Required: Refer to the statements and notes and answer the following questions. a) What type of income statement format does the company use (single, multiple step, condensed)?

Explain clearly why you chose the format you did?

b) What kind of business did the company engage in during the year? (Hint: Look at Note 1 to the financial statements.)

c) What standards does the company use to prepare its financial statements?

d) What is the current ratio for the company? The quick ratio? How do these ratios compare to the previous year?

e) Looking at the cash flow statement, what were the largest adjustments to operating activities, investing activities, and financing activities? Do you believe the company is in a good cash position? Why or why not?

Empire Company Limited Notoc to tho Concolidatod Financial Ctatomonte Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) Impairment of property and equipment The Company evaluates for indicators of impairments and indicators of impairment reversals. For CGUs with impairment indicators, the Company performed an impairment test for property and equipment and determined recoverable amounts based on VIU calculations using cash flow projections from the Company's latest internal forecasts. When the recoverable amount of a CGU is less than the carrying amount, an impairment loss is recognized. When the recoverable amount of a previously impaired CGU is greater than the value of its impaired assets, an impairment reversal is recognized. Key assumptions used in determining VIU include discount rates, growth rates and expected changes in cash flows. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and risks specific to the CGUs. Forecasts are projected beyond three years based on a long-term growth rate of 2.0%. Discount rates are calculated on a pre-tax basis and range from 6.0% to 7.0%. Impairment losses of $10.5 and reversals of $4.3 were recorded in selling and administrative expenses during the year ended May 6, 2023 (2022 - \$3.4 and \$10.8 respectively). All impairment losses and impairment reversals relate to the Food retailing segment. 9. Leases Finance leases, as lessee The Company leases various retail stores, distribution centres, offices and equipment under non-cancellable finance leases. These leases have varying terms, escalation clauses, renewal options and bases on which variable rent is payable. Changes in right-of-use assets are as follows: During the year ended May 6, 2023, the Company completed sale and leaseback transactions which resulted in an adjustment in the right-of-use asset of $0.2(2022 - $19.0). The Company has variable rent payments which are recognized in selling and administrative expenses on the consolidated statements of earnings. Contingent rent recognized for the year ended May 6, 2023 is \$14.4 (2022 $14.5). Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) 20. Employee benefits expense 21. Finance costs, net 22. Earnings per share Basic earnings per share and diluted earnings per share were calculated using the following number of shares: 23. Business acquisitions During the year ended May 6, 2023, the Company completed the acquisitions of certain franchise and non-franchise stores. The results of these acquisitions have been included in the consolidated financial results of the Company since their acquisition dates and were accounted for through the use of the acquisition method. Key audit matter How our audit addressed the key audit matter the amount recognized. - Tracing amounts to cash receiptset settlements after the balance sheet date, where applicable. - Considering outstanding vendor claims at and after the balance sheet date, where applicable. - Assessed the aging of vendor allowance receivables at the balance sheet date. - Considered credit notes issued after the balance sheet date. Valuation of retail inventories Refer to note 2(a) - Basis of preparation (Inventories), note 3(e) - Summary of significant accounting policies (Inventories) and note 4Inventories to the consolidated financial statements. As at May 6, 2023, the Company held inventories of $1,743.3 million, which included retail inventories. The Company has more than 1,600 stores across Canada. Inventories are valued at the lower of cost and estimated net realizable value. The cost of retail inventories is determined using weighted average cost or the retail method. The retail method uses the anticipated selling price less normal profit margins, on a weighted average cost basis. Significant estimation and judgment is required by management in the determination of (i) estimated shrinkage occurring between the last physical inventory count and the balance sheet date, and (ii) inventories valued at retail and adjusted to cost. We considered this a key audit matter due to the magnitude of the inventories balance, the number of stores at which retail inventories are held, the Our approach to addressing the matter included the following procedures, among others: - Tested the operating effectiveness of controls related to the inventory valuation process. - Tested the operating effectiveness of controls related to the physical inventory count process at the stores. - Observed the physical inventory count process for a sample of stores during the year and performed independent test counts. - For a sample of retail inventory items counted that are recorded at weighted average cost value, traced the underlying data at the physical inventory count date to recent purchase invoices. - For a sample of retail inventory items counted that are recorded at retail value, traced the underlying data at the physical inventory count date to recent retail selling prices. - Evaluated the reasonableness of the profit margins applied to retail inventories to adjust inventories valued at retail to cost by comparing profit margin rates applied to historical profit margins on a sample basis. Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) The Company's financial assets and liabilities are generally classified and measured as follows: Sobeys has entered into put and call options with non-controlling interest shareholders of certain subsidiary companies such that the Company may acquire their shareholdings under certain conditions on or after the exercise date. As a result, the Company recognizes a financial liability within other long-term liabilities at the present value of the amount payable on exercise of the applicable put option. Remeasurement adjustments are recorded in retained earnings. At the end of each reporting period, non-controlling interests for these subsidiaries that have been recognized, including the earnings attributable to these non-controlling interests, are derecognized against the related non-controlling interest liability immediately before its period-end revaluation. Impairment of financial assets are based on expected credit losses ("ECL"). The Company recognizes loss allowances on its trade receivables based on lifetime ECLs for those assets measured at amortized cost. Loss allowances are recognized on leases and other receivables for which the credit risk has not increased significantly since initial recognition based on the 12-month ECL. Where there is a significant increase in the credit risk of leases and other receivables subsequent to initial recognition, the Company recognizes loss allowances based on lifetime ECLs. The Company considers past events, current conditions, and reasonable and supportable forecasts affecting collectability when determining whether the credit risk of a financial asset has increased significantly since initial recognition, or in estimating lifetime ECLs. (k) Hedges The Company has cash flow hedges which are used to manage exposure to fluctuations in foreign currency exchange 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 or loss. To the extent the change in fair value of the derivative does not completely offset the change in fair value of the hedged item, the ineffective portion of the hedging relationship is recorded in net earnings or loss. Amounts accumulated in other comprehensive income or loss are reclassified to net earnings or loss when the hedged item is recognized in net earnings or loss. 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 or loss relating to the hedge is carried forward until the hedged item is recognized in net earnings or loss. 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 or loss is immediately reclassified to net earnings or loss. Financial derivatives assigned as part of a cash flow hedging relationship are classified on the consolidated balance sheets as either an other asset or other long-term liability as required based on their fair value determination. Significant derivatives include the following: (i) Foreign currency forward contracts and foreign currency swaps for the primary purpose of limiting exposure to exchange rate fluctuations relating to the purchase of goods or expenditures denominated in foreign currencies. Certain contracts are designated as hedging instruments for accounting purposes. Accordingly, the effective portion of the change in the fair value of the contracts is accumulated in other comprehensive income or loss until the variability in cash flows being hedged is recognized in earnings or loss in future accounting periods. (ii) Electricity forward contracts for the primary purpose of limiting exposure to fluctuations in the market prices of electricity. These contracts are designated as hedging instruments for accounting purposes. Accordingly, the effective portion of the change in fair value of the contracts is accumulated in other comprehensive income or loss until the variability in cash flows being hedged is recognized in earnings or loss in future accounting periods. 17 In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. Auditor's responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: - Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. - Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. - Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. - Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern. Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) Acquired investments in associates are also subject to the acquisition method as explained above. However, any goodwill or fair value adjustment attributable to the Company's share in the associate is included in the amount recognized as investments in associates. All subsequent changes to the Company's share of interest in the equity of the associate are recognized in the carrying amount of the investment. Changes resulting from the earnings or losses generated by the associate are reported within share of earnings from investments, at equity on the Company's consolidated statements of earnings or loss. These changes include subsequent depreciation, amortization or impairment of the fair value adjustments of assets and liabilities. Changes resulting from earnings of the associate or items recognized directly in the associate's equity are recognized in earnings or losses or equity of the Company, as applicable. However, when the Company's share of losses in an associate equals or exceeds its interest in the associate, including any unsecured receivables, the Company does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports earnings, the Company resumes recognizing its share of those earnings only after its share of the earnings exceeds the accumulated share of losses that had previously not been recognized. Unrealized gains and losses on transactions between the Company and its associates are eliminated to the extent of the Company's interest in those entities. Where unrealized losses are eliminated, the underlying asset is also tested for impairment losses from a Company perspective. At each reporting period end date, the Company assesses whether there are any indicators of impairment in its investment in associates. For investments in publicly traded entities, carrying value of the investment is compared to the current market value of the investment based on its quoted price at