20-F 1 d20f.htm FORM 20-F Form 20-F
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 20-F

 


(Mark One)

¨ Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

or

 

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2006

or

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from              to             

Commission file number: 333-13302

 


Etablissements Delhaize Frères et Cie “Le Lion” (Groupe Delhaize)

(Exact name of Registrant as specified in its charter)*

 


Delhaize Brothers and Co. “The Lion” (Delhaize Group)

(Translation of Registrant’s name into English)*

Belgium

(Jurisdiction of incorporation or organization)

Square Marie Curie 40

1070 Brussels, Belgium

(Address of principal executive offices)

 


Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Ordinary Shares, without nominal value   New York Stock Exchange**
American Depositary Shares (as evidenced by   New York Stock Exchange
American Depositary Receipts), each representing one ordinary share  

* The Registrant’s charter (articles of association) specifies the Registrant’s name in French, Dutch and English.
** Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:    None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:    None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

Ordinary Shares, without nominal value   96,456,924 (as of December 31, 2006)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.

Large Accelerated Filer  x    Accelerated Filer  ¨    Non-accelerated Filer  ¨

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ¨    Item 18  x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

 



Table of Contents

TABL E OF CONTENTS

 

PART I         3
  ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS    3
  ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE    3
  ITEM 3.    KEY INFORMATION    3
  ITEM 4.    INFORMATION ON THE COMPANY    16
  ITEM 4A.    UNRESOLVED STAFF COMMENTS    26
  ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS    26
  ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES    48
  ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS    60
  ITEM 8.    FINANCIAL INFORMATION    62
  ITEM 9.    THE OFFER AND LISTING    64
  ITEM 10.    ADDITIONAL INFORMATION    66
  ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    79
  ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES    80
PART II    81
  ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES    81
  ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS    81
  ITEM 15.    CONTROLS AND PROCEDURES    81
  ITEM 16.    [RESERVED]    81
  ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT    81
  ITEM 16B.    CODE OF ETHICS    82
  ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES    82
  ITEM 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES    83
  ITEM 16E.    PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS    83
PART III    84
  ITEM 17.    FINANCIAL STATEMENTS    84
  ITEM 18.    FINANCIAL STATEMENTS    84
  ITEM 19.    EXHIBITS    84
SIGNATURE    88


Table of Contents

GENERAL INFORMATION

The consolidated financial statements of Etablissements Delhaize Frères et Cie “Le Lion” (Groupe Delhaize) (also referred to with our consolidated and associated companies, except where the context otherwise requires, as “Delhaize Group”, “we”, “us”, “our” and the “Company”) appear in Item 18 “Financial Statements” of this annual report on Form 20-F. Our consolidated financial statements presented herein and the notes to the financial statements are prepared in conformity with International Financial Reporting Standards (“IFRS”) as adopted by the European Union, which differ in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). The principal differences between IFRS and U.S. GAAP, as they relate to us, are presented in Note 43 to the consolidated financial statements.

We are a food retailer headquartered in Belgium, which operates in eight countries and on three continents. Our company was founded in Belgium in 1867. As of December 31, 2006, we had a sales network (which includes company-operated, affiliated and franchised stores) of 2,705 stores and employed approximately 142,500 people. Our principal activity is the operation of food supermarkets in the United States, Belgium and Greece, with a small percentage of our operations in Central Europe and in Southeast Asia. Such retail operations are primarily conducted through our consolidated subsidiary, Delhaize America, Inc. (“Delhaize America”), our businesses in Belgium, the Grand-Duchy of Luxembourg and Germany (collectively, “Delhaize Belgium”), and the business of Alfa-Beta Vassilopoulos S.A. in Greece (“Delhaize Greece”). Our ordinary shares are listed under the symbol “DELB” on the regulated market Eurolist by Euronext Brussels. Our American Depositary Shares (“ADSs”), evidenced by American Depositary Receipts (“ADRs”), each representing one ordinary share, are listed on the New York Stock Exchange under the symbol “DEG.” Our website can be found at www.delhaizegroup.com and www.delhaize.com.

Our year ends on December 31. The results of operations of our subsidiary, Delhaize America, covered 52 weeks through December 30, 2006, December 31, 2005 and January 1, 2005 in our company’s years ended December 31, 2006, 2005 and 2004, respectively. The results of operations of Delhaize Belgium and our other companies outside the United States are presented on a calendar-year basis. The results of operation of Victory Super Markets (“Victory”) in the U.S. are included in our consolidated results from November 27, 2004, the date we acquired Victory. The results of operation of Cash Fresh in Belgium are included in our consolidated results from May 31, 2005, the date that we acquired Cash Fresh. Delvita’s results of operations included in our year ended December 31, 2006 covered the period through December 31, 2006, and were classifed as results from discontinued operations in all years presented, as we sold Delvita to the German Rewe Group in May 2007.

The euro is our reporting currency. The translations of euro (“Eur” or “€”) or amounts into U.S. dollar (“USD” or “$”) amounts are included solely for the convenience of readers and have been made, unless otherwise noted, at the rate of exchange of EUR 1 = USD 1.3170, the reference rate of the European Central Bank on December 29, 2006. Such translations should not be construed as representations that euro amounts could be converted into U.S. dollars at that or any other rate. For more information on foreign currency translation and presentation in this report, see Note 2 to the consolidated financial statements.

Our address, telephone number and Internet address:

Etablissements Delhaize Frères et Cie “Le Lion” (Groupe Delhaize)

SQUARE MARIE CURIE 40

1070 BRUSSELS, BELGIUM

+32-2-412-2211

www.delhaizegroup.com

 

1


Table of Contents

Cautionary Note Concerning Forward-Looking Statements

Statements included in, or incorporated by reference into, this annual report, other than statements of historical fact, which address activities, events or developments that we expect or anticipate will or may occur in the future, including, without limitation, statements regarding the expansion and growth of our business, anticipated store openings and renovations, future capital expenditures, projected revenue growth or synergies resulting from acquisitions, and business strategy, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities and Exchange Act of 1934, as amended (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995 about us that are subject to risks and uncertainties. These forward-looking statements generally can be identified as statements that include phrases such as “believe”, “project”, “estimate”, “strategy”, “may”, “expect”, “anticipate”, “intend”, “plan”, “foresee”, “likely”, “should” or other similar words or phrases. Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Section B “Risk Factors” of Item 3 “Key Information” within this annual report. Other important factors that could cause actual results to differ materially from expectations of Delhaize Group are described under “Factors Affecting Financial Condition and Results of Operation” of Item 5 “Operating and Financial Review and Prospects” and elsewhere below. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

2


Table of Contents

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following selected financial data is derived from our audited consolidated financial statements, included in Item 18 “Financial Statements” of this annual report, which have been prepared in accordance with International Financial Reporting Standards, or IFRS, as adopted by the European Union. IFRS differ in certain respects from accounting principles generally accepted in the United States of America, or U.S. GAAP. The principal differences between IFRS and U.S. GAAP, as they relate to us and a reconciliation of our net income and shareholders’ equity to U.S. GAAP, are presented in note 43 to our audited consolidated financial statements included in this annual report. The selected financial data presented below should be read in conjunction with our consolidated financial statements, related notes thereto and other financial information included in this annual report.

The euro is our reporting currency. U.S. dollar amounts contained in the table below are provided solely for the convenience of the reader and have been calculated using the exchange rate of EUR 1.00 = USD 1.3170, the reference rate of the European Central Bank on December 29, 2006. Such translations should not be construed as representations that euro amounts could be converted into U.S. dollars at that or any other rate.

 

     Year Ended December 31,
    

2006

USD

  

2006

EUR

  

2005

EUR

  

2004

EUR

  

2003

EUR

  

2002(1)

EUR

     (In millions, except per share amounts)
INCOME STATEMENT DATA                  
IFRS                  
Net sales and other revenues    25,319    19,225    18,345    17,597    18,215   
Operating profit    1,246    946    900    862    801   
Profit before taxes and discontinued operations    884    671    603    558    294   
Net profit    474    360    370    302    285   
Net profit attributable to equity holders of the Group    464    352    365    296    279   
Cash dividends paid (2)    149    113    105    93    81   
Basic earnings per share    4.89    3.71    3.89    3.19    3.03   
Diluted earnings per share    4.68    3.55    3.71    3.09    3.02   
U.S. GAAP                  
Sales and other revenues    25,227    19,155    18,278    17,523    18,117    19,738
Operating income    1,270    938    899    881    890    900
Income before income taxes, minority interests and loss from discontinued operations    886    673    619    588    575    534
Income before minority interests and loss from discontinued operations    553    420    382    372    359    345
Net income    494    375    364    304    242    287
Cash dividends paid (2)    149    113    105    93    81    133
Basic earnings per share    5.20    3.95    3.87    3.29    2.63    3.12
Diluted earnings per share    4.93    3.74    3.67    3.14    2.62    3.11

 

3


Table of Contents
     December 31,
    

2006

USD

   

2006

EUR

   

2005

EUR

   

2004

EUR

   

2003

EUR

   

2002(1)

EUR

     (In millions)
BALANCE SHEET DATA             
IFRS             
Current assets    3,191     2,423     2,813     2,424     2,260    
Total assets    12,242     9,295     10,254     8,702     8,766    
Short-term borrowings    134     102     —       28     237    
Long-term debt    2,858     2,170     2,546     2,773     2,719    
Long-term obligations under finance lease    793     602     654     559     562    
Share capital    63     48     47     47     46    
Minority interests    47     36     30     32     29    
Shareholders’ equity    4,642     3,525     3,566     2,842     2,775    
U.S. GAAP             
Current assets    3,196     2,427     2,821     2,407     2,308     2,647
Total assets    12,439     9,445     10,417     8,824     8,959     10,443
Short-term borrowings    134     102     —       28     239     463
Long-term borrowings    2,835     2,198     2,585     2,798     2,740     3,144
Long-term capital lease obligations    814     618     674     576     580     698
Capital shares    63     48     47     47     46     46
Minority interests    49     37     33     36     31     29
Shareholders’ equity    4,754     3,610     3,691     2,929     2,896     3,289
     Year Ended December 31,
    

2006

USD

   

2006

EUR

   

2005

EUR

   

2004

EUR

   

2003

EUR

   

2002(1)

EUR

     (In millions, except store count and per share amounts)
OTHER DATA             
Store count at period end    —       2,705     2,636     2,565     2,559     2,527
Weighted average number of shares outstanding at period end    —       94.9     93.9     92.7     92.1     92.1
Net cash provided by operating activities    1,198     910     902     989     875     —  
Net cash (used in) investing activities    (951 )   (722 )   (757 )   (642 )   (508 )   —  
Net cash (used in) financing activities    (839 )   (637 )   (69 )   (46 )   (345 )   —  
Dividends per share (2)    1.73     1.32     1.20     1.12     1.00     0.88
Capital expenditures    922     700     636     494     463     635

(1) We adopted International Financial Reporting Standards as of January 1, 2003. No historical IFRS information is available for 2002.
(2) We usually pay dividends once a year after the annual shareholders’ meeting following the fiscal year with respect to which the dividend relates. Dividends per share represent the dividend for the indicated fiscal year, which is approved at the shareholders’ meeting held the following year. Cash dividends paid represent the amount of dividend effectively paid during the indicated year.

Dividends

The following table sets forth, for the periods indicated, historical dividend information per Delhaize Group ordinary share. Each year indicated in the following table represents our calendar-year to which the dividend relates. Actual payment of the annual dividend for each fiscal year occurs following our annual shareholders’ meeting in the subsequent year. The amounts set forth below in U.S. dollars represent the actual dividend per Delhaize Group ADR paid by The Bank of New York, as depositary, to holders of our ADRs on the dividend payment date. The dividend amounts do not reflect any withholding taxes with respect to such dividends.

 

Dividend for Fiscal Year

  

Dividend per

Delhaize Group Ordinary Share

     (Amounts in EUR)    (Amounts in USD)

2006

   1.32    1.74

2005

   1.20    1.53

2004

   1.12    1.37

Under Belgian law, we are required to set aside at least 5% of our profits during each fiscal year and contribute such amount to our statutory reserves until such reserve has reached an amount equal to 10% of our capital. Subject to this requirement, our Board of Directors may propose, at a shareholders’ meeting at which annual accounts are approved, to distribute as a dividend all or a portion of our net

 

4


Table of Contents

profits from the prior accounting years available for distribution. In connection with the approval of our accounts, the shareholders may, at a general meeting, authorize a distribution of our net profits to shareholders from reserves, subject to the requirement of contribution to the statutory reserve set forth in the first sentence of this paragraph.

The Bank of New York, as our depositary, holds the underlying ordinary shares represented by the Delhaize Group ADSs. Each Delhaize Group ADS represents an ownership interest in the underlying Delhaize Group ordinary share and the right to receive one Delhaize Group ordinary share, which has been deposited with the depositary. Because The Bank of New York holds the underlying ordinary shares, holders of the ADSs will generally receive the benefit from such underlying shares through The Bank of New York. A deposit agreement among The Bank of New York, our company and all holders from time to time of our ADSs, sets forth the obligations of The Bank of New York. The Bank of New York will, as promptly as practicable after payment of a dividend, convert any cash dividend or distribution we pay on the ordinary shares, other than any dividend or distribution paid in U.S. dollars, into U.S. dollars if it can do so on a reasonable basis and can legally transfer the U.S. dollars to the United States. If that is not possible on a reasonable basis, or if any approval from any government is needed and cannot be obtained, the deposit agreement allows The Bank of New York to distribute the foreign currency only to those Delhaize Group ADS holders to whom it is possible to do so or to hold the foreign currency it cannot convert for the account of the Delhaize Group ADS holders who have not been paid. Before making a distribution, any withholding taxes that must be paid under applicable laws will be deducted. See “E. Taxation” under Item 10 “Additional Information” in this annual report. The Bank of New York will distribute only whole U.S. dollars and cents and will round any fractional amounts to the nearest whole cent.

Exchange Rates

Under the provisions of the Treaty on European Union signed by the then 12 member states of the European Union in early 1992, the European Monetary Union (“EMU”) was implemented on January 1, 1999, and a single European currency, known as the euro, was introduced. The following 13 member states participate in the EMU and have adopted the euro: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Slovenia and Spain.

The euro to U.S. dollar exchange rate was EUR 1 = USD 1.317 as of December 29, 2006 based on the reference rate of the European Central Bank. The following table shows the exchange rate expressed in U.S. dollars per euro for the periods and dates indicated based on the Noon Buying Rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”).

 

Month/Year

   Period
End
   Average
Rate(1)
   High    Low
     USD    USD    USD    USD
Euro to U.S. dollar            

June 2007 (through June 15)

   1.3365    1.3401    1.3526    1.3295

May 2007

   1.3453    1.3518    1.3616    1.3419

April 2007

   1.3660    1.3513    1.3660    1.3363

March 2007

   1.3374    1.3246    1.3374    1.3094

February 2007

   1.3230    1.3080    1.3246    1.2933

January 2007

   1.2998    1.2993    1.3286    1.2904

2006

   1.3197    1.2661    1.3327    1.1860

2005

   1.1842    1.2400    1.3476    1.1667

2004

   1.3538    1.2478    1.3625    1.1801

2003

   1.2597    1.1411    1.2597    1.0361

2002

   1.0485    0.9495    1.0485    0.8594

(1) The average rate for 2002, 2003, 2004, 2005 and 2006 is the average of the noon buying rates for euros on the last business day of each month during the relevant period. The average rate for each of the six months preceding the date of this document is the average of the noon buying rates for euros on each business day during the relevant period.

 

5


Table of Contents

B. Risk Factors

The following discussion of risks relating to our operations and to ownership of Delhaize Group ADSs should be read carefully in connection with evaluating our business, our prospects and the forward-looking statements contained in this annual report. Any of the following risks could have a material adverse effect on our financial condition, results of operations, liquidity and the actual outcome of matters as to which forward-looking statements contained in this annual report are made. In addition to the risk factors described below, please see the information under “Factors Affecting Financial Condition and Results of Operation” of Item 5 “Operating and Financial Review and Prospects” below.

Risks Related to Operations of Our Company

Our results are subject to risks relating to competition and narrow profit margins in the food retail industry.

The food retail industry is competitive and generally characterized by narrow profit margins. Our competitors include international, national, regional and local supermarket chains, supercenters, independent grocery stores, specialty food stores, warehouse club stores, retail drug chains, convenience stores, membership clubs, general merchandisers, discount retailers and restaurants. Food retail chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. We believe that we could face increased competition in the future from all of these competitors. To the extent we reduce prices to maintain or grow our market share in the face of competition, net income and cash generated from operations could be adversely affected. Some of our competitors have financial, distribution, purchasing and marketing resources that are greater than ours. Our profitability could be impacted by the pricing, purchasing, financing, advertising or promotional decisions made by competitors.

We have substantial financial debt outstanding that could negatively impact our business.

We have substantial debt outstanding. At December 31, 2006, Delhaize Group had total consolidated debt outstanding of approximately EUR 3.1 billion and approximately Eur 0.8 million of unused commitments under our revolving credit facilities. Our level of debt could:

 

   

make it difficult for us to satisfy our obligations, including interest payments;

 

   

limit our ability to obtain additional financing to operate our business;

 

   

limit our financial flexibility in planning for and reacting to industry changes;

 

   

place us at a competitive disadvantage as compared to less leveraged companies;

 

   

increase our vulnerability to general adverse economic and industry conditions; and

 

   

require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing the availability of its cash flow for other purposes.

We may borrow additional funds to support our capital expenditures and working capital needs and to finance future acquisitions. The incurrence of additional debt could make it more likely that we will experience some or all of the risks described above.

If we do not generate positive cash flows, we may be unable to service our debt.

Our ability to pay principal and interest on our debt depends on our future operating performance. Future operating performance is subject to market conditions and business factors that often are beyond our control. Consequently, we cannot assure you that we will have sufficient cash flows to pay the principal, premium, if any, and interest on our debt. If our cash flows and capital resources are insufficient to allow us to make scheduled payments on our debt, we may have to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our debt. We cannot assure you that the terms of our debt will allow these alternative measures or that such measures would satisfy our scheduled debt service obligations. If we cannot make scheduled payments on our debt, we will be in default and, as a result:

 

   

our debt holders could declare all outstanding principal and interest to be due and payable;

 

   

our lenders could terminate their commitments and commence foreclosure proceedings against our assets; and

 

6


Table of Contents
   

we could be forced into bankruptcy or liquidation.

Certain of our debt agreements require us to maintain specified financial ratios and meet specific financial tests. Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in us being required to repay these borrowings before their due date. If we were unable to make this repayment or otherwise refinance these borrowings, our lenders could foreclose on our assets. If we were unable to refinance these borrowings on favorable terms, our business could be adversely impacted.

A competitive labor market may increase Delhaize Group’s costs.

Our success depends in part on our ability to attract and retain qualified personnel in all areas of our business. We compete with other businesses in our markets in attracting and retaining employees. Tight labor markets, increased overtime, collective labor agreements, government mandated increases in the minimum wage and a higher proportion of full-time employees could result in an increase in labor costs, which could materially impact our results of operations. A shortage of qualified employees may require us to increase our wage and benefit offerings in order to compete effectively in the hiring and retention of qualified employees or to retain more expensive temporary employees. Increased labor costs could increase our costs, resulting in a decrease in our profits or an increase in our losses. There can be no assurance that we will be able to fully absorb any increased labor costs through our efforts to increase efficiencies in other areas of our operations.

The significance of Delhaize America’s contribution to our revenues and the geographic concentration of Delhaize America’s stores on the east coast of the United States make us vulnerable to economic downturns, natural disasters and other catastrophic events that may impact that region.

During 2006, approximately 71.6% of our sales were generated through Delhaize America. We depend in part on Delhaize America for dividends and other payments to generate the funds necessary to meet our financial obligations. Substantially all of Delhaize America’s stores are located on the east coast of the United States. Consequently, our operations depend significantly upon economic and other conditions in this area, in addition to those that may affect the United States or the world as a whole. If the east coast of the United States were to experience a general economic downturn, natural disaster or other adverse condition, our results of operations may suffer.

Because of the number of properties that we own and lease, we have a potential risk of environmental liability.

We are subject to laws, regulations and ordinances that govern activities and operations that may have adverse environmental effects and impose liabilities for the costs of cleaning, and certain damages arising from, sites of past spills, disposals or other releases of hazardous materials. Under applicable environmental laws, we may be responsible for the remediation of environmental conditions and may be subject to associated liabilities relating to our stores, warehouses and offices, as well as the land on which they are situated, regardless of whether we lease, sublease or own the stores, warehouses, offices or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant. The costs of investigation, remediation or removal of environmental conditions may be substantial. Certain environmental laws also impose liability in connection with the handling of or exposure to asbestos-containing materials, pursuant to which third parties may seek recovery from owners, tenants or sub-tenants of real properties for personal injuries associated with asbestos-containing materials. There can be no assurance that environmental conditions relating to prior, existing or future store sites will not harm us through, for example, business interruption, cost of remediation or harm to reputation.

If we are unable to locate appropriate real estate or enter into real estate leases on commercially acceptable terms, we may be unable to open new stores.

Our ability to open new stores is dependent on our competence in identifying and entering into leases on commercially reasonable terms for properties that are suitable for our needs. If we fail to identify and enter into leases on a timely basis for any reason, including our inability due to competition from other companies seeking similar sites, our growth may be impaired because we may be unable to open new stores as anticipated. Similarly, our business may be harmed if we are unable to renew the leases on our existing stores on commercially acceptable terms.

 

7


Table of Contents

Unfavorable exchange rate fluctuations may negatively impact our financial performance.

Our operations are conducted primarily in the U.S., Belgium and to a lesser extent in other parts of Europe and Indonesia. The results of operations and the financial position of each of our entities outside the euro zone are recorded in the relevant local currency and then translated into euros at the applicable foreign currency exchange rate for inclusion in our consolidated financial statements. Exchange rate fluctuations between these foreign currencies (particularly the U.S. dollar) and the euro may have a material adverse effect on our consolidated financial statements as reported in euros.

We also face transaction risks from fluctuations in exchange rates between the various currencies in which we do business. Transactions that are most likely to result in exchange rate risks for us relate to dividends paid to us by our subsidiaries. For example, any dividends we receive from Delhaize America may be adversely affected by exchange rate fluctuations between the euro and the U.S. dollar.

Various aspects of our business are subject to federal, regional, state and local laws and regulations in the U.S., Belgium and other countries, in addition to environmental regulations. Our compliance with these laws and regulations may require additional expenses or capital expenditures and could adversely affect our ability to conduct our business as planned.

In addition to environmental regulations, we are subject to federal, regional, state and local laws and regulations in the U.S., Belgium and other countries relating to, among other things, zoning, land use, workplace safety, public health, community right-to-know, alcoholic beverage sales and pharmaceutical sales. A number of jurisdictions regulate the licensing of supermarkets, including retail alcoholic beverage license grants. In addition, under certain regulations, we are prohibited from selling alcoholic beverages in certain of our stores. Employers are also subject to laws governing their relationship with employees, including minimum wage requirements, overtime, working conditions, disabled access and work permit requirements. Compliance with, or changes in, these laws could reduce the revenue and profitability of our supermarkets and could otherwise adversely affect our business, financial condition or results of operations. A number of laws exist which impose burdens or restrictions on owners with respect to access by disabled persons. Our compliance with these laws may result in modifications to our properties, or prevent us from performing certain further renovations.

As a result of selling food products, we face the risk of exposure to product liability claims and adverse publicity.

The packaging, marketing, distribution and sale of food products purchased from others entail an inherent risk of product liability, product recall and resultant adverse publicity. Such products may contain contaminants that may be inadvertently redistributed by us. These contaminants may, in certain cases, result in illness, injury or death if processing at the foodservice or consumer level does not eliminate the contaminants. Even an inadvertent shipment of adulterated products is a violation of law and may lead to an increased risk of exposure to product liability claims. There can be no assurance that such claims will not be asserted against us or that we will not be obligated to perform such a recall in the future. If a product liability claim is successful, our insurance may not be adequate to cover all liabilities we may incur, and we may not be able to continue to maintain such insurance, or obtain comparable insurance at a reasonable cost, if at all. If we do not have adequate insurance or contractual indemnification available, product liability claims relating to defective products could have a material adverse effect on our ability to successfully market our products and on our business, financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could have a material adverse effect on our reputation with existing and potential customers and on our business and financial condition and results of operations.

Strikes, work stoppages and slowdowns could negatively affect our financial performance.

A number of employees of our companies, mostly outside of the United States, are unionized. It is possible that relations with the unionized portion of our workforce will deteriorate or that our workforce would initiate a strike, work stoppage or slowdown in the future. In such an event, our business, financial condition and results of operations could be negatively affected, and we cannot provide assurance that we would be able to adequately meet the needs of our customers utilizing our remaining workforce. In addition, similar actions by our non-unionized workforce are possible.

 

8


Table of Contents

We may not be able to fund our renovation and conversion plans.

A key to our business strategy has been, and will continue to be, the renovation and/or conversion of our existing stores, as well as the renovation of our infrastructure. Although it is expected that cash flows generated from operations, supplemented by the unused borrowing capacity under our credit facilities and the availability of capital lease financing, will be sufficient to fund our capital renovation programs and conversion initiatives, sufficient funds may not be available. Our inability to successfully renovate and/or convert our existing stores and other infrastructure could adversely affect our business, results of operations and ability to compete successfully.

We may be unsuccessful in managing the growth of our business or the integration of acquisitions we have made.

As part of our long-term strategy, we continue to reinforce our presence in the geographic locations where we currently operate and in adjacent regions, by pursuing acquisition opportunities in the retail grocery store industry and engaging in store renovations and market renewals. In doing so, we face risks commonly encountered with growth through acquisition and conversion. These risks include, but are not limited to, incurring significantly higher than anticipated financing related risks and operating expenses, failing to assimilate the operations and personnel of acquired businesses, failing to install and integrate all necessary systems and controls, the loss of customers, entering markets where we have no or limited experience, the disruption of our ongoing business and the dissipation of our management resources. Realization of the anticipated benefits of an acquisition, store renovation or market renewal may take several years or may not occur at all. Our growth strategy may place a significant strain on our management, operational, financial and other resources. In particular, the success of our acquisition strategy will depend on many factors, including our ability to:

 

   

identify suitable acquisition opportunities;

 

   

successfully complete acquisitions at valuations that will provide anticipated returns on invested capital;

 

   

quickly and effectively integrate acquired operations to realize operating synergies;

 

   

obtain necessary financing on satisfactory terms; and

 

   

make payments on the indebtedness that we might incur as a result of these acquisitions.

There can be no assurance that we will be able to execute successfully our acquisition strategy, store renovations or market renewals, and any failure to do so could have a material adverse effect on our business, financial condition and results of operations.

Although we are not presently a party to any agreement with respect to any pending acquisition that we believe is probable and material to our business, we have engaged in and continue to engage in evaluations and discussions with respect to potential acquisitions.

Unexpected outcomes with respect to jurisdictional audits of income tax filings could result in an adverse effect on our financial performance.

We are regularly audited in the various jurisdictions in which we do business, which we consider to be part of our ongoing business activity. While the ultimate outcome of these audits is not certain, we have considered the merits of our filing positions in our overall evaluation of potential tax liabilities, and believe we have adequate liabilities recorded in our consolidated financial statements for potential exposures. Unexpected outcomes as a result of these audits could adversely affect our financial condition and results of operation.

Risks associated with the suppliers from whom our products are sourced could adversely affect our financial performance.

The products we sell are sourced from a wide variety of domestic and international suppliers. Our ability to find qualified suppliers who meet our standards and to access products in a timely and efficient manner is a significant challenge. Political and economic instability in the countries in which suppliers are located, the financial instability of suppliers, suppliers’ failure to meet our standards, labor problems experienced by our suppliers, the availability of

 

9


Table of Contents

raw materials to suppliers, merchandise quality issues, currency exchange rates, transport availability and cost, inflation, and other factors relating to the suppliers and the countries in which they are located are beyond our control. In addition, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the limitation on the importation of certain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade are beyond our control. These and other factors affecting our suppliers and access to products could adversely affect our operations and financial performance.

Natural disasters and geopolitical events costs could adversely affect our financial performance.

The occurrence of one or more natural disasters, such as hurricanes, earthquakes, tsunamis or pandemics, and geopolitical events, such as civil unrest in a country in which we operate or in which our suppliers are located and attacks disrupting transportation systems, could adversely affect our operations and financial performance. Such events could result in physical damage to one or more of our properties, the temporary closure of one or more stores and distribution centers, the temporary lack of an adequate work force in a market, the temporary or long-term disruption in the supply or products from some local and overseas suppliers, the temporary disruption in the transport of goods from overseas, delay in the delivery of goods to our distribution centers or stores within a country in which we are operating and the temporary reduction in the availability of products in our stores. These factors could otherwise disrupt and adversely affect our operations and financial performance.

In all control systems there are inherent limitations, and misstatements due to error or fraud may occur and not be detected, which may harm our business and financial performance and result in difficulty meeting our reporting obligations.

Effective internal control over financial reporting is necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our business and operating results could be harmed. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risks that the control may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in its implementation of internal controls, our business and operating results could be harmed and we could fail to meet our reporting obligations.

Much of our operations are dependent on information technology (“IT”) systems, the failure of any of which may adversely affect our financial performance.

Many of the functions of our operations are dependent on IT systems, developed and maintained by internal experts or third parties. The failure of any of these IT systems may cause disruptions in our operations, adversely affecting our sales and profitability. We have business continuity plans in place to reduce the negative impact of such IT systems failures on our operations, but there is no assurance that these business continuity plans will be completely effective in doing so.

Changes in and performance by suppliers, distributors could adversely effect or results.

Significant disruptions in operations of our vendors and suppliers could materially impact our operations by disrupting store-level merchandise selection, resulting in reduced sales. Also, from time to time, we may experience product shortages due to the impact of adverse weather conditions, such as drought or flood, or disruptions in the supply chain from competition for products from other retailers, product shortages and transportation disruptions. These shortages may result in decreased product selection and increased out-of-stock conditions, as well as higher product costs, which result in decreased sales or margins.

 

10


Table of Contents

A change in supplier rebates could adversely affect our financial performance.

We receive allowances, credits and income from suppliers primarily for volume incentives, new product introductions, in-store promotions and co-operative advertising. Certain of these funds are based on our volume of net sales or purchases, growth rate of net sales or purchases and marketing programs. If we do not grow our net sales over prior periods or if we are not in compliance with the terms of these programs, there could be a material negative effect on the amount of incentives offered or paid to us by our suppliers. Additionally, suppliers routinely change the requirements for, and the amount of, funds available. No assurance can be given that we will continue to receive such incentives or that we will be able to collect outstanding amounts relating to these incentives in a timely manner, or at all. A reduction in, the discontinuance of, or a significant delay in receiving such incentives, as well as the inability to collect such incentives, could have a material adverse effect on our business, results of operation and financial condition.

We are subject to antitrust and similar legislation in the jurisdictions in which we operate.

We are subject to a variety of antitrust and similar legislation in the jurisdictions in which we operate. In a number of markets, we have market positions which may make future significant acquisitions more difficult and may limit our ability to expand by acquisition or merger, if we wished to do so.

In addition, we are subject to legislation in many of the jurisdictions in which we operate relating to unfair competitive practices and similar behavior. We have been subject to and may in the future be subject to allegations of, or further regulatory investigations or proceedings into, such practices. Such allegations or investigations or proceedings (irrespective of merit), may require us to devote significant management resources to defending ourselves against such allegations. In the event that such allegations are proved, we may be subject to significant fines, damages awards and other expenses and our reputation may be harmed.

On April 24, 2007, representatives of the Conseil de la Concurrence/Raad voor de mededinging (Belgian competition authority), visited our offices in Zellik, Belgium, and requested us to provide them with specified documents. This visit was a part of what appears to be a local investigation affecting several companies in Belgium in the retail sector. We understand that the investigation, which is expected to continue for several months, relates to prices of perfume, beauty products and other household goods. We have cooperated with the Conseil de la Concurrence/Raad voor de mededinging in connection with the initial request for documentation and as of the date of this filing have not received any news or further communication, nor has a statement of objections been lodged against our company, in relation to this matter. The maximum fine for violations of the related competition laws in Belgium is capped at ten percent of our company’s annual sales in Belgium. If the Conseil de la Concurrence/Raad voor de Mededinging formally charges us with a violation of Belgian competition laws, our reputation may be damaged, and if a violation of such laws is proven we could be fined and incur other expenses, and there may be a material adverse effect on our financial condition and results of operations.

Unexpected outcomes in our legal proceedings could materially impact our financial performance.

From time to time, we are party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property, competition/antitrust matters, landlord-tenant matters and other proceedings arising in the ordinary course of business. We have estimated our exposure to the claims and litigation arising in the normal course of business and believe we have made adequate provisions for such exposure. Unexpected outcomes in these matters could have an adverse effect on our financial condition and results of operations.

We may experience adverse results arising from claims against our self-insurance programs.

Our U.S. operations are self-insured for workers’ compensation, general liability, vehicle accident, druggist claims and healthcare (including medical, pharmacy, dental and short-term disability). The self-insured reserves related to workers’ compensation, general liability and vehicle coverage are reinsured by The Pride Reinsurance Company, an Irish reinsurance captive wholly-owned by us. The purpose for implementing the captive reinsurance program was to provide our U.S. operations with continuing flexibility in their risk program, while providing certain excess loss protection through anticipated reinsurance contracts with Pride.

Self-insurance liabilities are estimated based on actuarial valuations of claims filed and an estimate of claims incurred but not reported. We believe that the actuarial estimates are reasonable. These estimates are subject to

 

11


Table of Contents

changes in claim reporting patterns, claim settlement patterns and legislative and economic conditions, making it possible that the final resolution of some of these claims may require us to make significant expenditures in excess of its existing reserves.

Self-insurance reserves of €117.5 million are included as liabilities on the balance sheet as of December 31, 2006. More information on self-insurance can be found in note 22 “Self-insurance Provision” to the consolidated annual financial statements included in this document.

Our operations are subject to economic conditions that impact consumer spending.

Our results of operations are sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending. Future economic conditions such as employment levels, business conditions, interest rates, energy and fuel costs and tax rates could reduce consumer spending or change consumer purchasing habits. A general reduction in the level of consumer spending or our inability to respond to shifting consumer attitudes regarding products, store location and other factors could adversely affect our growth and profitability.

Risks Relating to Ownership of Delhaize Group ADRs

The trading price of our ADRs and dividends paid on our ordinary shares underlying the ADRs may be materially adversely affected by fluctuations in the exchange rate for converting euros into U.S. dollars.

Fluctuations in the exchange rate for converting euros into U.S. dollars may affect the value of our ADRs and ordinary shares. Specifically, as the relative value of the euro to the U.S. dollar declines, each of the following values will also decline (and vise versa):

 

   

the U.S. dollar equivalent of the euro trading price of Delhaize Group ordinary shares in Belgium, which may consequently cause the trading price of Delhaize Group ADRs in the United States to also decline;

 

   

the U.S. dollar equivalent of the proceeds that a holder of Delhaize Group ADRs would receive upon the sale in Belgium of any Delhaize Group ordinary share withdrawn from the depositary; and

 

   

the U.S. dollar equivalent of cash dividends paid in euros on the Delhaize Group shares represented by the ADRs.

