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, 2001
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: 1-15180
ETABLISSEMENTS DELHAIZE FRERES ET CIE "LE LION" (GROUPE DELHAIZE), S.A.
(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)
RUE OSSEGHEM 53
B-1080 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 92,392,704 (as of June 28, 2002)
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 which financial statement item the registrant has elected
to follow.
Item 17 [ ] Item 18 [X]
TABLE OF CONTENTS
GENERAL INFORMATION...........................................................1
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.......................................12
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.....................21
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.......................37
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS................46
ITEM 8. FINANCIAL INFORMATION............................................47
ITEM 9. THE OFFER AND LISTING............................................48
ITEM 10. ADDITIONAL INFORMATION...........................................50
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......59
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...........60
PART II .................................................................61
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES..................61
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
HOLDERS AND USE OF PROCEEDS......................................61
ITEM 15. [RESERVED].......................................................61
ITEM 16. [RESERVED].......................................................61
PART III .................................................................62
ITEM 17. FINANCIAL STATEMENTS.............................................62
ITEM 18. FINANCIAL STATEMENTS.............................................62
ITEM 19. EXHIBITS.........................................................63
i
GENERAL INFORMATION
The consolidated financial statements of Etablissements Delhaize Freres et
Cie "Le Lion" (Groupe Delhaize), a societe anonyme organized under the laws of
Belgium (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 of this annual report on Form 20-F. The
consolidated financial statements of Delhaize Group presented herein and the
notes to the financial statements are prepared in conformity with accounting
principles generally accepted in Belgium ("Belgian GAAP"), which differ in
certain significant respects from accounting principles generally accepted in
the United States of America ("US GAAP"). The principal differences between
Belgian GAAP and US GAAP, as they relate to Delhaize Group, are presented in
Note 21 to the consolidated financial statements.
Delhaize Group is a food retailer headquartered in Belgium which operates in
10 countries and on three continents. Delhaize Group was founded in Belgium in
1867 and many descendants of the founders are shareholders of Delhaize Group
today. As of December 31, 2001, Delhaize Group had a sales network (which
includes directly operated, affiliated and franchised stores) of 2,444 stores
and employed approximately 147,000 people. The principal activity of Delhaize
Group is the operation of food supermarkets in North America, Europe and
Southeast Asia. Such retail operations are primarily conducted through Delhaize
Group's consolidated subsidiary, Delhaize America, Inc. ("Delhaize America"),
and Delhaize Group's businesses in Belgium (collectively, "Delhaize Belgium").
Delhaize Group's ordinary shares are listed on Euronext Brussels under the
symbol "DELB." Delhaize Group American Depositary Shares ("ADSs"), evidenced by
American Depositary Receipts ("ADRs"), are listed on the New York Stock Exchange
under the symbol "DEG." The Delhaize Group website can be found at
www.delhaizegroup.com and www.delhaize.com.
Delhaize America's results of operations included in Delhaize Group's years
ended December 31, 2001, 2000, and 1999 covered 52 weeks. The results of
operations of Super Discount Markets, Inc. ("SDM") included in Delhaize Group's
years ended December 31, 2001, 2000 and 1999 covered the period through November
12 for 2001, the date SDM filed for bankruptcy, and covered 52 weeks for 2000
and 1999. The results of operations for the remaining consolidated subsidiaries
of Delhaize Group are presented on a calendar year basis.
The preparation of Delhaize Group's consolidated financial statements in
conformity with Belgian GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the balance
sheets and reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
The translations between certain Euro amounts and U.S. dollars (USD) amounts
are included solely for the convenience of readers in the United States of
America and have been made, unless otherwise noted, at the rate of exchange of
EUR 1 = USD 0.9705, the noon buying rate on June 21, 2002. Such translations
should not be construed as representations that the Euro amounts could be
converted into U.S. dollars at that or any other rate.
Our address and telephone number:
Etablissements Delhaize Freres et Cie "Le Lion" (Groupe Delhaize)
rue Osseghem 53
B-1080 Brussels, Belgium
+32-2-412-2111
1
FORWARD-LOOKING STATEMENTS
This document includes or incorporates by reference "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 Delhaize Group that are subject to risks and uncertainties.
All statements included in this document, other than statements of historical
fact, which address activities, events or developments that Delhaize Group
expects or anticipates will or may occur in the future, including, without
limitation, statements regarding expansion and growth of its business,
anticipated store openings and renovations, future capital expenditures,
projected revenue growth or synergies resulting from the share exchange
transaction with Delhaize America, and business strategy, are forward-looking
statements. These forward-looking statements generally can be identified as
statements that include phrases such as "believe", "expect", "anticipate",
"intend", "plan", "foresee", "likely", "will", "should" or other similar words
or phrases.
Although such statements are based on currently available operating,
financial and competitive information, actual outcomes and results may differ
materially from those projected depending upon a variety of factors, including,
but not limited to, changes in the general economy or in the primary markets of
Delhaize Group, changes in consumer spending, competitive factors, the nature
and extent of continued consolidation in the industry, changes in the rates of
inflation or currency exchange rates, changes in foreign, state, regional or
federal legislation or regulation, adverse determination with respect to
litigation or other claims, inability to develop new stores or to complete
remodels as rapidly as planned, stability of product costs and supply or quality
control problems with vendors. This list of factors that may affect future
performance and the accuracy of forward-looking statements are illustrative, but
by no means exhaustive. Accordingly, all forward-looking statements should be
evaluated with the understanding of their inherent uncertainty.
This document describes other important factors that could cause actual
results to differ materially from expectations of Delhaize Group, including the
factors described under the heading entitled "Risk Factors" under Section B of
Item 3 below in this document. All written and oral forward-looking statements
attributable to Delhaize Group or persons acting on behalf of Delhaize Group are
expressly qualified in their entirety by such factors.
2
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 selected financial data for Delhaize Group is qualified in its entirety
by reference to, and should be read in conjunction with, the consolidated
financial statements of Delhaize Group and the notes to the consolidated
financial statements included under Item 18 of this annual report. The
historical financial data has been derived from the audited financial statements
of Delhaize Group prepared in accordance with Belgian GAAP. You should refer to
the financial statements included in this document for a discussion of the
principal material differences between Belgian GAAP and US GAAP as they apply to
Delhaize Group.
Amounts reported in Euros for periods ending prior to January 1, 1999 have
been restated from Belgian Francs to Euros using the fixed exchange rate as of
January 1, 1999 of EUR 1 = BEF 40.3399. The 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 0.9705, the noon buying
rate on June 21, 2002.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2001 2001 2000 1999 1998 1997
USD EUR EUR EUR EUR EUR
-------- -------- -------- -------- -------- ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
BELGIAN GAAP
Sales...................................................... 20,765 21,396 18,168 14,310 12,912 12,608
Operating income........................................... 894 921 740 648 573 511
Income before taxation..................................... 350 361 402 511 455 337
Income after taxation and before minority interests........ 164 169 256 321 293 213
Net income................................................. 145 149 161 170 149 122
Cash dividends(1).......................................... 129 133 125 65 58 51
Earnings per share(2)...................................... 1.82 1.88 3.09 3.27 2.87 2.36
US GAAP(3)
Sales and other revenues................................... 20,650 21,278 17,947 14,086 12,752
Operating income........................................... 748 771 649 623 557
Income before income taxes and minority interests.......... 338 348 380 503 459
Income after income taxes and before minority interests.... 165 170 241 317 297
Net income................................................. 144 148 151 166 154
Cash dividends paid(1)..................................... 121 125 65 58 51
Basic earnings per share(2)................................ 1.81 1.86 2.90 3.19 2.97
Diluted earnings per share(2).............................. 1.80 1.85 2.87 3.18 2.96
3
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2001 2001 2000 1999 1998 1997
USD EUR EUR EUR EUR EUR
-------- -------- ------ ------- ------- ------
(IN MILLIONS)
BALANCE SHEET DATA
BELGIAN GAAP
Other assets-- current.................................... 2,864 2,951 2,910 2,525 2,025 1,927
Total assets............................................. 11,729 12,086 10,398 5,723 4,534 4,488
Short-term borrowings.................................... 554 571 3,348 607 173 242
Long-term borrowings..................................... 3,650 3,761 690 622 467 651
Long-term capitalized lease commitments.................. 746 769 649 482 427 456
Capital shares........................................... 45 46 26 25 25 25
Minority interests....................................... 35 36 1,510 905 830 731
Shareholders' equity..................................... 3,606 3,716 1,365 1,086 911 839
US GAAP(3)
Current assets........................................... 2,708 2,790 2,810 2,453 1,972
Total assets............................................. 11,560 11,911 10,433 5,735 4,528
Short-term borrowings.................................... 543 559 3,303 599 139
Long-term borrowings..................................... 3,651 3,762 689 621 465
Long-term capital lease obligations...................... 766 789 668 500 444
Capital shares........................................... 45 46 26 25 25
Minority interests....................................... 28 29 1,526 902 829
Shareholders' equity..................................... 3,573 3,682 1,550 1,195 963
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2001 2001 2000 1999 1998 1997
USD EUR EUR EUR EUR EUR
--------------------------- -------------------------
(IN MILLIONS, EXCEPT STORE COUNT AND PER SHARE
AMOUNTS)
OTHER DATA
Store count at period end................................. 2,444 2,444 2,310 2,112 1,904 1,816
Weighted average shares outstanding at
period end.............................................. 79,494 79,494 52,023 51,983 51,824 51,717
EBITDA before charge for store closings in
the normal course of business,
exceptional items and minority
interests(4)(5)(6)...................................... 1,600 1,649 1,275 988 881 805
Net cash provided by operating
activities.............................................. 1,173 1,208 670 622 608 497
Net cash (used-in) investing activities................... (590) (608) (3,330) (759) (348) (389)
Net cash (used-in) provided by financing activities....... (447) (460) 2,516 257 (183) (130)
Dividends per share(1)(6)(7).............................. 1.40 1.44 1.36 1.24 1.12 .99
Capital expenditures(6)................................... 537 554 545 525 451 444
- ----------
(1) Delhaize Group pays dividends once a year after the annual meeting of
shareholders following the fiscal year with respect to which the dividend
relates. Under Belgian GAAP, the proposed annual dividend on ordinary
shares to be approved by the annual meeting of shareholders, which is held
subsequent to year-end, is accrued at year-end. Under US GAAP, such
dividends are not considered an obligation until approved. The dividend for
the 2001 fiscal year was approved by Delhaize Group shareholders on May 23,
2002.
(2) Under US GAAP, the calculation of basic earnings per share is based on the
weighted average number of ordinary shares outstanding and diluted earnings
per share takes into account the effects of additional ordinary shares that
would be issued if outstanding dilutive potential shares had been exercised.
Under Belgian GAAP, earnings per share is based only on the weighted average
number of ordinary shares outstanding.
(3) The US GAAP information only includes items required to be disclosed. Data
as of December 31, 1997 and for the year then ended are not available.
4
(4) Earnings before interest, taxes, depreciation and amortization (EBITDA)
before charge for store closings in the normal course of business,
exceptional items and minority interests is computed as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2001 2001 2000 1999 1998 1997
USD EUR EUR EUR EUR EUR
-------- ------ -------- -------- -------- ------
(IN MILLIONS)
Net income............................ 145 149 161 170 149 122
Charge for store closings in the normal
course of business.................. 9 9 30 12 13 --
Financial expenses, net............... 450 464 297 140 117 133
Taxation.............................. 186 192 146 190 162 124
Depreciation and amortization......... 699 720 505 328 295 294
Exceptional expense (income), net(a).. 93 96 41 (3) 1 41
Minority interests.................... 18 19 95 151 144 91
----- ----- ----- --- --- ---
EBITDA before charge for store closings in
the normal course of business,
exceptional items and minority
interests........................... 1,600 1,649 1,275 988 881 805
===== ===== ===== === === ===
----------
(a) Exceptional items under Belgian GAAP, as presented herein,
do not qualify as extraordinary items under US GAAP.
