Empire reports third quarter net earnings of $48.6 million



    STELLARTON, NS, March 11 /CNW/ - Empire Company Limited (TSX: EMP.A)
today announced net earnings for its third quarter ended February 2, 2008 of
$48.6 million ($0.74 per share) versus $31.9 million ($0.48 per share) in the
same quarter last year, a 52.3 percent increase. Included in third quarter net
earnings were capital gains and other items, net of tax, of ($0.3) million as
compared to capital gains and other items, net of tax, of ($1.0) million in
the third quarter last year.
    Earnings before capital gains and other items, net of tax, for the third
quarter ended February, 2, 2008 equalled $48.9 million ($0.74 per share)
compared to $32.9 million ($0.49 per share) in the third quarter last year, a
48.6 percent increase.

    
    Third Quarter Financial Highlights (versus the third quarter last year)

    - Revenue of $3.50 billion, up $221.1 million or 6.7 percent.
    - Sobeys Inc.'s ("Sobeys") same-store sales increased 2.0 percent.
    - Earnings before capital gains and other items, net of tax, of
      $48.9 million, up $16.0 million or 48.6 percent.
    - Earnings per share, before capital gains and other items, net
      of tax, of $0.74, an improvement of 25 cents per share.
    - Net earnings of $48.6 million ($0.74 per share), a $16.7 million
      increase.
    - Funded debt to total capital of 45.8 percent compared to 30.9 percent a
      year earlier.

    Paul Sobey, President and Chief Executive Officer stated, "In an
increasingly competitive environment both our food and real estate divisions
remain focused on the superior execution of their respective strategies. For
Sobeys this includes an unwavering commitment to competitive pricing,
continued improvements in product innovation and mix, improved execution in
the stores as well as an ongoing focus on cost reduction and productivity
improvements.
    Our real estate operations continue their disciplined focus of
capitalizing on the unique development opportunities associated with our
retail network, with completed developments being first offered for sale to
our 48 percent equity owned Crombie REIT.
    Our announcement subsequent to quarter end, on February 25, 2008, of the
sale of 61 properties held by our wholly-owned subsidiary, Sobey Leased
Properties to Crombie REIT for $428.5 million is an affirmation of that
strategy.
    Specific to the third quarter, our consolidated earnings benefited from
having 100 percent ownership of Sobeys following the privatization completed
last June; Sobeys continued improvement in total and same-store sales and
their reduced business process, rationalization and system implementation
costs; higher earnings contribution from our residential real estate operation
and a favourable adjustment to income taxes."

    Financial Overview

    Revenue

    Consolidated revenue for the third quarter equalled $3.50 billion compared
to $3.28 billion last year, an increase of $221.1 million or 6.7 percent.
    Sobeys' revenue equalled $3.44 billion, an increase of $209.2 million or
6.5 percent compared to the third quarter last fiscal year. Third quarter
same-store sales increased 2.0 percent. In aggregate, there was no retail food
inflation in the third quarter.
    Sobeys' retail sales growth resulted from the continued implementation of
sales and merchandising initiatives and sustained competitive pricing across
the country, coupled with an increase in retail selling square footage from
new stores, enlargements and the acquisition of Thrifty Foods on
September 12, 2007. Thrifty Foods third quarter sales were $145.8 million.
    Excluding the impact of a decline in wholesale tobacco sales and the
Thrifty Foods acquisition, third quarter sales growth for Sobeys would have
been 2.5 percent.
    During the third quarter, 11 corporate and franchised stores were opened,
acquired or relocated compared to 14 corporate and franchised stores opened,
acquired or relocated during the third quarter of last year. An additional six
stores were expanded during the third quarter compared to nine stores expanded
during the third quarter last year. A total of 14 stores were closed during
the quarter compared to ten stores closed in the third quarter last year.
There were five stores rebannered in the third quarter of fiscal 2008 compared
to five stores rebannered in the third quarter of last year.
    At the end of the third quarter Sobeys' square footage totalled
27.1 million, a 3.0 percent increase over the third quarter last year.
    Real estate division revenue (net of inter-segment transactions) equalled
$28.4 million, an increase of $6.6 million from the $21.8 million recorded in
the third quarter last year. Commercial property revenue increased by
$1.0 million while revenue from residential operations increased by $5.6
million. The increase in residential real estate revenue was the result of
stronger than expected sales activity in western Canada. Commercial property
revenue increased largely as a result of property additions.
    Investments and other operations generated revenues of $34.7 million in
the third quarter versus $29.4 million in the third quarter last year. The
increase is primarily attributable to higher revenue from wholly-owned Empire
Theatres.

    Operating Income

    Consolidated operating income in the third quarter totalled $90.7 million,
an increase of $17.8 million or 24.4 percent over the $72.9 million recorded
in the third quarter last year.
    Sobeys' operating income contribution to Empire totalled $68.7 million, an
increase of $20.7 million or 43.1 percent from the $48.0 million recorded in
the third quarter last year. Sobeys third quarter operating margin, which is
operating income divided by revenue, was 2.00 percent compared to 1.49 percent
in the third quarter last year. Included in the third quarter fiscal 2008
operating income was a $14.0 million increase in depreciation and amortization
expense, reflecting Sobeys' continued capital investments. Included in
operating income in the third quarter of fiscal 2007 were $20.2 million of
business process and system initiative and rationalization costs.
    The real estate division contributed operating income of $22.4 million, an
increase of $4.9 million from the $17.5 million recorded in the third quarter
last year. Operating income generated from commercial properties increased
$0.9 million while operating income from residential operations increased by
$4.0 million from the third quarter last year. The increase in residential
operating income was largely the result of higher residential lot sales
activity in western Canada as mentioned. The increase in commercial property
operating income is primarily attributed to higher equity earnings
contribution from our 48 percent interest in Crombie REIT.
    Investments and other operations' operating income, net of corporate
expenses, equalled ($0.4) million compared to $7.4 million in the third
quarter last year. The decrease largely reflects lower dividend and interest
income from investments and reduced operating income from other operations.

    Interest Expense

    Interest expense was $30.1 million, an increase of $14.2 million from the
$15.9 million recorded in the third quarter last year. This increase was
largely expected as a result of indebtedness associated with the funding of
Sobeys' privatization which was finalized on June 15, 2007 as well as funding
of the Thrifty Foods acquisition on September 12, 2007.

