Empire Records Second Quarter Earnings Before Capital Gains and Other Items of $59.9 Million



    STELLARTON, NS, Dec. 13 /CNW/ - Empire Company Limited (TSX: EMP.A) today
announced earnings before capital gains and other items, net of tax, for its
second quarter ended November 3, 2007 of $59.9 million ($0.91 per share)
compared to $49.8 million ($0.76 per share) in the second quarter last year, a
20.3 percent increase.
    Net earnings amounted to $58.4 million ($0.89 per share) versus
$55.8 million ($0.85 per share) in the second quarter last year. The Company
realized capital losses and other items, net of tax, in the second quarter of
$1.5 million ($0.02 per share) compared to capital gains and other items, net
of tax, of $6.0 million ($0.09 per share) in the second quarter last year.

    
    Second Quarter Financial Highlights (versus the second quarter last year)

    - Revenue of $3.48 billion, up $131.3 million or 3.9 percent.
    - Sobeys Inc.'s ("Sobeys") same-store sales increased 2.3 percent.
    - Earnings before capital gains and other items, net of tax, of
      $59.9 million, up $10.1 million or 20.3 percent.
    - Earnings per share, before capital gains and other items, net of tax,
      of $0.91, an improvement of 15 cents per share.
    - Net earnings of $58.4 million ($0.89 per share), a $2.6 million
      increase.
    - Funded debt to total capital of 45.0 percent compared to 33.8 percent a
      year earlier.

    Paul Sobey, President and Chief Executive Officer stated, "Empire's second
quarter operating earnings growth is largely the result of having 100 percent
ownership of Sobeys following the privatization completed last June. Sobeys'
continued solid same-store sales and operating income growth resulted from
consistently competitive pricing and programs, innovation, cost management
initiatives and improving day-to-day execution."
    In the second quarter, Sobeys recorded an $11.1 million or 13.9 percent
increase in operating income, representing a 22 basis point improvement as a
percentage of sales.

    Financial Overview

    Revenue

    Consolidated revenue for the second quarter equalled $3.48 billion
compared to $3.35 billion last year, an increase of $131.3 million or
3.9 percent.
    Food division revenue equalled $3.41 billion, an increase of
$155.1 million or 4.8 percent compared to the second quarter last fiscal year.
During the second quarter of fiscal 2008 Sobeys' same-store sales (sales from
stores in the same locations in both reporting periods) increased by
2.3 percent.
    The growth in retail food sales was a direct result of Sobeys continued
implementation of sales and merchandising initiatives across the country,
coupled with an increase in retail selling square footage resulting from the
development of new stores and an ongoing program to enlarge and renovate
existing store assets. Sales were also driven by the acquisition of Achille de
la Chevratière Ltée and its associated companies ("ADL") on August 27, 2006
and by the acquisition of Thrifty Foods on September 12, 2007. These two
acquisitions positively impacted second quarter sales by $103.5 million versus
the second quarter last year.
    As noted in prior quarters, a major Canadian tobacco supplier began to
sell and distribute directly to some of Sobeys' customers resulting in a
decline in tobacco sales. This change in distribution along with lower market
demand for tobacco reduced sales on an annual basis by $123.9 million in
fiscal 2007 and by $30.1 million during the second quarter of fiscal 2008.
Margins on tobacco sales are significantly lower than on other products,
therefore the loss of these sales does not have a material impact on earnings.
    Excluding the impact of the wholesale tobacco decline and the ADL and
Thrifty Foods acquisitions, second quarter sales growth for the food division
would have been 2.5 percent.
    During the second quarter, 26 corporate and franchised stores were opened,
acquired or relocated compared to 40 corporate and franchised stores opened or
relocated during the second quarter of last year. Twenty of the current
quarter store additions resulted from the Thrifty Foods acquisition while in
the second quarter last year 25 stores were acquired as part of the purchase
of ADL. An additional six stores were expanded during the second quarter
compared to four stores expanded during the second quarter last year. A total
of 19 stores were closed during the quarter compared to nine stores closed in
the second quarter last year. There were 13 stores rebannered in the second
quarter of fiscal 2008 compared to 15 stores rebannered in the second quarter
of last year.
    At the end of the second quarter Sobeys' square footage totalled
27.0 million, a 3.4 percent increase over the second quarter last year.
    Real estate division revenue (net of inter-segment transactions) equalled
$28.1 million, a decrease of $38.1 million from the $66.2 million recorded in
the second quarter last year. Commercial property revenue increased by
$1.0 million while revenue from residential operations decreased by $39.1
million. The decline in residential real estate revenue was anticipated
reflecting the completion of a major condominium project in the second quarter
last year along with an expected slowing of residential lot sales.
    Investments and other operations recorded revenues of $50.1 million in the
second quarter versus $35.8 million in the second quarter last year. The
increase is primarily attributable to higher revenue for Empire Theatres due
to the strong summer product, and from the change in its year-end which
resulted in the traditionally strong month of July being reported in the
second quarter of fiscal 2008 whereas it was included in the first quarter of
fiscal 2007.

    Operating Income

    Consolidated operating income in the second quarter totalled
$118.2 million, an increase of $5.2 million or 4.6 percent over the
$113.0 million recorded in the second quarter last year.
    The food division contributed operating income of $90.8 million, an
increase of $11.1 million or 13.9 percent from the $79.7 million recorded in
the second quarter last year. Second quarter operating margin, which is
operating income divided by revenue, was 2.67 percent compared to 2.45 percent
in the second quarter last year. Included in the second quarter fiscal 2008
operating income was a $8.2 million increase in food division depreciation and
amortization expense, primarily reflecting Sobeys' continued capital
investments. During the second quarter, the food division incurred
$4.8 million of pre-tax costs related to business process and system
initiative costs as compared to $11.1 million in the second quarter last year.
    The real estate division contributed operating income of $21.5 million, a
decrease of $7.5 million from the $29.0 million recorded in the second quarter
last year. Operating income generated from commercial properties increased
$0.4 million while operating income from residential operations decreased by
$7.9 million versus the second quarter last year. The decline in residential
operating income was anticipated largely as a result of the completion of the
Martello condominium project and slower than expected residential lot sales
activity in western Canada relative to the same quarter last year.
    Investments and other operations' operating income, net of corporate
expenses, equalled $5.9 million compared to $4.3 million in the second quarter
last year. The increase primarily reflects improved operating performance from
wholly-owned Empire Theatres Limited.

    Interest Expense

    Interest expense equalled $27.4 million, an increase of $11.9 million from
the $15.5 million recorded in the second quarter last year. This increase was
expected as a result of long-term debt, including amounts due within one year
and liabilities related to assets held for sale, increasing $972.2 million
from the beginning of the fiscal year primarily as a result of indebtedness
associated with the funding of Sobeys' privatization which was finalized on
June 15, 2007.

    Minority Interest

    In the second quarter of fiscal 2008, Empire recorded minority interest
expense of $1.2 million compared to $15.0 million in the second 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 second
quarter last year was 72.1 percent.

    Earnings before Capital Gains and Other Items

    Earnings before capital gains and other items, net of tax, equalled
$59.9 million in the second quarter as compared to $49.8 million in the same
quarter last year, a 20.3 percent increase. The $10.1 million increase in
earnings before capital gains and other items, net of tax, reflected the
growth in second quarter operating income of $5.2 million, the $13.8 million
decline in minority interest and a $3.0 decrease in income tax expense,
partially offset by the $11.9 million increase in interest expense as
mentioned.

