Empire Company Reports Record Fourth Quarter Earnings Before Capital Gains and Other Items of $63.8 Million and Increases Dividend Rate



    STELLARTON, NS, June 28 /CNW/ - Empire Company Limited (TSX: EMP.A) today
announced its financial results for the fourth quarter and fiscal year ended
May 5, 2007. For the fourth quarter, being the 13 weeks ended May 5, 2007, the
Company recorded earnings before capital gains and other items of
$63.8 million ($0.97 per share on a fully diluted basis); a $6.9 million or
12.1 percent increase over the fourth quarter last year.
    Paul D. Sobey, President and Chief Executive Officer, stated: "Our fourth
quarter earnings before capital gains and other items of $63.8 million was a
record level for the Company. Strong earnings contribution from our
residential real estate operation and continued solid same-store sales
performance from Sobeys more than offset the impact of costs incurred by
Sobeys to rationalize its Quebec distribution network and to maintain its
competitive price position.
    Subsequent to fiscal year-end, on June 15, 2007, we were pleased to
announce the completion of the acquisition by Empire of all of the common
shares of Sobeys Inc. not already owned by Empire and its subsidiaries. With
100 percent ownership of Sobeys we are more focused than ever on our food and
related real estate operations. Going forward we intend to capitalize on our
strengths in both food retail and related real estate and in doing so are
committed to expanding value for Empire's shareholders.
    Consistent with our growth, on behalf of the Board, we are pleased to
announce a 10 percent increase in Empire's dividend per share, from 60 cents
annually to 66 cents annually. This marks our twelfth consecutive year of
dividend increases."
    Included in earnings for the fourth quarter ended May 5, 2007 are
$4.9 million ($5.3 million for the fourth quarter of last year) of costs
related to Sobeys' business process and system initiative. Also included in
earnings for the fourth quarter of fiscal 2007 are $5.6 million of pre-tax
costs incurred by Sobeys related to the rationalization of its Quebec
distribution network and $2.6 million of pre-tax costs incurred by Sobeys
related to the privatization of Sobeys.
    Capital gains and other items, net of tax, amounted to $0.7 million
($0.01 per share on a fully diluted basis) in the fourth quarter as compared
to $61.5 million ($0.93 per share on a fully diluted basis) in the fourth
quarter last year. Fourth quarter capital gains and other items last year
included a gain, net of tax, of $76.2 million on the sale of properties to
Crombie REIT, coincident with Crombie REIT's initial public offering on
March 23, 2006, offset in part by a reduction of book value of real estate
assets held for redevelopment of $17.0 million, net of tax.
    Net earnings in the fourth quarter equalled $64.5 million ($0.98 per
share on a fully diluted basis) as compared to $118.4 million ($1.80 per share
on a fully diluted basis) in the fourth quarter last year.
    Consolidated revenue in the fourth quarter equalled $3.35 billion
compared to $3.23 billion in the previous year. Same-store sales for the food
division (sales from stores in the same locations in both reporting periods)
increased 2.3 percent in the fourth quarter.

    Fourth Quarter Financial Highlights (versus the fourth quarter last year)

    
    - Revenue of $3.35 billion versus $3.23 billion last year, up
      $123.8 million or 3.8 percent.
    - Sobeys' same-store sales increased 2.3 percent.
    - Earnings before net capital gains and other items of $63.8 million, up
      $6.9 million or 12.1 percent.
    - Earnings before capital gains and other items, net of tax, of $0.97 per
      share on a fully diluted basis versus $0.87 per share on a fully
      diluted basis last year.
    - Net capital gains and other items amounted to $0.7 million versus
      $61.5 million last year.
    - Net earnings of $64.5 million ($0.98 per share on a fully diluted
      basis) versus $118.4 million ($1.80 per share on a fully diluted basis)
      last year.
    - Funded debt to total capital of 29.9 percent compared to 31.6 percent a
      year earlier.

    For the 52 weeks ended May 5, 2007, Empire Company recorded earnings
before net capital gains and other items of $204.4 million ($3.10 per share on
a fully diluted basis) versus $202.0 million ($3.07 per share on a fully
diluted basis) in fiscal 2006.
    Capital gains and other items, net of tax, for the full fiscal year
equalled $5.7 million ($0.09 per share on a fully diluted basis) as compared
to $94.8 million ($1.44 per share on a fully diluted basis) last fiscal year.
    Net earnings for the full fiscal year equalled $210.1 million ($3.19 per
share on a fully diluted basis) as compared to $296.8 million ($4.51 per share
on a fully diluted basis) last year.
    Consolidated revenue for fiscal 2007 equalled $13.37 billion compared to
$13.06 billion in the previous fiscal year, an increase of $303.1 million or
2.3 percent. Same-store sales for the food division increased 2.4 percent in
fiscal 2007.

    Fiscal 2007 Financial Highlights (year-over-year)

    - Revenue of $13.37 billion, up $303.1 million or 2.3 percent.
    - Earnings before net capital gains and other items of $204.4 million, up
      $2.4 million or 1.2 percent.
    - Earnings before net capital gains and other items on a per share basis
      of $3.10 on a fully diluted basis versus $3.07 on a fully diluted basis
      last year, a 1.0 percent increase.
    - Net capital gains and other items amounted to $5.7 million versus
      $94.8 million last year.
    - Net earnings of $210.1 million ($3.19 per share on a fully diluted
      basis) compared to $296.8 million ($4.51 per share on a fully diluted
      basis) last year.

    Financial Overview

    Revenue

    Consolidated revenue for the fourth quarter was $3.35 billion compared to
$3.23 billion last year, a $123.8 million or 3.8 percent increase. As shown in
the following table, excluding the quarterly impact of the sale of Sobeys'
Cash and Carry business, the decline in wholesale tobacco sales, the
acquisition of Achille de la Chevrotière Ltée and its associated companies
("ADL"), and the sale of 44 properties to Crombie REIT, revenue growth would
have been $173.7 million or 5.4 percent for the fourth quarter.

                                                13 Weeks Ended
                              -----------------------------------------------
                                   May 5,      May 6,
                                    2007        2006      Change      Change
    ($ in millions)                   ($)         ($)         ($)         (%)
    -------------------------------------------------------------------------
    Financially reported
     sales                     $ 3,350.4   $ 3,226.6   $   123.8         3.8%
                                                      -----------
    Add (deduct) the
     impact of:
      Cash and Carry disposal                               26.4
      Wholesale tobacco decline                             37.5
      ADL acquisition                                      (41.5)
      Sale of 44 commercial
       properties to Crombie
       REIT                                                 27.5
                                                      -----------
      Subtotal                                              49.9
                                                      -----------------------
                                                       $   173.7         5.4%
                                                      -----------------------
                                                      -----------------------


    Food division revenue increased $117.9 million or 3.8 percent compared to
the fourth quarter of fiscal 2006. Same-store sales increased 2.3 percent
during the fourth quarter of fiscal 2007. The growth in retail sales was a
direct result of the continued implementation of sales and merchandising
initiatives across Sobeys, and an ongoing financial commitment to upgrade and
renovate existing store assets. As outlined above, wholesale tobacco sales
decreased in the fourth quarter and the disposition of Sobeys' Cash and Carry
business in Ontario and Quebec on March 31, 2006 also had a negative impact on
sales; this was partially offset by the ADL acquisition. Excluding the impact
of the tobacco decline, the impact of the Cash and Carry disposition, and the
ADL acquisition, sales growth for Sobeys would have been 4.5 percent on a
comparable 13-week basis.
    Real estate operations reported fourth quarter revenue (net of
inter-company elimination) of $66.0 million, an increase of $1.8 million or
2.8 percent over the fourth quarter last year. Commercial property revenue
declined by $23.9 million while revenue from residential operations increased
by $25.7 million. The decline in commercial property revenue was primarily the
result of the sale of 44 properties to Crombie REIT in the fourth quarter last
fiscal year. The increase in residential revenue from Genstar was the result
of exceptionally strong lot sales, particularly in the Calgary and Edmonton,
Alberta markets.
    Revenue from investments and other operations in the fourth quarter
equalled $40.7 million, an increase of $4.1 million or 11.2 percent over the
fourth quarter last year. This is primarily related to an increase in revenue
from both Empire Theatres and Kepec Resources.
    For the 52 weeks ended May 5, 2007, consolidated revenue equalled
$13.37 billion, an increase of $303.1 million or 2.3 percent compared to
fiscal 2006. Growth in Sobeys' sales of $313.9 million and in investments and
other operations' sales of $27.4 million was partially offset by a
$38.2 million reduction in revenue from the real estate division.

