Empire Company reports record Q4 earnings before capital gains and other items and increases dividend



    STELLARTON, NS, June 26 /CNW/ - Empire Company Limited (TSX: EMP.A) today
announced financial results for its fourth quarter and fiscal year ended
May 3, 2008. For the fourth quarter, the Company recorded earnings before
capital gains and other items, net of tax, of $73.6 million ($1.12 per share)
as compared to $64.1 million ($0.98 per share) last year, a $9.5 million or
14.8 percent increase. Fiscal 2008 earnings before capital gains and other
items, net of tax, equalled $242.8 million ($3.69 per share) as compared to
$200.1 million ($3.04 per share) last year, a $42.7 million or 21.3 percent
increase.

    
    Fourth Quarter Highlights

    - Revenue of $3.56 billion, up $207.4 million or 6.2 percent.
    - Sobeys Inc.'s ("Sobeys") same-store sales increased 2.6 percent.
    - Earnings before capital gains and other items, net of tax, of
      $73.6 million, up $9.5 million or 14.8 percent.
    - Earnings per share, before capital gains and other items, net of tax,
      of $1.12 versus $0.98 per share last year.
    - Capital losses and other items, net of tax, of $7.1 million versus
      $0.7 million of capital gains and other items, net of tax, last year.
    - Sale of 61 properties to Crombie Real Estate Investment Trust ("Crombie
      REIT") for $428.5 million. Under Canadian Generally Accepted Accounting
      Principles ("GAAP"), the gain on this transaction of $144.3 million was
      not included in earnings but served to reduce the carrying value of
      Empire's investment in Crombie REIT.
    - Net earnings of $66.5 million ($1.01 per share).
    - Funded debt to total capital of 39.8 percent, down from 45.8 percent at
      the end of the third quarter.

    Fiscal 2008 Highlights

    - Revenue of $14.06 billion, up $698.3 million or 5.2 percent.
    - Sobeys same-store sales increased 2.8 percent.
    - Earnings before capital gains and other items, net of tax, of
      $242.8 million, up $42.7 million or 21.3 percent.
    - Earnings before capital gains and other items, net of tax, on a per
      share basis of $3.69 versus $3.04 last year.
    - Capital gains and other items, net of tax, amounted to $73.0 million
      versus $5.7 million last year.
    - Net earnings of $315.8 million ($4.80 per share) compared to
      $205.8 million ($3.13 per share) last year.
    - Major transactions during fiscal 2008: the privatization of Sobeys; the
      acquisition of Thrifty Foods; and the sale of 61 properties to Crombie
      REIT.

    The Company also announced that its Board of Directors has declared a
dividend of 17.5 cents per Class B common share and Non-Voting Class A share,
payable on July 31, 2008 to shareholders of record on July 15, 2008. This
represents an annualized dividend payment of 70 cents per share as compared to
the prior level of 66 cents per share.
    Paul Sobey, President and Chief Executive Officer stated, "Our fourth
quarter earnings before capital gains and other items was a record level for
the Company. Our consolidated earnings benefited from having 100 percent
ownership of Sobeys versus 72 percent a year ago, amplified by Sobeys'
continued growth in total and same-store sales, selling margins and ongoing
cost reduction initiatives. The higher earnings contribution from Sobeys more
than offset the expected lower earnings from our residential real estate
operation.
    We are pleased with what we accomplished in fiscal 2008, including the
privatization of Sobeys, the acquisition of Thrifty Foods, and the sale of
61 properties to Crombie REIT. On behalf of Management and our Board, I would
like to thank our employees, franchisees and affiliates for their hard work,
dedication and commitment this past year, as their efforts have allowed us to
deliver record fourth quarter and annual operating earnings.
    Consistent with our growth and our confidence in the strength of our
businesses, we are pleased to announce an increase in Empire's dividend per
share, from 66 cents annually to 70 cents annually. This marks the thirteenth
consecutive year of dividend increases."

    Financial Overview

    Revenue

    Consolidated revenue for the fourth quarter equalled $3.56 billion
compared to $3.35 billion last year, an increase of $207.4 million or
6.2 percent. Sobeys' revenue equalled $3.48 billion, an increase of
$236.9 million or 7.3 percent compared to the fourth quarter last year. Fourth
quarter same-store sales increased 2.6 percent. Sobeys' retail sales growth
resulted from the continued implementation of sales and merchandising
initiatives across the country, coupled with an increase in retail selling
square footage from new stores, store enlargements and the acquisition of
Thrifty Foods on September 12, 2007. Thrifty Foods sales in the fourth quarter
were $148.6 million.
    Adjusting for the impact of a decline in wholesale tobacco sales and the
impact of the Thrifty Foods acquisition, fourth quarter sales growth for
Sobeys and Empire consolidated would have been 3.2 percent and 2.2 percent,
respectively.
    Real estate division revenue (net of inter-segment transactions) in the
fourth quarter was $33.8 million, a decrease of $32.2 million from the
$66.0 million recorded in the fourth quarter last year. The decrease is
attributed to a $32.2 million reduction in residential real estate revenue
that was expected as a result of slower residential lot sales activity
principally in Western Canada.
    Investments and other operations generated revenues of $43.4 million in
the fourth quarter versus $40.7 million in the fourth quarter last year. The
increase is primarily attributable to higher revenue from wholly-owned Empire
Theatres.
    For the 52 weeks ended May 3, 2008, consolidated revenue equalled
$14.06 billion, an increase of $698.3 million or 5.2 percent compared to
fiscal 2007. Growth in annual Sobeys' sales of $736.1 million and in
investments and other operations' revenue of $21.0 million was partially
offset by a $58.8 million reduction in revenue from the real estate division.
The decline in real estate division revenue was anticipated and reflects a
slowdown in residential lot sales as mentioned along with the completion of
the Martello condominium project last fiscal year.

    The following items impact annual revenue comparability:

    - Sobeys' sales in fiscal 2008 were positively influenced by the
      acquisition of Thrifty Foods on September 12, 2007 and by the
      acquisition of Achille de la Chevrotière Ltée and its associated
      companies ("ADL") on August 27, 2006. These acquisitions collectively
      increased fiscal 2008 sales by $454.7 million over the same period last
      fiscal year.
    - A major Canadian tobacco supplier began to sell and distribute product
      directly to certain customers resulting in a decline in tobacco sales.
      This change in distribution, along with lower market demand for
      wholesale tobacco, reduced sales for Sobeys by $117.2 million in fiscal
      2008.
    - Revenues for residential real estate were negatively impacted on a
      fiscal year basis compared to last year by sales related to the
      Martello condominium project, which was completed in fiscal 2007. For
      the 52 weeks ended May 5, 2007, Martello revenues were $37.9 million.
    - Empire Theatres changed its fiscal year-end from the last Thursday in
      April to the last Thursday in December effective December 28, 2006.
      This change in Empire Theatres' fiscal year-end was made to align with
      industry practice. Because of this change, Empire's fiscal year ended
      May 3, 2008 contains 12 months of operations while the prior fiscal
      year ended May 5, 2007 contained 11 months of operations.

    Adjusting for the acquisition of Thrifty Foods and ADL, the impact of the
tobacco sales decline, the impact of the Martello condominium project revenues
and the change in Empire Theatres' fiscal year end, Empire's consolidated
sales growth would have been 2.9 percent for the fiscal year.

    Operating Income

    Consolidated operating income in the fourth quarter totalled
$136.2 million compared to $124.0 million last year. The increase of
$12.2 million or 9.8 percent was the result of the food division contributing
higher operating income of $29.3 million and investments and other operations,
net of corporate expenses, posting a $1.8 million increase in operating
income, offset by a decline in real estate division operating income of
$18.9 million.
    Sobeys' operating income contribution to Empire in the fourth quarter
totalled $104.3 million, an increase of $29.3 million or 39.1 percent from the
$75.0 million recorded in the fourth quarter last year. Sobeys' recorded
fourth quarter operating margin, which is operating income divided by revenue,
of 3.06 percent compared to 2.31 percent in the fourth quarter last year.
Included in the fourth quarter fiscal 2008 operating income was an
$8.0 million increase in depreciation and amortization expense, reflecting
Sobeys' continued capital investments. Impacting operating income in the
fourth quarter of fiscal 2007 were pre-tax costs totalling $10.5 million in
connection with business process and system initiatives and rationalization
costs.
    The real estate division contributed operating income of $27.2 million in
the fourth quarter, a decrease of $18.9 million from the $46.1 million
recorded in the fourth quarter last year. Operating income generated from
commercial properties increased $0.1 million while operating income from
residential operations decreased by $19.0 million from the fourth quarter last
year. The decrease in fourth quarter residential operating income was largely
the result of lower residential lot sales activity in Western Canada as
mentioned.
    Investments and other operations' operating income, net of corporate
expenses, was $4.7 million compared to $2.9 million in the fourth quarter last
year.
    For the full fiscal year, Empire recorded operating income of
$472.6 million, a $41.5 million or 9.6 percent increase over the prior year.
The increase is attributed to higher operating income contribution from the
food division of $68.0 million, partially offset by an $18.0 million decline
in operating income contribution from the real estate division and an
$8.5 million decline in operating income contribution from investments and
other operations.
    Sobeys' operating income contribution was $359.0 million in fiscal 2008 as
compared to $291.0 million last year. Sobeys' recorded operating margin in the
fiscal year of 2.64 percent compared to 2.23 percent in the prior year. The
$68.0 million or 23.4 percent increase in Sobeys' operating income
contribution in fiscal 2008 was largely the result of: same-store sales growth
of 2.8 percent as mentioned; a continued focus on innovation and cost
management initiatives; and lower spending in fiscal 2008 on its business
process and system initiatives and business rationalization costs.
    Included in food division operating income in fiscal 2007 were
$49.1 million of pre-tax costs incurred by Sobeys related to its business
process and system initiative as well as business rationalization costs as
compared to $6.8 million of such costs in fiscal 2008. Also impacting fiscal
2008 operating income was a $35.6 million increase in depreciation and
amortization expense, reflecting Sobeys' continued capital investments.
    The real estate division contributed 21.1 percent of Empire's consolidated
operating income in fiscal 2008 compared to a 27.4 percent contribution last
year. The $18.0 million decline in real estate division operating income in
fiscal 2008 was primarily attributed to a $20.5 million decrease in
residential property operating income, of which $19.0 million occurred in the
fourth quarter. This was expected given the exceptional residential lot sales
activity experienced in Western Canada in the fourth quarter last year.
Commercial property operating income increased by $2.5 million in fiscal 2008.
    Investments and other operations' operating income, net of corporate
expenses, equalled $13.6 million in fiscal 2008 compared to $22.1 million last
fiscal year. The decrease largely reflects lower dividend and interest income
from investments which were sold in the first quarter of fiscal 2008 to
generate cash to assist in the funding of the privatization of Sobeys in June,
2008. Dividend and interest income equalled $1.2 million in fiscal 2008 as
compared to $9.7 million in fiscal 2007.

    Interest Expense

    Interest expense in the fourth quarter amounted to $27.5 million, an
increase of $13.1 million from the $14.4 million recorded in the fourth
quarter last year. For the 52 weeks ended May 3, 2008, interest expense
amounted to $105.8 million, an increase of $45.7 million over last year.
    Consolidated funded debt increased $661.5 million to $1,573.5 million at
the end of fiscal 2008 compared to $912.0 million at the end of fiscal 2007.
The increase in funded debt was largely the consequence of long-term debt
incurred to finance the privatization of Sobeys and the acquisition of Thrifty
Foods, partially offset by application of the proceeds from the sale of the
liquid investment portfolio in the first quarter and the sale of 61 properties
to Crombie REIT as mentioned to reduce indebtedness. The sale of the 61
properties however had a minimal impact on interest expense given that it
occurred 11 days prior to the end of the fiscal year.