    Capital Gains (Losses) and Other Items

    Capital losses and other items, net of tax, equalled $1.5 million in the
second quarter as compared to capital gains and other items, net of tax, of
$6.0 million in the second quarter last year. During the second quarter,
Sobeys had a $30.0 million exposure to Canadian Asset Backed Commercial Paper
("ABCP"). These ABCP were rated by Dominion Bond Rating Service as R-1 (High).
 At November 3, 2007, pending a resolution of the liquidity issue, Sobeys has
recorded an impairment loss of $3.0 million pre-tax ($1.9 million net of tax).
The Company estimated the impairment loss using a discounted cash flow
approach. 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 assets rather than cash and cash equivalents due to
the uncertainty as to the timing of collection.

    Net Earnings

    Consolidated net earnings totalled $58.4 million ($0.89 per share) versus
$55.8 million ($0.85 per share) in the second quarter last year, a 4.7 percent
increase.

    Consolidated Financial Condition

    The ratio of funded debt to total capital at the end of the second quarter
equalled 45.0 percent versus 33.8 percent at the end of the second quarter
last year. The higher debt ratio was expected and is largely attributed to
advances of $787.7 million incurred under a revolving-term credit facility
which assisted in the funding of the privatization of Sobeys.
    The privatization of Sobeys was also financed with proceeds of
$278.0 million generated from the sale of certain portfolio investments
completed in the first quarter of fiscal 2008. At November 3, 2007, Empire's
investment portfolio, including its 27.6 percent interest in Wajax Income Fund
(TSX: WJX.UN) and its 48.1 percent interest in Crombie REIT (TSX: CRR.UN),
carried a market value of $410.9 million on a cost base of $140.5 million,
resulting in an unrealized gain of $270.4 million. This compares to an
unrealized gain of $384.6 million at the beginning of the fiscal year and an
unrealized gain of $299.1 million at the end of the second quarter last fiscal
year.
    The purchase of property and equipment in the second quarter equalled
$123.8 million as compared to $110.4 million in the same quarter last year.
Investment in food division property and equipment accounted for
$114.9 million of the total capital investment in the second quarter. Capital
expenditures for the real estate division and investments and other operations
in the second quarter equalled $6.5 million and $2.4 million, respectively.

    Privatization of Sobeys

    On April 26, 2007, Empire and Sobeys jointly announced that they had
entered into an arrangement agreement (the "Arrangement") pursuant to which
Empire would acquire all of the outstanding common shares of Sobeys that it
did not then own at a price of $58.00 per share. The transaction valued the
Sobeys shares not then owned by Empire at approximately $1.06 billion.
    The Arrangement became effective upon registration of the final Court
order with the Nova Scotia Registry of Joint Stock Companies at the close of
business on June 15, 2007. Subsequently, the Sobeys common shares ceased
trading on the Toronto Stock Exchange, and were de-listed at the close of
business on June 18, 2007.
    The acquisition was financed by funds of $278.0 million generated
primarily from the sale of certain portfolio investments and by advances of
$787.7 million under new credit facilities (the "Credit Facilities"). At the
time of financing, the Credit Facilities consisted of a $950.0 million
unsecured revolving credit facility maturing on June 8, 2010 (subject to
annual one-year extensions at the request of the Company) and a $50.0 million
unsecured non-revolving credit facility that matured on June 30, 2007. The
unsecured non-revolving credit facility was repaid on June 30, 2007 with funds
drawn from the unsecured revolving credit facility.
    The Credit Facilities are subject to certain financial covenants. Interest
on the debt varies based on the designation of the loan (bankers' acceptances
("BA") rate loans, Canadian prime rate loans, U.S. base rate loans or LIBOR
loans), fluctuations in the underlying rates, and, in the case of BA rate
loans or LIBOR loans, the margin applicable to the financial covenants. On
June 18, 2007, Empire entered into two delayed fixed rate interest swaps. The
first swap, in an amount of $200.0 million is for a period of three years at a
fixed interest rate of 4.998 percent. The second swap in an amount of $200.0
million is for a period of five years at a fixed interest rate of
5.051 percent. Both swaps became effective on July 23, 2007.
    On June 27, 2007, pursuant to the terms of the Credit Facilities, Empire
and Sobeys filed notice with the lenders requesting the establishment of a new
$300.0 million five-year credit facility in favour of Sobeys at the same
interest rate as and substantially on the same terms and conditions as the
Credit Facilities. On July 23, 2007, Sobeys drew down $300.0 million from the
new credit facility, the proceeds of which were used to pay a dividend to
Empire. Empire used the proceeds from the $300.0 million dividend to reduce
its indebtedness under the Credit Facilities and the Credit Facilities were
reduced to $650.0 million accordingly. On that date, Empire transferred the
second swap to Sobeys.
    On July 30, 2007, Sobeys exercised an option under its new credit facility
to increase the size of the credit from $300.0 million to $600.0 million. At
the same time, Sobeys terminated its previously existing $300.0 million
operating credit facility which would have expired on December 20, 2010.

    The table below presents a summary of financial performance for the 13 and
26 weeks ended November 3, 2007 compared to the 13 and 26 weeks ended November
4, 2006.


    Summary Table of Consolidated Financial Results

                                    13 Weeks Ended            26 Weeks Ended
                          ------------------------- -------------------------
    ($ in millions,
     except per share           Nov 3,       Nov 4,       Nov 3,       Nov 4,
     information)                2007         2006         2007         2006
                          ------------ ------------ ------------ ------------
                                      (Restated)(1)             (Restated)(1)

    Segmented Revenue
     (net of elimination
     entries)
      Food                $   3,406.6  $   3,251.5  $   6,847.6  $   6,557.6
      Real estate
        Commercial               10.4          9.4         20.6         19.5
        Residential              17.7         56.8         42.9         77.2
      Investments and
       other operations          50.1         35.8         93.1         80.1
                          ------------ ------------ ------------ ------------
                          $   3,484.8  $   3,353.5  $   7,004.2  $   6,734.4
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Segmented Operating
     Income
      Food                $      90.8  $      79.7  $     186.0  $     168.0
      Real estate
        Commercial               11.7         11.3         24.6         23.1
        Residential               9.8         17.7         25.8         31.3
      Investments and
       other operations           5.9          4.3          9.3         11.8
                          ------------ ------------ ------------ ------------
                          $     118.2  $     113.0  $     245.7  $     234.2
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------
    Earnings before
     capital gains and
     other items                 59.9         49.8        120.3        103.1
    Capital gains and
     other items, net of
     tax                         (1.5)         6.0         80.4          6.0
                          ------------ ------------ ------------ ------------
      Net earnings        $      58.4  $      55.8  $     200.7  $     109.1
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Basic earnings per
     share
    Operating earnings    $      0.91  $      0.76  $      1.83  $      1.57
    Capital gains and
     other items, net
     of tax                     (0.02)        0.09         1.23         0.09
                          ------------ ------------ ------------ ------------
    Net earnings          $      0.89  $      0.85  $      3.06  $      1.66
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------
    Basic weighted
     average number
     of shares
     outstanding
     (in millions)               65.6         65.5         65.6         65.5
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Diluted earnings per
     share
    Operating earnings    $      0.91  $      0.76  $      1.83  $      1.57
    Capital gains and
     other items, net of
     tax                        (0.02)        0.09         1.22         0.09
                          ------------ ------------ ------------ ------------
    Net earnings          $      0.89  $      0.85  $      3.05  $      1.66
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------
    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
                          ------------ ------------
                          ------------ ------------

    (1) The 13 and 26 weeks ended November 4, 2006 have been restated to
    reflect a change in accounting policy with respect to deferred charges.
    Please see Note 1, "Deferred Charges", in the attached financial
    statement.


    Acquisition of Thrifty Foods

    On September 12, 2007 Sobeys acquired all the assets of Thrifty Foods for
an amount of $261.8 million. 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 Foods
being consolidated as of the acquisition date.
    Paul Sobey stated, "The similarities between Sobeys and Thrifty Foods were
very clear to us as we were looking at the acquisition: an unwavering focus on
food, dedicated employees, a great service culture and strong values,
including a strong commitment to their communities. This acquisition provides
Sobeys with a presence in the expanding British Columbia market and a base for
continued growth in the province. We are pleased that our results from Thrifty
Foods are tracking ahead of expectation."

