Empire Company reports first quarter results



    STELLARTON, NS, Sept. 11 /CNW/ - Empire Company Limited (TSX: EMP.A)
today announced financial results for its first quarter ended August 1, 2009.
For the first quarter, the Company recorded earnings before capital gains and
other items of $72.2 million ($1.05 per share) as compared to $70.9 million
($1.08 per share) in the first quarter last year, a $1.3 million increase.
    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
first quarter ended August 1, 2009 as compared to 65.7 million in the first
quarter last year.

    First Quarter Highlights

    
    - Revenue of $3.97 billion, up $190.3 million or 5.0 percent.
    - Sobeys Inc. ("Sobeys") same-store sales increased 4.0 percent.
    - Earnings before capital gains and other items of $72.2 million ($1.05
      per share) as compared to $70.9 million ($1.08 per share) last year.
    - Capital gains and other items, net of tax, of $17.5 million versus
      $4.8 million last year.
    - Net earnings of $89.7 million ($1.31 per share) as compared to
      $75.7 million ($1.15 per share) last year.
    - Net funded debt to total capital of 26.3 percent, down from
      28.6 percent at the end of the last fiscal year and 35.7 percent at the
      end of Q1 last year.
    

    "Empire's consolidated operating earnings and financial condition
continued to strengthen in the first quarter of fiscal 2010 as a result of an
18.6 percent increase in Sobeys' earnings," stated Paul Sobey, President and
CEO, Empire Company Limited. "Our performance overall is in line with our
expectation and was again driven by Sobeys' operating performance, innovation
and disciplined growth."

    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 October 30, 2009 to shareholders of record on October 15,
2009. 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.

    CONSOLIDATED FINANCIAL OVERVIEW

    Revenue

    Consolidated revenue for the first quarter equalled $3.97 billion
compared to $3.78 billion last year, an increase of $190.3 million or 5.0
percent. Sobeys' revenue equalled $3.91 billion, an increase of $195.2 million
or 5.3 percent compared to the first quarter last year. Sobeys' first quarter
same-store sales increased 4.0 percent.
    Real estate division revenue (net of elimination) in the first quarter
was $14.5 million, a decrease of $10.1 million from the $24.6 million recorded
in the first quarter last year. Commercial property revenue declined by $1.5
million while residential property revenue decreased by $8.6 million from the
first quarter last year. The decline in residential property revenue was
expected, reflecting a marked reduction of residential lot sales in Western
Canada.
    Investments and other operations recorded revenue of $47.3 million in the
first quarter versus $42.1 million in the first quarter last year, an increase
of $5.2 million or 12.4 percent.

    Operating Income

    Consolidated operating income (earnings before capital gains and other
items, minority interest, interest expense and income tax) in the first
quarter was $130.2 million, an increase of $1.9 million or 1.5 percent from
the $128.3 million recorded in the first quarter last year.
    The contributors to the change in consolidated operating income from the
first quarter last year were as follows:

    
    (i)   Sobeys' operating income contribution to Empire in the first
          quarter totalled $121.6 million, an increase of $15.3 million or
          14.4 percent from the $106.3 million recorded in the first quarter
          last year.
    (ii)  Residential property operating income contribution in the first
          quarter was $5.1 million, a decrease of $8.6 million from the $13.7
          million recorded in the first quarter last year as a result of
          lower residential lot sales activity in Western Canada.
    (iii) Commercial property operating income for the quarter was $4.6
          million as compared to $5.8 million in the first quarter last
          fiscal year, a decline of $1.2 million. Crombie REIT contributed
          $4.9 million to operating income in the first quarter versus a $4.6
          million contribution in the first quarter last year.
    (iv)  Investments and other operations (net of corporate expenses)
          contributed operating income of negative $1.1 million in the first
          quarter compared to $2.5 million in the first quarter last year.
          Equity accounted earnings generated from the Company's 27.6 percent
          interest in Wajax Income Fund ("Wajax") amounted to $2.7 million in
          the first quarter versus $5.5 million in the first quarter last
          year. Operating income generated from other operations (net of
          corporate expenses) amounted to negative $3.8 million as compared
          to negative $3.0 million in the first quarter last year.

    The table below presents a summary of financial performance for the 13
weeks ended August 1, 2009 compared to the 13 weeks ended August 2, 2008.

    Summary Table of Consolidated Financial Results

                                                           13 Weeks Ended
                                                     ------------------------
    ($ in millions, except per                          August 1,   August 2,
     share information)                                     2009      2008(1)
                                                     ----------- ------------
    Segmented revenue
      Food retailing                                  $  3,906.7  $  3,711.5
                                                     ----------- ------------
      Real estate
        Residential                                         11.4        20.0
        Other Commercial                                     3.1         4.6
        Inter-segment                                        0.6         0.3
                                                     ----------- ------------
                                                            15.1        24.9
                                                     ----------- ------------
      Investments and other operations                      47.3        42.1
                                                     ----------- ------------
                                                         3,969.1     3,778.5
      Elimination                                           (0.6)       (0.3)
                                                     ----------- ------------
                                                      $  3,968.5  $  3,778.2
                                                     ----------- ------------
                                                     ----------- ------------
    Segmented operating income
      Food retailing                                  $    121.6  $    106.3
                                                     ----------- ------------
      Real estate
        Residential                                          5.1        13.7
        Crombie REIT(2)                                      4.9         4.6
        Other Commercial                                    (0.3)        1.2
                                                     ----------- ------------
                                                             9.7        19.5
                                                     ----------- ------------
      Investments and other operations
        Wajax(3)                                             2.7         5.5
        Other investments and operations,
         net of corporate expenses                          (3.8)       (3.0)
                                                     ----------- ------------
                                                            (1.1)        2.5
                                                     ----------- ------------
                                                      $    130.2  $    128.3
                                                     ----------- ------------
                                                     ----------- ------------

    Earnings before capital gains and
     other items                                      $     72.2  $     70.9
    Capital gains and other items, net of tax               17.5         4.8
                                                     ----------- ------------
    Net earnings                                      $     89.7  $     75.7
                                                     ----------- ------------
                                                     ----------- ------------

    Basic earnings per share
    Operating earnings                                $     1.05  $     1.08
    Capital gains and other items, net of tax               0.26        0.07
                                                     ----------- ------------
    Net earnings                                      $     1.31  $     1.15
                                                     ----------- ------------
                                                     ----------- ------------

    Basic weighted average number of shares
     outstanding (in millions)(4)                           68.4        65.6
                                                     ----------- ------------
                                                     ----------- ------------

    Diluted earnings per share
    Operating earnings                                $     1.05  $     1.08
    Capital gains and other items, net of tax               0.26        0.07
                                                     ----------- ------------
    Net earnings                                      $     1.31  $     1.15
                                                     ----------- ------------
                                                     ----------- ------------
    Diluted weighted average number of shares
     outstanding (in millions)(4)                           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 first quarter ended
        August 1, 2009.
    (2) 47.4 percent equity accounted interest in Crombie REIT.
    (3) 27.6 percent equity accounted interest in Wajax.
    (4) The increase in the weighted average number of shares outstanding
        reflects an equity issue completed on April 24, 2009 which resulted
        in a total of 2,713,000 shares being issued.
    