    Income Taxes

    The effective income tax rate for the third quarter of fiscal 2008 was
21.6 percent compared to 27.5 percent last year. The primary reason for the
decline in effective income tax rate is due to reductions in the general
federal corporate income tax rate. These rate reductions brought about a net
decrease in the Company's future income tax assets and liabilities as well as
a corresponding $5.4 million decrease in income tax expense. Similar rate
reductions resulted in a $2.0 million decrease in income tax expense in the
third quarter of fiscal 2007.

    Minority Interest

    In the third quarter of fiscal 2008, Empire recorded negative minority
interest expense of $1.4 million compared to minority interest expense of $8.4
million in the third 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 third quarter last year was 72.1 percent.

    Earnings Before Capital Gains and Other Items

    Earnings before capital gains and other items equalled $48.9 million in
the third quarter as compared to $32.9 million in the same quarter last year,
a 48.6 percent increase. The $16.0 million increase in earnings before capital
gains and other items reflects the growth in third quarter operating income of
$17.8 million, the $9.8 million decline in minority interest and a $2.6
decrease in income tax expense, partially offset by the $14.2 million increase
in interest expense as mentioned.

    Capital Gains and Other Items

    Included in third quarter net earnings were capital gains and other items,
net of tax, of ($0.3) million as compared to capital gains and other items,
net of tax, of ($1.0) million in the third quarter last year.

    Net Earnings

    Consolidated net earnings totalled $48.6 million ($0.74 per share) versus
$31.9 million ($0.48 per share) in the third quarter last year, a 52.3 percent
increase.

    Consolidated Financial Condition

    The ratio of funded debt to total capital at the end of the third quarter
equalled 45.8 percent versus 30.9 percent at the end of the third quarter last
year. The higher debt ratio was expected and is largely attributed to
indebtedness incurred under a revolving-term credit facility in the first
quarter which assisted in the funding of the privatization of Sobeys and also
to funding of the Thrifty Foods acquisition on September 12, 2007.
    At February, 2, 2008, 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
$348.0 million on a cost base of $137.6 million, resulting in an unrealized
gain of $210.4 million. This compares to an unrealized gain of $384.6 million
at the beginning of the fiscal year and an unrealized gain of $383.0 million
at the end of the third quarter last fiscal year. 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.
    The purchase of property and equipment in the third quarter equalled
$166.2 million as compared to $124.5 million in the same quarter last year.
Investment in food division property and equipment accounted for
$147.3 million of the total capital investment in the third quarter. Capital
expenditures for the real estate division and investments and other operations
in the third quarter equalled $16.3 million and $2.6 million, respectively.

    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 April 30, 2008 to shareholders of record on April 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. Operating earnings
is net earnings before after tax capital gains and other items. Operating
income or EBIT is calculated as operating earnings before minority interest,
interest expense and income taxes. Same-store sales are sales from stores in
the same location in both reporting periods.

    The table below presents a summary of financial performance for the 13 and
39 weeks ended February 2, 2008 compared to the 13 and 39 weeks ended February
3, 2007.

    Summary Table of Consolidated Financial Results

                                  13 Weeks Ended          39 Weeks Ended
                              ----------------------- -----------------------
    ($ in millions, except per     Feb 2,      Feb 3,      Feb 2,      Feb 3,
     share information)             2008        2007        2008        2007
                              ----------- ----------- ----------- -----------
                                           (restated)              (restated)
    Segmented Revenue (net of
     elimination entries)
        Food                   $ 3,439.9   $ 3,230.7   $10,287.5   $ 9,788.3
        Real estate
          Commercial                10.7         9.7        31.3        29.2
          Residential               17.7        12.1        60.6        89.3
        Investments and other
         operations                 34.7        29.4       127.8       109.5
                              ----------- ----------- ----------- -----------
                               $ 3,503.0   $ 3,281.9   $10,507.2   $10,016.3
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Segmented Operating Income
        Food                   $    68.7   $    48.0   $   254.7   $   216.0
        Real Estate
          Commercial                13.1        12.2        37.7        35.3
          Residential                9.3         5.3        35.1        36.6
        Investments and other
         operations                 (0.4)        7.4         8.9        19.2
                              ----------- ----------- ----------- -----------
                               $    90.7   $    72.9   $   336.4   $   307.1
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Earnings before capital
     gains and other items          48.9        32.9       169.2       136.0
    Capital gains and other
     items, net of tax              (0.3)       (1.0)       80.1         5.0
                              ----------- ----------- ----------- -----------
      Net earnings             $    48.6   $    31.9   $   249.3   $   141.0
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Basic earnings per share
    Operating earnings         $    0.74   $    0.50   $    2.57   $    2.07
    Capital gains and other
     items, net of tax                 -       (0.01)       1.22        0.08
                              ----------- ----------- ----------- -----------
    Net earnings               $    0.74   $    0.49   $    3.79   $    2.15
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Basic weighted average
     number of shares
     outstanding (in millions)      65.6        65.6        65.6        65.6
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Diluted earnings per share
    Operating earnings         $    0.74   $    0.49   $    2.57   $    2.06
    Capital gains and other
     items, net of tax                 -       (0.01)       1.22        0.08
                              ----------- ----------- ----------- -----------
    Net earnings               $    0.74   $    0.48   $    3.79   $    2.14
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    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 39 weeks ended February 3, 2007 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 statements.


    Sale of Properties to Crombie REIT

    Subsequent to the end of the third quarter, on February 25, 2008, Empire
Company announced that it and certain of its wholly-owned subsidiaries,
including Sobey Leased Properties Limited ("SLP"), had entered into agreements
to sell a portfolio of 61 retail properties representing approximately
3.3 million square feet of gross leasable area to Crombie Real Estate
Investment Trust ("Crombie") (the "Transaction"). The selling price in respect
of the 61 properties is approximately $428.5 million representing an effective
capitalization rate of 8.12 percent before transaction costs.
    Empire indirectly maintains, and will continue to own immediately
following this Transaction, approximately a 48.1 percent ownership interest in
Crombie.
    On closing of this Transaction, expected on April 21, 2008, Empire will
receive net cash proceeds of approximately $280 million. The difference
between the $428.5 million sale price and the net cash proceeds received on
closing of approximately $280 million is largely related to funds used for the
retirement of debt and for additional equity investment in Crombie, in
addition to closing and transaction costs.
    Empire will realize a pre-tax gain of approximately $165 million on the
closing of the Transaction. Under Canadian Generally Accepted Accounting
Principles, the gain will not be included in net earnings; rather the gain
(net of related taxes) will represent a reduction in the carrying value of
Empire's equity investment in Crombie.
    The net cash proceeds from the Transaction will be utilized by both Empire
and its wholly-owned subsidiary, Sobeys, to repay bank indebtedness.