    Several items impacted full fiscal year revenue comparability, as follows:

    - Sobeys' sales were negatively impacted by the disposition on March 31,
      2006 of its Cash and Carry businesses in Ontario and Quebec;
    - Sobeys continued to experience declines in its tobacco sales. Late in
      the second quarter of fiscal 2007 a major Canadian tobacco supplier
      began to sell and distribute directly to certain Sobeys' customers,
      further impacting the decline;
    - Revenue was positively impacted by the acquisition on August 27, 2006
      of ADL. The acquisition included 25 owned or franchised retail store
      operations, other wholesale supply agreements and a distribution
      facility in Rouyn-Noranda, Quebec;
    - Empire Theatres changed its year-end from the last Thursday in April to
      the last Thursday in December effective December 28, 2006. This change
      in Empire Theatres' year-end was made to align with industry practice.
      However, because of this change, fiscal year-to-date ended May 5, 2007
      contained 48 weeks of operations while the fiscal year-to-date ended
      May 6, 2006 contained 52 weeks of operations;
    - Revenue for the fiscal year-to-date ended May 5, 2007, includes
      48 weeks of revenue related to the acquisition of the 28 movie
      theatres, whereas the fiscal year-to-date ended May 6, 2006, includes
      30 weeks of revenue from the acquired movie theatres; and
    - The sale of 44 properties to Crombie REIT has reduced the quarter and
      year-to-date revenue when compared to the prior year.

    As presented in the following table, excluding the impact of the sale of
Sobeys' Cash and Carry business, the decline in wholesale tobacco sales, the
ADL acquisition, the theatre acquisition and the change in its year-end date,
and the sale of 44 properties to Crombie REIT, revenue growth would have been
$565.2 million or 4.3 percent for the 52 weeks ended May 5, 2007 over the
prior year.

                                                52 Weeks Ended
                              -----------------------------------------------
                                   May 5,      May 6,
                                    2007        2006      Change      Change
    ($ in millions)                   ($)         ($)         ($)         (%)
    -------------------------------------------------------------------------
    Financially reported
     sales                     $13,366.7   $13,063.6   $   303.1         2.3%
                                                      -----------
    Add (deduct) the impact of:
      Cash and Carry disposal                              196.1
      Wholesale tobacco decline                            123.9
      ADL acquisition                                     (151.8)
      Theatre acquisition and
       year-end change(1)                                  (22.8)
      Sale of 44 commercial
       properties to Crombie
       REIT                                                116.7
                                                      -----------
      Subtotal                                             262.1
                                                      -----------------------
                                                       $   565.2         4.3%
                                                      -----------------------
                                                      -----------------------

    (1) The impact for theatres' revenue, reflected in the above table,
        represents the reduction of four weeks of revenue for fiscal 2007 as
        a result of Empire Theatres' fiscal year-end change as well as an
        additional 18 weeks of revenue in the current fiscal year-to-date as
        a result of the acquisition of 28 movie theatres in the second
        quarter of the prior fiscal year.


    In fiscal 2007, Sobeys achieved sales of $13.03 billion, an increase of
$313.9 million or 2.5 percent over fiscal 2006. During the fiscal year,
same-store sales (sales from stores in the same locations in both reporting
periods) increased by 2.4 percent. Same-store sales growth does not include
wholesale sales.
    Sales growth, for the year, was driven by Sobeys' continued implementation
of sales and merchandising initiatives across the country, coupled with an
increase in retail selling square footage resulting from the development of
new stores, an ongoing program to enlarge and renovate existing store assets,
and by the acquisition on August 27, 2006 of ADL. This acquisition included 25
owned or franchised retail store operations, other wholesale supply agreements
and a distribution facility in Rouyn-Noranda, Quebec.
    Food retail store square footage increased by 4.0 percent in fiscal 2007
as a result of the opening of 77 new or replacement stores and the expansion
of 24 stores; 38 stores were closed.

    Operating income

    Consolidated operating income (earnings before interest, income taxes and
minority interest) in the fourth quarter totalled $123.2 million compared to
$130.9 million last year. The decrease of $7.7 million or 5.9 percent from the
prior year is due to a decrease in operating income contribution from the food
division of $11.0 million and a $12.2 million decrease in operating income
from commercial real estate operations, partially offset by a $17.6 million
increase in residential real estate operating income.
    Food division operating income (earnings before interest and taxes)
contribution in the fourth quarter of fiscal 2007 was $74.2 million, a    
12.9 percent decrease over the fourth quarter last year. Food division
operating margin, which is operating income divided by sales, for the fourth
quarter decreased to 2.29 percent from 2.73 percent in the same quarter last
year. Included in food division operating income in the fourth quarter are
$13.1 million of pre-tax costs incurred by Sobeys related to its business
process and system initiative, warehouse closure costs in the Quebec region as
well as costs associated with the Sobeys' privatization. Sobeys incurred $5.3
million of pre-tax costs related to its business process and system initiative
in the fourth quarter last year.
    The real estate division contributed operating income of $46.1 million in
the fourth quarter, an increase of $5.4 million or 13.3 percent over the  
$40.7 million recorded in the fourth quarter last year. Operating income
generated from commercial properties decreased $12.2 million to $11.5 million.
The decline in commercial property operating income was anticipated as a
result of the sale of 44 commercial properties to Crombie REIT in the fourth
quarter of last year. Operating income from residential operations increased
$17.6 million to reach $34.6 million, reflecting continued strength in lot
sales in Western Canada, specifically in Calgary and Edmonton markets.
    For the full fiscal year, Empire recorded operating income of       $440.3
million, a $51.1 million or 10.4 percent decrease over the prior fiscal year.
The decrease in operating income is the result of a $31.4 million or   9.5
percent decrease in operating income contribution from the food division and a
decrease in real estate division operating income of $20.3 million or 14.7
percent, partially offset by a $0.6 million or 2.8 percent increase in
operating income from investments and other operations, net of corporate
expenses.
    Included in operating income for fiscal 2007 are $51.7 million of pre-tax
costs incurred by Sobeys related to its business process and system
initiative, severance in its Atlantic, Quebec and Ontario regions as a result
of business rationalization along with certain fixed asset and inventory
write-offs and costs incurred in the privatization of Sobeys. Sobeys incurred
$18.6 million of pre-tax costs related to its business process and system
initiative last fiscal year.

    Interest expense

    Interest expense in the fourth quarter decreased $4.7 million to     $14.4
million largely as a result of a decrease in interest expense on long-term
debt. This decline was primarily the result of the formation of Crombie REIT
in the fourth quarter of last fiscal year and the related transfer of
long-term indebtedness connected to 44 commercial properties sold to Crombie
REIT.

    Capital gains and other items

    Capital gains and other items, net of tax, equalled $0.7 million in the
fourth quarter compared to $61.5 million last year. Included in fourth quarter
capital gains and other items last year was a net gain on sale of property to
Crombie REIT of $76.2 million, partially offset by a reduction of book value
of real estate assets held for redevelopment of $17.0 million.

    Net earnings

    Net earnings in the fourth quarter, including net capital gains and other
items, equalled $64.5 million ($0.98 per share on a fully diluted basis)
versus $118.4 million ($1.80 per share on a fully diluted basis) in the fourth
quarter last year. Earnings before net capital gains and other items equalled
$63.8 million ($0.97 per share on a fully diluted basis) in the fourth quarter
versus $56.9 million in the fourth quarter last year ($0.87 per share on a
fully diluted basis), a 12.1 percent increase.
    Fiscal 2007 net earnings equalled $210.1 million ($3.19 per share on a
fully diluted basis), a decrease of $86.7 million or 29.2 percent over the
$296.8 million ($4.51 per share on a fully diluted basis) reported last fiscal
year.
    The table below presents summary consolidated financial performance for
the 13 weeks and 52 weeks ended May 5, 2007 as compared to the 13 weeks and 52
weeks ended May 6, 2006.