Due to delays in notification to and by the depositary, the holders of Delhaize Group ADRs may not be able to give voting instructions to the depositary or to withdraw the Delhaize Group ordinary shares underlying their ADRs to vote such shares in person or by proxy.

The depositary may not receive voting materials for Delhaize Group ordinary shares represented by Delhaize Group ADRs in time to ensure that holders of Delhaize Group ADRs can either instruct the depositary to vote the shares underlying their ADRs or withdraw such shares to vote them in person or by proxy. In addition, the depositary’s liability to holders of Delhaize Group ADRs for failing to execute voting instructions or for the manner of executing voting instructions is limited by the deposit agreement. As a result, holders of Delhaize Group ADRs may not be able to exercise their right to give voting instructions or to vote in person or by proxy and they may not have any recourse against the depositary or Delhaize Group if their shares are not voted as they have requested or if their shares cannot be voted.

You should be aware of the consequences of our incorporation in Belgium, which provides for different and in some cases more limited shareholder rights than the laws of jurisdictions in the United States.

We are a Belgian company and its corporate affairs are governed by Belgian corporate law. Although provisions of Belgian company law resemble various provisions of the corporation laws of a number of states in the United States, principles of law relating to such matters as:

 

   

the validity of corporate procedures,

 

   

the fiduciary duties of management,

 

   

the dividend payment dates, and

 

12


Table of Contents
   

the rights of shareholders,

may differ from those that would apply if we were incorporated in a jurisdiction within the United States. For example, there are no statutory dissenters’ rights under Belgian law with respect to share exchanges, mergers and other similar transactions, and the rights of shareholders of a Belgian company to sue derivatively, on the company’s behalf, are more limited than in the United States.

In addition, if a holder of our ordinary shares in registered form wishes to attend a general meeting, such holder must send to our registered office an attendance form evidencing his or her intent to exercise his or her rights at the meeting at least four business days prior to such meeting, and must remain the holder of such shares until the day after the meeting. A holder of our ordinary shares in bearer form must deposit the ordinary shares under which voting rights will be exercised with our registered office, or such other place as specified in the notice for the meeting, at least four business days prior to the applicable meeting. Similarly, a holder of our ADRs who gives voting instructions to the depositary must arrange for blocking transfers of those ADRs during the period from the date on which such voting instructions are received by the depositary until the day after such meeting.

 

13


Table of Contents

You may be unable to serve legal process within the United States or enforce in the U.S. judgments against us and our directors and officers.

We are a Belgian company and most of our directors and many of our officers are not residents of the United States. Furthermore, a substantial portion of the assets of these non-resident persons are located outside the United States. As a result, you may not be able to effect service of process within the United States upon these non-resident persons or to enforce in the United States any judgments obtained in U.S. courts against any of these non-resident persons or us based upon the civil liability provisions of the securities or other laws of the United States.

Civil liabilities based upon the securities and other laws of the United States may not be enforceable in original actions instituted in Belgium, or in actions instituted in Belgium to enforce judgments of U.S. courts.

Civil liabilities based upon the securities and other laws of the United States may not be enforceable in original actions instituted in Belgium, or in actions instituted in Belgium to enforce judgments of U.S. courts. Actions for the enforcement of judgments of U.S. courts might be successful only if the Belgian court confirms the substantive correctness of the judgment of the U.S. court, and is satisfied that:

 

   

the effect of the enforcement judgment is not manifestly incompatible with Belgian public policy;

 

   

the judgment did not violate the rights of the defendant;

 

   

the judgment was not rendered in a matter where the parties transferred rights subject to transfer restrictions with the sole purpose of avoiding the application of the law applicable according to Belgian international law;

 

   

the judgment is not subject to further recourse under U.S. law;

 

   

the judgment is not incompatible with a judgment rendered in Belgium or with a subsequent judgment rendered abroad that might be enforced in Belgium;

 

   

a claim was filed both outside Belgium and in Belgium, whereas the claim filed in Belgium is still pending;

 

   

the Belgian courts did not have exclusive jurisdiction to rule on the matter;

 

   

the U.S. court did not accept its jurisdiction solely on the basis of either the nationality of the plaintiff or the location of the disputed goods; and

 

   

the judgment submitted to the Belgian court is authentic.

Holders of our ADRs or ordinary shares have limited rights to call shareholders’ meetings or to submit shareholder proposals, which could adversely affect their ability to participate in the governance of Delhaize Group.

Except under limited circumstances, only our Board of Directors may call a shareholders’ meeting. Shareholders who collectively own at least 20% of the corporate capital of Delhaize Group may require the Board of Directors or the statutory auditor to convene an extraordinary general meeting of shareholders. As a result, the ability of our holders of ADRs or ordinary shares to participate in and influence the governance of Delhaize Group is limited.

 

14


Table of Contents

Holders of our ADRs have limited recourse if we or the depositary fails to meet its respective obligations under the deposit agreement or if they wish to involve our company or the depositary in a legal proceeding.

The deposit agreement expressly limits the obligations and liability of our company and the depositary. Neither we nor the depositary will be liable to the extent that liability results from the fact that we or the depositary:

 

   

are prevented or hindered in performing any obligation by circumstances beyond our or the depositary’s control;

 

   

exercise or fail to exercise discretion under the deposit agreement;

 

   

perform their obligations without negligence or bad faith;

 

   

take any action based upon advice of or information from legal counsel, accountants, any person presenting shares for deposit, any holder or any other qualified person; or

 

   

rely on any documents believed in good faith to be genuine and properly executed.

In addition, neither we nor the depositary has any obligation to participate in any action, suit or other proceeding in respect of our ADRs which may involve it in expense or liability unless it is indemnified to its satisfaction. These provisions of the deposit agreement will limit the ability of holders of our ADRs to obtain recourse if we or the depositary fails to meet our or its respective obligations under the deposit agreement or if they wish to involve our company or the depositary in a legal proceeding.

We, as a non-U.S. issuer, are subject to disclosure standards that differ from those applicable to U.S. domestic issuers, which may limit the information available to holders of our ADRs, and corporate governance standards that differ from those applicable to U.S. domestic issuers, which may limit the transparency and independence of corporate governance, in each case as compared to U.S. domestic issuers.

As a non-U.S. issuer, we are not subject to the U.S. insider “short-swing” profit disclosure and reporting rules under Section 16 of the Securities Exchange Act. Although we are subject to the periodic reporting requirements of the Exchange Act, the periodic disclosure required of non-U.S. issuers under the Exchange Act is more limited than the periodic disclosure required of U. S. issuers. Therefore, there may be less publicly available information about us than is regularly published by or about U.S. domestic issuers in the U.S. In addition, as a Belgian company subject to the rules and regulations of the Securities and Exchange Commission, or SEC, we may publicly file our earnings reports later than U.S. issuers. We are required to file annual reports on Form 20-F and reports on Form 6-K. We historically have filed current reports containing financial information on a quarterly basis, but such reports may not contain the same information as would be found in quarterly periodic reports filed by U.S. domestic issuers.

Our ordinary shares are listed on Euronext Brussels under the symbol “DELB” and our American Depositary Shares, or ADSs, as evidenced by American Depositary Receipts, or ADRs, are listed on the New York Stock Exchange, NYSE, under the symbol “DEG”. As a non-U.S. issuer listed on the NYSE, we are exempt from many of the corporate governance requirements of the NYSE that are applicable to U.S. domestic companies listed on the NYSE. Under the NYSE’s corporate governance listing standards, we must disclose any significant ways in which our corporate governance practices differ from those followed by U.S. domestic companies under NYSE listing standards.

 

ITEM 4. INFORMATION ON THE COMPANY

We are a food retailer headquartered in Belgium with operations in eight countries on three continents – North America, Europe and Asia. As of December 31, 2006, our sales network (which includes company-operated, affiliated and franchised stores) consisted of 2,705 stores, and we employed approximately 142,500 people. In 2006, we recorded net sales and other revenues of €19.2 billion and Group share in net profit of €351.9 million.

Our primary store format consists of retail food supermarkets, which represent approximately 91% of our sales network. Our sales network also includes other store formats such as proximity stores and specialty stores. In addition to food retailing, we engage in food wholesaling and non-food retailing of products such as pet products, health and beauty products, prescriptions and other household and personal products.

Delhaize Group S.A. is the parent company of the direct and indirect subsidiaries listed in note 41 to our consolidated annual financial statements included elsewhere in this document.

 

15


Table of Contents

The following table sets forth, as of the dates indicated, our sales network in the United States, Belgium and other regions:

Sales Network (number of stores)

 

     At December 31,
     2006    2005    2004

United States(1)

   1,549    1,537    1,523

Belgium

   843    808    747

Greece

   148    135    129

Emerging Markets (2)

   68    62    58

Discontinued Operations (3)

   97    94    108

Total

   2,705    2,636    2,565

(1) Includes stores at December 30, 2006, December 31, 2005 and January 1, 2005.
(2) Includes Romania and Indonesia.
(3) Includes Czech Republic (2004 to 2006) and Slovakia (2004).

Net Sales and Other Revenues (in millions of EUR)

 

     Year Ended December 31,
     2006    2005    2004

United States

   13,772.8    13,314.3    12,750.8

Belgium

   4,285.2    4,005.1    3,872.9

Greece

   1,030.3    908.0    873.0

Emerging Markets

   136.9    117.9    100.1

Total

   19,225.2    18,345.3    17,596.8

Our operations are located primarily in the United States, Belgium and Greece, with a small percentage of our operations in Central Europe and in Southeast Asia. In 2006, operations in the United States accounted for 71.6% of net sales and other revenues. Operations in Belgium, the Grand-Duchy of Luxembourg and Germany accounted for 22.3% of net sales and other revenues. Operations in Greece accounted for 5.4% of net sales and other revenues. Net sales and other revenues in our Emerging Markets segment (Romania and Indonesia) accounted for 0.7% of our net sales and other revenues in 2006. Sales from our operations in the Czech Republic, which were in the process of being divested at the end of 2006, are not included in the Emerging Markets results for 2006.

A. History and Development of the Delhaize Group

In 1867, the brothers Jules and Edouard Delhaize and their brother-in-law Jules Vieujant founded our company as a wholesale supplier of groceries in Charleroi, Belgium. In 1957, we opened our first supermarket in Belgium. Since that date, we have expanded our supermarket operations across Belgium and into other parts of Europe, North America and Southeast Asia. We were converted from a limited partnership to a limited liability company on February 22, 1962.

We entered the United States in 1974, acquiring approximately 35% of Food Town Stores, Inc., a food retailer that operated 22 stores in the southeastern United States. In 1976, we increased our stake to 52%. In 1983, Food Town Stores, Inc. was renamed Food Lion, Inc. In December 1996, our U.S. operations were expanded when Food Lion acquired Kash n’ Karry. In July 2000, we acquired Hannaford Bros. Co, a supermarket chain operating in the Northeastern U.S. In October 2003, we acquired J.H. Harvey Co., a supermarket business operating in Georgia and Florida, and added it to our U.S. store network. In November 2004, we acquired Victory Distributors, Inc., a 19-store business operating in Massachusetts and New Hampshire under the trade name Victory Super Markets, and added it to our U.S. store network.

 

16


Table of Contents

In April 2001, we and Delhaize America, the holding company grouping our U.S. operations, consummated a share exchange transaction in which we acquired all of the outstanding shares of Delhaize America that we did not already own. Delhaize America shareholders exchanged their shares of Delhaize America common stock for either our American Depositary Receipts, or ADRs, which are listed on the New York Stock Exchange, or our ordinary shares, which are listed on Euronext Brussels.

The 1990s were a period of international expansion outside of Belgium and the United States for our company. The following subsidiaries were integrated into our company in the following countries during this time: Delvita – Czech Republic (1991), Alfa-Beta – Greece (1992), PG – France (1994), Food Lion Thailand – Thailand (1997), Super Indo – Indonesia (1997), Delvita – Slovakia (1998), Shop N Save – Singapore (1999) and Mega Image – Romania (2000). Since then, some of these businesses have been divested to focus our resources on better investment opportunities: PG – France (2000), Shop N Save – Singapore (2003), Food Lion Thailand – Thailand (2004), Delvita – Slovakia (2005) and Delvita – Czech Republic (2007).

In 2001, Alfa-Beta, our Greek operating company acquired Trofo, a chain of stores operating in Greece. In 2005, we acquired Cash Fresh, a chain of 43 supermarkets located mainly in the northeastern part of Belgium.

Our principal executive offices are located at Square Marie Curie 40, 1070 Brussels- Belgium. Our telephone number at that location is +32 2 412 22 11. Our Internet address is www.delhaizegroup.com. The information on our website is not a part of this document.

Competitive Strengths

We believe that we are well positioned to capitalize on opportunities that exist in the supermarket industry in the geographical markets in which we operate. We seek to differentiate ourselves from our competitors through our competitive strengths, which include:

 

   

Leading market shares and strong brand recognition. We aim to be among the top three supermarket operators in terms of annual sales in the markets in which we operate. We believe that our leading market shares result in distribution and advertising synergies and allow us to maintain customer loyalty and strong brand recognition.

 

   

Strong operating margins and cost control. Our operating margins have historically been among the highest in the supermarket industry. We have focused on controlling and reducing elements of our cost of sales through centralized buying practices, distribution efficiencies, improved category management and an increased mix of private label products. Our ability to control operating and administrative expenses has allowed us to achieve one of the lowest operating cost structures in the supermarket industry. Effective use of information technology, store labor scheduling and attention to cost controls have allowed us to control our expense structure.

 

   

Track record of reducing leverage (i.e. debt to equity ratio). We have historically been able to generate free cash flow and reduce leverage in our balance sheet. This has been possible through our strong profitability, disciplined working capital management and selective investments.

 

   

Diversification through multiple banners and multiple markets. We operate under multiple banners, each of which has a distinct strategy and a well established and consistent brand image. Through our multiple banners, we are able to target the needs and requirements of specific markets, customize our product and service offerings and maintain strong brand recognition with our local customers.

 

   

Experienced management team. Our executive officers have an average of more than 20 years of experience in the food retailing industry. In addition, many of our company’s senior operating managers have spent much of their careers in their respective local markets.

 

17


Table of Contents
   

Attractive store base. Our store locations include many sites in developed urban and suburban locations that would be difficult to replicate. We have invested significant capital in our store base over the years through the addition of new stores and the renovation of existing stores in order to improve the overall quality of our customers’ shopping experience. We plan on continuing to invest in our store base during fiscal year 2007 by incurring approximately €825 million of capital expenditures (including $755 million (€600 million) for our U.S. operations), including renovations of existing stores and store support functions, particularly information technology and logistics.

 

   

Distribution capacity and efficiency. We currently operate 28 distribution centers that total approximately 13 million square feet. Our warehousing and distribution systems are conveniently located within the areas we serve. Our distribution centers are capable of serving our existing store base and can service additional stores. We plan to continue to develop and invest in our warehousing and distribution systems in the future.

 

   

Loyalty card programs. At Food Lion, Delhaize Belgium and Alfa-Beta, which represent approximately 84% of our sales network by number of stores, we have successful customer loyalty card programs that are critical elements of our marketing strategy. Customers utilize our loyalty cards for buying incentives and discounts on select purchases.

 

   

Significant investment in management information systems. All of our operating companies use computer systems that allow us to monitor store operating performance, manage merchandise categories and procure and distribute merchandise on a centralized basis by banner. We regularly update our information technology so that we can continue to efficiently operate our stores and logistics network.

 

   

Operate as a global group. We are organized into different geographic regions that exercise global and regional purchasing, share retail knowledge and implement best practices. We have regional and company-wide coordination groups focusing on procurement, equipment purchasing, information technology, food safety, talent development, communication and risk management.

Our Strategy

We have leading positions in food retailing in key markets. Our position was established through strong local companies with a variety of food store formats. The local companies benefit from and contribute to our strength, expertise and successful practices. We are committed to offering a locally differentiated shopping experience to our customers, delivering high value and maintaining high social, environmental and ethical standards.

We have identified and implemented actions to drive our future sales, profitability and return on invested capital. Five strategic principles serve as a guide for our initiatives: differentiated store concepts, executional excellence, being a learning company, offering an attractive workplace and acting as a responsible corporate citizen.

 

   

Differentiated store concepts. We believe that only strong differentiation in leading store concepts can lead to long-term success and sustainable sales growth. That is why Food Lion, our largest company, has reinforced its fresh offering and invested in store remodelings and improved customer service. Hannaford, Delhaize Belgium and Alfa-Beta continue to develop an innovative variety of quality products and offer high customer service at competitive prices. Kash n’ Karry is in the process of being rebranded to Sweetbay Supermarket to support our repositioning in western Florida.

 

   

Executional excellence. The retail market demands a daily commitment to executional excellence at all levels of the organization to timely and consistently achieve planned projects and targets, develop the necessary tools and systems and recruit and maintain managers and employees accountable for each element. We continue to invest heavily in training and information systems to support the day-to-day execution within the organization.

 

   

Being a learning company. Being a learning company is a strategic process through which we integrate the know-how and the experiences of the operating companies and employees throughout the entire organization to maximize our potential and deliver sustainable and profitable growth. We seek to establish learning networks and identify and exchange best practices.

 

18


Table of Contents
   

Offering an attractive workplace. Attracting and retaining skilled and motivated associates is key to our success. Therefore, we want to create an attractive professional environment. We offer a competitive compensation package based on local standards, opportunities for personal development and associate recognition programs. In our recruiting and internal promotion practices, we put a high value on diversity.

 

   

Acting as a responsible corporate citizen. We aim to act as a responsible citizen towards the environment and the community within our local markets of operation. Our company supports the communities in which we operate through a wide range of charitable initiatives. We believe that we operate at a high standard of corporate governance and ethical business practices.

B. Business Overview

As of December 31, 2006, we operated the following banners:

 

United States    Belgium (a)    Southern and Central Europe    Southeast Asia

•      Food Lion

  

•      Delhaize “Le Lion”

   Greece    Indonesia

•      Bloom

  

Supermarket

  

•      Alfa-Beta

  

•      Super Indo

•      Bottom Dollar Food

  

•      Cash Fresh

  

•      ENA

  

•      Harveys

  

•      AD Delhaize

  

•      Shop & Go

  

•      Reid’s

  

•      Delhaize City

  

•      Trofo Market

  

•      Hannaford

  

•      Proxy Delhaize

  

•      AB City

  

•      Sweetbay

  

•      Shop ‘n Go

  

•      AB Food Market

  

Supermarkets

  

•      Caddy-Home

     

•      Kash n’ Karry

  

•      Di (c)

   Czech Republic (b)   
  

•      Tom & Co

  

•      Delvita

  
     

•      Proxy

  
     

•      Delvita City

  
        
      Romania   
     

•      Mega Image

  

(a) Including 30 stores in the Grand-Duchy of Luxembourg and three stores in Germany.
(b) In May 2007, we completed the sale of our business in the Czech Republic to Rewe Group.
(c) In March 2007, we entered into an agreement to sell Di.

United States

Overview. We engage in one line of business in the United States, the operation of food supermarkets in the southeastern, mid-Atlantic and northeastern regions of the United States under the banners Food Lion, Hannaford, Kash n’ Karry, Sweetbay, Reid’s, Harveys, Bloom and Bottom Dollar Food.

For the fiscal year ended December 31, 2006, we achieved net sales and other revenues of €13.8 billion ($17.3 billion) in the United States. We are the third largest supermarket operator on the east coast of the United States for fiscal year 2006 based on sales. At the end of 2006, we employed approximately 108,900 people in the United States.

In 1974, we acquired a 35% shareholding in Food Town Stores, as Food Lion was called at that time. In 1976, Delhaize Group acquired a majority shareholding in Food Lion. Today, Food Lion stores are located from Delaware through Florida. Hannaford and Kash n’ Karry became wholly owned subsidiaries of Delhaize America in 2000 and 1996, respectively, and are located respectively throughout New England and Florida. Harveys is located primarily in Georgia and Florida and has been consolidated into Delhaize America’s results since October 26, 2003. Bloom and Bottom Dollar stores can be found in the mid-Atlantic section of the United States and began operations in 2004 and 2005, respectively. We announced our Sweetbay initiative in 2004 and all stores are located in Florida. The Kash n’ Karry stores are in the process of being remodeled and re-branded under the new brand Sweetbay Supermarkets by the end of September 2007.

 

19


Table of Contents

Sales network. The growth of our U.S. sales network has historically been based on store openings, complemented by selective acquisitions. In 2006, we opened or acquired 40 stores in the United States, consisting of 18 Food Lion stores, 5 Bloom stores, 14 Hannaford stores, one Sweetbay store and three Harveys stores. During 2006, we also closed or relocated 28 U.S. stores. As a result, as of December 31, 2006, we operated 1,549 supermarkets in 16 states in the eastern United States.

 

State

   Food
Lion (1)
   Harveys    Bloom   

Bottom

Dollar

Food

   Hannaford    Kash n’
Karry
   Sweetbay    Total

Delaware

   17                      17

Florida

   33    7             38    69    147

Georgia

   39    60                   99

Kentucky

   11                      11

Maine

               50          50

Maryland

   66       7    4             77

Massachusetts

               25          25

New Hampshire

               29          29

New York

               40          40

North Carolina

   483       5    4             492

Pennsylvania

   6                      6

South Carolina

   126    1    5                132

Tennessee

   65                      65

Vermont

               14          14

Virginia

   295       22    10             327

West Virginia

   18                      18

Total

   1,159    68    39    18    158    38    69    1,549

Number of States

   11    3    4    3    5    1    1   

(1) Includes 8 Reid’s stores

 

Banner

  

Average Store Size m2/ft2

  

Store Prototype Size m2/ft2

Food Lion,

Bloom, Bottom Dollar

and Reid’s

   3,250/35,000   

2,320/25,000

3,250/35,000

3,530/38,000

Harveys

   2,810/30,300   

1,950/21,000

3,250/35,000

Hannaford

   4,500/48,400   

3,250/35,000

4,370/47,000

5,110/55,000

Kash n’ Karry

   3,860/41,600   

Sweetbay Supermarket

   4,220/45,400   

3,940/42,400

4,090/44,000

4,550/49,000

 

20


Table of Contents

In recent years, we have pursued an aggressive remodeling program in the United States to provide our customers with a more convenient atmosphere, an enhanced merchandise assortment and improved customer service. In 2006, we remodeled 147 stores in the United States, including 94 Food Lion stores (of which 29 were converted to Bloom, 15 to Bottom Dollar Food and six to Harveys), 10 Hannaford stores and 43 Kash n’ Karry stores converted to Sweetbay Supermarket.

In 2006, Food Lion renewed its stores in the market of Washington, DC, where it remodeled approximately 80 stores, and divided them for the first time into distinct brands to better match stores to local demographics and shopping behavior (Food Lion, Bloom and Bottom Dollar Food). Remodeled stores received new interiors, new merchandising fixtures, expanded perishable offerings and changed product selections.

In 2004, Kash n’ Karry decided to focus its future development on its core markets on the west coast of Florida and, as a consequence, divested its operations on the east coast of Florida and in the Orlando region. As part of this new strategy, the remaining Kash n’ Karry stores are being remodeled and re-branded to Sweetbay Supermarket, which is expected to be completed by the end of September 2007.

Competition and regulation. The U.S. business in which we are engaged is competitive and characterized by narrow profit margins. We compete in the United States with international, national, regional and local supermarket chains, supercenters, independent grocery stores, specialty food stores, convenience stores, warehouse club stores, retail drug chains, membership clubs, general merchandisers, discount retailers and dollar stores. Competition is based primarily on location, price, consumer loyalty, product quality, variety and service.

From time to time, we and our competitors engage in price competition in the United States, which can adversely affect operating margins in some of our markets. The major competitors of Food Lion are Wal-Mart, Kroger, Harris Teeter, Bi-Lo, Lowes Food and Save-A-Lot. The major competitors of Hannaford are Shaws, Price Chopper, Wal-Mart, DeMoulas (Market Basket) and Royal Ahold (Stop and Shop). The major competitors of Sweetbay/Kash n’ Karry are Publix, Save-A-Lot, Winn-Dixie, Albertson’s and Wal-Mart.

In order to support decisions on the right competitive pricing level, Delhaize Group’s operating companies have developed detailed systems to compare prices with the competition. In early 2007, Delhaize Belgium had its price comparison methodology certified by an independent consumer organization.

The opening of new stores is largely unconstrained by regulation in most of the states where Food Lion, Sweetbay/Kash n’ Karry and Harveys operate. The majority of the states in which Hannaford operates are more restrictive through regulation of the opening of new stores. Shopping hours are mostly unconstrained by regulation in all of the U.S. states in which we are active. Most of our U.S. stores are open 17 to 18 hours a day and seven days a week.

Assortment. Our U.S. supermarkets sell a wide variety of groceries, produce, meats, dairy products, seafood, frozen food, deli/bakery products and non-food items such as prescriptions, health and beauty care and other household and personal products. Our U.S. stores offer nationally and regionally advertised brand name merchandise as well as products manufactured and packaged under private labels. Food Lion offers between 15,000 and 20,000 stock keeping units (“SKUs”) in its supermarkets, Harveys between 15,000 and 33,000 SKUs, Bloom between 24,500 and 25,000 SKUs, Bottom Dollar Food between 6,500 and 8,000 SKUs, Kash n’ Karry between 30,000 and 35,000 SKUs, Sweetbay between 35,000 and 40,000 SKUs and Hannaford between 32,000 and 44,000 SKUs.

Fresh products are a key category throughout the Group. Organic, natural and international foods are becoming more prevalent in the assortment. In 2006, Hannaford, Food Lion and Sweetbay continued the rollout of the organic and natural food department, Nature’s Place, in their stores. In Florida, we are in the process of replacing all Kash n’ Karry stores with the Sweetbay Supermarket concept strongly focusing on fresh products and specialty foods. With customers increasingly time starved, prepared meals and meal components form a rapidly growing category.

Private label products. Each of our principal U.S. banners offers its own line of private label products. The Food Lion, Hannaford and Sweetbay/Kash n’ Karry private label programs are consolidated into a single procurement program, enhancing the sales and marketing of the various private label brands, reducing the cost of goods sold for private label brands and strengthening the margins for these products. Sales of private label products

 

21


Table of Contents

represented 16%, 18% and 15% of Food Lion’s, Hannaford’s and Sweetbay/Kash n’ Karry’s respective sales in fiscal year 2006. As of December 31, 2006, Food Lion carried more than 2,000 private label SKUs, and Hannaford and Sweetbay each offered more than 3,000 SKUs under their private label program. In 2007, we will start to roll out a three-tier private label program in our U.S. operations, including a premium, a house brand and a value line as well as category-specific private label lines for organic products and general merchandise.

Loyalty cards. Food Lion operates a customer loyalty card program, which is called the MVP card program, through which customers can benefit from additional savings. Transactions using the MVP card accounted for 67% of sales at Food Lion in 2006. During the fiscal year ended December 31, 2006, approximately 8.4 million households actively used the MVP program, and their purchases were more than twice the size of non-MVP transactions.

Pharmacies. As of December 31, 2006, there were 70 pharmacies in Sweetbay and Kash n’ Karry stores, 24 pharmacies in Food Lion stores, three in Bloom stores, 120 in Hannaford stores and 20 in Harveys stores.

Belgium, the Grand-Duchy of Luxembourg and Germany

Overview. Belgium is our historical home market. The Belgian food retail market is characterized by a large presence of supermarkets, discount stores and independent shopkeepers. Over the years, we have built a strong market position (second in terms of sales), providing our customers with quality products and services at competitive prices. In 2006, we achieved sales of €4.3 billion in Belgium, the Grand-Duchy of Luxembourg and Germany, an increase of 7.0% over 2005, due to strong comparable store sales growth of 2.8% and rapid network expansion. Our market share in Belgium increased from 25.5% in 2005 to 26.1% in 2006 (source: A.C. Nielsen). At the end of 2006, we employed approximately 18,100 people in Belgium, the Grand-Duchy of Luxembourg and Germany.

Sales network. In Belgium, the Grand-Duchy of Luxembourg and Germany, our sales network consists of several banners, depending on the specialty, the store size and whether the store is company-operated, franchised or affiliated (that is, stores to which we sell wholesale goods). As of December 31, 2006, our sales network consisted of 843 stores in Belgium, the Grand-Duchy of Luxembourg and Germany, an increase of 35 stores since 2005.

The network included 364 supermarkets under the Delhaize “Le Lion”, Cash Fresh and AD Delhaize banners, 230 smaller conveniently located stores primarily under the Proxy Delhaize, Delhaize City and Shop ‘n Go banners. It also included 249 specialty stores, of which 132 health and beauty stores operated under the Di banner and 117 pet food and products stores operated under the Tom & Co banner. At the end of 2006, we operated 30 stores in the Grand-Duchy of Luxembourg, as well as three stores in Germany (Aachen, Nordrhein Westfalen).

Supermarkets. The supermarkets that are company-operated by us in Belgium, the Grand-Duchy of Luxembourg and Germany carry the Delhaize “Le Lion” banner. The number of company-operated supermarkets increased in 2006 from 128 to 132 and five supermarkets underwent remodeling. A Delhaize “Le Lion” supermarket offers between 12,000 and 18,000 SKUs, depending on its surface. The AD Delhaize supermarkets are affiliated stores, operated by independent retailers to whom we sell our products at wholesale prices.

The AD Delhaize supermarkets have an average surface of 1,200 square meters and offer 12,000 to 18,000 SKUs. In May 2005, we acquired 43 Cash Fresh stores in Belgium. We intend to convert these stores to our banners before the end of 2008.

Proximity stores. Our network of proximity stores in Belgium, the Grand-Duchy of Luxembourg and Germany consists of 230 stores under the Delhaize City, Proxy Delhaize and Shop ‘n Go banners. The Delhaize City stores are company-operated proximity stores targeting primarily urban customers. Proxy Delhaize and Shop ‘n Go are affiliated stores. Proxy Delhaize stores have an average selling area of approximately 500 square meters. Eighty percent of the approximately 8,000 SKUs offered in Proxy Delhaize stores are private label products. Most Shop ‘n Go stores are located in Q8 gas stations and address customer expectations regarding proximity, convenience, speed and longer operating hours. These stores have an average selling area of 125 square meters and offer approximately 2,000 SKUs.

E-commerce. Caddy-Home, our food products home delivery banner in Belgium, sells food products to customers for which orders can be placed by telephone, fax and the Internet. As of December 31, 2005, Caddy-Home delivered in 16 cities throughout Belgium, offering approximately 4,800 SKUs to customers.

 

22


Table of Contents

Specialty stores. Di stores specialize in beauty & body care products. Tom & Co is a specialty chain focusing on food, beauty care products and accessories for pets. At the end of 2006, a large part of the 132 Di stores and the large majority of the 117 Tom & Co stores were operated under franchise agreements with independent operators. In March 2007, we reached an agreement to sell our Di beauty & body care business to NPM/CNP.

Competition and regulation. The Belgian food retail market is competitive and characterized by a large presence of international retailers: Carrefour (France), Louis Delhaize-Cora (France), Aldi (Germany), Makro-Metro (Germany), Lidl (Germany) and Intermarché (France). In addition, we face competition from national retailers in Belgium, such as Colruyt and Mestdagh.

Competition is based primarily on location, price, consumer loyalty, product quality, variety and service. From time to time, we and our competitors engage in heavy price competition. Since 2002, we have focused in Belgium on consistently competitive prices, without many weekly price promotions.

Belgian law requires that permits be obtained for the opening and extension of stores exceeding certain sizes (always above 400 square meters selling area). In April 2006, Delhaize Belgium reinforced its convenience and service by opening its company–operated supermarkets half an hour earlier, at 8:30 a.m. instead of 9:00 a.m.

Assortment. Our supermarkets in Belgium, the Grand-Duchy of Luxembourg and Germany sell a wide variety of groceries, produce, meats, dairy products, seafood, frozen food, deli/bakery products and nonfood items such as health and beauty care and other household and personal products. Delhaize Belgium also started to sell a basic offering of lottery and postal products in part of its network.

Management believes that we are a market leader in Belgium for prepared meals. In 2006, Delhaize Belgium sold approximately 21 million prepared meals and prepared meal components. In Belgium, we have also developed a large range of organic products. As of December 31, 2006, we offered more than 670 organic products in Belgium. In 2006, sales of organic products represented approximately 2.0% of our food sales in Belgium.

Private Label. In Belgium, we actively promote two different lines of private label products, including more than 6,000 different SKUs under the brands Delhaize and “365”. In 2006, private label sales under our brand accounted for more than one third of total net sales of our total net sales and other revenues in Belgium. Our products, which are marketed as value priced products, aim to be comparable in quality to national brand products but are sold for lower prices. Private label products under our brand are also used as a vehicle to increase differentiation and customer loyalty. “365” products, which are marketed as low price products, are first private label products with a “no frills” packaging. This private label brand was launched in May 2004, initially in our Belgian operations, followed by our Greek, Czech and Romanian operations. At the end of 2005, the “365” offering included more than 400 SKUs in Belgium.

Loyalty Card. Since 1992, our stores in Belgium use a loyalty card known as the Plus Card, which was used by customers for approximately 90% of total sales in Delhaize “Le Lion” supermarkets in 2006. The Plus Card also provides benefits for shoppers at our other stores in Belgium. Since 1999, we have developed partnerships with other companies in Belgium to offer additional benefits to holders of the Plus Card. As of December 31, 2006, approximately 3.0 million active Plus Cards were outstanding in Belgium.

Greece

In 2006, net sales and other revenues of Alfa-Beta Vassilopoulos S.A., our Greek subsidiary, increased by 13.5% to €1.0 billion. Management believes the subsidiary is the second largest food retailer (in terms of sales) in Greece. In 2006, we increased our shareholding in Alfa-Beta Vassilopoulos S.A., bringing our total stake to 61.3% at the end of 2006.

In 2006, we increased the number of stores in Greece by 13 to a total of 148 at the end of 2006. As of December 31, 2006, Alfa-Beta directly operated 97 supermarkets under the Alfa-Beta banner, 10 cash & carry stores under the ENA banner and 11 AB City stores and served 30 affiliated stores operated under the AB Food Market and AB Shop & Go banners. At the end of 2006, Alfa-Beta employed approximately 7,200 people.

 

23


Table of Contents

Alfa-Beta seeks to attract customers looking for competitive pricing as well as quality products and services. Since 2005, we have focused on expanding our company-operated and affiliated network. We also reinforced our consumer appeal by focusing on assortment, price competitiveness and service. In 2006, Alfa-Beta reduced the price of approximately 700 products to reinforce its competitive position. In 2006, Alfa-Beta doubled the number of stores equipped with self caterer, the in-store preparation deli inspired by sister banner, Delhaize Belgium. At the end of 2006, Alfa-Beta also offered approximately 260 products under the “365” brand.