    Additional segmented information is contained in note 10 of the unaudited
consolidated financial statements for the first quarter of fiscal 2010
included in this release.

    Interest Expense

    Interest expense in the first quarter amounted to $18.2 million, a
decrease of $2.9 million or 13.7 percent from the $21.1 million recorded in
the same quarter last year. The decline in interest expense largely reflects
lower funded debt levels which are principally related to repaying debt with
the net proceeds of $129.1 million from the equity issue completed on April
24, 2009, as well as with free cash flow generated by Sobeys.
    Consolidated funded debt was $1,287.6 million at the end of the first
quarter of fiscal 2010 compared to $1,515.9 million at the end of the first
quarter last year, a $228.3 million or 15.1 percent decrease.

    Income Taxes

    Included in income taxes for the first quarter of fiscal 2010 was an
income tax recovery of $17.0 million related 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.
    Excluding the impact of the Hannaford Bros. Co. tax settlement, the
effective income tax rate for the first quarter of fiscal 2010 was 31.1
percent versus 30.0 percent in the first quarter last year.

    Earnings before Capital Gains and Other Items

    For the 13 weeks ended August 1, 2009, Empire recorded earnings before
capital gains and other items of $72.2 million ($1.05 per share) versus $70.9
million ($1.08 per share) last year, a $1.3 million or 1.8 percent increase.
The increase in earnings before capital gains and other items is the result of
a $1.9 million increase in operating income and a $2.9 million reduction in
interest expense, partially offset by an increase in income taxes of $2.6
million and an increase in minority interest expense of $0.9 million.
    Empire's per share earnings were impacted by an increase in the weighted
average number of shares outstanding, to 68.5 million on a diluted basis from
65.7 million last year, as a result of an equity issue completed April 24,
2009.
    The table below presents Empire's segmented earnings before capital gains
by division for the 13 weeks ended August 1, 2009 as compared to the 13 weeks
ended August 2, 2008.

    
    -------------------------------------------------------------------------
                                               13 Weeks Ended
                                          -----------------------
                                            August 1,   August 2,         ($)
    ($ in millions)                             2009      2008(1)     Change
    -------------------------------------------------------------------------
    Food retailing(2)                       $   69.2    $   58.2    $   11.0
    Real estate                                  6.1        13.1        (7.0)
    Investments &
     other operations                           (3.1)       (0.4)       (2.7)
    -------------------------------------------------------------------------
    Consolidated                            $   72.2    $   70.9    $    1.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    Capital Gains and Other Items

    Excluding the impact of the Hannaford Bros. Co. tax settlement, the
Company recorded capital gains and other items, net of tax, of $0.5 million in
the first quarter as compared to $4.8 million in the first quarter last year.
Capital gains and other items, net of tax, in the first quarter last year were
the result of the sale of non-core properties.
    The table below presents capital gains and other items, net of tax,
including the impact of the tax recovery related to the sale of the shares in
Hannaford Bros. Co. as discussed.

    
    -------------------------------------------------------------------------
                                                13 Weeks Ended
                                         -------------------------
                                              Aug. 1,     Aug. 2,         ($)
    ($ in millions)                             2009        2008      Change
    -------------------------------------------------------------------------
    Gain on sale of properties, net
     of tax                               $      0.2  $      4.8  $     (4.6)
    Other items, net of tax                      0.3           -         0.3
    Tax recovery related to sale of
     shares in Hannaford Bros. Co.              17.0           -        17.0
    -------------------------------------------------------------------------
                                          $     17.5  $      4.8  $     12.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Net Earnings

    Consolidated net earnings in the first quarter equalled $89.7 million
($1.31 per share) as compared to $75.7 million ($1.15 per share) last year.
The increase of $14.0 million compared to the first quarter last year is
attributed to the $12.7 million increase in capital gains and other items, net
of tax and $1.3 million increase in earnings before capital gains and other
items, as discussed.

    QUARTERLY RESULTS OF OPERATIONS

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

    
    -------------------------------------------------------------------------
                          Fiscal
                            2010                  Fiscal 2009(1)
                       ---------- -------------------------------------------
                              Q1         Q4         Q3         Q2         Q1
    ($ in millions,    (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
     except per share     Aug. 1,     May 2,   Jan. 31,    Nov. 1,    Aug. 2,
     information)           2009       2009       2009       2008       2008
    ----------------------------- -------------------------------------------
    Revenue             $3,968.5   $3,709.0   $3,800.0   $3,727.9   $3,778.2
    Operating income       130.2      109.0      115.6      113.4      128.3
    Operating
     earnings(2)            72.2       62.6       65.0       63.2       70.9
    Capital gains
     (losses) and other
     items, net of tax      17.5       (0.8)      (3.5)       2.5        4.8
    ----------------------------- -------------------------------------------
    Net earnings        $   89.7   $   61.8   $   61.5   $   65.7   $   75.7
    ----------------------------- -------------------------------------------
    ----------------------------- -------------------------------------------

    Per share
     information,
     diluted
    Operating earnings  $   1.05   $   0.95   $   0.99   $   0.96   $   1.08
    Capital gains
     (losses) and other
     items, net of tax      0.26      (0.01)     (0.05)      0.04       0.07
    ----------------------------- -------------------------------------------
    Net earnings        $   1.31   $   0.94   $   0.94   $   1.00   $   1.15
    ----------------------------- -------------------------------------------
    ----------------------------- -------------------------------------------
    Diluted weighted
     average number of
     shares outstanding
     (in millions)          68.5       66.0       65.7       65.7       65.7
    ----------------------------- -------------------------------------------
    ----------------------------- -------------------------------------------

    -------------------------------------------------------------------------
                                                       Fiscal 2008(1)
    -------------------------------------------------------------------------
                                                    Q4         Q3         Q2
    ($ in millions,                          (13 Weeks) (13 Weeks) (13 Weeks)
     except per share                            May 3,    Feb. 2,    Nov. 3,
     information)                                 2008       2008       2007
    -------------------------------------------------------------------------
    Revenue                                   $3,557.8   $3,503.0   $3,484.8
    Operating income                             136.2       90.7      118.2
    Operating
     earnings(2)                                  73.6       48.9       59.9
    Capital gains
     (losses) and other
     items, net of tax                            (7.1)      (0.3)      (1.5)
    -------------------------------------------------------------------------
    Net earnings                              $   66.5   $   48.6   $   58.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per share
     information,
     diluted
    Operating earnings                        $   1.12   $   0.74   $   0.91
    Capital gains
     (losses) and other
     items, net of tax                           (0.11)         -      (0.02)
    -------------------------------------------------------------------------
    Net earnings                              $   1.01   $   0.74   $   0.89
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted weighted
     average number of
     shares outstanding
     (in millions)                                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 first quarter ended
        August 1, 2009.
    (2) Operating earnings is earnings before capital gains (losses) and
        other items.
    