    Dividend Declaration

    The Board of Directors declared a quarterly dividend of $0.165 per share
on both the Non-Voting Class A shares and the Class B common shares that will
be payable on January 31, 2008 to shareholders of record on January 14, 2008.
In addition, the Board declared regular dividends on the Company's outstanding
preferred shares. The dividends are eligible dividends as defined for the
purposes of the Income Tax Act (Canada) and applicable provincial legislation
and, therefore, qualify for the favourable tax treatment applicable to such
dividends.

    Definition of Non-GAAP Measures

    Certain measures included in this news release do not have a standardized
meaning under Canadian Generally Accepted Accounting Principles and therefore
may not be comparable to similarly titled measures by other publicly traded
companies. The Company includes these measures because it believes certain
investors use these measures as a means of assessing Empire's financial
performance. Funded debt is all interest-bearing debt, and total capital is
calculated as funded debt plus shareholders' equity. Interest coverage is
calculated as operating income divided by interest expense.

    About Empire Company

    Empire Company Limited (TSX symbol: EMP.A) is a Canadian company
headquartered in Stellarton, Nova Scotia. Empire's key businesses include
food, real estate and investments and other operations. With over $13 billion
in annual revenue and approximately $5.8 billion in assets, Empire employs
approximately 40,000 people directly and through its subsidiaries.

    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 and business
prospects and opportunities.
    Forward-looking statements are typically identified by words or phrases
such as "anticipates", "expects", "believes", "estimates", "intends" and other
similar expressions. These statements are based on management's assumptions
and beliefs in light of the information currently available to them. These
forward-looking statements are subject to inherent uncertainties, risks and
other factors that could cause actual results to differ materially from such
statements. These uncertainties and risks are discussed in the Company's
materials filed with the Canadian securities regulatory authorities from time
to time, including those in the Risk Management section of the annual
Management Discussion and Analysis included in the Company's 2007 Annual
Report.
    When relying on forward-looking statements to make decisions, the Company
cautions readers not to place undue reliance on these statements, as a number
of important factors could cause actual results to differ materially from any
estimates or intentions expressed in such forward-looking statements. The
Company does not undertake to update any forward-looking statements that may
be made from time to time by or on behalf of the Company.
    Additional financial information, including management's discussion and
analysis of the 13 and 26 weeks ended November 3, 2007, will be filed
electronically with various securities commissions in Canada through SEDAR.

    Conference Call Invitation

    The Company will provide additional details concerning its second quarter
results on a conference call to be held on Thursday, December 13, 2007
beginning at 3:00 p.m. EST. To join this conference call dial 1-800-732-9307
or 1-416-644-3416. 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 21254429#. until midnight December 20, 2007, or on the
Company's website for 90 days after the meeting.


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


                                       November 3         May 5   November 4
                                             2007          2007         2006
                                        Unaudited       Audited    Unaudited
                                                       Restated     Restated
                                                        (Note 1)     (Note 1)
                                      ------------- ------------ ------------
    ASSETS

    Current
      Cash and cash equivalents       $     133.1   $     294.9  $     211.6
      Receivables                           313.6         312.3        289.5
      Mortgages, loans and other
       receivables                           16.0          14.5         21.8
      Income taxes receivable                   -           3.6            -
      Inventories                           838.0         757.5        755.7
      Prepaid expenses                       71.5          51.4         60.8
                                      ------------- ------------ ------------
                                          1,372.2       1,434.2      1,339.4

    Investments, at cost
     (quoted market value $1.6;
     May 5, 2007 $283.1;
     November 4, 2006 $433.2)                 1.6         189.7        366.1
    Investments, at equity
     (realizable value $409.3;
     May 5, 2007 $434.0;
     November 4, 2006 $388.2) (Note 4)      138.9         142.8        156.2
    Mortgages, loans and other
     receivables (Note 5)                    62.5          65.1         66.5
    Other assets (Note 6)                   180.0         126.0        110.1
    Property and equipment (Note 7)       2,503.0       2,409.1      2,335.0
    Assets held for sale                     61.4          24.1         22.6
    Intangibles (less accumulated
     amortization of $15.7;
     May 5, 2007 $11.7;
     November 4, 2006 $9.3)                 395.9          38.2         53.3
    Goodwill                              1,152.0         786.6        766.1
                                      ------------- ------------ ------------
                                      $   5,867.5   $   5,215.8  $   5,215.3
                                      ------------- ------------ ------------
                                      ------------- ------------ ------------

    LIABILITIES

    Current
      Bank indebtedness               $      26.9   $      30.1  $     155.8
      Accounts payable and
       accrued liabilities                1,272.2       1,260.3      1,177.1
      Income taxes payable                   29.4             -         50.1
      Future income taxes                    37.1          40.4         45.9
      Long-term debt due within
       one year                              80.5          82.5         93.3
      Liabilities relating to
       assets held for sale                   6.6           6.8          7.1
                                      ------------- ------------ ------------
                                          1,452.7       1,420.1      1,529.3
    Long-term debt (Note 8)               1,767.0         792.6        792.1
    Employee future benefits
     obligation                             104.6         102.1        101.5
    Future income taxes                     135.5         130.4        118.7
    Other long-term liabilities
     (Note 9)                                65.6          50.9         44.3
    Minority interest                        45.1         588.6        575.8
                                      ------------- ------------ ------------
                                          3,570.5       3,084.7      3,161.7
                                      ------------- ------------ ------------

    SHAREHOLDERS' EQUITY

    Capital stock (Note 10)                 195.8         196.1        196.2
    Contributed surplus                       0.3           0.3          0.2
    Retained earnings                     2,114.2       1,935.3      1,858.6
    Accumulated other
     comprehensive loss                     (13.3)         (0.6)        (1.4)
                                      ------------- ------------ ------------
                                          2,297.0       2,131.1      2,053.6
                                      ------------- ------------ ------------
                                      $   5,867.5   $   5,215.8  $   5,215.3
                                      ------------- ------------ ------------
                                      ------------- ------------ ------------

    Contingent liabilities (Note 19)
    Subsequent events (Note 22)

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



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


                                                     November 3   November 4
                                                           2007         2006
                                                                    Restated
                                                                     (Note 1)
                                                    ------------ ------------

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

    Adjustment due to change in accounting policy
     (Note 1)                                              (4.3)           -
                                                    ------------ ------------

    Balance, beginning of period as restated            1,935.3      1,771.0

    Net earnings                                          200.7        109.1

    Dividends
      Preferred shares                                     (0.2)        (0.2)
      Common shares                                       (21.6)       (19.7)

    Premium on common shares purchased for
     cancellation                                             -         (1.6)
                                                    ------------ ------------
    Balance, end of period                          $   2,114.2   $  1,858.6
                                                    ------------ ------------
                                                    ------------ ------------



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


                                                     November 3   November 4
                                                           2007         2006
                                                    ------------ ------------

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

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

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

    Other comprehensive income (loss) for the
     period                                               (89.3)        (0.3)
                                                    ------------ ------------
    Balance, end of period                          $     (13.3) $      (1.4)
                                                    ------------ ------------
                                                    ------------ ------------

    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)


                           November 3   November 4   November 3   November 4
                                 2007         2006         2007         2006
                            (13 weeks)   (13 weeks)   (26 weeks)   (26 weeks)
                                          Restated                  Restated
                                           (Note 1)                  (Note 1)
                          ------------ ------------ ------------ ------------