Exceptional items consisted of the following:
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2001 2001 2000 1999 1998 1997
USD EUR EUR EUR EUR EUR
-------- -------- ------- ------- ------- ------
(IN MILLIONS)
Gains on disposals of fixed assets......... 8 8 6 18 20 33
Losses on disposals of fixed assets........ (12) (12) (3) (15) (18) (34)
Merger costs related to the Hannaford
acquisition.............................. (24) (25) (42) -- -- --
Costs related to the share exchange with
Delhaize America......................... (17) (17) -- -- -- --
Costs incurred to close Super Discount
Markets, Inc............................. (34) (35) -- -- -- --
Costs incurred relating to the impairment
of seven Delvita stores and the closure
of eight other Delvita stores............ (18) (19) -- -- -- --
Costs incurred to close 15 Delhaize
America stores (outside the normal
course of business)...................... -- -- (32) -- -- --
Costs incurred to close 61 Delhaize
America stores........................... -- -- -- -- -- (99)
Gain on disposal of investment in P.G...... -- -- 32 -- -- 22
Recognition of unused reserves for closed
stores................................... -- -- -- -- -- 37
Other income (expense), net................ 4 4 (2) -- (3) --
---- ---- ---- ---- ---- ----
Total exceptional (expense) income,
net.................................... (93) (96) (41) 3 (1) (41)
==== ==== ==== ==== ==== ====
(5) EBITDA before charge for store closings in the normal course of business,
exceptional items and minority interests, as reported in this document, may
not be comparable to similarly titled measures by other companies, is not a
measure of financial performance under Belgian GAAP or US GAAP, and should
not be considered an alternative to net income or to cash flows from
operating activities or a measure of liquidity. We believe EBITDA before
charge for store closings in the normal course of business, exceptional
items and minority interests is an important indicator of the operational
strength and performance of our business and is widely used by analysts,
investors and other interested parties.
(6) Derived from Belgian GAAP account balances.
(7) The dividend to the shareholders as proposed by the Board of Directors is a
fixed per share amount. The amount of the accrued dividend in the Belgian
GAAP 2000 consolidated financial statements was based on the number of
Delhaize Group ordinary shares that was expected to be eligible to receive
the fiscal year 2000 dividend, which included those shares of Delhaize
America exchanged for ordinary shares of Delhaize Group.
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 the calendar year of Delhaize Group to which the
dividend relates. Actual payment of the annual dividend for each fiscal year
occurs following Delhaize Group's
5
annual shareholders' meeting in the subsequent year. The amounts set forth below
have been translated into U.S. dollars at the noon buying rate on the respective
dividend payment dates. The noon buying rate may differ from the rate that may
be used by the depositary to convert Euros into U.S. dollars for purposes of
making dividend payments to holders of Delhaize Group ADRs. The dividend amounts
for the Delhaize Group ordinary shares do not reflect any withholding taxes with
respect to such dividends.
DIVIDEND PER
FISCAL YEAR DELHAIZE GROUP
FOR DIVIDEND ORDINARY SHARE
------------ ---------------------------------
(AMOUNTS IN EUR) (AMOUNTS IN USD)
1999..............................................1.24 1.15*
2000..............................................1.36 1.15**
2001..............................................1.44 1.33**
----------
* The U.S. dollar amount for 1999 is provided solely for convenience
since dividends were paid by Delhaize Group only in Euros for that
year.
** Actual dividend per Delhaize Group ADR paid by The Bank of New York, as
depositary, to holders of Delhaize Group ADRs on the dividend payment
date.
Under Belgian law, Delhaize Group is required to set aside at least 5% of
its profits during each fiscal year and contribute such amount to its statutory
reserves until such reserve has reached an amount equal to 10% of Delhaize
Group's capital. Subject to this requirement, the Delhaize Group Board of
Directors may propose, at a shareholders' meeting at which annual accounts are
reviewed, to distribute as a dividend all or a portion of Delhaize Group's net
profits from the prior accounting years available for distribution. In
connection with the approval of Delhaize Group's accounts, the shareholders may,
at a general meeting, authorize a distribution of Delhaize Group's net profits
to shareholders out of reserves, subject to the requirement set forth in the
first sentence of this paragraph.
The Bank of New York, as Delhaize Group's depositary, holds the underlying
ordinary shares represented by the Delhaize Group ADSs. Each Delhaize Group ADS
represents ownership interests in the underlying Delhaize Group ordinary share
and the right to receive one Delhaize Group ordinary share which Delhaize Group
deposited with the depositary upon the completion of the share exchange with
Delhaize America. 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, Delhaize Group and all holders from time to time of the
Delhaize Group ADRs, 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 Delhaize Group pays 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 ADR 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 ADR holders who have not been paid. Before making a distribution, any
withholding taxes that must be paid under applicable laws will be deducted. See
"Taxation" under Item 10, Section E below. 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 EMU was implemented on
January 1, 1999, and a single European currency, known as the Euro, was
introduced. The following 12 member states participate in the EMU and have
adopted the Euro: Austria, Belgium, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, The Netherlands, Portugal and Spain. The legal rate of
conversion between Belgian Francs and the Euro was fixed on January 1, 1999 at
EUR 1.00 = BEF 40.3399.
6
The Euro/U.S. dollar exchange rate was EUR 1 = USD 0.9705 as of June 21,
2002. The following table shows the U.S. dollar/Belgian Franc exchange rate for
1997 and 1998 based on the period-end noon buying rate expressed in Belgian
Francs per USD 1.00, and the Euro/U.S. dollar exchange rate for 1999, 2000, 2001
and the six months preceding the date of this document, based on the period-end
noon buying rate expressed in U.S. dollars per Euro. Although the Euro was not
introduced until 1999, Delhaize Group has restated its financial information in
Euros for prior years based on the legal rate of conversion between Belgian
Francs and the Euro established on January 1, 1999.
AVERAGE
YEAR/MONTH PERIOD END RATE(1) HIGH LOW
- ---------- ---------- ------- ---- ---
EURO/U.S. DOLLAR USD USD USD USD
----------- ----------- --------- --------
June 2002 (through June 21)............... 0.9705 --- 0.9705 0.9390
May 2002.................................. 0.9339 --- 0.9373 0.9022
April 2002................................ 0.9002 --- 0.9028 0.8750
March 2002................................ 0.8717 --- 0.8836 0.8652
February 2002............................. 0.8658 --- 0.8778 0.8613
January 2002.............................. 0.8594 --- 0.9031 0.8594
2001...................................... 0.8901 0.8909 0.9535 0.8370
2000...................................... 0.9388 0.9207 1.0335 0.8270
1999...................................... 1.0070 1.0588 1.1812 1.0016
U.S. DOLLAR/BELGIAN FRANC BEF BEF BEF BEF
----------- ----------- --------- --------
1998...................................... 34.360 36.292 38.500 33.190
1997...................................... 37.080 35.898 38.820 31.760
----------
(1) The average of the noon buying rates for Belgian Francs or Euros, as
the case may be, on the last business day of each month during the
relevant period.
B. RISK FACTORS
RISKS RELATED TO OPERATIONS
DELHAIZE GROUP'S RESULTS ARE SUBJECT TO RISKS RELATING TO COMPETITION AND
NARROW PROFIT MARGINS IN THE SUPERMARKET INDUSTRY WHICH COULD ADVERSELY
AFFECT NET INCOME AND CASH GENERATED FROM OPERATIONS.
The supermarket industry is competitive and generally characterized by
narrow profit margins. Delhaize Group's 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 and discount
retailers. Supermarket chains generally compete on the basis of location,
quality of products, service, price, product variety and store condition.
Delhaize Group believes that it could face increased competition in the future
from all of these competitors. To the extent Delhaize Group reduces prices to
maintain or grow its market share in the face of competition, net income and
cash generated from operations could be adversely affected. In addition, there
are a number of supercenters in Delhaize America's markets which sell products
typically sold by supermarkets and discount stores. Some of Delhaize Group's
competitors have greater financial, distribution, purchasing and marketing
resources than Delhaize Group. Delhaize Group's profitability could be impacted
by the pricing, purchasing, financing, advertising or promotional decisions made
by competitors.
DELHAIZE GROUP HAS SUBSTANTIAL DEBT OUTSTANDING THAT COULD NEGATIVELY IMPACT
ITS BUSINESS.
We have substantial debt outstanding. As of December 31, 2001, Delhaize
Group had total consolidated debt outstanding of approximately EUR 4.4 billion,
total capital lease obligations of approximately EUR 813 million and
approximately EUR 0.9 billion of unused commitments under its revolving credit
facilities. Our high level of debt could:
o make it difficult for us to satisfy our obligations, including making
interest payments;
7
o limit our ability to obtain additional financing to operate our
business;
o limit our financial flexibility in planning for and reacting to
industry changes;
o place us at a competitive disadvantage as compared to less leveraged
companies;
o increase our vulnerability to general adverse economic and industry
conditions, including changes in interest rates; and
o require us to dedicate a substantial portion of our cash flow to
payments on our debt, reducing the availability of our cash flow for
other purposes.
We may borrow additional funds to fund 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.
WE MAY NOT BE ABLE TO ACHIEVE THE ANTICIPATED BENEFITS AND COST SAVINGS OF
THE SHARE EXCHANGE RESULTING FROM INTEGRATING THE OPERATIONS OF DELHAIZE
AMERICA AND DELHAIZE GROUP.
Delhaize Group and Delhaize America initially projected that the share
exchange transaction consummated on April 25, 2001 would create operating
synergies resulting in cost savings of approximately EUR 23 million annually on
a pre-tax basis as a result of, among other things, increased purchasing power,
elimination of duplicative functions and the implementation of best practices
across the companies. Delhaize Group will not be able to achieve these cost
savings unless it is able to integrate the operations of the two companies
efficiently. Additionally, the integration of operations will require
significant management attention. Any difficulties encountered in the
integration of the companies could result in Delhaize Group not achieving the
anticipated synergies and benefits of the share exchange. If Delhaize Group does
not achieve the anticipated benefits of the share exchange and expected cost
savings, then its profits will be lower than those expected by Delhaize Group.
A COMPETITIVE LABOR MARKET MAY INCREASE DELHAIZE GROUP'S COSTS, WITH THE
RESULT OF DECREASING DELHAIZE GROUP'S PROFITS OR INCREASING ITS LOSSES.
Delhaize Group's success depends in part on its ability to attract and
retain qualified personnel in all areas of its business. Delhaize Group competes
with other businesses in its markets in attracting and retaining employees.
Tight labor markets, increased overtime, 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 Delhaize Group's results
of operations. A shortage of qualified employees may require Delhaize Group to
increase its wage and benefits offerings in order to compete effectively in the
hiring and retention of qualified employees or to have more expensive temporary
employees. Increased labor costs could increase Delhaize Group's costs, with the
result of decreasing Delhaize Group's profits or increasing Delhaize Group's
losses. Delhaize Group cannot assure you that it can fully absorb any increased
labor costs through its efforts to increase efficiencies in other areas of its
operations. Any significant failure of Delhaize Group to attract and retain
qualified personnel or to control labor costs could harm Delhaize Group's
results of operations.
BECAUSE OF THE GEOGRAPHIC CONCENTRATION OF DELHAIZE AMERICA'S STORES IN THE
EAST COAST OF THE UNITED STATES, THE REVENUES OF DELHAIZE GROUP COULD SUFFER
IF THE ECONOMY OF THAT REGION DETERIORATES.
During 2001, approximately 78% of Delhaize Group's sales were generated
through its ownership of Delhaize America. Substantially all of Delhaize
America's stores are located on the east coast of the United States.
Consequently, Delhaize Group's operations depend significantly upon the economic
and other conditions in this area. If the east coast of the United States were
to experience a general economic downturn or other adverse condition for a
substantial period of time, the results of operations of Delhaize Group may
suffer.
8
BECAUSE OF THE NUMBER OF PROPERTIES OWNED AND LEASED BY DELHAIZE GROUP,
DELHAIZE GROUP HAS A POTENTIAL RISK OF ENVIRONMENTAL LIABILITY.
Delhaize Group is subject to federal, regional, state, local and foreign
laws, regulations and ordinances that govern activities and operations that may
have adverse environmental effects and impose liability for the costs of
cleaning up, and certain damages arising from, sites of past spills, disposals
or other releases of hazardous materials. Under applicable environmental laws,
Delhaize Group may be responsible for the remediation of environmental
conditions and may be subject to associated liabilities relating to its stores
and the land on which its stores, warehouses and offices are situated,
regardless of whether the company leases, subleases or owns the stores,
warehouses or land in question and regardless of whether such environmental
conditions were created by Delhaize Group or by a prior owner or tenant.
Delhaize Group cannot assure you that environmental conditions relating to
prior, existing or future store sites will not harm Delhaize Group.
IF DELHAIZE GROUP IS UNABLE TO LOCATE APPROPRIATE REAL ESTATE OR ENTER INTO
REAL ESTATE LEASES ON COMMERCIALLY ACCEPTABLE TERMS, IT MAY BE UNABLE TO
OPEN NEW STORES.
Delhaize Group's ability to open new supermarkets is dependent on
identifying and entering into leases on commercially reasonable terms for
properties that are suitable for its needs. If Delhaize Group fails to identify
and enter into leases on a timely basis for any reason, including its inability
due to competition from other companies seeking similar sites, Delhaize Group's
growth may be impaired because it may be unable to open new stores as
anticipated. Similarly, its business may be harmed if it is unable to renew the
leases on its existing stores on commercially acceptable terms.