    Income Taxes

    The effective consolidated income tax rate for the fourth quarter of
fiscal 2008 was 31.1 percent compared to 28.7 percent last year. The effective
income tax rate for fiscal 2008 was 30.3 percent versus 31.1 percent last
year. The decline in the effective income tax rate in fiscal 2008 is largely
attributed to reductions in the Canadian federal and certain provincial
statutory income tax rates.

    Minority Interest

    In the fourth quarter of fiscal 2008, Empire recorded minority interest
expense of $1.3 million compared to minority interest expense of $14.1 million
in the fourth quarter last year. The decrease in minority interest expense is
primarily the result of Empire increasing its ownership position in Sobeys to
100.0 percent on June 15, 2007. Empire's ownership position in Sobeys at the
end of the fourth quarter last year was 72.1 percent.
    Minority interest for the fiscal year equalled $12.8 million compared to
$55.4 million in the prior fiscal year. The decrease is largely the result of
Empire increasing its ownership position in Sobeys to 100.0 percent on
June 15, 2007 which resulted in a weighted average ownership position of
97.0 percent in fiscal 2008 as compared to a weighted average ownership
position in Sobeys of 71.8 percent in fiscal 2007.

    Earnings before Capital Gains and Other Items

    For the 13 weeks ended May 3, 2008, Empire recorded earnings before
capital gains and other items, net of tax, of $73.6 million ($1.12 per share)
versus $64.1 million ($0.98 per share) last year; a $9.5 million or 14.8
percent increase. The increase in earnings before capital gains and other
items, net of tax, reflects the growth in fourth quarter operating income of
$12.2 million and a $12.8 million decline in minority interest; partially
offset by a $13.1 million increase in interest expense and a $2.4 million
increase in income taxes.
    For the 52 weeks ended May 3, 2008, earnings before capital gains and
other items, net of tax, amounted to $242.8 million ($3.69 per share) compared
to $200.1 million ($3.04 per share) in the prior fiscal year. The
$42.7 million or 21.3 percent increase is the result of the $41.5 million
increase in operating income, the $42.6 million decrease in minority interest
and the $4.3 million reduction in income taxes; partially offset by the
$45.7 million increase in interest expense as discussed.

    Capital Gains and Other Items

    The Company reported capital losses and other items, net of tax, of
$7.1 million ($0.11 per share) in the fourth quarter as compared to capital
gains and other items, net of tax, of $0.7 million ($0.01 per share) in the
same quarter last year.
    Based on estimated fair values of commercial properties held for resale by
the real estate division, it was determined that the carrying value of one
commercial property was impaired. Accordingly, the Company recorded an
impairment charge in the fourth quarter of fiscal 2008 of $6.0 million
($4.0 million after tax) to reduce the carrying value on this property to
estimated fair value.
    Also during the fourth quarter, Sobeys increased its pre-tax impairment
loss provision on asset-backed commercial paper ("ABCP") by $4.5 million (from
$3.0 million previously recorded to $7.5 million), representing 25 percent of
the $30.0 million of third-party ABCP held by Sobeys. The Company estimated
the impairment loss using a discounted cash flow approach. The ABCP investment
has been reclassified as a long-term asset rather than cash and cash
equivalents due to the uncertainty as to the timing of collection.
    During the fourth quarter, on April 22, 2008, Empire's real estate
division closed the sale of 61 retail properties to Crombie REIT. The selling
price for the 61 properties was $428.5 million. In accordance with Canadian
GAAP, the gain on this transaction of $144.3 million has been accounted for as
a reduction in the carrying value of Crombie REIT because the purchaser is a
related party. This differs from International Financial Reporting Standards,
which will be adopted during the first quarter of fiscal 2012 and, upon
adoption, will require that the gain relating to the 51.9 percent non-Empire
ownership of Crombie REIT be recorded as an increase in retained earnings.
    For the full fiscal year, the Company recorded capital gains and other
items, net of tax, of $73.0 million as compared to $5.7 million last year. The
increase was largely the result of the sale of marketable securities in the
first quarter of fiscal 2008 which generated a capital gain, net of tax, of
$81.9 million.

    Net Earnings

    Consolidated net earnings in the fourth quarter equalled $66.5 million
($1.01 per share) as compared to $64.8 million ($0.99 per share) last year.
Net earnings for the 52 weeks ended May 3, 2008 totalled $315.8 million
($4.80 per share) as compared to $205.8 million ($3.13 per share) recorded
last year.

    Consolidated Financial Condition

    The ratio of funded debt to total capital at the end of the fourth quarter
equalled 39.8 percent versus 45.8 percent of the end of the third quarter and
30.0 percent at the end of the fourth quarter last year. The higher debt ratio
relative to last year was expected and is largely attributed to indebtedness
incurred under a revolving-term bank credit facility in the first quarter
which assisted in the funding of both the privatization of Sobeys in June 2007
and the acquisition of Thrifty Foods in September 2007.
    At fiscal year-end, May 3, 2008, Empire's investment portfolio, including
its 27.6 percent interest in Wajax Income Fund (TSX: WJX.UN) and its
47.8 percent interest in Crombie REIT (TSX: CRR.UN), carried a market value of
$431.2 million on a cost base of $43.0 million, resulting in an unrealized
gain of $388.2 million. This compares to an unrealized gain of $210.4 million
at the end of the third quarter and $384.6 million at the end of the fourth
quarter last fiscal year.
    The purchase of property and equipment in the fourth quarter equalled
$150.3 million as compared to $141.3 million in the same quarter last year.
Investment in food division property and equipment accounted for
$142.7 million of the total capital investment in the fourth quarter. Capital
expenditures for the real estate division in the fourth quarter equalled
$3.0 million and for investments and other operations $4.6 million. During the
fourth quarter Empire also invested $55 million in Crombie REIT, resulting in
an ownership interest of 47.8 percent at the end of fiscal 2008. The purchase
of property and equipment in fiscal 2008 totalled $549.4 million as compared
to $508.9 million last fiscal year. Investment in food division property and
equipment in fiscal 2008 was $481.2 million. Capital expenditures for the real
estate division in fiscal 2008 equalled $47.3 million and for investments and
other operations $20.9 million.
    During the fourth quarter, Sobeys opened, acquired or relocated
15 corporate and franchised stores compared to seven corporate and franchised
stores opened, acquired or relocated during the fourth quarter of last year.
An additional ten stores were expanded during the fourth quarter compared to
three stores expanded during the fourth quarter last year. A total of
17 stores were closed during the quarter compared to nine stores closed in the
fourth quarter last year. There were nine stores rebannered in the fourth
quarter of fiscal 2008 compared to 13 stores rebannered in the fourth quarter
of last year.
    For fiscal 2008, Sobeys opened, acquired or relocated 66 corporate and
franchised stores compared to 77 corporate and franchised stores opened,
acquired or relocated last year. An additional 31 stores were expanded during
the fiscal year as compared to 24 stores expanded last year. A total of 67
stores were closed during the year, compared to 38 stores closed last year. A
total of 60 stores were re-bannered in fiscal 2008, compared to 49 stores
re-bannered last year.
    At the end of the fourth quarter Sobeys' square footage totalled
27.2 million, a 3.0 percent increase over last year.

    The table below presents a summary of financial performance for the 13 and
52 weeks ended May 3, 2008 compared to the 13 and 52 weeks ended May 5, 2007.

    Summary Table of Consolidated Financial Results

    ($ in millions, except per share information)

                                13 Weeks Ended             52 Weeks Ended
                               ----------------           ----------------
                             May 3,        May 5,        May 3,        May 5,
                              2008          2007          2008          2007
                                       (Restated)                  (Restated)
                       -----------   -----------   -----------   -----------

    Segmented Revenue
     (net of
     elimination
     entries)
      Food             $   3,480.6   $   3,243.7   $  13,768.1   $  13,032.0
      Real estate
        Commercial             9.2           9.2          40.5          38.4
        Residential           24.6          56.8          85.2         146.1
      Investments
       and other
       operations             43.4          40.7         171.2         150.2
                       -----------   -----------   -----------   -----------
                       $   3,557.8   $   3,350.4   $  14,065.0   $  13,366.7
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------

    Segmented
     Operating Income
      Food             $     104.3   $      75.0   $     359.0   $     291.0
      Real estate
        Commercial            11.6          11.5          49.3          46.8
        Residential           15.6          34.6          50.7          71.2
      Investments and
       other
       operations              4.7           2.9          13.6          22.1
                       -----------   -----------   -----------   -----------
                       $     136.2   $     124.0   $     472.6   $     431.1
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------
    Earnings before
     capital gains
     and other items         73.6           64.1         242.8         200.1
    Capital gains
     and other items,
     net of tax              (7.1)           0.7          73.0           5.7
                       -----------   -----------   -----------   -----------
    Net earnings       $      66.5   $      64.8   $     315.8   $     205.8
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------

    Basic earnings
     per share
    Operating
     earnings          $      1.12   $      0.98   $      3.69   $      3.05
    Capital gains
     and other items,
     net of tax              (0.11)         0.01          1.11          0.09
                       -----------   -----------   -----------   -----------
    Net earnings       $      1.01   $      0.99   $      4.80   $      3.14
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------
    Basic weighted
     average number
     of shares
     outstanding
     (in millions)            65.6          65.6          65.6          65.6
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------

    Diluted earnings
     per share
    Operating
     earnings          $      1.12   $      0.98   $      3.69   $      3.04
    Capital gains
     and other items,
     net of tax              (0.11)         0.01          1.11          0.09
                       -----------   -----------   -----------   -----------
    Net earnings       $      1.01   $      0.99   $      4.80   $      3.13
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------
    Diluted weighted
     average number
     of shares
     outstanding
     (in millions)            65.7          65.7          65.7          65.7
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------
    Annualized
     dividends per
     share             $      0.66   $      0.60
                       -----------   -----------
                       -----------   -----------


    Dividend Declaration

    The Board of Directors declared a quarterly dividend of $0.175 per share
on both the Non-Voting Class A shares and the Class B common shares that will
be payable on July 31, 2008 to shareholders of record on July 15, 2008. The
Board also declared regular dividends on the Company's outstanding preferred
shares. The dividends are eligible dividends as defined for the purposes of
the Income Tax Act (Canada) and applicable provincial legislation and,
therefore, qualify for the favourable tax treatment applicable to such
dividends.

    Definition of Non-GAAP Measures

    Certain measures included in this news release do not have a standardized
meaning under Canadian Generally Accepted Accounting Principles ("GAAP") and
therefore may not be comparable to similarly titled measures presented by
other publicly traded companies. The Company includes these measures because
it believes certain investors use these measures as a means of assessing
Empire's financial performance. Empire's definition of the non-GAAP terms are
as follows: (i) funded debt is all interest-bearing debt, and total capital is
calculated as funded debt plus shareholders' equity; (ii) operating earnings
is net earnings before after tax capital gains and other items; (iii)
operating income or EBIT is calculated as operating earnings before minority
interest, interest expense and income taxes; and (iv) same-store sales are
sales from stores in the same location in both reporting periods.