the balance sheet date. For entities which are not publicly traded, VIU of the investment is determined by estimating the Company's share of the present value of the estimated cash flows expected to be generated by the investee. If impaired, the carrying value of the Company's investment is written down to its estimated recoverable amount, being the higher of fair value less cost to sell and VIU. In the process of measuring future cash flows, management makes assumptions about future growth of profits. These assumptions relate to future events and circumstances. The actual results may vary and may cause significant adjustments to the Company's investments in associates in the subsequent financial years. Each of the associates identified by the Company has a reporting year end of December 31. For purposes of the Company's consolidated year end financial statements, each of the associates' results are included based on financial statements prepared as at March 31, with any changes occurring between March 31 and the Company's year end that would materially affect the results being taken into account. (i) Investments in joint ventures Investments in joint ventures are joint arrangements whereby the Company and the other parties to the arrangements have joint control and therefore have rights to the net assets of the arrangement. Investments in joint ventures are initially recognized at cost and subsequently accounted for using the equity method. (j) Financial instruments Financial instruments are recognized on the consolidated balance sheets when the Company becomes a party to the contractual provisions of a financial instrument. The classification and measurement categories for financial assets are amortized cost, fair value through other comprehensive income ("FVOCl"), and FVTPL. Financial assets that are not designated as FVTPL on initial recognition are classified and measured at amortized cost if (i) they are held within a business model whose objective is to hold assets to collect contractual cash flows, and (ii) the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest. Debt investments that are not designated as FVTPL on initial recognition are classified and measured at FVOCI if (i) they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and (ii) the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest. Equity investments held for trading are classified and measured at FVTPL. Financial assets not classified at amortized cost or FVOCl are classified and measured at FVTPL. The classification and measurement categories for other financial liabilities are amortized cost and FVTPL. Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) Right-of-use assets are measured at the initial amount of the lease liabilities plus any initial direct costs, lease payments made at or before the commencement date less lease incentives received and restoration costs. Subsequent to initial measurement, the Company applies the cost model to the right-of-use assets. Right-of-use assets are measured at cost less accumulated depreciation, accumulated impairment losses and any remeasurements of lease liabilities. The assets are depreciated on a straight-line basis over the shorter of the asset's useful life consistent with the rates in Note 3(I) and lease term. Depreciation begins at the commencement date of the lease. (ii) The Company as a lessor Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. For subleases, where the Company acts as an intermediate lessor, the Company assesses classification with reference to the right-of-use asset arising from the head lease. For finance subleases the Company derecognizes the corresponding right-of-use asset and records a net investment in the finance sublease and related interest income is recognized in finance costs, net on the consolidated statements of earnings. Lease income from operating leases is recognized on a straight-line basis over the term of the relevant lease. (iii) Sale and leaseback transactions A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. A sale and leaseback is recognized as a sale when the control of the asset has been transferred to the purchaser. The Company will measure the right-of-use asset arising from the leaseback and the proportion of the previous carrying amount of the asset that relates to the right-of-use retained by the Company. Any profit or loss in a sale and leaseback transaction related to the transfer of rights of the asset to the buyer-lessor is recognized immediately. (o) Intangibles Intangibles arise on the purchase of a new business, existing franchises, software (including software that is internally developed by the Company or through customization costs in cloud computing arrangements) and the acquisition of pharmacy prescription files. They are accounted for using the cost model whereby capitalized costs are amortized on a straight-line basis over their estimated useful lives as these assets are considered finite. Useful lives are reviewed annually and intangibles are subject to impairment testing. The following useful lives are applied: Amortization has been included in selling and administrative expenses on the consolidated statements of earnings. Expenditures made by the Company relating to intangible assets that do not meet the capitalization criteria are expensed in the period incurred. Included in intangibles are brand names, loyalty programs and private labels, the majority of which have indefinite useful lives. Intangibles with indefinite useful lives are measured at cost less any accumulated impairment losses. These intangibles are tested for impairment on an annual basis or more frequently if there are indicators that intangibles may be impaired. (p) 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. (q) Impairment of non-financial assets Goodwill and indefinite life intangibles are reviewed for impairment at least annually by assessing the recoverable amount of each CGU or groups of CGUs to which the goodwill or indefinite life intangible relates. The recoverable amount is the higher of FVLCD and VIU. When the recoverable amount of the CGU(s) is less than the carrying amount, an impairment loss is recognized immediately in net earnings or loss. Impairment losses related to goodwill cannot be reversed. Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) An external, independent valuation company, having appropriate recognized professional qualifications and experience, assisted management in determining the fair value of certain investment properties chosen from a rotating sample each year at May 6, 2023 and May 7,2022. Additions to investment property through acquisition are transacted at fair value, therefore, carrying value equals fair value at the time of acquisition. Properties reclassified from property and equipment are valued for disclosure purposes using comparable market information or the use of an external independent valuation company. Rental income from investment property included in other income on the consolidated statements of earnings amounted to $1.5 for the year ended May 6, 2023 (2022 - \$1.5). Direct operating expenses (including repairs and maintenance but excluding depreciation expense) arising from investment property that generated rental income amounted to $4.6 for the year ended May 6, 2023 (2022 - \$4.8). Direct operating expenses (including repairs and maintenance but excluding depreciation expense) arising from nonincome producing investment property amounted to $2.6 for the year ended May 6, 2023 (2022 - \$2.4). All direct operating expenses for investment properties are included in selling and administrative expenses on the consolidated statements of earnings. Impairment of investment property follows the same methodology as property and equipment (Note 3(q)). There were no impairment losses or reversals for the years ended May 6, 2023 and May 7, 2022. 11. Intangibles To the Shareholders of Empire Company Limited Our opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Empire Company Limited and its subsidiaries (together, the Company) as at May 6, 2023 and May 7, 2022, and its financial performance and its cash flows for the 52 weeks ended May 6, 2023 and 53 weeks ended May 7, 2022 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS). What we have audited The Company's consolidated financial statements comprise: - the consolidated balance sheets as at May 6, 2023 and May 7, 2022; - the consolidated statements of earnings for the 52 weeks ended May 6, 2023 and 53 weeks ended May 7, 2022; - the consolidated statements of comprehensive income for the 52 weeks ended May 6, 2023 and 53 weeks ended May 7, 2022; - the consolidated statements of changes in shareholders' equity for the 52 weeks ended May 6, 2023 and 53 weeks ended May 7, 2022; - the consolidated statements of cash flows for the 52 weeks ended May 6, 2023 and 53 weeks ended May 7, 2022; and - the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information. Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. PricewaterhouseCoopers LLP Cogswell Tower, 2000 Barrington Street, Suite 1101, Halifax, Nova Scotia, Canada B3J 3 K1 T: +1 9024917400,F:+1902422 1166, ca_halifax_main_fax@pwc.com "PwC" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. Empire Company Limited Consolidated Balance Sheets As At (in millions of Canadian dollars) May 6 May 7 2023 2022 ASSETS Current Cash and cash equivalents Receivables Inventories (Note 4) Prepaid expenses Leases and other receivables (Note 5) Income taxes receivable Leases and other receivables (Note 5) Investments, at equity (Note 7) Other assets Property and equipment (Note 8) Right-of-use assets (Note 9) Investment property (Note 10) Intangibles (Note 11) Goodwill (Note 12) Deferred tax assets (Note 13) LIABILITIES Current Accounts payable and accrued liabilities Income taxes payable Provisions (Note 14) Long-term debt due within one year (Note 15) Lease liabilities due within one year (Note 9) Other liabilities due within one year (Note 16) Provisions (Note 14) Long-term debt (Note 15) Long-term lease liabilities (Note 9) Other long-term liabilities (Note 16) Employee future benefits (Note 17) Deferred tax liabilities (Note 13) SHAREHOLDERS' EQUITY Capital stock (Note 18) Contributed surplus Retained earnings Accumulated other comprehensive income Non-controlling interest (Note 23) See accompanying notes to the consolidated financial statements. \begin{tabular}{|c|c|c|c|} \hline$ & \begin{tabular}{r} 3,028.6 \\ 61.3 \\ 29.9 \\ 101.0 \\ 563.7 \\ 73.0 \\ \end{tabular} & $ & \begin{tabular}{r} 2,988.9 \\ 127.6 \\ 32.7 \\ 581.0 \\ 509.5 \end{tabular} \\ \hline & 3,857.5 & & 4,239.7 \\ \hline & \begin{tabular}{r} 42.7 \\ 911.3 \\ 5,620.9 \\ 279.2 \\ 166.6 \\ 268.8 \\ \end{tabular} & & \begin{tabular}{r} 44.2 \\ 595.7 \\ 5,775.9 \\ 366.0 \\ 178.2 \\ 260.0 \\ \end{tabular} \\ \hline & 11,147.0 & & 11,459.7 \\ \hline & \begin{tabular}{r} 1,914.7 \\ 50.1 \\ 3,216.0 \\ 19.6 \\ \end{tabular} & & \begin{tabular}{r} 2,026.1 \\ 37.2 \\ 2,914.2 \\ 14.0 \\ \end{tabular} \\ \hline & 5,200.4 & & 4,991.5 \\ \hline & 136.3 & & 142.4 \\ \hline & 5,336.7 & & 5,133.9 \\ \hline$ & 16,483.7 & $ & 16,593.6 \\ \hline \end{tabular} On Behalf of the Board (signed) "James Dickson" (signed) "Michael Medline" Director Director 7 Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) The following table represents the amounts of identifiable assets and liabilities resulting from these acquisitions for the year ended: From the date of acquisition, the businesses acquired, contributed sales of $77.4(2022$1,108.7) and net earnings, net of non-controlling interest, of $1.4 (2022 - \$6.2) which are included in the consolidated financial statements. During the year ended May 6, 2023, the Company finalized the purchase price allocation for Longo's, a long-standing, family-built network of specialty grocery stores in the Greater Toronto Area, and its Grocery Gateway e-commerce business, acquired on May 10,2021. No adjustments were made to the provisional amounts recognized in the annual audited consolidated financial statements