------- ----------- -----------
                             $      9.5  $     12.1  $     24.1  $     31.2
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

9. Capital (Losses) Gains and Other Items

    
                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                             ----------- ----------- ----------- -----------

    Equity share of Crombie
     REIT's other expenses   $        -  $        -  $     (4.7) $        -
    Change in fair value
     of Canadian third-
     party asset-backed
     commercial paper
     (Note 5)                         -        (3.7)        1.3        (3.7)
    (Loss) gain on sale of
     property                         -        (0.4)        0.1         8.1
    Foreign exchange
     (losses) gains                   -        (0.1)        0.9        (0.5)
                             ----------- ----------- ----------- -----------
                             $        -  $     (4.2) $     (2.4) $      3.9
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

10. Income Taxes

The effective tax rate for the 39 weeks ended January 30, 2010 of 23.2% differs from the combined statutory rate of 30.0% 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. Income tax expense was further reduced in the third quarter by $3.0 as a result of the substantive enactment of rate reductions in Ontario.

11. Supplementary Cash Flow Information

    
                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------
    a) Items not affecting
       cash

    Depreciation and
     amortization            $     84.9  $     85.3  $    252.7  $    250.9
    Future income taxes            13.6        (0.4)        2.8       (13.5)
    Loss (gain) on disposal
     of assets                      1.3        (0.6)       (0.2)       (6.8)
    Amortization of other
     assets                         0.3        (2.5)        1.9        (6.2)
    Provision on asset-
     backed commercial
     paper                            -         3.7        (1.3)        3.7
    Equity in earnings of
     other entities, net
     of dividends received          1.8        (1.2)        9.2           -
    Minority interest               0.1         0.9         5.3         7.5
    Stock-based compensation        0.4           -         1.1         0.6
    Long-term lease
     obligation                     5.2         0.5         9.1         2.9
    Employee future benefits
     obligation                     1.5         1.7         4.6         5.3
    Rationalization costs
     (Note 18)                        -        (1.3)          -         5.5
                             ----------- ----------- ----------- -----------
                             $    109.1  $     86.1  $    285.2  $    249.9
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------

    b) Other cash flow
       information

    Interest paid            $     11.5  $     13.6  $     45.7  $     47.8
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    Income taxes (received)
     paid                    $     (3.2) $     57.3  $     70.2  $    107.0
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

12. Segmented Information

    
                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                             ----------- ----------- ----------- -----------
    Segmented revenue
    Food retailing           $  3,774.4  $  3,741.8  $ 11,488.1  $ 11,113.4
                             ----------- ----------- ----------- -----------
    Real estate
      Residential                   8.9        12.8        34.3        46.5
      Commercial                    5.1         6.8        13.5        15.7
                             ----------- ----------- ----------- -----------
                                   14.0        19.6        47.8        62.2
                             ----------- ----------- ----------- -----------
    Investment and other
     operations                    50.3        39.5       149.9       132.2
                             ----------- ----------- ----------- -----------
                                3,838.7     3,800.9    11,685.8    11,307.8
    Elimination of
     inter-segment                 (2.5)       (0.9)       (6.4)       (1.7)
                             ----------- ----------- ----------- -----------
                             $  3,836.2  $  3,800.0  $ 11,679.4  $ 11,306.1
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------


                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------
    Segmented operating
     income
    Food retailing           $     99.0  $     98.3  $    326.9  $    299.2
    Real estate
      Residential                   3.8         8.6        16.2        29.8
      Crombie REIT                  4.4         6.5        14.2        14.9
      Commercial                    0.5         0.6         1.6         2.5
    Investment and other
     operations
      Wajax Income Fund             2.3         5.3         6.9        15.9
      Other operations,
       net of corporate
       expenses                     0.3        (4.0)       (4.6)       (5.4)
                             ----------- ----------- ----------- -----------
                             $    110.3  $    115.3  $    361.2  $    356.9
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------


                                         January 30       May 2  January 31
                                               2010        2009        2009
                                                       Restated    Restated
                                                        (Note 1)    (Note 1)
                                         ----------- ----------- -----------
    Identifiable assets
    Food retailing (excluding goodwill)  $  4,310.0  $  4,272.1  $  4,147.3
    Goodwill                                1,130.8     1,130.6     1,133.2
                                         ----------- ----------- -----------