UNFAVORABLE EXCHANGE RATE FLUCTUATIONS MAY NEGATIVELY IMPACT OUR RESULTS OF
OPERATIONS.
Delhaize Group's operations are conducted primarily in the United States and
Belgium and to a lesser extent in other parts of Europe and Southeast Asia. The
results of operations and the financial position of each entity in Delhaize
Group's consolidated group outside the Eurozone are reported in its relevant
local currency and then translated into Euros at the applicable foreign currency
exchange rate for inclusion in Delhaize Group's consolidated financial
statements. Exchange rate fluctuations between these foreign currencies and the
Euro may have a material adverse effect on Delhaize Group's consolidated
financial statements as reported in Euros.
Delhaize Group also faces transaction risks from fluctuations in exchange
rates between the various currencies in which it does business. Transactions
which are most likely to result in exchange rate risks for Delhaize Group relate
to credit arrangements and dividends paid by subsidiaries to Delhaize Group.
Dividends paid from Delhaize America to Delhaize Group may be adversely affected
by exchange rate fluctuations.
RISKS RELATING TO OWNERSHIP OF DELHAIZE GROUP ADRS
THE TRADING PRICE OF DELHAIZE GROUP ADRS AND DIVIDENDS PAID ON THE DELHAIZE
GROUP 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 Delhaize Group 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:
o 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;
o 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
o the U.S. dollar equivalent of cash dividends paid in Euro on the
Delhaize Group shares represented by the ADRs.
9
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 carry out voting instructions or for the manner of carrying out
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 DELHAIZE GROUP'S INCORPORATION IN
BELGIUM, WHICH PROVIDES FOR DIFFERENT AND IN SOME CASES MORE LIMITED
SHAREHOLDER RIGHTS THAN THE LAWS OF JURISDICTIONS IN THE UNITED STATES.
Delhaize Group is 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:
o the validity of corporate procedures;
o the fiduciary duties of management;
o the dividend payment dates; and
o the rights of shareholders.
may differ from those that would apply if Delhaize Group 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 limited.
In addition, a holder of Delhaize Group ordinary shares must deposit the
ordinary shares under which voting rights will be exercised with Delhaize
Group's 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 Delhaize Group 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.
YOU MAY BE UNABLE TO SERVE LEGAL PROCESS OR ENFORCE JUDGMENTS AGAINST
DELHAIZE GROUP AND ITS DIRECTORS, OFFICERS AND EXPERTS.
Delhaize Group is a Belgian company and most of its officers and directors
and its external auditor, Deloitte & Touche Reviseurs d'Entreprises SC sfd SCRL,
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 United States courts against any of these non-resident
persons or Delhaize Group 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 United States courts.
Actions for enforcement of judgments of United States courts might be successful
only if the Belgian court confirms the substantive correctness of the judgment
of the United States court, and is satisfied:
o that the judgment is not contrary to the principles of public policy
in Belgium or rules of Belgian public law;
10
o that the judgment did not violate the rights of the defendant;
o that the judgment is not subject to further recourse under United
States law;
o that the United States court did not accept its jurisdiction solely on
the basis of the nationality of the plaintiff; and
o that the text of the judgment submitted to the Belgian court is
authentic.
HOLDERS OF DELHAIZE GROUP 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 the Delhaize Group 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 holders of Delhaize Group ADRs to
participate in and influence the governance of Delhaize Group is limited.
HOLDERS OF DELHAIZE GROUP ADRS HAVE LIMITED RECOURSE IF DELHAIZE GROUP OR
THE DEPOSITARY FAILS TO MEET ITS RESPECTIVE OBLIGATIONS UNDER THE DEPOSIT
AGREEMENT OR IF THEY WISH TO INVOLVE DELHAIZE GROUP OR THE DEPOSITARY IN A
LEGAL PROCEEDING.
The deposit agreement expressly limits the obligations and liability of
Delhaize Group and the depositary. Neither Delhaize Group nor the depositary
will be liable to the extent that liability results from the fact that they:
o are prevented or hindered in performing any obligation by
circumstances beyond their control;
o exercise or fail to exercise discretion under the deposit agreement;
o perform their obligations without negligence or bad faith;
o 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
o rely on any documents they believe in good faith to be genuine and
properly executed.
In addition, neither Delhaize Group nor the depositary has any obligation to
participate in any action, suit or other proceeding in respect of the Delhaize
Group 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 Delhaize Group ADRs to obtain recourse if Delhaize Group
or the depositary fails to meet its respective obligations under the deposit
agreement or if they wish to involve Delhaize Group or the depositary in a legal
proceeding.
DELHAIZE GROUP IS SUBJECT TO DIFFERENT DISCLOSURE STANDARDS WHICH MAY LIMIT
THE INFORMATION AVAILABLE TO HOLDERS OF DELHAIZE GROUP ADRS AND DIFFERENT
CORPORATE GOVERNANCE STANDARDS WHICH MAY LIMIT THE TRANSPARENCY AND
INDEPENDENCE OF CORPORATE GOVERNANCE.
As a foreign private issuer, Delhaize Group is not required to comply with
the notice and disclosure requirements under the Exchange Act relating to the
solicitation of proxies for shareholder meetings. In addition, as a foreign
private issuer, Delhaize Group is not subject to the insider "short-swing"
profit disclosure and reporting rules under Section 16 of the Exchange Act.
Although Delhaize Group is subject to the periodic reporting requirements of the
Exchange Act, the periodic disclosure required of foreign private issuers under
the Exchange Act is more limited than the periodic disclosure required of United
States issuers. Therefore, there may be less publicly available information
about Delhaize Group than is regularly published by or about other public
companies in the United States. In addition, as a Belgian company subject to the
rules and regulations of the Securities and Exchange Commission ("SEC"),
Delhaize Group may publicly file its earnings reports later than U.S. issuers.
11
Delhaize Group is required to file annual reports on Form 20-F and current
reports on Form 6-K. Delhaize Group intends to file current reports containing
financial information on a quarterly basis.
In addition, Delhaize Group, as a foreign private issuer, is exempt from
some of the corporate governance requirements of the New York Stock Exchange,
including the requirements concerning audit committees and independent
directors.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY
Our Company is a societe anonyme (public company) organized under the laws
of the Kingdom of Belgium. Until May 23, 2002 our legal name in French was
Etablissements Delhaize Freres et Cie "Le Lion" S.A. Since May 2002, the name
has been changed in French to Etablissements Delhaize Freres et Cie "Le Lion"
(Groupe Delhaize), in Dutch to Gebroeders Delhaize en Cie"De Leeuw" (Delhaize
Groep) and in English to Delhaize Brothers and Co. "The Lion" (Delhaize Group),
in abbreviated form "Groupe Delhaize" in French, "Delhaize Groep" in Dutch and
"Delhaize Group" in English. The company can use either its full corporate name
or any of the abridged names. In 1867, the brothers Jules and Auguste Delhaize
founded the Company as a wholesale supplier of groceries, in Charleroi, Belgium.
In 1957, Delhaize Group opened its first supermarket in Belgium. Since that
date, Delhaize Group has expanded its supermarket operations across Belgium and
into other parts of Europe as well as North America and Southeast Asia. The
Company was converted from a limited partnership to its existing corporate
structure on February 22, 1962. The registered office of Delhaize Group is
located at rue Osseghem 53, B-1080 Brussels, Belgium.
Delhaize Group entered the United States in 1974, when Delhaize Group
acquired approximately 35% of Food Town Stores, Inc., a food retailer and the
predecessor of Delhaize America. In 1974, Food Town Stores operated 22 stores in
the Southeastern United States. In 1983, Food Town Stores was renamed Food Lion
and the Delhaize Group lion became the symbol of the Food Lion chain in the
United States. United States operations were further expanded when Delhaize
America acquired Kash n' Karry in December 1996.
In 1999, Food Lion reorganized its corporate structure to create a holding
company known as Delhaize America with the operating subsidiaries Food Lion and
Kash n' Karry. The new structure was designed to promote flexibility in the
daily management of the different businesses of Delhaize America, with each
company maintaining a product offering tailored to local market demand while
centralizing administrative services. With the addition of Hannaford Bros. Co.
("Hannaford") in July 2000, Delhaize America is one of the leading supermarket
operators in the United States based on sales.
The last ten years have been a period of strong international expansion for
Delhaize Group in new countries: Delvita -- Czech Republic (1991), Alfa-Beta --
Greece (1992), Bel-Thai Supermarkets -- Thailand (1997), Super Indo -- Indonesia
(1997), Delvita -- Slovakia (1998), Shop N Save -- Singapore (1999) and Mega
Image -- Romania (2000).
On April 25, 2001, Delhaize Group and Delhaize America consummated a share
exchange transaction in which Delhaize Group acquired all of the outstanding
shares of Delhaize America which it did not already own. Delhaize America
shareholders exchanged their shares of Delhaize America common stock for either
ADRs, which are listed on the New York Stock Exchange, or ordinary shares, which
are listed on Euronext Brussels.
B. OVERVIEW
Delhaize Group is a food retailer headquartered in Belgium that, as of
December 31, 2001, operated in 10 countries and on three continents - North
America, Europe and Southeast Asia. As of December 31, 2001, Delhaize Group's
sales network (which includes directly operated, affiliated and franchised
stores) consisted of 2,444 stores and Delhaize Group employed approximately
147,000 people. Store formats are primarily supermarkets, which represent 85% of
Delhaize Group's sales network. Delhaize Group's sales network also includes
other store formats such as neighborhood stores, discount stores and specialty
stores. In addition to food retailing, which accounted for
12
more than 94% of Delhaize Group's sales in 2001, Delhaize Group also engages in
food wholesaling to stores in its sales network and in nonfood retailing of
products such as pet products and health and beauty products.
In 2001, Delhaize Group recorded sales of EUR 21.4 billion and net income of
EUR 149.4 million. The following table sets forth, as of the dates indicated,
Delhaize Group's sales network and net selling area in the United States,
Belgium and other regions:
SALES NETWORK AND NET SELLING AREA(1) (SQUARE METERS(2))
AT DECEMBER 31, 2001 AT DECEMBER 31, 2000 AT DECEMBER 31, 1999
STORES NET SELLING AREA(1) STORES NET SELLING AREA(1) STORES NET SELLING AREA(1)
------ ------------------- ------ ------------------- ------ -------------------
United States (3) 1,459 4,160,925 1,450 4,104,069 1,296 3,443,235
Belgium........ 675 537,916 615 501,376 553 463,813
Other (4)...... 310 336,741 245 235,271 263 261,559
--- ------- --- ------- --- -------
Total... 2,444 5,035,582 2,310 4,840,716 2,112 4,168,607
===== ========= ===== ========= ===== =========
(1) Net selling area in stores (excluding storage), which is approximately 84%
of gross area.
(2) 1 square meter = approximately 10.75 square feet.
(3) Includes stores at December 29, 2001, December 30, 2000 and January 1, 1999.
(4) Excluding ENA-franchised stores.
Delhaize Group's operations are located primarily in the United States and
Belgium, with a small percentage of its operations in Europe outside of Belgium,
and in Southeast Asia. Operations in the United States accounted for 79.0% of
sales and 113.4% of net income of Delhaize Group in 2001, and operations in
Belgium accounted for 15.0% of sales and 7.4% of net income of Delhaize Group in
2001. Delhaize Group also has operations in Greece, the Czech Republic,
Slovakia, Romania, Thailand, Indonesia and Singapore. Sales in Europe outside of
Belgium accounted for 5.1% of sales in 2001 and sales in Southeast Asia
accounted for less than 1% of sales of Delhaize Group in 2001.
STRATEGY
To deliver superior value, Delhaize Group bases its strategy on achieving
leading positions in key mature and emerging markets through strong local
banners that build success by being best at responding to local consumer needs
while benefiting from Delhaize Group's size and best practices. Delhaize Group
goes to market with a variety of locally adapted store formats, of which the
most common is the supermarket. Delhaize Group maintains high social,
environmental and ethical standards.
Delhaize Group's key measures of profitability are cash earnings per share
(cash EPS), operating cash flow margin (EBITDA margin) and return on invested
capital (ROIC), for which objectives are set on the basis of a three year
rolling budget at the Group level and for each operating company.
To execute its strategy, Delhaize Group has established the following
corporate objectives:
o To pursue profitable top-line growth in all its activities
o To pursue operational excellence and innovation in all its banners
o To operate as an international group of local companies
1. TO PURSUE PROFITABLE TOP-LINE GROWTH IN ALL ITS ACTIVITIES
Delhaize Group aims to have established operations in the more mature
markets of the U.S. and Belgium, and investments in selected rapidly growing
emerging markets in Central Europe and Southeast Asia. Delhaize Group actively
manages this portfolio to maintain a balance of current profitability and future
growth potential.