    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 $5.9 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, business
prospects and opportunities and sale of properties to Crombie.
    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.
    Specific to the sale of properties to Crombie, while agreements of
purchase and sale have been executed, the transaction remains subject to a
number of regulatory and other consents and approvals. There can be no
assurance that the transaction will be completed as expected or will have the
impact on Empire as expected by management.
    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 except as required by
law.
    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.

    Additional financial information, including management's discussion and
analysis of the 13 and 39 weeks ended February, 2, 2008, will be filed
electronically with various securities commissions in Canada through SEDAR.

    Conference Call Invitation

    The Company will provide additional details concerning its third quarter
results on a conference call to be held on Tuesday March 11, 2008 beginning at
3:00 p.m. ADT (2:00 p.m. EDT). To join this conference call dial
1-800-733-7571 or 1-416-644-3414. 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 21263990# until midnight March 18, 2008,
or on the Company's website for 90 days after the meeting.


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

                                         February 2       May 5   February 3
                                               2008        2007         2007
                                          Unaudited     Audited    Unaudited
                                                       Restated     Restated
                                                        (Note 1)     (Note 1)
                                       ------------ ------------ ------------
    ASSETS

    Current
      Cash and cash equivalents         $    123.1   $    294.9   $    203.4
      Receivables                            313.4        312.3        328.4
      Mortgages, loans and other
       receivables (Note 5)                   18.8         14.5         20.8
      Income taxes receivable                    -          3.6            -
      Inventories                            847.0        757.5        772.8
      Prepaid expenses                        61.7         51.4         51.9
                                       ------------ ------------ ------------
                                           1,364.0      1,434.2      1,377.3
    Investments, at cost (quoted
    market value $1.6;
      May 5, 2007 $283.1; February 3,
       2007 $280.0)                            1.6        189.7        189.7
    Investments, at equity (realizable
     value $346.4;
      May 5, 2007 $434.0; February 3,
       2007 $440.3) (Note 4)                 136.0        142.8        147.6
    Mortgages, loans and other
     receivables (Note 5)                     58.8         65.1         60.5
    Other assets (Note 6)                    178.2        126.0         97.4
    Property and equipment (Note 7)        2,348.0      2,409.1      2,352.3
    Assets held for sale (Note 8)            293.5         24.1         23.9
    Intangibles (less accumulated
     amortization of $18.9;
      May 5, 2007 $11.7; February 3,
       2007 $10.4)                           397.2         38.2         36.8
    Goodwill                               1,146.0        786.6        786.0
                                       ------------ ------------ ------------
                                        $  5,923.3   $  5,215.8   $  5,071.5
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------
    LIABILITIES

    Current
      Bank indebtedness                 $     57.1   $     30.1   $     39.0
      Accounts payable and
       accrued liabilities                 1,246.1      1,260.3      1,176.2
      Income taxes payable                     0.7            -         17.9
      Future income taxes                     29.7         40.4         44.0
      Long-term debt due within
       one year                               72.2         82.5         77.3
      Liabilities relating to assets
       held for sale (Note 8)                 11.9          6.8          6.9
                                       ------------ ------------ ------------
                                           1,417.7      1,420.1      1,361.3
    Long-term debt (Note 9)                1,755.4        792.6        805.7
    Employee future benefits
     obligation                              105.8        102.1        102.6
    Future income taxes                      128.3        130.4        105.6
    Other long-term liabilities               75.3         50.9         37.6
    Long-term liabilities relating
     to assets held for sale (Note 8)         69.5            -            -
    Minority interest                         42.6        588.6        583.4
                                       ------------ ------------ ------------
                                           3,594.6      3,084.7      2,996.2
                                       ------------ ------------ ------------
    SHAREHOLDERS' EQUITY

    Capital stock (Note 10)                  195.7        196.1        196.0
    Contributed surplus                        0.3          0.3          0.2
    Retained earnings                      2,152.0      1,935.3      1,880.5
    Accumulated other comprehensive
     loss                                    (19.3)        (0.6)        (1.4)
                                       ------------ ------------ ------------
                                           2,328.7      2,131.1      2,075.3
                                       ------------ ------------ ------------
                                        $  5,923.3   $  5,215.8   $  5,071.5
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------
    Contingent liabilities (Note 20)
    Subsequent event (Note 23)

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


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

                                                     February 2   February 3
                                                           2008         2007
                                                                    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                                          249.3        141.0

    Dividends
      Preferred shares                                     (0.3)        (0.3)
      Common shares                                       (32.3)       (29.6)

    Premium on common shares purchased for
     cancellation                                             -         (1.6)
                                                    ------------ ------------
    Balance, end of period                           $  2,152.0   $  1,880.5
                                                    ------------ ------------
                                                    ------------ ------------


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

                                                     February 2   February 3
                                                           2008         2007
                                                    ------------ ------------

    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                                               (95.3)        (0.3)
                                                    ------------ ------------

    Balance, end of period                           $    (19.3)  $     (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)

                              February 2  February 3  February 2  February 3
                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------

    Revenue                    $ 3,503.0   $ 3,281.9   $10,507.2   $10,016.3
    Operating expenses
      Cost of sales, selling
       and administrative
       expenses                  3,340.9     3,155.0     9,969.8     9,547.6
      Depreciation and
       amortization                 80.9        65.3       227.4       195.4
                              ----------- ----------- ----------- -----------
                                    81.2        61.6       310.0       273.3
    Investment income (Note 11)      9.5        11.3        26.4        33.8
                              ----------- ----------- ----------- -----------
    Operating income                90.7        72.9       336.4       307.1
                              ----------- ----------- ----------- -----------
    Interest expense
      Long-term debt                29.1        14.1        74.2        40.2
      Short-term debt                1.0         1.8         4.1         5.5
                              ----------- ----------- ----------- -----------
                                    30.1        15.9        78.3        45.7
                              ----------- ----------- ----------- -----------
                                    60.6        57.0       258.1       261.4
    Capital gains and other
     items (Note 12)                   -        (1.2)       98.3         6.2
                              ----------- ----------- ----------- -----------
    Earnings before income
     taxes and minority
     interest                       60.6        55.8       356.4       267.6
                              ----------- ----------- ----------- -----------
    Income taxes (Note 13)
      Current                       11.3        15.7        99.5        86.1
      Future                         2.1        (0.2)       (3.9)       (0.8)
                              ----------- ----------- ----------- -----------
                                    13.4        15.5        95.6        85.3
                              ----------- ----------- ----------- -----------
    Earnings before minority
     interest                       47.2        40.3       260.8       182.3
    Minority interest               (1.4)        8.4        11.5        41.3
                              ----------- ----------- ----------- -----------
    Net earnings               $    48.6   $    31.9   $   249.3   $   141.0
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Earnings per share (Note 3)