    Sale of Properties to Crombie REIT

    On April 22, 2008, the Company's real estate division closed the sale of a
portfolio of 61 commercial properties representing approximately 3.3 million
square feet of gross leasable area to Crombie REIT. The selling price for the
61 properties was $428.5 million representing an effective capitalization rate
of 8.12 percent before transaction costs.
    Empire received net cash proceeds on closing of approximately $280
million. The difference between the $428.5 million sale price and the net cash
proceeds ultimately received on closing was related to funds used for the
retirement of debt and for additional equity investment in Crombie REIT, in
addition to closing and transaction costs. The net cash proceeds from the
transaction were used by both Empire and its wholly-owned subsidiary, Sobeys,
to repay bank indebtedness.
    Empire realized a gain of $144.3 million on the closing of this
transaction. Under Canadian GAAP, this gain is not included in earnings;
rather the gain represents a reduction in the carrying value of Empire's
investment in Crombie REIT. At the end of fiscal 2008, Empire indirectly
maintained a 47.8 percent ownership interest in Crombie REIT.

    Forward-Looking Statements

    This news release contains forward-looking statements which reflect
management's expectations regarding the Company's objectives, plans, goals,
strategies, future growth, results of operations, performance, 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, and include statements relating to future dividends which
are subject to future results and declaration by the Board of Directors. 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.
    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 other than required
by security regulations.
    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 Management
Discussion and Analysis included in the Company's Annual Report.

    Conference Call Invitation

    The Company will hold an analyst call on Thursday, June 26, 2008 beginning
at 4:00 p.m. ADT (3:00 p.m. Eastern Daylight Time) to discuss its fourth
quarter results. To join this conference call dial 1-800-733-7571 outside of
the Toronto area or 416-644-3414 from within the Toronto area. You may also
listen to a live audio webcast of the conference call by visiting the
Company's website located at www.empireco.ca. Replay will be available by
dialling 1-877-289-8525 or 1-416-640-1917 and entering passcode 21274027#
until midnight July 3, 2008, or on the Company's website for 90 days after the
meeting.

    Fiscal 2008 Annual Report

    The Company's audited consolidated financial statements for the year ended
May 3, 2008 will be available on or before August 1, 2008. Management's
Discussion and Analysis for the year ended May 3, 2008, including further
discussion and analysis of fourth quarter and annual items that affected
results of operations, financial position and cash flows, will also be
available on or before August 1, 2008. Both documents will be contained in the
Company's Fiscal 2008 Annual Report and will be available in the Investor
Relations section of the Company's website at www.empireco.ca, or on the
Canadian Securities Administrators' website at www.sedar.com.

    About Empire

    Empire Company Limited (TSX symbol: EMP.A) is a Canadian company
headquartered in Stellarton, Nova Scotia. Empire's core businesses include
food retailing and related real estate. With over $14 billion in annual
revenue and approximately $5.7 billion in assets, Empire employs approximately
42,000 people directly and through its subsidiaries.


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

                                                         May 3         May 5
                                                          2008          2007
                                                     Unaudited     Unaudited
                                                                    Restated
                                                                     (Note 1)
                                                   -----------   -----------
    ASSETS

    Current
      Cash and cash equivalents                    $     191.4   $     294.9
      Receivables                                        316.3         312.3
      Mortgages, loans and other receivables
       (Note 6)                                           18.7          14.5
      Income taxes receivable                                -           3.6
      Inventories                                        820.2         757.5
      Prepaid expenses                                    62.0          51.4
                                                   -----------   -----------
                                                       1,408.6       1,434.2
    Investments (realizable value $1.6;
     2007 $283.1)                                          1.6         189.7
    Investments, at equity (realizable value
     $429.6; 2007 $434.0) (Note 5)                        41.4         142.8
    Mortgages, loans and other receivables
     (Note 6)                                             56.3          65.1
    Other assets (Note 7)                                175.5         151.7
    Property and equipment (Note 8)                    2,457.3       2,409.1
    Assets held for sale (Note 9)                         60.3          24.1
    Intangibles (less accumulated amortization of
     $21.3; 2007 $11.7)                                  346.8          38.2
    Goodwill                                           1,159.1         786.6
                                                   -----------   -----------
                                                   $   5,706.9   $   5,241.5
                                                   -----------   -----------
                                                   -----------   -----------
    LIABILITIES

    Current
      Bank indebtedness                            $      92.1   $      30.1
      Accounts payable and accrued liabilities         1,322.4       1,260.3
      Income taxes payable                                15.5             -
      Future income taxes                                 32.9          40.4
      Long-term debt due within one year (Note 10)        60.4          82.5
      Liabilities relating to assets held for
       sale (Note 9)                                       6.4           6.8
                                                   -----------   -----------
                                                       1,529.7       1,420.1
    Long-term debt (Note 10)                           1,414.6         792.6
    Employee future benefits obligation                  110.7         102.1
    Future income taxes                                  125.5         130.4
    Other long-term liabilities (Note 11)                106.5          76.6
    Minority interest                                     37.6         588.6
                                                   -----------   -----------
                                                       3,324.6       3,110.4
                                                   -----------   -----------
    SHAREHOLDERS' EQUITY

    Capital stock (Note 12)                              195.7         196.1
    Contributed surplus                                    0.5           0.3
    Retained earnings                                  2,207.6       1,935.3
    Accumulated other comprehensive loss                 (21.5)         (0.6)
                                                   -----------   -----------
                                                       2,382.3       2,131.1
                                                   -----------   -----------
                                                   $   5,706.9   $   5,241.5
                                                   -----------   -----------
                                                   -----------   -----------

    Contingent liabilities (Note 21)

    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 3         May 5
                                                          2008          2007
                                                                    Restated
                                                                     (Note 1)
                                                   -----------   -----------

    Balance, beginning of year as previously
     reported                                      $   1,939.6   $   1,771.0

    Adjustment due to change in accounting
     policy (Note 1)                                      (4.3)            -
                                                   -----------   -----------
    Balance, beginning of year as restated             1,935.3       1,771.0

    Net earnings                                         315.8         205.8

    Dividends
      Preferred shares                                    (0.3)         (0.4)
      Common shares                                      (43.2)        (39.5)

    Premium on common shares purchased for
     cancellation                                            -          (1.6)
                                                   -----------   -----------
    Balance, end of year                           $   2,207.6   $   1,935.3
                                                   -----------   -----------
                                                   -----------   -----------


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


                                                         May 3         May 5
                                                          2008          2007
                                                   -----------   -----------

    Balance, beginning of year (Note 1)            $      (0.6)  $      (1.1)

    Transition adjustment as of May 6, 2007
     (Note 1)                                             77.2             -
                                                   -----------   -----------
    Adjusted balance, beginning of year                   76.6          (1.1)

    Acquired comprehensive loss from purchase
     of minority interest in Sobeys Inc.                  (0.6)            -

    Other comprehensive (loss) income for the
     year                                                (97.5)          0.5
                                                   -----------   -----------
    Balance, end of year                           $     (21.5)  $      (0.6)
                                                   -----------   -----------
                                                   -----------   -----------

    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 3         May 5         May 3         May 5
                              2008          2007          2008          2007
                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                                        Restated                    Restated
                                         (Note 1)                    (Note 1)
                       -----------   -----------   -----------   -----------

    Revenue            $   3,557.8   $   3,350.4   $  14,065.0   $  13,366.7
    Operating
     expenses
      Cost of sales,
       selling and
       administrative
        expenses           3,352.5       3,160.3      13,322.3      12,707.9
      Depreciation
       and amortization       77.2          73.8         304.6         269.2
                       -----------   -----------   -----------   -----------
                             128.1         116.3         438.1         389.6
    Investment income
     (Note 13)                 8.1           7.7          34.5          41.5
                       -----------   -----------   -----------   -----------
    Operating income         136.2         124.0         472.6         431.1
                       -----------   -----------   -----------   -----------
    Interest expense
      Long-term debt          26.4          13.9         100.6          54.1
      Short-term debt          1.1           0.5           5.2           6.0
                       -----------   -----------   -----------   -----------
                              27.5          14.4         105.8          60.1
                       -----------   -----------   -----------   -----------
                             108.7         109.6         366.8         371.0
    Capital gains and
     other items
     (Note 14)               (10.6)          0.9          87.7           7.1
                       -----------   -----------   -----------   -----------
    Earnings before
     income taxes and
     minority interest        98.1         110.5         454.5         378.1
                       -----------   -----------   -----------   -----------
    Income taxes
     (Note 15)
      Current                 21.3          18.7         120.8         104.8
      Future                   9.0          12.9           5.1          12.1
                       -----------   -----------   -----------   -----------
                              30.3          31.6         125.9         116.9
                       -----------   -----------   -----------   -----------
    Earnings before
     minority interest        67.8          78.9         328.6         261.2
    Minority interest          1.3          14.1          12.8          55.4
                       -----------   -----------   -----------   -----------
    Net earnings       $      66.5   $      64.8   $     315.8   $     205.8
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------

    Earnings per share
     (Note 4)
      Basic            $      1.01   $      0.99   $      4.80   $      3.14
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------
      Diluted          $      1.01   $      0.99   $      4.80   $      3.13
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------

    Weighted average number of common
     shares outstanding, in millions
      Basic                   65.6          65.6          65.6          65.6
      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 COMPREHENSIVE INCOME
               ------------------------------------------------
                                PERIODS ENDED
                                -------------
                           (Unaudited, in millions)

                             May 3         May 5         May 3         May 5
                              2008          2007          2008          2007
                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                                        Restated                    Restated
                                         (Note 1)                    (Note 1)
                       -----------   -----------   -----------   -----------

    Net earnings       $      66.5   $      64.8   $     315.8   $     205.8
                       -----------   -----------   -----------   -----------
    Other comprehensive
     income, net of
     income taxes

      Reclassification
       of gains on
       available-for-
       sale financial
       assets to
       earnings                  -             -         (78.7)            -

      Unrealized gains
       (losses) on
       derivatives
       designated
       as cash flow
       hedges                  1.2             -         (14.0)            -

      Reclassification
       of loss on
       derivative
       instruments
       designated
       as cash flow
       hedges to
       earnings               (0.6)            -          (0.6)            -

      Share of
       comprehensive
       loss of
       entities
       accounted
       using the
       equity method          (2.8)            -          (4.6)            -

      Foreign currency
       translation
       adjustment                -           0.8           0.4           0.5
                       -----------   -----------   -----------   -----------
                              (2.2)          0.8         (97.5)          0.5
                       -----------   -----------   -----------   -----------
    Comprehensive
     income            $      64.3   $      65.6   $     218.3   $     206.3
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------

    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 3         May 5         May 3         May 5
                              2008          2007          2008          2007
                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                                        Restated                    Restated
                                         (Note 1)                    (Note 1)
                       -----------   -----------   -----------   -----------

    Operating Activities
      Net earnings     $      66.5   $      64.8   $     315.8   $     205.8
      Items not
       affecting cash
       (Note 16)             105.7         127.7         354.1         382.6
      Preferred
       dividends                 -          (0.1)         (0.3)         (0.4)
                       -----------   -----------   -----------   -----------
                             172.2         192.4         669.6         588.0
      Net change in
       non-cash
       working
       capital                92.0          84.0         (26.1)       (149.2)
                       -----------   -----------   -----------   -----------
    Cash flows from
     operating
     activities              264.2         276.4         643.5         438.8
                       -----------   -----------   -----------   -----------