The Greek retail market is a fragmented, competitive market characterized by a large number of local retailers. Competition is based primarily on location, price, consumer loyalty, product quality, variety and service. Our company, Carrefour, Lidl and Metro are the only foreign food retail chains with a significant presence in Greece. The most important local food retailers are Sklavenitis, Veropoulos, Atlantic and Massoutis. Alfa-Beta competes with supermarket chains, hypermarkets, discount stores and traditional Greek grocery stores and markets.

Permits from municipal, health regulation and fire protection authorities are required to open new stores and often require long periods to obtain. Operating hours tend to be strictly enforced, especially in the provinces. Operating stores on Sunday is prohibited.

Emerging Markets

Overview. In 2006, net sales and other revenues in our Emerging Markets (Romania and Indonesia) increased by 16.1% to €136.9 million. In 2006, we grew the number of stores in our Emerging Markets by 6 to a total of 68 at the end of 2006.

As a part of our regular portfolio evaluation, we concluded that the resources required for the success of our underperforming Czech business, Delvita, would be more beneficial to us if invested in other activities. As a consequence, we decided to pursue the sale of Delvita. In November 2006, we reached an agreement on the sale of Delvita with the German Rewe Group. As a result, Delvita’s assets and liabilities were reclassified as held for sale and Delvita’s results listed as results from discontinued operations. On May 31, 2007, we completed the sale of Delvita to Rewe Group, after unconditional approval by the European antitrust authorities.

Romania. We have owned 100% of Mega Image since 2004. As of December 31, 2006, Mega Image operated 18 supermarkets in Romania and employed approximately 1,100 people. In 2006, Mega Image focused on growth in its existing stores, and on organizational and operational improvements in its operations. We believe that continued growth could be achieved through the improvement of its assortment, the further development of the “365” private label range of products and the strengthening of its price position.

Indonesia. In 1997, we entered Indonesia by acquiring an interest in P.T. Lion Super Indo LLC, an operator of 11 stores. We have grown steadily and operated 50 stores as of December 31, 2006, employing approximately 3,500 associates. We own 51% of Lion Super Indo. The remaining 49% is owned by the Indonesian Salim Group.

C. Property

Store Ownership of Sales Network (as of December 31, 2006)

 

     Owned   

Finance

Leases

   Operating
Leases
   Other (1)    Total

United States

   130    662    757    —      1,549

Belgium

   154    24    301    364    843

Greece

   36    —      112    —      148

Emerging Markets

   8    —      60    —      68

Discontinued Operations

   37    —      60    —      97

Total

   365    686    1,290    364    2,705

(1) Affiliated and franchised stores owned by their operators or directly leased by their operators from third party.

 

24


Table of Contents

The majority of our company-operated stores are leased, mostly in the U.S. With the exception of 130 owned stores in the United States, as of December 31, 2006, Food Lion, Hannaford and Sweetbay/Kash n’ Karry occupied various store premises under lease agreements providing for initial terms of up to 27 years, with renewal options generally ranging from 3 to 27 years. At the end of 2006, we owned 13 warehousing and distribution facilities (totaling approximately 950,000 square meters or approximately 10.2 million square feet) in the United States. We also own and operate most of our U.S. transportation fleet. In Belgium, as of December 31, 2006, we owned approximately 32% of our company-operated stores (or 18% of our total sales network), owned six of our seven principal distribution centers and leased our three ancillary distribution centers. At December 31, 2006, we owned 36 stores and two distribution centers and leased 112 stores in Greece. At December 31, 2006, we owned eight stores and two distribution centers and leased 60 stores in our Emerging Markets segment.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “B. Risk Factors” of Item 3 “Key Information” above and those set forth under “Factors Affecting Financial Condition and Results of Operations” of this Item 5 below.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included under Item 18 in this document.

Introduction

This discussion is intended to provide the reader with information that will assist the reader in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. The discussion also includes information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect the financial condition and results of our operations as a whole.

In reading the following discussion and analysis, please refer to our audited consolidated financial statements for fiscal years 2006, 2005 and 2004, included under Item 18 in this document. The consolidated financial statements referred to above were prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. The consolidated financial statements also include a discussion of the principal material differences between IFRS and accounting principles generally accepted in the United States of America (“U.S. GAAP”) as they apply to us. The reconciliation of IFRS to U.S. GAAP is presented in Note 43 to the consolidated financial statements. This discussion and analysis of our financial condition and results of operations was prepared using IFRS.

Amounts in U.S. dollars in the following discussion and analysis are translated into euros at the exchange rates used to prepare the consolidated financial statements. The year-end exchange rate is used for balance sheet related items; the daily average exchange rate for the year is used for income statement and cash-flow statement related items.

The results of operations of our company and those of our subsidiaries outside the United States are presented on a calendar-year basis. The fiscal year for our wholly-owned subsidiary Delhaize America, Inc., which is the holding company for our U.S. operations, ends on the Saturday nearest December 31. The results of operations of

 

25


Table of Contents

Delhaize America covered 52 weeks through December 30, 2006, December 31, 2005 and January 1, 2005 in our fiscal years ended December 31, 2006, 2005 and 2004, respectively. The results of operations of Cash Fresh in Belgium were included in our consolidated results prospectively from May 31, 2005, the date we acquired Cash Fresh. The results of operations of Victory Super Markets in the U.S. were included in our consolidated results prospectively from November 27, 2004, the date we acquired Victory.

Our financial information includes all of the assets, liabilities, sales and expenses of all fully consolidated subsidiaries, which consist of all companies over which we can exercise control. Our businesses in Belgium, the Grand-Duchy of Luxembourg and Germany are collectively referred to as Delhaize Belgium.

Executive Summary

We are an international food retailer committed to growing by offering a locally differentiated shopping experience to our customers. This is accomplished through strong regional companies benefiting from and contributing to our strength, expertise and successful practices.

Our net sales and other revenues are primarily generated through the sale of consumer products to retail, wholesale and affiliated customers. Our profits are generated by selling products at prices that produce revenues in excess of direct procurement costs and operating expenses. These costs and expenses include procurement and distribution costs, facility occupancy and operational expenses, and overhead expenses.

Operations

At the end of 2006, our store network totalled 2,705 stores. We engage primarily in one line of business, the operation of retail food supermarkets. Our sales network also includes proximity and specialty stores, particularly in Europe. Most stores are company-operated. A limited number of stores are operated as affiliated or franchised stores.

Our stores sell a variety of groceries, produce, meats, dairy products, seafood, frozen food, deli-bakery and non-food items such as health and beauty care products, pet products, prescriptions and other household and personal products. Our companies offer nationally and regionally advertised brand name merchandise as well as products under private labels.

Our operations are comprised of four geographical segments:

 

   

United States. Our U.S. business is the largest segment, accounting for 71.6% of our 2006 net sales and other revenues. At the end of 2006, we operated 1,549 stores in the United States, under the banners Food Lion, Bloom, Bottom Dollar Food, Harveys, Reid’s, Hannaford, Kash n’ Karry and Sweetbay Supermarket.

 

   

Belgium. Belgium is our historic home market. At the end of 2006, our sales network in Belgium, the Grand-Duchy of Luxembourg and Germany consisted of 843 stores operated under different banners. The segment accounted for 22.3% of our net sales and other revenues for the year ended December 31, 2006.

 

   

Greece. We have been operating in Greece since 1992 through our subsidiary Alfa-Beta Vassilopoulos. At the end of 2006, Alfa-Beta’s sales network counted 148 stores, representing 5.4% of our net sales and other revenues.

 

   

Emerging Markets. We have been operating in Central Europe and Southeast Asia since the early 1990s. At the end of 2006, we operated 68 stores in our Emerging Markets segment (Romania and Indonesia), representing 0.7% of our net sales and other revenues.

In addition, we have operated 97 stores in the Czech Republic until May 31, 2007. On May 31, 2007 we completed the sale of Delvita to Rewe Group.

The Food Retail Industry

We operate in the food retail industry in North America, Europe and Southeast Asia which is highly competitive. Our operating companies face strong sales competition from traditional food retailers and newer store formats that increasingly sell food products. Consumers purchase grocery items from a variety of competing stores, and purchasing behavior is sensitive to economic conditions.

 

26


Table of Contents

Our financial results, along with other retail companies, are influenced by various factors such as cost of goods, inflation, currency exchange fluctuations, fuel prices, consumer preferences, general economic conditions and weather patterns. In addition, we also compete with numerous companies to attract and retain quality employees, as well as for prime retail site locations.

2006 Financial Results

In 2006, we posted:

 

   

Accelerating sales growth: +5.5% at identical exchange rates

 

   

Strong comparable store sales growth in the U.S. (+2.7%) and in Belgium (+2.8%)

 

   

Excellent full year results at Alfa-Beta in Greece with 13.5% sales growth

 

   

A strong stable operating margin of 4.9%, in spite of price investments and cost pressures

 

   

+12.1% net profit from continuing operations growth

In 2006, we reached an agreement to sell our underperforming Czech business, Delvita, to the German Rewe Group, for €100 million, subject to contractual agreements. Delvita sales were €287.6 million in 2006. On May 31, 2007, we completed the sale of Delvita to Rewe Group, after unconditional approval by the European antitrust authorities.

Critical Accounting Policies

We have selected accounting policies that we believe are appropriate to accurately and fairly report our consolidated financial condition and results of operations. We apply those accounting policies in a consistent manner. We believe that the accounting policies discussed below are our critical accounting policies. For a summary of all our significant accounting policies, including the critical accounting policies discussed below, please see Note 2 to the consolidated financial statements included in this document. The preparation of the financial statements in conformity with IFRS requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical and other factors that we believe to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants, accountants, lawyers and actuaries to assist in our evaluation. Actual results may differ from these estimates under different assumptions and conditions. We believe the following accounting policies are the most critical because they involve the most significant judgments and estimates used in preparation of our consolidated financial statements. For U.S. GAAP policies that differ significantly from those under IFRS, our accounting policy applied for the reconciliation to U.S. GAAP is also provided below.

Asset Impairment

Under both IFRS and U.S. GAAP, we test definite lived assets for impairment whenever events or circumstances indicate that impairment may exist. We monitor the carrying value of our retail stores, the lowest level of asset group for which identifiable cash flows are independent of other groups of assets and liabilities, for potential impairment.

Under IFRS, an impairment loss is recorded for stores for which there is potential impairment if their recoverable value (the higher of value in use, calculated on the basis of projected discounted cash flows, or fair value less costs to sell) is less than the net carrying amount. If impairment exists, the assets are written down to their recoverable amount. If events or circumstances indicate that impairment no longer exists, the impairment loss is reversed.

Under U.S. GAAP, an impairment loss is recorded for stores for which there is potential impairment if the sum of undiscounted cash flows expected to result from the use of the asset and its eventual disposition is less than the net carrying amount. The impairment loss is the difference between the net carrying amount of the asset and its fair value.

 

27


Table of Contents

Impairment losses are significantly impacted by estimates of future operating cash flows and estimates of fair value. We estimate future cash flows based on our experience and knowledge of the markets in which our stores are located. These estimates are adjusted for variable factors such as inflation and general economic conditions. We estimate fair value based on our experience and knowledge of the real estate markets where our stores are located and also utilize an independent third-party appraiser in certain situations.

Although we believe the assumptions we use are reasonable, changes in economic conditions and operating performance impacting the assumptions used in projecting future operating cash flows could have a significant impact on the determination of fair value and impairment amounts. Neither a 2.0% increase nor a 2.0% decrease in the sales growth assumption used in the cash flow projection would have resulted in less or additional stores identified for impairment or in lower or additional asset impairment charges.

Goodwill and Intangible Assets

We conduct an annual impairment assessment for goodwill and indefinite lived intangible assets in the fourth quarter of each year and whenever events or circumstances indicate that impairment may have occurred.

Under IFRS, the impairment test for goodwill involves comparing the recoverable amount of each operating entity with its carrying value, including goodwill. The recoverable amount of each operating entity is determined based on the higher of value in use calculations and the fair value less cost to sell. The value in use calculations use cash flow projections based on financial plans approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using estimated growth rates. The fair value less cost to sell of each operating company is based on earnings multiples paid for similar companies in the market and market capitalization for publicly traded subsidiaries. An impairment loss is recorded if the carrying value exceeds the recoverable amount.

We have determined that our trade names have indefinite useful lives. Trade names are tested for impairment by comparing their recoverable value with their carrying amount. The value in use of trade names is estimated using revenue projections of each operating entity and applying an estimated royalty rate.

Under U.S.GAAP, we follow SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), which requires that we conduct an annual assessment of potential impairment of goodwill and other indefinite lived intangible assets by comparing the book value of these assets to their current fair value. Fair value is estimated based on discounted cash flow projections provided by the reporting unit management. When the carrying value of the reporting unit exceeds its fair value, a provision for impairment is recorded. We conduct an annual impairment assessment in the fourth quarter of each year in accordance with SFAS 142.

The evaluation of goodwill and intangibles with indefinite useful lives for impairment requires management to use significant judgments and estimates including, but not limited to, projected future cash flows and discount rates. While we believe the assumptions used are reasonable, changes in economic conditions and operating performance could impact the assumptions used in projecting future operating cash flows and in selecting an appropriate discount rate, which could have a significant impact on the determination of fair value and impairment amounts.

In connection with the annual goodwill impairment measurement, we determined that a 10% reduction in our projected future cash flows would have decreased the fair value of goodwill on our balance sheet by €0.8 billion ($1.1 billion). An increase of 2.0% in the discount rate would have resulted in a decrease in fair value of €1.9 billion ($2.5 billion). Using these assumptions to measure fair value, no impairment of goodwill would have been recognized under both IFRS and U.S. GAAP.

Income Taxes

Deferred tax liabilities or assets are established using statutory tax rates in effect at the balance sheet date for temporary differences between the carrying amount and the tax basis of assets and liabilities. Deferred tax assets and liabilities are subsequently adjusted to reflect changes in tax laws or tax rates in the period when the changes were

 

28


Table of Contents

enacted or substantively enacted. Significant accounting judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by tax authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates. Based on our evaluation of the potential tax liabilities and the merits of our filing positions, we also believe it is unlikely that potential tax exposures in excess of the amounts currently recorded as liabilities in our consolidated financial statements will be material to our financial condition or future results of operations.

Leases

Our stores operate principally in leased premises. Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to us. All other leases are classified as operating leases. Assets held under finance leases are recognized as assets at the lower of fair value or present value of the minimum lease payments at the inception of the lease. The lease term commences at the date from which we are entitled to exercise our right to use the leased asset and extends over the non-cancelable period for which we have contracted to lease the asset together with any further terms for which we have the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the option will be exercised. Rents paid on operating leases are charged to income on a straight-line basis over the term of the lease. Benefits received and receivable as an incentive to enter into an operating lease are spread over the relevant lease term on a straight-line basis as a reduction in rent expense.

The evaluation of leases requires management to use significant judgments and estimates, which include the determination of the lease term, incremental borrowing rates and fair market values. The determination of lease terms involves judgments as to whether an economic penalty exists that reasonably assures the renewal of option periods. The incremental borrowing rate is used to calculate the present value of future rent payments when the interest rate implicit in the lease is not practicable to determine and is based on the current yield of our debt. The fair market value of the leased premises is based on our experience and knowledge of the real estate markets where our stores are located and on independent third-party appraisals in certain situations.

Self Insurance

We are self-insured for workers’ compensation, general liability, vehicle accident and druggist claims in the United States. Our self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not reported (“IBNR”). Maximum retention, including defense costs per occurrence, ranges from $0.5 million to $1.0 million per accident for workers’ compensation, $5.0 million per accident for automobile liability, $3.0 million per accident for general liability and $2.0 million in excess of the primary $3.0 million general liability retention for druggist liability. Delhaize America is insured for costs related to covered claims, including defense costs, in excess of these retentions. The significant assumptions used in the development of the actuarial estimates are based upon our historical claims data, including the average monthly claims and the average duration between incurrence and payment.

Our property insurance in the United States includes self-insured retentions per occurrence of $15.0 million for named windstorms, $5.0 million for Zone A flood losses, and $2.5 million for all other losses.

We are also self-insured in the United States for health care which includes medical, pharmacy, dental and short-term disability. The self-insurance liability for IBNR claims is estimated quarterly by management based on available information and considers an annual actuarial evaluation based on historical claims experience, claims processing procedures and medical cost trends.

Actuarial estimates are subject to a high degree of uncertainty due to, among other things, changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation and economic conditions. Although we believe that the actuarial estimates are reasonable, significant differences could materially affect our self-insurance obligations.

 

29


Table of Contents

Share-Based Payments

We have equity-settled share-based compensation plans covering employees in the United States and Europe. Under both IFRS and U.S. GAAP the fair value of the employee-related services received in exchange for the grant of the share-based awards is recognized as an expense. The fair value of the share-based awards is calculated using the Black-Scholes-Merton option pricing model. The resulting cost is charged to income over the vesting period of the related share-based award. Compensation expense is adjusted to reflect expected and actual levels of vesting.

Under U.S. GAAP, prior to 2005, we accounted for the share-based compensation plans under the recognition and measurement principles of Accounting Principles Board, Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). No compensation cost was recognized in the income statement for stock options prior to 2005, as all options granted had an exercise price equal to the market value of our underlying shares on the date of grant. Historically, for purposes of the disclosures required by the original provisions of the Statement of Financial Accounting Standards 123 “Accounting for Stock Compensation” (“SFAS 123”), the straight-line method was used to allocate the option valuation amounts evenly over their respective vesting periods. On January 1, 2005, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which required the recognition of expenses for the fair value of employee share-based awards over the service period for awards expected to vest. The estimation of stock awards that will ultimately vest requires judgment and, to the extent actual results or updated estimates differ from current estimates, such amounts are recorded in the period the estimates are revised. We elected to apply the revised standard using the modified prospective transition method. Under this transition method, compensation cost recognized in 2005 includes: (a) compensation cost for all share-based awards granted prior to, but not yet vested as of, January 1, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost on a graded method for all share-based awards granted subsequent to January 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. The fair value of the share-based awards are determined using the Black-Scholes-Merton option pricing model.

The Black-Scholes-Merton option pricing model incorporates certain assumptions, the most significant of which are our estimates of the risk-free interest rate, expected volatility, expected dividend yield and expected life of options, to arrive at a fair value estimate. We review our valuation assumptions at each grant date and, as a result, revise our valuation assumptions as appropriate to value share-based awards granted in future periods.

Based on the guidance in IFRS 2, “Share-based Payment” and the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 (SAB 107), “Share-Based Payment”, we reassessed the expected volatility assumptions as of the grant date for stock options granted during 2006. Prior to 2006, we used historical volatility to estimate the grant date fair value of stock options. We changed our method of estimating expected volatility for all stock options granted after January 1, 2006 to exclude a period of abnormal volatility (July 2002 to July 2003) that is not representative of future expected stock price behavior and is not expected to recur during the expected or contractual term of the options. We believe that this change results in a more accurate estimate of the grant date fair value of employee stock options. Using historical volatility, and excluding a period of abnormal volatility, to value the stock options granted in 2006 resulted in a decrease to the total grant date fair value of approximately €11.7million (total fair value of the stock options granted in 2006 was approximately €18.1 million).

Store Closing Reserves

We establish liabilities for closed stores relating to the estimated lease liabilities and other related exit costs associated with store closing commitments. Other exit costs include estimated utilities, real estate taxes, common area maintenance and insurance costs to be incurred after the store closes, all of which are contractually required payments under the lease agreements, over the remaining lease term. Store closings are generally completed within one year after the decision to close. Closed store liabilities are usually paid over the lease terms associated with closed stores. Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenant income and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess store closing liability remaining upon settlement of the obligation is reversed in the period that such settlement is determined. Lease liabilities are estimated net of sublease income, using a discount rate based on its incremental borrowing rate to calculate the present value of the remaining rent payments on closed stores.

Inventory write-downs in connection with store closings are classified in cost of sales. Costs to transfer inventory and equipment from closed stores are expensed as incurred. When severance costs are incurred in

 

30


Table of Contents

connection with store closings, a liability for the termination benefits is recognized for the estimated settlement amount at the communication date to the impacted employees. Store closing liabilities are reviewed quarterly to ensure that any accrued amounts appropriately reflect the outstanding commitments and that any additional costs are accrued or amounts that are no longer needed for their originally intended purpose are reversed.

Calculating the estimated store closing losses requires significant judgments and estimates that could be impacted by factors such as the extent of interested buyers, the ability to obtain subleases, the creditworthiness of subleasees, and our success at negotiating early termination agreements with lessors. These factors are significantly dependent on general economic conditions and resultant demand for commercial property.

By decreasing the discount rate by 2.0%, we determined that the estimate for closed store expenses for stores closed in 2006 would have increased by approximately €0.3 million. An increase of 2.0% in the discount rate would have decreased the estimate for closed store expenses for stores closed in 2006 by approximately €0.3 million.

Supplier Allowances

We receive allowances and credits from suppliers primarily for in-store promotions, co-operative advertising, new product introductions and volume incentives. Under both IFRS and U.S. GAAP, allowances for in-store promotions, co-operative advertising and volume incentives are included in cost of inventory and recognized when the product is sold unless they represent reimbursement of a specific, identifiable cost incurred by us to sell the vendor’s product. Such reimbursement allowances are recorded as a reduction in selling, general and administrative expenses. Income from new product introductions constitutes an allowance received to compensate us for costs incurred for product handling and are recognized over the product introduction period in cost of sales.

Estimating certain rebates received from third-party vendors requires us to make assumptions and judgments regarding specific purchase or sales levels and to estimate related inventory turnover. We constantly review the relevant significant assumptions and estimates and makes adjustments as necessary. Although we believe the assumptions and estimates used are reasonable, significant changes in these arrangements or purchase volumes could have a significant effect on future cost of sales.

Amounts owed to us under these arrangements are subject to credit risk. In addition, the terms of the contracts covering these programs can be complex and subject to interpretation, which can potentially result in disputes. We provide an allowance for uncollectible accounts and to cover disputes in the event that our interpretation of the contract terms differ from that of vendors’ and vendors seek to recover some of the consideration from us. These allowances are based on the current financial condition of the vendors, specific information regarding disputes and historical experience, and changes to these factors could impact these allowances.

Overview

During the year ended December 31, 2006, our net sales and other revenues increased 4.8% over net sales and other revenues for the year ended December 31, 2005. During the year ended December 31, 2005, our net sales and other revenues increased 4.3% over net sales and other revenues for the year ended December 31, 2004. In 2006, there was a negative translation effect in our sales as a result of the depreciation of the average rate of the U.S. dollar against the euro by 0.9% compared to 2005. In 2005, the average exchange rate of the U.S. dollar against the euro remained stable compared to 2004. The translation effect is the effect of fluctuations in the exchange rates in the functional currencies of our subsidiaries to the euro, our reporting currency.

During the year ended December 31, 2006, we increased the number of stores in our sales network by 69 stores to a total of 2,705. At December 31, 2005, we had a sales network of 2,636 stores, or 71 more than the 2,565 stores in the network at December 31, 2004.

Net profit attributable to equity holders of our company (our company share in net profit) for the year ended December 31, 2006, decreased by 3.6% compared with our company share in net profit for the year ended December 31, 2005. This decrease was a result of higher loss from discontinued operations and increased net profit attributable to minority interest partly offset by higher operating profit, lower net financial expenses and lower tax rate. Our company share in net profit for the year ended December 31, 2005, increased 23.5% compared with our company share in net profit for the year ended December 31, 2004. This increase was a result of stronger operating profit, lower net financial expenses and lower losses from discontinued operations.

 

31


Table of Contents

Net income, as determined in accordance with U.S. GAAP, was €374.9 million, €363.7 million and €304.4 million, for the years ended December 31, 2006, 2005 and 2004, respectively. The principal differences between IFRS and U.S. GAAP, as they relate to our net income, include goodwill adjustments, accounting for the convertible bonds, share-based compensation, closed store provisions, defined benefit plans and impairment charges and disposal of a foreign operation (see Note 43 to the consolidated financial statements).

Selected Results of Operations

 

     Year Ended December 31,  
     2006     2005     2004  
     (In € millions)  

IFRS:

  

Net sales and other revenues

   19,225.2     18,345.3     17,596.8  

Gross profit (1)

   4,853.0     4,635.2     4,345.9  

Selling, general and administrative expenses

   3,970.3     3,766.8     3,522.9  

Other operating expenses

   19.2     39.2     27.0  

Operating profit

   946.3     899.9     862.2  

Net financial expenses (2)

   275.7     296.5     304.5  

Profit before taxes and discontinued operations

   670.6     603.4     557.7  

Income taxes

   245.0     223.8     200.4  

Net profit from continuing operations

   425.6     379.6     357.3  

Result from discontinued operations (net of tax)

   (65.3 )   (9.5 )   (55.5 )

Group share in net profit

   351.9     365.2     295.7  

(1) Represents net sales and other revenues less cost of sales. Cost of sales include all costs associated with getting products to the retail stores including buying, warehousing and transportation costs.
(2) Represents the sum of finance costs and income from investments.

Net Sales and Other Revenues

The following table sets forth, for the periods indicated, our sales contribution by geographic region:

 

     Year Ended December 31,
     2006    2005    2004
        %       %       %
     (In millions, except percentages)

Net sales and other revenues

United States

   13,772.8    71.6    13,314.3    72.6    12,750.8    72.4

Belgium

   4,285.2    22.3    4,005.1    21.8    3,872.9    22.0

Greece

   1,030.3    5.4    908.0    5.0    873.0    5.0

Emerging Markets

   136.9    0.7    117.9    0.6    100.1    0.6
                             

Total

   19,225.2    100.0    18,345.3    100.0    17,596.8    100.0
                             

Net sales and other revenues increased 4.8% during the year ended December 31, 2006 over the corresponding period in 2005. This increase was primarily the result of increased sales in the U.S., Belgium and Greece. Sales

 

32


Table of Contents

growth was also positively impacted by the acquisition of 43 Cash Fresh stores in Belgium (consolidated from May 31, 2005). Excluding the effect on net sales and other revenues from the acquisition of the Cash Fresh stores, net sales and other revenues grew by 5.0% at identical exchange rates. This growth was the result of a net increase in the sales network of 69 stores and a comparable store sales growth of 2.7% in the United States and of 2.8% in Belgium. Comparable store sales are sales of the same stores, including relocations and expansions and adjusted for calendar effects.

Net sales and other revenues increased 4.3% during the year ended December 31, 2005 over the corresponding period in 2004. This increase was primarily the result of the acquisition of 19 Victory Super Market stores in the United States by Hannaford (consolidated from November 26, 2004) and 43 Cash Fresh stores in Belgium (consolidated from May 31, 2005). Excluding the effects on net sales and other revenues from the acquisition of the Victory Super Market and Cash Fresh stores, net sales and other revenues grew by 2.3% at identical exchange rates. This growth of 2.3% was the result of a net increase of the sales network of 28 stores (excluding the 43 Cash Fresh stores) and a comparable store sales growth of 1.1% in the United States.

United States

Net sales and other revenues increased 3.4% during the year ended December 31, 2006 over the corresponding period in 2005. This increase was primarily a result of sales growth of 4.4% at identical exchange rates and negative translation effects resulting from the 0.9% weaker U.S. dollar against the euro. The sales growth of 4.4% was driven primarily by strong sales performances at Food Lion and Hannaford. Food Lion’s strong sales were supported by effective price, promotion and marketing initiatives, improved assortment and customer service, the success of the market and concept renewal initiatives and the store closings in 2005 by Winn Dixie, a major competitor of Food Lion. Hannaford’s strong sales were supported by competitive pricing, a historical high of 14 store openings, the expansion of its private label categories, major price investments, particularly in the Massachusetts market, and its focus on health and wellness initiatives. Sales at Sweetbay were negatively impacted by the intensive remodeling activity and the sales weakness at the unconverted Kash n’ Karry stores. Comparable stores sales increased by 2.7%. During 2006, we had a net increase of 12 new stores and remodeled 147 supermarkets in the United States.

Net sales and other revenues increased 4.4% during the year ended December 31, 2005 over the corresponding period in 2004. This increase was primarily a result of a comparable store sales increase of 1.1%, additional store openings and the inclusion of results from Victory, acquired in November 2004. Excluding the effect on sales of the acquisition of the 19 Victory stores, sales grew by 2.6% at identical exchange rates. During 2005, we had a net increase of 14 new stores and remodeled or expanded 176 stores in the United States. The increase in net sales and other revenues in 2005 was primarily driven by investments in pricing, promotional and marketing activities, pricing optimization involving multiple price zones, successful Food Lion market renewals and Kash n’ Karry conversions to Sweetbay, the exiting of one competitor (Winn-Dixie) from several Food Lion, Kash n’ Karry and Sweetbay markets in the Southeast and Hannaford’s acquisition and conversion of 19 Victory stores to Hannaford stores.

Belgium

Net sales and other revenues increased by 7.0% during the year ended December 31, 2006 over the corresponding period in 2005. This result was due to the expansion of the sales network by 35 stores, successful sales initiatives and a strong focus on improving price positioning and perception resulting in a comparable stores sales increase of 2.8%.

Net sales and other revenues increased 3.4% during the year ended December 31, 2005 over the corresponding period in 2004. This increase was primarily due to the expansion of the sales network by 61 stores, 43 of which were Cash Fresh stores acquired in May 2005. Comparable store sales declined by 1.1% due to the weak economic environment, many competitive store openings and adjustments in Delhaize Belgium’s non-food offering.

Greece

Net sales and other revenues increased by 13.5% during the year ended December 31, 2006 over the corresponding period in 2005, driven by strong comparable store sales growth and the high number of store openings. At December 31, 2006, we had 148 stores in Greece, an increase of 13 stores compared with 2005.

 

33


Table of Contents

Net sales and other revenues in Greece grew by 4.0% during the year ended December 31, 2005 over the corresponding period in 2004. Sales growth accelerated during the year due to the success of price reductions and an increased number of store openings. In 2005, the number of stores in Greece increased by six to a total of 135 stores.

Emerging Markets (Romania and Indonesia)

Net sales and other revenues in the Emerging Markets increased by 16.1% during the year ended December 31, 2006, over the corresponding period in 2005. This result was due to the continued good sales performance in both countries. In 2006, the sales network in the Emerging Markets increased by six stores to a total of 68 stores.

Net sales and other revenues in the Emerging Markets increased by 17.8% during the year ended December 31, 2005, over the corresponding period in 2004. At the end of 2005, the sales network in the Emerging Markets consisted of 62 stores.

Gross Profit

 

    

Year Ended December 31,

     2006    2005    2004
       

% of

sales

     

% of

sales

     

% of

sales

     (In millions, except percentages)

United States

   3,749.3    27.2    3,615.3    27.2    3,390.3    26.6

Belgium

   850.3    19.8    800.2    20.0    751.5    19.4

Greece

   228.6    22.2    199.5    22.0    186.6    21.4

Emerging markets

   24.8    18.1    20.2    17.1    17.5    17.5
                             

Total

   4,853.0    25.2    4,635.2    25.3    4,345.9    24.7
                             

Gross profit increased by 4.7% during the year ended December 31, 2006, over the corresponding period in 2005 (5.4% at identical exchange rates). Gross margin decreased slightly to 25.2% in 2006, compared to 25.3% in 2005. In the U.S., gross margin remained stable at 27.2% due to lower inventory losses, continued margin management and price optimization at Food Lion, and an improvement in the sales mix offset by targeted investments in price competitiveness in all companies. Delhaize Belgium’s gross margin decreased to 19.8% in 2006, compared to 20.0% in 2005 due primarily to higher inventory losses and investments in price competitiveness.

Gross profit increased by 6.7% during the year ended December 31, 2005, over the corresponding period in 2004. Gross margin increased from 24.7% in 2004 to 25.3% in 2005. The U.S. operations increased their gross margin from 26.6% to 27.2% due to better inventory results at Food Lion, continued margin management and price optimization at Food Lion and Hannaford, and expanded offerings in higher-margin departments. Inventory improvements at Food Lion were mainly the result of the new inventory and margin management system implemented in 2004. Delhaize Belgium’s gross margin stood at 20.0% in 2005, compared to 19.4% in 2004, an improvement mainly related to a better sales mix.

 

34


Table of Contents

Selling, General and Administrative Expenses

 

     Year Ended December 31,
     2006    2005    2004
        % of
sales
      % of
sales
      % of
sales
     (In millions, except percentages)

United States

   3,009.3    21.8    2,890.0    21.7    2,725.7    21.4

Belgium

   700.1    16.3    646.2    16.1    581.2    15.0

Greece

   199.7    19.4    177.5    19.6    167.3    19.2

Emerging markets

   25.2    18.4    19.9    17.0    16.1    16.1

Corporate (unallocated)

   36.0       33.2       32.6   
                             

Total

   3,970.3    20.7    3,766.8    20.5    3,522.9    20.0
                             

Selling, general and administrative expenses (“SG&A”) increased by 5.4% for the year ended December 31, 2006 over the corresponding period in 2005 (6.1% at identical exchange rates). SG&A as a percentage of sales increased to 20.7% in 2006 from 20.5% in 2005. In the United States, SG&A increased slightly from 21.7% in 2005 to 21.8% of sales in 2006 due to higher costs for the conversion of Kash n’ Karry stores to Sweetbay, increased utility and fuel expenses and higher medical costs partly offset by cost control. In Belgium, SG&A as a percentage of sales increased from 16.1% in 2005 to 16.3% in 2006 due to expenses related to the integration of Cash Fresh and higher depreciation.

SG&A increased by 6.9% for the year ended December 31, 2005 over the corresponding period in 2004. As a percentage of net sales and other revenues, SG&A increased from 20.0% in 2004 to 20.5% in 2005. In the United States, SG&A increased from 21.4% in 2004 to 21.7% of sales in 2005 due to soft sales at Food Lion in the first half of 2005, integration and conversion expenses related to Victory Super Markets and Sweetbay Supermarkets, the market renewals and other concept creation work at Food Lion and increased medical costs. SG&A of Belgian activities increased from 15.0% to 16.1% due to soft sales and statutory labor rate increases. Higher utility and fuel expenses throughout our company also contributed to higher SG&A. During the second half of 2005, control over SG&A improved due to strict cost management and the completion of the conversion of Victory stores to the Hannaford banner.

Other Operating Expense

Other operating expenses include expenses incurred outside the normal cost of operating supermarkets, including losses on disposal of property, plant and equipment and impairment losses and store closing expenses.

Other operating expenses decreased by 51.0% for the year ended December 31, 2006, over the corresponding period in 2005. This decrease is primarily due to lower store closing expenses (€5.1 million in 2006 compared to €11.8 million in 2005), lower loss on disposal of fixed assets (€8.9 million in 2006 compared to €18.6 million in 2005) and lower impairment losses (€2.8 million in 2006 compared to €6.8 million in 2005) primarily at Food Lion. In 2006, we closed eight stores that were relocated and 20 other stores in the normal course of business, compared to 32 stores in 2005.