Delhaize Group intends to deliver profitable top-line growth by continually
strengthening its existing activities and by fostering growth of its store
network. Delhaize Group will continue to improve the effectiveness of its
existing operations in order to increase comparable store sales, and enhance
gross margins and operating margins. The store network is expanded organically
(new store openings and store remodelings and expansions) and through
13
selective acquisitions which enable Delhaize Group to reinforce existing market
positions and enter new markets.
2. TO PURSUE OPERATIONAL EXCELLENCE AND INNOVATION IN ALL BANNERS
Delhaize Group will continue to focus its resources and investments on its
core business: food retailing. Management of Delhaize Group is committed to
maintain its operations among the best in the industry globally in retailing
strategy and execution. Delhaize Group intends to use the strong brand
recognition by its consumers and the important market shares of its local
operations, to optimize procurement, marketing, logistics and human resources.
Consistent with this approach, Delhaize Group intends to maintain high standards
for its core assets and to evaluate its portfolio of assets for the purpose of
divesting or improving underperforming assets as appropriate.
Throughout all its banners, Delhaize Group aims, based on targeted consumer
research, to anticipate the needs and wishes of its customers, providing them an
optimal shopping solution in each of its operating companies. To maintain a high
level of service and increase productivity, Delhaize Group focuses on innovative
human resources practices, including training its employees locally and
globally, job rotation, career planning and performance-related benefits.
The use of new technologies is key in the strategy of Delhaize Group.
Technology facilitates anticipating and responding to the needs of the
customers, increasing sales and margins and diminishing costs. Delhaize Group
focuses on implementing new technologies for consumers (loyalty card,
self-scanning, e-commerce) and supply chain management (EDI, CPFR, electronic
marketplace).
3. OPERATE AS AN INTERNATIONAL GROUP OF LOCAL COMPANIES
To allow its operating companies to fully address their local consumer
needs, Delhaize Group allows a high level of autonomy to its local management
teams. This allows Delhaize Group to operate as an international group of local
companies. This local approach drives sales, loyalty of customers and motivation
of local management, resulting in high performance.
Simultaneously, a Group structure providing centralized support to the local
companies and focusing on optimally allocating the financial and human resources
to the Group priorities allows Delhaize Group to maximize synergies and the
exchange of best practices between the local companies.
C. ORGANIZATIONAL STRUCTURE
As of December 31, 2001, Delhaize Group's operational structure was as follows:
EUROPE OTHER
UNITED STATES BELGIUM THAN BELGIUM SOUTHEAST ASIA
-------------------------- ------------------------ ------------------------- --------------
Delhaize America o Supermarche Delhaize Greece Thailand
o Food Lion "Le Lion" o Alfa-Beta o Food Lion
o Hannaford o AD Delhaize o ENA
o Kash n' Karry o Delhaize City o Trofo (a) Indonesia
o Superette Delhaize/ o Super Indo
Proxy Delhaize Czech Republic
o Shop 'n Go o Delvita Singapore
o Bio Square o Sama o Shop N Save
o Caddy Home
o Di Slovakia
o Tom & Co o Delvita
Romania
o Mega Image
(a) Delhaize Group is in the process of converting all stores with the Trofo
banner to the Alfa-Beta banner.
14
UNITED STATES
DELHAIZE AMERICA
Overview. Delhaize America engages in one line of business, the operation of
food supermarkets in the Southeastern, mid-Atlantic and Northeastern regions of
the United States. Delhaize America was originally incorporated in North
Carolina in 1957 under the name Food Town Stores, Inc. and maintains its
corporate headquarters in Salisbury, North Carolina. Delhaize America is a
holding company having three subsidiaries that operate primarily under the
banners Food Lion, Hannaford and Kash n' Karry. In 2000, Delhaize America
achieved sales of EUR 13.7 billion. For the fiscal year ended December 29, 2001,
Delhaize America achieved sales of EUR 16.6 billion. Delhaize America became a
wholly-owned subsidiary of Delhaize Group upon the completion of the share
exchange transaction on April 25, 2001.
Sales network. The growth of Delhaize America has historically been based on
a strong store opening program, complemented by a strategy of selective
acquisitions of existing stores. When Delhaize Group first invested in Food Town
Stores in 1974, Delhaize America operated 22 stores. During fiscal years 1999,
2000 and 2001, Delhaize America added an average of approximately 71 stores
annually. During this same period, Delhaize America renovated an average of
approximately 154 stores annually. The net selling area increased on average by
11.2% in 1999, 2000 and 2001. In 2001, Delhaize America opened 47 new stores,
consisting of 37 Food Lion, four Kash n' Karry and six Hannaford stores. During
2001, Delhaize America also closed or relocated eight stores. As a result, as of
December 29, 2001, Delhaize America operated 1,459 supermarkets in 16 states in
the eastern United States as reflected in the following table.
KASH N'
FOOD LION HANNAFORD KARRY TOTAL
--------- --------- ------- -----
Delaware..................................... 14 14
Florida...................................... 45 138 183
Georgia...................................... 61 61
Kentucky..................................... 13 13
Maine........................................ 46 46
Maryland..................................... 70 70
Massachusetts................................ 6 6
New Hampshire................................ 22 22
New York..................................... 30 30
North Carolina............................... 455 455
Pennsylvania................................. 11 11
South Carolina............................... 124 124
Tennessee.................................... 88 88
Vermont...................................... 10 10
Virginia..................................... 308 308
West Virginia................................ 18 18
-- ---- --- --
Total Number of Stores............. 1,207 114 138 1,459
===== === === =====
Total Number of States............. 11 5 1 16
== === === ===
Food Lion supermarket locations average approximately 3,250 square meters
(34,900 square feet) in gross selling area, Hannaford supermarkets average
approximately 4,550 square meters (49,000 square feet) in gross selling area and
Kash n' Karry stores average approximately 3,750 square meters (40,800 square
feet) in gross selling area. The store prototype for Food Lion is approximately
3,530 square meters (38,000 square feet), while the size of the Hannaford store
prototypes are approximately 3,250 and 5,110 square meters (35,000 and 55,000
square feet). The size of the Kash n' Karry store prototype is approximately
4,275 square meters (46,000 square feet).
In recent years, Delhaize America has pursued an aggressive remodeling
program to provide its customers with a more convenient atmosphere, an enhanced
merchandise assortment and better customer service. In 2001, Delhaize America
remodeled 145 stores, including 124 Food Lion stores, 11 Kash n' Karry stores
and 10 Hannaford stores.
15
Competition and regulation. The business in which Delhaize America is
engaged is competitive and characterized by narrow profit margins. Delhaize
America competes 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 and discount retailers. Competition is based primarily on
location, price, consumer loyalty, product quality, variety and service. From
time to time, Delhaize America and its competitors engage in price competition,
which has adversely affected operating margins in some of its markets. The major
competitors of Food Lion are Winn-Dixie, Kroger, Ahold, Harris Teeter and
Wal-Mart, the major competitors of Hannaford are Shaw's, Price Choppers,
DeMoulas and Wal-Mart, and the major competitors of Kash n' Karry are Publix,
Winn-Dixie, Albertson's and Wal-Mart.
The opening of new stores is deregulated in most of the states in which Food
Lion and Kash n' Karry operate. The majority of the states in which Hannaford
operates regulate the opening of new stores. Shopping hours are deregulated in
all of the states in which Delhaize America is active. The majority of Delhaize
America's stores are open 24 hours per day.
Delhaize America intends to continue to develop and evaluate new retailing
strategies that respond to its customers' needs. Seasonal changes have no
material effect on the operations of the Delhaize America supermarkets.
Assortment. Delhaize America sells a wide variety of groceries, produce,
meats, dairy products, seafood, frozen food, deli/bakery and nonfood items such
as health and beauty care and other household and personal products. Delhaize
America also operates franchised pharmacies within some of its supermarkets.
Delhaize America offers nationally and regionally advertised brand name
merchandise as well as products manufactured and packaged under private labels.
Delhaize America offers between 25,000 and 35,000 stock keeping units (SKUs) in
its Food Lion supermarkets, between 25,000 and 34,500 SKUs in its Hannaford
supermarkets and between 35,000 and 45,000 SKUs in its Kash n' Karry
supermarkets.
Private label products. Each of Delhaize America's principal banners offers
its own line of private label products. The Food Lion, Hannaford and Kash n'
Karry private label programs were consolidated in 2000 into a single procurement
program, enhancing the sales and marketing of the various private label brands
and reducing the cost of goods sold for private label brands. Sales of private
label products represented 16%, 20% and 15% of Food Lion's, Hannaford's and Kash
n' Karry's respective sales in fiscal 2001. On December 29, 2001, Food Lion
offered more than 2,400 private label SKUs. In 2000, Food Lion developed new
in-store displays featuring private label products and focused on sending more
direct-mail coupons to promote private label sales. On December 29, 2001, the
private label program at Kash n' Karry had more than 2,300 SKUs. It has grown
significantly since Delhaize America acquired Kash n' Karry in December 1996. On
December 29, 2001, Hannaford offered approximately 3,600 SKUs in its private
label program, which represented 20% of its sales in 2001.
Loyalty cards. Delhaize America has two loyalty card programs: the MVP card
introduced in 1995 at Food Lion and the Preferred Customer Club (PCC) card
introduced in 1998 at Kash n' Karry. The MVP customer loyalty card program
accounted for 76% of sales (57% of all transactions) at Food Lion in 2001.
During the fiscal year ended December 29, 2001, approximately eight million
households actively used the MVP program and their purchases were more than two
times the size of non-MVP transactions. During the fiscal year ended December
29, 2001, approximately 55% of Kash n' Karry sales (42% of all transactions)
were PCC card related. Items promoted on the PCC card averaged more than 2,200
per week. For the fiscal year ended December 29, 2001, PCC card transactions
were almost double the size of non-PCC card transactions. There are more than
one million households actively using the PCC card.
Pharmacies. In 1999, Delhaize America reached an agreement with The Medicine
Shoppe, a U.S. specialist in franchised pharmacies, to franchise pharmacies in
Kash n' Karry and Food Lion stores. As of December 29, 2001, there were 68
pharmacies in Kash n' Karry stores, 65 of which bear The Medicine Shoppe banner,
20 pharmacies in Food Lion stores, 19 of which also bear The Medicine Shoppe
banner, and 90 pharmacies in Hannaford stores, none of which are franchised.
16
SUPER DISCOUNT MARKETS
After a strategic review of its operations, Delhaize Group decided in 2001
to sell the nine Save-a-Lot discount stores and close the 19 Cub Foods
supermarkets of Super Discount Markets, its 60% joint venture in the Atlanta
market. The investment necessary to be successful in the highly competitive
Atlanta market could not be justified, and Delhaize Group decided to focus all
its U.S. initiatives on Delhaize America, since April 2001 a 100%-owned
subsidiary. As a consequence, SDM filed for protection under chapter 11 of the
United States bankruptcy code on November 12, 2001, and is in liquidation. In
connection with these closings, Delhaize Group has recorded an exceptional
charge in 2001.
BELGIUM
Overview. Belgium is the historical home market of Delhaize Group. The
Belgian food retail market is characterized by a large presence of supermarkets,
discount stores and independent shopkeepers. Over the years, Delhaize Group has
built a strong market position (second in terms of sales), providing its
customers with quality products and services at competitive prices. In 2001,
Delhaize Belgium achieved sales of EUR 3.2 billion, an increase of 7.7% over
2000, through store openings and successful sales initiatives in its existing
stores. Comparable store sales of Delhaize Belgium grew by 4.9%. Delhaize
Belgium increased its market share from 24.1% to 24.6% (source: A.C. Nielsen).
This advance was primarily due to the expansion of its number of affiliated
stores AD Delhaize, Proxy Delhaize and Shop `n Go.
Sales network. In Belgium, Delhaize Group's sales network consists of
several brand names, depending on the specialty, store size and whether the
store is directly operated, franchised or affiliated (that is, stores to which
Delhaize Group sells wholesale goods and generates income only from sales made
to such stores). As of December 31, 2001, Delhaize Group's sales network
consisted of 675 stores in Belgium, an increase by 60 stores compared to 2000.
The total net selling area increased by 7.3% to approximately 540,000 square
meters. The network includes 300 supermarkets under the Delhaize "Le Lion" and
AD Delhaize banners, 148 convenience stores under the Superette Delhaize, Proxy
Delhaize, Delhaize City, Delhaize 2, Shop 'n Go and Bio Square banners, and 227
specialty stores, of which 133 health and beauty stores under the Di banner and
94 pet food and products stores under the Tom & Co banner.