for the fiscal year ended May 7, 2022. Goodwill recorded on the acquisitions of franchise and non-franchise stores and other businesses relates to the acquired work force and customer base of the existing store location, along with the synergies expected from combining the efforts of the acquired stores with existing stores. The estimated fair value of identifiable net assets and goodwill acquired have been determined provisionally and are subject to adjustment pending the finalization of the valuations and related accounting. On August 2, 2021, concurrent with the Company's 75\% acquisition of a business, Sobeys and the non-controlling shareholders entered into put and call options such that non-controlling shareholders have an option to sell and Sobeys has the ability to purchase the remaining 25% interest in the business either five or seven years subsequent to the acquisition. A financial liability of $6.9 has been recognized at the date of acquisition based on the present value of the amount payable on exercise of the non-controlling interest put liability in accordance with IFRS 9. On May 10, 2021, the Company, through a wholly-owned subsidiary, acquired 51% of Longo's, a long-standing, familybuilt network of specialty grocery stores in the Greater Toronto Area, and its Grocery Gateway e-commerce business. After the fifth anniversary of the transaction, the Longo's 49% non-controlling shareholders have an option to sell up to a 12.25% per annum interest in Longo's to Sobeys, at a multiple applied to the last 12 months earnings before interest, taxes, depreciation and amortization ("EBITDA"). The multiple will vary depending on achievement of certain business results. If Longo's non-controlling shareholders exercise an option to sell, Sobeys will have a corresponding call option for the same percentage in the following year. After the tenth anniversary of the transaction, both Sobeys and Longo's 24. Guarantees and contingencies Guarantees Franchisees and affiliates Sobeys is party to several franchise and operating agreements as part of its business model. These agreements contain clauses which require Sobeys to provide support to franchisee and affiliate operators to offset or mitigate retail store losses, reduce store rental payments, minimize the impact of promotional pricing and assist in covering other store related operating expenses. Not all of the financial support noted above will apply in each instance as the provisions of the agreements vary. Sobeys will continue to provide financial support pursuant to the franchise and operating agreements in future years. During fiscal 2009, Sobeys entered into an additional credit enhancement contract in the form of a standby letter of credit for certain franchisees and affiliates for the purchase and installation of equipment. Under the terms of the contract, should franchisees and affiliates be unable to fulfil their lease obligations or provide an acceptable remedy, Sobeys would be required to fund the greater of $6.0 or 10.0%(2022$6.0 or 10.0%) of the authorized and outstanding obligation annually. Under the terms of the contract, Sobeys is required to provide a letter of credit in the amount of the outstanding guarantee, to be renewed each calendar year. This credit enhancement allows Sobeys to provide favourable financing terms to certain franchisees and affiliates. As at May 6, 2023, the amount of the guarantee was $6.0(2022 - \$6.0). Other At May 6, 2023, the Company had entered into letters of credit issued in an aggregate amount of $82.9(2022 - $82.4) to support the Company's obligations. Sobeys, through its subsidiaries, has guaranteed the payment of obligations under certain commercial development agreements. As at May 6, 2023, Sobeys has guaranteed $40.0(2022$40.0) in obligations related to these agreements. Contingencies The Company has submitted insurance claims in connection with losses incurred related to a cybersecurity event which occurred on November 4, 2022. The amount and timing of receipt for the insurance recoveries are uncertain and subject to approval by the insurance companies. As a result, recoveries will only be recognized on the consolidated statements of earnings when the amount and timing are virtually certain. On June 21, 2005, Sobeys received a notice of reassessment from Canada Revenue Agency ("CRA") for fiscal years 1999 and 2000 related to Lumsden Brothers Limited, a wholesale subsidiary of Sobeys, and the Goods and Service Tax ("GST"). The reassessment related to GST on sales of tobacco products to eligible Indigenous peoples. CRA asserts that Sobeys was obliged to collect GST on sales of tobacco products to eligible Indigenous peoples. The total tax, interest and penalties in the reassessment was $13.6 (2022 - \$13.6). Sobeys has reviewed this matter, has received legal advice, and believes it was not required to collect GST. During fiscal 2006, Sobeys filed a Notice of Objection with CRA. The matter is still under dispute and accordingly, Sobeys has not recorded on its statements of earnings any of the tax, interest or penalties in the notice of reassessment. Sobeys has deposited with CRA funds equal to the total tax, interest and penalties in the reassessment and has recorded this amount as an other long-term receivable from CRA pending resolution of the matter. Final arguments of the Appeal hearing were held in July 2021, the court has not yet released its judgement. There are various claims and litigation, with which the Company is involved, 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. In the ordinary course of business, the Company is subject to ongoing audits by tax authorities. While the Company believes that its tax filing positions are appropriate and supportable, from time to time certain matters are reviewed and challenged by the tax authorities. Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) The Company's carrying value of its investment in Crombie REIT is as follows: The Company's carrying value of its investment in Canadian real estate partnerships is as follows: The Company's carrying value of its investment in U.S. real estate partnerships is as follows: The following amounts represent the revenues, expenses, assets and liabilities of Crombie REIT as at and for the 12 months ended March 31, 2023, and 2022 as well as a reconciliation of the carrying amount of the Company's investment in Crombie REIT to the net assets attributable to unitholders of Crombie REIT: - Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. - Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor's report is Adam Boutros. /s/PricewaterhouseCoopers LLP Chartered Professional Accountants Halifax, Nova Scotia June 21, 2023 Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) Remeasurement effects recognized in other comprehensive income (loss): The significant actuarial assumptions adopted in measuring the Company's accrued benefit obligations are as follows (weighted-average assumptions as of May 6, 2023): For measurement purposes, a 4.50%2023 annual rate of increase in the per capita cost of covered health care benefits was assumed (20224.50%). The cumulative rate expectation to 2024 and thereafter is 4.50%. These assumptions were developed by management with consideration of expert advice provided by independent actuarial appraisers. These assumptions are used in the determination of the Company's defined benefit obligations and should be regarded as management's best estimate. The actual outcome may vary. Estimation uncertainties exist, in particular regarding medical cost trends, which may vary significantly in future appraisals of the Company's obligations. The following table outlines the sensitivity of the fiscal 2023 key economic assumptions used in measuring the accrued benefit plan obligations and related expenses of the Company's pension and other benefit plans. The sensitivity of each key assumption has been calculated independently. Changes to more than one assumption simultaneously may amplify or reduce the impact on accrued benefit obligations or benefit plan expenses. (1) Ketlects the Impact on the current service cost, Interest cost and net interest on detined benetit IIabIIIty (asset). (2) Based on weighted average of discount rates related to all plans. The asset mix of the defined benefit pension plans as at year end is as follows: Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) The following table reconciles the changes in cash flows from financing activities for long-term debt: Principal debt retirement in each of the next five fiscal years is as follows: 16. Other long-term liabilities 17. Employee future benefits The Company has several defined contribution, defined benefit and multi-employer plans providing pension and other post-retirement benefits to most of its employees. Defined contribution pension plans The contributions required by the employee and the employer are included in the plan terms in the plan text. The employee's pension depends on the level of retirement income achieved with the combined total of employee and employer contributions and investment income over the period of plan membership and annuity purchase rates at the time of the employee's retirement. Defined benefit pension plans The ultimate retirement benefit is defined by a formula that provides a unit of benefit for each year of service. Employee contributions, if required, fund part of the cost of the benefit and employer contributions fund the balance. The employer contributions are not specified or defined within the pension plan text, but are based on the result of actuarial valuations which determine the level of funding required to meet the total obligation as estimated at the time of the valuation. The defined benefit plans typically expose the Company to actuarial risks such as interest rate risk, mortality risk and salary risk. Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) All the securities are valued based on quoted prices (unadjusted) in active markets for identical assets or liabilities, or based on inputs other than quoted prices in active markets that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). The actual return (loss) on plan assets was $12.8 for the year ended May 6, 2023 (2022 - (\$47.4)). Management's estimate of contributions expected to be paid to the defined benefit pension plans during the annual period beginning on May 7, 2023 and ending on May 4, 2024 is \$17.1. The actual amount of contributions may vary from the estimated depending on the funded positions of the plan, filing of any actuarial valuations, and any new regulatory requirements or other factors. 18. Capital stock On June 22, 2021, the Company renewed its normal course issuer bid ("NCIB") by filing a notice of intention with the TSX to purchase for cancellation up to 8,468,408 Non-Voting Class A shares representing 5.0% of the 169,368,174 Non-Voting Class A shares outstanding. As of July 1, 2022, under this filing, the Company purchased 5,659,764 NonVoting Class A shares at a weighted average price of $39.11 (July 1, 2021$38.00 ) for a total consideration of $221.3 (July 1, 2021 - \$230.4). On June 21, 2022, the Company renewed its NCIB by filing a notice of intention with the TSX to purchase for cancellation up to 10,500,000 Non-Voting Class A shares representing 7.0% of the public float of 150,258,764 NonVoting Class A shares outstanding as of June 17, 2022. The purchases will be made through the facilities of the TSX and/or any alternative Canadian trading systems to the extent they are eligible. The price the Company will pay for any such shares will be the market price at the time of acquisition. Purchases were eligible to commence on July 2, 2022 and terminate not later than July 1, 2023. The following table reflects shares repurchased under the NCIB: The Company engages in an automatic share purchase plan with its designated broker allowing the purchases of NonVoting Class A shares for cancellation under its NCIB program during trading black-out periods. Subsequent to the year ended May 6, 2023, the