      Basic                    $    0.74   $    0.49   $    3.79   $    2.15
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
      Diluted                  $    0.74   $    0.48   $    3.79   $    2.14
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Weighted average number
     of common shares
     outstanding, in millions

      Basic                         65.6        65.6        65.6        65.6

      Diluted                       65.7        65.7        65.7        65.7

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


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

                              February 2  February 3  February 2  February 3
                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------

    Net earnings               $    48.6   $    31.9   $   249.3   $   141.0
                              ----------- ----------- ----------- -----------
    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                (6.7)          -        (9.9)          -

        Foreign exchange
         hedging instruments         2.9           -        (0.8)          -

        Energy hedging
         instruments                (1.9)          -        (4.5)          -

      Share of comprehensive
       income (loss) of
       entities accounted
       using the equity method      (0.7)          -        (1.8)          -

      Foreign currency
       translation adjustment        0.4           -         0.4        (0.3)
                              ----------- ----------- ----------- -----------
                                    (6.0)          -       (95.3)       (0.3)
                              ----------- ----------- ----------- -----------
    Comprehensive income       $    42.6   $    31.9   $   154.0   $   140.7
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

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


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

                              February 2  February 3  February 2  February 3
                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------

    Operating Activities
      Net earnings             $    48.6   $    31.9   $   249.3   $   141.0
      Items not affecting
       cash (Note 14)               88.9        89.5       248.4       254.9
      Preferred dividends           (0.1)       (0.1)       (0.3)       (0.3)
                              ----------- ----------- ----------- -----------
                                   137.4       121.3       497.4       395.6
      Net change in non-cash
       working capital             (68.6)      (80.5)     (118.1)     (233.2)
                              ----------- ----------- ----------- -----------

    Cash flows from operating
     activities                     68.8        40.8       379.3       162.4
                              ----------- ----------- ----------- -----------

    Investing Activities
      Net decrease in
       investments                   1.5       182.5       192.5       179.8
      Purchase of shares in
       subsidiary, Sobeys Inc.         -           -    (1,065.7)      (48.6)
      Purchase of property and
       equipment                  (166.2)     (124.5)     (399.1)     (367.6)
      Proceeds on disposal of
       property and equipment       23.9        29.9        30.6        57.2
      Mortgages, loans and
       other receivables             0.9         7.0         2.0         3.0
      (Increase) decrease in
       other assets                 (3.6)       (9.5)      (63.2)       (9.0)
      Business acquisitions,
       net of cash
       acquired (Note 17)           (7.2)          -      (276.3)      (90.3)
                              ----------- ----------- ----------- -----------
    Cash flows (used in) from
     investing activities         (150.7)       85.4    (1,579.2)     (275.5)
                              ----------- ----------- ----------- -----------

    Financing Activities
      Increase (decrease) in
       bank indebtedness            30.2      (116.8)       27.0       (59.6)
      Decrease in construction
       loans                           -           -        (1.1)          -
      Issue of long-term debt       79.2         5.6     1,079.2       138.9
      Repayment of long-term
       debt                        (25.6)      (14.4)      (61.6)      (71.0)
      Minority interest             (1.1)        1.9        17.4        (1.6)
      Repurchase of preferred
       shares                       (0.1)       (0.8)       (0.9)       (0.8)
      Issue of Non-Voting
       Class A shares                  -           -         0.4         1.0
      Repurchase of Non-Voting
       Class A shares                  -           -           -        (1.9)
      Common dividends             (10.7)       (9.9)      (32.3)      (29.6)
                              ----------- ----------- ----------- -----------
    Cash flows from (used in)
     financing activities           71.9      (134.4)    1,028.1       (24.6)
                              ----------- ----------- ----------- -----------

    Decrease in cash and cash
     equivalents                   (10.0)       (8.2)     (171.8)     (137.7)
    Cash and cash equivalents,
     beginning of period           133.1       211.6       294.9       341.1
                              ----------- ----------- ----------- -----------
    Cash and cash equivalents,
     end of period             $   123.1   $   203.4   $   123.1   $   203.4
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

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


                           EMPIRE COMPANY LIMITED
                           ----------------------
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               ----------------------------------------------
                               FEBRUARY 2, 2008
                               ----------------
             (Unaudited, in millions, except per share amounts)

    1. Summary of Significant Accounting Policies

    Interim financial statements

    The unaudited interim period consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
("GAAP"). These interim consolidated financial statements do not include all
of the disclosures included in the Company's annual consolidated financial
statements. Accordingly, these interim consolidated financial statements
should be read in conjunction with the consolidated financial statements for
the year ended May 5, 2007, as set out in the 2007 Annual Report.

    Generally accepted accounting principles

    The accounting policies used in the preparation of these interim
consolidated financial statements conform with those used in the Company's
2007 annual consolidated financial statements except as noted below:

    Adopted during fiscal 2008

    Accounting changes

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

    Financial instruments

    On May 6, 2007, the Company implemented the CICA Handbook Sections 3855,
"Financial Instruments - Recognition and Measurement", 3865, "Hedges", 1530,
"Comprehensive Income", 3251, "Equity", and 3861, "Financial Instruments -
Disclosure and Presentation". These standards have been applied without
restatement of prior periods. The transitional adjustments resulting from
these standards are recognized in the opening balances of retained earnings
and accumulated other comprehensive income.
    Section 3855 requires the Company to 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                             Held for trading         Fair value
    Cash equivalents                 Held for trading         Fair value
    Receivables                      Loans and receivables    Amortized cost
    Mortgages, loans and other
     receivables                     Loans and receivables    Amortized cost
    Investments, 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 using forward interest rates for swaps of the same remaining
maturities. The fair value of energy contracts was estimated based on changes
in forward commodity rates.