    Revenue               $   3,484.8  $   3,353.5  $   7,004.2  $   6,734.4
    Operating expenses
      Cost of sales,
       selling and
       administrative
       expenses               3,297.8      3,184.5      6,628.9      6,392.6
      Depreciation and
       amortization              76.7         67.2        146.5        130.1
                          ------------ ------------ ------------ ------------
                                110.3        101.8        228.8        211.7
    Investment income
     (Note 11)                    7.9         11.2         16.9         22.5
                          ------------ ------------ ------------ ------------
    Operating income            118.2        113.0        245.7        234.2
                          ------------ ------------ ------------ ------------
    Interest expense
      Long-term debt             25.3         13.2         45.1         26.1
      Short-term debt             2.1          2.3          3.1          3.7
                          ------------ ------------ ------------ ------------
                                 27.4         15.5         48.2         29.8
                          ------------ ------------ ------------ ------------
                                 90.8         97.5        197.5        204.4
    Capital gains and
     other items (Note 12)       (2.6)         7.4         98.3          7.4
                          ------------ ------------ ------------ ------------
    Earnings before
     income taxes and
     minority interest           88.2        104.9        295.8        211.8
                          ------------ ------------ ------------ ------------
    Income taxes
      Current                    35.4         33.5         88.2         70.4
      Future                     (6.8)         0.6         (6.0)        (0.6)
                          ------------ ------------ ------------ ------------
                                 28.6         34.1         82.2         69.8
                          ------------ ------------ ------------ ------------
    Earnings before
     minority interest           59.6         70.8        213.6        142.0
    Minority interest             1.2         15.0         12.9         32.9
                          ------------ ------------ ------------ ------------
    Net earnings          $      58.4  $      55.8  $     200.7  $     109.1
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Earnings per
     share (Note 3)

      Basic               $      0.89  $      0.85  $      3.06  $      1.66
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------
      Diluted             $      0.89  $      0.85  $      3.05  $      1.66
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Weighted average
     number of common
     shares outstanding,
     in millions

      Basic                      65.6         65.5         65.6         65.5

      Diluted                    65.7         65.7         65.7         65.7

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



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


                           November 3   November 4   November 3   November 4
                                 2007         2006         2007         2006
                            (13 weeks)   (13 weeks)   (26 weeks)   (26 weeks)
                                          Restated                  Restated
                                           (Note 1)                  (Note 1)
                          ------------ ------------ ------------ ------------

    Net earnings          $      58.4  $      55.8  $     200.7  $     109.1
                          ------------ ------------ ------------ ------------

    Other comprehensive
     income, net of income
     taxes

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

      Unrealized losses
       on derivatives
       designated as
       cash flow hedges:
         Interest rate
          hedging
          instruments            (4.6)           -         (3.2)           -

         Foreign exchange
          hedging
          instruments            (2.0)           -         (3.7)           -

         Energy hedging
          instruments            (2.6)           -         (2.6)           -

      Share of comprehensive
       income (loss) of
       entities accounted
       using the equity
       method                    (0.8)           -         (1.1)           -

      Exchange losses on
       translation of
       self-sustaining foreign
       operations                   -            -            -         (0.3)
                          ------------ ------------ ------------ ------------
                                (10.0)           -        (89.3)        (0.3)
                          ------------ ------------ ------------ ------------
    Comprehensive income  $      48.4  $      55.8  $     111.4  $     108.8
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

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



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


                           November 3   November 4   November 3   November 4
                                 2007         2006         2007         2006
                            (13 weeks)   (13 weeks)   (26 weeks)   (26 weeks)
                                          Restated                  Restated
                                           (Note 1)                  (Note 1)
                          ------------ ------------ ------------ ------------

    Operating Activities

      Net earnings        $      58.4  $      55.8  $     200.7  $     109.1
      Items not affecting
       cash (Note 13)            69.2         86.1        159.5        165.4
      Preferred dividends        (0.1)        (0.1)        (0.2)        (0.2)
                          ------------ ------------ ------------ ------------
                                127.5        141.8        360.0        274.3
      Net change in
       non-cash working
       capital                  (19.5)      (140.6)       (49.5)      (147.8)
                          ------------ ------------- ----------- ------------
    Cash flows from
     operating activities       108.0          1.2        310.5        126.5
                          ------------ ------------- ----------- ------------

    Investing Activities
      Net decrease
      (increase) in
       investments                1.7         10.1        191.0         (2.7)
      Purchase of shares
       in subsidiary,
       Sobeys Inc.                  -        (12.1)    (1,065.7)       (48.6)
      Purchase of property
       and equipment           (123.8)      (110.4)      (232.9)      (246.4)
      Proceeds on disposal
       of property and
       equipment                  1.0         23.7          6.7         27.3
      Mortgages, loans and
       other receivables         (1.9)        (1.9)         1.1         (4.0)
      (Increase) decrease
       in other assets          (57.0)        (9.9)       (59.6)         0.5
      Business
       acquisitions, net
       of cash
       acquired (Note 16)      (268.4)       (90.4)      (269.1)       (95.9)
                          ------------ ------------ ------------ ------------
    Cash flows used in
     investing activities      (448.4)      (190.9)    (1,428.5)      (369.8)
                          ------------ ------------ ------------ ------------

    Financing Activities
      (Decrease) increase
      in bank indebtedness       (1.2)         1.6         (3.2)        57.2
      Decrease in
       construction loans           -         (2.4)        (1.1)           -
      Issue of long-term
       debt                     186.4        134.8      1,000.0        135.4
      Repayment of
       long-term debt           (20.8)       (40.9)       (36.0)       (56.6)
      Minority interest          (1.2)        (1.3)        18.5         (1.6)
      Repurchase of
       preferred shares          (0.8)           -         (0.8)           -
      Issue of Non-Voting
       Class A shares               -          0.1          0.4          1.0
      Repurchase of Non-Voting
       Class A shares               -            -            -         (1.9)
      Common dividends          (10.9)        (9.8)       (21.6)       (19.7)
                          ------------ ------------ ------------ ------------
    Cash flows from
     financing activities       151.5         82.1        956.2        113.8
                          ------------ ------------ ------------ ------------
    Decrease in cash and
     cash equivalents          (188.9)      (107.6)      (161.8)      (129.5)
    Cash and cash
     equivalents,
     beginning of period        322.0        319.2        294.9        341.1
                          ------------ ------------ ------------ ------------
    Cash and cash
     equivalents, end of
     period               $     133.1  $     211.6  $     133.1  $     211.6
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

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



                           EMPIRE COMPANY LIMITED
                           ----------------------
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               ----------------------------------------------
                               NOVEMBER 3, 2007
                               ----------------
             (Unaudited, in millions, except per share amounts)


    1. Summary of Significant Accounting Policies

    Interim financial statements

    The unaudited interim period consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
("GAAP"). These interim consolidated financial statements do not include all
of the disclosures included in the Company's annual consolidated financial
statements. Accordingly, these interim consolidated financial statements
should be read in conjunction with the consolidated financial statements for
the year ended May 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
as of January 1, 2007 and are applicable for 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.
    This new standard, Section 3855, "Financial Instruments - Recognition and
Measurement", requires the Company to revalue all of its financial assets and
liabilities, including derivatives and embedded derivatives in certain
contracts, at fair value on the initial date of implementation and at each
subsequent financial reporting date. 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                      Available-for-sale          Fair value
    Cash equivalents          Held to maturity            Amortized cost
    Receivables               Loans and receivables       Amortized cost
    Mortgages, loans and
     other receivables        Loans and receivables       Amortized cost
    Investments, at cost      Available-for-sale          Fair value
    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, such as inventories, prepaid expenses,
investments (at equity), other assets, property and equipment, intangibles,
goodwill, current and long-term future income taxes, other long-term
liabilities, 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 remeasurement at fair value is required unless the
financial guarantee qualifies as a derivative.
    The fair value of a financial instrument is the estimated amount that the
Company would receive or pay to terminate the instrument agreement at the
reporting date. 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 at market and forward interest rates for swaps of the same
remaining maturities. The fair value of energy contracts was estimated based
on the market variable rate and forward variable rate.