Other operating expenses increased by 45.2% for the year ended December 31, 2005, over the corresponding period in 2004. This increase is primarily due to increased expenses in the United States related to the closing of stores in the ordinary course of business (€11.8 million in 2005 compared with €1.1 million in 2004) and losses on disposal of fixed assets (€18.6 million in 2005 compared with €11.5 million in 2004). In 2005, we closed 32 stores in the United States, in the ordinary course of business, compared with ten stores in 2004. Higher losses on the disposal of fixed assets were mainly due to the store closings in the United States and the market renewal activity in Greensboro, North Carolina and Baltimore, Maryland. Other operating expenses also include impairment charges of €6.8 million in 2005 compared to €8.1 million in 2004, primarily related to impaired stores at Food Lion.

 

35


Table of Contents

Operating Profit

The following table sets forth, for the periods indicated, our operating profit contribution by geographic segment:

 

     Year Ended December 31,
     2006    2005    2004
         % of
sales
      

% of

sales

       % of
sales
     (In millions, except percentages)

United States

   765.4     5.6    724.4     5.4    675.6     5.3

Belgium

   183.8     4.3    183.0     4.6    193.2     5.0

Greece

   32.8     3.2    24.2     2.7    23.0     2.6

Emerging Markets

   0.3     0.2    0.6     0.5    1.9     1.9

Corporate (unallocated)

   (36.0 )      (32.3 )      (31.5 )  
                                

Total

   946.3     4.9    899.9     4.9    862.2     4.9
                                

Our operating margin for the year ended December 31, 2006 remained stable at 4.9%, compared to the corresponding period in 2005. The operating margin of the U.S. operations improved from 5.4% in 2005 to 5.6% in 2006. This increase is due to higher gross margin and lower other operating expenses partially offset by higher SG&A. The operating margin of the Belgian operations decreased from 4.6% in 2005 to 4.3% in 2006 due to weak inventory results, investments in price competitiveness, expenses related to the integration of Cash Fresh and higher depreciation. In 2006, the operating margin of the Greek operations increased to 3.2% compared to 2.7% in 2005 due to stronger sales, lower inventory losses and improved cost control. The operating margin of the Emerging Markets segment decreased from 0.5% in 2005 to 0.2% in 2006.

Our operating margin for the year ended December 31, 2005 remained stable at 4.9%, compared with the corresponding period in 2004. This stability was due to higher gross margin that offset the higher operating expenses as a percentage of sales. The operating margin of the U.S. operations increased from 5.3% in 2004 to 5.4% in 2005 due to the higher gross margin, which was mainly driven by lower inventory losses at Food Lion. The operating margin of the Belgian operations decreased from 5.0% to 4.6% due to weaker than forecasted sales, higher fuel prices and the automatic increase of statutory labor rate levels. The operating margin of the Greek operations increased slightly from 2.6% in 2004 to 2.7% in 2005. The operating margin of the Emerging Markets decreased from 1.9% in 2004 to 0.5% in 2005.

Operating profit increased by 5.2% to €946.3 million for the year ended December 31, 2006 compared to the corresponding period in 2005 due to the increase in sales. At identical exchange rates, operating profit grew by 5.9%.

Operating profit increased by 4.4% to €899.9 million for the year ended December 31, 2005 compared to the corresponding period in 2004. At identical exchange rates, this increase was also 4.4%. The increase in operating profit was due to the increase in sales and gross margin.

Net Financial Expenses

 

     Year Ended December 31,
     2006    2005    2004
        % of
sales
     

% of

sales

      % of
sales
     (In millions, except percentages)

Finance costs

   295.6    1.5    322.6    1.8    319.2    1.8

Income from investments

   19.9    0.1    26.1    0.1    14.7    0.1
                             

Net financial expenses

   275.7    1.4    296.5    1.6    304.5    1.7
                             

 

36


Table of Contents

Net financial expenses during the year ended December 31, 2006 decreased 7.0% over the corresponding period in 2005 and represented, as a percentage of sales, 1.4% in 2006 and 1.6% in 2005. Net financial expenses decreased due to the positive impact of major debt repayments made in the first half of 2006.

Net financial expenses during the year ended December 31, 2005, decreased 2.7% over the corresponding period in 2004 and represented, as a percentage of sales, 1.6% in 2005 and 1.7% in 2004. Net financial expenses decreased due to higher income from investments, which resulted from higher cash balances and higher short-term interest rates. This was partly offset by a 1.2% increase in finance costs from the issuance of a convertible bond in April 2004 and lower benefits from interest rate swaps as a result of higher short-term interest rates in the United States.

Income Taxes

 

     Year Ended December 31,
     2006   2005   2004
         Effective
tax rate
     

Effective

tax rate

      Effective
tax rate
     (In millions, except percentages)

Income tax expense from continuing operations

   245.0     36.5%   223.8     37.1%   200.4     35.9%

Income tax expense from discontinuing operations

   (2.8 )     (1.6 )     (22.2 )  
                              

Total income taxes

   242.2     40.2%   222.2     37.5%   178.2     37.1%
                              

Our effective tax rate for continuing operations (total income tax expense from continuing operations divided by profit before tax and discontinued operations) was 36.5%, 37.1% and 35.9% for the years ended December 31, 2006, 2005 and 2004, respectively. The decrease of the effective tax rate for continuing operations for the year ended December 31, 2006 over the corresponding period in 2005 is mainly due to company tax benefits related to the exercise of employee stock options in the U.S. The increase of the effective tax rate for continuing operations for the year ended December 31, 2005 over the corresponding period in 2004, is due to the receipt of $5.6 million in interest on a U.S. tax refund in 2004, the increase in tax expense related to share-based compensation in 2005, and taxes on increased dividends paid by Delhaize America to the parent company in 2005. These amounts were partially offset by the favorable resolution of state audits at our U.S. subsidiaries in 2005.

The effective tax rate (including discontinued operations) was 40.2%, 37.5% and 37.1% for the years ended December 31, 2006, 2005 and 2004, respectively. The increase of the effective tax rate for the year ended December 31, 2006 over the corresponding period in 2005 is due the €64.3 million non-deductible impairment loss recorded in 2006, related to the planned sale of our Czech operations.

We continue to experience tax audits in jurisdictions where we do business, which we consider to be part of our ongoing business activity. In particular, we have experienced an increase in audit and assessment activity during both our 2005 and 2006 fiscal years in the United States and Greece and during 2006 in Belgium. Although some audits have been settled in the United States, Greece and Belgium during 2006, we expect continued tax audit activity in the United States and Belgium in 2007. While the ultimate outcome of tax audits is not certain, we have considered the merits of our filing positions in our overall evaluation of potential tax liabilities and believe we have adequate liabilities recorded in our consolidated financial statements for exposures on these matters. Based on our evaluation of the potential tax liabilities and the merits of our filing positions, we also believe it is unlikely that potential tax exposures over and above the amounts currently recorded as liabilities in our consolidated financial statements will be material to our financial condition or future results of operations.

Result from Discontinued Operations

Result from discontinued operations, net of tax, amounted to a loss of €65.3 million for the year ended December 31, 2006, compared to a loss of €9.5 million for the corresponding period in 2005 and a loss of €55.5 million for the corresponding period in 2004. In 2006, the result from discontinued operations included a €64.3 million impairment loss related to the planned sale of the Czech operations. In 2004, the result from discontinued operations included a €39.3 million store closing charge and €19.0 million in impairment charges for the closing of 34 Kash n’ Karry stores mainly located on the east coast of Florida and in the Orlando, Florida market of the United States. Discontinued operations include the Czech operations for which a binding agreement to sell was reached in November 2006, the Thai operations divested on September 1, 2004, the Slovak operations sold in June 2005, and the 34 Kash n’ Karry stores closed in 2004.

 

37


Table of Contents

Net Profit Attributable to Equity Holders of Delhaize Group

Higher losses from discontinued operations resulted in a 3.6% decrease in the net profit attributable to equity holders of our company (our company share in net profit) for the year ended December 31, 2006, compared to the corresponding period in 2005.

Higher operating profit, combined with lower losses from discontinued operations led to a 23.5% increase in Group share in net profit for the year ended December 31, 2005, compared to the corresponding period in 2004.

Liquidity and Capital Resources

We had €304.8 million of cash and cash equivalents at December 31, 2006, compared to €804.9 million at December 31, 2005. The decrease in cash and cash equivalents is principally due to the redemption of long-term debt, as discussed below under the heading “Long-Term Debt.” Our principal source of liquidity is cash generated from operations. Debt is also an important tool in our funding policy. Cash flow from operations is reinvested each year in new stores, store remodeling and store expansions, as well as in store efficiency-improvement measures and retailing innovations. Cash flow from operations is also used to service debt and for the payment of dividends. We believe that our working capital and existing credit lines are sufficient for our present requirements.

Operating Activities

Net cash provided by operating activities was €910.3 million, €902.3 million and €989.2 million during the years ended December 31, 2006, 2005 and 2004, respectively. Working capital requirements (inventories, accounts payable and receivables) increased in 2006 by €14.1 million due to an increase in inventories of €55.5 million, mainly generated in the U.S. operations (increase of inventory days from 38.4 in 2005 to 38.9 in 2006), and an increase in receivables of €71.1 million, mainly in Belgium and the U.S., which were partially offset by an increase in accounts payable of €112.5 million, particularly in Belgium and the U.S. Interest payments decreased following the major debt repayments in the first half of 2006. Tax payments increased from €238.7 million in 2005 to €265.2 million in 2006. The net decrease in 2005 over 2004 was primarily due to higher tax payments and cash used in working capital requirements in 2005 versus cash provided from working capital in 2004. Tax payments increased from €123.4 million in 2004 to €238.7 million in 2005. Working capital requirements increased in 2005 by €7.0 million due to an increase in inventories of €40.8 million, mainly generated in the U.S. operations, an increase in accounts receivables of €26.2 million, mainly in Belgium, and an offsetting increase in accounts payable of €60.0 million.

Investing Activities

Net cash used in investing activities increased to €721.9 million during the year ended December 31, 2006 compared with €756.6 million for the year ended December 31, 2005 and €641.9 million for the year ended December 31, 2004. The decrease in 2006 is due to lower acquisition costs of subsidiaries, partly offset by higher capital expenditures, higher investment of cash in debt securities and lower cash from other investing activities. The increase in 2005 was primarily due to the increase in capital expenditures from €494.1 million in 2004 to €636.1 million in 2005, the acquisition of Cash Fresh and the increase of our investment in our Greek subsidiary, Alfa-Beta.

Capital Expenditures

Capital expenditures were €699.9 million for the year ended December 31, 2006 compared with €636.1 million for the year ended December 31, 2005 and €494.1 million for the year ended December 31, 2004. The 10.0% increase in 2006 was primarily due to the continued Sweetbay rollout, the first multi-brand market renewal program at Food Lion and the active network expansion. The increase in 2005 was primarily due to the conversion of the 19 acquired Victory stores to the Hannaford banner, the continued rollout of Sweetbay Supermarkets in Florida, the two market renewals at Food Lion and the investments in the construction of a new distribution center in Belgium. In 2006 and 2005, we expanded our store network by 69 stores and 71 stores, respectively. Additionally, in 2006 and 2005, we renovated 147 and 176 existing stores in the United States, respectively.

 

38


Table of Contents

Capital Expenditures by Geographic Area

 

     Year Ended December 31,
     2006    2005    2004
     (Amounts in € millions)

United States

   528.4    459.1    334.2

Belgium

   107.2    122.2    115.7

Greece

   37.5    35.7    32.5

Emerging Markets

   12.1    7.9    9.9

Corporate

   14.7    11.2    1.8

Total

   699.9    636.1    494.1

Business Acquisitions

Our growth strategy includes selective acquisitions.

In 2005, we acquired 100% of Cash Fresh, a chain of 43 supermarkets mainly located in northeastern Belgium. We paid an aggregate amount of €159.1 million in cash for the acquisition, net of €1.7 million in price adjustments received by us in 2006. The total payment amount includes €1.6 million in costs directly attributable to the acquisition and is net of €6.4 million in cash and cash equivalents acquired. Cash Fresh’s results of operations are included in our consolidated results prospectively from May 31, 2005.

In 2004, we acquired Victory, which operated 19 supermarkets located in central and southeastern Massachusetts and in southern New Hampshire. We paid an aggregate amount of €143.7 million in cash for the acquisition of Victory, including €1.6 million in costs directly attributable to the acquisition, and net of €10.6 million in cash and cash equivalents acquired. Victory’s results of operations are included in our consolidated results prospectively from November 27, 2004.

In June 2004, we sold our 70.0% interest in Super Dolphin, a non-operating company of the Mega Image Group and acquired most of the remaining interests of the other companies related to our Romanian activities (30.0% of Mega Image, 18.6% of Mega Dolphin, 13.2% of Mega Doi, 30.0% of A.T.T.M. Consulting and Commercial and 30.0% of NP Lion Leasing and Consulting). These transactions were consummated for an aggregate price of €0.3 million.

In August 2004, we acquired two Belgian companies, Distra and Warenhuizen Trouken-Peeters, for an aggregate price of €5.7 million. Each company operates one supermarket in Belgium.

Financing Activities

Net cash used in financing activities was €636.8 million during the year ended December 31, 2006, compared to cash used in financing activities of €68.6 million and €45.7 million in 2005 and 2004, respectively.

Long-term debt

In 2006, we decreased our long-term debt by €665.9 million. This amount includes the redemption of the €150 million 5.5% bonds and the $563.5 million (€477.5 million) 7.375% notes, in addition to €36.2 million in finance lease payments.

In 2005, we increased our long-term debt by €45.1 million. This amount includes the issuance of €96.2 million in new debt, principally from Alfa Beta’s February 2005 issuance of €40.0 million in Eurobonds, and the issuance of €50.0 million of medium-term notes under the multi-currency treasury note program in Belgium. Partly offsetting the new debt amounts were debt repayments of €17.8 million by Hannaford and Cash Fresh, in addition to €33.3 million in finance lease payments.

 

39


Table of Contents

In 2004, we increased our long-term debt by €216.0 million. This amount included €295.0 million in proceeds from the issuance of a €300 million convertible bond. This debt was partially offset by the retirement of €42.1 million ($52.4 million) in principal of Delhaize America debt and €30.7 million in finance lease payments.

In 2003, Hannaford invoked the defeasance provisions of its outstanding 8.54% Senior Notes due November 15, 2004, 6.50% Senior Notes due May 15, 2008, 6.31% Senior Notes due May 15, 2008, 7.41% Senior Notes due February 15, 2009, 6.58% Senior Notes due February 15, 2011 and 7.06% Senior Notes due May 15, 2016 (collectively, the “Securities”) and placed sufficient funds in an escrow account to satisfy the remaining principal and interest payments due on the Securities. As a result of this defeasance, Hannaford is no longer subject to the negative covenants contained in the agreements governing the Securities. As of December 31, 2006 and 2005, $41.6 million (€31.6 million) and $53.4 million (€45.3 million) in aggregate principal amount of the Securities was outstanding, respectively. Cash committed to fund the escrow and not available for general corporate purposes is considered restricted. At December 31, 2006 and 2005, restricted securities of $45.2 million (€34.3 million) and $58.8 million (€49.8 million), respectively, were recorded in investment in securities on the balance sheet.

We have a multi-currency treasury note program in Belgium. Under this treasury note program, we may issue both short-term notes (commercial paper) and medium-term notes in amounts up to €500 million, or the equivalent thereof in other eligible currencies (collectively the “Treasury Program”). In November 2005, we issued €50 million of medium-term notes under the Treasury Program. Certain of such notes matured in May 2007 and certain of such notes will mature November 2007. Such notes bear interest at three-months Euribor + 0.45% on €37.25 million, three-months Euribor + 0.40% on €11.25 million and 3.354% on €1.5 million. €50.0 million, €62.4 million and €12.4 million medium-term notes were outstanding at December 31, 2006, 2005 and 2004, respectively.

At December 31, 2006, we had long-term borrowings as follows:

 

Instruments Interest Rate & Maturity

   (in € million)

Notes, 7.55%, due 2007

   110.0

Bonds, 8.00%, due 2008

   98.8

Bonds, 4.625%, due 2009

   149.4

Convertible bonds, 2.75%, due 2009

   283.2

Bonds, 3.895%, due 2010

   40.0

Notes, 8.125%, due 2011

   829.0

Notes, 8.05%, due 2027

   91.8

Debentures, 9.00%, due 2031

   642.2

Other notes, 6.31% to 14.15%, due 2007 to 2016

   31.4

Medium-term treasury notes, 3.354% to 4.70%, due 2007

   50.0

Mortgages payable, 7.55% to 8.65%, due 2008 to 2016

   5.3

Other debt, 7.25%, due 2007 to 2018

   9.9

Bank borrowings

   10.4
    

Total

   2,351.4
    

The table set forth below provides the expected principal payments and related interest rates of our long-term borrowings by year of maturity as of December 31, 2006. For the definition of “fair value”, see Note 16 to the annual consolidated financial statements included elsewhere in this document.

 

(U.S. dollars in millions)

   2007     2008     2009     2010     2011     Thereafter     Fair
Value

Notes due 2007

   145.0               146.5

Average interest rate

   7.55 %            

Notes due 2011

           1,100.0       1,186.8

Average interest rate

           8.13 %    

Notes due 2027

             126.0     137.2

Average interest rate

             8.05 %  

Debentures due 2031

             855.0     1,015.2

Average interest rate

             9.00 %  

Mortgages payable

   1.6     1.0     1.1     1.2     0.3     2.0     7.8

Average interest rate

   8.10 %   7.76 %   7.75 %   7.75 %   8.25 %   8.25 %  

Other notes

   11.8     11.8     5.6     1.7     1.7     9.0     42.6

Average interest rate

   6.77 %   6.77 %   7.17 %   6.58 %   6.58 %   7.06 %  

Other debt

   13.4     0.3     0.2     0.2     0.2     0.4     15.0

Average interest rate

   7.42 %   13.79 %   13.21 %   13.21 %   13.21 %   13.21 %  

 

40


Table of Contents

(euros in millions)

   2007     2008     2009     2010     2011     Thereafter     Fair
Value

Bonds due 2008

     100.0             109.4

Average interest rate

     8.00 %          

Bonds due 2009

       150.0           146.6

Average interest rate

       4.63 %        

Bonds due 2010

         40.0         39.5

Average interest rate

         3.90 %      

Convertible bonds due 2009

       300.0           360.6

Average interest rate

       2.75 %        

Medium-term notes

   11.2               11.2

Average interest rate

   4.02 %            

Medium-term notes

   37.3               37.1

Average interest rate

   4.07 %            

Medium-term notes

   1.5               1.5

Average interest rate

   3.35 %            

Bank borrowings

   2.0     2.1     1.5     1.1     1.0     2.7     10.4

Average interest rate

   3.30 %   3.30 %   3.30 %   3.30 %   3.30 %   3.30 %  

Short-Term Borrowings

On April 22, 2005, Delhaize America entered into a $500 million (€379.7 million) unsecured revolving credit agreement, replacing and terminating the $350 million (€265.8 million) secured credit agreement maturing July 2005. On May 21, 2007, our company as guarantor, Delhaize America as borrower, and substantially all of Delhaize America’s subsidiaries as guarantors, amended this credit facility with the lenders signatory thereto and JPMorgan Chase Bank N.A., as administrative agent, issuing bank and swingline lender.

The credit facility provides for a $500 million (€379.7 million) five-year unsecured revolving credit facility, with a $100 million (€75.9 million) sublimit for the issuance of letters of credit, and a $35 million (€26.6 million) sublimit for swingline loans. Upon Delhaize America’s election, the aggregate maximum principal amount available under the credit facility may be increased to an aggregate amount not exceeding $650 million (€493.5 million). Funds are available under this credit facility for general corporate purposes. The credit facility will mature on April 22, 2010, unless Delhaize America exercises its option to extend it for up to two additional years. The credit facility contains affirmative and negative covenants. Negative covenants include a minimum fixed charge coverage ratio, a maximum leverage ratio and a dividend restriction test. As of December 31, 2006, Delhaize America was in compliance with all covenants contained in the credit facility. Delhaize America had $120.0 million (€91.1 million) in outstanding borrowings under the credit facility as of December 31, 2006 and had no borrowings as of December 31, 2005. Under this facility, Delhaize America had average daily borrowings of $30.9 million (€24.6 million) during 2006 and no borrowings during 2005. Approximately $46.7 million (€37.2 million) and $57.0 million (€45.4 million) of the credit facility was used to fund letters of credit during 2006 and 2005, respectively.

In addition, Delhaize America has periodic short-term borrowings under other arrangements that are available at the lenders’ discretion. As of December 31, 2006, Delhaize America had borrowings of $14.0 million (€10.6 million) outstanding under these arrangements. There were no outstanding borrowings under these arrangements at December 31, 2005 and 2004.

 

41


Table of Contents

At December 31, 2004, Delhaize America had a revolving credit facility with a syndicate of commercial banks providing $350 million (€265.8 million) in committed lines of credit which was terminated and replaced on April 22, 2005 by a new credit agreement described above. The credit facility was secured by certain inventory of Delhaize America’s retail operating companies. The $350.0 million facility contained affirmative and negative covenants. Delhaize America had no outstanding borrowings under this facility at December 31, 2004 and had no borrowings during 2004.

At December 31, 2006, 2005 and 2004, our European and Asian companies together had credit facilities (committed and uncommitted) of €511.3 million, €409.3 million and €507.1 million, respectively, under which we can borrow amounts for less than one year (“Short-term Bank Borrowings”) or more than one year (“Medium-term Bank Borrowings”). The Short-term Bank Borrowings and the Medium-term Bank Borrowings (collectively the “Bank Borrowings”) generally bear interest at the inter-bank offering rate at the borrowing date plus a pre-set margin, or based on market quotes from banks.

The Bank Borrowings require maintenance of various financial and non-financial covenants. At December 31, 2006, 2005 and 2004, we were in compliance with all such covenants.

We had no Short-term Bank Borrowings outstanding at December 31, 2006 in Europe and Asia, compared to €0.1 million and €28.1 million in outstanding Short-term Bank Borrowings at December 31, 2005 and 2004, respectively, with an average interest rate of 3.45% and 3.09%, respectively. During 2006, our European and Asian companies had average borrowings of €64.7 million at a daily average interest rate of 3.2%.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2006.

 

     Payments due by period
     Total    2007    2008    2009    2010    2011    Thereafter
     (In € millions)

Short-term Bank Borrowings

   101.8    101.8               

Long-term debt (excluding finance lease obligations)

   2,388.3    182.4    112.0    456.3    43.5    837.9    756.2

Interest on fixed rate debt

   1,928.1    151.2    146.1    145.6    130.1    97.5    1,257.6

Interest on variable rate debt

   45.3    16.9    11.0    6.9    6.9    3.5    0.1

Finance lease obligations

   636.5    34.5    37.6    40.1    39.5    38.3    446.5

Self-insurance obligation

   117.5    37.6    24.1    16.6    11.2    7.5    20.5

Operating lease obligations

   2,194.3    227.9    215.5    200.4    180.2    168.7    1,201.6

Purchase obligations(1)

   187.0    108.2    19.3    8.0    4.7    3.0    43.8

Pension benefits

   149.9    13.9    12.0    21.2    17.2    18.4    67.2

Other post-retirement benefits

   3.8    0.4    0.4    0.4    0.4    0.3    1.9
                                  

Total

   7,752.5    874.8    578.0    895.5    433.7    1,175.1    3,795.4
                                  

(1) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable within 30 days without penalty and/or contain contingent payment obligations.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations or cash flows.

 

42


Table of Contents

Factors Affecting Financial Condition and Results of Operations

In addition to the factors discussed below, please see the information under the heading entitled “B. Risk Factors” under Item 3 “Key Information,” above.

Financial Risk Management. As a global market participant, we have exposure to different kinds of market risk. The major exposures are foreign currency exchange rate, interest rate risks and self-insurance risks.

We provide a centralized treasury function for the management and monitoring of foreign currency exchange and interest rate risks for all our operations. Our risk policy is to hedge only interest rate or foreign exchange transaction exposure that is clearly identifiable. We do not hedge foreign exchange translation exposure. We do not utilize derivatives for speculative purposes.

Foreign Exchange Risk. Because a substantial portion of our assets, liabilities and operating results are denominated in U.S. dollars while our financial statements are represented in euros, we are exposed to fluctuations in the value of the U.S. dollar against the euro. We do not hedge this U.S. dollar net investment. In 2006, a variation of $0.01 in the exchange rate of the euro would have caused net sales and other revenues to vary by 0.9% or €172.9 million, operating profit by 1.0% or €9.6 million and net profit by 1.2% or €4.1 million. Net income in 2006 would have decreased over that in 2005 by 2.8%, at constant exchange rates, rather than by 3.6%.

We finance the operations of our subsidiaries primarily through borrowings in our subsidiaries’ local currencies. Substantially all of our borrowings are denominated in U.S. dollars or euros.

Our financial risk management policy for non-U.S. dollar denominated assets is to match the currency distribution of our borrowings to the denomination of our assets and of our receivables to the denomination of our equity funding and/or our debt funding. As a result, fluctuations in our balance sheet ratios resulting from changes in exchange rates are generally limited. Dividends and borrowings are the most significant components of our cash flow that are influenced by variations in exchange rates.

Our policy is to hedge only foreign exchange transaction exposure that is clearly identifiable and, in principle, not to hedge foreign exchange translation exposure. Any sizeable intra-Group currency lending is generally fully hedged through the use of foreign exchange forward contracts or currency swaps.

Interest Rate Risk. We manage our debt and overall financing strategies using a combination of short, medium and long-term debt and interest rate swaps. When necessary, we finance our daily working capital requirements, through the use of our committed and uncommitted lines of credit, the use of our commercial paper programs and cash on hand. These short and medium-term borrowing arrangements generally bear interest at the inter-bank offering rate at the borrowing date plus a pre-set margin or at a rate that is based on market quotes from banks. We also use a treasury notes program. At December 31, 2006, 86.7% of our total debt was at fixed rates for a period of at least one year. A one-point variation in interest rates would not have materially affected our interest expense in 2006.

During 2002 and 2001, Delhaize America entered into interest rate swap agreements, effectively converting a portion of its debt from fixed to variable rates. Maturity dates of interest rate swap arrangements match those of the underlying debt. These agreements involve the exchange of fixed rate payments by Delhaize America for variable rate payments without the exchange of the underlying principal amounts. Variable rates for these agreements are based on six-month or three-month U.S. dollar LIBOR and are reset on a semi-annual basis or a quarterly basis. The differential between fixed and variable rates to be paid or received is accrued as interest rates change in accordance with the agreements and recognized over the life of the agreements as an adjustment to interest expense. On December 30, 2003, Delhaize America cancelled $100 million (€75.9 million) of the 2011 interest rate swap arrangements. The notional principal amount of the interest rate swap arrangements at December 31, 2006 were $100 million (€75.9 million) maturing in 2011. During the second quarter of 2003, we entered into interest rate swap agreements converting a portion of our debt from fixed to variable rates. Variable rates for these agreements are based on the three-month Euribor and are reset on a quarterly basis. The notional principal amount of these interest rate swap arrangements as of December 31, 2006 was €100 million maturing in 2008.

We believe that the price and credit risk on our financial investments is limited because of the limited number and the quality of our financial investments. Our short-term investments have a rating of at least A1 (S&P) /P1 (Moody’s). Our long-term investment policy requires a minimum rating of A-/A3 for our financial investments.

 

43


Table of Contents

Self-Insurance Risk. We actively manage our insurance risk through a combination of external insurance coverage and self-insurance.

We are self-insured for workers’ compensation, general liability, vehicle accident and druggist claims in the United States. Our self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not reported (“IBNR”). Maximum retention, including defense costs per occurrence, ranges from $0.5 million to $1.0 million per accident for workers’ compensation, $5.0 million per accident for automobile liability, $3.0 million per accident for general liability, with an additional $2.0 million retention in excess of the primary $3.0 million general liability retention for druggist liability. Delhaize America is insured for costs related to the covered claims, including defense costs, in excess of these retentions. It is possible that the final resolution of some of the claims against these self-insurance programs may require us to make significant expenditures in excess of our existing reserves over an extended period of time and in a range of amounts that cannot be reasonably estimated.

We implemented a captive insurance program in 2001 whereby the self-insurance reserves related to workers’ compensation, general liability and auto coverage are reinsured by The Pride Reinsurance Company (“Pride”) our wholly-owned Irish reinsurance captive. The purpose for implementing the captive insurance program was to provide us continuing flexibility in our risk management program, while providing certain excess loss protection through anticipated reinsurance contracts with Pride. Premiums are transferred annually to Pride through Delhaize Insurance Co., a subsidiary of ours.

Our property insurance in the United States includes self-insured retentions per occurrence of $15.0 million for named wind storms, $5.0 million for Zone A flood losses and $2.5 million for all other losses.

We are also self-insured in the United States for health care which includes medical, pharmacy, dental and short-term disability. The self-insurance liability for IBNR claims is estimated quarterly by management based on available information and considers actuarial evaluations performed annually based on historical claims experience, claims processing procedures and medical cost trends.

Foreign Investment Risks. In addition to our significant operations in the United States and Belgium, we operate in a number of other countries. Foreign operations and investments are subject to the risks typically associated with conducting business in foreign countries such as:

 

   

labor disputes;

 

   

uncertain political and economic environments;

 

   

risks of war and civil disturbances;

 

   

risks associated with the movement of funds;

 

   

deprivation of contract rights;

 

   

loss of property by nationalization or expropriation without fair compensation;

 

   

risks relating to changes in laws or policies of particular countries, such as foreign taxation;

 

   

risks associated with obtaining necessary governmental permits, limitations on ownership and on repatriation of earnings; and

 

   

foreign currency exchange rate fluctuations.

There can be no assurance that these risks or other risks relating to foreign operations will not be encountered by us in the future. Foreign operations and investments may also be adversely affected by laws and policies governing foreign trade, investment and taxation in the United States, Belgium and the other countries where we operate.

 

44


Table of Contents

Inflation and Changing Prices. Labor and cost of merchandise sold, our primary operating costs, increase with inflation and, where possible, are recovered through operating efficiencies and retail price adjustments.

The performance of our U.S. operating companies for 2006 reflects the impact of several product cost increases (primarily in groceries, produce, health and beauty care product and other household and personal products), significant fuel, energy, and commodity price inflation experienced throughout most of the year, as well as increased employee benefit costs. Through 2006, our U.S. operating companies’ reaction to the increase in product costs varied across geographical operating territories, based on unique competitive environments. In the Southeast of the United States, significant retail price increases were avoided and external cost pressures were managed through price optimization and mix improvements, productivity savings, and technological initiatives to enhance the inventory management. In the Northeast of the United States, inflationary impact on product and other operating expenses generally were managed through product pricing or cost reduction efforts.

During 2005, the supermarket industry and all four of our U.S. operating companies experienced several product cost increases as a result of Hurricane Katrina. For example, there were significant cost increases in the commodities of sugar, coffee and bananas. Additionally, fuel price increases have raised costs for business components including resins, diesel fuel, and plastic. Delhaize America’s reaction to this cost inflation varied across geographical operating territories based on unique competitive environments and specific market conditions.

During 2004, the supermarket industry and all four of our U.S. operating companies experienced product cost increases after several years of flat to minimal inflation, and even deflation in some categories. Although significant cost increases experienced earlier in the year (dairy and meat categories) subsided, we experienced offsetting cost increases in other categories. As a result, while we experienced declining cost inflation throughout the year, the impact of cost inflation for the full year was more significant than in previous years. Our reaction to cost inflation varied across geographical operating territories, based on unique competitive environments and specific market conditions.

During 2006, Delhaize Belgium experienced product cost, utility cost and labor rate increases. Delhaize Belgium continued to improve its competitive price position resulting in lower gross margin. During 2005, Delhaize Belgium experienced product cost, utility cost and labor rate increases. Increases in product costs were offset by increases in retail prices. The increases in utility costs and labor rates, combined with softer sales, contributed to the decrease of the operating margin of Delhaize Belgium in 2005. During 2004, Delhaize Belgium experienced product cost and labor rate increases. Despite the increase in product costs, Delhaize Belgium continued to improve its competitive price position resulting in a lower gross margin. The increase in labor rates was offset by an increase in productivity and a strong cost discipline, enabling Delhaize Belgium to maintain a stable operating margin.

Although there is the risk that inflation in Southeast Asia and in certain European countries where we operate could have an effect on our results, such inflation has not had a material effect on our sales or results of operations to date.

E. Recent Events and Outlook

Recent Events

In March 2007, we reached a binding agreement to sell Di, our Belgian beauty and body care business, to Parma Gestion, a subsidiary of Distripar, which is owned by CNP/NPM. The agreement foresees the sale of the operations of Di for consideration, subject to contractual adjustments, of €33.4 million in cash. The impact of the divestiture on the ongoing profitability of Delhaize Belgium will be minor. In 2006, the Di network consisted of 90 company-operated and 42 franchised stores, which contributed €95.5 million to our net sales and other revenues. The transaction was approved by the European Commission on June 1, 2007 and is expected to close by the end of June 2007.

On April 24, 2007, representatives of the Conseil de la Concurrence/Raad voor de Mededinging (Belgian competition authority), visited our offices in Zellik, Belgium, and requested us to provide them with specified documents. This visit was a part of what appears to be a local investigation affecting several companies in Belgium in the retail sector. We understand that the investigation, which is expected to continue for several months, relates to prices of perfume, beauty products and other household goods. We have cooperated with the Conseil de la

 

45


Table of Contents

Concurrence/Raad voor de Mededinging in connection with the initial request for documentation and as of the date of this report have not received any news or further communication, nor has a statement of objections been lodged against our company, in relation to this matter. The maximum fine for violations of the related competition laws in Belgium is capped at 10% of our company’s annual sales in Belgium.

On May 21, 2007, our company as guarantor, our wholly-owned subsidiary, Delhaize America as borrower, and substantially all of Delhaize America’s subsidiaries as guarantors, amended Delhaize America’s existing $500 million credit agreement, or the Delhaize America Credit Agreement, with the lenders signatory thereto and JPMorgan Chase Bank N.A., as administrative agent, issuing bank and swingline lender. A description of the Delhaize America Credit Agreement is included elsewhere in this annual report on Form 20-F in Item 10 “Additional Information” under the heading “C. Material Contracts”.

On May 21, 2007, we entered into a cross guarantee agreement (the “Cross Guarantee Agreement”) among us, Delhaize America and substantially all of Delhaize America’s subsidiaries. Under the Cross Guarantee Agreement, each company party to the agreement guarantees fully and unconditionally, jointly and severally all Delhaize Group existing financial indebtedness and Delhaize America existing financial indebtedness, specific financial indebtedness of two European subsidiaries of Delhaize Group and all future unsubordinated financial indebtedness of the parties to the agreement. A description of the Cross Guarantee Agreement is included elsewhere in this annual report on Form 20-F in Item 10 “Additional Information” under the heading “C. Material Contracts”.