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

    OPERATING PERFORMANCE BY DIVISION

    FOOD RETAILING

    Sobeys, Empire's wholly-owned food division, conducts business through
more than 1,300 retail grocery stores (corporately owned and franchised) which
operate in every province across Canada under retail banners that include
Sobeys, IGA, IGA extra, Foodland, Price Chopper and Thrifty Foods, as well as
Lawtons Drug Stores.
    The table below presents Sobeys' contribution to Empire's consolidated
sales, operating income and net earnings:

    
    -------------------------------------------------------------------------
                                  13 Weeks Ended           Year over Year
                              ----------------------- -----------------------
                                  Aug. 1,     Aug. 2,         ($)         (%)
    ($ in millions)                 2009      2008(1)     Change      Change
    -------------------------------------------------------------------------
    Sales                      $ 3,906.7   $ 3,711.5   $   195.2         5.3%
    Operating income(2)            121.6       106.3        15.3        14.4%
    Net earnings(2)                 69.2        58.2        11.0        18.9%
    -------------------------------------------------------------------------

    (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 first quarter ended
        August 1, 2009.
    (2) Adjusted for the impact of depreciation and amortization related to
        the privatization of Sobeys in June 2007.
    

    Sales

    Sobeys' sales for the first quarter of fiscal 2010 were $3.91 billion
compared to $3.71 billion for the same quarter last year, an increase of
$195.2 million or 5.3 percent. Sobeys' same-store sales (sales from stores in
the same locations in both reporting periods) increased by 4.0 percent during
the first quarter of fiscal 2010. The growth in sales continues to be a direct
result of the increased retail selling square footage from new stores and
enlargements, coupled with the continued implementation of sales and
merchandising initiatives, improved consistency of store level execution and
retail food price inflation.

    Operating Income

    Sobeys reported operating income of $122.9 million during the first
quarter of fiscal 2010, a $15.3 million or 14.2 percent increase from the
first quarter last year. Operating income margin in the first quarter equalled
3.15 percent compared to 2.90 percent in the first quarter last year.
    After adjusting for the impact of depreciation and amortization of $1.3
million related to the privatization, Sobeys' operating income contribution to
Empire in the first quarter of fiscal 2010 was $121.6 million (first quarter
of fiscal 2009 - $106.3 million). Sobeys' operating income margin in the first
quarter after adjusting for the above items equalled 3.11 percent compared to
2.86 percent in the first quarter last year.

    Net Earnings

    Sobeys recorded first quarter of fiscal 2010 net earnings of $70.1
million, an increase of $11.0 million or 18.6 percent compared to the $59.1
million recorded in the first quarter last year.
    Adjusting for the impact of depreciation and amortization related to the
privatization and the related tax impact, Sobeys contributed net earnings of
$69.2 million to Empire for the first quarter of fiscal 2010, an increase of
$11.0 million or 18.9 percent over the $58.2 million recorded in the first
quarter last year.

    REAL ESTATE

    Empire's real estate operations are focused on: (i) the development of
food-anchored shopping plazas; (ii) ownership of retail and office properties
through a 47.4 percent ownership interest in Crombie REIT; and (iii)
residential land development through an ownership interest in Genstar.
    Commercial real estate operations are conducted through ECL Properties
and its wholly-owned subsidiary, ECL Developments, while residential land
development is primarily conducted through Genstar, which operates principally
in Ontario and Western Canada.

    Revenue

    Real estate division revenue (net of elimination) amounted to $14.5
million for the first quarter ended August 1, 2009, a $10.1 million or 41.1
percent decrease from the first quarter last year. The decline is primarily
attributed to lower residential property revenues from Genstar related to
weaker lot sales, particularly in the Calgary and Edmonton, Alberta markets
along with lower revenue from commercial operations due to the sale of several
properties in the first half of last year.

    Operating Income

    First quarter real estate division operating income was $9.7 million
versus $19.5 million in the same quarter last year. The $9.8 million decline
in real estate division operating income is largely a result of an $8.6
million decrease in residential property operating income due to lower
residential lot sales activity in Western Canada, along with a $1.5 million
decrease in other commercial property operating income primarily due to the
sale of several properties in the first half of fiscal 2009. Equity accounted
earnings from Empire's 47.4 percent interest in Crombie REIT increased $0.3
million.
    The table below presents revenue, operating income, net earnings and
funds from operations for the real estate division's commercial operations and
residential operations:

    
    -------------------------------------------------------------------------
                                                13 Weeks Ended
                                         -------------------------
                                              Aug. 1,     Aug. 2,         ($)
    ($ in millions)                             2009        2008      Change
    -------------------------------------------------------------------------
    Revenue
      Residential                         $     11.4  $     20.0  $     (8.6)
      Other Commercial                           3.1         4.6        (1.5)
      Inter-segment                              0.6         0.3         0.3
    -------------------------------------------------------------------------
                                                15.1        24.9        (9.8)
    -------------------------------------------------------------------------
      Elimination                               (0.6)       (0.3)       (0.3)
    -------------------------------------------------------------------------
                                          $     14.5  $     24.6  $    (10.1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating income
    -------------------------------------------------------------------------
      Residential                         $      5.1  $     13.7  $     (8.6)
      Crombie REIT(1)                            4.9         4.6         0.3
      Other Commercial                          (0.3)        1.2        (1.5)
    -------------------------------------------------------------------------
                                          $      9.7  $     19.5  $     (9.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings
    -------------------------------------------------------------------------
      Residential                         $      3.4  $      9.6  $     (6.2)
      Commercial                                 2.7         3.5        (0.8)
      Capital gains, net of tax                    -         4.0        (4.0)
    -------------------------------------------------------------------------
                                          $      6.1  $     17.1  $    (11.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Funds from operations(2)
    -------------------------------------------------------------------------
      Residential                         $      3.4  $      9.6  $     (6.2)
      Commercial                                 3.2         3.5        (0.3)
    -------------------------------------------------------------------------
                                          $      6.6  $     13.1  $     (6.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    Net Earnings

    Real estate division net earnings contribution in the first quarter
amounted to $6.1 million compared to $17.1 million last year, an $11.0 million
or 64.3 percent decrease. The earnings decrease reflects the $9.8 million
reduction in operating income, a $4.0 million decrease in net capital gains
and an increase in interest expense of $0.2 million, partially offset by a
$3.0 million reduction in income taxes.

    Funds from Operations

    Funds from operations in the first quarter of $6.6 million decreased $6.5
million or 49.6 percent compared to funds from operations in the first quarter
of last year largely as a result of lower operating earnings.

    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).