    Investing Activities
      Net (increase)
       decrease in
       investments           (54.2)          5.6         138.3         185.4
      Purchase of
       shares in
       subsidiary,
       Sobeys Inc.
       (Note 2)                  -             -      (1,065.7)        (48.6)
      Proceeds from
       sale of
       property to
       Crombie REIT
       (Note 3)              373.5             -         373.5             -
      Purchase of
       property and
       equipment            (150.3)       (141.3)       (549.4)       (508.9)
      Proceeds on
       disposal of
       property and
       equipment              21.6          11.7          52.2          68.9
      Mortgages,
       loans and
       other
       receivables             2.6           2.1           4.6           5.1
      Decrease
       (increase)
       in other assets         5.4         (21.8)        (57.8)        (30.8)
      Business
       acquisitions,
       net of cash
       acquired of
       $10.2 (Note 19)        13.1          (5.6)       (263.2)        (95.9)
                       -----------   -----------   -----------   -----------
    Cash flows from
     (used in)
     investing
     activities              211.7        (149.3)     (1,367.5)       (424.8)
                       -----------   -----------   -----------   -----------

    Financing Activities
      Increase
       (decrease)
       in bank
       indebtedness           35.0          (8.9)         62.0         (68.5)
      Increase
       (decrease) in
       construction
       loans                     -           1.2          (1.1)          1.2
      Issue of
       long-term debt         20.6          20.7       1,099.8         159.6
      Repayment of
       long-term debt       (445.9)        (32.0)       (507.5)       (103.0)
      Minority interest       (6.3)         (6.7)         11.1          (8.3)
      Repurchase of
       preferred
       shares                 (0.1)            -          (1.0)         (0.8)
      Issue of
       Non-Voting
       Class A shares            -             -           0.4           1.0
      Repurchase of
       Non-Voting
       Class A shares            -             -             -          (1.9)
      Common dividends       (10.9)         (9.9)        (43.2)        (39.5)
                       -----------   -----------   -----------   -----------
    Cash flows (used in)
     from financing
     activities             (407.6)        (35.6)        620.5         (60.2)
                       -----------   -----------   -----------   -----------
    Increase (decrease)
     in cash and cash
     equivalents              68.3          91.5        (103.5)        (46.2)
    Cash and cash
     equivalents,
     beginning of period     123.1         203.4         294.9         341.1
                       -----------   -----------   -----------   -----------
    Cash and cash
     equivalents,
     end of period     $     191.4   $     294.9   $     191.4   $     294.9
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------

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


                           EMPIRE COMPANY LIMITED
                           ----------------------
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               ----------------------------------------------
                                 MAY 3, 2008
                                 -----------
             (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 5, 2007, as set out in the 2007 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
2007 annual consolidated financial statements except as noted below:

    Adopted during fiscal 2008

       Accounting changes

       In July 2006, the Canadian Institute of Chartered Accountants ("CICA")
       issued Section 1506 of the CICA Handbook, "Accounting Changes", which
       describes the criteria for changing accounting  policies, along with
       the accounting and disclosure for changes in accounting policies,
       changes in accounting estimates and correction of errors. These
       changes came into effect for fiscal periods beginning on or after
       January 1, 2007 and were applicable as of the Company's first quarter
       of fiscal 2008.

       Financial instruments

       On May 6, 2007, the Company implemented the CICA Handbook Sections
       3855, "Financial Instruments - Recognition and Measurement", 3865,
       "Hedges", 1530, "Comprehensive Income", 3251, "Equity", and 3861,
       "Financial Instruments - Disclosure and Presentation". These standards
       have been applied without restatement of prior periods. The
       transitional adjustments resulting from these standards are recognized
       in the opening balances of retained earnings and accumulated other
       comprehensive income.

       Section 3855 requires the Company to initially recognize all of its
       financial assets and liabilities, including derivatives and embedded
       derivatives in certain contracts, at fair value adjusted on transition
       as appropriate, and measured subsequently in accordance with the
       classification chosen. Non-financial derivatives must be recorded at
       fair value on the consolidated balance sheet unless they are exempt
       from derivative treatment based upon expected purchase, sale or usage
       requirements.

       This standard also requires the Company to classify financial assets
       and liabilities according to their characteristics and management's
       choices and intentions related thereto for the purpose of ongoing
       measurements. Classification choices for financial assets include:
       a) held for trading - measured at fair value with changes in fair
       value recorded in net earnings; b) held to maturity - recorded at
       amortized cost with gains and losses recognized in net earnings in the
       period that the asset is derecognized or impaired; c) available-for-
       sale - measured at fair value with changes in fair value recognized in
       other comprehensive income for the current period until realized
       through disposal or impairment; and d) loans and receivables -
       recorded at amortized cost with gains and losses recognized in net
       earnings in the period that the asset is no longer recognized or
       impaired. Classification choices for financial liabilities include:
       a) held for trading - measured at fair value with changes in fair
       value recorded in net earnings and b) other - measured at amortized
       cost with gains and losses recognized in net earnings in the period
       that the liability is no longer recognized. Subsequent measurement for
       these assets and liabilities are based on either fair value or
       amortized cost using the effective interest method, depending upon
       their  classification. Any financial asset or liability can be
       classified as held for trading as long as its fair value is reliably
       determinable.

       In accordance with the new standard, the Company's financial assets
       and liabilities are generally classified and measured as follows:

       Asset/ Liability              Classification           Measurement
       ----------------              --------------           -----------
       Cash                          Held for trading         Fair value
       Cash equivalents              Held for trading         Fair value
       Receivables                   Loans and receivables    Amortized cost
       Mortgages, loans and other
        receivables                  Loans and receivables    Amortized cost
       Investments                   Available-for-sale       Fair value
       Derivative other assets
        and liabilities              Held for trading         Fair value
       Non-derivative other
        assets and liabilities       Held to maturity         Amortized cost
       Bank indebtedness             Other liabilities        Amortized cost
       Accounts payable and
        accrued liabilities          Other liabilities        Amortized cost
       Long-term debt                Other liabilities        Amortized cost


       Other balance sheet accounts, including, but not limited to,
       inventories, prepaid expenses, investments (at equity), property and
       equipment, assets held for sale, intangibles, goodwill, current and
       long-term future income taxes, employee future benefits obligation and
       minority interest are not within the scope of the new accounting
       standards as they are not financial instruments.

       Transaction costs other than those related to financial instruments
       classified as held for trading, which are expensed as incurred, are
       added to the fair value of the financial asset or financial liability
       on initial recognition and amortized using the effective interest
       method.

       Embedded derivatives are required to be separated and measured at fair
       values if certain criteria are met. Under an election permitted by the
       new standard, management reviewed contracts entered into or modified
       subsequent to May 3, 2003 and determined that the Company does not
       currently have any significant embedded derivatives in its contracts
       that require separate accounting treatment.

       Section 3855 also requires that obligations undertaken through
       issuance of a guarantee that meets the definition of a guarantee
       pursuant to Accounting Guideline 14, "Disclosure of Guarantees", be
       recognized at fair value at inception. No subsequent re-measurement at
       fair value is required unless the financial guarantee qualifies as a
       derivative. Management reviewed and determined that identified
       guarantees were immaterial.

       The fair value of a financial instrument is the amount of the
       consideration that would be agreed upon in an arm's length transaction
       between knowledgeable, willing parties who are under no compulsion to
       act. To estimate the fair value of each type of financial instrument
       various market value data and other valuation techniques were used as
       appropriate. The fair value of cash approximated its carrying value.
       The fair value of currency swaps was estimated based on discounting of
       the forward rate at the reporting date compared to the forward rate in
       the contract. The fair value of interest rate swaps was estimated by
       discounting net cash flows of the swaps using forward interest rates
       for swaps of the same remaining maturities. The fair value of energy
       contracts was estimated based on changes in forward commodity rates.

       Hedges

       Section 3865 replaces Accounting Guideline 13, "Hedging
       Relationships". The requirements for identification, designation,
       documentation and assessment of effectiveness of hedging relationships
       remain substantially unchanged. Section 3865 addresses the accounting
       treatment of qualifying hedging relationships and the necessary
       disclosures and also requires all derivatives in hedging relationships
       to be recorded at fair value.

       The Company has cash flow hedges which are used to manage exposure to
       fluctuations in foreign currency exchange, variable interest rates and
       energy prices. For cash flow hedges, the effective portion of the
       change in fair value of the hedging item is recorded in other
       comprehensive income. To the extent the change in fair value of the
       derivative is not completely offset by the change in fair value of the
       hedged item, the ineffective portion of the hedging relationship is
       recorded immediately in net earnings. Amounts accumulated in other
       comprehensive income are reclassified to net earnings when the hedged
       item is recognized in net earnings. When a hedging instrument in a
       cash flow hedge expires or is sold, or when a hedge no longer meets
       the criteria for hedge accounting, any cumulative gain or loss in
       accumulated other comprehensive income relating to the hedge is
       carried forward until the hedged item is recognized in net earnings.
       When the hedged item ceases to exist as a result of its expiry or
       sale, or if an anticipated transaction is no longer expected to occur,
       the cumulative gain or loss in accumulated other comprehensive income
       is immediately reclassified to net earnings.

       Significant derivatives include the following:

       (1) Foreign currency forward contracts for the primary purpose of
       limiting exposure to exchange rate fluctuations relating to
       expenditures denominated in foreign currencies. These contracts are
       designated as hedging instruments for accounting purposes.
       Accordingly, the effective portion of the change in the fair value of
       the forward contracts are accumulated in other comprehensive income
       until the variability in cash flows being hedged is recognized in
       earnings in future accounting periods.

       (2) Electricity contracts to manage the cost of electricity designated
       as cash flow hedges of anticipated transactions. The portion of gain
       or loss on derivative instruments designated as cash flow hedges that
       are deferred in accumulated other comprehensive income is reclassified
       into other income/expense when the product containing the hedged item
       impacts earnings. Hedge ineffectiveness was immaterial for the current
       fiscal year.

       (3) Interest rate swaps designated as cash flow hedges to manage
       variable interest rates associated with some of the Company's debt
       portfolio. Hedge accounting treatment results in interest expense on
       the related debt being reflected at hedged rates rather than variable
       interest rates.

       Comprehensive income

       In accordance with Section 1530 the Company has reported a new
       financial statement entitled "Consolidated Statements of Comprehensive
       Income", which is comprised of net earnings and other comprehensive
       income. Other comprehensive income represents the change in
       shareholders' equity from transactions and other events from non-owner
       sources and includes unrealized gains and losses on financial assets
       that are classified as available-for-sale, and changes in the fair
       value of the effective portion of cash flow hedging instruments. The
       accumulated other comprehensive income (i.e. the portion of
       comprehensive income not already included in net earnings) is being
       presented as a separate line in shareholders' equity. In accordance
       with the new standard, $0.6 relating to unrealized losses resulting
       from translation of self-sustaining foreign operations which had
       previously been classified as cumulative translation adjustment within
       shareholders' equity is now presented within accumulated other
       comprehensive income.

       Equity

       Section 3251 which replaced Section 3250, "Surplus", establishes
       standards for the presentation of equity and changes in equity during
       the reporting period and requires the Company to present separately
       equity components and changes in equity arising from i) net earnings;
       ii) other comprehensive income; iii) other changes in retained
       earnings; iv) changes in contributed surplus; v) changes in share
       capital; and vi) changes in reserves.

       Financial instruments - disclosure and presentation

       Section 3861 which replaces 3860, of the same title, establishes
       standards for the presentation of financial instruments and non-
       financial derivatives, and identifies the information that should be
       disclosed about them.