    Hedges

    Section 3865, "Hedges", 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 rates and variable interest and
energy rates on variable rate assets and liabilities. 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.

    Comprehensive income

    In accordance with Section 1530, "Comprehensive Income", the Company has
chosen to report 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 operations
which had previously been classified as cumulative translation adjustment
within shareholders' equity is now presented within accumulated other
comprehensive income.

    Equity

    Section 3251, "Equity", 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. New consolidated statements of changes in
shareholders' equity are included in the unaudited interim period consolidated
financial statements.

    Financial instruments - disclosure and presentation

    Section 3861, "Financial Instruments - Disclosure and Presentation", 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, at cost                                         $      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, "Financial Instruments -
Recognition and Measurement", effective for the first quarter of fiscal 2008.
As a consequence of adopting 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 decrease in other assets of $106.2 at May 5, 2007
and $72.8 at November 4, 2006 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 and $5.5 and $10.7 for the 13 and 26 weeks
ended November 4, 2006 respectively. 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, "Deferred Charges", 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. For the year ended May 5, 2007, earnings per share basic
and diluted would decrease by $0.06 per share. The effect for the 13 and
26 weeks ended November 3, 2007 is a $0.9 and $1.8 decrease in cost of sales,
selling and administrative expenses, a $0.3 and $0.6 increase in income taxes
and an increase in basic and diluted earnings of $0.01 and $0.02 per share
respectively. The effect for the quarter ended November 4, 2006 is a
$3.2 increase in cost of sales, selling and administrative expenses, a
$1.2 decrease in income taxes, a $0.6 decrease in minority interest and a
decrease in basic and diluted earnings of $0.02 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 March 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 is currently evaluating the impact
of this new standard.

    Capital disclosures

    In October 2006, the CICA issued section 1535 of the CICA Handbook,
"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 statements.

    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, from the perspective of the issuer, 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 disclosure and results of operations.

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

    Portfolio investments

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

    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 annually. The carrying
value of the property and equipment is also reviewed 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 period was $0.5 (2006 -
$0.9).

    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 $0.4 (2006 - $Nil) was capitalized during the period.

    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 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 a deferred credit
and amortized as a reduction of lease expense over the term of the leases.
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 is not amortized but
rather is subject to an annual impairment review or more frequently if
circumstances exist that might indicate the value is impaired. Should the
carrying value exceed the fair value, 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 on limited
life intangibles is recorded on a straight-line basis over 10-15 years.
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 value is impaired. Should the carrying value
exceed the fair value of intangible assets (e.g. trademarks), the carrying
value will be written down to the fair value.

    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, are no longer productive
assets and there is no longer an intent to develop for future use. Assets held
for sale are valued at the lower of book value and fair value less cost of
disposal.

    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 Company accounts for income taxes under the liability method. 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 are translated at the exchange rate in effect
at the balance sheet date. These exchange gains or losses 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 changes in plan amendments is amortized on a straight-line
basis over the expected average remaining service life ("EARSL") of active
members. For pension benefit plans, the actuarial gains and losses and the
impact of changes in the actuarial basis in excess of 10 percent of the
greater of the projected benefit obligation and the market value of assets are
amortized on a straight-line basis over the EARSL of the active members. For
the Company's Supplemental Executive Retirement Plan, the impact of changes in
the plan provisions are amortized over five years. For other benefit plans,
actuarial gains and losses are recognized immediately.

    Use of estimates

    The preparation of consolidated financial statements in conformity with
Canadian GAAP, requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Certain of these estimates require subjective or complex
judgments by management that may be uncertain. Some of these items include the
valuation of inventories, goodwill, employee future benefits, 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 best knowledge of current events and actions that the Company may
undertake in the future. Actual results could differ materially 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 calculated using
the treasury stock method.

    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 as of the
acquisition date. The preliminary purchase price allocation 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
                                                                 ------------
                                                                 ------------

    Preliminary allocation of excess consideration
     paid over net assets acquired

      Amortizable intangible assets                              $      40.0
      Indefinite-life intangible assets                                300.0
      Goodwill                                                         161.6
      Future income taxes                                              (13.0)
      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 8).
    Management is currently carrying out a detailed analysis and changes will
be made to the allocation of the excess consideration paid over net assets
acquired as information becomes available. For example, since the measurement
of the fair value of property and equipment had not been completed at the time
of the preliminary allocation, property and equipment has been recorded at
book value. The measurement and allocation of finite and infinite intangible
assets is also underway. At this point, indefinite-life intangible assets have
been identified as intangible assets acquired as part of the purchase and are
not subject to amortization for accounting purposes. As the valuation is
finalized, this assumption may change which may impact intangible amortization
and future income taxes. Management expects to finalize the purchase price
allocation in fiscal 2008. As a result, the actual amounts allocated to the
identifiable assets acquired and liabilities assumed and the related operating
results will vary from the preliminary amounts, and such differences could be
material.

    3. Earnings Per Share

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

    Earnings applicable to common shares is comprised of the following:

                                2007         2006          2007         2006
                           (13 weeks)   (13 weeks)    (26 weeks)   (26 weeks)
                                         Restated                   Restated
                                          (Note 1)                   (Note 1)
                         ------------ ------------ ------------- ------------
    Operating earnings   $      59.9  $      49.8   $     120.3  $     103.1
    Capital gains and
     other items, net of
     income taxes of
     $(1.1); $1.4; $17.9;
     $1.4                       (1.5)         6.0          80.4          6.0
                         ------------ ------------ ------------- ------------
    Net earnings                58.4         55.8         200.7        109.1
    Preferred share
     dividends                  (0.1)        (0.1)         (0.2)        (0.2)
                         ------------ ------------ ------------- ------------
    Earnings applicable
     to common shares    $      58.3  $      55.7   $     200.5  $     108.9
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------

    Earnings per share is comprised of the following:

    Operating earnings   $      0.91  $      0.76   $      1.83  $      1.57
    Capital gains and
     other items               (0.02)        0.09          1.23         0.09
                         ------------ ------------ ------------- ------------
    Basic earnings per
     share               $      0.89  $      0.85   $      3.06  $      1.66
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------

    Operating earnings   $      0.91  $      0.76   $      1.83  $      1.57
    Capital gains and
     other items               (0.02)        0.09          1.22         0.09
                         ------------ ------------ ------------- ------------
    Diluted earnings
     per share           $      0.89  $      0.85   $      3.05  $      1.66
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------


    4. Investments, at Equity
                                       November 3         May 5   November 4
                                             2007          2007         2006
                                      ------------ ------------- ------------
    Wajax Income Fund
     (27.6% interest)                 $      32.9   $      32.2  $      35.5
    Crombie REIT
     (48.1% interest)                       105.4         109.3        111.3
    U.S. residential real
     estate partnerships                      0.6           1.3          9.4
                                      ------------ ------------- ------------
                                      $     138.9   $     142.8  $     156.2
                                      ------------ ------------- ------------
                                      ------------ ------------- ------------

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

                                                     November 3   November 4
                                                           2007         2006
                                                    ------------ ------------
      Balance, beginning of period                  $      32.2  $      33.1
      Equity earnings                                       9.6         10.1
      Distributions received                               (8.9)        (7.7)
                                                    ------------ ------------
      Balance, end of period                        $      32.9  $      35.5
                                                    ------------ ------------
                                                    ------------ ------------

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

                                                     November 3   November 4
                                                           2007         2006
                                                    ------------ ------------
      Balance, beginning of period                  $     109.3  $     112.8
      Equity earnings                                       6.3          5.5
      Share of comprehensive income (loss)                 (1.7)           -
      Distributions received                               (8.5)        (7.0)
                                                    ------------ ------------
      Balance, end of period                        $     105.4  $     111.3
                                                    ------------ ------------
                                                    ------------ ------------


    5. Mortgages, Loans and Other Receivables

                                       November 3         May 5   November 4
                                             2007          2007         2006
                                      ------------ ------------- ------------
    Loans receivable                  $      57.1   $      62.7  $      70.9
    Mortgages receivable                      0.6           0.6          0.3
    Other                                    20.8          16.3         17.1
                                      ------------ ------------- ------------
                                             78.5          79.6         88.3
    Less amount due within one year          16.0          14.5         21.8
                                      ------------ ------------- ------------
                                      $      62.5   $      65.1  $      66.5
                                      ------------ ------------- ------------
                                      ------------ ------------- ------------

    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.