At our Ordinary and Extraordinary General Meeting of shareholders on May 24, 2007, our shareholders approved the distribution of a €1.32 gross dividend per share for fiscal year 2006. After deduction of a 25% withholding tax, this results in a net dividend of €0.99 per share. The 2006 dividend became payable to owners of our ordinary shares beginning on May 31, 2007 against coupon no. 45. The payment of the dividend to our ADR holders was made through The Bank of New York beginning on June 11, 2007. At the same meeting, our shareholders authorized our Board of Directors, for a period of five years starting on the date of publication of the Extraordinary General Meeting, within certain legal limits, to increase the capital of Delhaize Group or issue convertible bonds or subscription rights which might result in a further increase of capital by a maximum of €9,678,897. The authorized increase in capital may be achieved by contributions in cash or, to the extent permitted by law, by contributions in kind or by incorporation of available or unavailable reserves or of the share premium account. The Board of Directors of Delhaize Group may, for this increase in capital, limit or remove the preferential subscription rights of Delhaize Group’s shareholders, within certain legal limits.

On May 24, 2007 and June 14, 2007, respectively, we issued 1,385,955 and 881,573 new ordinary shares to satisfy conversions of our 2.75% convertible bonds. In 2004, we issued €300 million 2.75% convertible bonds due April 30, 2009 convertible into our ordinary shares.

On May 30, 2007, Delhaize America commenced a tender offer for cash prior to maturity of up to $1.1 billion aggregate principal amount of Delhaize America’s outstanding $1.1 billion 8.125% Notes due 2011, $855 million 9.000% Debentures due 2031, and $126 million 8.050% Notes due 2027, in order of purchase priority, plus accrued and unpaid interest and premium amounts. Pursuant to the terms of this tender offer, on June 28, 2007 Delhaize America purchased approximately $1.05 billion of its 8.125% Notes due 2011 and approximately $50 million of its 9.000% debentures due 2031. The net proceeds from Delhaize Group’s offering of its 5.625% senior notes due 2014 and 6.50% senior notes due 2017, discussed further below in this section, were the principal source of funds used to make these purchases.

On May 31, 2007, we completed the earlier announced sale of Delvita in Czech Republic to the German retail group Rewe, after unconditional approval by the European antitrust authorities. On November 13, 2006, we signed an agreement to sell Delvita to Rewe. On April 26, 2007, the transaction was approved by the European anti-trust authorities. We received €100 million in cash, subject to contractual adjustments. A positive accumulated foreign currency translation adjustment of approximately €23.7 million will be recorded in the result from discontinued operations during the second quarter of 2007.

On June 27, 2007 Delhaize Group issued € 500 million 5.625% senior notes due 2014 (the “5.625% Euro Notes”) pursuant to an Indenture dated June 27, 2007 between Delhaize Group and The Bank of New York (the “2007 Euro Note Indenture”) and $450 million 6.50% senior notes due 2017 represented by certificated depositary interests (the “6.50% Dollar Notes” and collectively with the 5.625% Euro Notes, the “2007 Notes”) pursuant to an Indenture dated June 27, 2007 between Delhaize Group and The Bank of New York (the “2007 Dollar Note Indenture” and together with the 2007 Euro Notes Indenture, the “2007 Indentures”). The 5.625% Euro Notes will mature on June 27, 2014 and the 6.50% Dollar Notes will mature on June 15, 2017. We will pay interest

 

46


Table of Contents

on the 5.625% Euro Notes annually on June 27 commencing on June 27, 2008, and we will pay interest on the 6.50% Dollar Notes semiannually on June 15 and December 15 each year beginning on December 15, 2007. All or a portion of the 5.625% Euro Notes or the 6.50% Dollar Notes may be subject to redemption at any time, as described, respectively, in the 2007 Euro Note Indenture and the 2007 Dollar Note Indenture. The 2007 Notes will be unsecured unsubordinated senior obligations of Delhaize Group, and Delhaize Group’s obligations under the 2007 Notes fall within the scope of the Cross Guarantee Agreement. We have applied to admit the 5.625% Euro Notes to listing on the Official List of the Luxembourg Stock Exchange and to trading on the regulated market of the Luxembourg Stock Exchange. The 6.50% Dollar Notes will not be listed on any stock exchange. We have agreed to use our reasonable best efforts to consummate an exchange offer pursuant to an effective registration statement or cause resales of the 6.50% Dollar Notes to be registered pursuant to a shelf registration statement under the Securities Act.

Outlook

We plan to end 2007 with a store network of 2,575 stores, as a result of the addition of 99 stores and the divestment of 97 Delvita stores in May 2007 and planned divestment of 132 Di stores in 2007. We expect capital expenditures (excluding finance leases) of approximately €825 million during 2007, of which approximately $755 million (€600 million) will be allocated to the U.S. business.

In 2007, we plan to open approximately 47 new supermarkets in the United States. In addition, we plan to close approximately ten stores to be relocated and 14 other stores, resulting in a net increase of 23 stores to a total number of 1,572 stores at the end of 2007. Approximately 207 U.S. stores will be remodeled in 2007. Food Lion will remodel 142 stores as part of its market and store renewal programs. All remaining 31 Kash n’ Karry stores will be re-launched under the Sweetbay Supermarket brand before the end of September 2007, finishing the comprehensive conversion project started in 2004.

Delhaize Belgium expects to end 2007 with a store network of 753 stores, as a result of the addition of 42 stores (including three company-operated supermarkets) and the planned divestment of 132 Di stores. Delhaize Belgium plans to remodel nine stores in 2007 and convert 26 Cash Fresh stores to Delhaize banners, including four to company-operated supermarkets.

In 2007, we expect to increase our sales network in Greece by 19 stores to a total of 167 stores.

We plan to end 2007 with a store network of 83 stores in our Emerging Markets segment, following the addition of 15 stores and the sale of 97 Delvita stores in the Czech Republic.

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Board of Directors

In accordance with Belgian law, our affairs are managed by our Board of Directors. Under our Articles of Association, the Board of Directors must consist of at least three directors. Our Board of Directors consists of 11 directors. Ten of the directors are non-executive directors and one director, Pierre-Olivier Beckers, our Chief Executive Officer, is an executive director.

The Board of Directors determined that all directors, with the exception of Chief Executive Officer Pierre-Olivier Beckers, are independent under the criteria of the Belgian Company Code, the Belgian Code on Corporate Governance and the rules of the NYSE. The Board made its determination based on information furnished by all directors regarding their relationships with us.

All directors, with the exception of Chief Executive Officer Pierre-Olivier Beckers, have been determined by the shareholders to be independent under the criteria set forth in the Belgian Company Code. Such determination was made, as applicable, either upon the election or re-election of the directors, or at the Ordinary General Meeting held in 2004 under applicable transition rules. The Board of Directors met seven times in 2006.

 

47


Table of Contents

On the recommendation of the Remuneration and Nomination Committee, the Board proposes the appointment of directors to the shareholders for approval at the Ordinary General Meeting. Pursuant to our Articles of Association, directors may be appointed for a maximum term of six years. In practice, the members of the Board are appointed for a maximum term of three years. The Board of Directors decided in 2005 that the age limit would be set at 70 for all members of the Board and thus terminated the transition rule setting the age limit for certain directors at 75 and for others at 70. In addition, the Board of Directors may appoint a director to fill a vacancy on the Board of Directors. A director so appointed may serve until the next general meeting of shareholders. Directors may be removed from office at any time by a majority vote at any meeting of shareholders.

On May 24, 2007, the shareholders at the Ordinary General Meeting renewed the terms of Count Goblet d’Alviella, Mr. Robert Murray and Dr. William Roper as directors for three years. The shareholders acknowledged that these directors satisfy the requirements for independence under the Belgium Company Code, and appointed them as independent directors thereunder.

Our current Board of Directors and biographical information concerning such individuals are set forth below. The business address of each of our directors is Square Marie Curie 40, 1070 Brussels, Belgium.

 

Name

   Position    Director Since    Term Expires

Baron Georges Jacobs

   Chairman    May 2003    2009

Pierre-Olivier Beckers

   President, Chief
Executive Officer & Director
   May 1995    2009

Claire Babrowski

   Director    May 2006    2009

Count de Pret Roose de Calesberg

   Director    May 2002    2008

Jacques de Vaucleroy

   Director    May 2005    2008

Hugh G. Farrington

   Director    May 2005    2008

Count Goblet d’Alviella

   Director    May 2001    2010

Robert J. Murray

   Director    May 2001    2010

Dr. William Roper

   Director    August 2003    2010

Didier Smits

   Director    May 1996    2009

Luc Vansteenkiste

   Director    May 2005    2008

Georges Jacobs (1940). Baron Jacobs was elected to our Board of Directors in 2003 and has been Chairman of the Board of Directors since January 1, 2005. Baron Jacobs is also our Chairman of the Remuneration and Nomination Committee. He started his career as an economist with the IMF in Washington in 1966. He joined the UCB Group (a pharmaceutical and chemical group based in Belgium) in 1970 and has been Chairman of its Executive Committee from 1987 until the end of 2004. Baron Jacobs is Chairman of the Board of Directors of UCB and also serves on the Board of Directors of Belgacom, Bekaert and SN Brussels Airlines. He has been President of UNICE (Union of Industrial and Employers’ Confederations of Europe) between 1998 and 2003. He is member of the Management Committee and Honorary Chairman of the Federation of Belgian Companies. Mr. Jacobs is a Doctor at Laws (UCL, Belgium), holds a Master’s degree in Economic Sciences (UCL, Belgium), and a Master’s degree in Economics (University of California, Berkeley, US).

Pierre-Olivier Beckers (1960). Mr. Beckers has been our President and Chief Executive Officer since January 1, 1999, and Chief Executive Officer of Delhaize America since September, 2002. Mr. Beckers earned a Master’s degree in applied economics at I.A.G., Louvain-La-Neuve and an MBA from Harvard Business School. He began working in the food retail industry in 1982 as a store manager for a bakery chain in Belgium. Mr. Beckers joined us in 1983, to work initially three years in our U.S. operations as a store manager. After his return to Belgium, he broadened his retail experience as a buyer, director of purchasing, member of the Executive Committee and Director and Executive Vice-President of the Executive Committee in charge of international activities. In January 2000, Mr. Beckers was named Manager of the Year, a prestigious distinction awarded by the leading Belgian business magazine Trends/Tendances. He is on the Board of Directors of the Food Marketing Institute and of CIES—The Food Business Forum (an international food business network serving as interface between retailers and suppliers). In December 2004, he was elected to a four-year term as Chairman of the BOIC (Belgian Olympic Committee).

Claire H. Babrowski (1957). Ms. Babrowski joined Toys “R” Us, Inc. in June 2007 as Executive Vice President, Chief Operations Officer. Ms. Babrowski was, from February to August 2006, President, Chief Operating Officer and acting Chief Executive Officer of RadioShack, an American consumer electronics specialty retailer with

 

48


Table of Contents

more than 7,000 stores. She served as Executive Vice President and Chief Operating Officer of RadioShack from June 2005 to February 2006. Prior to joining RadioShack, she worked 30 years at McDonald’s Corporation, where her last position was Senior Executive Vice President and Chief Restaurant Operations Officer. Ms. Babrowski holds a Master in Business Administration from the University of North Carolina. In 1998, she received the Emerging Leader Award from the U.S. Women’s Service Forum. She is a member of the “Committee of 200”, a professional U.S. organization of preeminent women entrepreneurs and corporate leaders.

Arnoud de Pret Roose de Calesberg (1944). Arnoud de Pret Roose de Calesberg was from 1991 to 2000 a member of the Executive Committee and Chief Financial Officer of the Belgian metals company Umicore. Previously he was a member of the Executive Committee and Chief Financial Officer of the Belgian pharmaceutical company UCB. Currently, Arnoud de Pret is a member of the Board of Directors of Inbev, the Belgian brewery company, UCB and Umicore. Arnoud de Pret holds a Commercial Engineer’s degree from the Université Catholique de Louvain (UCL), Belgium.

Jacques de Vaucleroy (1961). Mr. de Vaucleroy is member of the Executive Board of ING Group and CEO of ING Insurance Europe. He has over 18 years of experience in the financial services sector. Jacques de Vaucleroy obtained a law degree (Université Catholique de Louvain, Belgium) and a Master in Business Law (Vrije Universiteit Brussel, Belgium).

Hugh G. Farrington (1945). After a retail management career starting in 1968 at Hannaford. Mr. Farrington served as President and Chief Executive Officer of Hannaford from 1992 to 2001. In 2000, he was appointed as Vice Chairman of Delhaize America, and in 2001, he became our Executive Vice President and member of our Board of Directors. In 2003, Mr. Farrington left the Board of Directors and resigned from his executive functions within our company. He rejoined the Board as a director in 2005. Mr. Farrington holds a Bachelor’s degree from Dartmouth College, Hanover, New Hampshire and a Master of Education from the University of New Hampshire. Mr. Farrington is Chairman of the healthcare system MaineHealth and a former Vice Chairman of the Board of Directors of the Food Marketing Institute (FMI).

Richard Goblet d’Alviella (1948). Count Goblet d’Alviella has been the Chief Executive Officer of Sofina S.A., a Belgian financial holding company, since 1989. Count Goblet d’Alviella is a member of the board of directors of Sofina as well as a number of the companies in which Sofina has interests or is affiliated, such as Suez, Eurazeo, Danone and Caledonia Investments. Prior to joining Sofina, Count Goblet d’Alviella was a Managing Director of the Paine Webber Group and he has a 15-year background in international investment banking in London and New York. Count Goblet d’Alviella holds a Commercial Engineer’s degree from Université Libre de Bruxelles, Brussels, and a Master’s degree in business administration from Harvard Business School. Count Goblet d’Alviella was elected to our Board of Directors in 2001.

Robert J. Murray (1941). Robert J. Murray retired as Chairman of the Board and Chief Executive Officer of New England Business Service, Inc. in 2004. From 1997 to 2000, Mr. Murray was a member of the Board of Directors of Hannaford. Mr. Murray retired from The Gillette Company in 1995, having been with Gillette for more than 34 years. From 1991 until his retirement in 1995, Mr. Murray was Executive Vice President, North Atlantic Group of Gillette. Mr. Murray is a director of Tupperware Brands, Inc., IDEXX Laboratories, Inc., LoJack Corporation and The Hannover Insurance Group. Mr. Murray is a graduate of Boston College and holds a Master’s degree in business administration from Northeastern University. Mr. Murray was elected to the Board of Directors in May 2001 and has been Chairman of the Audit Committee since then.

Dr. William Roper (1948). William Roper is Dean of the University of North Carolina School of Medicine and CEO of the UNC Health Care System. Until March 2004, he was Dean of the UNC School of Public Health at Chapel Hill. He is also a professor of health policy and administration in the School of Public Health, and a professor of pediatrics in the School of Medicine at UNC-CH. Before joining UNC-CH in 1997, Dr. Roper was senior vice president of Prudential HealthCare. Prior to that, he was director of the U.S. Centers for Disease Control and Prevention (CDC) and served on the senior White House staff. He received his Doctor of Medicine from the University of Alabama School of Medicine, and his Masters in Public Health from the University of Alabama at Birmingham School of Public Health. He completed his residency in pediatrics at the University of Colorado Medical Center.

 

49


Table of Contents

Didier Smits (1962). Didier Smits received a Master’s degree in economic and financial sciences at I.C.H.E.C. in Brussels. In 1996, he was elected Director. From 1986 to 1991, Mr. Smits was a Manager at Advanced Technics Company. In 1991, Mr. Smits became Managing Director of Papeteries Aubry SPRL.

Luc Vansteenkiste (1947). Mr. Vansteenkiste is Chief Executive Officer of the Belgian foam production company Recticel. He is Chairman of the Board of Directors of the Belgian photo-finishing company Spector Photo Group and member of the Board of the Belgian listed companies Telindus Group, Sioen, Ter Beke Vleeswaren and Compagnie du Bois Sauvage. Mr. Vansteenkiste is Chairman of the Federation of Belgian Companies and Board member of de Belgian Directors Institute. Mr. Vansteenkiste earned his degree in civil engineering at the Katholieke Universiteit Leuven, Belgium.

There are no potential conflicts of interests between any duties to the issuer of each member of the Board of Directors and their private interests or other duties.

Committees of the Board of Directors

The Board of Directors has two standing committees: the Audit Committee and the Remuneration and Nomination Committee.

There are no potential conflicts of interests between any duties to the issuer of each member of these committees and their private interests or other duties.

Audit Committee

The Audit Committee is composed solely of independent directors. The members of the Audit Committee are Robert J. Murray, who is the Chair of the Audit Committee, Didier Smits, Claire Babrowski and Count de Pret Roose de Calesberg. The Board of Directors has determined that Mr. Robert J. Murray, Count de Pret Roose de Calesberg and Ms. Claire Babrowski are “audit committee financial experts” as defined in Item 16A of Form 20-F under the Exchange Act. In 2006, the Audit Committee met five times.

The Audit Committee was appointed by the Board to assist the Board in monitoring the integrity of our financial statements, our compliance with legal and regulatory requirements, the statutory auditor’s qualification and independence, the performance of our internal audit function and statutory auditor, and our internal controls and risk management. The Audit Committee’s specific responsibilities are set forth in the Terms of Reference of the Audit Committee, which is attached as Exhibit B to our Corporate Governance Charter, which is posted on our website at www.delhaizegroup.com.

Remuneration and Nomination Committee

The Remuneration and Nomination Committee is composed solely of independent directors. The principal responsibilities of the Remuneration and Nomination Committee are to:

 

   

identify individuals qualified to become Board members, consistent with criteria approved by the Board;

 

   

recommend to the Board the director nominees for each Ordinary General Meeting;

 

   

recommend the Board director nominees to fill vacancies;

 

   

recommend to the Board qualified and experienced directors for service on the committees of the Board;

 

   

recommend to the Board the compensation of the members of executive management;

 

   

recommend to the Board any incentive compensation plans and equity-based plans, and awards thereunder, and profit-sharing plans for our associates;

 

   

evaluate the performance of the Chief Executive Officer; and

 

50


Table of Contents
   

advise the Board on other compensation issues.

The Remuneration and Nomination Committee’s specific responsibilities are set forth in the Terms of Reference of the Remuneration and Nomination Committee, which is attached as Exhibit C to our Corporate Governance Charter, which is posted on our website at www.delhaizegroup.com.

The members of the Remuneration and Nomination Committee are Georges Jacobs, who is the chair of the Remuneration and Nomination Committee, Count Goblet d’Alviella, Hugh G. Farrington and Robert J. Murray. In 2006, the Remuneration and Nomination Committee met three times. Our Remuneration Policy for Director and the Executive Management can be found as Exhibit E to the Corporate Governance Charter, which is posted on our website at www.delhaizegroup.com.

B. Executive Officers

Management Structure

Our management structure consists of:

 

   

a management structure organized around four geographical operational regions shown below and several support functions; and

 

   

an Executive Committee, which prepares the strategy proposals for the Board of Directors, oversees the operational activities and analyzes our business performance.

LOGO


* In May 2007 we completed the sale of our operations in the Czech Republic to Rewe Group.

United States. Richard Anicetti, President and Chief Executive Officer of Food Lion, is responsible for Food Lion; Ron Hodge, President and Chief Executive Officer of Hannaford, is responsible for Hannaford and for Kash n’ Karry and Sweetbay Supermarket.

Western and Central Europe. Arthur Goethals is the Chief Executive Officer of Western and Central Europe, which is comprised of Delhaize Belgium (Belgium). Arthur Goethals will retire from his Chief Executive Officer position on June 30, 2007. Michel Eeckhout will become Chief Executive Officer of Delhaize Belgium as of July 1, 2007.

 

51


Table of Contents

Southeastern Europe. Renaud Cogels is the Chief Executive Officer of Southeastern Europe, which is comprised of Alfa-Beta (Greece) and Mega Image (Romania).

Asia. Renaud Cogels, Executive Vice President, is the Executive Committee member responsible for Lion Super Indo (Indonesia).

Executive Committee

The Chief Executive Officer is in charge of our day-to-day management with the assistance of the Executive Committee. The Executive Committee, chaired by the Chief Executive Officer, prepares the strategy proposals for the Board of Directors, oversees the operational activities and analyzes the business performance of our company. The age limit set by the Board for the Chief Executive Officer is 65 years.

The Executive Committee does not qualify as a management committee (“comité de direction / directiecomité”) under Belgian law and as such does not hold the Board of Directors’ management powers.

The members of the Executive Committee are appointed by the Board of Directors. The Chief Executive Officer is the only member of the Executive Committee who is also a member of the Board of Directors. The Board of Directors decides on the compensation of the members of the Executive Committee and other senior officers of ours upon recommendation by the Remuneration and Nomination Committee. The Chief Executive Officer recuses himself from any decision regarding his compensation.

Our current Executive Committee members and biographical information concerning such individuals are set forth below (except for the biographical information of our President and Chief Executive Officer who is also a member of the Board of Directors, which is set forth above).

 

Name

  

Position

   Executive Officer/
Member of the
Executive
Committee Since

Pierre-Olivier Beckers

   President and Chief Executive Officer    1990

Richard A. Anicetti

   Executive Vice President    2002

Renaud Cogels

   Executive Vice President    1988

Michel Eeckhout

   Executive Vice President and Chief Information Officer    2005

Arthur Goethals (*)

   Executive Vice President    1994

Ronald C. Hodge

   Executive Vice President    2002

Nicolas Hollanders

   Executive Vice President    2007

B. Craig Owens

   Executive Vice President and Chief Financial Officer    2001

Michael Waller

   Executive Vice President and General Counsel    2001

Joyce Wilson-Sanford(*)

   Executive Vice President    2005

(*) Joyce Wilson-Sanford and Arthur Goethals will retire from their Executive Committee positions on June 30, 2007.

Richard A. Anicetti (1957). Mr. Anicetti has been Executive Vice President and President and Chief Executive Officer of Food Lion since August 2002. Mr. Anicetti began his food industry career at Hannaford Bros. Co. in 1980. After completing the company’s retail management training program, he held a progression of roles of increasing responsibility and was ultimately named head of the southeastern operations of Hannaford. Mr. Anicetti

 

52


Table of Contents

joined Food Lion in August 2000 as Chief Operating Officer and was promoted to President in September 2001. He is a member of the Board of Directors of the Food Bank of Central & Eastern North Carolina, the North Carolina Citizens for Business and Industry and is Past President of the North Carolina Food Dealers Association. He also serves on the Executive Committee of the Carolinas Food Industry Council. He earned his Bachelor’s degree in Political Science from Bowdoin College in Brunswick, Maine.

Renaud Cogels (1949). Mr. Cogels is an Executive Vice President of our company, Head of global sourcing, Chief Executive Officer Southeastern Europe and responsible for our Asian operations. Mr. Cogels was previously Chief Executive Officer of Delhaize Europe. After starting his career in the banking industry, Mr. Cogels joined us in 1977. Mr. Cogels became successively buyer and buying director of perishable products. He also became successively responsible for marketing, non-food buying, logistics and information technology. From 1987, Mr. Cogels worked on the founding of the European buying group SED. In 1988, Mr. Cogels was appointed as a member of our Executive Committee. Mr. Cogels received a Master’s degree in economics at the University of Louvain.

Michel Eeckhout (1949). Mr. Eeckhout is our Executive Vice President and Chief Information Officer. On July 1, 2007, he will become Chief Executive Officer Delhaize Belgium. He joined us in 1978, as IT project leader and IT manager. In addition, he became Group coordinator for the IT-activities in Europe and Asia in 1992 and member of the Executive Committee of Delhaize Belgium in 1995. He was appointed our Vice President of Information Technology Processes and Systems in 2001 and Chief Information Officer in 2002. He became a member of our Executive Committee in September 2005. He is a member of the Board of Directors of GS1 and the Chairman of the Board of Directors of GS1 Belgium. He is also a Board member of Agentrics. Michel Eeckhout earned a Master’s degree in economics (at UFSIA, Antwerp) and in European economics, and an Executive Master in General Management, from the Université Libre de Bruxelles, Brussels.

Arthur Goethals (1946). Mr. Goethals is an Executive Vice President of our company and Chief Executive Officer Western and Central Europe. Mr. Goethals was previously the Chief Executive Officer of Delhaize Belgium and has been a member of our Executive Committee since 1994. He will retire from his executive functions as of June 30, 2007. Mr. Goethals joined us in 1972 and became successively store manager and district manager. In 1983, Mr. Goethals became department manager with responsibility of developing and implementing the wholesale activity of AD Delhaize. Afterwards, Mr. Goethals became successively Zone Director, Director Supermarkets Division and in 1994 Executive Director of Sales & Marketing. Mr. Goethals received a commercial degree in Ghent, a degree in commerce and marketing at the Instituut voor Postuniversitair Onderwijs, Antwerp, and a degree in advanced management at the Vlerick Leuven Gent Management School. In May 2005, he was elected to a three-year term as chairman of Fedis (Belgian Retail Federation). Mr. Goethals is also on the Board of Directors of the FEB/VBO (Federation of Entreprises in Belgium).

Ronald C. Hodge (1948). Mr. Hodge is Executive Vice President of our company and Chief Executive Officer of Hannaford. He joined Hannaford in 1980 and has served in various executive roles, including Vice President and General Manager of Hannaford’s New York Division, Senior Vice President of Retail Operations, Executive Vice President of Sales and Marketing, and Executive Vice President and Chief Operating Officer. He has been named President of Hannaford Bros. Co. in December 2000 and Chief Executive Officer in 2001. While leading the start-up of Hannaford’s entry into upstate New York, Mr. Hodge was elected Chairman of the New York State Food Merchant’s Association, and served on several Community Agency Boards of Directors. He chaired the Northeastern New York United Way Campaign in 1995 and was selected as the New York Capital Region’s Citizen of the Year in 1996.

Nicolas Hollanders (1962). Mr. Hollanders is Executive Vice President of Human Resources and Organizational Development since 2007. After obtaining Master’s degrees in Law and Notary Law and a Post Graduate degree in Economics, he started his career as a lawyer. In 1989, he joined Delvaux, a Brussels-based manufacturer and distributor of luxury leather goods and accessories, first as General Manager, and from 1993 as Managing Director. In 1995, Mr. Hollanders joined the executive search firm Egon Zehnder International, where he served successively as consultant, principal and partner and served as Global Head of Egon Zehnder’s Worldwide Life Sciences Practice Group. Mr. Hollanders is Chairman of the Jury “Hors pistes” of the King Baudouin Foundation and founding member and Chairman of Child Planet, a foundation aimed at improving conditions in childrens hospitals.

 

53


Table of Contents

B. Craig Owens (1954). Mr. Owens has been Executive Vice President and Chief Financial Officer of our company since September 2001. In addition to his financial duties, Mr. Owens is responsible for our Strategic Planning function and, as of July 1, 2007, for our IT activities. Before joining us, Mr. Owens worked 19 years with The Coca-Cola Company and various franchisees of Coca-Cola in different financial and management positions in the U.S. and Europe. Mr. Owens serves on the Board of St. John’s International School in Waterloo (Belgium) and as a member of the International Management Advisory Group of the Fletcher School. Mr. Owens holds a Bachelor’s degree in Politics from Washington and Lee University, Lexington, Virginia, and Master’s degrees from the Wharton School of the University of Pennsylvania and the Fletcher School at Tufts University.

Michael R. Waller (1953). Mr. Waller is an Executive Vice President and General Counsel of our company, as well as Executive Vice President, General Counsel and Secretary of Delhaize America. Mr. Waller has been Executive Vice President, General Counsel and Secretary of Delhaize America since July 2000. Previously, Mr. Waller was a partner in the international law firm Akin, Gump, Strauss, Hauer & Feld, L.L.P. In the years prior to joining Delhaize America, Mr. Waller served as Managing Partner of Akin Gump’s Moscow and London offices, and maintained an international corporate practice. Mr. Waller earned a Bachelor of Arts degree in psychology from Auburn University and a Juris Doctorate degree from the University of Houston, where he served as Editor-in-Chief of the Houston Law Review. Prior to entering private practice, Mr. Waller served in Texas as a law clerk for U.S. District Judge Robert O’Conor, Jr. in the Southern district of Texas.

Joyce Wilson-Sanford (1944). Joyce Wilson-Sanford is our company’s Executive Vice President of Strategic Organizational Development since September 2005. She will retire from her executive position as of June 30, 2007. She has worked in the field of Organizational Development for 25 years in both public and private sectors. Joyce Wilson-Sanford joined Hannaford as Director of Organizational Development. She was promoted to Vice President of Organizational Development for Hannaford in 1989, where she led Corporate Recruitment, Multimedia, and Organizational Development and Talent Development. In 2000, she became Senior Vice President of Strategic Organizational Development for Delhaize America. In 2002, she was named Senior Vice President for Strategic Organizational Development. In September 2005, she was promoted to Executive Vice President of Strategic Organizational Development position and is a member of the Executive Committee. Joyce Wilson-Sanford is a graduate of DePauw University with a B.A. in Psychology, English Literature and Education. She earned an M.A. in Business and Organizational Development from the University of Illinois.

There are no potential conflicts of interests between any duties to the issuer of each member of the Executive Committee and their private interests or other duties.

C. Compensation of Directors and Executive Officers of Delhaize Group

At the Ordinary General Meeting of May 27, 2004, the shareholders approved a change in the method of remunerating the Board of Directors. Beginning with fiscal year 2004, our directors have been remunerated for their services with a fixed compensation, decided by the Board of Directors and not to exceed the maximum amounts set by our shareholders. This system replaces the previous one, which was based on a share of profits. At the Ordinary General Meeting of May 24, 2006 the shareholders approved an increase in the maximum remuneration amount from €70,000 per year per director to €80,000 per year per director, increased by an additional amount of up to €10,000 per year for the Chairman of any standing committee of the Board and an amount of up to €5,000 per year for services as a member of any standing committee of the Board of Directors. For the Chairman of the Board, the maximum remuneration amount is €160,000 per year (inclusive of any amount due as Chairman of any standing committee).

Our non-executive directors do not receive any remuneration, benefits or equity-linked or other incentives from us and our subsidiaries other than their remuneration for their service as directors of us and our subsidiaries. The aggregate amount of remuneration granted for fiscal year 2006 to our directors by us and our subsidiaries is set out in the table below. The compensation of the executive director as set forth in the table below relates solely to his compensation as director and excludes his compensation as an executive of our company. No loans or guarantees have been extended by us to members of the Board.

 

54


Table of Contents

Remuneration Granted for Fiscal Year 2006(a) to Directors of Delhaize Group by Delhaize Group and its Subsidiaries

 

Name

       

Amount

(in thousands of EUR)(b)

Non-Executive Directors

     

Baron Jacobs

      150

Claire Babrowski

      45

Count de Pret Roose de Calesberg

      80

Jacques de Vaucleroy

      80

Hugh Farrington

      80

Count Goblet d’Alviella

      80

Robert J. Murray(c)

      90

Dr. William Roper

      75

Didier Smits

      80

Baron Vansteenkiste

      75
   Total remuneration non-executive directors    835

Executive Director

     

Pierre-Olivier Beckers(d)

      75
   Total remuneration to all directors    910

(a) The amounts in the table indicate the remuneration granted to our directors for their service in 2006, payable quarterly in arrears, as directors of our company and its subsidiaries as such amounts were decided by the Board of Directors under the fixed remuneration method approved by the shareholders at the Ordinary General Meeting of May 24, 2006.
(b) All amounts are gross amounts in cash before tax and social security levy.
(c) Chairman of the Audit Committee.
(d) The amount relates solely to the compensation of the executive director as director and excludes his compensation as executive.

For the fiscal year ended December 31, 2006, the aggregate amount of compensation attributed by us and our subsidiaries to the ten members of the Executive Committee as a group for services in all capacities was €11.0 million, including €7.0 million in total short-term compensation and €4.0 million in long-term compensation, compared to €9.3 million, €6.4 million and €2.9 million, respectively in 2005. An aggregate number of 133,459 Delhaize Group stock options/warrants and 39,448 restricted stock units were granted to the members of the Executive Committee in 2006.

Pierre-Oliver Beckers, our President and Chief Executive Officer is compensated both with a director fee and as an executive. For the year ended December 31, 2006, the aggregate amount of compensation attributed to Mr. Beckers as an executive was €2.6 million. The compensation of Mr. Beckers was comprised of base pay of €0.9 million, an annual bonus of €0.7 million, short-term benefits valued at €0.02 million, retirement and post-employment benefits valued at €0.3 million and other long-term benefits valued at €0.7 million.

The Europe-based members of the Executive Committee benefit from a defined benefit group insurance system that is contributory and based on the individual’s career length. The U.S.-based members of the Executive Committee participate in profit sharing plans as well as defined benefit plans in effect at their respective operating companies. The members of the Executive Committee also participate in our stock option, restricted stock unit and long-term incentive plans. No loans or guarantees have been extended by us to members of the Executive Committee.

In addition to the base pay and variable compensation paid to the ten members of the Executive Committee in 2006, we set aside or accrued to provide pension, retirement or similar benefits for the same executive officers as a group for the year ended December 31, 2006 an aggregate amount of €1.2 million, which amount is included in the €11.0 million aggregate amount of compensation attributed by us and our subsidiaries to the ten members of the Executive Committee as a group for services in all capacities.

Main Contractual Terms of Hiring and Termination Arrangements with Executive Managers. Our Executive Managers, in accordance with employment-related agreements and applicable law, are:

 

   

compensated in line with our Remuneration Policy;

 

55


Table of Contents
   

assigned duties and responsibilities in line with current market practice for their position and with our Terms of Reference of the Executive Management;

 

   

required to abide by our policies and procedures, including our Code of Business Conduct and Ethics;

 

   

subject to confidentiality and non-compete obligations to the extent authorized by law; and

 

   

subject to other clauses typically included in employment agreements for executives.

In addition, for the Executive Managers, the combination of employment-related agreements and applicable law provide for, or would likely result in:

 

   

payment of approximately 2-3 times base salary and annual incentive bonus, accelerated vesting of all or substantially all of the long-term incentive awards, and the continuation of Company health and welfare benefits for a comparable period, in the case of termination without cause by us or for good reason of the Executive Manager; and

 

   

accelerated vesting of all or substantially all of the long-term incentive awards, in the event of a change of control of our company.

D. Employees

As of December 31, 2006, we employed approximately 142,500 employees (of which approximately 64,700 were full-time employees and approximately 77,800 were part-time employees) compared to approximately 137,100 as of December 31, 2005. As of December 31, 2006, we employed approximately 108,900 employees in the United States, approximately 18,100 in Belgium, and approximately 15,550 in other regions.

As of December 31, 2005, we employed approximately 137,100 employees (of which approximately 62,700 were full-time employees and approximately 74,400 were part-time employees) compared to approximately 138,000 as of December 31, 2004. As of December 31, 2005, we employed approximately 104,100 employees in the United States, approximately 18,000 in Belgium, and approximately 15,100 in other regions.

As of December 31, 2004, we employed approximately 138,000 employees (of which approximately 62,200 were full-time employees and approximately 75,800 were part-time employees) compared to approximately 142,000 as of December 31, 2003. As of December 31, 2004, we employed approximately 105,400 employees in the United States, approximately 16,600 in Belgium, and approximately 16,000 in other regions.