       The following table summarizes the transition adjustments recorded
       upon implementation:
                                                                  Transition
                                                                 Adjustments
       ---------------------------------------------------------------------
       Consolidated Balance Sheet
       Investments                                               $      94.4
       Other assets                                                     (4.5)
       Other liabilities                                                 2.5
       Long-term debt                                                    2.7
       Future income taxes                                             (18.5)
       Minority interest                                                 0.6
       Accumulated other comprehensive income                          (77.2)
       ---------------------------------------------------------------------

       Deferred charges

       The Company adopted CICA Section 3855 effective as of the first
       quarter of fiscal 2008. Concurrent with the issuance of this section,
       Section 3070, "Deferred Charges", was withdrawn. As a result, the
       Company reviewed its deferred costs classifications included with
       other assets and determined the following changes were necessary:

         Deferred store marketing

           Deferred store marketing costs, primarily comprised of store
           renovation and expansion costs, were reclassified and included
           with equipment, fixtures and vehicles as part of the Company's
           property and equipment balance sheet group. Prior year balances
           were reclassified which resulted in an increase in property and
           equipment and a decrease in other assets of $106.2 at May 5, 2007
           as well as an increase in depreciation expense and decrease in
           cost of sales, selling and administrative expenses of $25.3 for
           the year ended May 5, 2007. There is no impact on net earnings or
           earnings per share as a result of this change.

         Deferred repositioning costs

           Effective for the first quarter of fiscal 2008, the Company
           changed its accounting policy for the treatment of certain
           deferred costs associated with major repositioning or branding
           efforts of the Company. Due to the withdrawal of the primary
           source of GAAP, Section 3070, the Company looked to other sources
           of existing and proposed GAAP for guidance in determining its
           future policy for such costs. Based on this review, the Company
           determined, in setting the new policy, that it would be more
           appropriate to expense these types of costs in the period incurred
           as it provides more relevant information on expenditures
           associated with repositioning and branding efforts.

           This change in accounting policy was applied retrospectively
           resulting in a $9.1 decrease in other assets, a $3.2 decrease in
           long-term future tax liabilities, and a $4.3 decrease in earnings
           (net of minority interest of $1.6) at May 5, 2007. The effect for
           the year ended May 5, 2007 is a $9.1 increase in cost of sales,
           selling and administrative expenses, a $3.2 decrease in income
           taxes and a $0.06 decrease in basic and diluted earnings per
           share. The effect for the year ended May 3, 2008 is a
           $3.6 decrease in cost of sales, selling and administrative
           expenses, a $1.2 increase in income taxes and an increase in basic
           and diluted earnings of $0.04 per share.

    Adopted during fiscal 2007

       Vendor consideration

       During the first quarter of fiscal 2007, the Company implemented, on a
       retroactive basis, Emerging Issues Committee Abstract 156 ("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
       sales and cost of sales, selling and administrative expenses. As
       reclassifications, these changes did not impact net earnings or
       earnings per share.

    Future changes in accounting policies

       Inventories

       In June 2007, the CICA issued 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.
       This 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
       has evaluated the impact of this new standard and does not expect the
       adoption of this standard to have a significant impact on its
       financial statement disclosures and statement of earnings.

       Capital disclosures

       In October 2006, the CICA issued Section 1535, "Capital Disclosures".
       This section establishes standards for disclosing information about an
       entity's capital and how it is managed. The standard is effective for
       interim and annual financial statements relating to fiscal years
       beginning on or after October 1, 2007 and is applicable for the
       Company's first quarter of fiscal 2009. The Company does not expect
       that the adoption of this standard will have a significant impact on
       its financial statement disclosures.

       Financial instruments - disclosure and financial instruments -
       presentation

       Section 3862, "Financial Instruments - Disclosure" and Section 3863,
       "Financial Instruments - Presentation", replace Section 3861,
       "Financial Instruments - Disclosure and Presentation". Section 3862
       requires increased disclosures regarding the risks associated with
       financial instruments such as credit risk, liquidity risk and market
       risks and the techniques used to identify, monitor and manage these
       risks. Section 3863 carries forward standards for presentation of
       financial instruments and non-financial derivatives and provides
       additional guidance for the classification of financial instruments
       between liabilities and equity. These standards are effective for
       interim and annual financial statements relating to fiscal years
       beginning on or after October 1, 2007 and are applicable for the
       Company's first quarter of fiscal 2009. The Company does not expect
       the adoption of these standards to have a significant impact on its
       financial disclosures and results of operations.

       Goodwill and intangible assets

       In February 2008, the CICA issued Section 3064, "Goodwill and
       Intangible Assets", which replaced existing Section 3062, "Goodwill
       and Other Intangible Assets" and Section 3450, "Research and
       Development'. The new standard provides guidance on the recognition,
       measurement, presentation and disclosure of goodwill and intangible
       assets. This standard is effective for interim and annual financial
       statements relating to fiscal years beginning on or after October 1,
       2008 and is applicable for the Company's first quarter of fiscal 2010.
       The Company is currently evaluating the impact of this new standard.

       International financial reporting standards

       In January 2006, the Canadian Accounting Standards Board announced its
       decision requiring all publicly accountable entities to report under
       International Financial Reporting Standards. This decision establishes
       standards for financial reporting with increased clarity and
       consistency in the global marketplace. These standards are effective
       for interim and annual financial statements relating to fiscal years
       beginning on or after January 1, 2011 and are applicable for the
       Company's first quarter of fiscal 2012. The Company is currently
       evaluating the impact of these new standards.

    Cash and cash equivalents

    Cash and cash equivalents are defined as cash, treasury bills and
guaranteed investments with a maturity less than 90 days at date of
acquisition.

    Inventories

    Warehouse inventories are valued at the lower of cost and net realizable
value with cost being determined on a first-in, first-out or a moving average
basis. Retail inventories are valued at the lower of cost and net realizable
value. Cost is determined using moving average cost 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.

    Property and equipment

    Property and equipment is recorded at net book value, being original cost
less accumulated depreciation and any writedowns for impairment.

    Depreciation on real estate buildings is calculated using the
straight-line method with reference to each property's book value, its
estimated useful life (not exceeding 40 years) and its residual value.
Deferred leasing costs are amortized over the terms of the related leases.

    Depreciation of other property and equipment is recorded on a
straight-line basis over the estimated useful lives of the assets as follows:

       Equipment, fixtures and vehicles                         3 - 20 years
       Buildings                                               10 - 40 years
       Leasehold improvements          Lesser of lease term and 7 - 10 years

    Property and equipment is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of property and
equipment may not be recoverable. The assets are impaired when the carrying
value exceeds the sum of the undiscounted future cash flows expected from use
and eventual disposal. If property and equipment is determined to be impaired,
the impairment loss is measured at the excess of the carrying value over fair
value.

    Assets to be disposed are classified as held for sale and are no longer
depreciated. Assets held for sale are recognized at the lower of book value
and fair value less cost of disposal.

    The Company follows the full cost method of accounting for its exploration
and development of petroleum and natural gas reserves. Costs initially
capitalized are depleted and depreciated using the unit-of-production method
based on production volumes, before royalties, in relation to the Company's
share of estimated proved petroleum and natural gas reserves.

    Capitalization of costs

       Construction projects

       Certain subsidiary companies and joint ventures capitalize interest
       during the construction period until the project opening date. The
       amount of interest capitalized to construction in progress in the
       current year was $1.5 (2007 - $1.5).

       Commercial properties

       Certain subsidiaries and joint ventures capitalize the direct carrying
       and operating costs applicable to the unleased areas of each new
       project for a reasonable period from the project opening date until a
       certain level of occupancy is reached. No amounts were capitalized in
       fiscal 2007 or 2008.

       Development properties and land held for future development

       A subsidiary company capitalizes interest, real estate taxes and other
       expenses to the extent that they relate to properties for immediate
       development. To the extent that the resulting carrying value exceeds
       its fair market value, the excess is charged against income. The
       carrying costs on the balance of properties held for future
       development are capitalized as incurred. An amount of $0.8
       (2007 - $0.7) was capitalized during the year.

    Leases

    Leases meeting certain criteria are accounted for as capital leases. The
imputed interest is charged against income. If the lease contains a term that
allows ownership to pass to the Company, or there is a bargain purchase
option, the capitalized value is depreciated over the estimated useful life of
the related asset. Otherwise the capitalized value is depreciated on a
straight-line basis over the lesser of the lease term and its estimated useful
life. Capital lease obligations are included in the long-term debt of the
Company and are reduced by rental payments net of imputed interest. All other
leases are accounted for as operating leases.

    Lease allowances and incentives received are recorded as other long-term
liabilities and amortized as a reduction of lease expense over the term of the
lease. Real estate lease expense is amortized straight-line over the entire
term of the lease including free rent periods related to store fixturing. A
store fixturing period varies by store but is generally considered to be one
month prior to the store opening.

    Goodwill

    Goodwill represents the excess of the purchase price of the business
acquired over the fair value of the underlying net tangible and intangible
assets acquired at the date of acquisition.

    Goodwill and intangible assets with indefinite useful lives are not
amortized but rather are subject to an annual impairment review or more
frequently if circumstances exist that might indicate their fair value is
impaired. Should the carrying value exceed the fair value of goodwill or
intangible assets (e.g. trademarks) the carrying value will be written down to
the fair value.

    Intangibles

    Intangibles arise on the purchase of a new business, existing franchises
and the acquisition of pharmacy prescription files. Amortization is recorded
on limited life intangibles on a straight-line basis, over the estimated
useful life of the intangible as follows:

       Franchise rights/agreements                             10 - 20 years
       Brand names                                             10 - 15 years
       Patient files                                                10 years
       Other                                                    5 - 23 years

    Assets held for sale

    Certain land and buildings have been listed for sale and reclassified as
"Assets held for sale" in accordance with CICA Handbook Section 3475,
"Disposal of Long-lived Assets and Discontinued Operations". These assets are
expected to be sold within a twelve month period. Assets held for sale are
valued at the lower of book value and fair value less cost of disposal.
Liabilities assumed upon sale of assets or debts to be repaid as part of a
sale transaction are also classified as "Liabilities relating to assets held
for sale".

    Store opening expenses

    Opening expenses of new stores and store conversions are written off on a
straight-line basis during the first year of operation.

    Future income taxes

    The difference between the tax basis of assets and liabilities and their
carrying value on the balance sheet is used to calculate future tax assets and
liabilities. The future tax assets and liabilities have been measured using
substantively enacted tax rates that will be in effect when the differences
are expected to reverse.

    Deferred revenue

    Deferred revenue consists of long-term supplier purchase agreements,
rental revenue arising from the sale of subsidiaries and gains on sale
leaseback transactions. Deferred revenue is being taken into income on a
straight-line basis over the term of the related agreements and included in
other long-term liabilities.

    Foreign currency translation

    Assets and liabilities of self-sustaining foreign investments are
translated at exchange rates in effect at the balance sheet date. The revenues
and expenses are translated at average exchange rates for the year. Cumulative
gains and losses on translation are shown in accumulated other comprehensive
income.

    Other assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at the foreign currency exchange rate in
effect at each period end date. Exchange gains or losses arising from the
translation of these balances denominated in foreign currencies are recognized
in operating income. Revenues and expenses denominated in foreign currencies
are translated into Canadian dollars at the average exchange rate for the
period.

    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 plan amendments and increases in the obligation related to
past service is amortized on a straight-line basis over the expected average
remaining service life ("EARSL") of active members, except for the Company's
Supplemental Executive Retirement Plan for which the impact is amortized over
no more than 5 years. 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.