Company purchased for cancellation 2,240,069 Non-Voting Class A shares at a weighted average price of $34.87 for a total consideration of $78.1. Empire Company Limited Consolidated Financial Statements May 6, 2023 Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the 52 weeks ended May 6,2023 . These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter Recognition of vendor allowances Refer to note 2(f) - Basis of preparation (Vendor allowances) and note 3(x) - Summary of significant accounting policies (Vendor allowances) to the consolidated financial statements. The Company receives allowances from certain vendors whose products are purchased for resale. Included in these vendor agreements are volumerelated allowances, purchase discounts, listing fees and other allowances. The Company recognizes these vendor allowances as a reduction of cost of sales and related inventories. The number and variety of the vendor agreements can make it complex for management to determine the performance obligations associated with the vendor allowances and the related recognition thereof. As a result, management judgment is required. We considered this a key audit matter due to the number of vendor allowance transactions and varying terms of the vendor agreements, making the recognition of vendor allowances more complex, requiring management judgment. This resulted in a high degree of auditor judgment and effort in performing procedures and evaluating evidence. How our audit addressed the key audit matter Our approach to addressing the matter included the following procedures, among others: - Tested the operating effectiveness of controls related to the recognition of vendor allowances, including management's approval and recording of vendor agreements and the monitoring of the aging of vendor allowance receivables. - For a sample of vendor allowance transactions recognized during the year, evaluated the reasonableness of management's determination that performance obligations associated with vendor allowances have been met by: - Evaluating the terms in vendor agreements and agreeing amounts recorded to vendor agreements, internal supporting documents, corresponding cash receiptset settlements and any related correspondence with vendors. - For a sample of vendor allowance receivables at the balance sheet date, evaluated the reasonableness of management's determination that performance obligations associated with vendor allowances have been met by: - Evaluating the terms in vendor agreements and agreeing amounts recorded to vendor agreements, internal supporting documents and any related correspondence with vendors and, as applicable, recalculating Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) Included in other intangibles at May 6, 2023 are liquor licenses of $10.4 (2022 - \$10.9). These licenses have options to renew and it is the Company's intention to renew these licenses at each renewal date indefinitely. Therefore, cash inflows are expected to be generated at each store location for which the license is valid, and these assets are considered to have indefinite useful lives. Also included in other intangibles as at May 6, 2023 are the following amounts: loyalty programs - $12.0(2022 - $16.7), lease rights - $18.0(2022 - $18.2) and private labels - \$59.5 (2022 - \$59.5). The Company has determined that brand names with a net carrying value of $688.8(2022$692.8) have indefinite useful lives. All intangibles with indefinite useful lives relate to the Food retailing segment. Impairment of these intangibles is assessed at least annually on the same basis as goodwill (Note 12). Impairment losses of $6.7 was recorded in selling and administrative expenses during the year ended May 6, 2023 (2022 - \$ nil). Impairment of intangibles with finite useful lives follows the same methodology as property and equipment (Note 3(q)). There were no impairment losses or reversals on these intangibles for the years ended May 6, 2023 and May 7, 2022. Intangible commitments As at May 6, 2023, the Company had entered into commitments of $5.8(2022 - $16.1) related to other intangibles. 12. Goodwill Goodwill arising from business acquisitions is allocated at the lowest level within the organization at which it is monitored by management to make business decisions and is not higher than an operating segment before aggregation. Therefore, goodwill has been allocated to the following operating segments within the Food retailing segment: Impairment testing of goodwill and indefinite life intangibles The Company tests goodwill and indefinite-life intangible assets for impairment annually or more frequently if indicators of impairment are identified. Goodwill arising on business acquisitions is not amortized but is tested for impairment on an annual basis, or more frequently if indicators that goodwill may be impaired exist. Empire Company Limited Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) (iii) Natural gas forward contracts for the primary purpose of limiting exposure to fluctuations in the market prices of natural gas. These contracts are designated as hedging instruments for accounting purposes. Accordingly, the effective portion of the change in fair value of the contracts is accumulated in other comprehensive income or loss until the variability in cash flows being hedged is recognized in earnings or loss in future accounting periods. (I) Property and equipment Owner-occupied land, buildings, equipment, leasehold improvements and assets under construction are carried at acquisition cost less accumulated depreciation and impairment losses. When significant parts of property and equipment have different useful lives, they are accounted for as separate components. Depreciation is recorded on a straight-line basis from the time the asset is available or when assets under construction become available for use over the estimated useful lives of the assets as follows: Buildings Equipment Leasehold improvements 1040 years 320 years Lesser of lease term and 720 years Depreciation is included