    Summary Table of Consolidated Financial Results

                                   13 Weeks Ended          52 Weeks Ended
                              ----------------------- -----------------------
                                   May 5,      May 6,      May 5,      May 6,
    ($ in millions, except          2007        2006        2007        2006
     per share information)            $           $           $           $
                              ----------- ----------- ----------- -----------
    Segmented Revenue (net
     of elimination entries)
      Food                     $ 3,243.7   $ 3,125.8   $13,032.0   $12,718.1
      Real estate
        Commercial                   9.2        33.1        38.4       137.8
        Residential                 56.8        31.1       146.1        84.9
      Investments and other
       operations                   40.7        36.6       150.2       122.8
                              ----------- ----------- ----------- -----------
                               $ 3,350.4   $ 3,226.6   $13,366.7   $13,063.6
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Segmented Operating Income
      Food                     $    74.2   $    85.2   $   300.2   $   331.6
      Real Estate
        Commercial                  11.5        23.7        46.8        87.0
        Residential                 34.6        17.0        71.2        51.3
      Investments and other
       operations                    2.9         5.0        22.1        21.5
                              ----------- ----------- ----------- -----------
                               $   123.2   $   130.9   $   440.3   $   491.4
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Earnings before capital
     gains and other items          63.8        56.9       204.4       202.0
    Capital gains and other
     items, net of tax               0.7        61.5         5.7        94.8
                              ----------- ----------- ----------- -----------
      Net earnings             $    64.5   $   118.4   $   210.1   $   296.8
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Basic earnings per share
    Operating earnings         $    0.97   $    0.87   $    3.11   $    3.08
    Capital gains and other
     items, net of tax              0.01        0.94        0.09        1.45
                              ----------- ----------- ----------- -----------
    Net earnings               $    0.98   $    1.81   $    3.20   $    4.53
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Basic weighted average
     number of shares
     outstanding (in millions)      65.6        65.5        65.6        65.5
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Diluted earnings per share
    Operating earnings         $    0.97   $    0.87   $    3.10   $    3.07
    Capital gains and other
     items, net of tax              0.01        0.93        0.09        1.44
                              ----------- ----------- ----------- -----------
    Net earnings               $    0.98   $    1.80   $    3.19   $    4.51
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Diluted weighted average
     number of shares
     outstanding (in millions)      65.7        65.7        65.7        65.7
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Annualized dividends per
     share                     $    0.60   $    0.56
                              ----------- -----------
                              ----------- -----------


    Consolidated Financial Condition

    The ratio of funded debt to total capital at the end of the fourth quarter
equalled 29.9 percent versus 31.6 percent at the beginning of the fiscal year.
Operating income provided 7.3 times coverage of interest expense in fiscal
2007 compared to 5.9 times coverage the previous fiscal year.
    At May 5, 2007, Empire's investment portfolio, including its 27.6 percent
interest in Wajax Income Fund and its 48.1 percent interest in Crombie REIT,
carried a market value of $717.1 million on a cost base of $332.5 million,
resulting in an unrealized gain on investments of $384.6 million. This
compares to an unrealized gain of $306.8 million at the beginning of the
fiscal year.
    Capital expenditures in the fourth quarter equalled $166.5 million (2006 -
$137.3 million) and $545.2 million for the fiscal year (2006 -         $546.4
million). Investment in food distribution property and equipment, primarily
related to new store development, accounted for $148.3 million of total
capital expenditures in the fourth quarter and $482.8 million for the fiscal
year. Capital expenditures for the real estate division amounted to $6.5
million in the fourth quarter and $16.2 million for the fiscal year, largely
reflecting fixed asset additions and improvements to existing properties.
Capital expenditures for investment and other operations equalled $11.7
million in the fourth quarter and $46.2 million for the fiscal year.

    Dividend Declaration

    The Board of Directors declared a quarterly dividend of $0.165 per share
on both the Non-Voting Class A and Class B common shares that will be payable
on July 31, 2007, to shareholders of record on July 16, 2007. In addition, the
Board 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.

    Subsequent Event

    On April 26, 2007, Empire and Sobeys jointly announced that they had
entered into an arrangement agreement (the "Arrangement") pursuant to which
Empire would acquire all of the outstanding common shares of Sobeys that it
did not then own at a price of $58.00 per share. The transaction valued the
Sobeys shares not then owned by Empire at approximately $1.06 billion.
    The Arrangement required various approvals to comply with applicable
corporate and securities laws: The Sobeys shareholders approved the
Arrangement at a special shareholders' meeting held on June 9, 2007 by the
requisite majority; the Supreme Court of Nova Scotia gave its sanction to the
Arrangement on June 13, 2007; the Arrangement became effective upon
registration of the final Court order with the Nova Scotia Registry of Joint
Stock Companies at the close of business on June 15, 2007. Subsequently, the
Sobeys common shares ceased trading on the Toronto Stock Exchange, and were
de-listed at the close of business on June 18, 2007.
    Shareholders of record at the close of business on June 15, 2007 are
entitled to receive the Arrangement price from CIBC Mellon Trust Company, the
depository for the transaction, upon the provision of required documentation.
    The acquisition was financed by funds from sale of certain portfolio
investments for proceeds of $278 million and advances of $784 million under
new credit facilities (the "Credit Facilities"). The Credit Facilities consist
of a $950 million unsecured revolving credit facility maturing on June 8, 2010
(subject to annual extensions at the request of the Company) and a $50 million
unsecured non-revolving credit facility maturing June 30, 2007. The Credit
Facilities are subject to certain financial covenants. Interest on the debt
varies based on the designation of the loan (bankers' acceptances ("BA") rate
loans, Canadian prime rate loans, U.S. base rate loans or LIBOR loans),
fluctuations in the underlying rates, and in the case of BA rate loans or 
LIBOR loans, the margin applicable to the financial covenants.
    On June 18, 2007, Empire entered into two delayed fixed rate interest
swaps. The first swap in an amount of $200.0 million is for a period of three
years at a fixed interest rate of 4.998 percent. The second swap in an amount
of $200.0 million is for a period of five years at a fixed interest rate of
5.051 percent. Both swaps become effective on July 23, 2007.
    On June 27, 2007, pursuant to the terms of the Credit Facilities, Empire
and Sobeys filed notice with the lenders requesting the establishment of a new
$300.0 million five-year credit facility in favour of Sobeys at the same
interest rate as the Credit Facilities. It is intended that on July 23, 2007,
Sobeys will draw down $300.0 million from the new credit facility, the
proceeds of which are to be used to pay a dividend to Empire. Empire will use
the proceeds from the dividend to reduce its indebtedness under the Credit
Facilities and the Credit Facilities will be reduced accordingly. On that
date, Empire also intends to transfer the second swap to Sobeys.
    As previously advised, Empire is continuing to explore the potential sale
of some or all of Sobey Leased Properties ("SLP") commercial real estate
portfolio. Pursuant to a Non-Competition Agreement between Empire and Crombie
REIT, any property sold from SLP must first be offered to Crombie REIT. Any
potential transaction, if deemed appropriate, would be subject to customary
Board approval.

    Non-GAAP Financial Measures

    Certain measures included in this news release do not have a standardized
meaning under Canadian Generally Accepted Accounting Principles and therefore
may not be comparable to similarly titled measures 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. Funded debt is calculated as all interest-bearing debt, and total
capital is calculated as funded debt plus shareholders' equity. Interest
coverage is calculated as operating income divided by interest expense.

    About Empire Company

    Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered in
Stellarton, Nova Scotia. Empire's key businesses include food retailing and
related real estate. With $5.2 billion in assets, Empire employs approximately
40,000 people directly and through its subsidiaries. More information about
Empire Company can be found at www.empireco.ca.