    Hedges

    Section 3865 replaces Accounting Guideline 13, "Hedging Relationships".
The requirements for identification, designation, documentation and assessment
of effectiveness of hedging relationships remain substantially unchanged.
Section 3865 addresses the accounting treatment of qualifying hedging
relationships and the necessary disclosures and also requires all derivatives
in hedging relationships to be recorded at fair value.
    The Company has cash flow hedges which are used to manage exposure to
fluctuations in foreign currency exchange, variable interest rates and energy
prices. For cash flow hedges, the effective portion of the change in fair
value of the hedging item is recorded in other comprehensive income. To the
extent the change in fair value of the derivative is not completely offset by
the change in fair value of the hedged item, the ineffective portion of the
hedging relationship is recorded immediately in net earnings. Amounts
accumulated in other comprehensive income are reclassified to net earnings
when the hedged item is recognized in net earnings. When a hedging instrument
in a cash flow hedge expires or is sold, or when a hedge no longer meets the
criteria for hedge accounting, any cumulative gain or loss in accumulated
other comprehensive income relating to the hedge is carried forward until the
hedged item is recognized in net earnings. When the hedged item ceases to
exist as a result of its expiry or sale, or if an anticipated transaction is
no longer expected to occur, the cumulative gain or loss in accumulated other
comprehensive income is immediately reclassified to net earnings.

    Comprehensive income

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

    Equity

    Section 3251 which replaced Section 3250, "Surplus", establishes standards
for the presentation of equity and changes in equity during the reporting
period and requires the Company to present separately equity components and
changes in equity arising from i) net earnings; ii) other comprehensive
income; iii) other changes in retained earnings; iv) changes in contributed
surplus; v) changes in share capital; and vi) changes in reserves. 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 which replaces 3860, 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 effective as of 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 $73.6 at
        February 3, 2007 as well as an increase in depreciation expense and
        decrease in cost of sales, selling and administrative expenses of
        $25.3 for the year ended May 5, 2007 and $5.6 and $16.3 for the 13
        and 39 weeks ended February 3, 2007 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 39 weeks ended February 2,
        2008 is a $0.9 and $2.7 decrease in cost of sales, selling and
        administrative expenses, a $0.3 and $0.9 increase in income taxes and
        an increase in basic and diluted earnings of $0.01 and $0.03 per
        share respectively. The effect for the 13 and 39 weeks ended
        February 3, 2007 is a $6.8 and $10.0 increase in cost of sales,
        selling and administrative expenses, a $2.4 and $3.6 decrease in
        income taxes, a $1.2 and $1.8 decrease in minority interest and a
        decrease in basic and diluted earnings of $0.05 and $0.07 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 statement
disclosures.

    Financial instruments - disclosure and financial instruments -
    presentation

    Section 3862, "Financial Instruments - Disclosure" and Section 3863,
"Financial Instruments - Presentation", replace Section 3861, "Financial
Instruments - Disclosure and Presentation". Section 3862 requires increased
disclosures regarding the risks associated with financial instruments such as
credit risk, liquidity risk and market risks and the techniques used to
identify, monitor and manage these risks. Section 3863 carries forward
standards for presentation of financial instruments and non-financial
derivatives and provides additional guidance for the classification of
financial instruments, 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 $0.9 (2007 - $1.2).

      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 $0.6 (2007 - $0.2) 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 other long-term
liabilities 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. Assets held for sale are
valued at the lower of book value and fair value less cost of disposal.
Liabilities assumed upon sale of assets or debts to be repaid as part of a
sale transaction are also classified as available for sale.

    Store opening expenses

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

    Future income taxes

    The 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 denominated in foreign currencies 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 period. 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 9).
    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 the next fiscal quarter. 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:

                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------
    Operating earnings         $    48.9   $    32.9   $   169.2   $   136.0
    Capital gains and other
     items, net of income
     taxes of $0.3; $(0.2);
     $18.2; $1.2                    (0.3)       (1.0)       80.1         5.0
                              ----------- ----------- ----------- -----------
    Net earnings                    48.6        31.9       249.3       141.0
    Preferred share dividends       (0.1)       (0.1)       (0.3)       (0.3)
                              ----------- ----------- ----------- -----------
    Earnings applicable to
     common shares             $    48.5   $    31.8   $   249.0   $   140.7
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Earnings per share is
     comprised of the
     following:

    Operating earnings         $    0.74   $    0.50   $    2.57   $    2.07
    Capital gains and other
     items                             -       (0.01)       1.22        0.08
                              ----------- ----------- ----------- -----------
    Basic earnings per share   $    0.74   $    0.49   $    3.79   $    2.15
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Operating earnings         $    0.74   $    0.49   $    2.57   $    2.06
    Capital gains and other
     items                             -       (0.01)       1.22        0.08
                              ----------- ----------- ----------- -----------
    Diluted earnings per
     share                     $    0.74   $    0.48   $    3.79   $    2.14
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    4. Investments, at Equity
                                        February 2        May 5   February 3
                                              2008         2007         2007
                                       ------------ ------------ ------------
    Wajax Income Fund (27.6% interest)  $     31.3   $     32.2   $     31.2
    Crombie REIT (48.1% interest)            104.4        109.3        110.2
    U.S. residential real estate
     partnerships                              0.3          1.3          6.2
                                       ------------ ------------ ------------
                                        $   136.0    $    142.8   $    147.6
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------


    The Company's carrying value of its investment in Wajax Income Fund is as
follows:
                                                     February 2   February 3
                                                           2008         2007
                                                    ------------ ------------
      Balance, beginning of period                   $     32.2   $     33.1
      Equity earnings                                      14.7         15.1
      Distributions received                              (15.6)       (17.0)
                                                    ------------ ------------
      Balance, end of period                         $     31.3   $     31.2
                                                    ------------ ------------
                                                    ------------ ------------


    The Company's carrying value of its investment in Crombie REIT is as
follows:
                                                     February 2   February 3
                                                           2008         2007
                                                    ------------ ------------
      Balance, beginning of period                   $    109.3   $    112.8
      Equity earnings                                      10.6          8.5
      Share of comprehensive income (loss)                 (2.8)           -
      Distributions received                              (12.7)       (11.1)
                                                    ------------ ------------
      Balance, end of period                         $    104.4   $    110.2
                                                    ------------ ------------
                                                    ------------ ------------


    5. Mortgages, Loans and Other Receivables

                                        February 2        May 5   February 3
                                              2008         2007         2007
                                       ------------ ------------ ------------
    Loans receivable                    $     59.7   $     62.7   $     64.5
    Mortgages receivable                       0.6          0.6          0.2
    Other                                     17.3         16.3         16.6
                                       ------------ ------------ ------------
                                              77.6         79.6         81.3
    Less amount due within one year           18.8         14.5         20.8
                                       ------------ ------------ ------------
                                        $     58.8   $     65.1   $     60.5
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------

    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 $3.8 (May 5, 2007 - $5.7; February
3, 2007 - $5.1) held by VIEs as security for third party loans and financial
derivatives at fair value.