Our policy with respect to labor unions is to comply with local regulations and collective bargaining agreements. We consider our relations with our employees to be good.

E. Share Ownership of Delhaize Group Management

On December 31, 2006, the directors and the members of our Executive Committee (19 persons) as a group owned 325,980 Delhaize Group ordinary shares or ADRs, which represented approximately 0.34% of our outstanding shares. To our knowledge, none of our directors or executive officers beneficially own more than 1% of our shares. On December 31, 2006, the members of our Executive Committee owned as a group 856,412 stock options, warrants and restricted stock representing an equal number of existing or new ordinary shares or ADRs of ours.

 

56


Table of Contents

F. Long-Term Incentive Plans

Overview

We offer to certain of our management associates, including the members of our Executive Committee, a long-term incentive plan which is comprised of a combination of stock options, restricted stock units and performance cash awards that are awarded generally on the basis of the following breakdown:

 

   

Stock options represent 25% to 50% of the total expected value of the annual award and have a strike price equal, depending on the rules applicable to the relevant stock option plans, to (i) the Delhaize Group share price on the date of the grant (U.S. plan); or (ii) the share price on the working day preceding the offering of the option or the average price of the Delhaize Group share price for the 30 days prior to the offering of the option (Belgian plan). Options can be exercised in accordance with our securities trading policies, which allow for vested options to be exercised only during specified “open periods”. Options granted under stock option plans targeting executives of U.S. subsidiaries vest over a three-year period following the grant date. Options granted under stock option plans for other executives vest after a three-year period following the grant date. Options typically expire 7-10 years after the grant date.

 

   

Restricted stock unit awards represent up to 25% of the total expected value of each annual award. Restricted stock unit awards represent our commitment to deliver shares of Delhaize Group stock to the award recipient, at no cost to the award recipient, over a five-year period starting at the end of the second year after the award. After vesting, these shares can be sold by the award recipient at any time consistent with the guidelines and restrictions contained in our trading policies.

 

   

Performance cash grants represent 50% of the total expected value of each annual award. These grants provide for cash payments to the grant recipients at the end of three-year performance periods. The amount of the cash payments is dependent on performance against Board-approved financial targets that are closely correlated to building long-term shareholder value. Board-approved minimum performance thresholds must be met before any payments are earned. Actual payments, if the minimum threshold is met, can range from 50% to 150% of the initial award. In exceptional circumstances, the Board may authorize certain payments even though minimum performance thresholds are not met.

Equity-Based Compensation

As a component of long-term incentive compensation, we offer stock-related incentive plans to certain of our management associates, including the members of the executive committee. For associates of our non-U.S. operating companies, we offer stock option plans and warrant plans. For associates of our U.S.-based companies, the incentive plans are based on options, warrants and restricted stock.

The exercise of warrants under the warrant plans results in the creation of new shares and, as a consequence, in a dilution of current shareholdings. Because stock option plans and the restricted stock plans are based on existing shares held in treasury or purchased in the market, no dilution occurs due to exercises under these plans.

As of December 31, 2006, there were options outstanding to acquire 77,988 ADRs under the Delhaize America 2000 Stock Incentive Plan, a 1996 Food Lion Plan, and a 1998 Hannaford Plan. However, options can no longer be granted under these plans. The terms and conditions of these plans are substantially consistent with the current Delhaize Group Plan.

The following table sets forth the incentive plans adopted by us as of the date hereof:

Plans for Management Associates of non-U.S. Operating Companies

 

Plan

  

Effective
Date of
Grants

   Type of
Award
   Number of
Shares
Underlying
Awards Issued
  

Number of
Shares
Underlying
Awards
Outstanding

June 25, 2007

   Exercise
Price
   Number of
Beneficiaries (at
the Moment of
Issuance)
  

Exercise Period (as
Applicable) (1)

2007 Stock Option Plan (2)

   June 2007    Stock
Options
   245,537    245,537    EUR
71.84
   620   

Jan 1, 2011–

June 7, 2014

2006 Stock Option Plan

   June 2006    Stock
Options
   216,266    214,893    EUR
49.55
   601   

Jan. 1, 2010–

June 8, 2013

2005 Stock Option Plan

   June 2005    Stock
Options
   181,226    179,786    EUR
48.11
   568   

Jan. 1, 2009–

June 14, 2012

2004 Stock Option Plan

   June 2004    Stock
Options
   237,906    234,714    EUR
38.74
   561   

Jan. 1, 2008–

June 20, 2011

2003 Stock Option Plan

   June 2003    Stock
Options
   378,700    33,675    EUR
25.81
   514   

Jan. 1, 2007–

June 24, 2010

2002 Stock Option Plan

   June 2002    Stock
Options
   158,300    97,300    EUR
54.30
   425   

Jan. 1, 2006–

June 5, 2012 (3)

2001 Stock Option Plan

   June 2001    Stock
Options
   134,900    108,200    EUR
64.16
   491   

Jan. 1, 2005–

June 4, 2011 (3)

2000 Warrant Plan

   May 2000    Warrants    115,000    94,900    EUR
63.10
   461   

Different

exercise periods

between June

2004 and Dec.

2009 (3)

 

57


Table of Contents

Plans Mainly for Management Associates of Delhaize America and Other U.S. Subsidiaries

 

Plan

   Effective
Date of
Grants
 

Type of
Award

   Number of
Shares
Underlying
Awards
Issued
   Number of
Shares
Underlying
Awards
Outstanding
June 25, 2007
  

Exercise

Price

   Number of
Beneficiaries
(at the
Moment of
Issuance)
  

Exercise Period (as
Applicable) (1)

2002 Restricted
Stock Unit Plan

   June 2007   Restricted
ADRs (4)
   102,512    102,512    Not applicable    219    25% of the grant will vest each year starting on the second anniversary following the date of the grant
   June 2006   Restricted
ADRs (4)
   155,305    149,772    Not applicable    217    25% of the grant will vest each year starting on the second anniversary following the date of the grant
   May 2005   Restricted
ADRs (4)
   145,868    97,913    Not applicable    204    25% of the grant will vest each year starting on the second anniversary following the date of the grant
   May 2004   Restricted
ADRs (4)
   179,567    74,046    Not applicable    193    25% of the grant will vest each year starting on the second anniversary following the date of the grant
   May 2003   Restricted
ADRs (4)
   249,247    48,384    Not applicable    185    25% of the grant will vest each year starting on the second anniversary following the date of the grant

2002 Stock Incentive
Plan

   June 2007   Warrants    1,165,471    1,163,914    $96.30    3,238    Exercisable until 2017
   June 2006   Warrants    1,324,347    1,116,024    $63.04    2,983    Exercisable until 2016
   May 2005   Warrants    1,100,639    615,585    $60.76    2,862    Exercisable until 2015
   May 2004   Warrants    1,517,988    450,468    $46.40    5,449    Exercisable until 2014
   May 2003   Warrants    2,132,043    319,283    $28.91    5,301    Exercisable until 2013
   May 2002 (5)   Warrants    3,853,578    567,352   

$13.40-

$76.87

   5,328    Exercisable until 2012

2000 Stock Incentive
Plan(6)

   Various   Stock options    700,311    57,271   

$13.40-

$93.04

   4,497    Various

(1) Vesting period for restricted ADRs under the 2002 Restricted Stock Unit Plan and 2002 Stock Incentive Plan.
(2) These figures relate to stock options offered by Delhaize Group. Grant recipients have until August 7, 2007 to accept the options offered.
(3) In accordance with Belgian law, most of the beneficiaries of the stock option and/or warrant plans agreed to extend the exercise period of their stock options and/or warrants for a term of three years. The very few beneficiaries who did not agree to extend the exercise period of their options and/or warrants are still bound by the initial expiration dates for the exercise periods of the plans, i.e. June 5, 2009 (under the 2002 SOP), June 4, 2008 (under the 2001 SOP) and December 2006 (under the 2000 Warrant Plan) respectively.

 

58


Table of Contents
(4) Restricted stock unit awards represent the right to receive the number of ADSs set forth in the award at the vesting date. Unlike awards of restricted stock under the 2000 Stock Incentive Plan, no ADRs are issued with respect to restricted stock unit awards until the applicable vesting dates. In May 2002, Delhaize America ceased granting restricted stock awards under the 2000 Stock Incentive Plan and began granting restricted stock unit awards under the 2002 Restricted Stock Unit Award Plan.
(5) Out of the 3,853,578 warrants issued, 1,793,825 are newly issued warrants. The other 2,059,753 represent outstanding stock options previously issued under Delhaize America’s 2000 Stock Incentive Plan and transferred to the Delhaize Group 2002 Stock Incentive Plan in connection with the share exchange with Delhaize Group.
(6) Includes stock options granted under the 1996 Food Lion Plan, 1998 Hannaford Plan and 1988 Hannaford Plan.

For additional information, see Note 28 to the annual consolidated financial statements under Item 18 “Financial Statements” below.

 

I TEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Our capital stock consists of ordinary shares, without nominal value, each having a par value of €0.50. Our shares may be in either bearer or registered form, at the holder’s option. Each shareholder is entitled to one vote for each share held, on each matter submitted to a vote of shareholders. Major shareholders do not have different voting rights.

Pursuant to Belgian law and our Articles of Association, any beneficial owner or any two or more persons acting as a partnership, limited partnership, syndicate or group (each of which is deemed a “person” for such purposes) who, after acquiring or disposing directly or indirectly of the beneficial ownership of any shares, ADRs or other securities giving the right to acquire additional shares or ADRs of our company, causes such beneficial owner’s total voting rights to increase or decrease past 3%, 5% or any other multiple of 5% of the total outstanding and potential voting rights of our company, must, within two Belgian business days after crossing such threshold, report its ownership to us and to the Belgian Banking, Finance and Insurance Commission.

The following comprise the shareholders or groups of shareholders who have declared holdings of at least 3% of the outstanding shares and warrants of our company.

 

59


Table of Contents

Date of
Notification

  

Name of

Shareholder

   Number of
Shares Held
  

Shareholding in
Percentage

of the Number of
Outstanding Shares,
Warrants and
Convertible Bonds
According to the
Notification

    Shareholding in
Percentage of the
Current Number
of Outstanding
Shares, Warrants
and Convertible
Bonds
 

June 15,

2007

  

Rebelco SA

(Subsidiary of Sofina SA)

Rue de l’industrie 31

1040 Brussels

Belgium

   4,050,000    3.8 %   3.8 %

September 16,

2005

  

Axa (consolidated)

Avenue Matignon 25

75008 Paris

France

   13,209,804    12.6 %   12.3 %
  

Including:

Alliance Capital Management

L.P. (U.S.)(1)

   11,718,406    11.1 %   10.9 %
  

Axa Rosenberg (United

Kingdom)(1)

   1,206,132    1.2 %   1.1 %
   Axa IM (France)(1)    266,966    0.3 %   0.2 %
   Ardenne Prevoyante - Axa (Belgium)(2)    18,300    0.02 %   0.02 %

(1)

Held for third parties account

(2)

Held for own account

Based on information received by The Bank of New York, our depositary for our ADSs evidenced by ADRs, there were 9,084,276 ADRs outstanding and 18,605 record owners with a registered address in the United States as of June 4, 2007.

B. Related Party Transactions

In June 2004, we sold our 70.0% interest in Super Dolphin, a non-operating company of the Mega Image Group, to the former executives of Super Dolphin. In the same period, we also acquired most of the remaining interests of the other companies related to our Romanian activities from the same former executives (30.0% of Mega Image, 18.6% of Mega Dolphin, 13.2% of Mega Doi, 30.0% of ATTM Consulting and Commercial and 30.0% of NP Lion Leasing and Consulting). We paid an aggregate price of €0.3 million in all of these transactions.

Several of our subsidiaries provide for post-employment benefit plans for the benefit of our employees. Payments made to these plans and receivables from and payables to these plans are disclosed in Note 23 to our annual consolidated financial statements included elsewhere in this document.

C. Interests of Experts and Counsel

Not Applicable.

 

60


Table of Contents
ITEM 8. FINANCIAL INFORMATION

A. Consolidated Financial Statements and Other Financial Information

Our consolidated financial statements are included in this annual report under Item 18 “Financial Statements.” The Company’s consolidated financial statements prepared in accordance with IFRS have been audited by independent registered public auditors in accordance with legal requirements and auditing standards applicable in Belgium, as issued by the “Institut des Reviseurs d’Entreprises/Instituut der Bedrijfsrevisoren” and with the standards of the Public Company Accounting Oversight Board (United States). The principal differences between IFRS and US GAAP, as they relate to Delhaize Group, are presented in Note 43 to the consolidated financial statements included under Item 18 “Financial Statements” below.

B. Legal Proceedings

From time to time, we are party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property, competition/antitrust matters, landlord-tenant matters and other proceedings arising in the ordinary course of business. We have estimated our exposure to the claims and litigation arising in the normal course of business and believe we have made adequate provisions for such exposure. Unexpected outcomes in these matters could have a material adverse effect on our financial condition and results of operations. For more information, see the discussion under the heading “B. Risk Factors— Risks Related to Operations of Our Company” in Item 3 “Key Information”.

C. Dividend Policy

It is the policy of Delhaize Group to pay out a regularly increasing dividend while retaining free cash flow consistent with opportunities to finance the future growth of the Company. For additional information about our dividend policy, please see Item 3 “Key Information—Dividends.”

D. Significant Changes

In March 2007, we reached a binding agreement to sell Di, our Belgian beauty and body care business, to Parma Gestion, a subsidiary of Distripar, which is owned by CNP/NPM. The agreement foresees the sale of the operations of Di for consideration, subject to contractual adjustments, of €33.4 million in cash. The impact of the divestiture on the ongoing profitability of Delhaize Belgium will be minor. In 2006, the Di network consisted of 90 company-operated and 42 franchised stores, which contributed €95.5 million to our net sales and other revenues. The transaction was approved by the European Commission on June 1, 2007 and is expected to close by the end of June 2007.

On April 24, 2007, representatives of the Conseil de la Concurrence/Raad voor de Mededinging (Belgian competition authority), visited our offices in Zellik, Belgium, and requested us to provide them with specified documents. This visit was a part of what appears to be a local investigation affecting several companies in Belgium in the retail sector. We understand that the investigation, which is expected to continue for several months, relates to prices of perfume, beauty products and other household goods. We have cooperated with the Conseil de la Concurrence/Raad voor de Mededinging in connection with the initial request for documentation and as of the date of this filing have not received any news or further communication, nor has a statement of objections been lodged against our company, in relation to this matter. The maximum fine for violations of the related competition laws in Belgium is capped at 10% of our company’s annual sales in Belgium.

On May 21, 2007, our company as guarantor, our wholly-owned subsidiary, Delhaize America as borrower, and substantially all of Delhaize America’s subsidiaries as guarantors, amended Delhaize America’s existing $500 million credit agreement, or the Delhaize America Credit Agreement, with the lenders signatory thereto and JPMorgan Chase Bank N.A., as administrative agent, issuing bank and swingline lender. A description of the Delhaize America Credit Agreement is included elsewhere in this annual report on Form 20-F in Item 10 “Additional Information” under the heading “C. Material Contracts”.

 

61


Table of Contents

On May 21, 2007, we entered into a cross guarantee agreement, or the Cross Guarantee Agreement, among us, Delhaize America and substantially all of Delhaize America’s subsidiaries. Under the Cross Guarantee Agreement, each company party to the agreement guarantees fully and unconditionally, jointly and severally all Delhaize Group existing financial indebtedness and Delhaize America existing financial indebtedness, specific financial indebtedness of two European subsidiaries of Delhaize Group and all future unsubordinated financial indebtedness of the parties to the agreement. A description of the Cross Guarantee Agreement is included elsewhere in this annual report on Form 20-F in Item 10 “Additional Information” under the heading “C. Material Contracts”.

At our Ordinary and Extraordinary General Meeting of shareholders on May 24, 2007, our shareholders approved the distribution of a €1.32 gross dividend per share for fiscal year 2006. After deduction of a 25% withholding tax, this results in a net dividend of €0.99 per share. The 2006 dividend became payable to owners of our ordinary shares beginning on May 31, 2007 against coupon no. 45. The payment of the dividend to our ADR holders was made through The Bank of New York beginning on June 11, 2007. At the same meeting, our shareholders authorized our Board of Directors, for a period of five years starting on the date of publication of the Extraordinary General Meeting, within certain legal limits, to increase the capital of Delhaize Group or issue convertible bonds or subscription rights which might result in a further increase of capital by a maximum of €9,678,897. The authorized increase in capital may be achieved by contributions in cash or, to the extent permitted by law, by contributions in kind or by incorporation of available or unavailable reserves or of the share premium account. The Board of Directors of Delhaize Group may, for this increase in capital, limit or remove the preferential subscription rights of Delhaize Group’s shareholders, within certain legal limits.

On May 24, 2007 and June 14, 2007, respectively, we issued 1,385,955 and 881,573 new ordinary shares to satisfy conversions of our 2.75% convertible bonds. In 2004, we issued €300 million 2.75% convertible bonds due April 30, 2009 convertible into our ordinary shares.

On May 30, 2007, Delhaize America commenced a tender offer for cash prior to maturity of up to $1.1 billion aggregate principal amount of Delhaize America’s outstanding $1.1 billion 8.125% Notes due 2011, $855 million 9.000% Debentures due 2031, and $126 million 8.050% Notes due 2027, in order of purchase priority, plus accrued and unpaid interest and premium amounts. Pursuant to the terms of this tender offer, on June 28, 2007 Delhaize America purchased approximately $1.05 billion of its 8.125% Notes due 2011 and approximately $50 million of its 9.000% debentures due 2031. The net proceeds from Delhaize Group’s offering of its 5.625% senior notes due 2014 and 6.50% senior notes due 2017, discussed further below in this section, were the principal source of funds used to make these purchases.

On May 31, 2007, we completed the earlier announced sale of Delvita in Czech Republic to the German retail group Rewe, after unconditional approval by the European antitrust authorities. On November 13, 2006, we signed an agreement to sell Delvita to Rewe. On April 26, 2007, the transaction was approved by the European anti-trust authorities. We received €100 million in cash, subject to contractual adjustments. A positive accumulated foreign currency translation adjustment of approximately €23.7 million will be recorded in the result from discontinued operations during the second quarter of 2007.

On June 27, 2007 Delhaize Group issued € 500 million 5.625% senior notes due 2014 (the “5.625% Euro Notes”) pursuant to an Indenture dated June 27, 2007 between Delhaize Group and The Bank of New York (the “2007 Euro Note Indenture”) and $450 million 6.50% senior notes due 2017 represented by certificated depositary interests (the “6.50% Dollar Notes” and collectively with the 5.625% Euro Notes, the “2007 Notes”) pursuant to an Indenture dated June 27, 2007 between Delhaize Group and The Bank of New York (the “2007 Dollar Note Indenture” and together with the 2007 Euro Notes Indenture, the “2007 Indentures”). The 5.625% Euro Notes will mature on June 27, 2014 and the 6.50% Dollar Notes will mature on June 15, 2017. We will pay interest on the 5.625% Euro Notes annually on June 27 commencing on June 27, 2008, and we will pay interest on the 6.50% Dollar Notes semiannually on June 15 and December 15 each year beginning on December 15, 2007. All or a portion of the 5.625% Euro Notes or the 6.50% Dollar Notes may be subject to redemption at any time, as described, respectively, in the 2007 Euro Note Indenture and the 2007 Dollar Note Indenture. The 2007 Notes will be unsecured unsubordinated senior obligations of Delhaize Group, and Delhaize Group’s obligations under the 2007 Notes fall within the scope of the Cross Gurantee Agreement. We have applied to admit the 5.625% Euro Notes to listing on the Official List of the Luxembourg Stock Exchange and to trading on the regulated market of the Luxembourg Stock Exchange. The 6.50% Dollar Notes will not be listed on any stock exchange. We have agreed to use our reasonable best efforts to consummate an exchange offer pursuant to an effective registration statement or cause resales of the 6.50% Dollar Notes to be registered pursuant to a shelf registration statement under the Securities Act.

 

62


Table of Contents
I TEM 9. THE OFFER AND LISTING

A. Stock Price Information

The trading market for our ordinary shares is Eurolist by Euronext Brussels in Belgium. Our ordinary shares trade on Eurolist by Euronext Brussels under the symbol “DELB.” Our ordinary shares have been listed in Belgium since 1962. Our ordinary shares are included in the Bel20 Index, an index of the largest Belgian publicly traded companies, the Euronext 100 index, the pan-European Dow Jones Stoxx 600 index, the MSCI Europe index.

Our American Depositary Shares, or ADSs, each representing one of our ordinary shares, are traded on the New York Stock Exchange under the symbol “DEG.” The ADSs are evidenced by American Depositary Receipts, or ADRs, issued by The Bank of New York, as Depositary under the Deposit Agreement dated as of April 26, 2001, among our company, The Bank of New York and holders from time to time of ADRs issued thereunder.

In 2006, 113.1 million of our ordinary shares were traded on Eurolist by Euronext Brussels for a total of EUR 6.5 billion. This represented 115.7% of the average Delhaize Group market capitalization of EUR 5.7 billion in 2006. The highest closing share price was EUR 67.00 and the lowest was EUR 49.12. The average daily trading volume was EUR 25.7 million, or an average daily volume of 443,495 shares. In 2005, 71.9 million of our ordinary shares were traded on Eurolist by Euronext Brussels for a total of EUR 3.7 billion. This represented 70.4% of the average Delhaize Group market capitalization of EUR 5.2 billion in 2005. The highest closing share price was EUR 59.55 and the lowest was EUR 46.5. The average daily trading volume was EUR 14.3 million, or an average daily volume of 279,830 shares.

As of June 15, 2007, we had a market capitalization of EUR 7.5 billion.

The table below sets forth, for the periods indicated, the high and low closing price per Delhaize Group ordinary share as reported on Euronext Brussels or its predecessor, the Brussels Stock Exchange, and the high and low closing price per Delhaize Group ADR as reported on the New York Stock Exchange. On June 15, 2007, the last reported price for a Delhaize Group ordinary share, as reported on Euronext Brussels, was EUR 75.47. On June 15, 2007, the last reported price for a Delhaize Group ADR, as reported on the New York Stock Exchange, was USD 100.34.

 

     Delhaize Group
Ordinary Shares
   Delhaize Group
ADRs

Period

   High    Low    High    Low
     (Amounts in EUR)    (Amounts in USD)
Monthly Highs and Lows:            

2007

           

January

   66.00    63.20    85.97    81.60

February

   66.19    62.96    86.55    83.25

March

   70.10    62.55    93.90    81.50

April

   72.19    68.71    98.00    92.00

May

   75.00    70.86    101.30    95.28

June (through June 15)

   75.47    71.31    100.34    96.00
Quarterly Highs and Lows:            

2006

           

First Quarter

   59.45    53.65    71.85    64.98

Second Quarter

   59.25    49.55    72.68    62.06

Third Quarter

   66.25    53.70    83.80    67.15

Fourth Quarter

   66.85    59.25    84.98    78.36
2005            

First Quarter

   59.55    51.20    78.62    66.80

Second Quarter

   53.80    46.50    69.75    57.55

Third Quarter

   50.75    46.86    61.90    57.02

Fourth Quarter

   55.60    47.61    65.66    56.97
Annual Highs and Lows:            

2006

   66.85    49.55    84.98    62.06

2005

   59.55    46.50    78.62    56.97

2004

   59.30    36.83    79.25    43.53

2003

   43.70    12.23    51.04    13.25

2002

   59.95    15.60    53.70    15.25

 

63


Table of Contents

B. Euronext Brussels

In July 1999, three Belgian entities, the Brussels Stock Exchange, CIK and Belfox merged to create Brussels Exchanges, which was renamed Euronext Brussels in October 2000 when Brussels Exchanges merged with the French and Dutch stock exchanges to create Euronext, a pan-European financial market that combines a global approach with local proximity in order to offer to its users the advantages of a unified market while preserving a privileged relation between local users and the local market business.

Euronext Amsterdam, Euronext Brussels and Euronext Paris continue to act as market businesses at a local level and therefore maintain their respective status of exchange.

Since then, Euronext was joined by BVLP, the Portuguese cash and derivatives exchange, and by the London International Financial Futures and Options Exchange (LIFFE).

The regulatory structure allows members of each of the local exchanges to trade all financial instruments listed on the Euronext markets as if they were traded on a single market through the implementation of a common electronic trading platform for cash and derivatives. Listed companies are able to retain their original place of listing, thereby offering these companies the benefit of increased liquidity and visibility without any special disruption and without changing their current conditions regarding access to the markets. In 2005, Euronext launched Eurolist, a single list for all the Euronext markets which aims at harmonizing the listing structure of Euronext and enhancing the visibility of issuers.

On February 15, 2007, NYSE Euronext, a holding company created by the combination of NYSE Group, Inc. and Euronext NV, launched through its indirect wholly-owned subsidiary, NYSE Euronext (Holding) NV, an exchange offer for all outstanding shares of Euronext NV. NYSE Euronext commenced trading on April 4, 2007 and as of April 27, 2007 owned through its subsidiary more than 95% of the Euronext share capital. NYSE Euronext plans to initiate, though its subsidiary, a compulsory acquisition procedure in accordance with the Dutch civil code with respect to the remaining Euronext shares. It is anticipated that this process will take several months to complete.

C. Custody, Clearing and Settlement of Delhaize Group Ordinary Shares

Our ordinary shares underlying our ADRs are available only in bearer form and are represented by global certificates in bearer form deposited with CIK for safekeeping.

CIK is the Belgian central securities depositary which, as discussed above, merged in July 1999 with the Brussels Stock Exchange and Belfox. CIK holds securities in custody for its participants to facilitate the settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. CIK participants include banks, securities brokers and dealers and other financial institutions. Non-participants of CIK may hold and transfer book-entry interests in our ordinary shares through accounts with a financial institution that is a direct participant of CIK or any other securities intermediary that holds a book-entry interest in our ordinary shares through one or more securities intermediaries standing between such other securities intermediary and CIK.

Since February 1, 2001, all trades in cash, derivatives and other products executed on Euronext markets are cleared and netted through LCH Clearnet, a clearinghouse in which Euronext holds a minority stake.

 

64


Table of Contents
I TEM 10. ADDITIONAL INFORMATION

A. Description of Delhaize Group Ordinary Shares

As of June 15, 2007, our corporate capital was EUR 49,758.049.50. The issuance premium on our capital was EUR 2,654,859,071.11. This corporate capital was represented by 99,516,099 Delhaize Group ordinary shares, without nominal value each having a par value of EUR 0.50. At an extraordinary general meeting held on May 24, 2007, our shareholders approved the proposal to authorize our Board of Directors to increase the corporate capital or issue convertible bonds or subscription rights that might result in a further increase of capital by a maximum of EUR 9,678,897. This authorization is in force since June 18, 2007 and will expire in June 2012, but may be renewed. On April 7, 2004, our Board of Directors issued a convertible bond offering to institutional investors for an amount of EUR 300 million with a maturity of five years. The bonds have been issued at 100% of their nominal value and will be redeemable at maturity at 100% of their nominal value. The initial conversion price has been set at EUR 57.0. The bonds are subject to the terms and conditions of the offering circular, convertible into 5,263,158 new Delhaize Group ordinary shares at the initial conversion price. As of June 15, 2007, 2,267,528 new ordinary shares were issued to satisfy the conversion of certain convertible bonds. The number of new Delhaize Group shares to be issued upon conversion of the remaining bonds is 2,995,630.

Our ordinary shares may be in either bearer or registered form, at the holder’s option. In addition, at the extraordinary general meeting of shareholders held on May 24, 2007, our shareholders approved the proposal to approve an amendment to Article 12 of the Articles of Association of our company which provides for the possibility for our company to issue securities in a dematerialized form (in addition to the bearer and registered form) and which provides for the progressive conversion of bearer securities to dematerialized securities as of January 1, 2008 in accordance with the Belgium law dated December 23, 2005 on the abolition of bearer securities. Each shareholder is entitled to one vote for each ordinary share held on each matter submitted to a vote of shareholders. When we in a given fiscal year realize sufficient earnings (taking into account any carried-forward profits), our shareholders may authorize a dividend distribution to shareholders. In the event of a liquidation, dissolution, or winding up of our company, holders of our ordinary shares are entitled to receive, on a pro rata basis, any proceeds from the sale of our assets remaining available for distribution to the holders of our ordinary shares.

Under Belgian law, the holders of our ordinary shares are required to approve, and are entitled to preferential subscription rights to subscribe to a pro rata portion of, future capital increases of our company, subject to certain limitations.

B. Summary of Provisions of the Articles of Association and Other Matters

Object and Purpose. Under Article 2 of our Articles of Association, our corporate purpose is the trade of durable or non-durable merchandise and commodities, of wine and spirits, the manufacture and sale of all articles of mass consumption, household articles, and others, as well as all service activities.

We may carry out in Belgium or abroad all industrial, commercial, movable, real estate, or financial transactions that favor or expand directly or indirectly its industry and trade.

We may acquire an interest in all businesses, corporations or enterprises with an identical, similar or related corporate purpose or which favor the development of our enterprise, acquire raw materials for our company or facilitate the distribution of our products.

General Meetings of Shareholders. Each holder of our ordinary shares is entitled to attend any general meeting of shareholders and to vote on all matters on the agenda, provided that such holder has deposited the Delhaize Group ordinary bearer shares under which voting rights will be exercised with our registered office, or such other place specified in the notice for the meeting, at least four Belgian business days prior to the applicable meeting. Each share is entitled to one vote. A shareholder’s right to vote all Delhaize Group ordinary shares it holds may be limited if the shareholder fails to comply with the ownership reporting requirements under Belgian law and the Articles of Association as described below.

Under the Articles of Association, the annual general meeting of our shareholders takes place on the fourth Thursday of May at the time and place stipulated in the notice of the meeting. If the fourth Thursday of May is a holiday, the Articles of Association provide that the meeting must take place either the preceding or the following business day. Extraordinary general meetings of the shareholders may be called by the Board of Directors or by the statutory auditor. The Board of Directors or the statutory auditor is required to call an extraordinary general meeting upon the written request of holders of 20% of the outstanding Delhaize Group ordinary shares.

 

65


Table of Contents

Under Belgian law, shareholders have sole authority with respect to the following matters, among others:

 

   

the approval of annual accounts;

 

   

the election and removal of directors and statutory auditors;

 

   

granting a discharge of liability to the directors and statutory auditors;

 

   

determining the compensation of directors and the fee of the statutory auditors;

 

   

the bringing of a suit against the directors on behalf of the Company;

 

   

an increase or decrease in the share capital, except to the extent the shareholders have previously authorized the Board of Directors to increase the capital; and

 

   

any other amendment to the Articles of Association.

Belgian law does not require a quorum for the annual general meetings of shareholders. Decisions are taken by a simple majority of votes cast at the meeting, irrespective of the number of Delhaize Group ordinary shares present or represented at the meeting. Resolutions to amend any provision of the Articles of Association, including any decision to increase the capital (except if taken by the Board of Directors) or amendment which would create an additional class of capital stock, require a quorum of 50% of the issued capital (provided that if the 50% quorum is not reached, the Board may call a second meeting for which no quorum is required), as well as the affirmative vote of at least 75% of the shareholders present or represented and voting at the meeting, or 80% of such shareholders if the amendment would change our corporate object or authorize the Board of Directors to repurchase Delhaize Group ordinary shares.

Under Belgian law, we are required to publish a notice for each meeting of the shareholders in a Belgian newspaper available throughout the territory of Belgium and in the Belgian Official Gazette at least twenty-four days prior to a meeting. However, if a second meeting is to be held with the same agenda, the notice of this second meeting may be published in a Belgian newspaper available throughout the territory of Belgium and in the Belgian Official Gazette at the latest seventeen days prior to the second meeting provided that the notice of the first meeting indicated the date of the second meeting. In addition, a copy of the notice must be sent to each holder of our ordinary shares in registered form at least fifteen days prior to the meeting. Each notice must indicate the place, date and time of the meeting and set forth the agenda of the meeting, as well as the proposals to be considered and voted upon at the meeting. Business transacted at any general meeting of the shareholders is limited to the purposes stated in the notice of the meeting. Each notice also specifies the formalities that shareholders must satisfy in order to attend and vote at the meeting. For a description of the procedures by which holders of our ADRs may vote the underlying Delhaize Group ordinary shares, see the information under the heading “Description of Delhaize Group American Depositary Receipts-Voting Rights” in our registration statement on Form F-4 (File No. 333-13302) filed with the SEC on March 23, 2001. We have agreed in the deposit agreement to give notice of a proposed shareholders’ meeting to the depositary on or before the first date we give or publish notice of the meeting to the holders of our ordinary shares.

Neither Belgian law nor the Articles of Association limit the rights of non-resident or foreign investors to hold or vote our ordinary shares or, subject to tax laws, to receive dividends paid on our ordinary shares.

Election and Tenure of Directors. On the recommendation of the Renumeration and Nomination Committee, our Board proposes the appointment of directors to the shareholders for approval at the Ordinary General Meeting. Pursuant to our Articles of Association, directors may be appointed for a maximum term of six years. In practice, the members of the Board are appointed for a maximum term of three years. The Board of Directors decided in 2005 that the age limit would be set at 70 for all members of the Board and thus terminated the transition rule setting the age limit for certain directors at 75 and for others at 70. In addition, the Board of Directors may

 

66


Table of Contents

appoint a director to fill a vacancy on the Board of Directors. A director so appointed may serve until the next general meeting of shareholders. Directors may be removed from office at any time by a majority vote at any meeting of shareholders.

Annual Financial Statements. Under Belgian law, the annual general meeting of shareholders must be held within six months after the close of our fiscal year for the purpose of approving the annual accounts prepared by the Board of Directors and reported on by the statutory auditor. Not later than one month before the date of the annual general meeting of shareholders, the Board of Directors is to provide the annual accounts to our statutory auditor. The auditor is required to review the accounts and prepare a report on the accounts for the benefit of our shareholders. Fifteen days before the date of our annual general meeting, the shareholders are entitled to review, at our registered office, a copy of the annual accounts as prepared by the Board of Directors, and the reports drawn up by the Board of Directors and by our statutory auditor. In addition, we are required to provide a copy of each of these documents with the notice sent to each holder of our ordinary shares in registered form. So long as ADRs are outstanding, we will furnish to our shareholders, and cause the depositary to furnish to holders of ADRs, annual reports in English. The adoption of the annual financial statements by the shareholders must be followed by a separate vote of the shareholders with respect to the discharge of liability of the Board of Directors and the statutory auditor. This discharge of liability is valid only when the financial statements submitted by the Board of Directors contain no omissions of necessary information or misstatements as to the true condition of our company. In addition, this discharge of liability regarding actions contrary to, or inconsistent with, the Articles of Association, is valid only if such actions have been mentioned in the notice of the annual general meeting of shareholders.