    6. Other Assets

    Restricted cash

    Other assets include restricted cash of $3.9 (May 5, 2007 - $5.7; November
4, 2006 - $5.4) held by VIEs as security for third party loans and financial
derivatives at fair value.

    Asset-backed commercial paper

    As of November 3, 2007, Sobeys held third-party asset-backed commercial
paper ("ABCP") with an original cost of $30.0 that was in default. These ABCP
were 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. During the quarter 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"). 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 September 6, 2007, a pan-Canadian committee consisting of major
investors was formed to oversee the proposed restructuring process of the
ABCP. On October 16, 2007, it was announced that the committee expected that
the restructuring would be completed on or before December 14, 2007. As of
November 3, 2007, all of the ABCP held by Sobeys were part of the Montreal
Proposal.
    These investments were initially classified as held-to-maturity
instruments by the Company and were carried at an amortized cost. Due to the
lack of liquidity and a yield on these instruments, an impairment loss of
$3.0 pre-tax was recognized in the quarter. The Company estimated the
impairment loss using a discounted cash flow approach. 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
assets rather than cash and cash equivalents due to the uncertainty as to the
timing of collection.

    Cash flow hedges

    Cash flow hedges (Note 1) are grouped together and classified as either an
other asset or other liability as required based on their fair value
determination.

    7. Property and Equipment
                                                                  November 3,
                                                                        2007
                                                    Accumulated     Net Book
                                             Cost  Depreciation        Value
                                      ------------ ------------- ------------
    Food segment
      Land                            $     160.8   $         -  $     160.8
      Land held for development             141.1             -        141.1
      Buildings                             681.7         171.8        509.9
      Equipment, fixtures and
       vehicles                           2,158.8       1,380.0        778.8
      Leasehold improvements                440.2         273.7        166.5
      Construction in progress              154.3             -        154.3
      Assets under capital leases            99.0          44.3         54.7
                                      ------------ ------------- ------------
                                          3,835.9       1,869.8      1,966.1
                                      ------------ ------------- ------------
    Real estate & other segments
      Land                                   76.0             -         76.0
      Land held for development              36.7             -         36.7
      Buildings                             365.0          98.3        266.7
      Equipment                              74.8          34.0         40.8
      Leasehold improvements                 53.9          13.3         40.6
      Construction in progress               13.1             -         13.1
      Petroleum and natural gas
        costs                                81.3          18.3         63.0
                                      ------------ ------------- ------------
                                            700.8         163.9        536.9
                                      ------------ ------------- ------------
    Total                             $   4,536.7   $   2,033.7  $   2,503.0
                                      ------------ ------------- ------------
                                      ------------ ------------- ------------


                                                                       May 5,
                                                                        2007
                                                                    Net Book
                                                                       Value
                                                    Accumulated     Restated
                                             Cost  Depreciation      (Note 1)
                                      ------------ ------------- ------------
    Food segment
      Land                            $     152.8   $         -  $     152.8
      Land held for development             129.0             -        129.0
      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
                                      ------------ ------------- ------------
                                      ------------ ------------- ------------


                                                                  November 4,
                                                                        2006
                                                                    Net Book
                                                                       Value
                                                    Accumulated     Restated
                                             Cost  Depreciation      (Note 1)
                                      ------------ ------------- ------------
    Food segment
      Land                            $     150.7   $         -  $     150.7
      Land held for development             122.1             -        122.1
      Buildings                             630.9         147.7        483.2
      Equipment, fixtures and vehicles    1,870.3       1,182.6        687.7
      Leasehold improvements                355.9         228.9        127.0
      Construction in progress              165.8             -        165.8
      Assets under capital leases            83.9          30.9         53.0
                                      ------------ ------------- ------------
                                          3,379.6       1,590.1      1,789.5
                                      ------------ ------------- ------------
    Real estate & other segments
      Land                                   82.1             -         82.1
      Land held for development              24.7             -         24.7
      Buildings                             384.9          98.1        286.8
      Equipment                              71.5          29.9         41.6
      Leasehold improvements                 52.0          10.3         41.7
      Construction in progress                9.7             -          9.7
      Petroleum and natural gas costs        65.5           6.6         58.9
                                      ------------ ------------- ------------
                                            690.4         144.9        545.5
                                      ------------ ------------- ------------
    Total                             $   4,070.0   $   1,735.0  $   2,335.0
                                      ------------ ------------- ------------
                                      ------------ ------------- ------------


    8. Long-Term Debt

                                       November 3         May 5   November 4
                                             2007          2007         2006
                                      ------------ ------------- ------------
    First mortgage loans, average
     interest rate 9.3%, due
     2008-2026                        $     150.8   $     155.6  $     162.4
    Medium Term Notes, interest rate
     5.8%, due October 6, 2036              125.0         125.0        125.0
    Medium Term Notes, interest rate
     6.1%, due October 29, 2035             175.0         175.0        175.0
    Medium Term Notes, interest rate
     7.2%, due February 26, 2018            100.0         100.0        100.0
    Debentures, average interest
     rate 10.4%, due 2008-2016               83.9          88.8         90.9
    Notes payable and other debt
     primarily at interest rates
     fluctuating with the prime rate        166.1         179.4        180.4
    Credit facility, floating
     interest rate tied to bankers'
     acceptance rates, due
     June 8, 2010                           510.0             -            -
    Credit facility, floating
     interest rate tied to bankers'
     acceptance rates, due
     July 23, 2012                          485.0             -            -
    Construction loans, interest
     rates fluctuating with the
     prime rate                               0.5           1.6          0.4
    Unamortized financing costs              (4.0)            -            -
    Capital lease obligations, net
     of imputed interest                     55.2          49.7         51.3
                                      ------------ ------------- ------------
                                          1,847.5         875.1        885.4
    Less amount due within one year          80.5          82.5         93.3
                                      ------------ ------------- ------------
                                      $   1,767.0   $     792.6  $     792.1
                                      ------------ ------------- ------------
                                      ------------ ------------- ------------


    The new credit facilities (the "Credit Facilities") consisted 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.
    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 November 3, 2007, $485.0 of this new
credit facility was drawn down.