    Portfolio Composition

    At August 1, 2009, Empire's investment portfolio (including equity
accounted investments in Crombie REIT and Genstar U.S.) consisted of:

    
    -------------------------------------------------------------------------
                           Aug. 1, 2009                  May 2, 2009
                   ----------------------------- ----------------------------
                                       Unreali-                      Unreali-
                    Market  Carrying       zed    Market  Carrying       zed
    ($ in millions)  Value     Value      Gain     Value     Value      Gain
    -------------------------------------------------------------------------
    Investment in
     Wajax         $  85.8   $  30.9   $  54.9   $  71.3   $  31.0   $  40.3
    Investment in
     Crombie REIT    265.5      18.3     247.2     175.6     (19.7)    195.3
    Investment in
     Genstar U.S.(1)  12.5      12.5         -       7.5       7.5         -
    Other
     investments       1.2       1.2         -       1.1       1.1         -
    -------------------------------------------------------------------------
                   $ 365.0   $  62.9   $ 302.1   $ 255.5   $  19.9   $ 235.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                        Aug. 2, 2008
                                                 ----------------------------
                                                                     Unreali-
                                                  Market  Carrying       zed
    ($ in millions)                                Value     Value      Gain
    -------------------------------------------------------------------------
    Investment in
     Wajax                                       $ 131.1   $  32.4   $  98.7
    Investment in
     Crombie REIT                                  290.4      10.5     279.9
    Investment in
     Genstar U.S.(1)                                 0.3       0.3         -
    Other
     investments                                     1.6       1.6         -
    -------------------------------------------------------------------------
                                                 $ 423.4   $  44.8   $ 378.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Assumes market value equals book value.

    The table below presents investments and other operations' financial
highlights for the 13 weeks ended August 1, 2009 compared to the same period
last year:

    -------------------------------------------------------------------------
                                                13 Weeks Ended
                                         -------------------------
                                              Aug. 1,     Aug. 2,         ($)
    ($ in millions)                             2009        2008      Change
    -------------------------------------------------------------------------
    Revenue                               $     47.3  $     42.1  $      5.2
    -------------------------------------------------------------------------
    Operating income
      Wajax                                      2.7         5.5        (2.8)
      Other operations, net of corporate
       expenses                                 (3.8)       (3.0)       (0.8)
    -------------------------------------------------------------------------
    Total operating income                      (1.1)        2.5        (3.6)
    -------------------------------------------------------------------------
    Operating earnings                          (3.1)       (0.4)       (2.7)
    Capital gains and other items, net
     of tax(1)                                  17.5         0.8        16.7
    -------------------------------------------------------------------------
    Net earnings                          $     14.4  $      0.4  $     14.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) First quarter fiscal 2010 capital gains and other items, net of tax,
        includes $17.0 million related to the settlement of Canada Revenue
        Agency tax reassessment relating to the sale of Hannaford Bros. Co.
        shares in fiscal 2001.
    

    Revenue

    Investments and other operations' revenue, primarily generated by Empire
Theatres, equalled $47.3 million in the first quarter ended August 1, 2009
versus $42.1 million in the first quarter last year, a 12.4 percent increase.

    Operating Income

    Investments and other operations' operating income (net of corporate
expenses) was negative $1.1 million compared to $2.5 million in the first
quarter last year. Equity accounted earnings generated from the Company's 27.6
percent interest in Wajax amounted to $2.7 million in the first quarter versus
$5.5 million last year. Operating income generated from other operations (net
of corporate expenses) declined to negative $3.8 million from negative $3.0
million in the first quarter last year.

    Operating Earnings

    Investments and other operations' (net of corporate expenses) operating
earnings equalled negative $3.1 million in the first quarter of fiscal 2010
compared to negative $0.4 million in the same quarter last year, a decrease of
$2.7 million. This decrease was largely the result of lower equity earnings
from Wajax due to the economic slowdown in the first quarter of fiscal 2010
compared to the same quarter last year.

    Net Earnings

    Investments and other operations (net of corporate expenses) contributed
$14.4 million to Empire's consolidated first quarter fiscal 2010 net earnings
as compared to a $0.4 million net earnings contribution in the first quarter
last year. The increase is primarily due to a tax settlement for $17.0 million
relating to the sale of Hannaford Bros. Co. in fiscal 2001, partially offset
by the $2.7 million decline in operating earnings, as discussed.

    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      Aug. 1,      May 2,     Aug. 2,
     ratio calculations)                        2009      2009(1)     2008(1)
    -------------------------------------------------------------------------
    Shareholders' equity                  $  2,764.7  $  2,678.8  $  2,422.1
    Book value per share                  $    40.32  $    39.07  $    36.76
    Bank indebtedness                     $     69.8  $     45.9  $     53.5
    Long-term debt, including current
     portion(2)                           $  1,217.8  $  1,257.0  $  1,462.4
    Funded debt to total capital                31.8%       32.7%       38.5%
    Net debt to capital ratio(3)                26.3%       28.6%       35.7%
    Debt to EBITDA(4)                           1.62x       1.64x       1.93x
    EBITDA to interest expense(4)              10.22x       9.84x       7.42x
    Total assets                          $  6,036.7  $  5,891.1  $  5,729.1
    -------------------------------------------------------------------------

    (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 first quarter ended
        August 1, 2009.
    (2) Includes liabilities related to assets held for sale.
    (3) Net debt to total capital reduces funded debt by cash and cash
        equivalents.
    (4) Calculation uses trailing 12-month EBITDA and interest expense.
    

    Funded debt has decreased $15.3 million since the end of the fiscal year,
May 2, 2009 ($1,302.9 million) and $228.3 million since the first quarter last
year ($1,515.9 million). The significant decrease over the first quarter last
fiscal year is primarily the result of repaying debt with net proceeds of
$129.1 million from the equity issue completed on April 24, 2009 and free cash
flow generation by Sobeys. The ratio of funded debt to total capital has
declined by 6.7 percentage points since the first quarter last year to 31.8
percent as a result of the repayment of debt as discussed.

    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 August 1, 2009, consolidated cash and cash equivalents were $300.6
million versus $170.4 million at August 2, 2008 and $231.6 million at fiscal
year-end, May 2, 2009.
    At the end of the first 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. Empire's non-consolidated credit facility of $650
million matures on June 8, 2010. It is Empire's intention to renew or replace
this credit facility prior to its maturity. To that end, management has held
preliminary discussions with the financial institutions providing the credit
facility and has developed a timeline for its renegotiation to ensure that new
credit facilities are in place prior to the maturity of the existing credit
facilities. However, given the current credit environment, the terms of the
renewed or replacement credit facility may not be as favorable as those of the
in-place credit facility.
    On a consolidated basis, Empire's authorized bank credit facilities
exceeded borrowings by approximately $958 million at August 1, 2009, versus
$930 million at May 2, 2009 and $734 million at August 2, 2008. The Company
anticipates that the above mentioned in-place sources of liquidity will
adequately meet its short-term and long-term financial requirements. The
Company mitigates potential liquidity risk by ensuring its various sources of
funds are diversified by term to maturity and source of credit.
    The table below highlights major cash flow components for the 13 weeks
ended August 1, 2009 compared to the 13 weeks ended August 2, 2008.