SUPERMARKETS
The supermarkets directly operated by Delhaize Group in Belgium carry the
banner Delhaize "Le Lion." The number of supermarkets increased in 2001 from 116
to 117. A Delhaize "Le Lion" supermarket offers approximately 18,000 SKUs. The
AD Delhaize supermarkets are affiliated stores, operated by independent
retailers to whom Delhaize Belgium sells its products at wholesale prices. The
independent retailer benefits from the trade name and know-how of Delhaize
Belgium. The AD Delhaize supermarket has a surface between 750 square meters and
1,200 square meters and offers 12,000 to 18,000 SKUs.
CONVENIENCE STORES
Delhaize Belgium's network of convenience stores consists of 148 stores
under the Superette Delhaize, Proxy Delhaize, Shop 'n Go, Delhaize City and Bio
Square banners.
Superette Delhaize, Proxy Delhaize and Shop n' Go are affiliated stores. In
recent years, such affiliates have proven to be a major source of growth for
Delhaize Group in Belgium. Superette Delhaize and Proxy Delhaize stores have an
average selling area of approximately 370 square meters (3,978 square feet). In
Proxy Delhaize stores, the assortment of fresh products has been enlarged and
private label products represent 80% of the 8,000 SKUs offered in Proxy Delhaize
stores. The Shop 'n Go gas station convenience stores are located in Q8 gas
stations and are a response to customer expectations regarding proximity,
convenience, speed and longer operating hours. They have a selling area between
100 and 250 square meters (1,075 - 2,690 square feet) and offer over 1,200 SKUs.
17
The Delhaize City stores are operated as neighborhood stores selling almost
exclusively private label products, targeting primarily urban customers. In
2001, Delhaize Belgium launched its first exclusive organic products store under
the Bio Square banner.
E-COMMERCE
Caddy-Home, the leading food products home delivery banner in Belgium, is
the business-to-consumer operation of Delhaize Group that sells food products
for which orders can be placed by telephone, fax and, since 1998, the Internet.
During 2001, Caddy-Home increased the number of its customers to more than
14,000. At December 31, 2001, Caddy-Home was present in 11 cities throughout
Belgium, delivering over 4,000 products to customers. The offer of virtual
Delhaize stores was reinforced in 2001 with the launch of
www.delhaizewineworld.com, an on-line service for wine shoppers, and
www.delhaizegifts.com for the purchase of gifts. Another service launched in
2001 was "Take `n Go," enabling customers to place their orders by telephone,
fax or Internet and pick them up in a supermarket or at another designated
pick-up point.
SPECIALTY STORES
Di stores specialize in health aid and beauty care products. Tom & Co is a
specialty chain focusing on food and care products and accessories for pets. The
majority of the 227 Di and Tom & Co stores at the end of 2001 were operated
under franchise agreements with independent operators.
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), Intermarche (France) and Laurus (Netherlands). In addition,
Delhaize Group faces competition from national retailers in Belgium, such as
Colruyt. Competition is based primarily on location, price, consumer loyalty,
product quality, variety and service. From time to time, Delhaize Belgium and
its competitors engage in price competition.
Since 1975, Belgian law has required that permits be obtained for the
opening of stores exceeding certain sizes (1,000 square meters in urban areas
and 400 square meters in other areas). Shopping hours are restricted due to
legislation and agreements with unions. By law, Belgian retail outlets must
remain closed one day of the week. Retail outlets, other than night shops, must
remain closed between 8 p.m. and 5 a.m. On Friday, retail outlets may remain
open until 9 p.m.
Assortment. The Belgian supermarkets of Delhaize Group sell a wide variety
of groceries, produce, meats, dairy products, seafood, frozen food, deli/bakery
and nonfood items such as health and beauty care and other household and
personal products. A Delhaize "Le Lion" supermarket sells approximately 18,000
SKUs. An AD Delhaize supermarket sells between 12,000 and 18,000 SKUs, depending
on its selling area. A Superette Delhaize sells an average of 6,000 SKUs, while
the Delhaize City stores sell approximately 3,500 SKUs. Management believes that
Delhaize Group is a Belgium market leader in prepared meals. In 2001, Delhaize
Group in Belgium sold approximately 43,000 prepared meals daily. Approximately
116 different prepared meals are offered. In Belgium, Delhaize Group has also
developed a large range of organic products. On December 31, 2001, Delhaize
Group offered more than 400 organic products in Belgium. In 2001, sales of
organic products by Delhaize Belgium increased by 35%, representing more than 2%
of Delhaize Group's food sales in Belgium in 2001.
Private Label. In Belgium, Delhaize Group actively promotes two different
lines of private label products, including more than 4,000 different SKUs under
the brands Derby and Delhaize. Derby products, which are marketed as low price
products, are generic private label products with a "no frills" packaging.
Delhaize products, which are marketed as value priced products, are higher
quality products at competitive prices compared to Derby products. In 2001,
private label sales accounted for more than 30% of Delhaize Group's total sales
in Belgium.
Loyalty Card. In 1992, Delhaize Group's stores in Belgium introduced a
loyalty card known as the Plus Card, which in 2001 was used by customers for
over 90% of total sales in Delhaize "Le Lion" supermarkets. The Plus Card also
provides benefits for shoppers at other Delhaize Group stores in Belgium. Since
1999, Delhaize Group has developed partnerships with other suppliers of goods
and services in Belgium to offer additional benefits to holders of the Plus
Card. As of December 31, 2001, more than 2.6 million Plus Cards are outstanding
in Belgium.
18
OTHER
EUROPE OTHER THAN BELGIUM
Overview. In 2001, sales in the other European operations of Delhaize Group
(Greece, Czech Republic, Slovakia and Romania) increased by 13.7% to EUR 1.1
billion. In 2001, Delhaize Group increased the number of European stores outside
Belgium by 47 to a total of 224 at the end of 2001.
Greece. In 1992, Delhaize Group acquired 45.4% of Alfa-Beta Vassilopoulos
S.A. and since 1995 has owned a 50.6% interest in Alfa-Beta Vassilopoulos S.A.
In January 2001, Alfa-Beta acquired Trofo, a Greek food retailer, to create what
management believes is the second largest food retailer (in terms of sales) in
Greece. Trofo operated, at the time of the acquisition, 45 supermarkets and 12
discount warehouse stores. Its sales network also counted 40 franchise stores
that are not included in the sales network of Delhaize Group. As of December 31,
2001, Alfa-Beta Vassilopoulos S.A. operated a chain in Greece including 93
supermarkets and 11 cash & carry stores, compared to 53 supermarkets at the end
of 2000. At the end of 2001, Alfa-Beta had 6,248 employees as of December 31,
2001, 2,083 more than one year ago, due to the acquisition of Trofo. Alfa-Beta
seeks to attract customers looking for competitive pricing as well as high
quality products and services.
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. Carrefour and
Delhaize Group are the only foreign supermarket 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,
supercenters, discount food stores (Lidl) and traditional Greek grocery stores
and markets.
Permits from municipal, health regulation and fire protection authorities
are required for opening a new store and often require long periods to obtain.
Operating hours tend to be strictly enforced, especially in the provinces.
Operating stores on Sunday is prohibited.
Czech Republic and Slovakia. Delvita A.S. has been the operating company for
Delhaize Group's interests in the Czech Republic since 1991 and Slovakia since
1998. Delhaize Group owned 75% of Delvita at the time of its formation in 1991
and has since become the sole shareholder. In March 1999, Delvita acquired from
the Interkontakt Group 39 stores in the Czech Republic and 11 stores in
Slovakia. As of December 31, 2001, Delhaize Group operated 94 stores in the
Czech Republic under the banners Delvita and Sama, and 16 stores in Slovakia
under the banner Delvita. The Delvita market strategy is to provide the best
quality at a competitive price. In 2001, Delvita continued to reinforce its
offerings and services, combined with an update of its pricing and promotions
strategy.
In 2001, Delvita developed a renewed supermarket concept highlighting
freshness and convenience. By the end of 2001, Delvita had remodelled 15 stores
in line with this concept. In 2001, Delvita also undertook an in-depth
evaluation of its store portfolio. As a result, it decided to close eight of its
stores that did not meet long-term performance expectations. The closures
included seven stores acquired from Interkontakt in 1999. It was also decided to
record an asset impairment charge for seven other Delvita stores. As a
consequence, Delhaize Group recorded an exceptional charge in 2001.
The Czech and Slovak retail market is competitive and characterized by the
presence of a growing number of western retailers. Delvita competes with
supermarket chains, supercenters, discount food stores, warehouse clubs, petrol
stores and traditional Czech and Slovak food stores and markets. Competition is
based primarily on location, price, consumer loyalty, product quality, variety
and service. International competitors include Metro, Ahold, Rewe, Lidl,
Tengelman, Tesco, Globus, Julius Meinl and Carrefour. Although the retail market
in Slovakia is similar to that in the Czech Republic, the Slovak retail market
is less developed and smaller.
In the Czech Republic and Slovakia, there are limited regulatory constraints
relating to store openings, store extensions or business hours.
19
Romania. Delhaize Group owns a 51% ownership interest in Mega Image. As of
December 31, 2001, Mega Image operated 10 supermarkets, all located in
Bucharest. Mega Image employed 593 people at the end of 2001. Mega Image's sales
grew sharply at its existing ten stores, partly attributable to the remodeling
of five of the Mega Image supermarkets. The remodeling resulted in an increased
focus on fresh departments, the creation of more space for the customers and the
implementation of new design and merchandising techniques. This was accompanied
by a reduction in product assortment in order to be able to invest additional
space in the fresh departments.
SOUTHEAST ASIA
Overview. Delhaize Group entered Southeast Asia in 1997. As of December 31,
2001, Delhaize Group operated 86 stores in that area, consisting of Food Lion
stores in Thailand, Super Indo stores in Indonesia and Shop N Save stores in
Singapore. For the year ended December 31, 2001, sales of the Asian operations
of Delhaize Group amounted to EUR 187.0 million, when 49% of Shop N Save sales
are included. With 100% of Shop N Save included, total Asian sales would have
been EUR 264.1 million. In its Southeast Asian markets, Delhaize Group operates
as an Every Day Low Price retailer in which it offers to its customers on a
daily basis low prices for most products.
Thailand. Delhaize Group entered the Thai market in June 1997 through a
partnership in a company called Bel-Thai Supermarkets Co., Ltd. Effective May
31, 2002, Bel-Thai Supermarkets Co., Ltd. changed its name to Food Lion
(Thailand) Limited. Currently, Delhaize Group directly and through its
affiliates owns all of the shares of Food Lion (Thailand). As of December 31,
2001, Bel-Thai Supermarkets' sales network consisted of 26 stores. Food Lion
(Thailand) operates its stores under the Food Lion banner.
Indonesia. In 1997, Delhaize Group entered Indonesia by acquiring an
interest in Super Indo, an operator of 11 stores. The company has grown steadily
and operated 29 stores at December 31, 2001. Delhaize Group owns 51% of Super
Indo with the remaining 49% being owned by the Indonesian Salim Group.
Singapore. Singapore is the most recent market in Southeast Asia entered by
Delhaize Group. In 1999, Delhaize Group acquired 49% of Shop N Save, which
management believes is the third largest food retailer in Singapore, based on
sales. Delhaize Group owns 49% of Shop N Save with the other 51% being owned by
QAF, a Singapore company. At December 31, 2001, Shop N Save operated 31 stores.
D. PROPERTY
The following is a summary of Delhaize Group's sales network as of December 31,
2001.
STORE OWNERSHIP OF SALES NETWORK
DIRECTLY OPERATED
STORES
-----------------
AFFILIATED AND
OWNED LEASED FRANCHISED STORES TOTAL STORES
------ -------- ----------------- ------------
United States..................... 122 1,337 --- 1,459
Belgium........................... 90 147 438 675
Other............................. 80 230 --- 310
------ -------- ------ ---
Total................... 292 1,714 438 2,444
====== ======== ====== =====
The majority of Delhaize Group's directly operated stores are leased. Most
stores under lease are located in the United States. With the exception of 122
owned stores, as of December 31, 2001, Food Lion, Hannaford and Kash n' Karry
occupy various store premises under lease agreements providing for initial terms
of up to 30 years, with renewal options generally ranging from five to 20 years.
Delhaize America owns and operates its 11 warehousing and distribution
facilities (totaling approximately 883,000 square meters or approximately 9.5
million square feet). Delhaize America also owns and operates its transportation
fleet. In Belgium, at December 31, 2001, Delhaize Group owned five of its six
principal distribution centers, leased its three ancillary distribution centers
and owned approximately 38% of its directly operated stores. At December 31,
2001, Delhaize Group owned two distribution centers and 25 stores in Greece,
with 79 under leases, and owned two distribution centers and 43 stores in the
Czech Republic and Slovakia, with 67 stores under leases.