    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 "Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor". 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 3,
2008, the Company recognized $5.1 (2007 - $2.4) of allowances in income where
it is probable that the minimum purchase level will be met and the amount of
allowance can be estimated.

    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, valuation of
asset-backed commercial paper and income taxes. Changes to these estimates
could materially impact the financial statements. These estimates are based on
management's knowledge of current events and actions that the Company may
undertake in the future. Actual results could differ from these estimates.

    Earnings per share

    Earnings per share is calculated by dividing the earnings available to
common shareholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is determined based on
the treasury stock method which assumes that all outstanding stock options
with an exercise price below the average market price are exercised and the
assumed proceeds are used to purchase the Company's common shares at the
average market price during the year.

    2. Privatization of Sobeys Inc.

    On April 26, 2007, the Company and Sobeys Inc. ("Sobeys") 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 that it did not then own at a price of
$58.00 per share.

    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, at which time the
Company acquired all the outstanding shares of Sobeys that it did not
previously own. 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.

    The acquisition was accounted for using the purchase method with operating
results being included in the consolidated financial statements since the
acquisition date. 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 previous quarters of fiscal 2008. The
measurement and allocation of finite and infinite intangible assets and
goodwill was completed during the fourth quarter of fiscal 2008. The final
purchase price allocation, incorporating management's assessment of fair
value, is as follows:

      Consideration
        Cash                                                     $   1,061.7
        Acquisition costs                                                4.0
                                                                 -----------
        Total consideration paid                                     1,065.7

      Carrying amount of net assets acquired                           576.5
                                                                 -----------
      Excess consideration paid over net assets acquired         $     489.2
                                                                 -----------
                                                                 -----------

      Allocation of excess consideration paid over net
       assets acquired
        Property and equipment                                   $      81.7
        Accrued benefit asset                                          (13.1)
        Employee future benefits obligation                             (3.8)
        Amortizable intangible assets                                   49.9
        Indefinite-life intangible assets                              243.7
        Goodwill                                                       165.2
        Future income taxes                                            (35.0)
        Accumulated other comprehensive loss                             0.6
                                                                 -----------
                                                                 $     489.2
                                                                 -----------
                                                                 -----------

    The acquisition was financed by funds of $278.0, received primarily from
sale of certain portfolio investments, and by advances of $787.7 under new
credit facilities (see Note 10).


    3. Sale of Property to Crombie REIT

    On April 22, 2008, the Company's real estate segment sold 61 commercial
properties to Crombie Real Estate Investment Trust ("Crombie REIT"). Included
in the proceeds were additional Class B Units of Crombie REIT (which are
convertible on a one for one basis into Units of Crombie REIT). The investment
in Class B Units will maintain the Company's interest in Crombie REIT at
47.8%. The Company's investment in Crombie REIT is accounted for using the
equity method. Under Canadian GAAP, the gain on sale was not included in net
earnings; rather the gain (net of income taxes) reduced the carrying value of
the Company's equity investment in Crombie REIT. Details of the sale are as
follows:

      Proceeds
        Cash                                                     $     373.5
        Investment in Crombie REIT                                      55.0
                                                                 -----------
                                                                       428.5
                                                                 -----------

      Book value of property and equipment sold                        238.9
        Early extinguishment of long-term debt                          18.5
        Transaction costs                                                6.5
        Other costs                                                     12.5
                                                                 -----------
                                                                       276.4
                                                                 -----------

      Gain before income taxes and deferral                            152.1
      Income taxes
        Current                                                         27.0
        Future                                                         (19.2)
                                                                 -----------
                                                                         7.8
                                                                 -----------

      Gain before deferral                                             144.3

      Deferral of gain                                                (144.3)
                                                                 -----------
      Net gain                                                   $       Nil
                                                                 -----------
                                                                 -----------

    As part of the transaction, Sobeys entered into new lease agreements (the
"Sobeys Leases") with respect to their occupancy in a portion of the
61 commercial properties. The Sobeys Leases have terms of between 17 and
23 years (except for 3 leases which have an outside date of 12 years) (the
"Outside Dates"). Each Sobeys Lease is based on an initial term of two years
and thereafter alternating between successive periods of three years and two
years until the applicable Outside Date. The Outside Date may be extended at
Sobeys' option by up to four consecutive further periods of five years each.
The minimum rents under the Sobeys Leases will range from $8 per square foot
to $14 per square foot with rental increases every five years.


    4. Earnings Per Share

    Earnings applicable to common shares is comprised of the following:

                              2008          2007          2008          2007
                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                                        Restated                    Restated
                                         (Note 1)                    (Note 1)
                       -----------   -----------   -----------   -----------
    Operating earnings $      73.6   $      64.1   $     242.8   $     200.1
    Capital gains and
     other items, net
     of income taxes
     of $(3.5); $0.2;
     $14.7; $1.4              (7.1)          0.7          73.0           5.7
                       -----------   -----------   -----------   -----------
    Net earnings              66.5          64.8         315.8         205.8
    Preferred share
     dividends                   -          (0.1)         (0.3)         (0.4)

    Earnings applicable
     to common shares  $      66.5   $      64.7   $     315.5   $     205.4
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------

    Earnings per share is comprised of the following:

    Operating earnings $      1.12   $      0.98   $      3.69   $      3.05
    Capital gains and
     other items             (0.11)         0.01          1.11          0.09
                       -----------   -----------   -----------   -----------
    Basic earnings
     per share         $      1.01   $      0.99   $      4.80   $      3.14
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------

    Operating earnings $      1.12   $      0.98   $      3.69   $      3.04
    Capital gains and
     other items             (0.11)         0.01          1.11          0.09
                       -----------   -----------   -----------   -----------

    Diluted earnings
     per share         $      1.01   $      0.99   $      4.80   $      3.13
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------


    5. Investments, at Equity
                                                         May 3         May 5
                                                          2008          2007
                                                   -----------   -----------
    Wajax Income Fund (27.6% interest)             $      31.6   $      32.2
    Crombie REIT (47.8% interest)                          9.5         109.3
    U.S. residential real estate partnerships              0.3           1.3
                                                   -----------   -----------
                                                   $      41.4   $     142.8
                                                   -----------   -----------
                                                   -----------   -----------

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

                                                         May 3         May 5
                                                          2008          2007
                                                   -----------   -----------
      Balance, beginning of year                   $      32.2   $      33.1
      Equity earnings                                     19.7          20.6
      Share of comprehensive loss                         (0.2)            -
      Distributions received                             (20.1)        (21.5)
                                                   -----------   -----------
      Balance, end of year                         $      31.6   $      32.2
                                                   -----------   -----------
                                                   -----------   -----------

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

                                                         May 3         May 5
                                                          2008          2007
                                                   -----------   -----------
      Balance, beginning of year                   $     109.3   $     112.8
      Equity earnings                                     13.6          11.6
      Share of comprehensive loss                         (6.8)            -
      Distributions received                             (17.0)        (15.1)
      Interest received in Crombie REIT                   55.0             -
      Deferral of gains on sale of property             (144.6)            -
                                                   -----------   -----------
      Balance, end of year                         $       9.5   $     109.3
                                                   -----------   -----------
                                                   -----------   -----------


    6. Mortgages, Loans and Other Receivables


                                                         May 3         May 5
                                                          2008          2007
                                                   -----------   -----------
    Loans receivable                               $      58.1   $      62.7
    Mortgages receivable                                   0.6           0.6
    Other                                                 16.3          16.3
                                                   -----------   -----------
                                                          75.0          79.6
    Less amount due within one year                       18.7          14.5
                                                   -----------   -----------

                                                   $      56.3   $      65.1
                                                   -----------   -----------
                                                   -----------   -----------
    Loans receivable

    Loans receivable represent long-term financing to certain retail
associates. These loans are primarily secured by inventory, fixtures and
equipment, bear various interest rates and have repayment terms up to ten
years. The carrying amount of the loans receivable approximates fair value
based on the variable interest rates charged on the loans and the operating
relationship of the associates with the Company.


    7. Other Assets

                                                         May 3         May 5
                                                          2008          2007
                                                   -----------   -----------

    Deferred financing costs                       $       0.6   $       7.0
    Deferred purchase agreements                          35.9          31.1
    Accrued benefit asset                                 58.2          68.4
    Asset-backed commercial paper                         22.5             -
    Restricted cash                                        3.9           5.7
    Derivative assets                                      2.3             -
    Other                                                 52.1          39.5
                                                   -----------   -----------
                                                   $     175.5   $     151.7
                                                   -----------   -----------
                                                   -----------   -----------

    Asset-backed commercial paper

    As of May 3, 2008, the Company held third-party asset-backed commercial
paper ("ABCP") with an original cost of $30.0 that was in default. The ABCP
was rated by the Dominion Bond Rating Service ("DBRS") as R-1 (high), the
highest credit rating for commercial paper since the ABCP are backed by AAA
(high) rated assets. The $30.0 of ABCP held by the Company is entirely made up
of collateralized debt obligations. Collateralized debt obligations are a type
of asset-backed security that is created by a portfolio of fixed-income assets
which may include pools of bonds, credit card debt, commercial mortgage-backed
securities and other loans.
    In the second quarter of fiscal 2008, a global disruption in the market
for such commercial paper resulted in a constraint on the liquidity of ABCP.
DBRS placed certain of the ABCP "under Review with Developing Implications"
following an announcement on August 16, 2007 that a consortium representing
banks, asset providers and major investors had agreed in principle to a
long-term proposal and interim agreement regarding the ABCP (commonly referred
to as "the Montreal Proposal"). On September 6, 2007 a pan-Canadian committee
("the Committee") consisting of major investors was formed to oversee the
proposed restructuring process of the ABCP. As of May 3, 2008, all of the ABCP
held by the Company were part of the Montreal Proposal. Under this proposal,
the affected ABCP would be converted into term floating rate notes maturing no
earlier than the scheduled termination dates of the underlying assets. The
Montreal Proposal called for the investors to continue to roll their ABCP
during the standstill period.
    On December 23, 2007, a formal restructuring proposal was established to
address the global disruption experienced with third-party ABCP. On April 25,
2008, note holders voted in favour of the restructuring proposal, which will
provide investors with new long-term notes that will more closely match the
maturity dates of the underlying assets and the cash flows they are expected
to generate and was approved on June 5, 2008 by the Ontario Superior Court of
Justice.
    On March 20, 2008, the Committee issued an Information Statement
containing details about the proposed restructuring. Based on this and other
public information it is estimated that the $30.0 of ABCP in which the Company
has invested in is represented by a combination of leveraged collateralized
debt, synthetic assets and traditional securitized assets and the Company
will, on restructuring, receive replacement senior Class A-1 and Class A-2 and
subordinate Class B and Class C long-term floating rate notes with maturities
of approximately eight years and nine months.