    Asset-backed commercial paper

    As of February 2, 2008, the Company held third-party asset-backed
commercial paper ("ABCP") with an original cost of $30.0 million 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. The $30.0 million of ABCP held by the
Company is entirely made up of collateralized debt obligations ("CDO").
Collateralized debt obligations are a type of asset-backed security that is
created by a portfolio of fixed-income assets which may include pools of
bonds, credit card debt, commercial mortgage-backed securities and other
loans.
    In the second quarter of fiscal 2008, a global disruption in the market
for such commercial paper resulted in a constraint on the liquidity of ABCP.
DBRS placed certain of the ABCP "under Review with Developing Implications"
following an announcement on August 16, 2007 that a consortium representing
banks, asset providers and major investors had agreed in principle to a
long-term proposal and interim agreement regarding the ABCP (commonly referred
to as "the Montreal Proposal"). 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
February 2, 2008, all of the ABCP held by the Company were part of the
Montreal Proposal.
    The pan-Canadian committee issued an announcement on December 23, 2007,
outlining the planned reformation for the $33 billion of ABCP that has been
immobile under a standstill agreement since last August. The change would
restructure ABCP into long-term notes that would more closely match the
maturity dates of the underlying assets and the cash flows they are expected
to generate. While extensive progress has been made in restructuring the paper
into longer term notes, final approval is not expected until March 2008.
    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, a pre-tax impairment loss
of $3.0 was recorded in the second quarter of fiscal 2008. 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.
    The Company believes it has sufficient credit facilities to satisfy its
financial obligations as they come due and does not expect there will be a
material adverse impact on its business as a result of this current
third-party asset backed commercial paper liquidity issue.

    Cash flow hedges

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

    7. Property and Equipment
                                                                  February 2,
                                                    Accumulated         2008
                                                          Depre-    Net Book
                                              Cost      ciation        Value
                                       ------------ ------------ ------------
    Food segment
      Land                              $    154.5   $        -   $    154.5
      Land held for development              150.0            -        150.0
      Buildings                              685.5        177.9        507.6
      Equipment, fixtures and vehicles     2,232.8      1,422.6        810.2
      Leasehold improvements                 461.7        285.1        176.6
      Construction in progress               177.8            -        177.8
      Assets under capital leases             96.2         39.7         56.5
                                       ------------ ------------ ------------
                                           3,958.5      1,925.3      2,033.2
                                       ------------ ------------ ------------
    Real estate & other segments
      Land                                    23.9            -         23.9
      Land held for development               52.4            -         52.4
      Buildings                              141.4         53.9         87.5
      Equipment                               75.1         35.7         39.4
      Leasehold improvements                  56.2         14.4         41.8
      Construction in progress                 8.3            -          8.3
      Petroleum and natural gas costs         82.0         20.5         61.5
                                       ------------ ------------ ------------
                                             439.3        124.5        314.8
                                       ------------ ------------ ------------
    Total                               $  4,397.8   $  2,049.8   $  2,348.0
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------


                                                                       May 5,
                                                                        2007
                                                                    Net Book
                                                    Accumulated        Value
                                                          Depre-    Restated
                                              Cost      ciation      (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
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------


                                                                  February 3,
                                                                        2007
                                                                    Net Book
                                                    Accumulated        Value
                                                          Depre-    Restated
                                              Cost      ciation      (Note 1)
                                       ------------ ------------ ------------
    Food segment
      Land                              $    150.7   $        -   $    150.7
      Land held for development              130.1            -        130.1
      Buildings                              638.7        154.0        484.7
      Equipment, fixtures and vehicles     1,903.6      1,226.2        677.4
      Leasehold improvements                 361.0        235.9        125.1
      Construction in progress               193.0            -        193.0
      Assets under capital leases             83.1         32.3         50.8
                                       ------------ ------------ ------------
                                           3,460.2      1,648.4      1,811.8
                                       ------------ ------------ ------------
    Real estate & other segments
      Land                                    78.0            -         78.0
      Land held for development               23.7            -         23.7
      Buildings                              375.8         99.7        276.1
      Equipment                               72.1         31.0         41.1
      Leasehold improvements                  52.3         11.0         41.3
      Construction in progress                15.5            -         15.5
      Petroleum and natural gas costs         73.4          8.6         64.8
                                       ------------ ------------ ------------
                                             690.8        150.3        540.5
                                       ------------ ------------ ------------
    Total                               $  4,151.0   $  1,798.7   $  2,352.3
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------


    8. Assets Held For Sale

    During the quarter ended February 2, 2008, the Board of Directors of the
Company approved a plan to dispose of 61 commercial properties which are
currently held by wholly-owned subsidiaries and which were included in the
real estate segment of the business (see Note 23). In accordance with
Section 3475 of the CICA Handbook, the assets and liabilities of these
properties have been reclassified as held for sale.
    Also included in the assets held for sale are other commercial properties
from the various segments with a net carrying value of $62.0. Included in
liabilities related to these assets held for sale is $6.5. These assets are
listed for potential sale to outside parties and it is expected that these
properties will be disposed of in the next twelve months.

    9. Long-Term Debt
                                        February 2        May 5   February 3
                                              2008         2007         2007
                                       ------------ ------------ ------------
    First mortgage loans, average
     interest rate 9.3%, due 2008-2026  $     72.2   $    155.6   $    159.0
    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                82.7         88.8         89.7
    Notes payable and other debt
     primarily at interest rates
     fluctuating with the prime rate         149.3        179.4        185.9
    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            -            -
    Credit facility, floating interest
     rate tied to bankers' acceptance
     rates, due November 8, 2010              75.0            -            -
    Construction loans, interest rates
     fluctuating with the prime rate           0.5          1.6          0.4
    Unamortized financing costs               (3.9)           -            -
    Capital lease obligations, net of
     imputed interest                         56.8         49.7         48.0
                                       ------------ ------------ ------------
                                           1,827.6        875.1        883.0
    Less amount due within one year           72.2         82.5         77.3
                                       ------------ ------------ ------------
                                        $  1,755.4   $    792.6   $    805.7
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------

    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 February 2, 2008, $485.0 of this new
credit facility was drawn down. Sobeys has also issued $40.0 in letters of
credit against the facility at February 2, 2008.
    On November 8, 2007, Sobeys established and drew down on a new unsecured
revolving credit facility of $75.0. The maturity date is November 8, 2010. The
interest rate is floating and may be tied to the bankers' acceptance rate,
Canadian prime rate or LIBOR.