20
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following section contains forward-looking statements that involve risks
and uncertainties. Delhaize Group's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
document.
In this section, the general financial condition and the results of
operations of Delhaize Group and its consolidated and associated subsidiaries
are outlined. The financial information of Delhaize Group contained in this Item
5 includes all of the assets, liabilities, sales and expenses of all fully
consolidated subsidiaries. Net income of Delhaize Group excludes the portion of
consolidated results attributable to minority interests. Generally, all
companies in which Delhaize Group can exercise control or where Delhaize Group
has a direct or indirect interest of more than 50% are fully consolidated.
Delhaize Group's businesses in Belgium are collectively referred to as Delhaize
Belgium.
Delhaize America's results of operations included in Delhaize Group's years
ended December 31, 2001, 2000, and 1999 covered 52 weeks. Super Discount Markets
("SDM") results of operations included in Delhaize Group's years ended December
31, 2001, 2000 and 1999 covered the period through November 12, 2001, the date
SDM filed for bankruptcy, and covered 52 weeks for 2000 and 1999. The results of
operations of Delhaize Belgium and other companies of Delhaize Group outside the
United States are presented on a calendar year basis.
Delhaize Group consolidated and controlled (through a majority ownership of
Delhaize America's voting shares) the operations of Delhaize America for all
periods presented in this Item 5. At December 31, 2001, Delhaize Group owned
100% of Delhaize America's non-voting Class A common stock and voting Class B
common stock. On April 25, 2001, Delhaize Group and Delhaize America consummated
a share exchange whereby Delhaize Group exchanged each outstanding share of the
Delhaize America Class A and Class B common stock not already directly or
indirectly held by Delhaize Group for 0.4 Delhaize Group American depository
shares ("ADS") listed on the New York Stock Exchange ("NYSE"), or at the option
of each shareholder, 0.4 Delhaize Group ordinary shares listed on the Euronext
Brussels. Delhaize America became a wholly-owned subsidiary of Delhaize Group as
a result of the share exchange. Prior to the date of the share exchange,
Delhaize Group owned 36.8% of Delhaize America's non-voting Class A common stock
and 56.3% of Delhaize America's voting Class B common stock, resulting in an
effective ownership interest in Delhaize America of 44.9%. At December 31, 2000,
Delhaize Group owned 37.2% of Delhaize America's non-voting Class A common stock
and 56.3% of Delhaize America's voting Class B common stock, resulting in an
effective ownership interest in Delhaize America of 45.1%. In July 2000,
Delhaize America completed its acquisition of Hannaford. The financial
information discussed in this Item 5 includes the results of Hannaford's
operations for the full year in 2001 and for 22 weeks of 2000 beginning July 31,
2000.
In reading the following discussion and analysis, please refer to Delhaize
Group's audited consolidated financial statements for the years ended December
31, 2001, 2000 and 1999, included under Item 18 below in this document. The
financial statements referred to above were prepared in accordance with
accounting principles generally accepted in Belgium ("Belgian GAAP") and include
a discussion of the principal material differences between Belgian GAAP and
accounting principles generally accepted in the United States of America ("US
GAAP") as they apply to Delhaize Group. The reconciliation of Belgian GAAP to US
GAAP is presented in Note 21 to the consolidated financial statements. This
discussion and analysis of general financial condition and results of operations
was prepared using Belgian GAAP.
CRITICAL ACCOUNTING POLICIES
Delhaize Group has chosen accounting policies that it believes are
appropriate to accurately and fairly report its consolidated financial
statements and Delhaize Group applies those accounting policies in a consistent
manner. The significant accounting policies are summarized in Note 1 to the
consolidated financial statements.
The preparation of the financial statements in conformity with Belgian GAAP
requires that Delhaize Group 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 believed to be
reasonable under the circumstances. Delhaize Group evaluates these estimates and
assumptions on an ongoing basis and may retain
21
outside consultants, lawyers and actuaries to assist in its evaluation. Actual
results may differ from these estimates under different assumptions and
conditions. Delhaize Group believes the following accounting policies are the
most critical because they involve the most significant judgments and estimates
used in preparation of its consolidated financial statements. For those Belgian
GAAP policies that differ significantly from those under US GAAP, Delhaize
Group's accounting policy under US GAAP is also provided.
Revenue recognition
Revenues are recognized at the point of sale to retail customers and upon
delivery of inventory to franchised and affiliated customers. Delhaize Group
records shipping and handling costs billed to customers as sales revenues. Under
Belgian GAAP, costs incurred for shipping and handling are included in "selling,
administrative and other operating expenses", "salaries, social security and
pensions" and "depreciation and amortization", depending on the nature of the
cost. Under US GAAP, these costs would be presented in "cost of sales."
Income from suppliers for in-store promotions are non-refundable credits or
payments that are recognized when the related activities that are required by
the supplier are completed, the amount is fixed and determinable and the
collectibility is reasonably assured. Under Belgian GAAP, this income is
included in "other operating income." Under US GAAP, this income would be
presented as "cost of sales," net of advertising costs. Income from co-operative
advertising is recognized in the period the related advertising occurs as "cost
of sales."
Cost of goods sold
Purchases are recorded net of cash discounts. Supplier allowances and
credits that relate to Delhaize Group's buying and merchandising activities,
primarily for volume incentives, are based on contractual arrangements covering
a period of one year or less. Delhaize Group is not obligated to purchase the
product and recognizes such volume incentives as they are earned based on
quantities purchased.
Delhaize Group has several "loyalty card" programs that provide its
customers with discounts and incentives on purchases. The discounts and
incentives offered through these cards include price discounts from the regular
retail price for specific items, "buy one, get one free" incentives, and earning
of "points" or similarly named awards that may later be submitted for point of
sale discounts. The vendors fund some of the discounts, while Delhaize Group
funds others. Discounts and incentives funded by Delhaize Group are recognized
as a reduction in sales as products are sold. Incentives from vendors are
recorded as a reduction to "cost of goods sold."
Incentives from vendors are recorded as a reduction to "cost of goods sold."
Delhaize Group evaluates inventory shrinkage throughout the year based on
actual physical counts in its stores and distribution centers and records
reserves based on the results of these counts to provide for the estimated
shrinkage as of the balance sheet date. The inventory shrinkage reserves are
recorded in "cost of goods sold."
Store closing costs
Plans related to store closings are completed within one year of making the
decision to close, and Delhaize Group generally intends to complete the closings
within a one year period following the business decision to close. As most of
the Delhaize Group's stores are located in leased facilities, a lease liability
is recorded for the present value of the estimated remaining non-cancelable
lease payments after the closing date, net of estimated subtenant income. In
addition, Delhaize Group records a liability for expenditures to be incurred
after the store closing which are contractually required under leases or local
ordinances for site preservation during the period before lease termination or
sale of the property. These other exit costs include estimated real estate
taxes, common area maintenance, insurance and utility costs to be incurred after
the store closes. The value of owned property and equipment related to a closed
store is reduced to reflect recoverable values based on Delhaize Group's
previous efforts to dispose of similar assets and current economic conditions.
Any reductions in the recorded value of owned property and equipment for closed
stores is reflected as an asset impairment charge. Delhaize Group discontinues
depreciation on owned property and equipment for closed stores at the date of
closing. Disposition efforts related to store leases and owned property begins
immediately following the store closing.
22
Inventory write-downs, if any, in connection with store closings, are
classified in "cost of goods sold." Costs to transfer inventory and equipment
from closed stores are expensed as incurred. Severance costs are rarely incurred
in connection with store closings. Store closing liabilities are reviewed
quarterly to ensure that current estimates are consistent with amounts recorded
in the financial statements.
Significant cash outflows associated with closed stores relate to ongoing
lease payments. Because closed store operating leases are classified
consistently with capital leases, the principal portion of lease payments
reduces the lease liability, while the interest portion of the lease payment is
recorded as interest expense in the current period.
Impairment of Long-lived assets
Under Belgian GAAP, Delhaize Group reviews long-lived assets for impairment
when an event has occurred that would indicate that a permanent diminution in
value exists (e.g., store closing decision). If the net book value of a
long-lived asset is greater than its fair value, Delhaize Group will record an
impairment reserve to reduce the asset's net book value to fair value in the
period the change in the operational or economic circumstances of the asset is
observed. If the impairment reserve is no longer justified in future periods,
due to recovery in the asset's fair value, the impairment reserve is reversed.
Under US GAAP, Delhaize Group reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable; if these events or changes in circumstances
indicate that such amounts could not be recoverable, Delhaize Group estimates
the future cash flows expected to result from the use of the asset and its
eventual disposition; if the sum of undiscounted future cash flows is less than
the carrying amount of the asset, Delhaize Group recognizes an impairment loss
for the difference between the carrying value of the asset and its fair value.
The estimate of fair value considers prices for similar assets and the results
of analyses of expected future cash flows using a discount rate commensurate
with the risks involved. After an impairment is recognized, the reduced carrying
amount of the asset shall be accounted for as its new cost. For a depreciable
asset, the new cost shall be depreciated over the asset's remaining useful life.
Restoration of previously recognized impairment losses is not recorded.
Intangible assets
Intangible assets primarily include goodwill and rights to use trade names,
distribution networks, assembled workforce, favorable lease rights and
prescription files. Delhaize Group separates goodwill created from equity
purchases of businesses, classified in "goodwill arising on consolidation, net,"
and goodwill created from asset purchases of businesses, classified in
"intangible assets, net." Goodwill created from equity purchases of businesses
is amortized over their estimated useful lives on a straight-line basis. The
choice of rate depends on the country where the investment is made: up to 40
years for countries with mature economies and up to 20 years for countries with
emerging economies. The rights to use trade names, other intangible assets, and
goodwill created from asset purchases of businesses are amortized on a
straight-line basis over their estimated useful lives.
Under US GAAP, Delhaize Group will adopt United States Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets ("SFAS 142"), which addresses the financial accounting and reporting
standards for acquisitions of intangible assets outside of a business
combination and for goodwill and other intangible assets subsequent to their
acquisition. Effective January 1, 2002, Delhaize Group will no longer be
required to amortize goodwill and indefinite life intangible assets as a charge
to earnings. In addition, Delhaize Group will be required to conduct an annual
review of goodwill and other intangible assets for potential impairment.
Amortization expense totaled EUR 158.1 million, EUR 59.1 million, and EUR 15.5
million for the years ended December 31, 2001, 2000, 1999, respectively.
Delhaize Group is currently evaluating the provisions of SFAS 142 and has not
yet determined the effect the adoption of this standard will have on its
consolidated financial statements.
23
A. OVERVIEW
The core activity of Delhaize Group is the sale of food through supermarkets
in North America, Europe and Southeast Asia. In addition, Delhaize Group engages
in food wholesaling and in nonfood retailing such as pet products and health and
beauty products. At December 31, 2001, Delhaize Group had a sales network of
2,444 stores in 10 countries. At December 31, 2001, these operations were
primarily located in the United States and Belgium.
During the year ended December 31, 2001, Delhaize Group's sales increased
17.8% as compared with sales for the year ended December 31, 2000. During the
year ended December 31, 2000, sales of Delhaize Group increased 27.0% as
compared with sales posted during the year ended December 31, 1999. In all these
periods, there was a positive translation effect on Delhaize Group's sales as a
result of the strong U.S. dollar. The translation effect is defined as the
effect of fluctuations in the exchange rates in the functional currencies of
Delhaize Group's subsidiaries to the Euro, the reporting currency of Delhaize
Group. In addition, Delhaize Group achieved these sales increases by selectively
adding a significant number of stores to its sales network, making strategic
acquisitions and sharpening its focus on customer satisfaction. During the year
ended December 31, 2001, Delhaize Group increased the number of stores in its
sales network by 134 stores to a total of 2,444 stores. The Trofo acquisition,
in 2001, increased Delhaize Group's sales network by 57 stores. At December 31,
2000, Delhaize Group had a sales network of 2,310 stores, or 198 more than the
2,112 stores within the network at December 31, 1999. The Hannaford acquisition,
in 2000, increased Delhaize Group's sales network by 106 stores.
Net income for the year ended December 31, 2001, decreased 7.0% compared
with net income for the year ended December 31, 2000. Although there was an
increase of the average ownership of Delhaize Group in Delhaize America and a
positive translation effect in 2001, net income was negatively affected by
increased amortization, depreciation and interest expense, associated with the
Hannaford acquisition. In addition, net income was negatively affected by
increased charges for store closings, the closure of SDM, and by increased
amortization and depreciation expense related to the share exchange with
Delhaize America.