    The Company expects to receive replacement notes with par values as
follows:

      Class A-1                                                  $       8.2
      Class A-2                                                         17.8
      Class B                                                            3.1
      Class C                                                            0.9
                                                                 -----------
                                                                 $      30.0
                                                                 -----------
                                                                 -----------


    The replacement notes are expected to obtain an AA rating while the
replacement subordinate notes are likely to be unrated.
    The valuation technique used by the Company to estimate the fair value of
its investment in ABCP at May 3, 2008, incorporates probability weighted
discounted cash flows considering the best available public information
regarding market conditions, prevailing yields, credit spreads and other
factors that a market participant would consider for such investments. The
assumptions used in determining the estimated fair value reflect the details
included in the Information Statement issued by the Committee and the risks
associated with the long-term floating rate notes.
    Interest rates and credit losses vary by each of the different replacement
long-term floating rate notes to be issued as each has different credit
ratings and risks. Interest rates and credit losses also vary by the different
probable cash flow scenarios that have been modeled.
    Discount rates vary dependent upon the credit rating of the replacement
long-term floating rate notes. Discount rates have been estimated using
Government of Canada benchmark rates plus expected spreads for similarly rated
instruments with similar maturities and structure. An increase in the
estimated discount rates of 1 percent would reduce the estimated fair value of
the Company's investment in ABCP by approximately $5.0.
    Maturities vary by different replacement long-term floating rate notes as
a result of the expected maturity of the underlying assets.
    These investments were initially and continue to be classified as
held-to-maturity instruments by the Company and are carried at an amortized
cost. Due to the lack of liquidity and a yield on these instruments, a pre-tax
impairment loss of $7.5 (25 percent of the original cost) was recorded during
fiscal 2008. It is possible that the amount ultimately recovered may differ
from the estimate. The Company continues to investigate the implications of
the default and the remedies available. In addition, these investments have
been reclassified as long-term under other assets rather than current assets
due to the uncertainty as to the timing of collection.
    Continuing uncertainties regarding the value of assets which underlie the
ABCP, the amount and timing of cash flows and the outcome of the restructuring
process could give rise to a further material change in the value of the
Company's investment in ABCP which could impact the Company's near term
earnings.
    The Company believes it has sufficient credit facilities to satisfy its
financial obligations as they come due and does not expect there will be a
material adverse impact on its business as a result of this current
third-party ABCP liquidity issue.

    Cash flow hedges

    Financial derivatives assigned as part of a cash flow hedging relationship
are classified as either an other asset or other liability as required based
on their fair value determination.


    8. Property and Equipment


                                                   Accumulated   May 3, 2008
                                            Cost  Depreciation      Net Book
                                                                       Value
                                     -----------   -----------   -----------
    Food segment
      Land                           $     261.6   $         -   $     261.6
      Land held for development             61.7             -          61.7
      Buildings                            839.0         206.6         632.4
      Equipment, fixtures
       and vehicles                      2,281.4       1,449.8         831.6
      Leasehold improvements               448.2         253.4         194.8
      Construction in progress             164.4             -         164.4
      Assets under capital leases           99.3          42.7          56.6
                                     -----------   -----------   -----------
                                         4,155.6       1,952.5       2,203.1
                                     -----------   -----------   -----------
    Real estate & other segments
      Land                                   6.9             -           6.9
      Land held for development             63.4             -          63.4
      Buildings                             63.9          30.2          33.7
      Equipment                             76.9          37.3          39.6
      Leasehold improvements                56.3          15.5          40.8
      Construction in progress              10.0             -          10.0
      Petroleum and natural gas costs       82.1          22.3          59.8
                                     -----------   -----------   -----------
                                           359.5         105.3         254.2
                                     -----------   -----------   -----------
    Total                            $   4,515.1   $   2,057.8   $   2,457.3
                                     -----------   -----------   -----------
                                     -----------   -----------   -----------


                                                   Accumulated   May 5, 2007
                                            Cost  Depreciation      Net Book
                                                                       Value
                                                                    Restated
                                                                    (Note 1)
                                     -----------   -----------   -----------
    Food segment
      Land                           $     188.7   $         -   $     188.7
      Land held for development             93.1             -          93.1
      Buildings                            673.2         161.7         511.5
      Equipment, fixtures and
       vehicles                          2,012.3       1,256.7         755.6
      Leasehold improvements               397.9         243.9         154.0
      Construction in progress             109.3             -         109.3
      Assets under capital leases           83.1          34.5          48.6
                                     -----------   -----------   -----------
                                         3,557.6       1,696.8       1,860.8
                                     -----------   -----------   -----------
    Real estate & other segments
      Land                                  78.8             -          78.8
      Land held for development             26.8             -          26.8
      Buildings                            377.3         102.2         275.1
      Equipment                             72.7          32.6          40.1
      Leasehold improvements                52.4          12.1          40.3
      Construction in progress              21.8             -          21.8
      Petroleum and natural gas costs       78.7          13.3          65.4
                                     -----------   -----------   -----------
                                           708.5         160.2         548.3
                                     -----------   -----------   -----------

    Total                            $   4,266.1   $   1,857.0   $   2,409.1
                                     -----------   -----------   -----------
                                     -----------   -----------   -----------

    9. Assets Held For Sale

    Included in the assets held for sale are commercial properties from the
various segments with a net carrying value of $60.3 (May 5, 2007 - $24.1).
Included in liabilities related to these assets held for sale is $6.4 (May 5,
2007 - $6.8). These assets are listed for potential sale to outside parties
and it is expected that these properties will be disposed of in the next
twelve months.


    10. Long-Term Debt

                                                         May 3         May 5
                                                          2008          2007
                                                   -----------   -----------
    First mortgage loans,
     average interest rate 9.8%,
     due 2008-2026                                 $      72.2   $     155.6
    Medium Term Notes, interest rate 5.8%,
     due October 6, 2036                                 125.0         125.0
    Medium Term Notes, interest rate 6.1%,
      due October 29, 2035                               175.0         175.0
    Medium Term Notes, interest rate 7.2%,
      due February 26, 2018                              100.0         100.0
    Debentures, average interest rate 10.3%,
      due 2008-2016                                       75.4          88.8
    Notes payable and other debt
     primarily at interest
     rates fluctuating with the prime rate               154.2         179.4
    Credit facility, floating interest rate
     tied to bankers' acceptance rates,
     due June 8, 2010                                    395.0             -
    Credit facility, floating interest
     rate tied to bankers'
      acceptance rates, due July 23, 2012                250.0             -
    Credit facility, floating interest
     rate tied to bankers'
      acceptance rates, due November 8, 2010              75.0             -
    Construction loans, interest rates fluctuating
      with the prime rate                                  0.5           1.6
    Unamortized financing costs                           (3.8)            -
    Capital lease obligations,
     net of imputed interest                              56.5          49.7
                                                   -----------   -----------
                                                       1,475.0         875.1
    Less amount due within one year                       60.4          82.5
                                                   -----------   -----------

                                                   $   1,414.6   $     792.6
                                                   -----------   -----------
                                                   -----------   -----------


    During the year, in relation to the privatization of Sobeys, the Company
entered into new credit facilities (the "Credit Facilities") consisting of a
$950.0 unsecured revolving term credit maturing June 8, 2010 (subject to
annual one-year extensions at the request of the Company) and a
$50.0 unsecured non-revolving credit that matured on 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 5.00%. The second swap, in an amount of $200.0, is for a
period of five years at a fixed interest rate of 5.05%. Both swaps became
effective on July 23, 2007.
    On June 27, 2007, pursuant to the terms of the Credit Facilities, the
Company and Sobeys filed notice with the lenders requesting the establishment
of a new $300.0 five-year credit in favour of Sobeys at the same interest rate
and substantially on the same terms and conditions as the Credit Facilities.
At July 23, 2007, Sobeys drew down $300.0 from its new credit facility, the
proceeds of which were used to pay a dividend to the Company. The Company used
the proceeds from the dividend to reduce its indebtedness under the Credit
Facilities and the Credit Facilities were reduced to $650.0 accordingly. On
that date, the Company also transferred the second swap to Sobeys. In the
fourth quarter, the Credit Facilities were further reduced to $395.0.
    On July 30, 2007, Sobeys exercised an option under its new credit facility
to increase the size of the credit from $300.0 to $600.0. At the same time,
Sobeys terminated its previously existing $300.0 operating credit which would
have expired on December 20, 2010. At May 3, 2008, $275.0 of this new credit
facility was drawn down; $250.0 has been classified as long-term debt and
$25.0 has been classified as bank indebtedness. Sobeys has also issued $41.7
in letters of credit against the facility at May 3, 2008.
    On November 8, 2007, Sobeys established and drew down on a new unsecured
revolving credit facility of $75.0. The maturity date is November 8, 2010. The
interest rate is floating and may be tied to the bankers' acceptance rate,
Canadian prime rate or LIBOR.


    11. Other Long-Term Liabilities

                                                         May 3         May 5
                                                          2008          2007
                                                   -----------   -----------

    Deferred lease obligation                      $      53.2   $      41.3
    Deferred revenue                                       5.3           6.5
    Accrued benefit liability                             23.5          25.7
    Derivative liabilities                                21.7             -
    Other                                                  2.8           3.1
                                                   -----------   -----------
                                                   $     106.5   $      76.6
                                                   -----------   -----------
                                                   -----------   -----------

    12. Capital Stock

    Authorized

    Preferred shares, par value of $25 each,
     issuable in series. Series 2 cumulative,
     redeemable, rate of 75% of prime.                             2,772,300
    2002 Preferred Shares, par value of $25 each,
     issuable in series.                                         992,000,000
    Non-Voting Class A shares, without par value.                259,107,435
    Class B common shares, without par value, voting.             40,800,000



                                                         May 3         May 5
                                   No. of Shares          2008          2007
                                     -----------   -----------   -----------
    Issued and outstanding

    Preferred shares, Series 2           258,200   $       6.5   $       7.5
    Non-Voting Class A                31,484,498         185.1         184.5
    Class B common                    34,260,763           7.6           7.7
                                                   -----------   -----------

                                                         199.2         199.7
    Employees share purchase plan                         (3.5)         (3.6)
                                                   -----------   -----------

                                                   $     195.7   $     196.1
                                                   -----------   -----------
                                                   -----------   -----------


    During the fiscal year 10,461 (2007 - 18,373) Non-Voting Class A shares
were issued under the Company's share purchase plan to certain officers and
employees for $0.4 (2007 - $0.8). The Company also purchased for cancellation
41,800 (2007 - 31,900) Series 2 preferred shares for $1.0 (2007 - $0.8). Under
the Long Term Incentive Plan 99,349 options were issued. Options allow holders
to purchase Non-Voting Class A shares at $43.96 per share. Options expire in
December 2015. During the fiscal year 300,000 Class B common shares were
exchanged for 300,000 Non-Voting Class A shares.


    13. Investment Income

                              2008          2007          2008          2007
                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                       -----------   -----------   -----------   -----------
    Dividend and
     interest income   $       0.1   $       2.0   $       1.2   $       9.7
    Share of earnings
     of entities
     accounted using
     the equity method         8.0           5.7          33.3          31.8
                       -----------   -----------   -----------   -----------

                       $       8.1   $       7.7   $      34.5   $      41.5
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------


    14. Capital Gains and Other Items

                              2008          2007          2008          2007
                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                       -----------   -----------   -----------   -----------

    Gain on sale of
     investments       $         -   $         -   $     100.9   $       6.2
    Other items               (0.1)          0.9           0.3           0.9
    Change in fair
     value of Canadian
     third party
     asset-backed
     commercial
     paper (Note 7)           (4.5)            -          (7.5)            -
    Reduction of
     book value
     of real
     estate assets            (6.0)            -          (6.0)            -
                       -----------   -----------   -----------   -----------

                       $     (10.6)  $       0.9   $      87.7   $       7.1
                       -----------   -----------   -----------   -----------
                       -----------   -----------   ----------    -----------


    15. Income Taxes

    The effective tax rate for fiscal 2008 of 27.7% differs from the combined
statutory rate of 32.5% due partially to the impact of changes in rates used
to calculate future income taxes. These rate changes brought about a net
decrease of $5.5 (2007 - $2.0) in income tax expense.