    This news release contains forward-looking statements which reflect
management's expectations regarding the Company's objectives, plans, goals,
strategies, future growth, results of operations, performance and business
prospects and opportunities.
    Forward-looking statements are typically identified by words or phrases
such as "anticipates", "expects", "believes", "estimates", "intends" and other
similar expressions. These statements are based on management's assumptions
and beliefs in light of the information currently available to them. These
forward-looking statements are subject to inherent uncertainties, risks and
other factors that could cause actual results to differ materially from such
statements. These uncertainties and risks are discussed in the Company's
materials filed with the Canadian securities regulatory authorities from time
to time, including those in the Risk Management section of the annual MD&A
included in the Company's 2006 Annual Report.
    These forward-looking statements include the discussion of the potential
disposition of real property by Sobey Leased Properties. There are no
agreements for any such transaction. There can be no assurances that these
transactions will occur and, if they occur, no assurances as to the economic
value of the transactions.
    When relying on forward-looking statements to make decisions, the Company
cautions readers not to place undue reliance on these statements, as a number
of important factors could cause actual results to differ materially from any
estimates or intentions expressed in such forward-looking statements. 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.
    Additional financial information, including management's discussion and
analysis of fourth quarter and fiscal 2007 results, will be filed
electronically with various securities commissions in Canada through SEDAR.

    Conference Call Invitation

    The Company will provide additional details concerning its financial
results for the fourth quarter and fiscal year ended May 5, 2007, on a
conference call to be held Thursday, June 28, 2007, at 2:00 p.m. EDT. To join
this conference call you may dial (800) 732-9307 or (416) 644-3417. You may
also listen to a live audio web cast of the conference call by visiting the
Company's website located at www.empireco.ca. Replay will be available at this
website for 90 days or, until midnight, July 6, 2007, by dialling (877)
829-8525 or (416) 640-1917 and entering pass code 21236608#.


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


                                                           May 5,      May 6,
                                                            2007        2006
                                                       Unaudited     Audited
                                                      ----------- -----------
    ASSETS

    Current
      Cash and cash equivalents                        $   294.9   $   341.1
      Receivables                                          326.8       275.4
      Income taxes receivable                                3.6           -
      Inventories                                          757.5       694.3
      Prepaid expenses                                      51.4        51.5
                                                      ----------- -----------
                                                         1,434.2     1,362.3
    Investments, at cost (quoted market value
     $283.1; 2006 $398.9)                                  189.7       359.9
    Investments, at equity (realizable value
     $434.0; 2006 $425.3)                                  142.8       157.5
    Property and equipment                               2,302.9     2,143.6
    Assets held for sale                                    24.1        23.1
    Other assets (Note 5)                                  344.6       273.3
    Goodwill                                               786.6       731.8
                                                      ----------- -----------
                                                       $ 5,224.9   $ 5,051.5
                                                      ----------- -----------
                                                      ----------- -----------
    LIABILITIES

    Current
      Bank indebtedness                                $    30.1   $    98.6
      Accounts payable and accrued liabilities           1,260.3     1,241.8
      Income taxes payable                                     -        35.8
      Future income taxes                                   40.4        46.1
      Long-term debt due within one year                    82.5        95.4
      Liabilities relating to assets held for sale           6.8         7.1
                                                      ----------- -----------
                                                         1,420.1     1,524.8
    Long-term debt (Note 6)                                792.6       707.3
    Long-term lease obligation                              36.9        20.8
    Other liabilities (Note 7)                              14.0        18.9
    Employee future benefits obligation                    102.1        97.3
    Future income taxes                                    133.6       131.8
    Minority interest                                      590.2       585.4
                                                      ----------- -----------
                                                         3,089.5     3,086.3
                                                      ----------- -----------
    SHAREHOLDERS' EQUITY

    Capital stock (Note 8)                                 196.1       195.1
    Contributed surplus                                      0.3         0.2
    Retained earnings                                    1,939.6     1,771.0
    Cumulative translation adjustment                       (0.6)       (1.1)
                                                      ----------- -----------
                                                         2,135.4     1,965.2
                                                      ----------- -----------
                                                       $ 5,224.9   $ 5,051.5
                                                      ----------- -----------
                                                      ----------- -----------
    Contingent liabilities (Note 17)
    Subsequent event (Note 20)

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


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


                                                           May 5,      May 6,
                                                            2007        2006
                                                      ----------- -----------
    Balance, beginning of year                         $ 1,771.0   $ 1,515.5

    Net earnings                                           210.1       296.8

    Adjustment to minority interest (Note 16)                  -        (3.6)

    Dividends
      Preferred shares                                      (0.4)       (0.3)
      Common shares                                        (39.5)      (36.7)

    Premium on common shares purchased for
     cancellation                                           (1.6)       (0.7)
                                                      ----------- -----------
    Balance, end of year                               $ 1,939.6   $ 1,771.0
                                                      ----------- -----------
                                                      ----------- -----------

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


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


                                   May 5,      May 6,      May 5,      May 6,
                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------

    Revenue                    $ 3,350.4   $ 3,226.6   $13,366.7   $13,063.6
    Operating expenses
      Cost of sales, selling
       and administrative
       expenses                  3,170.1     3,046.5    12,724.0    12,378.2
      Depreciation and
       amortization                 64.8        56.7       243.9       225.8
                              ----------- ----------- ----------- -----------
                                   115.5       123.4       398.8       459.6
    Investment income (Note 9)       7.7         7.5        41.5        31.8
                              ----------- ----------- ----------- -----------
    Operating income               123.2       130.9       440.3       491.4
                              ----------- ----------- ----------- -----------
    Interest expense
      Long-term debt                13.9        17.6        54.1        75.6
      Short-term debt                0.5         1.5         6.0         8.2
                              ----------- ----------- ----------- -----------
                                    14.4        19.1        60.1        83.8
                              ----------- ----------- ----------- -----------
                                   108.8       111.8       380.2       407.6
    Capital gains and other
     items (Note 10)                 0.9        71.8         7.1       109.4
                              ----------- ----------- ----------- -----------
    Earnings before income
     taxes and minority
     interest                      109.7       183.6       387.3       517.0
                              ----------- ----------- ----------- -----------
    Income taxes
      Current                       18.7        35.1       104.8       141.8
      Future                        12.6        11.0        15.4        11.3
                              ----------- ----------- ----------- -----------
                                    31.3        46.1       120.2       153.1
                              ----------- ----------- ----------- -----------
    Earnings before minority
     interest                       78.4       137.5       267.1       363.9
    Minority interest               13.9        19.1        57.0        67.1
                              ----------- ---------- ----------- -----------
    Net earnings               $    64.5   $   118.4   $   210.1   $   296.8
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Earnings per share
     (Note 4)

      Basic                    $    0.98   $    1.81   $    3.20   $    4.53
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
      Diluted                  $    0.98   $    1.80   $    3.19   $    4.51
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Weighted average number
     of common shares
     outstanding, in millions

      Basic                         65.6        65.5        65.6        65.5
      Diluted                       65.7        65.7        65.7        65.7

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


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


                                   May 5,      May 6,      May 5,      May 6,
                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
                              ----------- ----------- ----------- -----------
    Operating Activities
      Net earnings             $    64.5   $   118.4   $   210.1   $   296.8
      Items not affecting cash
       (Note 11)                   127.2        45.1       387.5       254.4
      Preferred dividends           (0.1)       (0.1)       (0.4)       (0.3)
                              ----------- ----------- ----------- -----------
                                   191.6       163.4       597.2       550.9
      Net change in non-cash
       working capital              90.3       168.3      (147.8)       75.7
                              ----------- ----------- ----------- -----------
    Cash flows from operating
     activities                    281.9       331.7       449.4       626.6
                              ----------- ----------- ----------- -----------
    Investing Activities
      Net decrease (increase)
       in investments                5.6      (112.9)      185.4      (132.0)
      Net proceeds from sale
       of Wajax Income Fund            -         0.3           -        50.8
      Proceeds from sale of
       property to Crombie
       REIT                            -       267.7           -       267.7
      Purchase of shares in
       subsidiary, Sobeys Inc.         -       (49.5)      (48.6)      (49.5)
      Purchase of property,
       equipment and other        (166.5)     (137.3)     (545.2)     (546.4)
      Proceeds from sale of
       other property               11.7        17.1        68.9        29.3
      Business acquisitions,
       net of cash acquired         (5.6)       (5.3)      (95.9)      (92.8)
                              ----------- ----------- ----------- -----------
    Cash flows used in
     investing activities         (154.8)      (19.9)     (435.4)     (472.9)
                              ----------- ----------- ----------- -----------
    Financing Activities
      Decrease in bank
       indebtedness                 (8.9)     (144.6)      (68.5)     (110.6)
      Increase in construction
       loans                         1.2           -         1.2           -
      Issue of long-term debt       20.7       155.2       159.6       409.5
      Repayment of long-term
       debt                        (32.0)     (137.1)     (103.0)     (362.5)
      Minority interest             (6.7)       (0.6)       (8.3)        6.0
      Repurchase of preferred
       shares                          -           -        (0.8)          -
      Issue of Non-Voting
       Class A shares                  -           -         1.0         0.8
      Repurchase of Non-Voting
       Class A shares                  -           -        (1.9)       (0.8)
      Common dividends              (9.9)       (9.2)      (39.5)      (36.7)
                              ----------- ----------- ----------- -----------
    Cash flows used in
     financing activities          (35.6)     (136.3)      (60.2)      (94.3)
                              ----------- ----------- ----------- -----------
    Increase (decrease) in
     cash and cash equivalents      91.5       175.5       (46.2)       59.4
    Cash and cash equivalents,
     beginning of period           203.4       165.6       341.1       281.7
                              ----------- ----------- ----------- -----------
    Cash and cash equivalents,
     end of period             $   294.9   $   341.1   $   294.9   $   341.1
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