Net income for the year ended December 31, 2000, decreased 5.4% compared
with net income for the year ended December 31, 1999. Although there was a
positive translation effect in 2000, net income was negatively affected by
increased amortization and depreciation expense, interest expense and
merger-related costs, all associated with the Hannaford acquisition. Net income
was also negatively affected by increased charges for store closings and
decreased gross margin at Delhaize America.
As stated previously, on April 25, 2001, Delhaize Group and Delhaize America
consummated a share exchange whereby Delhaize Group exchanged each outstanding
share of the Delhaize America Class A and Class B common stock not already
directly or indirectly held by Delhaize Group for 0.4 Delhaize Group ADSs listed
on the NYSE, or at the option of each shareholder, 0.4 Delhaize Group ordinary
shares listed on the Euronext Brussels. Delhaize America became a wholly-owned
subsidiary of Delhaize Group as a result of the share exchange. Prior to that
time, Delhaize Group owned 44.9% of Delhaize America's stock.
During the first half of 2000, Delhaize Group increased its ownership in
Delhaize America by approximately 1.9 percentage points to 52.7%. The
acquisition of Hannaford by Delhaize America in July 2000 resulted in a dilution
of Delhaize Group's ownership interest in Delhaize America, as Delhaize America
issued shares and paid cash to effect the acquisition. As a result, Delhaize
Group's ownership interest decreased to 45.1% at December 31, 2000. However, the
average ownership interest in Delhaize America increased from 47.5% in 1999 to
48.6% in 2000.
Net income, as determined in accordance with US GAAP was EUR 148.0 million,
EUR 150.7 million and EUR 165.9 million, for the years ended December 31, 2001,
2000 and 1999, respectively. The principal differences between Belgian GAAP and
US GAAP, as they relate to Delhaize Group's net income, include the accounting
treatment of goodwill, pensions, fixed assets, stock based compensation, foreign
currency transactions and leases. See Note 21 to the consolidated financial
statements.
24
B. SELECTED RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ------------ ----------
(IN MILLIONS OF EUR)
Belgian GAAP:
Sales........................................................... 21,395.9 18,168.2 14,310.1
Gross profit(1)................................................. 5,427.6 4,472.2 3,503.3
Other operating costs(2)........................................ 5,030.4 4,141.2 3,134.2
Net financial expenses.......................................... 464.3 296.2 140.1
Net exceptional (expenses) income............................... (96.4) (41.3) 2.6
Income taxes.................................................... 191.8 145.7 189.5
Income after taxes and before minority interests................ 168.8 256.2 321.2
Net income...................................................... 149.4 160.7 169.9
- ----------
(1) Represents sales less cost of goods sold.
(2) Represents total operating costs excluding cost of goods sold.
SALES
The following table sets forth, for the periods indicated, Delhaize Group's
sales contribution by geographic region:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2001 2000 1999
------------------ ------------------ -----------------
EUR % EUR % EUR %
-------- ----- -------- ----- -------- -----
(IN MILLIONS, EXCEPT PERCENTAGES)
SALES CONTRIBUTION
United States......................... 16,905.0 79.0 14,069.5 77.5 10,505.7 73.4
Belgium............................... 3,212.9 15.0 2,983.6 16.4 2,802.2 19.6
Other................................. 1,278.0 6.0 1,115.1 6.1 1,002.2 7.0
-------- ----- -------- ----- -------- -----
Total....................... 21,395.9 100.0 18,168.2 100.0 14,310.1 100.0
======== ===== ======== ===== ======== =====
OVERVIEW
Sales increased 17.8% during the year ended December 31, 2001, over the
corresponding period in 2000. This increase in sales was primarily due to the
consolidation of a full year of results for Hannaford and the addition of 134
stores to the sales network. Excluding the effects on sales from the Hannaford
and Trofo acquisitions, the closure of SDM and the disposal of P.G. in 2000, the
increase was the result of sales growth of 4.0%, at constant exchange rates, and
positive translation effects resulting from the strong U.S. dollar. The sales
growth of 4.0% was the result of a net increase of the sales network of 109
stores and a comparable store sales increase of 4.9% and 1.4% at Delhaize
Belgium and Delhaize America, respectively.
Sales increased 27.0% during the year ended December 31, 2000 over the
corresponding period in 1999. This increase in sales was primarily due to the
Hannaford acquisition, which added 106 stores to the sales network. Excluding
the effects on sales from the Hannaford acquisition, the increase was a result
of sales growth of 5.3%, at constant exchange rates, and positive translation
effects resulting from the strong U.S. dollar. The sales growth of 5.3% was the
result of a net increase of the sales network by 92 stores and a comparable
store sales increase of 3.4% and 0.8% at Delhaize Belgium and Delhaize America,
respectively.
UNITED STATES
Sales increased 20.2% during the year ended December 31, 2001, over the
corresponding period in 2000. This increase was primarily a result of the 106
stores added in connection with the Hannaford acquisition in the third quarter
of 2000, offset by the closure of SDM. Excluding the effect on sales from the
Hannaford acquisition and the closure of SDM, the increase was a result of sales
growth of 2.9%, at constant exchange rates, and a positive translation effect
resulting from the strong US dollar. The sales growth of 2.9% was a result of a
net increase of the sales network by the opening of 39 new stores and the
renovation of 145 stores by Delhaize America. Remodeling
25
efforts included the updating of equipment and properties, as well as increasing
selling area and adding deli/bakeries to selected stores. During 2001, Delhaize
America also closed three stores and relocated five stores. Comparable store
sales at Delhaize America increased by 1.4% during the year ended December 31,
2001.
Sales increased 33.9% during the year ended December 31, 2000, over the
corresponding period in 1999. This increase was a result of sales growth of
15.8%, at constant exchange rates, and positive translation effects resulting
from the strong U.S. dollar. The sales growth of 15.8% was a result of a net
increase of the sales network by 106 stores acquired as part of the Hannaford
acquisition, the opening of 66 new stores by Delhaize America and 10 new stores
by SDM, and the renovation of 173 stores by Delhaize America. During 2000,
Delhaize America also relocated 10 stores and closed 18 stores. Comparable store
sales of Delhaize America increased by 0.8% during the year ended December 31,
2000.
BELGIUM
Sales increased 7.7% during the year ended December 31, 2001, over the
corresponding period in 2000. This increase was primarily due to the expansion
of the sales network by 60 stores and a comparable store sales increase of 4.9%.
All banners increased their comparable store sales, with the strongest sales
growth realized by the AD Delhaize, Proxy Delhaize and Shop `n Go banners. All
major banners increased their number of stores.
Sales increased 6.4% during the year ended December 31, 2000, over the
corresponding period in 1999. This increase was primarily due to the expansion
of the sales network by 62 stores and a comparable store sales increase of 3.4%.
All banners increased their number of stores and comparable store sales, with
the strongest sales growth realized by the AD Delhaize, Superette Delhaize and
Proxy Delhaize banners.
OTHER
Sales increased 14.6% during the year ended December 31, 2001, over the
corresponding period in 2000. The January 2001 acquisition of Trofo S.A., a
Greek food retailer, and its wholly-owned subsidiary, ENA, S.A., added EUR 222.6
million in sales from the date of acquisition. This sales increase was primarily
due to new store openings in all countries other than the Czech Republic and
Slovakia. The decrease in sales at Delvita was primarily due to the closure of
eight stores in 2001. Sales growth was also negatively affected by the
divestiture of the French subsidiary, P.G., in 2000.
Sales increased 11.3% during the year ended December 31, 2000, over the
corresponding period in 1999. This sales increase was primarily due to new store
openings in all countries. The May 2000 acquisition of Mega Image (Romania)
added EUR 20.2 million in sales from the date of acquisition.
GROSS PROFIT
Gross profit, defined as sales less cost of goods sold, increased 21.4% for
the year ended December 31, 2001 over the corresponding period in 2000. In
addition to a positive translation effect resulting from the strong U.S. dollar,
gross profit increased primarily due to the sales increases that resulted from
acquiring and opening new stores, renovating existing stores and increasing
gross margins. Gross margin at Delhaize Group increased from 24.6% in the year
ended December 31, 2000 to 25.4% in the comparable period in 2001 primarily as
the result of improved product mix, reduced inventory shrinkage, fewer price
promotions, increased buying power and the roll-out of zone pricing at the
Delhaize America banner, Food Lion. More effective category management and the
first full year of consolidation of Hannaford were also contributors to this
positive trend.
Gross profit increased 27.7% for the year ended December 31, 2000, over the
corresponding period in 1999. In addition to a positive translation effect
resulting from the strong U.S. dollar, gross profit increased primarily due to
the sales increases that resulted from acquiring and opening new stores,
renovating existing stores and increasing gross margins. Gross margin at
Delhaize Group increased from 24.5% in the year ended December 31, 1999 to 24.6%
in the comparable period in 2000, primarily as the result of the acquisition of
Hannaford by Delhaize America and the increase of private label sales, effective
category management and initiatives of margin blending at Delhaize Belgium. This
increase was partially offset by increased price promotions, the cost of
markdowns, a change in product mix and inventory shrinkage at Delhaize America.
26
OTHER OPERATING COSTS
Other operating costs as a percentage of sales increased from 22.8% during
the year ended December 31, 2000 to 23.5% in the corresponding period in 2001
due to increased selling, administrative and other operating expenses, increased
salaries, social security and pension costs and increased depreciation and
amortization. Salaries, social security and pension costs increased, as a
percentage of sales, from 12.8% in 2000 to 13.0% in 2001, mainly due to the
increased health care costs at Delhaize America and the increased salaries in
Belgium due to the legally mandated annual inflation adjustment. Depreciation
and amortization increased from 2.8% of sales in the year ended December 31,
2000 to 3.4% of sales in the year ended December 31, 2001. Depreciation
increased due to the construction of new stores, the increase in leasehold
improvements, the purchase of new equipment and the purchase price allocation
related to the share exchange with Delhaize America. Amortization expense
increased as a result of the additional goodwill and intangible assets generated
by the share exchange with Delhaize America and the amortization of the
Hannaford goodwill and intangible assets for 12 months compared to five months
in 2000. During the year ended December 31, 2001, Delhaize Group recognized
store closing costs of EUR 8.5 million primarily related to eight planned store
closings in the normal course of business at Delhaize America. These store
closing costs primarily consisted of estimated post-closing lease liabilities,
other exit costs associated with the store closing commitments and related asset
impairment charges. During the year ended December 31, 2000, Delhaize Group
recorded EUR 29.5 million in store closing costs related to 22 planned store
closings in the normal course of business. Miscellaneous goods and services
decreased from 6.8% in 2000 to 6.7% in 2001. These expenses were well controlled
across all operating companies despite the changing markets and economic
conditions, demonstrating Delhaize Group's ability to react quickly to changes
in sales and competitive activity.
Other operating costs as a percentage of sales increased from 21.9% during
the year ended December 31, 1999 to 22.8% in the corresponding period in 2000
due to increased selling, administrative and other operating expenses, increased
salaries, social security and pension costs and increased depreciation and
amortization. Salaries, social security and pension costs increased, as a
percentage of sales, from 12.6% in 1999 to 12.8% in 2000, mainly due to the
increased labor costs at Delhaize America resulting from low unemployment rates
in its operating market, which were partially offset by cost discipline and
government measures to reduce social security contributions by employers in
Belgium. Depreciation and amortization increased from 2.3% of sales in the year
ended December 31, 1999 to 2.8% of sales in the year ended December 31, 2000.
Depreciation increased due to the construction of new stores, the increase in
leasehold improvements and the purchase of new equipment. Amortization expense
increased as a result of additional goodwill and intangible assets generated by
the Hannaford acquisition and by the purchase of 2.9 million Delhaize America
shares by Delhaize Group on the open market in the first half of 2000. Higher
rent expenses and store closing charges resulted in an increase in selling,
administrative and other operating expenses as a percentage of sales from 7.0%
in the year ended December 31, 1999 to 7.2% in the comparable period in 2000.
During the year ended December 31, 2000, rent costs of Delhaize Group as a
percentage of sales increased compared to the same period in 1999 due to new
leased stores and the expansion of existing stores, primarily at Delhaize
America. During the year ended December 31, 2000, Delhaize Group recognized net
store closing costs of EUR 29.5 million primarily related to 22 planned store
closings in the normal course of business. During the year ended December 31,
1999, Delhaize Group recorded EUR 11.9 million in net store closing costs
related to 16 planned store closings in the normal course of business. These net
store closing costs primarily consisted of estimated post-closing lease
liabilities, other exit costs associated with the store closing commitments and
related asset impairment charges.