    
    Major Cash Flow Components

    -------------------------------------------------------------------------
                                                           13 Weeks Ended
                                                     ------------------------
                                                          Aug. 1,     Aug. 2,
    ($ in millions)                                         2009      2008(1)
    -------------------------------------------------------------------------
    Earnings for common shareholders                  $     89.7  $     75.6
    Items not affecting cash                                89.4        85.2
    -------------------------------------------------------------------------
                                                           179.1       160.8
    Net change in non-cash working capital                  27.9       (11.1)
    -------------------------------------------------------------------------
    Cash flows from operating activities                   207.0       149.7
    Cash flows (used in) from investing activities        (102.6)      (96.2)
    Cash flows (used in) from financing activities         (35.4)      (74.5)
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash equivalents  $     69.0  $    (21.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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 first quarter ended August 1, 2009.
    

    Operating Activities

    First quarter cash flows from operating activities equalled $207.0
million compared to $149.7 million in the comparable period last year. The
increase of $57.3 million is attributed to an increase in the net change in
non-cash working capital of $39.0 million, an increase in earnings available
for common shareholders of $14.1 million and an increase in items not
affecting cash of $4.2 million.

    Investing Activities

    Cash used in investing activities of $102.6 million in the first quarter
consisted primarily of purchases of property and equipment of $101.7 million
compared to purchases of property and equipment of $121.6 million in the first
quarter last year. Proceeds on disposal of property and equipment increased
$28.6 million over the first quarter last year to $57.6 million in the first
quarter of the current year. Included in disposals for the first quarter of
fiscal 2010 was the sale-leaseback of a distribution centre by Sobeys.
    Cash used in investing activities for the first quarter of fiscal 2010
included an additional investment of $30.0 million in Crombie REIT Class B
units which coincided with the closing of Crombie REIT's public offering of
units on June 25, 2009. As a result of the public offering, Empire's equity
ownership interest was reduced modestly to 47.4 percent from 47.9 percent.
    The table below outlines the number of stores Sobeys invested in during
the first quarter of fiscal 2010 compared to the same quarter of fiscal 2009:

    
    Sobeys' Corporate and Franchised Store
    Construction Activity
    -------------------------------------------------------------------------
                                                           13 Weeks Ended
                                                     ------------------------
                                                          Aug. 1,     Aug. 2,
    Number of Stores                                        2009        2008
    -------------------------------------------------------------------------
    Opened/Acquired/Relocated                                 14          11
    Expanded                                                   3           4
    Rebannered/Redeveloped                                     5           5
    Closed                                                    22          10
    -------------------------------------------------------------------------

    The following table shows Sobeys' square footage changes for the 13 and 52
weeks ended August 1, 2009 by type:

    Sobeys' Square Footage Changes
    (in thousands)
    -------------------------------------------------------------------------
                                                       Q1 F10 vs.  Q1 F10 vs.
    Square Feet                                           Q4 F09      Q1 F09
    -------------------------------------------------------------------------
    Opened                                                   379         997
    Relocated                                                 23          73
    Acquired                                                   -          33
    Expanded                                                  41         113
    Closed                                                  (257)       (832)
    -------------------------------------------------------------------------
    Net Change                                               185         383
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    At August 1, 2009, Sobeys' square footage totalled 27.7 million square
feet, a 1.5 percent increase over the 27.3 million square feet operated at the
end of the first quarter last year.

    Financing Activities

    Financing activities during the first quarter of fiscal 2010 used $35.4
million of cash compared to $74.5 million of cash used in financing activities
in the same quarter last year. The decrease of $39.1 million in cash flows
used in financing activities when compared to the same quarter last year is
primarily the result of an increase in long-term debt issuance of $39.2
million and an increase in bank indebtedness of $23.9 million during the first
quarter compared to a decrease in bank indebtedness of $38.6 million last
year, partially offset by an increase in repayment of long-term debt of $62.5
million. The increase in long-term debt issuance in the first quarter compared
to last year was the result of the additional investment made in Crombie REIT
during the quarter as discussed.

    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) funds from operations are calculated as operating
earnings plus depreciation and amortization; and (vii) 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. Forward-looking information and statements are
identified by words or phrases such as "anticipates", "expects", "believes",
"estimates", "intends", "could", "may", "plans", "predicts", "projects",
"will", "would", "foresees", "remain confident that" and other similar
expressions or the negative of these terms. These statements are based on
Empire's management's reasonable assumptions and beliefs in light of the
information currently available to them. The forward-looking information
contained in this news release is presented for the purpose of assisting the
Company's security holders in understanding its financial position and results
of operation as at and for the periods ended on the dates presented and the
Company's strategic priorities and objectives and may not be appropriate for
other purposes. By its very nature, forward-looking information requires the
Company to make assumptions and is subject to inherent risks and
uncertainties, which give rise to the possibility that the Company's
predictions, forecasts, expectations or conclusions will not prove to be
accurate, that the Company's assumptions may not be correct and that the
Company's objectives, strategic goals and priorities will not be achieved.
Although the Company believes that the predictions, forecasts, expectations or
conclusions reflected in the forward-looking information are reasonable, it
can give no assurance that such matters will prove to have been correct. Such
forward-looking information is not fact but only reflections of management's
estimates and expectations. These forward-looking statements are subject to
uncertainties and other factors that could cause actual results to differ
materially from such statements. These factors include but are not limited to:
changes in general industry, market and economic conditions, competition from
existing and new competitors, energy prices, supply issues, inventory
management, changes in demand due to seasonality of the business, interest
rates, changes in laws and regulations, operating efficiencies and cost saving
initiatives. In addition, these uncertainties and risks are discussed in the
Company's materials filed with the Canadian securities regulatory authorities
from time to time, including the Risk Management section of the annual
Management Discussion and Analysis included in the Company's Annual Report.
    Empire cautions that the list of important factors is not exhaustive and
other factors could also adversely affect our results. Readers are urged to
consider the risks, uncertainties and assumptions carefully in evaluating the
forward-looking information and are cautioned not to place undue reliance on
such forward-looking information. Forward-looking statements may not take into
account the effect on the Company's business of transactions occurring after
such statements have been made. For example, dispositions, acquisitions, asset
write-downs or other changes announced or occurring after such statements are
made may not be reflected in forward-looking statements. The forward-looking
information in this news release reflects the Company's expectations as of
September 11, 2009, and is subject to change after this date. The Company does
not undertake to update any forward-looking statements that may be made from
time to time by or on behalf of the Company other than as required by
applicable securities laws.

    Conference Call Invitation

    The Company will hold an analyst call on Friday, September 11, 2009
beginning at 2:00 p.m. Eastern Time during which senior management will
discuss the Company's financial results for the first quarter of fiscal 2010
ended August 1, 2009. To join this conference call dial 1-888-231-8191 outside
of the Toronto area or 647-427-7450 from within the Toronto area. You may also
listen to a live audiocast of the conference call by visiting the Company's
website located at www.empireco.ca. Replay will be available by dialling
1-888-562-2825 or 402-220-7740 and entering passcode 27004861 until midnight
September 18, 2009, or on the Company's website for 90 days after the meeting.