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


                           EMPIRE COMPANY LIMITED
                           ----------------------
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               ----------------------------------------------
                                MAY 5, 2007
                                -----------
             (Unaudited, in millions, except per share amounts)


    1. Summary of Significant Accounting Policies

    Interim financial statements

    The unaudited interim period consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
("GAAP"). 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 6, 2006, as set out in the 2006 Annual Report.

    Generally accepted accounting principles

    The accounting policies used in the preparation of these interim
consolidated financial statements conform with those used in the Company's
2006 annual consolidated financial statements. Selected changes in accounting
policies adopted in fiscal 2007 and those changes adopted in 2006 are noted
below:

    Vendor consideration

    During the first quarter of fiscal 2007, the Company implemented, on a
retroactive basis, Emerging Issues Committee Abstract ("EIC") 156, "Accounting
by a Vendor for Consideration Given to a Customer (including a Reseller of the
Vendor's Products)". This abstract requires a vendor to generally record cash
consideration given to a customer as a reduction to the selling price of the
vendor's products or services and reflect it as a reduction of revenue when
recognized in the statement of earnings.
    Prior to the implementation of EIC-156, the Company recorded certain sales
incentives paid to independent franchisees, associates and independent
accounts in cost of sales, selling and administrative expenses on the
statement of earnings. Accordingly, the implementation of EIC-156 on a
retroactive basis resulted in a reduction in both revenue and cost of sales,
selling and administrative expenses during the fourth quarter and year-to-date
of fiscal 2007 of $34.4 and $141.2, respectively (2006 - $36.8 and $135.2,
respectively). As reclassifications, these changes did not impact net earnings
or earnings per share.

    Vendor allowances

    During the first quarter of fiscal 2006, the Company adopted the amendment
to EIC-144 issued in January 2005. The amendment requires disclosure of the
amount of any vendor allowances that have been recognized in income but for
which the full requirements for entitlement have not yet been met (see Note
15).

    Future changes in accounting policies

    Financial instruments

    In January 2005, the CICA issued Section 3855 of the Handbook, "Financial
Instruments - Recognition and Measurement", which describes the standards for
recognizing and measuring financial assets, financial liabilities and
derivatives. This Section requires that all financial assets be measured at
fair value, with some exceptions for loans and investments that are classified
as held-to-maturity, and that all financial liabilities be measured at fair
value if they are derivatives or classified as held for trading purposes.
Other financial liabilities are measured at their amortized cost, and all
derivative financial instruments are measured at fair value, even when they
are part of a hedging relationship.
    The CICA has also reissued Handbook Section 3860 as Section 3861,
"Financial Instruments - Disclosure and Presentation", which establishes
standards for presentation of financial instruments and non-financial
derivatives, and identifies the information that should be disclosed about
them.
    These changes are applicable to the Company for the first quarter of
fiscal 2008. The effect of adopting this Section is not expected to be
significant as investments, at cost of $188.2 have been sold in the first
quarter of fiscal 2008 (see Note 20).

    Hedges

    In January 2005, the CICA issued Section 3865 of the Handbook, "Hedges",
which describes how and when hedge accounting can be used.
    Hedging is an activity used to change an exposure to one or more risks by
creating an offset between changes in the fair value of a hedged item and a
hedging item, changes in the cash flows attributable to a hedged item and a
hedging item, or changes resulting from a risk exposure related to a hedged
item and a hedging item.
    Under hedge accounting, all gains, losses, revenues and expenses from the
derivative and the item it hedges are recorded in the statement of earnings or
the other comprehensive income statement in the same period.
    These changes are applicable to the Company for the first quarter of
fiscal 2008. The effect of adopting this section is not expected to be
significant.

    Comprehensive income

    In January 2005, the CICA issued Handbook Section 1530, "Comprehensive
Income", which is effective for the Company's 2008 fiscal year. The section
describes how to report and disclose comprehensive income and its components.
The main components of other comprehensive income include unrealized gains and
losses on available-for-sale investments, and gains and losses on cash flow
hedges.
    These changes are applicable to the Company for the first quarter of
fiscal 2008. The effect of adopting this Section is not expected to be
significant.

    Inventories

    In March 2007, the CICA issued Handbook Section 3031, "Inventories", which
has replaced existing Section 3030 with the same title. The new Section
establishes that inventories should be measured at the lower of cost and net
realizable value, with guidance on the determination of cost. The new standard
is effective for interim and annual financial statements relating to fiscal
years beginning on or after January 1, 2008 and is applicable for the
Company's first quarter of fiscal 2009. The Company is currently evaluating
the impact of this new standard.

    Accounting changes

    In July 2006, the CICA issued Handbook Section 1506, "Accounting Changes",
which describes the criteria for changing accounting policies, along with the
accounting and disclosure for changes in accounting estimates and corrections
of errors. These changes came into effect as of January 1, 2007 and are
applicable for the first quarter of fiscal 2008.

    Inventories

    Warehouse inventories are valued at the lower of cost and net realizable
value with cost being determined on a first-in, first-out ("FIFO") or a moving
average basis. Retail inventories are valued at the lower of cost and net
realizable value. Cost is determined using FIFO or the retail method. The
retail method uses the anticipated selling price less normal profit margins,
substantially on an average cost basis. Real estate inventory of residential
properties is carried at the lower of cost and net realizable value.

    Portfolio investments

    Portfolio investments are accounted for under the cost method. Investment
income is recognized on an accrual basis. Portfolio investments are written
down when the inherent loss is determined to be other than temporary. Gains
and losses on sale of investments are recorded in earnings as realized.

    Revenue recognition

    Food sales are recognized at the point-of-sale. Sales include revenues
from customers through corporate stores operated by the Company and
consolidated VIEs, and revenue from sales to non-VIE franchised stores,
affiliated stores and independent accounts. Revenue received from non-VIE
franchised stores, affiliated stores and independent accounts is mainly
derived from the sale of product. The Company also collects franchise fees
under two types of arrangements. Franchise fees contractually due based on the
dollar value of product shipped are recorded as revenue when the product is
shipped. Franchise fees contractually due based on the franchisee's retail
sales are recorded as revenue weekly upon invoicing based on the franchisee's
retail sales. Real estate revenue is recognized in accordance with the lease
agreements with tenants on a straight-line basis.

    Pension benefit plans and other benefit plans

    The cost of the Company's pension benefits for defined contribution plans
are expensed at the time active employees are compensated. The cost of defined
benefit pension plans and other benefit plans is accrued based on actuarial
valuations, which are determined using the projected benefit method pro-rated
on service and management's best estimate of the expected long-term rate of
return on plan assets, salary escalation, retirement ages and expected growth
rate of health care costs.
    Current market values are used to value benefit plan assets. The
obligation related to employee future benefits is measured using current
market interest rates, assuming a portfolio of Corporate AA bonds with terms
to maturity that, on average, match the terms of the obligation.
    The impact of changes in plan amendments is amortized on a straight-line
basis over the expected average remaining service life ("EARSL") of active
members. For pension benefit plans, the actuarial gains and losses and the
impact of changes in the actuarial basis in excess of 10 percent of the
greater of the projected benefit obligation and the market value of assets are
amortized on a straight-line basis over the EARSL of the active members. For
the Company's Supplemental Executive Retirement Plan, the impact of changes in
the plan provisions are amortized over 5 years. For other benefit plans,
actuarial gains and losses are recognized immediately.