    10. Capital Stock

    Authorized

    Preferred shares, par value of $25 each,
     issuable in series. Series 2 cumulative,
     redeemable, rate of 75% of prime.                             2,778,700
    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


                                          February 2       May 5  February 3
                           No. of Shares        2008        2007        2007
                          --------------- ----------- ----------- -----------

    Issued and outstanding

    Preferred shares,
     Series 2                    264,600   $     6.6   $     7.5   $     7.5
    Non-Voting Class A        31,422,274       185.0       184.5       184.4
    Class B common            34,322,987         7.6         7.7         7.7
                                          ----------- ----------- -----------
                                               199.2       199.7       199.6
    Employees share
     purchase plan                              (3.5)       (3.6)       (3.6)
                                          ----------- ----------- -----------
                                           $   195.7   $   196.1   $   196.0
                                          ----------- ----------- -----------
                                          ----------- ----------- -----------

    During the fiscal year 10,461 (2007 - 46,047) Non-Voting Class A shares
were issued under the Company's share purchase plan to certain officers and
employees for $0.4 (2007 - $1.0). The Company also purchased for cancellation
35,400 (2007 - 31,900) Series 2 preferred shares for $0.9 (2007 - $0.8). Under
the Long Term Incentive Plan 112,469 options were issued. Options allow
holders to purchase Non-Voting Class A shares at $43.96 per share. Options
expire in December 2015. During the fiscal year 237,776 Class B common shares
were exchanged for 237,776 Non-Voting Class A shares.


    11. Investment Income
                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                              ----------- ----------- ----------- -----------
    Dividend and interest
     income                    $     0.1   $     2.8   $     1.1   $     7.7
    Share of earnings of
     entities accounted
     using the equity method         9.4         8.5        25.3        26.1
                              ----------- ----------- ----------- -----------
                               $     9.5   $    11.3   $    26.4   $    33.8
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    12. Capital Gains and Other Items

                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                              ----------- ----------- ----------- -----------
    Gain on sale of
     investments               $       -   $    (0.8)  $   100.9   $     6.2
    Other items                        -        (0.4)        0.4           -
    Change in fair value of
     Canadian third party
     asset-backed commercial
     paper (Note 6)                    -           -        (3.0)          -
                              ----------- ----------- ----------- -----------
                               $       -   $    (1.2)  $    98.3   $     6.2
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    13. Income Taxes

    The effective tax rate for the third quarter of fiscal 2008 of 21.6%
differs from the combined statutory rate of 32.1% due to the impact of changes
in rates used to calculate future income taxes. These rate changes brought
about a net decrease of $5.4 (2007 - $2.0) in income tax expense.

    14. Supplementary Cash Flow Information

                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------
    a) Items not affecting
       cash
    Depreciation and
     amortization              $    80.9   $    65.3   $   227.4   $   195.4
    Future income taxes              2.1        (0.2)       (3.9)       (0.8)
    Amortization of other
     assets                          1.3         1.3         4.8         5.1
    Provision on asset-backed
     commercial paper                  -           -         3.0           -
    Equity in earnings of other
     entities, net of dividends
     received                        0.7         2.5           -           -
    Minority interest               (1.4)        5.5        11.5        33.0
    Stock-based compensation           -         0.2         2.2         0.7
    Long-term lease obligation       5.3         0.6         4.0         3.0
    Employee future benefits
     obligation                      1.2         1.1         3.7         5.3
    Rationalization costs
     (Note 22)                      (1.2)       13.2        (4.3)       13.2
                              ----------- ----------- ----------- -----------
                               $    88.9   $    89.5   $   248.4   $   254.9
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    b) Other cash flow
       information

    Net interest paid          $    31.5   $     8.3   $    77.2   $    36.6
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Net income taxes paid      $    26.6   $    63.0   $   103.2   $   133.0
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    15. Segmented Information

                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------
    Revenue
    Food                       $ 3,439.9   $ 3,230.7   $10,287.5   $ 9,788.3
                              ----------- ----------- ----------- -----------
    Real estate
      Commercial                    10.7         9.7        31.3        29.2
      Inter-segment                  9.3         9.0        25.8        25.5
      Residential                   17.7        12.1        60.6        89.3
                              ----------- ----------- ----------- -----------
                                    37.7        30.8       117.7       144.0
                              ----------- ----------- ----------- -----------
    Investment and other
     operations                     34.7        29.4       127.8       109.5
                              ----------- ----------- ----------- -----------
                                 3,512.3     3,290.9    10,533.0    10,041.8
    Elimination                     (9.3)       (9.0)      (25.8)      (25.5)
                              ----------- ----------- ----------- -----------
                               $ 3,503.0   $ 3,281.9   $10,507.2   $10,016.3
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------
    Operating income
    Food                       $    68.7   $    48.0   $   254.7   $   216.0
    Real estate
      Commercial                    13.1        12.2        37.7        35.3
      Residential                    9.3         5.3        35.1        36.6
    Investment and other
     operations                      2.0         9.7        17.4        26.3
    Corporate expenses              (2.4)       (2.3)       (8.5)       (7.1)
                              ----------- ----------- ----------- -----------
                               $    90.7   $    72.9   $   336.4   $   307.1
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


                                        February 2        May 5   February 3
                                              2008         2007         2007
                                                       Restated     Restated
                                                        (Note 1)     (Note 1)
                                       ------------ ------------ ------------
    Identifiable assets
      Food                              $  3,880.2   $  3,399.9   $  3,237.2
      Goodwill                             1,105.9        746.5        745.9
                                       ------------ ------------ ------------
                                           4,986.1      4,146.4      3,983.1
    Real estate                              668.8        609.4        616.5
    Investment and other operations
     (including goodwill of $40.1;
     May 5, 2007 $40.1;
     February 3, 2007 $40.1)                 268.4        460.0        471.9
                                       ------------ ------------ ------------
                                        $  5,923.3   $  5,215.8   $  5,071.5
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------


                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------
    Depreciation and
     amortization
    Food                       $    73.5   $    59.5   $   204.0   $   176.4
    Real estate                      1.6         1.6         5.1         5.2
    Investment and other
     operations                      5.8         4.2        18.3        13.8
                              ----------- ----------- ----------- -----------
                               $    80.9   $    65.3   $   227.4   $   195.4
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                                            Restated                Restated
                                             (Note 1)                (Note 1)
                              ----------- ----------- ----------- -----------
    Capital expenditures
    Food                       $   147.3   $   104.5   $   338.5   $   322.9
    Real estate                     16.3           -        44.3         9.7
    Investment and other
     operations                      2.6        20.0        16.3        35.0
                              ----------- ----------- ----------- -----------
                               $   166.2   $   124.5   $   399.1   $   367.6
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    16. Employee Future Benefits

    During the Company's third quarter and year-to-date of fiscal 2008, the
net employee future benefit expense was $5.9 and $17.4 respectively (2007 -
$6.1 and $18.3). 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.