    9. Other Long-Term Liabilities

                                       November 3         May 5   November 4
                                             2007          2007         2006
                                      ------------ ------------- ------------
    Long-term lease obligation        $      35.6   $      36.9  $      23.2
    Deferred revenue                         13.6           6.5          6.5
    Financial instruments                    12.0           2.5          9.6
    Above market leases from
     acquisitions                             3.8           4.4          4.6
    Asset retirement obligations              0.6           0.6          0.4
                                      ------------ ------------- ------------
                                      $      65.6   $      50.9  $      44.3
                                      ------------ ------------- ------------
                                      ------------ ------------- ------------


    10. Capital Stock

    Authorized

    Preferred shares, par value of $25 each, issuable
     in series. Series 2 cumulative, redeemable, rate
     of 75% of prime.                                              2,780,100
    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


                                  No.  November 3         May 5   November 4
                           of Shares         2007          2007         2006
                         ------------ ------------ ------------- ------------
    Issued and
     outstanding
    Preferred shares,
     Series 2                266,000  $       6.7   $       7.5  $       8.3
    Non-Voting Class A    31,184,498        184.9         184.5        184.4
    Class B common        34,560,763          7.7           7.7          7.7
                                      ------------ ------------- ------------

                                            199.3         199.7        200.4
    Employees share
     purchase plan                           (3.5)         (3.6)        (4.2)
                                      ------------ ------------- ------------
                                      $     195.8   $     196.1  $     196.2
                                      ------------ ------------- ------------
                                      ------------ ------------- ------------

    During the period 10,461 (2006 - 46,047) Non-Voting Class A shares were
issued under the Company's share purchase plan to certain officers and
employees for $0.4 (2006 - $1.0). During the period, the Company purchased for
cancellation 34,000 Series 2 preferred shares for $0.8.


    11. Investment Income

                                2007         2006          2007         2006
                           (13 weeks)   (13 weeks)    (26 weeks)   (26 weeks)
                         ------------ ------------ ------------- ------------
    Dividend and
     interest income     $       0.1  $       2.5   $       1.0  $       4.9
    Share of earnings of
     entities accounted
     using the equity
     method                      7.8          8.7          15.9         17.6
                         ------------ ------------ ------------- ------------
                         $       7.9  $      11.2   $      16.9  $      22.5
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------


    12. Capital Gains and Other Items

                                2007         2006          2007         2006
                           (13 weeks)   (13 weeks)    (26 weeks)   (26 weeks)
                         ------------ ------------ ------------- ------------
    Gain on sale of
     investments         $         -  $       7.0   $     100.9  $       7.0
    Other items                  0.4          0.4           0.4          0.4
    Change in fair value
     of Canadian third
     party asset-backed
     commercial paper
     (Note 6)                   (3.0)           -          (3.0)           -
                         ------------ ------------ ------------- ------------
                         $      (2.6)  $      7.4   $      98.3   $      7.4
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------


    13. Supplementary Cash Flow Information

                                2007         2006          2007         2006
                           (13 weeks)   (13 weeks)    (26 weeks)   (26 weeks)
                                          Restated                  Restated
                                           (Note 1)                  (Note 1)
                         ------------ ------------ ------------- ------------
      a) Items not
       affecting cash
      Depreciation and
       amortization      $      76.7  $      67.2   $     146.5  $     130.1
      Future income
       taxes                    (6.8)         0.6          (6.0)        (0.6)
      Amortization of
       other assets              0.9          1.6           3.5          3.8
      Provision on
       asset-backed
       commercial paper          3.0            -           3.0            -
      Equity in earnings
       of other entities,
       net of dividends
       received                 (0.7)        (1.0)         (0.7)        (2.5)
      Minority interest          1.2         12.3          12.9         27.5
      Stock-based
       compensation                -          0.3           2.2          0.5
      Long-term lease
       obligation               (2.7)         2.2          (1.3)         2.4
      Employee future
       benefits
       obligation                1.3          2.9           2.5          4.2
      Rationalization
       costs (Note 21)          (3.7)           -          (3.1)           -
                         ------------ ------------ ------------- ------------
                         $      69.2  $      86.1   $     159.5  $     165.4
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------

      b) Other cash flow
       information

      Net interest paid  $      30.6  $      23.2   $      45.7  $      31.6
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------
      Net income taxes
       paid              $      32.5  $      39.1   $      76.6  $      70.0
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------


    14. Segmented Information

                                2007         2006          2007         2006
                           (13 weeks)   (13 weeks)    (26 weeks)   (26 weeks)
                                         Restated                   Restated
                                          (Note 1)                   (Note 1)
                         ------------ ------------ ------------- ------------
    Revenue
    Food                 $   3,406.6  $   3,251.5   $   6,847.6  $   6,557.6
                         ------------ ------------ ------------- ------------
    Real estate
      Commercial                10.4          9.4          20.6         19.5
      Inter-segment              8.5          8.3          16.5         16.5
      Residential               17.7         56.8          42.9         77.2
                         ------------ ------------ ------------- ------------
                                36.6         74.5          80.0        113.2
                         ------------ ------------ ------------- ------------
    Investment and other
     operations                 50.1         35.8          93.1         80.1
                         ------------ ------------ ------------- ------------
                             3,493.3      3,361.8       7,020.7      6,750.9
    Elimination                 (8.5)        (8.3)        (16.5)       (16.5)
                         ------------ ------------ ------------- ------------
                         $   3,484.8  $   3,353.5   $   7,004.2  $   6,734.4
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------


                                2007         2006          2007         2006
                           (13 weeks)   (13 weeks)    (26 weeks)   (26 weeks)
                                         Restated                   Restated
                                          (Note 1)                   (Note 1)
                         ------------ ------------ ------------- ------------
    Operating income
    Food                 $      90.8  $      79.7   $     186.0  $     168.0
    Real estate
      Commercial                11.7         11.3          24.6         23.1
      Residential                9.8         17.7          25.8         31.3
    Investment and other
     operations                  8.8          6.6          15.4         16.6
    Corporate expenses          (2.9)        (2.3)         (6.1)        (4.8)
                         ------------ ------------ ------------- ------------
                         $     118.2  $     113.0   $     245.7  $     234.2
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------


                                       November 3         May 5   November 4
                                             2007          2007         2006
                                                       Restated     Restated
                                                        (Note 1)     (Note 1)
                                      ------------ ------------- ------------
    Identifiable assets
    Food                              $   3,816.3   $   3,399.9  $   3,245.2
    Goodwill                              1,111.9         746.5        726.0
                                      ------------ ------------- ------------
                                          4,928.2       4,146.4      3,971.2
    Real estate                             664.4         609.4        616.5
    Investment and other operations
     (including goodwill of $40.1;
     May 5, 2007 $40.1; November 4,
     2006 $40.1)                            274.9         460.0        627.6
                                      ------------ ------------- ------------
                                      $   5,867.5   $   5,215.8  $   5,215.3
                                      ------------ ------------- ------------
                                      ------------ ------------- ------------


                                2007         2006          2007         2006
                           (13 weeks)   (13 weeks)    (26 weeks)   (26 weeks)
                                         Restated                   Restated
                                          (Note 1)                   (Note 1)
                         ------------ ------------ ------------- ------------
    Depreciation and
     amortization
    Food                 $      68.7  $      60.5   $     130.5  $     116.9
    Real estate                  1.8          1.6           3.5          3.6
    Investment and other
     operations                  6.2          5.1          12.5          9.6
                         ------------ ------------ ------------- ------------
                         $      76.7  $      67.2   $     146.5  $     130.1
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------

                                2007         2006          2007         2006
                           (13 weeks)   (13 weeks)    (26 weeks)   (26 weeks)
                                         Restated                   Restated
                                          (Note 1)                   (Note 1)
                         ------------ ------------ ------------- ------------
    Capital expenditures
    Food                 $     114.9  $      94.8   $     191.2  $     221.6
    Real estate                  6.5          6.1          28.0          9.6
    Investment and other
     operations                  2.4          9.5          13.7         15.2
                         ------------ ------------ ------------- ------------
                         $     123.8  $     110.4   $     232.9  $     246.4
                         ------------ ------------ ------------- ------------
                         ------------ ------------ ------------- ------------


    15. Employee Future Benefits

    During the Company's second quarter and first half of fiscal 2008, the net
employee future benefit expense was $5.7 and $11.5 respectively (2006 - $6.1
and $12.2). The expense included costs for the Company's defined contribution
pension plans, defined benefit pension plans, post-retirement benefit plans
and post-employment benefit plans.