    16. Supplementary Cash Flow Information


                              2008          2007          2008          2007
                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                                        Restated                    Restated
                                         (Note 1)                    (Note 1)
                       -----------   -----------   -----------   -----------
    a) Items not
        affecting cash

    Depreciation and
     amortization      $      77.2   $      73.8   $     304.6   $     269.2
      Future
       income taxes            9.0          12.9           5.1          12.1
      Amortization of
       other assets            0.3          14.0           5.1          19.1
      Provision on
       asset-backed
       commercial paper        4.5             -           7.5             -
      Minority interest        1.3          11.4          12.8          44.4
      Stock-based
       compensation            0.3           0.7           2.5           1.4
      Long-term lease
       obligation              7.9          13.1          11.9          16.1
      Employee future
       benefits obligation     1.1          (0.5)          4.8           4.8
      Rationalization costs
      (Note 23)               (1.9)          2.3          (6.2)         15.5
      Reduction of
       book value
       of real estate
       assets                  6.0             -           6.0             -
                       -----------   ------------  -----------   -----------
                       $     105.7   $      127.7  $     354.1   $     382.6
                       -----------   ------------  -----------   -----------
                       -----------   -----------   -----------   -----------

      b) Other cash
         flow
         information

      Net interest
       paid            $      26.7   $      22.3   $     103.9   $      58.9
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------
      Net income
       taxes paid      $      54.3   $      35.2   $     157.5   $     168.2
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------


    17. Segmented Information

                              2008          2007          2008          2007
                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                       -----------   -----------   -----------   -----------
    Revenue
    Food               $   3,480.6   $   3,243.7   $  13,768.1   $  13,032.0
                       -----------   -----------   -----------   -----------

    Real estate
      Commercial               9.2           9.2          40.5          38.4
      Inter-segment            9.1           8.8          34.9          34.3
      Residential             24.6          56.8          85.2         146.1
                       -----------   -----------   -----------   -----------
                              42.9          74.8         160.6         218.8
                       -----------   -----------   -----------   -----------

    Investment and
     other operations         43.4          40.7         171.2         150.2
                       -----------   -----------   -----------   -----------

                           3,566.9       3,359.2      14,099.9      13,401.0
    Elimination               (9.1)         (8.8)        (34.9)        (34.3)
                       -----------  ------------   -----------   -----------

                       $   3,557.8   $   3,350.4   $  14,065.0   $  13,366.7
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------



                              2008          2007          2008          2007
                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                                        Restated                    Restated
                                         (Note 1)                    (Note 1)

                       -----------   -----------   -----------   -----------
    Operating income
    Food               $     104.3   $      75.0   $     359.0   $     291.0
    Real estate
      Commercial              11.6          11.5          49.3          46.8
      Residential             15.6          34.6          50.7          71.2
    Investment and
     other operations          7.0           5.3          24.4          31.6
    Corporate expenses        (2.3)         (2.4)        (10.8)         (9.5)
                       -----------   -----------   -----------   -----------

                       $     136.2   $     124.0   $     472.6   $     431.1
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------


                                                         May 3         May 5
                                                          2008          2007
                                                                    Restated
                                                                     (Note 1)
                                                   -----------   -----------
    Identifiable assets
    Food                                           $   4,026.7   $   3,422.4
    Goodwill                                           1,119.0         746.5
                                                   -----------   -----------
                                                       5,145.7       4,168.9
    Real estate                                          282.0         609.4
    Investment and other operations
     (including goodwill
     of $40.1; May 5, 2007 $40.1)                        279.2         463.2
                                                   -----------   -----------

                                                   $   5,706.9   $   5,241.5
                                                   -----------   -----------
                                                   -----------   -----------


                              2008          2007          2008          2007
                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                                        Restated                    Restated
                                         (Note 1)                    (Note 1)
                       -----------   -----------   -----------   -----------
    Depreciation
     and amortization
    Food               $      72.2   $      64.2   $     276.2   $     240.6
    Real estate                0.3           1.6           5.4           6.8
    Investment and
     other operations          4.7           8.0          23.0          21.8
                       -----------   -----------   -----------   -----------

                       $      77.2   $      73.8   $     304.6   $     269.2
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------



                              2008          2007          2008         2007
                         (13 weeks)    (13 weeks)    (52 weeks)   (52 weeks)
                                        Restated                   Restated
                                         (Note 1)                   (Note 1)


    Capital
     expenditures
    Food               $     142.7   $     123.8   $     481.2   $     446.7
    Real estate                3.0           6.3          47.3          16.0
    Investment and
     other operations          4.6          11.2          20.9          46.2
                       -----------   -----------   -----------   -----------

                       $     150.3   $     141.3   $     549.4   $     508.9
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------


    18. Employee Future Benefits

    During the Company's fourth quarter and year-to-date of fiscal 2008, the
net employee future benefit expense was $7.1 and $24.5 respectively (2007 -
$6.5 and $24.8). The expense included costs for the Company's defined
contribution pension plans, defined benefit pension plans, post-retirement
benefit plans and post-employment benefit plans.

    19. Business Acquisitions

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

                         (13 weeks)    (13 weeks)    (52 weeks)    (52 weeks)
                              2008          2007          2008          2007
                       -----------   -----------   -----------   -----------
    Franchisees
    ------------
    Inventory          $       1.0   $       1.6   $       6.6   $       4.9
    Property and
     equipment                 0.4           0.4           5.1           2.4
    Intangibles                3.2           0.2           5.9           3.3
    Goodwill                   0.7           0.6           1.2           0.9
    Other assets
     (liabilities)            (1.7)          0.3          (1.5)          0.3
                       -----------   -----------   -----------   -----------
    Cash consideration $       3.6   $       3.1   $      17.3   $      11.8
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------
    Prescription files
    ------------------
    Intangibles                  -   $       2.5   $       2.5   $       4.9
                       -----------   -----------   -----------   -----------
    Cash consideration $         -   $       2.5   $       2.5   $       4.9
                       -----------   -----------   -----------   -----------
                       -----------   -----------   -----------   -----------


    On September 12, 2007, Sobeys acquired all the assets and assumed certain
liabilities of Thrifty Foods ("Thrifty") for an amount of $253.6. The assets
acquired include 20 full-service supermarkets, a main distribution centre and
a wholesale division on Vancouver Island and the Lower mainland of British
Columbia. The acquisition was accounted for using the purchase method with the
results of Thrifty being consolidated since the acquisition date. 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 previous quarters of fiscal 2008. The measurement and allocation
of finite and infinite intangible assets and goodwill (approximately $174.0 of
which is deductible for tax) was completed during the fourth quarter of fiscal
2008. The final purchase price allocation, incorporating management's
assessment of fair value, is as follows:


      Consideration
        Cash                                                     $     250.4
        Acquisition costs                                                3.2
                                                                 -----------
        Total consideration paid                                       253.6
                                                                 -----------

      Net assets acquired
        Current assets                                                  41.4
        Long-term assets                                                36.9
        Current liabilities assumed                                    (43.6)
        Long-term liabilities assumed                                  (13.1)
                                                                 -----------
        Total net assets acquired                                       21.6
                                                                 -----------

      Excess consideration paid over net assets acquired         $     232.0
                                                                 -----------
                                                                 -----------

      Allocation of excess consideration paid over net
       assets acquired
        Intangible assets - Banner                               $      24.0
                            Other                                        1.9
        Goodwill                                                       206.1
                                                                 -----------
                                                                 $     232.0
                                                                 -----------
                                                                 -----------

    During the first two quarters of fiscal 2007, the Company increased its
ownership interest in Sobeys from 70.3% to 72.1% by way of purchase of shares
on the open market. The acquisition was accounted for 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.
    On August 27, 2006, Sobeys 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 20). They have been included in the consolidated results of the Company.
The acquisition was accounted for using the purchase method with the results
of ADL being consolidated since the acquisition date. 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 - Agreements                           $       6.3
                            Other                                        0.5
        Goodwill                                                        41.3
                                                                 -----------
                                                                 $      48.1
                                                                 -----------
                                                                 -----------


    20. Variable Interest Entities

    Variable interest entities are defined under Accounting Guideline 15
"Consolidation of Variable Interest Entities" (AcG-15) 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 has identified the following entities as VIEs:

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

    The Company has identified 292 (May 5, 2007 - 271) 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.


    21. Contingent Liabilities

    Guarantees and commitments

    During the second quarter of fiscal 2008 Sobeys entered into an additional
guarantee contract. Under the terms of the guarantee, should a franchise
affiliate be unable to fulfill their lease obligation, Sobeys would be
required to fund the greater of $5.0 or 9.9 percent of the unfulfilled
obligation balance. As at May 3, 2008 the amount of the guarantee was $5.0.
    During the second quarter of fiscal 2008 Sobeys also reduced its
guaranteed obligation under a previous contract from $100.0 to approximately
$70.0. The terms of this obligation are disclosed in Note 19 of the Company's
2007 Annual Report.

    Contingencies

    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 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 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 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 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 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 a subsidiary have been reassessed in respect to the tax
treatment of gains realized on the sale of shares in Hannaford Bros. Co.
("Hannaford') in fiscal 2001. 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 $22.8. 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.
    During the fourth quarter, the Company settled other outstanding disputes
with CRA. Payments of $28.4 were covered by existing provisions resulting in
no impact on net earnings.
    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.

    22. 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 $19.6.

    23. Business Rationalization Costs

    During the third quarter of fiscal 2007, Sobeys completed a
rationalization of administrative functions and also began to incur
rationalization costs associated with the development of a new grocery
distribution centre in Vaughan, Ontario. These costs primarily relate to
severance and fixed asset and inventory write-offs. In the fourth quarter of
fiscal 2007, Sobeys also recorded additional rationalization costs related to
the closure of two distribution facilities in Quebec of which $3.5 was
reversed in fiscal 2008 as a result of changes in management's estimates of
the expected costs. During the first quarter of fiscal 2008, Sobeys incurred
additional administrative rationalization costs. Subsequent to year-end
additional severance costs of approximately $5.6 have been incurred and will
be recognized in the first quarter of fiscal 2009. Additional rationalization
costs are anticipated and will be quantified and disclosed throughout fiscal
2009 as they are available. The costs associated with the organizational
change are recorded as incurred as cost of sales, selling and administrative
expenses in the statement of earnings, before tax, as follows:


                                        Incurred
                      Liability at   Fiscal 2008                Liability at
                       May 5, 2007     (52 weeks)         Paid   May 3, 2008
                       -----------------------------------------------------
    Severance          $      12.1   $      (1.8)  $       4.4   $       5.9
    Other costs                  -             -             -             -
    Asset write-offs             -             -             -             -
                       -----------------------------------------------------
                       $      12.1   $      (1.8)  $       4.4   $       5.9
                       -----------------------------------------------------
                       -----------------------------------------------------


                                                                       Total
                          Incurred      Incurred                    Incurred
                       Fiscal 2007   Fiscal 2008                         and
                         (52 weeks)    (52 weeks)  Anticipated   Anticipated
                       -----------------------------------------------------
    Severance          $      14.3   $      (1.8)  $       5.6   $      18.1
    Other costs                1.1             -             -           1.1
    Asset write-offs           3.4             -             -           3.4
                       -----------------------------------------------------
                       $      18.8   $      (1.8)  $       5.6   $      22.6
                       -----------------------------------------------------
                       -----------------------------------------------------


    24. 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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