    Use of estimates

    The preparation of consolidated financial statements, in conformity with
Canadian GAAP requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Certain of these estimates require subjective or complex
judgments by management that may be uncertain. Some of these items include the
valuation of inventories, goodwill, employee future benefits and income taxes.
Changes to these estimates could materially impact the financial statements.
These estimates are based on management's best knowledge of current events and
actions that the Company may undertake in the future. Actual results could
differ materially from these estimates.


    2. Sale of Wajax Income Fund

    On June 6, 2005, the shareholders of Wajax Limited, an equity accounted
investment, approved a Plan of Arrangement to convert into Wajax Income Fund
("Wajax"). The Company owned approximately 45% of the outstanding shares of
Wajax Limited (on a fully diluted basis). The Plan of Arrangement was
completed on June 15, 2005 with the Company receiving one unit of Wajax for
each Wajax Limited share held. Through a secondary offering on June 21, 2005,
the Company sold a total of 2.5 million Wajax units for net proceeds of
approximately $44.0. On June 29, 2005, the underwriter exercised their
over-allotment option to purchase 375,000 Wajax units at $19.25 per unit,
resulting in additional net proceeds of $6.8. This reduced the Company's
ownership percentage to approximately 27.6%. Details of the sale are as
follows:

    Net proceeds                                                   $    50.8
    Book value                                                          21.1
                                                                  -----------
                                                                        29.7
    Equity share of income fund conversion-related items                 4.1
                                                                  -----------
    Capital gain before income taxes                                    25.6
    Income taxes                                                         2.1
                                                                  -----------
    Net capital gain                                               $    23.5
                                                                  -----------
                                                                  -----------


    3. Sale of Property to Crombie REIT

    On March 23, 2006, the Company's real estate segment sold 44 commercial
properties to Crombie Real Estate Investment Trust ("Crombie REIT"). Included
in the proceeds is an interest in Crombie REIT giving the Company effective
ownership of 48.3%. The Company's investment in Crombie REIT is accounted
using the equity method. Details of the sale are as follows:

    Proceeds
      Cash                                                         $   267.7
      Investment in Crombie REIT                                       200.8
                                                                  -----------
                                                                       468.5
                                                                  -----------
    Book value of assets sold and liabilities assumed
      Property and equipment                                           593.2
      Net working capital                                               (1.0)
      Employee future benefits obligation                               (2.2)
      Future income taxes                                              (44.7)
      Long-term debt                                                  (312.9)
                                                                  -----------
                                                                       232.4
    Early extinguishment of long-term debt                              25.4
    Share of issue costs                                                 9.4
    Other costs                                                         17.1
                                                                  -----------
                                                                       284.3
                                                                  -----------

    Capital gain before deferral and income taxes                      184.2
    Deferral of capital gain related to retained interest              (88.2)
                                                                  -----------
    Capital gain before income taxes                                    96.0
    Income taxes                                                        19.8
                                                                  -----------
    Net capital gain                                               $    76.2
                                                                  -----------
                                                                  -----------


    4. Earnings Per Share

    Earnings per share amounts are calculated by dividing the earnings
available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is calculated
using the treasury method and assumes that all the outstanding stock options
were exercised and share purchase loans were repaid at the beginning of the
period.

    Earnings applicable to common shares is comprised of the following:

                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
                              ----------- ----------- ----------- -----------
    Operating earnings         $    63.8   $    56.9   $   204.4   $   202.0
    Capital gains and
     other items, net
     of tax of $0.2; $10.3;
     $1.4; $14.6                     0.7        61.5         5.7        94.8
                              ----------- ----------- ----------- -----------
    Net earnings                    64.5       118.4       210.1       296.8
    Preferred share dividends       (0.1)       (0.1)       (0.4)       (0.3)
                              ----------- ----------- ----------- -----------
    Earnings applicable to
     common shares             $    64.4   $   118.3   $   209.7   $   296.5
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Earnings per share is
     comprised of the
     following:

    Operating earnings         $    0.97   $    0.87   $    3.11   $    3.08
    Capital gains and
     other items                    0.01        0.94        0.09        1.45
                              ----------- ----------- ----------- -----------

    Basic earnings per share   $    0.98   $    1.81   $    3.20   $    4.53
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Operating earnings         $    0.97   $    0.87   $    3.10   $    3.07
    Capital gains and
     other items                    0.01        0.93        0.09        1.44
                              ----------- ----------- ----------- -----------
    Diluted earnings
     per share                 $    0.98   $    1.80   $    3.19   $    4.51
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    5. Other Assets
                                                           May 5       May 6
                                                            2007        2006
                                                      ----------- -----------
    Loans and mortgages receivable                     $    65.1   $    68.4
    Deferred costs                                         144.3       101.4
    Accrued benefit asset                                   42.7        36.2
    Restricted cash                                          5.7        14.7
    Other                                                   48.6        25.4
    Intangibles (less accumulated
     amortization of $11.2; 2006 $7.6)                      38.2        27.2
                                                      ----------- -----------
                                                       $   344.6   $   273.3
                                                      ----------- -----------
                                                      ----------- -----------


    6. Long-Term Debt

    On October 6, 2006, Sobeys Inc. (a subsidiary of the Company) issued new
Medium Term Notes of $125.0, interest rate of 5.8%, maturing on October 6,
2036.


    7. Other Liabilities
                                                           May 5       May 6
                                                            2007        2006
                                                      ----------- -----------
    Deferred revenue                                   $     6.5   $     3.3
    Deferred hedge gain                                      2.5        10.2
    Above market leases from acquisitions                    4.4         5.0
    Asset retirement obligations                             0.6         0.4
                                                      ----------- -----------
                                                       $    14.0   $    18.9
                                                      ----------- -----------
                                                      ----------- -----------


    8. Capital Stock

    During the period, under a normal course issuer bid which expired on July
27, 2006, the Company purchased for cancellation 46,047 (2006 - 20,254)
Non-Voting Class A shares. The purchase price was $1.9 of which $1.6 of the
purchase price (representing the premium on common shares purchased for
cancellation) was charged to retained earnings. During the period, the Company
purchased for cancellation 31,900 Series 2 preferred shares for $0.8. During
the period 46,047 (2006 - 20,254) Non-Voting Class A shares were issued under
the Company's stock option and share purchase plans to certain officers and
employees for $1.0 (2006 - $0.8). Loans receivable from officers and employees
of $3.6 (2006 - $4.6) under the Company's share purchase plan are classified
as a reduction of Shareholders' Equity.


    9. Investment Income
                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
                              ----------- ----------- ----------- -----------
    Dividend and interest
     income                    $     2.0   $     2.0   $     9.7   $     8.3
    Share of earnings of
     entities accounted
     using the equity
     method                          5.7         5.5        31.8        23.5
                              ----------- ----------- ----------- -----------
                               $     7.7   $     7.5   $    41.5   $    31.8
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    10. Capital Gains and Other Items

                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
                              ----------- ----------- ----------- -----------
    Gain on sale of
     investments               $       -   $       -   $     6.2        11.6
    Other items                      0.9         3.7         0.9         3.4
    Gain on sale of Wajax
     Income Fund (Note 2)              -        (0.7)          -        25.6
    Gain on sale of property
     to Crombie REIT (Note 3)          -        96.2           -        96.2
    Reduction of book value
     of real estate assets             -       (27.4)          -       (27.4)
                              -----------------------------------------------
                               $     0.9   $    71.8   $     7.1   $   109.4
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    11. Supplementary Cash Flow Information

                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
                              ----------- ----------- ----------- -----------
    a) Items not affecting
       cash