    16. Business Acquisitions

    During the first two quarters, Sobeys acquired franchisee stores and
prescription files as part of its normal course of operations for total cash
consideration of $7.3. The acquisitions were accounted for using the purchase
method with net identifiable assets recorded at $5.4 (including intangible
assets of $2.1) and goodwill recorded at $1.9. During the first two quarters
of fiscal 2007, Sobeys acquired franchisee stores and prescription files for
total cash consideration of $17.0. The acquisitions were accounted for using
the purchase method with net identifiable assets recorded at $16.9 (including
intangible assets of $7.4) and goodwill recorded at $0.1.
    During the first half 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 September 12, 2007, Sobeys acquired all the assets of Thrifty Foods
("Thrifty") for an amount of $261.8. 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 is currently
carrying out a detailed analysis and changes will be made to the allocation of
the excess consideration paid over net assets acquired as information becomes
available. The measurement and allocation of finite and infinite intangible
assets is also underway. Management expects to finalize the purchase price
allocation in fiscal 2008. As a result, the actual amounts allocated to the
identifiable assets acquired and liabilities assumed and the related operating
results will vary from the preliminary amounts, and differences could be
material. The preliminary purchase price allocation, which has incorporated
management's preliminary assessment of fair value, is as follows:

    Consideration
      Cash                                                       $     259.8
      Acquisition costs                                                  2.0
                                                                 ------------
      Total consideration paid                                         261.8
                                                                 ------------

    Net assets acquired
      Current assets                                                    35.6
      Long-term assets                                                  41.3
      Current liabilities assumed                                      (33.3)
      Long-term liabilities assumed                                     (3.8)
                                                                 ------------
      Total net assets acquired                                         39.8
                                                                 ------------

    Excess consideration paid over net assets acquired           $     222.0
                                                                 ------------
                                                                 ------------

    Preliminary allocation of excess consideration paid over net
     assets acquired
      Goodwill and identifiable intangible assets                $     222.0
                                                                 ------------
                                                                 ------------


    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 18). 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. During the third quarter
of fiscal 2007, management carried out a detailed analysis and changes were
made to the preliminary allocation of the excess consideration paid over net
assets acquired as disclosed in the second quarter of fiscal 2007. The
measurement and allocation of intangible assets was also completed and amended
from $21.5 to $6.8. As a result goodwill was adjusted from $21.7 to $41.3 to
reflect the finalized valuation of ADL. The final purchase price allocation,
which has incorporated management's assessment of fair value, is as follows:

    Consideration
      Cash                                                       $      75.8
      Acquisition costs                                                  3.4
                                                                 ------------
      Total consideration paid                                          79.2
                                                                 ------------

    Net assets acquired
      Current assets                                                    28.0
      Long-term assets                                                  27.7
      Current liabilities assumed                                      (20.0)
      Long-term liabilities assumed                                     (4.6)
                                                                 ------------
      Total net assets acquired                                         31.1
                                                                 ------------
    Excess consideration paid over net assets acquired           $      48.1
                                                                 ------------
                                                                 ------------

    Allocation of excess consideration paid over net
     assets acquired
      Intangible assets                                          $       6.8
      Goodwill                                                          41.3
                                                                 ------------
                                                                 $      48.1
                                                                 ------------
                                                                 ------------


    17. Vendor Allowances

    The Company receives allowances from certain vendors, whose products are
purchased for resale. Included in these vendor programs are allowances for
volume purchases, exclusivity allowances, listing fees, and other allowances.
The Company recognizes these allowances as a reduction of cost of sales,
selling and administrative expenses and related inventories in accordance with
EIC-144. Certain allowances from vendors are contingent on the Company
achieving minimum purchase levels. These allowances are recognized when it is
probable that the minimum purchase level will be met and the amount of
allowance can be estimated. During the second quarter and first half of fiscal
2008, the Company has recognized $2.0 (2006 - $3.9) and $3.7 (2006 - $5.6) of
allowances in income where it is probable that the minimum purchase level will
be met and the amount of allowance can be estimated.

    18. 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 288 (May 5, 2007 - 271; November 4, 2006 - 276)
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.

    19. 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 November 3, 2007 the value 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 certain subsidiaries are presently under audit by CRA and
certain provincial taxing authorities for fiscal years 2001 through 2006. The
principal matters under audit are:

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

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

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

    Reassessments have been received in respect of the sale of shares of
Hannaford. In the event that the tax authorities are successful in respect of
the Hannaford transaction, which the Company believes is unlikely, the maximum
potential exposure in excess of provisions taken is approximately $24.0.
    The Company has appealed the reassessments in respect of the sale of
Hannaford shares. The Company expects that it will be substantially successful
on its appeals of each of these reassessments. The Company also believes that
the ultimate resolution of these matters will not, in any event, have a
material impact on earnings because it has made adequate provisions for each
of these matters. Should the ultimate outcome materially differ from the
provisions established, the effective tax rate and earnings of the Company
could be materially affected, negatively or positively, in the period in which
the matters are resolved.
    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.

    20. 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 $25.1.

    21. Business Rationalization Costs

    During the third quarter of fiscal 2007, Sobeys completed a
rationalization of administrative functions in Atlantic Canada. Sobeys also
began to incur costs associated with the development of a new grocery
distribution centre in Vaughan, Ontario. These costs primarily relate to
severance in both the Atlantic and Ontario regions along with fixed asset and
inventory write-offs. In the fourth quarter of fiscal 2007, Sobeys also
recorded rationalization costs related to its Quebec distribution network of
which $3.0 has been reversed in the second quarter of 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. Sobeys expects to incur additional administrative
rationalization costs in fiscal 2008 enabled by its continuing business
process and system initiative. The dollar value of these additional costs will
be quantified and disclosed throughout fiscal 2008. The costs associated with
the organizational change are recorded as incurred as cost of sales, selling
and administrative expenses in the statement of earnings before tax as
follows:

                                                                   Liability
                           Liability     Incurred                         at
                                  at  Fiscal 2008                 November 3,
                         May 5, 2007    (26 weeks)         Paid         2007
                         ----------------------------------------------------
    Severance
      National           $         -  $       1.2   $       0.3  $       0.9
      Atlantic                   3.2            -           1.0          2.2
      Ontario                    4.6            -             -          4.6
      Quebec                     4.3         (3.0)            -          1.3
    Other costs                    -            -             -            -
                         ----------------------------------------------------
                                12.1         (1.8)          1.3          9.0

    Asset write-offs               -            -             -            -
                         ----------------------------------------------------
                         $      12.1  $      (1.8)  $       1.3  $       9.0
                         ----------------------------------------------------
                         ----------------------------------------------------


                                                                       Total
                            Incurred     Incurred                   Incurred
                         Fiscal 2007  Fiscal 2008                        and
                           (52 weeks)   (26 weeks)  Anticipated  Anticipated
                         ----------------------------------------------------
    Severance
      National           $         -  $       1.2   $         -  $       1.2
      Atlantic                   4.7            -             -          4.7
      Ontario                    5.3            -             -          5.3
      Quebec                     4.3         (3.0)            -          1.3
    Other costs                  1.1            -             -          1.1
                         ----------------------------------------------------
                                15.4         (1.8)            -         13.6

    Asset write-offs             3.4            -             -          3.4
                         ----------------------------------------------------
                         $      18.8  $      (1.8)  $         -  $      17.0
                         ----------------------------------------------------
                         ----------------------------------------------------


    22. Subsequent Events

    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 will be floating and may be tied to the bankers' acceptance
rate, Canadian prime rate or LIBOR.
    On November 15, 2007 Sobeys established and drew down on a new unsecured
non-revolving credit facility of $30.0. The maturity date is May 15, 2008. The
interest rate will be floating and may be tied to the bankers' acceptance
rate, Canadian prime rate or LIBOR.

    23. Comparative Figures

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




For further information:

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


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