Dividends. Under Belgian law, we are required to set aside at least 5% of our net profits during each fiscal year and contribute such sum to our statutory reserve until such reserve has reached an amount equal to one-tenth of our capital. As of December 31, 2006, our statutory reserve amounted to 10% of its capital. Subject to this requirement, the Board of Directors may propose to the meeting of shareholders, at which the annual accounts are reviewed, to distribute as a dividend all or a portion of our net profits relating to the prior accounting years available for distribution. At the annual general meeting, in connection with the approval of our accounts, the shareholders may decide to make a distribution of our net profits to all shareholders out of available reserves.

Liquidation Rights. In the event of a liquidation of our company, the proceeds from the sale of assets remaining after payment of all debts, liquidation expenses and taxes are to be distributed ratably to the holders of our ordinary shares, subject to prior liquidation rights of any preferred stock then outstanding.

Ownership Reporting. In accordance with Belgian law, any individual or entity who, as a result of acquiring voting securities or securities giving the right to subscribe to or acquire voting securities, becomes the owner of 5% or more of the total voting rights of a company, taking into account the securities held by the owner as well as by persons acting for its account or affiliated or acting jointly with it, must, within two business days after such acquisition, disclose to the company and to the Belgian Banking, Finance and Insurance Commission the information set forth in the Law of March 2, 1989 and the Royal Decree of May 10, 1989 implementing this law. Such disclosure obligation must be complied with upon every acquisition or disposal which causes such owner’s voting rights (taking into account the voting rights attached to securities held by persons acting for its account or affiliated or acting jointly with it) to increase above or fall below 5% or any multiple of 5% of the total number of voting rights. Our articles of association may however provide for lower thresholds up to a minimum of 3%.

Under our Articles of Association, any person or legal entity that owns or acquires securities of our company granting voting rights, whether representing the share capital or not, must disclose to us and the Banking, Finance and Insurance Commission the number of securities that such person or legal entity owns, alone or jointly with one or several other persons or legal entities, when the voting rights attached to such securities amount to 3% or more of the total outstanding and potential voting rights existing when the situation triggering the disclosure obligation occurs.

Such person or legal entity must also make such disclosure in the event of a transfer, or an additional acquisition, of securities referred to in the preceding paragraph when, after such transaction, the voting rights attached to securities that it owns amount to 5%, 10%, and so on by blocks of 5% of the total outstanding and potential voting

 

67


Table of Contents

rights existing when the event triggering the disclosure obligation occurs, or when the voting rights attached to securities that it owns fall below one of those thresholds or below the threshold referred to in the preceding paragraph.

Any person or legal entity that acquires or transfers, alone or jointly, the direct or indirect control of a corporation that owns at least 3% of the outstanding and potential voting rights of our company must disclose such acquisition or transfer to us and to the Banking, Finance and Insurance Commission.

Disclosure statements relating to the acquisition or transfer of securities that are made in compliance with this requirement must be addressed to the Banking, Finance and Insurance Commission and to our Board of Directors no later than the second business day after the triggering event occurs. The documents of the transaction that gave rise to the disclosure obligation must be addressed to the Banking, Finance and Insurance Commission within the same period of time. The number of securities acquired by succession must be disclosed no later than thirty days from the acceptance of such succession.

For a beneficial owner to be eligible to exercise voting rights with respect to all Delhaize Group ordinary shares exceeding such thresholds, such beneficial owner must have (a) complied in a timely manner with the disclosure requirements discussed above and (b) provided the required disclosure materials at least 20 days before the date of the shareholders’ meeting where such Delhaize Group ordinary shares will be voted. A beneficial owner may not exercise voting rights in respect of a number of Delhaize Group ordinary shares greater than the number disclosed at least 20 days before the date of the applicable shareholders’ meeting. This restriction would not apply to ordinary shares below the initial 3% threshold or to Delhaize Group ordinary shares between two consecutive thresholds as long as the beneficial owner has reported Delhaize Group ordinary shares at least equal to the lower of the two thresholds. Any person failing to timely report his beneficial ownership of Delhaize Group ordinary shares may (a) forfeit all or part of the rights attributable to such Delhaize Group ordinary shares, including, but not limited to, voting rights or rights to distributions of cash or share dividends or (b) be ordered by the President of the Commercial Court to sell the shares concerned to a non-related party.

Holders of our ordinary shares and holders or beneficial owners of our ADRs are subject to the same reporting requirements summarized above.

Members of a corporate body, persons discharging executive responsibilities within our company and having regular access to inside information relating to us, and persons closely associated with them, who acquire or transfer our ordinary shares or our ADRs must also disclose such acquisition or transfer to the Banking, Finance and Insurance Commission within five business days from the date of the relevant transaction. Failure to comply with such requirements may give rise to administrative fines.

In addition, holders of our ordinary shares and holders of our ADRs are required to comply with U.S. securities requirements relating to their ownership of securities (including filing a Schedule 13D with respect to their beneficial ownership of Delhaize Group ordinary shares or the ordinary shares underlying ADRs) if such persons beneficially own more than 5% of the outstanding Delhaize Group ordinary shares.

Preferential Subscription Rights. Under Belgian law, our shareholders have preferential subscription rights with respect to the issuance of new Delhaize Group ordinary shares in proportion to the number of Delhaize Group ordinary shares they hold. Shareholders may exercise these subscription rights in consideration for cash contributions. These rights, however, may be limited or removed by a resolution passed at a general meeting of shareholders or by the Board of Directors if the Board of Directors has been authorized to do so by the shareholders at a general meeting. At an extraordinary general meeting of shareholders held on May 24, 2007, our shareholders approved the proposal to authorize our Board of Directors to limit or remove these rights in connection with an increase in our capital of up to EUR 9,678,897. Such authorization may be renewed through a vote at a general meeting of shareholders. As of June 15, 2007, the amount remaining available under this authorization was EUR 9,678,897.

Acquisition, Holding in Pledge and Transfer by Delhaize Group of Delhaize Group Ordinary Shares. Under our Articles of Association, we may acquire or hold in pledge our own shares in accordance with effective law. Our Board of Directors is authorized to transfer through public or private transactions the shares that our company acquired, under conditions determined by our Board of Directors, without the prior approval of shareholders, in accordance with effective law.

 

68


Table of Contents

At an extraordinary general meeting held on May 26, 2005, our shareholders authorized our Board of Directors to acquire and transfer our company’s shares when such acquisition or transfer is necessary to prevent serious and imminent harm to our company. Such authorizations are granted for a period of three years from the date of the authorization’s publication in the Appendix of the Official Gazette. The above-mentioned authorizations also relate to acquisitions and transfers of shares of our company by our direct subsidiaries and are renewable in accordance with effective law.

In addition, at the extraordinary general meeting held on May 24, 2007, our shareholders authorized our Board of Directors to acquire up to 10% of the outstanding shares of our company at a minimum share price of EUR 1.00 and a maximum share price not higher than 20% above the highest closing price of the Delhaize Group share on Euronext Brussels during the 20 trading days preceding the acquisition. This authorization, which was granted for 18 months, replaces the one granted in May 2006. Such authorization also relates to the acquisition of shares of our company by one or several of our direct subsidiaries.

In May 2004, our Board of Directors approved the repurchase of up to EUR 200 million of our ordinary shares or ADRs from time to time in the open market, in compliance with applicable law and subject to the limits of an outstanding authorization granted to our Board of Directors by the shareholders, to satisfy exercises under the stock option plans that we offer our associates. No time limit has been set for these repurchases and they may be discontinued at any time.

Delhaize Group SA acquired 330,000 Delhaize Group shares (having a par value of EUR 0.50 per share) in 2006 for an aggregate amount of EUR 21.1 million, representing approximately 0.34% our share capital and transferred 25,600 shares to satisfy the exercise of stock options granted to associates of non-U.S. operating companies. As a consequence, at the end of 2006, the management of Delhaize Group SA had a remaining authorization for the purchase of its own shares or ADRs for an amount up to EUR 169.1 million subject to and within the limits of an outstanding authorization granted to the Board by the shareholders.

Additionally, in 2006, Delhaize America repurchased 151,400 Delhaize Group ADRs for an aggregate amount of $11.5 million, representing approximately 0.16% of the Delhaize Group share capital as at December 31, 2006 and transferred 132,787 ADRs to satisfy the exercise of stock options granted to U.S. management pursuant to the Delhaize America 2000 Stock Incentive Plan and the Delhaize America 2002 Restricted Stock Unit Plan.

At the end of 2006, we owned 918,599 treasury shares (including ADRs), of which 437,199 were acquired prior to 2006, representing approximately 0.95% of our share capital.

We provided a Belgian credit institution with a discretionary mandate (the “Mandate”) to purchase up to 400,000 our shares on Euronext Brussels between December 15, 2006 and November 24, 2007 in order to satisfy exercises of stock options held by management of its non-US operating companies. This credit institution makes its decisions to purchase our ordinary shares pursuant to the guidelines set forth in the Mandate, independent of further instructions from us, and without influence by us with regard to the timing of the purchases. The credit institution can purchase shares only when the number of our shares held by a custodian bank falls below a certain minimum threshold contained in the Mandate. We anticipate purchasing our own shares from time to time in addition to shares purchased on our behalf under the Mandate.

Additionally, in 2006 Delhaize America engaged a U.S.-based financial institution to purchase on its behalf up to 225,000 Delhaize Group ADRs on the New York Stock Exchange during a period of up to one year beginning August 31, 2006. The purchase of the full 225,000 ADRs was completed between September 2006 and June 2007. This engagement was established to assist in the satisfaction of certain stock options held by employees of our U.S. subsidiaries and certain restricted stock unit awards provided to U.S.-based executive employees. The financial institution made its decisions to purchase ADRs under this agreement pursuant to the guidelines set forth in a related share repurchase plan, independent of further instruction from Delhaize America.

 

69


Table of Contents

Our Ability to Issue Ordinary Shares in Response to a Takeover Bid. Under Belgian law, the person intending to make a takeover bid must provide advance notice to the Belgian Banking, Finance and Insurance Commission, which must then notify the target company the next business day. Upon receipt of that notice and until the bid has closed, the target company has limited ability to issue new shares. If the target company’s board of directors was previously authorized to issue new shares, it may decide to issue such shares to the extent that (a) the issuance price is at least equal to the price offered by the bidder, (b) the new shares are fully paid-up upon issuance and, (c) the number of new shares does not exceed 10% of the number of shares outstanding immediately prior to the capital increase. The Board of Directors of a Belgian company also has the ability to convene an extraordinary general meeting of the shareholders to vote upon a proposal to issue new shares or warrants without, or with limited, preferential subscription rights.

On May 26, 2005, the extraordinary general meeting of our shareholders approved an amendment to our Articles of Association, which grants authority to our Board to increase the share capital of our company by a maximum of ten percent of the then outstanding Delhaize Group ordinary shares after it has received notice of a public take-over bid relating to our company, for a new period of three years beginning on the date of the shareholders’ approval.

The new Belgian law on public take-over bids has been adopted on April 1, 2007 and will enter into force as of September 1, 2007.

Ability of stock option holders and bond holders in case of change of control over Delhaize Group. At the extraordinary general meeting held on May 24, 2007, our shareholders approved the proposal to approve the provision of the Delhaize Group 2007 Stock Option Plan for Associates of Non-U.S. Companies and an amendment to the Delhaize Group 2002 Stock Incentive Plan which provide that in the event of a change of control over our company the beneficiaries will have the right to exercise their options for acquiring shares of our company regardless the vesting period of the options. In addition, our shareholders approved the proposal to approve the inclusion of a provision in the bonds that our company may issue within the 12 months from the ordinary shareholders meeting of May 2007 granting the holders of bonds the right to early repayment for an amount not in excess of 101% in the event of a change of control over our company.

C. Material Contracts

Cross Guarantee Agreement

We have entered into a Cross Guarantee Agreement, dated as of May 21, 2007, with Delhaize America and substantially all of Delhaize America’s subsidiaries, under which each company party to the agreement guarantees fully and unconditionally, jointly and severally Delhaize Group existing financial indebtedness, Delhaize America existing financial indebtedness, specific financial indebtedness of two European subsidiaries of Delhaize Group and all future unsubordinated financial indebtedness of the parties to the agreement.

If any sum owed to a creditor by a guarantor pursuant to its guarantee under the Cross Guarantee Agreement is not recoverable from such guarantor for any reason whatsoever, then such guarantor is obligated, forthwith upon demand by such creditor, to pay such sum by way of a full indemnity.

On the date of this filing the parties to the Cross Guarantee Agreement are Delhaize Group, Delhaize America, Food Lion, LLC, Hannaford Bros. Co., Kash N’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop ‘N Save-Mass., Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp., and Victory Distributors, Inc. Information with respect to subsidiaries of Delhaize Group that are Cross Guarantors is included in note 42 to our consolidated annual financial statements included in this Annual Report on Form 20-F.

 

70


Table of Contents

Financial Indebtedness

Under the Cross Guarantee Agreement, the term “financial indebtedness” of any person means, without duplication (and as each may be amended, modified, extended or renewed from time to time): (i) all obligations of such person under agreements for borrowed money; (ii) all obligations of such person evidenced by bonds, debentures, notes or similar instruments; (iii) all hedging obligations of such person; and (iv) all guarantees by such person of obligations of other persons of the type referred under clauses (i), (ii) or (iii).

The term “person” means any individual, company, corporation, firm, partnership, joint venture, association, organization, state or agency or a state or other entity, whether or not having separate legal personality.

The term “hedging obligations” means, with respect to any person, the obligations of such person under: (i) currency exchange, interest rate or commodity swap agreements, cap agreements, floor agreements or collar agreements; and (ii) other similar agreements or arrangements designed to protect such person against fluctuations in currency exchange, interest rates or commodity prices.

Intercompany financial indebtedness is not guaranteed under the Cross Guarantee Agreement.

Ranking; Limit of Liability

The obligations of each company party to the Cross Guarantee Agreement constitute direct, general, unconditional and unsubordinated obligations of such company that shall at all times rank at least pari passu with all of its other existing financial indebtedness set forth on a schedule to the Cross Guarantee Agreement and its future unsubordinated financial indebtedness, save for such obligations as may be preferred by mandatory provisions of law. The obligations of each party under the Cross Guarantee Agreement are limited to the maximum amount that can be guaranteed without constituting a fraudulent conveyance or fraudulent transfer under applicable insolvency laws.

Applicability of Cross Guarantee Agreement

To the extent a guarantor’s guarantee of financial indebtedness is addressed in an agreement to which such guarantor is a party or is otherwise contractually bound, which contains such guarantee, other than the Cross Guarantee Agreement, the Cross Guarantee Agreement does not apply to such guarantor’s guarantee of such financial indebtedness and, to be clear, nothing contained in the Cross Guarantee Agreement in any way supersedes, modifies, replaces, amends, changes, rescinds, waives, exceeds, expands, enlarges or in any way affects the provisions, including warranties, covenants, agreements, conditions, representations or, in general, any of the rights and remedies, and any of the obligations, of such guarantor and any creditor with respect to such guarantee of such financial indebtedness set forth in such other agreement.

Release of Guarantors and Guarantor Obligations

The obligations of a guarantor under the Cross Guarantee Agreement, which we refer to as a released guarantor in this paragraph, any lien created by such released guarantor with respect to such obligations, and the obligations under the Cross Guarantee Agreement of all other guarantors with respect to the financial indebtedness of the released guarantor will be automatically and unconditionally released without any action on the part of any creditor:

 

   

in connection with any sale, exchange, transfer or other disposition by such released guarantor of all or substantially all of the assets of that released guarantor, provided that the proceeds of that sale or other disposition are applied in accordance with the applicable provisions of any applicable financial indebtedness, or

 

   

in connection with any sale, exchange, transfer or other disposition (including by way of merger, consolidation or otherwise), directly or indirectly, of capital stock of such released guarantor, by Delhaize Group or any subsidiary thereof, to any person that is not Delhaize Group or a subsidiary of Delhaize Group, or an issuance by such released guarantor of its capital stock, in each case as a result of which such released guarantor ceases to be a subsidiary of Delhaize Group,

 

71


Table of Contents
 

provided, that: (i) such transaction is made in accordance with the applicable provisions of any applicable financial indebtedness; and (ii) such released guarantor is also released from all of its obligations, if any, in respect of all other financial indebtedness of each other guarantor under the Cross Guarantee Agreement.

In addition to any other releases for which a guarantor qualifies under the Cross Guarantee Agreement, notwithstanding any other provision of the Cross Guarantee Agreement to the contrary, without limiting the validity of any agreement into which a guarantor and a creditor may enter, a guarantor that obtains a written release from a creditor releasing such guarantor from its obligations under the Cross Guarantee Agreement with respect to the financial indebtedness owing to such creditor specified in such release shall be so released.

Termination of Agreement with Respect to Future Financial Indebtedness

Subject to certain limitations, the Cross Guarantee Agreement may be terminated with respect to a guarantor at any time by such guarantor providing written notice to the other parties to the Cross Guarantee Agreement or by mutual agreement; provided, however, that termination by Delhaize America or any other subsidiary of Delhaize Group party to the Cross Guarantee requires the written consent of Delhaize Group; and provided, further, except as otherwise provided, any termination of the Cross Guarantee Agreement with respect to a guarantor affects neither:

 

   

Such guarantor’s obligations under the Cross Guarantee Agreement in relation to any financial indebtedness that came into existence prior to that termination, nor

 

   

The obligations of the other guarantors with respect to such guarantor’s financial indebtedness that came into existence prior to that termination. Financial indebtedness that comes into existence after that termination shall not be covered by the Cross Guarantee Agreement with respect to the terminating guarantor.

Third Parties

Subject to the release provisions of the Cross Guarantee Agreement discussed under the headings “Cross Guarantee Agreement—Release of Guarantors and Guarantor Obligations” and “—Termination of Agreement with Respect to Future Financial Indebtedness” above, creditors of financial indebtedness guaranteed under the Cross Guarantee Agreement are entitled to rely on the Cross Guarantee Agreement and on the guarantees constituted pursuant to the Cross Guarantee Agreement. The Cross Guarantee Agreement constitutes a stipulation pour autrui or third party beneficiary contract for their benefit. Accordingly, such creditors shall be entitled to rely on and enforce the Cross Guarantee Agreement.

Delhaize America Credit Agreement

Our subsidiary Delhaize America has a $500 million five-year unsecured revolving credit agreement, which was amended and restated as of May 21, 2007 (the “Delhaize America Credit Agreement”), by and among Delhaize America, as borrower, Delhaize Group, as guarantor, Delhaize America’s subsidiaries party thereto, as guarantors, and JPMorgan Chase Bank, N.A. as administrative agent, issuing bank and swingline lender. Delhaize America had $120.0 million in outstanding borrowings and $46.7 million of letter of credit exposure under this credit facility as of December 30, 2006.

The Delhaize America Credit Agreement provides for a $500 million five-year unsecured revolving credit facility, with a $100 million sublimit for the issuance of letters of credit, and a $35 million sublimit for swingline loans. At the election of Delhaize America, the aggregate maximum principal amount available under the Delhaize America Credit Agreement may be increased to an aggregate amount not exceeding $650 million. The Delhaize America Credit Agreement will mature on April 22, 2010, unless optionally extended thereunder for up to two additional years. Funds are available under the Delhaize America Credit Agreement for general corporate purposes, including as credit support for Delhaize America’s commercial paper programs. Subject to certain conditions stated in the Delhaize America Credit Agreement, Delhaize America may borrow, prepay and re-borrow amounts under the Delhaize America Credit Agreement at any time during the term of the Delhaize America Credit Agreement.

 

72


Table of Contents

At Delhaize America’s election, borrowings under the Delhaize America Credit Agreement will bear interest either at the London interbank offered rate (“LIBOR”) plus an applicable margin or at the base rate. The base rate is a fluctuating rate equal to the higher of the Federal funds rate plus 0.50% or JPMorgan Chase Bank, N.A.’s publicly announced prime lending rate. The Delhaize America Credit Agreement provides that the interest rate margin over LIBOR, initially set at 0.60%, will increase (by a maximum amount of 0.40%) or decrease (by a maximum amount of 0.15%) based on changes in the ratings of Delhaize America’s senior, unsecured long-term debt securities. The Delhaize America Credit Agreement also permits Delhaize America to request borrowings with interest rates and terms that are to be set pursuant to competitive bid procedures or directly negotiated with a lender or lenders pursuant to procedures described in the Delhaize America Credit Agreement; however, the lenders are not required to extend borrowings pursuant to such competitive bid procedures or pursuant to the negotiated bid loan procedures.

In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Delhaize America Credit Agreement and relevant letters of credit fees, Delhaize America is required to pay an annual facility fee, initially equal to 0.15% of the amount of the lenders’ aggregate commitments under the Delhaize America Credit Agreement, whether used or unused. The Delhaize America Credit Agreement provides that the facility fee will increase or decrease based on changes in the ratings of Delhaize America’s senior, unsecured long-term debt securities.

Delhaize America’s ability to borrow under the Delhaize America Credit Agreement is subject to compliance by Delhaize America and Delhaize Group with the covenants and conditions set forth in the Delhaize America Credit Agreement. The Delhaize America Credit Agreement contains customary representations, warranties and covenants, including two financial covenants applicable to Delhaize Group: (i) a maximum ratio of consolidated adjusted debt to consolidated EBITDAR (as such terms are specified in the Delhaize America Credit Agreement), which begins at 3.75 to 1.00 and decreases to 3.50 to 1.00 starting with the last day of fiscal year 2007, and (ii) a minimum ratio of consolidated EBITDAR to consolidated fixed charges (as such terms are specified in the Delhaize America Credit Agreement), which begins at 2.50 to 1.00 and increases to 2.75 to 1.00 starting with the last day of fiscal year 2007.

The Delhaize America Credit Agreement also contains customary events of default, including failure to perform or observe terms, covenants or agreements included in the Delhaize America Credit Agreement; default by Delhaize Group or its subsidiaries under other indebtedness with a principal amount in excess of $50 million; the occurrence of one or more judgments or orders for the payment by Delhaize Group or its subsidiaries of money in excess of $50 million that remain unsatisfied; failure of Delhaize Group or a material subsidiary to pay its debts as they come due, or any bankruptcy of Delhaize Group or a material subsidiary; invalidity of Delhaize America Credit Agreement documentation; or a change of control (as specified in the Delhaize America Credit Agreement) of Delhaize Group. If an event of default occurs the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees.

Delhaize Group Senior Notes Offering

On June 27, 2007 we issued € 500 million 5.625% senior notes due 2014 (the “5.625% Euro Notes”) pursuant to an Indenture dated June 27, 2007 between us and The Bank of New York (the “2007 Euro Note Indenture”) and $450 million 6.50% senior notes due 2017 represented by certificated depositary interests (the “6.50% Dollar Notes” and collectively with the 5.625% Euro Notes, the “2007 Notes”) pursuant to an Indenture dated June 27, 2007 between us and The Bank of New York (the “2007 Dollar Note Indenture” and together with the 2007 Euro Notes Indenture, the “2007 Indentures”). The 5.625% Euro Notes will mature on June 27, 2014 and the 6.50% Dollar Notes will mature on June 15, 2017. We will pay interest on the 5.625% Euro Notes annually on June 27 commencing on June 27, 2008, and we will pay interest on the 6.50% Dollar Notes semiannually on June 15 and December 15 each year beginning on December 15, 2007. All or a portion of the 5.625% Euro Notes or the 6.50% Dollar Notes may be subject to redemption at any time, as described, respectively, in the 2007 Euro Note Indenture and the 2007 Dollar Note Indenture. The 2007 Notes will be unsecured unsubordinated senior obligations of Delhaize Group, and Delhaize Group’s obligations under the 2007 Notes fall within the scope of the Cross Gurantee Agreement. We have applied to admit the 5.625% Euro Notes to listing on the Official List of the Luxembourg Stock Exchange and to trading on the regulated market of the Luxembourg Stock Exchange. The 6.50% Dollar Notes will not be listed on any stock exchange. We have agreed to use our reasonable best efforts to consummate an exchange offer pursuant to an effective registration statement or cause resales of the 6.50% Dollar Notes to be registered pursuant to a shelf registration statement under the Securities Act.

D. Exchange Controls

See Sections C and D under Item 11 “Quantitative and Qualitative Disclosures About Market Risk” below.

E. Taxation

The following is a description of U.S. and Belgian tax consequences of owning and disposing of our ADRs and ordinary shares. The discussion applies only to U.S. Holders (as defined below) who hold our ADRs and/or ordinary shares as “capital assets” within the meaning of Section 1221 of the U.S. Internal Revenue Code, and does not address all potential tax effects that may be relevant to U.S. Holders in light of their particular circumstances such as:

 

   

persons who own (actually or constructively) 5% or more of either the total voting power or total value of all capital stock of Delhaize Group;

 

   

persons who are residents of Belgium or engaged in a trade or business in Belgium through a permanent establishment or a fixed base;

 

73


Table of Contents
   

persons subject to the U.S. federal alternative minimum tax;

 

   

persons who acquired their Delhaize Group ADRs or ordinary shares pursuant to the exercise of employee stock options or otherwise as compensation; or

 

   

U.S. Holders who are subject to special treatment under U.S. federal income tax law, such as financial institutions, insurance companies, tax-exempt organizations, retirement plans, dealers in securities, traders in securities that elect to apply a mark-to-market method of accounting and U.S. Holders that hold Delhaize Group ADRs or ordinary shares as a part of a hedge, straddle, constructive sale or conversion transaction.

The following discussion does not address the effect of applicable U.S. state or local tax laws or of U.S. federal tax laws other than those related to the income tax. Tax matters are complicated. Each U.S. Holder is urged to consult such person’s tax advisor regarding the tax consequences of owning and disposing of Delhaize Group ADRs and/or ordinary shares in light of such U.S. Holder’s particular circumstances, including the application of any state, local or foreign tax law.

This summary is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), its legislative history existing, and proposed U.S. Treasury Regulations promulgated thereunder, published rulings by the U.S. Internal Revenue Service (the “IRS”), the Belgium Income Tax Code, the Belgium Code of Taxes assimilated to Stamp Duties, the Belgium Code of Registration Duties, the Convention between the United States of America and the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the “Belgium – United States tax treaty”), administrative rulings and practice and judicial precedent in effect at the date of this document, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences discussed in this document. We have not sought any ruling from the IRS with respect to the statements made and the conclusions reached in this summary, and cannot assure you that the IRS will agree with such statements or conclusions.

A holder that is treated as a partnership for U.S. federal tax purposes is not subject to U.S. income tax on income derived from holding the Delhaize Group ADRs or ordinary shares. A partner of the partnership may be subject to tax on such income depending on whether (i) the partner is a U.S. Holder and (ii) the partnership is engaged in a U.S. trade or business to which income or gain from the Delhaize Group ADRs or ordinary shares is effectively connected. If you are a partner of a partnership acquiring or holding the Delhaize Group ADRs or ordinary shares, you should consult your tax advisor about the U.S. tax consequences of holding and disposing of the Delhaize Group ADRs or ordinary shares.

Certain U.S. Tax Consequences of Ownership of Delhaize Group ADRs or Ordinary Shares

Ownership of ADRs. For U.S. federal income tax purposes, U.S. Holders of our ADRs will generally be treated as the owners of the Delhaize Group ordinary shares underlying the ADRs.

A “U.S. Holder” means a holder of Delhaize Group ADRs or ordinary shares that is:

(a) a citizen or resident of the United States;

(b) a corporation or other entity taxable as a corporation, created in or organized under the laws of the United States, any state thereof, or the District of Columbia;

(c) an estate the income of which is subject to U.S. federal income tax regardless of its source; or

(d) a trust if a U.S. court can exercise primary supervision over the administration of such trust, and one or more U.S. persons have the authority to control all of the substantial decisions of such trust.

Taxation of Distributions. The gross amount of any distributions of cash or property with respect to our ordinary shares, including amounts withheld in respect of Belgian withholding taxes, will be included in income by a U.S. Holder as foreign source dividend income at the time of receipt to the extent such distributions are made from the current and accumulated earnings and profits, as determined under U.S. federal income tax

 

74


Table of Contents

principles, of Delhaize Group. In the case of a U.S. Holder of Delhaize Group ADRs, the time of receipt of such a distribution generally will be the date of receipt by the depositary Dividends paid to a non-corporate U.S. Holder that constitute “qualified dividend income” will be taxable at a maximum tax rate of 15%, provided that certain holding period and other requirements are met. Dividends that do not constitute qualified dividend income, and dividends paid to corporate U.S. Holders, will be taxed at ordinary income rates. Dividends paid to U.S. corporate holders with respect to Delhaize Group ordinary shares or ADRs will not be eligible for the dividends received deduction. To the extent, if any, that the amount of any distribution by Delhaize Group exceeds current and accumulated earnings and profits, as determined under U.S. federal income tax principles, it will be treated first as a tax-free return of capital to the extent of the U.S. Holder’s tax basis in Delhaize Group ordinary shares or ADRs, as the case may be, and thereafter as capital gain.

Subject to certain limitations, a U.S. Holder may claim a foreign tax credit against its federal income taxes for Belgian tax withheld from dividends. U.S. Holders who do not choose to claim a foreign tax credit may instead claim a deduction for Belgian tax withheld, in computing taxable income. Under the Internal Revenue Code, the limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. U.S. Holders should consult their tax advisors regarding the application of these rules. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the 15% maximum tax rate described above.

If dividends are paid in euros, the amount of the dividend distribution includible in the income of a U.S. Holder will be the U.S. dollar value of the payments made in euros, determined at the spot exchange rate between euros and U.S. dollars on the date the dividend is includible in the income of the U.S. Holder, regardless of whether the payment is in fact converted into U.S. dollars. Generally, gain or loss, if any, resulting from currency fluctuations during the period from the date the dividend is paid to the date such payment is converted into U.S. dollars will be treated as ordinary gain or loss. A U.S. Holder may be required to recognize foreign currency gain or loss on the receipt of a refund in respect of Belgian withholding tax to the extent the U.S. dollar value of the refund differs from the U.S. dollar equivalent of that amount on the date of receipt of the underlying dividend.

Disposition. A U.S. Holder generally will recognize gain or loss on the sale or exchange of Delhaize Group ordinary shares or Delhaize Group ADRs equal to the difference between the amount realized on such sale or exchange and the U.S. Holder’s tax basis in the Delhaize Group ordinary shares or ADRs, as the case may be. Any gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the Delhaize Group ordinary shares or ADRs, as the case may be, were held for more than one year. For non-corporate U.S. Holders, long-term capital gains are subject to a maximum U.S. federal income tax rate of 15%. The deduction for capital losses is subject to limitations. A gain or loss, if any, recognized by a U.S. Holder generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes.

Passive Foreign Investment Company. U.S. Holders should be aware that special U.S. tax laws would apply to U.S. Holders of Delhaize Group ordinary shares and ADRs if Delhaize Group is characterized as a passive foreign investment company (“PFIC”). Delhaize Group believes that it is not, nor will it become, a PFIC. However, since PFIC status is a factual matter that must be determined annually, Delhaize Group can provide no assurance as to such conclusion.

U.S. Backup Withholding and Information Reporting. A U.S. Holder may, under certain circumstances, be subject to certain information reporting requirements and backup withholding tax at a current rate of 28% with respect to dividends paid on the Delhaize Group ordinary shares or ADRs, or the proceeds of sale of Delhaize Group ordinary shares or ADRs, unless such U.S. Holder (a) is a corporation or comes within certain other exempt categories, and when required, demonstrates this fact or (b) provides a correct taxpayer identification number, certifies that such U.S. Holder is not subject to backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A U.S. Holder who does not provide a correct taxpayer identification number may be subject to penalties imposed by the U.S. Internal Revenue Service. Any amount withheld under these rules will generally be creditable against the holder’s U.S. federal income tax liability. Holders are advised to consult their own tax advisors as to the applicability of the information reporting and backup withholding rules to their ownership and disposition of the Delhaize Group ordinary shares or ADRs.

 

75


Table of Contents

Certain Belgian Tax Consequences of Ownership of Delhaize Group ADRs or Ordinary Shares

Ownership of ADRs. In addition to the assumptions mentioned above, it is also assumed in this discussion that for purposes of the domestic Belgian tax legislation, the owners of Delhaize Group ADRs will be treated as the owners of Delhaize Group ordinary shares represented by such ADRs and that the ADRs will be treated as the shares represented by such ADRs. Therefore, in this discussion no distinction is made between ordinary shares and ADRs and reference is only made to ADRs, unless otherwise stipulated. However, the above assumption has not been confirmed or verified with the Belgian Tax Administration.

Taxation of distributions. For Belgian income tax purposes, dividends include:

(a) all benefits from shares attributed to the shareholders by or on behalf of the Company, in any form whatsoever, including liquidation and redemption proceeds; and

(b) reimbursements of share capital and issuance premiums (except for reimbursements carried out in accordance with the provisions of the Belgian Company Code and to the extent the statutory capital and issue premiums qualify as so-called fiscal capital).

Generally, dividends distributed by a Belgian resident company are subject to a 25% withholding tax under Belgian domestic law. A 10% withholding tax is, in principle, due on stock redemption and liquidation proceeds. However, redemption proceeds paid on shares listed on a regulated market (such as Eurolist by Euronext Brussels) are, in principle, exempted from the 10% Belgian withholding tax provided the transaction was carried out on Eurolist by Euronext or another similar stock market. The 25% rate can, provided that the issuing company does not renounce this benefit, be reduced to 15% for dividends from shares issued by Belgian or non-Belgian companies after January 1, 1994 (a) pursuant to a public issuance in accordance with the Belgian Royal Decree of July 7, 1999, provided that the shares are non-preferred shares or (b) under a private issuance, provided that the shares are non-preferred, that they have been subscribed for cash and are, from the date of issuance until payment or attribution of the dividend, either registered with the issuing company or deposited in open custody to a bank, a public credit institution, a stock broker or savings bank under the supervision of the Belgian Banking, Finance and Insurance Commission. These shares are sometimes referred to as VVPR-shares (Verlaagde Voorheffing/Précompte Réduit). In the share exchange, Delhaize Group ADRs received in exchange for Delhaize America shares did not qualify as VVPR-shares. Consequently, the dividends distributed with respect to these ADRs will be subject to a 25% withholding tax rate.

Withholding Tax Reduction Under Belgium-United States Tax Treaty. Under the Belgium-United States tax treaty, the Belgian withholding tax will be reduced to 15% of the gross amount of the dividends if the U.S. Holder, a resident of the United States for purposes of the treaty, is the beneficial owner of the Delhaize Group ADRs and is entitled to the benefits of the treaty under the limitation of benefits article included in the treaty. The rate is further reduced to 5% if the U.S. Holder owns directly at least 10% of the voting stock.