    Depreciation and
     amortization              $    64.8   $    56.7   $   243.9   $   225.8
    Future income taxes             12.6        11.9        15.4        10.1
    Amortization of
     deferred items                 23.0        13.6        44.4        35.8
    Equity in earnings of
     other entities, net of
     dividends received                -        (1.6)          -        (4.1)
    Minority interest               11.2        15.9        46.0        55.8
    Stock-based
     compensation                    0.7         0.4         1.4         1.0
    Long-term lease
     obligation                     13.1         7.7        16.1         8.5
    Employee future
     benefits obligation            (0.5)       (1.0)        4.8         4.2
    Rationalization costs
     (Note 19)                       2.3           -        15.5           -
    Gain on sale of Wajax
     Income Fund, net of
     tax of $2.1                       -         0.7           -       (23.5)
    Gain on sale of
     property to
     Crombie REIT,
     net of tax of $19.8               -       (76.2)          -       (76.2)
    Reduction of book value
     of real estate assets,
     net of tax of $(10.4)             -        17.0           -        17.0
                              ----------- ----------- ----------- -----------
                               $   127.2   $    45.1   $   387.5   $   254.4
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    b) Other cash flow
       information

    Net interest paid          $    22.3   $    29.6   $    58.9   $    83.1
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Net income taxes paid      $    35.2   $     6.3   $   168.2   $   102.1
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    12. Segmented Information

                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------
    Revenue
    Food                       $ 3,243.7   $ 3,125.8   $13,032.0   $12,718.1
                              ----------- ----------- ----------- -----------
    Real estate
      Commercial                     9.2        33.1        38.4       137.8
      Inter-segment                  8.8        14.0        34.3        54.0
      Residential                   56.8        31.1       146.1        84.9
                              ----------- ----------- ----------- -----------
                                    74.8        78.2       218.8       276.7
                              ----------- ----------- ----------- -----------
    Investment and other
     operations                     40.7        36.6       150.2       122.8
                              ----------- ----------- ----------- -----------
                                 3,359.2     3,240.6    13,401.0    13,117.6
    Elimination                     (8.8)      (14.0)      (34.3)      (54.0)
                              ----------- ----------- ----------- -----------
                               $ 3,350.4   $ 3,226.6   $13,366.7   $13,063.6
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
                              ----------- ----------- ----------- -----------
    Operating income
    Food                       $    74.2   $    85.2   $   300.2   $   331.6
    Real estate
      Commercial                    11.5        23.7        46.8        87.0
      Residential                   34.6        17.0        71.2        51.3
    Investment and other
     operations                      5.3         7.8        31.6        31.3
    Corporate expenses              (2.4)       (2.8)       (9.5)       (9.8)
                              ----------- ----------- ----------- -----------
                               $   123.2   $   130.9   $   440.3   $   491.4
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


                                                           May 5       May 6
                                                            2007        2006
                                                      ----------- -----------
    Identifiable assets
    Food                                               $ 3,409.0   $ 3,119.5
    Goodwill                                               746.5       691.7
                                                      ----------- -----------
                                                         4,155.5     3,811.2
    Real estate                                            609.4       634.7
    Investment and other operations (including
     goodwill of $40.1; 2006 $40.1)                        460.0       605.6
                                                      ----------- -----------
                                                       $ 5,224.9   $ 5,051.5
                                                      ----------- -----------
                                                      ----------- -----------


                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
                              ----------- ----------- ----------- -----------
    Depreciation and
     amortization
    Food                       $    55.2   $    51.5   $   215.3   $   196.6
    Real estate                      1.6         1.7         6.8        16.9
    Investment and other
     operations                      8.0         3.5        21.8        12.3
                              ----------- ----------- ----------- -----------
                               $    64.8   $    56.7   $   243.9   $   225.8
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
                              ----------- ----------- ----------- -----------
    Capital expenditure
    Food                       $   148.3   $   108.3   $   482.8   $   421.3
    Real estate                      6.5        12.5        16.2        67.9
    Investment and other
     operations                     11.7        16.5        46.2        57.2
                              ----------- ----------- ----------- -----------
                               $   166.5   $   137.3   $   545.2   $   546.4
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    13. Employee Future Benefits

    During the Company's fourth quarter and year-to-date of fiscal 2007, the
net employee future benefit expense was $6.5 and $24.8 respectively (2006 -
$9.5 and $27.2). The expense included costs for the Company's defined
contribution pension plans, defined benefit pension plans, post-retirement
benefit plans and post-employment benefit plans.


    14. Business Acquisitions

    During the first two quarters, the Company increased its ownership
interest in Sobeys Inc. from 70.3% to 72.1% by way of purchase of shares on
the open market. The acquisition was accounted using the purchase method with
operating results being included in the consolidated financial statements from
the date of each share acquisition. The cash consideration paid was $48.6,
goodwill increased by $13.0 and minority interest decreased by $35.6.
    During the period, Sobeys Inc. acquired franchisee stores and prescription
files for total cash consideration of $16.7. The acquisitions were accounted
using the purchase method with net identifiable assets recorded at $15.8
(including intangible assets of $8.2) and goodwill recorded at $0.9.
    On August 27, 2006, Sobeys Inc. acquired substantially all of the food
distribution assets of Achille de la Chevrotière Ltée and its associated
companies ("ADL") for an amount of $79.2. The assets acquired include 25 owned
or franchised retail store operations, other wholesale supply agreements and
distribution facilities in Rouyn-Noranda, Quebec. Sixteen of the franchised
retail store operations are considered VIEs under the Company's policy (see
Note 16). They have been included in the consolidated results of the Company.
The acquisition was accounted using the purchase method with the results of
ADL being consolidated since the acquisition date. During the third quarter,
management carried out a detailed analysis and changes were made to the
preliminary allocation of the excess consideration paid over net assets
acquired as disclosed in the second quarter. The measurement and allocation of
intangible assets was also completed and amended from $21.5 to $6.8. As a
result goodwill was adjusted from $21.7 to $41.3 to reflect the finalized
valuation of ADL. The final purchase price allocation, which has incorporated
management's assessment of fair value, is as follows:

    Consideration
      Cash                                                         $    75.8
      Acquisition costs                                                  3.4
                                                                  -----------
      Total consideration paid                                          79.2
                                                                  -----------
    Net assets acquired
      Current assets                                                    28.0
      Long-term assets                                                  27.7
      Current liabilities assumed                                      (20.0)
      Long-term liabilities assumed                                     (4.6)
                                                                  -----------
      Total net assets acquired                                         31.1
                                                                  -----------
    Excess consideration paid over net assets acquired             $    48.1
                                                                  -----------
                                                                  -----------
    Allocation of excess consideration paid over net assets
     acquired
      Intangible assets                                            $     6.8
      Goodwill                                                          41.3
                                                                  -----------
                                                                   $    48.1
                                                                  -----------
                                                                  -----------


    15. Vendor Allowances

    The Company receives allowances from certain vendors whose products are
purchased for resale. Included in these vendor programs are allowances for
volume purchases, exclusivity allowances, listing fees and other allowances.
The Company recognizes these allowances as a reduction of cost of sales,
selling and administrative expenses and related inventories in accordance with
EIC-144. Certain allowances from vendors are contingent on the Company
achieving minimum purchase levels. These allowances are recognized when it is
probable that the minimum purchase level will be met, and the amount of
allowance can be estimated. As of the year ended May 5, 2007, the Company has
recognized $2.4 (2006 - $3.5) of allowances in income where it is probable
that the minimum purchase level will be met and the amount of allowance can be
estimated.


    16. Variable Interest Entities

    Variable interest entities are defined under Accounting Guideline
("AcG")15, "Consolidation of Variable Interest Entities", as entities that do
not have sufficient equity at risk to finance their activities without
additional subordinated financial support, or where the equity holders lack
the overall characteristics of a controlling financial interest. The guideline
requires that the VIE be consolidated with the financial results of the entity
deemed to be the primary beneficiary of the VIE's expected losses and its
expected residual returns.
    The Company implemented AcG-15 on May 7, 2005 retroactively without
restatement of prior periods. Entities that have been identified as meeting
the characteristics of a VIE were consolidated in the Company's results
effective for the fourth quarter of fiscal 2005.
    The Company has identified the following entities as VIEs:

    Franchise Affiliates
    --------------------

    The Company has identified 271 (May 6, 2006 - 300) franchise affiliate
stores whose franchise agreements result in the Company being deemed the
primary beneficiary of the entity according to AcG-15. The results for these
entities were consolidated with the results of the Company.