within selling and administrative expenses on the consolidated statements of earnings. Material residual value estimates and estimates of useful life are reviewed and updated as required, or annually at a minimum. Gains or losses arising on the disposal of property and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognized in net earnings or loss in other income or loss. If the sale is to a Company's investment, at equity, a portion of the gain or loss is deferred and reduces the carrying value of the investment. (m) Investment property Investment properties are properties which are held either to earn rental income or for capital appreciation or for both, rather than for the principal purpose of the Company's operating activities. Investment properties are accounted for using the cost model. The depreciation policies for investment property are consistent with those described for property and equipment. Any gain or loss arising from the sale of an investment property is immediately recognized in net earnings or loss, unless the sale is to an investment, at equity, in which case a portion of the gain or loss is deferred and would reduce the carrying value of the Company's investment. Rental income and operating expenses from investment property are reported in other income and selling and administrative expenses, respectively, on the consolidated statements of earnings. (n) Leases (i) The Company as a lessee The Company recognizes a right-of-use asset and corresponding lease liability at the commencement date. The commencement date is the date in which the lessor makes the asset available for use by the Company. Lease payments for short-term leases or variable payments that do not depend on an index or a rate are recognized in selling and administrative expenses. Lease liabilities reflect the present value of fixed lease payments and variable lease payments that are based on an index or a rate or subject to fair market renewal amounts expected to be payable by the lessee over the lease term. Lease term reflects the period over which the lease payments are reasonably certain including renewal options that the Company is reasonably certain to exercise. Where applicable, lease liabilities will include the purchase option exercise price if the Company is reasonably certain to exercise that option, termination penalties if the lease term also reflects the termination option and amounts expected to be payable under a residual value guarantee. Subsequent to initial measurement the Company measures lease liabilities on an amortized cost basis. Lease liabilities are remeasured when there is a modification to the lease. Lease payments are discounted using the interest rate implicit in the lease, or if that rate cannot be determined, the lessee's incremental borrowing rate at the lease inception date or the modification date as applicable. Interest expense is recognized in finance costs, net on the consolidated statements of earnings. Notes to the Consolidated Financial Statements May 6, 2023 (in millions of Canadian dollars, except share and per share amounts) (d) Cash and cash equivalents Cash and cash equivalents are defined as cash and guaranteed investments with a maturity less than 90 days at date of acquisition, as well as, highly liquid guaranteed investments that are redeemable in cash on demand without penalty. (e) Inventories Warehouse inventories are valued at the lower of cost and net realizable value with cost being determined on a weighted average cost basis. Retail inventories are valued at the lower of cost and net realizable value. Cost is determined using weighted average cost or the retail method. The retail method uses the anticipated selling price less normal profit margins, on a weighted average cost basis. The cost of inventories is comprised of directly attributable costs and includes the purchase price plus other costs incurred in bringing the inventories to their present location and condition, such as freight. The cost is reduced by the value of allowances received from vendors. The Company estimates net realizable value as the amount that inventories are expected to be sold taking into consideration fluctuations of retail price due to seasonality less estimated costs necessary to make the sale. Inventories are written down to net realizable value when the cost of inventories is not estimated to be recoverable due to obsolescence, damage or permanent declines in selling prices. When circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in retail selling price, the amount of the write-down previously recorded is reversed. Costs that do not contribute to bringing inventories to their present location and condition, such as storage and administrative overheads, are specifically excluded from the cost of inventories and are expensed in the period incurred. (f) Income taxes Tax expense recognized in net earnings or loss comprises the sum of deferred income tax and current income tax not recognized in other comprehensive income or loss. Current income tax assets and liabilities are comprised of claims from, or obligations to, fiscal authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is the tax expected to be payable on the taxable income for the year calculated using rates that have been enacted or substantively enacted at the balance sheet date. It includes adjustments for tax expected to be payable or recoverable in respect of previous periods. Where the amount of tax payable or recoverable is uncertain, the Company establishes provisions based on the most likely amount of the liability or recovery. The calculation of current income tax is based on tax rates and tax laws that have been enacted or substantively enacted at the end of the reporting period. Deferred income taxes are calculated using the asset and liability method on temporary differences between the carrying amounts of assets and liabilities and their related tax bases. However, deferred tax is not provided on the initial recognition of goodwill or on the initial recogniti