    About Empire

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


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



                                            August 1       May 2    August 2
                                                2009        2009        2008
                                           Unaudited     Audited   Unaudited
                                                        Restated    Restated
                                                         (Note 1)    (Note 1)
                                          ----------- ----------- -----------
    ASSETS

    Current
      Cash and cash equivalents           $    300.6  $    231.6  $    170.4
      Receivables                              319.3       318.7       292.0
      Loans and other receivables               79.6        55.8        66.4
      Income taxes receivable                   28.8         4.9           -
      Inventories (Note 2)                     854.7       842.8       815.6
      Prepaid expenses                          68.0        63.9        65.7
                                          ----------- ----------- -----------
                                             1,651.0     1,517.7     1,410.1
    Investments, at realizable value             1.2         1.1         1.6
    Investments, at equity (realizable
     value $363.8; May 2, 2009 -
     $254.4; August 2, 2008 - $421.8)
     (Note 4)                                   61.7        18.8        43.2
    Loans and other receivables                 78.6        75.3        60.9
    Other assets                                82.8        89.0        89.1
    Property and equipment                   2,539.6     2,567.8     2,485.4
    Assets held for sale                         7.4         8.5        45.7
    Intangibles                                442.8       441.5       433.2
    Goodwill                                 1,171.6     1,171.4     1,159.9
                                          ----------- ----------- -----------
                                          $  6,036.7  $  5,891.1  $  5,729.1
                                          ----------- ----------- -----------
                                          ----------- ----------- -----------
    LIABILITIES

    Current
      Bank indebtedness                   $     69.8  $     45.9  $     53.5
      Accounts payable and accrued
       liabilities                           1,556.1     1,487.1     1,372.7
      Income taxes payable                         -           -         9.2
      Future income taxes                       46.2        40.5        34.2
      Long-term debt due within one
       year (Note 5)                           364.9       133.0        55.5
      Liabilities relating to assets
       held for sale                               -           -         6.3
                                          ----------- ----------- -----------
                                             2,037.0     1,706.5     1,531.4
    Long-term debt (Note 5)                    852.9     1,124.0     1,400.6
    Employee future benefits obligation
     (Note 11)                                 119.9       118.4       112.3
    Future income taxes                         86.1        89.5       118.7
    Other long-term liabilities                135.9       135.0       106.4
    Minority interest                           40.2        38.9        37.6
                                          ----------- ----------- -----------
                                             3,272.0     3,212.3     3,307.0
                                          ----------- ----------- -----------
    SHAREHOLDERS' EQUITY

    Capital stock                              324.5       324.5       194.4
    Contributed surplus                          2.1         1.7         1.1
    Retained earnings                        2,478.1     2,401.1     2,246.7
    Accumulated other comprehensive
     loss                                      (40.0)      (48.5)      (20.1)
                                          ----------- ----------- -----------
                                             2,764.7     2,678.8     2,422.1
                                          ----------- ----------- -----------
                                          $  6,036.7  $  5,891.1  $  5,729.1
                                          ----------- ----------- -----------
                                          ----------- ----------- -----------
    Contingent liabilities (Note 13)

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



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

                                                        August 1    August 2
                                                            2009        2008
                                                                    Restated
                                                                     (Note 1)
                                                      ----------- -----------

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

    Adjustment due to implementation of new
     accounting standard (Note 1)                           (4.7)      (25.0)
                                                      ----------- -----------

    Balance, beginning of period as restated             2,401.1     2,182.6

    Net earnings                                            89.7        75.7

    Dividends
      Preferred shares                                         -        (0.1)
      Common shares                                        (12.7)      (11.5)
                                                      ----------- -----------

    Balance, end of period                            $  2,478.1  $  2,246.7
                                                      ----------- -----------
                                                      ----------- -----------

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


                           EMPIRE COMPANY LIMITED
                           ----------------------
       CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS
       ---------------------------------------------------------------
                               13 WEEKS ENDED
                               --------------
                           (Unaudited, in millions)


                                                        August 1    August 2
                                                            2009        2008
                                                      ----------- -----------

    Balance, beginning of period                      $    (48.5) $    (21.5)

    Other comprehensive income for the period                8.5         1.4
                                                      ----------- -----------
    Balance, end of period                            $    (40.0) $    (20.1)
                                                      ----------- -----------
                                                      ----------- -----------

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


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


                                                        August 1    August 2
                                                            2009        2008
                                                                    Restated
                                                                     (Note 1)
                                                      ----------- -----------

    Revenue                                           $  3,968.5  $  3,778.2
    Operating expenses
      Cost of sales, selling and administrative
       expenses                                          3,763.9     3,577.4
      Depreciation and amortization                         82.0        82.6
                                                      ----------- -----------
                                                           122.6       118.2
    Investment income (Note 6)                               7.6        10.1
                                                      ----------- -----------
    Operating income                                       130.2       128.3
                                                      ----------- -----------
    Interest expense
      Long-term debt                                        17.4        20.1
      Short-term debt                                        0.8         1.0
                                                      ----------- -----------
                                                            18.2        21.1
                                                      ----------- -----------
                                                           112.0       107.2
    Capital gains and other items (Note 7)                   0.6         6.1
                                                      ----------- -----------
    Earnings before income taxes and minority
     interest                                              112.6       113.3
                                                      ----------- -----------
    Income taxes (Note 8)
      Current                                               18.9        37.2
      Future                                                (1.0)       (3.7)
                                                      ----------- -----------
                                                            17.9        33.5
                                                      ----------- -----------
    Earnings before minority interest                       94.7        79.8
    Minority interest                                        5.0         4.1
                                                      ----------- -----------
    Net earnings                                      $     89.7  $     75.7
                                                      ----------- -----------
                                                      ----------- -----------

    Earnings per share (Note 3)

      Basic                                           $     1.31  $     1.15
                                                      ----------- -----------
                                                      ----------- -----------
      Diluted                                         $     1.31  $     1.15
                                                      ----------- -----------
                                                      ----------- -----------

    Weighted average number of common shares
     outstanding, in millions

      Basic                                                 68.4        65.6

      Diluted                                               68.5        65.7


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


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

                                                        August 1    August 2
                                                            2009        2008
                                                                    Restated
                                                                     (Note 1)
                                                      ----------- -----------

    Net earnings                                      $     89.7  $     75.7
                                                      ----------- -----------

    Other comprehensive income, net of income taxes

      Unrealized gains on available-for-sale
       financial assets, net of income taxes of
       $nil (2008 - $nil)                                    0.1           -

      Unrealized gains (losses) on derivatives
       designated as cash flow hedges, net of income
       taxes of $1.2 (2008 - $nil)                           2.0        (0.1)

      Reclassification of loss on derivative
       instruments designated as cash flow hedges to
       earnings, net of income taxes of $0.8
       (2008 - $0.3)                                         1.5         0.6