    Warehouse and Distribution Agreement
    ------------------------------------

    The Company has an agreement with an independent entity to provide
warehouse and distribution services for one of its distribution centres. The
terms of the agreement with this entity require the Company to consolidate its
results with those of the Company pursuant to AcG-15.
    The Company has consolidated the results of these franchise affiliates and
the entity providing warehouse and distribution services effective at the
fourth quarter of fiscal 2005.
    In the prior year, a charge of $3.6 (net of minority interest of $1.9) to
retained earnings was required to reflect additional minority interest in the
VIEs.


    17. 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 tax authorities.
    On June 21, 2005, Sobeys Inc. received a notice of reassessment from
Canada Revenue Agency ("CRA") for fiscal years 1999 and 2000 related to the
Goods and Service Tax ("GST"). CRA asserts that Sobeys Inc. was obliged to
collect GST on sales of tobacco products to status Indians. The total tax,
interest and penalties in the reassessment was $13.6. Sobeys Inc. has reviewed
this matter, has received legal advice, and believes it was not required to
collect GST. During the second quarter of fiscal 2006, Sobeys Inc. filed a
Notice of Objection with CRA. Accordingly, the Company has not recorded in its
statement of earnings any of the tax, interest or penalties in the notice of
reassessment. Sobeys Inc. has deposited with CRA funds to cover the total tax,
interest and penalties in the reassessment and has recorded this amount as a
long-term receivable from CRA pending resolution of the matter.
    The Company and certain subsidiaries are presently under audit by CRA and
certain provincial taxing authorities for fiscal years 2001 through 2006. The
principal matters under audit are:

    a) The tax treatment of gains realized on the sale of shares in
       Hannaford Bros. Co. ("Hannaford") in fiscal 2001;

    b) The tax treatment of gains realized on the sale of shares in
       Delhaize America Inc. in fiscal years 2001 and 2002; and

    c) The taxation of income from certain of the Company's real estate
       investments for fiscal years 2003 to 2006.

    Reassessments have been received in respect of the sale of shares of
Hannaford. In the event that the tax authorities are successful in respect of
the Hannaford transaction, which the Company believes is unlikely, the maximum
potential exposure in excess of provisions taken is approximately $30.0.
    The Company has appealed the reassessments in respect of the sale of
Hannaford shares. The Company expects that it will be substantially successful
on its appeals of each of these reassessments. The Company also believes that
the ultimate resolution of these matters will not, in any event, have a
material impact on earnings because it has made adequate provisions for each
of these matters. Should the ultimate outcome materially differ from the
provisions established, the effective tax rate and earnings of the Company
could be materially affected, negatively or positively, in the period in which
the matters are resolved.
    In the third quarter, Sobeys Inc. was named as a defendant in a lawsuit
brought by beneficiaries of a multi-employer pension plan. The lawsuit alleges
mismanagement of certain pension plan investments by the trustees of the
pension plan and seeks, among other remedies, payment of $1,000.0 in damages
from the trustees and the contributing employers, of which Sobeys Inc. is one
of approximately 440. Sobeys Inc. played no role in the management of the
pension plan and intends to contest the lawsuit. Accordingly, the Company has
not recorded in its statement of earnings any amount related to this lawsuit.
    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.


    18. Related Party Transactions

    The Company rents premises from Crombie REIT. In addition, Crombie REIT
provides administrative and management services to the Company. The rental
payments are at fair value and the charges incurred for administrative and
management services are on a cost recovery basis. The Company has non-interest
bearing notes payable to Crombie REIT in the amount of $33.1.
    On October 2, 2006, the Company sold two commercial properties to Crombie
REIT, for cash proceeds of $32.4, which was fair market value. Since the sale
was to an equity accounted investment, no gain was recorded on the sale.


    19. Business Rationalization Costs

    During the third quarter of fiscal 2007, Sobeys Inc. completed a
rationalization of administrative functions in Atlantic Canada. Sobeys Inc.
also began to incur costs associated with the development of a new grocery
distribution centre in Vaughan, Ontario. These costs primarily relate to
severance in both the Atlantic and Ontario regions along with fixed asset and
inventory write-offs. In the fourth quarter of fiscal 2007, Sobeys Inc. also
recorded rationalization costs related to its Quebec distribution network.
Sobeys Inc. expects to incur additional administrative rationalization costs
in the first half of fiscal 2008 enabled by its continuing business process
and system initiative. The dollar value of these additional costs will be
quantified and disclosed in the first quarter of fiscal 2008. The costs
associated with the organizational change are recorded as incurred as cost of
sales, selling and administrative expenses in the statement of earnings as
follows:

                                        Paid /     Ending
                 Beginning             written      Liabi-   Antici-
                 Liability  Incurred       off       lity     pated     Total
                 ------------------------------------------------------------
    Severance
     Atlantic     $      -  $    4.7  $    1.5  $    3.2  $      -  $    4.7
     Ontario             -       5.3       0.7       4.6         -       5.3
     Quebec              -       4.3         -       4.3         -       4.3
    Other costs          -       1.1       1.1         -         -       1.1
                 ------------------------------------------------------------
                         -      15.4       3.3      12.1         -      15.4

    Asset
     write-offs          -       3.4       3.4         -         -       3.4
                 ------------------------------------------------------------
                  $      -  $   18.8  $    6.7  $   12.1  $      -  $   18.8
                 ------------------------------------------------------------
                 ------------------------------------------------------------


    20. Subsequent Event

    On April 26, 2007, the Company and Sobeys Inc. jointly announced that they
had entered into an arrangement agreement ("the Arrangement") pursuant to
which the Company would acquire all of the outstanding common shares of Sobeys
Inc. that it did not then own at a price of $58.00 per share. The transaction
valued the Sobeys Inc. shares not then owned by the Company at approximately
$1.06 billion.
    The Arrangement required various approvals to comply with applicable
corporate and securities laws: The Sobeys Inc. shareholders approved the
Arrangement at a special shareholders' meeting held on June 9, 2007 by the
requisite majority; the Supreme Court of Nova Scotia gave its sanction to the
Arrangement on June 13, 2007; the Arrangement became effective upon
registration of the final Court order with the Nova Scotia Registry of Joint
Stock Companies at the close of business on June 15, 2007. Subsequently, the
Sobeys Inc. common shares ceased trading on the Toronto Stock Exchange, and
were de-listed at the close of business on June 18, 2007.
    The acquisition was financed by funds of $278.0, received primarily from
sale of certain portfolio investments, and by advances of $784.0 under new
credit facilities (the "Credit Facilities"). The Credit Facilities consist of
a $950.0 unsecured revolving credit maturing on June 8, 2010 (subject to
annual extensions at the request of the Company) and a $50.0 unsecured
non-revolving credit maturing June 30, 2007. The Credit Facilities are subject
to certain financial covenants. Interest on the debt varies based on the
designation of the loan (bankers' acceptances ("BA") rate loans, Canadian
prime rate loans, U.S. base rate loans or LIBOR loans), fluctuations in the
underlying rates, and in the case of the BA rate loans or LIBOR loans, the
margin applicable to the financial covenants.
    On June 18, 2007, the Company entered into two delayed fixed rate interest
swaps. The first swap in an amount of $200.0 is for a period of three years at
a fixed interest rate of 4.998%. The second swap in an amount of $200.0 is for
a period of five years at a fixed interest rate of 5.051%. Both swaps become
effective on July 23, 2007.
    On June 27, 2007, pursuant to the terms of the Credit Facilities, the
Company and Sobeys Inc. filed notice with the lenders requesting the
establishment of a new $300.0 five-year credit facility in favour of Sobeys
Inc. at the same interest rate as the Credit Facilities. It is intended that
on July 23, 2007, Sobeys Inc. will draw down $300.0 from the new credit
facility, the proceeds of which are to be used to pay a dividend to the
Company. The Company will use the proceeds from the dividend to reduce its
indebtedness under the Credit Facilities. On that date, the Company also
intends to transfer the second swap to Sobeys Inc.


    21. Comparative Figures

    Comparative figures have been reclassified, where necessary, to reflect
the current period's presentation and to record the effects of retroactive
application of certain new accounting standards.
    




For further information:

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


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