    17. Business Acquisitions

    Sobeys acquires franchisee stores and prescription files. The results of
these acquisitions have been included in the consolidated financial results of
the Company, and were accounted for through the use of the purchase method. As
illustrated in the table below the acquisition of certain franchise stores
resulted in the acquisition of intangible assets. The method of amortization
of limited life intangibles is on a straight-line basis over 10 - 15 years.

                                    2008        2007        2008        2007
                               (13 weeks)  (13 weeks)  (39 weeks)  (39 weeks)
                              -----------------------------------------------
    Franchisees
    -----------
    Inventory                  $     3.8   $     0.1   $     5.9   $     3.3
    Property and equipment           4.3           -         4.8         2.0
    Intangibles                      3.5           -         4.5         3.1
    Goodwill                         0.5           -         2.4         0.3
    Other assets                     0.1        (0.1)        0.8           -
                              -----------------------------------------------
    Cash consideration         $    12.2   $       -   $    18.4   $     8.7
                              -----------------------------------------------
                              -----------------------------------------------
    Prescription files
    ------------------
    Intangibles                $     1.1   $       -   $     2.2   $     2.4
                              -----------------------------------------------
    Cash consideration         $     1.1   $       -   $     2.2   $     2.4
                              -----------------------------------------------
                              -----------------------------------------------

    During the first two quarters of fiscal 2007, the Company increased its
ownership interest in Sobeys from 70.3% to 72.1% by way of purchase of shares
on the open market. The acquisition was accounted for using the purchase
method with operating results being included in the consolidated financial
statements from the date of each share acquisition. The cash consideration
paid was $48.6, goodwill increased by $13.0 and minority interest decreased by
$35.6.
    On September 12, 2007, Sobeys acquired all the assets of Thrifty Foods
("Thrifty") for an amount of $255.7. 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 the next fiscal quarter. 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                                                      $      253.7
      Acquisition costs                                                  2.0
                                                               --------------
      Total consideration paid                                         255.7
                                                               --------------

    Net assets acquired
      Current assets                                                    40.7
      Long-term assets                                                  45.0
      Current liabilities assumed                                      (44.2)
      Long-term liabilities assumed                                     (3.0)
                                                               --------------
      Total net assets acquired                                         38.5
                                                               --------------

    Excess consideration paid over net assets acquired          $      217.2
                                                               --------------
                                                               --------------

    Preliminary allocation of excess consideration paid
     over net assets acquired
      Goodwill and identifiable intangible assets               $      217.2
                                                               --------------
                                                               --------------

    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 19). 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
                                                               --------------
                                                               --------------

    18. 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 first 39 weeks of fiscal 2008, the
Company recognized $3.5 (2007 - $7.7) of allowances in income where it is
probable that the minimum purchase level will be met and the amount of
allowance can be estimated.

    19. 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 289 (May 5, 2007 - 271; February 3, 2007 - 269)
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.

    20. 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 February 2, 2008 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 $22.0.
    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.

    21. Related Party Transactions

    The Company rents premises from Crombie Real Estate Investment Trust
("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 $21.0.

    22. 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    Incurred               Liability
                                      at      Fiscal                      at
                                   May 5,       2008              February 2,
                                    2007   (39 weeks)       Paid        2008
                              -----------------------------------------------
    Severance
      National                 $       -   $     1.2   $     0.6   $     0.6
      Atlantic                       3.2           -         1.9         1.3
      Ontario                        4.6         0.5           -         5.1
      Quebec                         4.3        (3.0)        0.5         0.8
    Other costs                        -           -           -           -
                              -----------------------------------------------
                                    12.1        (1.3)        3.0         7.8
    Asset write-offs                   -           -           -           -
                              -----------------------------------------------
                               $    12.1   $    (1.3)  $     3.0   $     7.8
                              -----------------------------------------------
                              -----------------------------------------------


                                Incurred    Incurred                   Total
                                  Fiscal      Fiscal                Incurred
                                    2007        2008        Anti-   and Anti-
                               (52 weeks)  (39 weeks)    cipated     cipated
                              -----------------------------------------------
    Severance
      National                 $       -   $     1.2   $       -   $     1.2
      Atlantic                       4.7           -           -         4.7
      Ontario                        5.3         0.5           -         5.8
      Quebec                         4.3        (3.0)          -         1.3
    Other costs                      1.1           -           -         1.1
                              -----------------------------------------------
                                    15.4        (1.3)          -        14.1
    Asset write-offs                 3.4           -           -         3.4
                              -----------------------------------------------
                               $    18.8   $    (1.3)  $       -   $    17.5
                              -----------------------------------------------
                              -----------------------------------------------


    23. Subsequent Event

    On February 25, 2008, a subsidiary of the Company entered into Acquisition
Agreements with Crombie REIT pursuant to which it agreed to sell a portfolio
of 61 commercial properties for an aggregate sales price of $428.5. The
Company will receive net cash proceeds of approximately $280.0 after closing
and transaction costs, retirement of debt and additional investment in Class B
Units of Crombie Limited Partnership (which are convertible on a one for one
basis into Units of Crombie REIT). The investment in Class B Units will
maintain the Company's interest in Crombie REIT at 48.1%. The sale is expected
to close on or about April 21, 2008. The Company estimates that it will
realize a pre-tax gain of approximately $165.0. Under GAAP, the gain will not
be included in net earnings, rather the gain will represent a reduction in the
carrying value of the Company's equity investment in Crombie REIT.
    As part of the transaction, Sobeys will enter into new lease agreements
(the "Sobeys Leases") with respect to their occupancy in a portion of the
61 commercial properties. The Sobeys Leases will have terms of between 17 and
23 years (except for 3 leases which will have an outside date of 12 years)
(the "Outside Dates"). Each Sobeys Lease will be based on an initial term of
two years and thereafter alternating between successive periods of three years
and two years until the applicable Outside Date. The Outside Date may be
extended at Sobeys' option by up to four consecutive further periods of five
years each. The minimum rents under the Sobeys Leases will range from
$8 per square foot to $14 per square foot with rental increases every five
years.
    The impact of the transaction described above is not expected to have a
material affect on the Company's net earnings.

    24. 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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