    Food retailing                          5,440.8     5,402.7     5,280.5
    Real estate                               341.8       223.1       235.9
    Investment and other operations
     (including goodwill of $40.8;
     May 2, 2009 - $40.8; January 31,
     2009 - $40.8)                            291.1       265.3       264.5
                                         ----------- ----------- -----------
                                         $  6,073.7  $  5,891.1  $  5,780.9
                                         ----------- ----------- -----------
                                         ----------- ----------- -----------


                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------
    Depreciation and
     amortization
    Food retailing           $     78.9  $     78.9  $    236.1  $    232.8
    Real estate                     0.1         2.0         1.0         2.1
    Investment and other
     operations                     5.9         4.4        15.6        16.0
                             ----------- ----------- ----------- -----------
                             $     84.9  $     85.3  $    252.7  $    250.9
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------


                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                           Restated                Restated
                                            (Note 1)                (Note 1)
                             ----------- ----------- ----------- -----------
    Capital expenditures
    Food retailing           $     73.9  $     93.2  $    235.9  $    256.2
    Real estate                    19.3         8.6        49.7        25.7
    Investment and other
     operations                    11.5         3.6        20.4         6.7
                             ----------- ----------- ----------- -----------
                             $    104.7  $    105.4  $    306.0  $    288.6
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

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 39 weeks ended January 30, 2010, the net employee future benefit expense was $10.2 and $30.7 respectively (2009 - $8.4 and $25.2). 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.

    

                                   2010        2009        2010        2009
                              (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                             ----------- ----------- ----------- -----------
    Stores
    ------
    Inventory                $        -  $      2.3  $      3.2  $      5.5
    Property and equipment          1.9         1.0         4.9         2.4
    Intangibles                       -         0.1         3.7         3.0
    Goodwill                          -        13.1         0.2        14.3
    Other (liabilities)
     assets                           -         0.1        (1.4)        0.5
                             ----------- ----------- ----------- -----------
    Cash consideration       $      1.9  $     16.6  $     10.6  $     25.7
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    Prescription files
    ------------------
    Intangibles              $        -  $      0.5  $      5.8  $      3.2
                             ----------- ----------- ----------- -----------

    Cash consideration       $        -  $      0.5  $      5.8  $      3.2
                             ----------- ----------- ----------- -----------
                             ----------- ----------- ----------- -----------
    

During the third quarter, ECL Properties Limited (a subsidiary of the Company) acquired additional units of two residential partnerships already co-owned by the Company for cash consideration of $17.2. The acquisitions were accounted for using the purchase method with net identifiable assets, primarily land inventory, recorded at $17.2. The final allocation of the purchase prices will be completed in the fourth quarter.

During the third quarter of fiscal 2009, ETL Canada Holdings Limited (a subsidiary of the Company) acquired all of the outstanding shares of an incorporated joint venture already co-owned by the Company for cash consideration of $4.3. The acquisition was accounted for using the purchase method with net identifiable assets recorded at $3.6 (including intangible assets of $0.2) and goodwill at $0.7.

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 January 30, 2010, there were 100,025 (May 2, 2009 - 84,195) DSUs outstanding. During the third quarter and year-to-date of the current fiscal year, the compensation expense was $0.2 and $0.6 respectively (2009 - $0.7 and $1.7).

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 39 weeks ended January 30, 2010 was $0.4 and $1.1 respectively (2009 - $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 $1.1 (2009 - $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 January 30, 2010, 1,381,851 units (January 31, 2009 - 1,037,161) were outstanding. For the 13 and 39 weeks ended January 30, 2010, the Company recognized $2.3 and $8.3 respectively (2009 - $1.3 and $3.1) of compensation expense associated with this plan.

18. Business Rationalization Costs

For the 13 and 39 weeks ended January 30, 2010, severance costs of $Nil have been incurred and recognized (2009 - $Nil and $9.1). 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 January 30, 2010 was $3.2 (January 31, 2009 - $11.5). Costs incurred as of January 31, 2010 were $24.9.

19. Subsequent Event

On February 22, 2010, a subsidiary of the Company completed the sale of five properties of the previously announced portfolio of eight commercial properties to Crombie REIT. The selling price of the properties was approximately $31.5, excluding closing and transaction costs. In accordance with Section 3475, "Disposal of Long-Lived Assets and Discontinued Operations", of the CICA Handbook, the assets and liabilities of these properties have been reclassified as held for sale. The remaining three 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


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890