      Share of comprehensive income of entities
       accounted using the equity method, net of
       income taxes of $3.1 (2008 - $0.5)                    5.5         0.9

      Foreign currency translation adjustment               (0.6)          -
                                                      ----------- -----------
                                                             8.5         1.4
                                                      ----------- -----------
    Comprehensive income                              $     98.2  $     77.1
                                                      ----------- -----------
                                                      ----------- -----------

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



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


                                                        August 1    August 2
                                                            2009        2008
                                                                    Restated
                                                                     (Note 1)
                                                      ----------- -----------
    Operating Activities
      Net earnings                                    $     89.7  $     75.7
      Items not affecting cash (Note 9)                     89.4        85.2
      Preferred dividends                                      -        (0.1)
                                                      ----------- -----------
                                                           179.1       160.8
      Net change in non-cash working capital                27.9       (11.1)
                                                      ----------- -----------
    Cash flows from operating activities                   207.0       149.7
                                                      ----------- -----------
    Investing Activities
      Net increase in investments                          (35.6)          -
      Purchase of property and equipment                  (101.7)     (121.6)
      Proceeds on disposal of property and equipment        57.6        29.0
      Loans and other receivables                          (27.1)       (1.1)
      Decrease in other assets                               7.3         3.9
      Business acquisitions (Note 12)                       (3.1)       (6.4)
                                                      ----------- -----------
    Cash flows used in investing activities               (102.6)      (96.2)
                                                      ----------- -----------

    Financing Activities
      Increase (decrease) in bank indebtedness              23.9       (38.6)
      Issue of long-term debt                               44.6         5.4
      Repayment of long-term debt                          (87.5)      (25.0)
      Minority interest                                     (3.7)       (3.4)
      Repurchase of preferred shares                           -        (1.4)
      Common dividends                                     (12.7)      (11.5)
                                                      ----------- -----------
    Cash flows used in financing activities                (35.4)      (74.5)
                                                      ----------- -----------

    Increase (decrease) in cash and cash equivalents        69.0       (21.0)
    Cash and cash equivalents, beginning of period         231.6       191.4
                                                      ----------- -----------
    Cash and cash equivalents, end of period          $    300.6  $    170.4
                                                      ----------- -----------
                                                      ----------- -----------

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


                           EMPIRE COMPANY LIMITED
                           ----------------------
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               ----------------------------------------------
                               AUGUST 1, 2009
                               --------------
             (Unaudited, in millions, except per share amounts)
    

    1. Summary of Significant Accounting Policies

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

    Interim consolidated financial statements

    These interim consolidated financial statements do not include all of the
disclosures included in the Company's annual consolidated financial
statements. Accordingly, these interim consolidated financial statements
should be read in conjunction with the consolidated financial statements for
the year ended May 2, 2009, as set out in the 2009 Annual Report.

    Generally accepted accounting principles

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

    
    Adopted during fiscal 2010

      Goodwill and intangible assets

      In February 2008, the CICA issued Section 3064, "Goodwill and
      Intangible Assets", which replaced existing Section 3062, "Goodwill and
      Other Intangible Assets", and Section 3450, "Research and Development".
      The new standard provides guidance on the recognition, measurement,
      presentation and disclosure of goodwill and intangible assets. As a
      result of adopting Section 3064, Emerging Issues Committee Abstract 27,
      "Revenues and Expenditures During the Pre-operating Period", no longer
      applies. The Company has implemented these requirements effective for
      the first quarter of fiscal 2010 retroactively with restatement of the
      comparative period. 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 August 2,
      2008 was a decrease of prepaid expenses of $4.2, a decrease to other
      assets of $59.3, a decrease in property and equipment of $27.4, an
      increase to intangibles of $86.7, a decrease in future tax liabilities
      of $1.3 and an opening retained earnings reduction of $3.5. For the 13
      weeks ended August 2, 2008, cost of sales, selling and administrative
      expenses decreased $3.4, depreciation and amortization expense
      increased $2.6 and income taxes increased $0.2.

    Adopted during fiscal 2009

      Inventories

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

    Future changes in accounting policies

      Business combinations, consolidated financial statements and non-
      controlling interests

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

      Financial Instruments - Disclosures

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

    2. Inventories

    The cost of inventories recognized as an expense during the 13 weeks
ended August 1, 2009 was $2,981.2 (August 2, 2008 - $2,839.0). The cost of
inventories recognized as an expense during the quarter includes $13.1 (August
2, 2008 - $10.9) for the write-down of inventories below cost to net
realizable value. There were no reversals of inventories written down
previously.

    3. Earnings Per Share

    
    Earnings applicable to common shares is comprised of the following:

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

    Operating earnings                                $     72.2  $     70.9
    Capital gains and other items, net of income
     taxes of $(16.9); (2008 - $1.3)                        17.5         4.8
                                                      ----------- -----------
    Net earnings                                            89.7        75.7
    Preferred share dividends                                  -        (0.1)
                                                      ----------- -----------
    Earnings applicable to common shares              $     89.7  $     75.6
                                                      ----------- -----------
                                                      ----------- -----------

    Included in income taxes of $(16.9) for the 13 weeks ended August 1, 2009
is an income tax recovery of $17.0 (see Note 8).


    Earnings per share is comprised of the following:

    Operating earnings                                $     1.05  $     1.08

    Net capital gains and other items                       0.26        0.07
                                                      ----------- -----------
    Basic earnings per share                          $     1.31  $     1.15
                                                      ----------- -----------
                                                      ----------- -----------

    Operating earnings                                $     1.05  $     1.08
    Net capital gains and other items                       0.26        0.07
                                                      ----------- -----------
    Diluted earnings per share                        $     1.31  $     1.15
                                                      ----------- -----------
                                                      ----------- -----------


    4. Investments, at Equity

                                            August 1       May 2    August 2
                                                2009        2009        2008
                                          ----------- ----------- -----------
    Wajax Income Fund (27.6% interest)    $     30.9  $     31.0  $     32.4
    Crombie REIT (47.4% interest)               18.3       (19.7)       10.5
    U.S. residential real estate
     partnerships                               12.5         7.5         0.3
                                          ----------- ----------- -----------
                                          $     61.7  $     18.8  $     43.2
                                          ----------- ----------- -----------
                                          ----------- ----------- -----------

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

                                                        August 1    August 2
                                                            2009        2008
                                                      ----------- -----------
    Balance, beginning of period                      $     31.0  $     31.6
    Equity earnings                                          2.7         5.5
    Share of comprehensive loss                             (0.1)          -
    Distributions received                                  (2.7)       (4.7)
                                                      ----------- -----------
    Balance, end of period                            $     30.9  $     32.4
                                                      ----------- -----------
                                                      ----------- -----------

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

                                                        August 1    August 2
                                                            2009        2008
                                                      ----------- -----------
    Balance, beginning of period                      $    (19.7) $      9.5
    Equity earnings                                          4.9         4.6
    Share of comprehensive income                            8.7         1.4
    Distributions received                                  (5.6)       (5.0)
    Interest acquired in Crombie REIT                       30.0           -
                                                      ----------- -----------
    Balance, end of period                            $     18.3  $     10.5
                                                      ----------- -----------
                                                      ----------- -----------
    

    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. Long-Term Debt

    During the quarter, the Company's credit facility ($277.0 as of August 1,
2009) has been 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.