Generally, the full Belgian withholding tax must be withheld by Delhaize Group (i.e., 25% of the gross amount of the dividends, without taking into consideration the applicable treaty rate). Qualifying U.S. Holders may make a claim for reimbursement of the amounts withheld in excess of the treaty rate by filing a Form 276 Div.-Aut. with the Bureau Central de Taxation Bruxelles-Etranger, Boulevard Roi Albert II, 33 (North Galaxy Tour B7), 1030 Brussels, Belgium. As a general rule, the reduced treaty rate can also be obtained at source. A U.S. Holder should file, within ten days following the attribution of the dividend, a duly completed Form 276 Div.-Aut. with Delhaize Group. U.S. Holders should consult their own tax advisors as to whether they qualify for the reduced withholding upon the payment or attribution of dividends, and as to the procedural requirements for obtaining the reduced withholding rate immediately at source upon the attribution or payment of the dividends or through the filing of a claim for reimbursement.

Provided that the required formalities are complied with, dividends paid by Delhaize Group to certain U.S. organizations that are neither conducting a business nor engaged in any activity of a lucrative nature and are exempted from income tax in the United States are exempted from withholding tax.

Disposition. According to the Belgium-United States tax treaty, capital gains derived by a U.S. Holder from the sale, exchange or other disposition of ADRs are exempt from Belgian tax. If the recipient of the gain, being a resident of the United States, is present in Belgium for a period or periods aggregating 183 days or more in the taxable year, the capital gains will fall within the scope of application of Belgian domestic tax law. Under Belgian domestic tax law, capital gains realized by a non-resident are subject to a 33% tax (to be increased by a state

 

76


Table of Contents

surcharge of 6% of the tax due) if the Belgian tax administration demonstrates that the capital gain is the result of speculation as defined by Belgian case law or if the gain is otherwise realized outside the scope of the normal management of one’s own private estate and if the purchase price for the shares is paid in Belgium.

Inheritance Duty and Gift Tax. A transfer of Delhaize Group ADRs by reason of death will not be subject to Belgian inheritance duty provided that the deceased is not domiciled in Belgium and does not have the seat of his estate or fortune in Belgium at the time of his death.

A transfer of Delhaize Group ADRs by gift will be subject to Belgian gift taxes only if the deed incorporating the gift is registered in Belgium. Gifts executed by a Belgian notarial deed must be registered in Belgium and will consequently be subject to gift tax.

Belgian Tax on Stock Market Transactions. The tax on stock market transactions (taxe sur les opérations de bourse, or “TOB”) is not due from non-Belgian resident investors acting for their own account if they provide a certificate evidencing their non-resident status.

The TOB is due when investors purchase or sell shares through a Belgian professional intermediary. The TOB is due in the amount of 0.17% (but limited to EUR 500 per transaction and per party) on the purchase and on the sale in Belgium of existing shares of a Belgian company.

The tax amounts to 0.07% in case of a purchase or sale of certificates (or other securities) representing shares if these certificates are issued by a Belgian entity or person. The Minister of Finance also permits certificates issued by foreign entities having a Belgian permanent establishment to qualify for the reduced rate. The tax is limited to EUR 500 per transaction and per party on the purchase and on the sale in Belgium of the qualifying certificates.

The following persons do not need to pay the TOB:

 

 

 

professional intermediaries referred to in Article 2, 9o and 10o of the Law of August 2, 2002 acting for their own account;

 

   

insurance companies referred to in Article 2, §1 of the Law of July 9, 1975 acting for their own account;

 

   

pension funds referred to in Article 2, §3,6 of the Law of July 9, 1975 acting for their own account;

 

   

collective investment institutions referred to in the Law of December 4, 1990 acting for their own account; and

 

   

non-residents, acting for their own account, upon delivery of a certificate of non-residence.

No Belgian tax on stock market transactions will thus be due by U.S. Holders on the subscription, purchase or sale of ADRs, if the U.S. Holders are acting for their own account. In order to benefit from this exemption, the U.S. Holders must file with the Belgian professional intermediary a certificate evidencing that they are non-residents for Belgian tax purposes.

Belgian Tax on the Physical Delivery of Bearer Securities. The physical delivery of bearer securities through an intermediary established in Belgium triggers a tax in the amount of 0.6% on the value of the ordinary shares.

If Delhaize Group bearer shares are delivered to an investor as a result of:

(a) the purchase of Delhaize Group bearer shares through an intermediary established in Belgium;

(b) the conversion of Delhaize Group ADRs into Delhaize Group bearer shares through an intermediary established in Belgium; or

(c) the withdrawal of Delhaize Group bearer shares from open custody with a Belgian financial intermediary, the above-mentioned tax equal to 0.6% on the value of the Delhaize Group shares will be due. Certain financial intermediaries benefit from an exemption from this tax.

 

77


Table of Contents

F. Documents on Display

Copies of this annual report on Form 20-F of Delhaize Group, the exhibits referred to within this annual report and our Articles of Association will be available for review upon request at our corporate office located at Square Marie Curie 40, 1070 Brussels, Belgium (tel. +32-2-412-2151). In addition, we file reports and other information with the SEC. Any documents that we file with the SEC may be read and copied at the SEC’s public reference rooms at 100 F Street, N.E., Washington, D.C. 20549. The SEC also maintains a website at www.sec.gov that contains reports and other information regarding companies that file electronically with the SEC. This annual report on Form 20-F and other information submitted electronically to the SEC by Delhaize Group may be accessed through the SEC’s website.

 

I TEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A. Information About Market Risk

See the information under “Factors Affecting Financial Condition and Results of Operations “ located in Item 5 “Operating and Financial Review and Prospects” above.

B. Exchange Rates

Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar price of Delhaize Group ADRs that are listed on the New York Stock Exchange. In addition, since any cash dividends that we pay to our shareholders will be denominated in euros, exchange rate fluctuations will affect the U.S. dollar amounts that owners of ADRs will receive on conversion of dividends.

See the information under the headings entitled “Risk Factors” and “Exchange Rates” under Item 3 “Key Information” above and the heading titled “Factors Affecting Financial Condition and Results of Operations” under Item 5 “Operating and Financial Review and Prospects” above.

C. Exchange Controls

Belgian exchange control regulations impose no limitations on the amount of cash payments that we may remit to residents of the United States. However, when there is a transfer of funds by us an obligation to notify the Institut Belgo-Luxembourgeois du Change arises. If the transfer of funds is handled by a Belgian financial institution, that institution will provide the required notification.

D. Ownership of Delhaize Group Shares

Under Belgian law, if an individual or a company intends to acquire the joint or exclusive control of our company through one or more transactions relating to our shares, the acquirer must notify the Belgian Banking, Finance and Insurance Commission of the contemplated transaction at least five business days prior to such acquisition. If the contemplated acquisition of shares takes place at a price higher than the stock market price at the time of the acquisition, the acquiror must offer to all other shareholders of our company the opportunity to sell their shares at the price offered for such acquisition or, if higher, at the highest price offered by the acquiror for shares during the 12 months preceding the acquisition of control of our company. The acquiror must give the other shareholders this opportunity within 30 days after its acquisition of control either:

(a) in the form of a public takeover bid; or

(b) under an undertaking to support the stock price of the acquired company on the relevant stock exchange.

Public takeover bids are subject to the supervision of the Belgian Banking, Finance and Insurance Commission. Prior to making a bid, a bidder must issue a prospectus which must be approved by the Belgian Banking, Finance and Insurance Commission. If the Belgian Banking, Finance and Insurance Commission determines that a takeover bid is contrary to the interests of the shareholders of our company, it may suspend the takeover bid for a maximum of 72 hours and request the President of the Commercial Court in the district of the Belgian company’s registered office (Brussels in the case of Delhaize Group) to prohibit the bid and suspend the exercise of the rights attached to any Delhaize Group shares that were acquired in connection with the bid. Public takeover bids must be made for all the outstanding securities.

 

78


Table of Contents

In case of a public takeover bid, the transaction is subject to approval by the European Commission under the EC Merger Regulation if:

(a) the aggregate world-wide turnover of the bidder and the target to be acquired exceeds EUR 5 billion; and

(b) the European Community-wide turnover of each of the bidder and the target to be acquired exceeds EUR 250 million provided, however, that the transaction is not subject to approval by the European Commission where each of the bidder and the target to be acquired achieves more than two-thirds of its aggregate European Community-wide turnover within one and the same member state;

or if:

(a) the aggregate worldwide turnover of the bidder and the target to be acquired exceeds EUR 2.5 billion;

(b) the European Community-wide turnover of each of the bidder and the target to be acquired exceeds EUR 100 million;

(c) in each of at least three member states, the aggregate turnover of the bidder and the target to be acquired exceeds EUR 100 million; and;

(d) in each of at least three member states mentioned in (c) immediately above, the turnover of each of the bidder and the target to be acquired exceeds EUR 25 million, provided, however, that the transaction is not subject to approval by the European Commission where each of the bidder and the target to be acquired achieves more than two-thirds of its aggregate European Community-wide turnover in one and the same member state.

For purposes of the EC Merger Regulation, the relevant turnover is the amount derived from the sale of products and the provision of services in the previous financial year (subject to certain adjustments) and the turnover of the bidder is deemed to include the turnover of the group to which the bidder belongs.

The acquisition of a business through a public takeover bid that does not fall within the scope of the EC Merger Regulation is subject to approval by the Belgian Competition Authorities under the Belgian Competition Act if:

(1) the aggregate turnover in Belgium of both the bidder and the target to be acquired exceeds EUR 100 million; and

(2) the turnover of each of the bidder and the target on the Belgian market exceeds EUR 40 million.

For purposes of the Belgian Competition Act, the relevant turnover is the amount derived from the sale of products and the provision of services in the previous financial year on the Belgian market and from exports from Belgium (subject to certain adjustments) and the turnover of the bidder is deemed to include the turnover of the group to which the bidder belongs.

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

 

79


Table of Contents

PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

 

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this annual report on Form 20-F. Based on this evaluation, our Chief Executive Officer and Chief Accounting Officer have concluded that, as of such date, our disclosure controls and procedures are effective.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as the term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting, even when determined to be effective, may not prevent or detect all misstatements and can only provide reasonable assurance with respect to the reliability of financial reporting.

Our management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting using the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on the results of this evaluation, our management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2006.

DELOITTE Bedriffsrevisoren / Reviseurs d’Entreprises BVo.v.v.e. CVBA/SC s.f.d. SCRL, the independent auditors that audited the financial statements included in this annual report, has issued an attestation report on management’s assessment of internal control over financial reporting, beginning on page F-2 of this report.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting, as the term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the period covered by this annual report on Form 20-F that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16. [RESERVED]

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Mr. Robert J. Murray, Count de Pret Roose de Calesberg and Ms. Claire Babrowski are “audit committee financial experts” as defined in Item 16A of Form 20-F under the Exchange Act. Our board of directors has also determined that Mr. Murray, Count de Pret Roose de Calesberg, Ms. Babrowski and the other member of our audit committee are “independent” as defined in the listing standards of the New York Stock Exchange and the SEC rules under the Exchange Act.

 

80


Table of Contents
I TEM 16B. CODE OF ETHICS

On May 27, 2004 our Board of Directors adopted a Code of Ethics, as defined in Item 16B of Form 20-F, which we refer to as the Delhaize Group Code of Business Conduct and Ethics. Our Code of Business Conduct and Ethics is applicable to all our employees and directors, including our Chief Financial Officer, our other senior financial officers and our Chief Executive Officer. We have filed our Code of Business Conduct and Ethics with the SEC and it is included as an exhibit to this annual report on Form 20-F.

Our Code of Business Conduct and Ethics is posted on our website and may be accessed at www.delhaizegroup.com.

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees and Services. The following table details the aggregate fees of our principal accountant, Deloitte Bedrijfsrevisoren / Reviseurs d’Entreprises BV o.v.v.e. CVBA/SC s.f.d. SCRL, and its affiliates with respect to the last two fiscal years for various services:

 

Type of Services Provided

   2006    2005
(amounts in EUR)          

Audit Fees (a)

   3,265,000    2,402,000

Audit-Related Fees (b)

   72,000    575,000

Tax Fees (c)

   —      67,000

All Other Fees (d)

   42,000    470,000

(a) Audit fees for the years ended December 31, 2006 and 2005 consist, for purposes of U.S. law, of fees for professional services rendered for the audits and reviews of the consolidated financial statements of Delhaize Group and other services normally provided in connection with statutory and regulatory filings, which mainly include the statutory audits of financial statements of Delhaize Group subsidiaries and assistance with the review of documents filed with the Belgian Banking, Finance and Insurance Commission and the SEC.
(b) Audit-related fees for the years ended December 31, 2006 and 2005 consist, for purposes of U.S. law, of fees for services that are traditionally performed by the independent accountants. These services include accounting consultations, internal control reviews on implementation of information systems, services related to the implementation of Section 404 of Sarbanes-Oxley Act of 2002 and similar services, consultations concerning financial accounting and reporting (especially related to the transition to International Financial Reporting Standards), and due diligence and audits in connection with acquisitions or divestments.
(c) Tax fees as of the years ended December 31, 2006 and 2005 consist of fees expensed for tax planning services and tax advice.
(d) All other fees for the years ended December 31, 2006 and 2005 consist of fees for consulting services rendered by Deloitte Consulting.

Included in 2006 “all other fees” is EUR 42,000 (1.4% of total fees) of services where pre-approval was not required pursuant to the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. During 2005, no audit-related fees, tax fees or other non-audit fees were approved by the Audit Committee pursuant to the de minimus exception.

Audit Committee Pre-Approval Policies and Procedures. Our Board of Directors has adopted a Delhaize Group Audit Committee Pre-Approval Policy that sets forth procedures and conditions for pre-approving audit, audit-related and non-audit services performed by a public accounting firm that acts as the statutory independent registered public auditor (including affiliates, the “Auditor”) responsible for auditing the consolidated and unconsolidated financial statements of Delhaize Group and its subsidiaries and affiliates. The Audit Committee may delegate pre-approval authority to one or more of its independent members, and approval by such member or members within the parameters of the policy will constitute approval of the Audit Committee. The member or members to whom such authority is delegated must report any pre-approval decisions to the Audit Committee at its next meeting. Pre-approved fee levels for all services to be provided by the Auditor to the Company and its subsidiaries will be established periodically by the Audit Committee. Any proposed services exceeding these levels will require separate pre-approval by the Audit Committee. With respect to each proposed pre-approved service, the

 

81


Table of Contents

Auditor will provide appropriate documentation, which will be provided to the Audit Committee, regarding the specific services to be provided. The Audit Committee has designated the Company’s Chief Audit Officer to monitor the performance of services provided by the Auditor and to assess compliance with the pre-approval policies and procedures.

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

 

I TEM 16E. PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS

The following table sets forth certain information related to purchases made by Delhaize Group of its shares or ADSs (in thousands, except the number of shares):

 

Period

   Total
Number
of Shares
Purchased
   Average Price
Paid per
Share (EUR)
   Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
   Approximate Euro
Value of Shares that
May Yet Be Purchased
under the Plans or
Programs (in
thousands) (b)

June 2007(a)

   2,700    71.52    2,700    105,858

May 2007

   80,900    73.49    80,900   

April 2007

   18,400    70.95    18,400   

March 2007

   72,800    68.74    72,800   

February 2007

   73,300    65.53    73,300   

January 2007

   253,175    65.03    253,175   

December 2006

   18,300    61.42    18,300   

November 2006

   221,700    65.04    221,700   

October 2006

   26,400    63.94    26,400   

September 2006

   151,800    61.58    151,800   

August 2006

   —      —      —     

July 2006

   —      —      —     

Total

   919,475    65.55    919,475   

(a) Through June 15, 2007.
(b) In May 2004, our Board of Directors approved the repurchase of up to EUR 200 million of our ordinary shares or ADRs from time to time in the open market, in compliance with applicable law and subject to and within the limits of an outstanding authorization granted to our Board by our shareholders, to satisfy exercises under the stock option plans that we offer our associates. No time limit has been set for these repurchases and they may be discontinued at any time.

 

82


Table of Contents

PART III

 

ITEM 17. FINANCIAL STATEMENTS

Not applicable. See Item 18 “Financial Statements” below.

 

ITEM 18. FINANCIAL STATEMENTS

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

AT DECEMBER 31, 2006 AND 2005 AND FOR EACH OF THE THREE YEARS

IN THE PERIOD ENDED DECEMBER 31, 2006.

 

Report of Independent Registered Public Accounting Firm

   F-1  

Consolidated Balance Sheets at December 31, 2006, 2005 and 2004

   F-4  

Consolidated Income Statements for the years ended December 31, 2006, 2005 and 2004

   F-6  

Consolidated Statements of Recognized Income and Expense for the years ended December 31, 2006, 2005 and 2004

   F-7  

Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004

   F-8  

Notes to Consolidated Financial Statements

   F-11

 

ITEM 19. EXHIBITS

 

Exhibit No.

  

Description

  1.1

   Articles of Association of Delhaize Group (English translation)

  2.1

   Indenture, dated as of April 15, 2001, by and among Delhaize America, Food Lion, LLC and The Bank of New York, as trustee (Filed as Exhibit 10.1 to Delhaize America’s current report on Form 8-K/A (File No. 1-15275) filed with the SEC on April 26, 2001 and incorporated by reference herein)

  2.2

   First Supplemental Indenture, dated as of April 19, 2001, by and among Delhaize America, Food Lion, LLC and The Bank of New York, as trustee (Filed as Exhibit 10.2 to Delhaize America’s current report on Form 8-K/A (File No. 1-15275) filed with the SEC on April 26, 2001 and incorporated by reference herein)

  2.3

   Second Supplemental Indenture, dated as of September 6, 2001, by and among Delhaize America, Food Lion, LLC, Hannaford Bros. Co., Kash n’ Karry Food Stores, Inc. and The Bank of New York, as Trustee (Filed as Exhibit 4(e) to Delhaize America’s Registration Statement on Form S-4 (File No. 333-69520) filed with the SEC on September 17, 2001 and incorporated by reference herein)

  2.4

   Form of Third Supplemental Indenture, dated as of November 15, 2001, by and among Delhaize America, Food Lion, LLC, Hannaford Bros. Co., Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop N Save-Mass., Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc. and The Bank of New York, as Trustee (Filed as Exhibit 4(f) of Amendment No. 2 to Delhaize America’s Registration Statement on Form S-4 (File No. 333-69520) filed with the SEC on November 15, 2001 and incorporated by reference herein)

 

83


Table of Contents

Exhibit No.

  

Description

  2.5

   Registration Rights Agreement, dated as of April 19, 2001, by and among Delhaize America, Food Lion, LLC and Salomon Smith Barney Inc., Chase Securities Inc. and Deutsche Banc Alex. Brown, Inc., in their respective capacities as initial purchasers and as representatives of each of the other initial purchasers (Filed as Exhibit 10.3 to Delhaize America’s current report on Form 8-K/A (File No. 1-15275) filed with the SEC on April 26, 2001 and incorporated by reference herein)

  2.6

   Fourth Supplemental Indenture, dated March 10, 2004 and effective as of December 31, 2003, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co, Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop’n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp. and The Bank of New York, as Trustee (Filed as Exhibit 4(h) to Delhaize America’s annual report on Form 10-K (File No. 0-6080) filed with the SEC on April 2, 2004 and incorporated by reference herein)

  2.7

   Trust Deed, dated April 30, 2004, between Delhaize Group S.A. and The Bank of New York (Filed as Exhibit 2.7 to Delhaize Group’s annual report on Form 20-F (File No. 333-13302) filed with the SEC on June 30, 2004 and incorporated by reference herein)

  2.8

   Fifth Supplemental Indenture, dated as of May 17, 2005, by and among Delhaize America, Food Lion, LLC, Hannaford Bros. Co., Kash N’ Karry Food Stores, Inc., Fl Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods Of South Burlington, Inc., Shop ‘N Save-Mass., Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., Llc, Hannaford Licensing Corp., Victory Distributors, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4 to Delhaize America’s Quarterly Report on Form 10-Q filed May 17, 2005)

  2.9

   Agreement of Resignation, Appointment and Acceptance, dated as of April 19, 2006, among Delhaize America, the guarantors signatory thereto, and The Bank of New York, as resigning trustee, and The Bank of New York Trust Company, N.A., as new trustee (incorporated by reference to Exhibit 4(k) to Delhaize America’s Annual Report on Form 10-K filed March 30, 2007)

  2.10

   Sixth Supplemental Indenture, dated as of May 21, 2007, among Delhaize America, Inc, as issuer, Delhaize Group, Food Lion, LLC, Hannaford Bros. Co., Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop ‘n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp. and Victory Distributors, Inc. and The Bank of New York Trust Company N.A., as Trustee, to that certain Indenture, dated as of April 15, 2001 (incorporated by reference to Exhibit 99.5 to Delhaize Group’s Report on Form 6-K, filed on May 29, 2007)

  2.11

   Indenture, dated as of June 27, 2007, by and among Delhaize Group and The Bank of New York, as trustee

  2.12

   Indenture, dated as of June 27, 2007, by and among Delhaize Group and The Bank of New York, as trustee

  2.13

   Deposit Agreement dated, as of June 27, 2007, among Delhaize Group and The Bank of New York, as CDI Depositary

 

84


Table of Contents

Exhibit No.

  

Description

  2.14

   Purchase Agreement, dated as of June 18, 2007, by and among Delhaize Group, Bank of America Securities LLC and Merrill Lynch & Co.

  2.15

   Registration Rights Agreement, dated as of June 27, 2007, by and among Delhaize Group, Bank of America Securities LLC and Merrill Lynch & Co. as Initial Purchasers and certain Guarantors.

  4.1

   Agreement and Plan of Share Exchange dated November 16, 2000 by and between Delhaize Group and Delhaize America, as amended (included as Annex A to Delhaize Group’s registration statement on Form F-4 (File No. 333-13302) filed with the SEC on March 23, 2001 and incorporated by reference herein)

  4.2

   Form of Deposit Agreement among Delhaize Group, The Bank of New York and all holders from time to time of Delhaize Group ADRs (Filed as Exhibit 4.1 to Delhaize Group’s registration statement on Form F-4 (File No. 333-13302) filed with the SEC on March 23, 2001 and incorporated by reference herein)

  4.3

   Fiscal Agency Agreement dated May 18, 1999 between Delhaize Group, as issuer, Banque Bruxelles Lambert S.A., as fiscal agent, and Banque Bruxelles Lambert S.A. and Banque Générale du Luxembourg S.A., as paying agents (Filed as Exhibit 10.2 to Delhaize Group’s registration statement on Form F-4 (File No. 333-13302) filed with the SEC on March 23, 2001 and incorporated by reference herein)

  4.4

   Revolving Credit Agreement dated November 4, 1999 among Delhaize Group, Delhaize The Lion Coordination Center and Fortis Banque (Filed as Exhibit 10.4 to Delhaize Group’s registration statement on Form F-4 (File No. 333-13302) filed with the SEC on March 23, 2001 and incorporated by reference herein)

  4.5

   Fiscal Agency Agreement dated February 13, 2001 between Delhaize “The Lion” Nederland B.V., as issuer, Delhaize Group, as guarantor, Fortis Bank nv-sa, as fiscal agent, and Banque Générale du Luxembourg S.A. and Fortis Bank nv-sa, as paying agents (Filed as Exhibit 10.5 to Delhaize Group’s registration statement on Form F-4 (File No. 333-13302) filed with the SEC on March 23, 2001 and incorporated by reference herein)

  4.6

   Fiscal Agency Agreement dated May 20, 2002 between Delhaize Finance B.V., as issuer, Delhaize Group, as guarantor, Fortis Bank NV-SA, as fiscal agent, and Banque Générale du Luxembourg S.A., Fortis Bank (Nederland) N.V. and Fortis Bank NV-SA, as paying agents (Filed as Exhibit 4.6 to Delhaize Group’s annual report on Form 20-F (File No. 333-13302) filed with the SEC on June 30, 2003 and incorporated by reference herein)

  4.7

   Cross Guarantee Agreement, dated May 21, 2007, by and among Delhaize Group, Delhaize America, Inc. Food Lion, LLC, Hannaford Bros. Co., Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop ‘n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp. and Victory Distributors, Inc. (incorporated by reference to Exhibit 99.2 to Delhaize Group’s Report on Form 6-K, filed on May 29, 2007)

 

85


Table of Contents

Exhibit No.

  

Description

  4.8

   Amended and Restated Credit Agreement, dated as of May 21, 2007, among Delhaize America, Inc., as borrower, Delhaize Group, as guarantor, the subsidiary guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, issuing bank and swingline lender (incorporated by reference to Exhibit 99.3 to Delhaize Group’s Report on Form 6-K, filed on May 29, 2007)

  8.1

   Subsidiaries of Delhaize Group (as of December 31, 2006)

11.1

   Delhaize Group Code of Business Conduct and Ethics, as revised effective December 31, 2005 (Filed as Exhibit F to Annex 5 to Exhibit 99.2 to Delhaize Group’s Report on Form 6-K (File No. 333-13302) filed with the SEC on May 19, 2006 and incorporated by reference herein)

12.1

   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7241)

12.2

   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7241)

13.1

   Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

15.1

   Consent of Deloitte Bedrijfsrevisoren / Reviseurs d’Entreprises BV o.v.v.e. CVBA / SC s.f.d. SCRL

15.2

   Delhaize Group Annual Report to Shareholders for 2006 (Filed on Delhaize Group’s report on Form 6-K (File No. 333-13302) filed with the SEC on May 7, 2007 and incorporated by reference herein)

15.3

   Undertaking of Delhaize Group to file exhibits pursuant to Instruction 2(b)(i) as to exhibits to Form 20-F

 

86


Table of Contents

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

 

ETABLISSEMENTS DELHAIZE FRÈRES ET CIE

“LE LION” (GROUPE DELHAIZE)

  By:  

/s/ Pierre-Olivier Beckers

    Pierre-Olivier Beckers
    President and Chief Executive Officer
Date: June 29, 2007    

 

87


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Etablissements Delhaize Frères et Cie “Le Lion” (Groupe Delhaize) S.A.:

We have audited the accompanying consolidated balance sheets of Etablissements Delhaize Frères et Cie “Le Lion” (Groupe Delhaize) S.A. and subsidiaries (“Delhaize Group”) as of December 31, 2006, 2005 and 2004, and the related consolidated statements of income, recognized income and expense, and cash flows for each of the three years in the period ended December 31, 2006 (all expressed in euros). These financial statements are the responsibility of Delhaize Group’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with legal requirements and auditing standards applicable in Belgium, as issued by the “Institut des Reviseurs d’Entreprises/Instituut der Bedrijfsrevisoren” and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Delhaize Group at December 31, 2006, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with International Financial Reporting Standards (“IFRS”) as adopted by the European Union.

IFRS as adopted by the European Union vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 43 to the consolidated financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Delhaize Group’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 28, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of Delhaize Group’s internal control over financial reporting and an unqualified opinion on the effectiveness of Delhaize Group’s internal control over financial reporting.

Diegem, Belgium

June 28, 2007

 

/s/ Philip Maeyaert


DELOITTE Bedrijfsrevisoren / Reviseurs d’Entreprises

BV o.v.v.e. CVBA / SC s.f.d. SCRL

Represented by Philip Maeyaert

 

F-1


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Etablissements Delhaize Frères et Cie “Le Lion” (Groupe Delhaize) S.A.:

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that Etablissements Delhaize Frères et Cie “Le Lion” (Groupe Delhaize) S.A. and subsidiaries (“Delhaize Group”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The management of Delhaize Group is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of Delhaize Group’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Delhaize Group maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, Delhaize Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

F-2


Table of Contents

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2006 of Delhaize Group and our report dated June 28, 2007 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the differences between International Financial Reporting Standards and accounting principles generally accepted in the United States of America.

Diegem, Belgium

June 28, 2007

 

/s/ Philip Maeyaert


DELOITTE Bedrijfsrevisoren / Reviseurs d’Entreprises

BV o.v.v.e. CVBA / SC s.f.d. SCRL

Represented by Philip Maeyaert

 

F-3


Table of Contents

CONSOLIDATED BALANCE SHEETS

Consolidated Assets

 

(in millions of EUR)

   Note    2006    2005(1)    2004(1)

Goodwill

   7    2,697.6    2,997.4    2,462.8

Intangible assets

   8    604.6    675.2    601.4

Property, plant and equipment

   9    3,400.0    3,587.7    3,022.8

Investment property

   10    25.6    28.0    17.8

Investment in securities

   11    121.0    125.0    115.9

Other financial assets

   12    11.9    12.3    41.5

Deferred tax assets

   25    7.9    5.5    6.0

Derivative instruments

   19    0.2    1.2    6.3

Other non–current assets

      4.0    8.3    4.2
                   

Total non–current assets

      6,872.8    7,440.6    6,278.7
                 

Inventories

   13    1,337.9    1,418.0    1,224.5

Receivables

      527.1    482.6    446.0

Income tax receivable

      2.5    11.7    5.5

Investment in securities

   11    32.4    29.1    24.6

Other financial assets

   12    0.3    0.3    1.5

Derivative instruments

   19    1.7    —      —  

Prepaid expenses

      39.0    42.1    41.4

Other current assets

      25.8    24.6    19.9

Cash and cash equivalents

   5    304.8    804.9    660.4

Assets classified as held for sale

      151.1    —      —  
                   

Total current assets

      2,422.6    2,813.3    2,423.8
                 

Total assets

      9,295.4    10,253.9    8,702.5
                 

(1) Adjusted for the change in accounting policy described in Note 3

See notes to the consolidated financial statements.

 

F-4


Table of Contents

Consolidated Liabilities and Equity

 

(in millions of EUR)

   Note    2006    2005(1)    2004(1)

Share capital

   15    48.2    47.4    46.8

Share premium

   15    2,514.5    2,428.3    2,375.4

Treasury shares

   15    (54.8)    (33.4)    (18.3)

Retained earnings

   15    2,075.6    1,837.7    1,578.0

Other reserves

   15    (32.6)    (49.2)    (34.3)

Cumulative translation adjustments

   15    (1,025.7)    (664.9)    (1,105.4)

Shareholders’ equity

      3,525.2    3,565.9    2,842.2

Minority interests

   15    36.2    30.2    32.4
                   

Total equity

      3,561.4    3,596.1    2,874.6
                 

Long–term debt

   16    2,169.8    2,546.4    2,773.0

Obligations under finance lease

   18    602.0    653.5    558.5

Deferred tax liabilities

   25    186.0    242.5    237.7

Derivative instruments

   19    2.8    9.1    15.1

Provisions

   20, 21, 22, 23    290.3    350.7    288.4

Other non–current liabilities

      34.5    35.9    25.6
                   

Total non–current liabilities

      3,285.4    3,838.1    3,898.3
                 

Short–term borrowings

   17    101.8    0.1    28.1

Long–term debt – current

   16    181.6    658.3    10.8

Obligations under finance lease – current

   18    34.5    35.8    30.1

Derivative instruments

   19    2.1    —      —  

Provisions – current

   20, 21, 22, 23    14.3    21.5    27.5

Income tax payable

      75.1    79.5    60.6

Accounts payable

      1,504.4    1,498.3    1,308.1

Accrued expenses

   24    384.0    415.9    366.9

Other current liabilities

      99.6    110.3    97.5

Liabilities associated with assets held for sale

   5    51.2    —      —  

Total current liabilities

      2,448.6    2,819.7    1,929.6
                   

Total liabilities

      5,734.0    6,657.8    5,827.9
                 

Total liabilities and equity

      9,295.4    10,253.9    8,702.5
                 

(1) Adjusted for the change in accounting policy described in Note 3

See notes to the consolidated financial statements.

 

F-5


Table of Contents

CONSOLIDATED INCOME STATEMENTS

 

(in millions of EUR)

   Note    2006      2005(1)      2004(1)  

Net sales and other revenues

      19,225.2      18,345.3      17,596.8  

Cost of sales

   29, 30    (14,372.2 )    (13,710.1 )    (13,250.9 )
                         

Gross profit

      4,853.0      4,635.2      4,345.9  

Gross margin

      25.2 %    25.3 %    24.7 %
                       

Other operating income

   31    82.8      70.7      66.2  

Selling, general and administrative expenses

   30    (3,970.3 )    (3,766.8 )    (3,522.9 )

Other operating expenses

   32    (19.2 )    (39.2 )    (27.0 )
                         

Operating profit

      946.3      899.9      862.2  

Operating margin

      4.9 %    4.9 %    4.9 %
                       

Finance costs

   33    (295.6 )    (322.6 )    (319.2 )

Income from investments

   34    19.9      26.1      14.7  
                         

Profit before taxes and discontinued operations

      670.6      603.4      557.7  

Income tax expense

   25    (245.0 )    (223.8 )    (200.4 )

Net profit from continuing operations

      425.6      379.6      357.3  

Result from discontinued operations (net of tax)

   27    (65.3 )    (9.5 )    (55.5 )
                         

Net profit

      360.3      370.1      301.8  
                       

Net profit attributable to minority interest

      8.4      4.9      6.1  

Net profit attributable to equity holders of the Group (Group share in net profit)

      351.9      365.2      295.7  
                       

(in EUR)

                         

Earnings per share

   26         

Basic

           

Net profit from continuing operations

      4.39      3.99      3.79  

Group share in net profit

      3.71      3.89      3.19  

Diluted

           

Net profit from continuing operations

      4.19      3.81      3.66  

Group share in net profit

      3.55      3.71      3.09  
                       

(in thousands)

                         

Weighted average number of shares outstanding

           

Basic

      94,939      93,934      92,663  

Diluted

      101,906      100,897      97,627  

See notes to the consolidated financial statements.

 

F-6


Table of Contents

CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSE

 

(in millions of EUR)

   2006      2005(1)      2004(1)  

Amortization of deferred loss on hedge, net of tax

   3.2      4.1      4.3  

Unrealized gain (loss) on securities held for sale, net of tax

   (0.1 )    0.1      0.3  

Actuarial gain (loss) on defined benefit plans, net of tax

   9.9      (14.2 )    (3.7 )

Exchange differences gain (loss) on translation of foreign operations

   (215.1 )    (356.6 )    435.1  
                    

Net income (expense) recognized directly in equity

   (343.6 )    425.1      (214.2 )

Net profit

   360.3      370.1      301.8  
                    

Total recognized income and expense for the period

   16.7      795.2      87.6  

Amount attributable to minority interest

   8.1      4.9      5.1  

Amount attributable to equity holders of the Group

   8.6      790.3      82.5  
                    

(1) Adjusted for the change in accounting policy described in Note 3.

See notes to the consolidated financial statements.

 

F-7


Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in millions of EUR)

   2006      2005(1)      2004(1)  

Operating activities

        

Group share in net profit

   351.9      365.2      295.7  

Net profit attributable to minority interest

   8.4      4.9      6.1  

Adjustments for:

        

Depreciation and amortization – continuing operations

   496.0      474.6      457.2  

Depreciation and amortization – discontinued operations

   7.2      8.7      12.1  

Impairment – continuing operations

   2.8      6.8      8.1  

Impairment – discontinued operations

   64.8      5.0      21.5  

Provisions for losses on accounts receivable and inventory obsolescence

   11.8      13.0      0.3  

Share–based compensation

   23.5      27.6      24.3  

Income taxes

   242.2      222.2      178.1  

Finance costs

   300.0      328.4      325.9  

Income from investments

   (20.0 )    (26.2 )    (14.8 )