    6. Investment Income

    
                                                            2009        2008
                                                       (13 weeks)  (13 weeks)
                                                      ----------- -----------
    Share of earnings of entities accounted using
     the equity method                                $      7.6  $     10.1
                                                      ----------- -----------
                                                      ----------- -----------

    7. Capital Gains and Other Items

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

    Gain on sale of property                          $      0.2  $      6.1
    Other items                                              0.4           -
                                                      ----------- -----------
                                                      $      0.6  $      6.1
                                                      ----------- -----------
                                                      ----------- -----------

    8. Income Taxes

    The effective tax rate for the quarter ended August 1, 2009 of 15.9%
differs from the combined statutory rate of 31.1% 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 by $17.0 as a result of this settlement.

    9. Supplementary Cash Flow Information

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

    Depreciation and amortization                     $     82.0  $     82.6
    Future income taxes                                     (1.0)       (3.7)
    Loss (gain) on disposal of assets                        0.2        (4.4)
    Amortization of other assets                            (2.2)       (1.5)
    Equity in earnings of other entities, net of
     dividends received                                      0.7        (0.4)
    Minority interest                                        5.0         4.1
    Stock-based compensation                                 0.4         0.6
    Long-term lease obligation                               2.8         1.6
    Employee future benefits obligation                      1.5         1.6
    Rationalization costs (Note 15)                            -         4.7
                                                      ----------- -----------
                                                      $     89.4  $     85.2
                                                      ----------- -----------
                                                      ----------- -----------

    b) Other cash flow information

    Net interest paid                                 $     12.3  $     12.0
                                                      ----------- -----------
                                                      ----------- -----------
    Net income taxes paid                             $     45.4  $     37.2
                                                      ----------- -----------
                                                      ----------- -----------


    10. Segmented Information

                                                            2009        2008
                                                       (13 weeks)  (13 weeks)
                                                      ----------- -----------
    Segmented revenue
    Food retailing                                    $  3,906.7  $  3,711.5
                                                      ----------- -----------
    Real estate
      Residential                                           11.4        20.0
      Other Commercial                                       3.1         4.6
      Inter-segment                                          0.6         0.3
                                                      ----------- -----------
                                                            15.1        24.9
                                                      ----------- -----------
    Investment and other operations                         47.3        42.1
                                                      ----------- -----------
                                                         3,969.1     3,778.5
    Elimination                                             (0.6)       (0.3)
                                                      ----------- -----------
                                                      $  3,968.5  $  3,778.2
                                                      ----------- -----------
                                                      ----------- -----------


                                                            2009        2008
                                                       (13 weeks)  (13 weeks)
                                                                    Restated
                                                                     (Note 1)
                                                      ----------- -----------
    Segmented operating income
    Food retailing                                    $    121.6  $    106.3
    Real estate
      Residential                                            5.1        13.7
      Crombie REIT                                           4.9         4.6
      Other Commercial                                      (0.3)        1.2
    Investment and other operations
      Wajax Income Fund                                      2.7         5.5
      Other operations, net of corporate expenses           (3.8)       (3.0)
                                                      ----------- -----------
                                                      $    130.2  $    128.3
                                                      ----------- -----------
                                                      ----------- -----------


                                            August 1       May 2    August 2
                                                2009        2009        2008
                                                        Restated    Restated
                                                         (Note 1)    (Note 1)
                                          ----------- ----------- -----------
    Identifiable assets
    Food retailing                        $  4,332.0  $  4,272.1  $  4,078.6
    Goodwill                                 1,130.8     1,130.6     1,119.8
                                          ----------- ----------- -----------
                                             5,462.8     5,402.7     5,198.4
    Real estate                                293.9       223.1       269.6
    Investment and other operations
     (including goodwill of $40.8;
     May 2, 2009 - $40.8; August 2,
     2008 - $40.1)                             280.0       265.3       261.1
                                          ----------- ----------- -----------
                                          $  6,036.7  $  5,891.1  $  5,729.1
                                          ----------- ----------- -----------
                                          ----------- ----------- -----------

                                                            2009        2008
                                                       (13 weeks)  (13 weeks)
                                                                    Restated
                                                                     (Note 1)
                                                      ----------- -----------
    Depreciation and amortization
    Food retailing                                    $     76.7  $     76.3
    Real estate                                              0.5           -
    Investment and other operations                          4.8         6.3
                                                      ----------- -----------
                                                      $     82.0  $     82.6
                                                      ----------- -----------
                                                      ----------- -----------

                                                            2009        2008
                                                       (13 weeks)  (13 weeks)
                                                                    Restated
                                                                     (Note 1)
                                                      ----------- -----------
    Capital expenditures
    Food retailing                                    $     79.8  $    105.1
    Real estate                                             17.5        13.0
    Investment and other operations                          4.4         3.5
                                                      ----------- -----------
                                                      $    101.7  $    121.6
                                                      ----------- -----------
                                                      ----------- -----------
    

    11. Employee Future Benefits

    During the quarter ended August 1, 2009, the net employee future benefit
expense was $10.2 (2008 - $8.1). 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.

    12. Business Acquisitions

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

    
                                                            2009        2008
                                                       (13 weeks)  (13 weeks)
                                                      ----------- -----------
    Franchisees
    -----------
    Inventory                                         $      1.0  $      1.7
    Property and equipment                                   1.7         1.1
    Intangibles                                                -         2.4
    Goodwill                                                 0.2         0.9
    Other assets                                             0.2         0.3
                                                      ----------- -----------
    Cash consideration                                $      3.1  $      6.4
                                                      ----------- -----------
                                                      ----------- -----------
    

    13. 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.

    14. 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 August 1, 2009, there were 89,565 (May 2, 2009 - 84,195) DSUs
outstanding. During the quarter, the compensation expense was $nil (2008 -
$0.7).

    Stock option plan

    During the quarter ended August 1, 2009, 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 period was determined to be $0.4
(2008 - $0.6) with amortization of the cost over the vesting period. The total
increase in contributed surplus in relation to the stock option compensation
cost was $0.4. 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 August 1, 2009, 1,436,323 units (May 2, 2009 - 1,069,413) were
outstanding and for the quarter the Company recognized $2.1 (2008 - $0.7) of
compensation expense associated with this plan.

    15. Business Rationalization Costs

    During the quarter ended August 1, 2009, severance costs of $nil have
been incurred and recognized (August 2, 2008 - $5.6). The costs associated
with the organizational change are recorded as incurred as cost of sales,
selling and administrative expenses in the statement of earnings. The
liability as of August 1, 2009 is $12.2 (August 2, 2008 - $10.6). Costs
incurred as of August 1, 2009 were $27.7.

    16. Comparative Figures

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




For further information:

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


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