STORE CLOSING COSTS IN THE NORMAL COURSE OF BUSINESS
Plans related to store closings are completed within one year of making the
decision to close, and Delhaize Group generally intends to complete the closings
within a one year period following the business decision to close. As most of
the Delhaize Group's stores are located in leased facilities, a lease liability
is recorded for the present value of the estimated remaining non-cancelable
lease payments after the closing date, net of estimated subtenant income. In
addition, Delhaize Group records a liability for expenditures to be incurred
after the store closing which are contractually required under leases or local
ordinances for site preservation during the period before lease termination or
sale of the property. These other exit costs include estimated real estate
taxes, common area maintenance, insurance and utility costs to be incurred after
the store closes. The value of owned property and equipment related to a closed
store is reduced to reflect recoverable values based on Delhaize Group's
previous
27
efforts to dispose of similar assets and current economic conditions. Any
reductions in the recorded value of owned property and equipment for closed
stores is reflected as an asset impairment charge. Delhaize Group discontinues
depreciation on owned property and equipment for closed stores at the date of
closing. Disposition efforts related to store leases and owned property begins
immediately following the store closing.
Inventory write-downs, if any, in connection with store closings, are
classified in "cost of goods sold." Costs to transfer inventory and equipment
from closed stores are expensed as incurred. Severance costs are rarely incurred
in connection with store closings. Store closing liabilities are reviewed
quarterly to ensure that current estimates are consistent with amounts recorded
in the financial statements.
Significant cash outflows associated with closed stores relate to ongoing
lease payments. Because closed store operating leases are classified
consistently with capital leases, the principal portion of lease payments
reduces the lease liability, while the interest portion of the lease payment is
recorded as interest expense in the current period.
Store closing costs relating to store closings in the normal course of
business are charged to operating income as "selling, administrative and other
operating expenses" and "depreciation and amortization." See the section below
entitled "Store Closing Costs" for further information.
NET FINANCIAL EXPENSES
Net financial expenses during the year ended December 31, 2001 increased by
56.7% compared to the year ended December 31, 2000 and represent, as a
percentage of sales, 2.2% in 2001 compared to 1.6% in 2000. This increase was
primarily due to interest expense related to the financing of the Hannaford
acquisition in July 2000 resulting in 12 months of interest expense compared to
five months of interest expense in 2000. The strength of the U.S. dollar also
contributed to this increase.
Net financial expenses during the year ended December 31, 2000 increased by
111.4% compared to the year ended December 31, 1999 and represent, as a
percentage of sales, 1.6% in 2000 compared to 1.0% in 1999. This significant
increase was primarily due to the interest expense relating to the bridge
financing used in connection with the Hannaford acquisition and interest expense
due to borrowings incurred to purchase Delhaize America shares on the open
market in 1999 and 2000.
The interest coverage ratio, defined as operating income divided by net
interest expense, was 2.1, 2.7 and 5.1 for the years ended December 31, 2001,
2000 and 1999, respectively.
NET EXCEPTIONAL (EXPENSES) INCOME
Net exceptional expenses during the year ended December 31, 2001 were EUR
96.4 million compared to net exceptional expenses of EUR 41.3 million during the
year ended December 31, 2000. The net exceptional expenses were primarily the
result of EUR 42.2 million in merger costs related to the Hannaford acquisition
and the share exchange with Delhaize America, EUR 34.5 million related to the
closure of SDM, and EUR 19.1 million for the closure of eight Delvita stores,
and an asset impairment relating to seven other Delvita stores, both as a result
of a strategic review by Delhaize Group's management.
Net exceptional expenses during the year ended December 31, 2000 were EUR
41.3 million compared to net exceptional income of EUR 2.6 million during the
year ended December 31, 1999. The net exceptional expenses were primarily the
result of EUR 41.8 million in merger costs related to the Hannaford acquisition
and EUR 32.4 million in costs to close 15 Delhaize America stores, outside of
the normal course of business. These costs were partially offset by a EUR 32.4
million gain on the disposal of Delhaize Group's investment in P.G.
Under Belgian GAAP, store closing costs related to store closings outside of
the normal course of business (e.g., a specific market area or a Delhaize Group
store banner) are charged to "exceptional expenses." See the section entitled
"Store Closing Costs" below for further information on store closings outside
the normal course of business. Exceptional items under Belgian GAAP, as
presented herein, do not qualify as extraordinary items under US GAAP.
28
INCOME TAXES
Delhaize Group's effective tax rate was 53.2%, 36.3% and 37.1% for the years
ended December 31, 2001, 2000 and 1999, respectively. The effective tax rate
increased in 2001 primarily as a result of non-deductible goodwill amortization
related to the Hannaford acquisition and the share exchange with Delhaize
America, and of the exceptional charges for the closings of SDM and Delvita
stores, on which Delhaize Group, according to its accounting policy, could not
record a tax benefit. The decrease in the effective tax rate in 2000 compared to
1999 was primarily as a result of a non-taxed gain realized on the disposal of
the investment P.G., partially offset by the non-deductible goodwill mainly
related to the Hannaford acquisition.
NET INCOME
The following table sets forth, for the periods indicated, Delhaize Group's
net income contribution by geographic region:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2001 2000 1999
------------------ ------------------ -----------------
EUR % EUR % EUR %
-------- ----- -------- ----- -------- -----
(IN MILLIONS, EXCEPT PERCENTAGES)
United States...................... 169.4 113.4 88.5 55.1 135.0 79.5
Belgium............................ 11.1 7.4 41.8 26.0 32.3 19.0
Other.............................. (31.1) (20.8) 30.4 18.9 2.6 1.5
------ ------ ------- ----- ----- -----
Total.................... 149.4 100.0 160.7 100.0 169.9 100.0
====== ====== ======= ===== ===== =====
In the year ended December 31, 2001, the contribution of the United States
operations as a percentage of Delhaize Group net income increased to 113.4% as
compared to 55.1% in the year ended December 31, 2000. The increase was
primarily a result of the Delhaize Group's increased average ownership
percentage in Delhaize America, a positive translation effect due to the strong
U.S. dollar and a decrease in net income in Belgium primarily due to increase in
amortization and depreciation expense due to the share exchange, partially
offset by the costs related to the closing of SDM. This increase was also due to
the decrease of the net income at the "Other" operating locations (see
explanation below).
In the year ended December 31, 2000, the contribution of the United States
operations as a percentage of Delhaize Group net income decreased to 55.1% as
compared to 79.5% in the year ended December 31, 1999. This decrease was
primarily a result of increased amortization and depreciation expense, interest
expense and merger related costs, all associated with the Hannaford acquisition,
decreased gross margin and increased store closings at Delhaize America. These
factors were partially offset by a slight increase of the average ownership
interest of Delhaize Group in Delhaize America and the positive translation
effects of a strong U.S. dollar.
In the year ended December 31, 2001, the contribution of Belgian operations
as a percentage of Delhaize Group net income decreased to 7.4% as compared to
26.0% in the year ended December 31, 2000. This decrease was primarily a result
of the merger costs and increased amortization expense related to the goodwill
associated with the share exchange.
In the year ended December 31, 2000, the contribution of Belgian operations
as a percentage of Delhaize Group net income increased to 26.0% as compared to
19.0% in the year ended December 31, 1999. This increase was primarily a result
of gross margin improvements and cost control and the decrease of the net income
realized by subsidiaries in the United States.
In the year ended December 31, 2001, the contribution of the operations of
Delhaize Group outside the United States and Belgium as a percentage of Delhaize
Group net income decreased to (20.8)% as compared to 18.9% in the year ended
December 31, 2000. This decrease was primarily a result of exceptional expenses
for store closings of eight Delvita stores, the impairment charge recorded for
seven other Delvita stores, the decrease in net income at Alfa-Beta as a result
of its acquisition of Trofo and the EUR 32.4 million non-recurring gain on the
disposal of the investment in P.G in 2000.
In the year ended December 31, 2000, the contribution of the operations of
Delhaize Group outside the United States and Belgium as a percentage of Delhaize
Group net income increased to 18.9% as compared to 1.5% in the
29
year ended December 31, 1999. This increase was primarily a result of the EUR
32.4 million gain on the disposal of the investment in P.G.
STORE CLOSING COSTS
Under Belgian GAAP, store closing costs related to store closings in the
normal course of business (i.e., on a store-by-store basis) are charged to
operating income as "selling, administrative and other operating expenses" and
"depreciation and amortization" and store closing costs related to store
closings outside of the normal course of business (e.g., a specific market area
or a Delhaize Group store banner) are charged to "exceptional expenses."
In September 2001, a subsidiary of Delhaize Group, Delvita, recorded closed
store liabilities of EUR 2.6 million related to eight store closings. These
liabilities primarily related to lease obligations. During 2001, Delvita
recorded cash payments against these reserves of approximately EUR 0.1 million.
In October 2001, Delhaize Group made the strategic decision to exit the
Atlanta, Georgia market in the United States by selling nine Save-a-Lot discount
stores and closing 19 Cub Foods supermarkets that were operated by its
subsidiary, SDM. As a consequence of this decision, SDM filed for protection
under Chapter 11 of the United States bankruptcy code on November 12, 2001 and
is in liquidation. In connection with these closings, Delhaize Group recorded
liabilities of EUR 34.5 million.
Other than those store closings in 2001 relating to Delvita and SDM, the
majority of Delhaize Group's store closings in 2001, 2000 and 1999 relate to
Delhaize America. Delhaize America had 179, 187 and 156 closed stores and
planned to close 10, 14 and 7 stores at December 31, 2001, 2000 and 1999,
respectively. The following information represents Delhaize America's store
closings in the normal course of business and those outside of the normal course
of business.
Delhaize America had store closing liabilities of EUR 187.0 million, EUR
199.0 million and EUR 106.3 million at December 31, 2001, 2000 and 1999. The
balance at December 31, 2001 of EUR 187.0 million consisted of lease obligations
and other exit costs of EUR 159.2 million and EUR 27.8 million, respectively.
The balance at December 31, 2000 of EUR 199.0 million consisted of lease
obligations and other exit costs of EUR 163.6 million and EUR 35.4 million,
respectively. The balance at December 31, 1999 of EUR 106.3 million consisted of
lease obligations and other exit costs of EUR 96.5 million and EUR 9.8 million,
respectively.
Delhaize America provided for closed store liabilities relating to the
estimated post-closing lease obligations and other exit costs (which include
estimated real estate taxes, common area maintenance and other costs
contractually required to be paid in connection with the lease obligations)
associated with the store closing commitments. Adjustments to closed store
liabilities and other exit costs primarily relate to changes in subtenants,
changes in actual store closing dates that differ from planned store closing
dates and actual exit costs differing from original estimates. Adjustments are
made for changes in estimates in the period in which the change becomes known.
Store closing liabilities are reviewed quarterly to ensure that current
estimates are consistent with amounts recorded in the financial statements.
Delhaize America uses a discount rate based on the current U.S. treasury
note rates to calculate the present value of the remaining rent payments on
closed stores.
During 2001, Delhaize America recorded additions to closed store liabilities
of EUR 8.5 million related to 12 store closings made in the ordinary course of
business and adjustments to prior year estimates for stores previously closed.
During the same period, Delhaize America recorded cash reductions to its
reserves for closed stores of approximately EUR 23.4 million. These reductions
included cash payments of approximately EUR 17.1 million for ongoing rent
payments on closed stores' remaining lease obligations, net of sublease income,
EUR 1.3 million for lease termination fees and EUR 5.0 million paid for other
exit costs, as discussed above. The non-cash adjustments of EUR 7.8 million
related primarily to two events: 1) the revaluation of closed store liabilities
of approximately EUR 6.7 million as a result of the share exchange by Delhaize
Group; and 2) a reduction for closed stores acquired in the Hannaford
acquisition, based on final purchase accounting allocation of EUR 14.5 million.
30
During 2000, Delhaize America recorded additions to closed store liabilities
of EUR 64.8 million related to 26 store properties acquired, or for which the
lease was assumed, in the Hannaford acquisition. All but one of the 26 stores
included in the reserve had been closed prior to the acquisition date. The
remaining activities associated with closing and exiting these stores are to
maintain the store under the leasehold requirements, to dispose of any owned
property and equipment and to settle the remaining lease obligations. The
acquired Hannaford liabilities for closed stores include EUR 43.2 million
related to the present value of future unrecoverable lease liabilities with
remaining non-cancelable terms ranging from 3 to 22 years. Other exit costs
accrued are approximately EUR 21.6 million for activities that are directly
related to the remaining lease obligations, which comprised EUR 11.2 million for
real estate taxes, EUR 8.6 million for property maintenance and utilities and
EUR 1.8 million for property insurance. Accrued other exit costs are paid over
the remaining lease term. A non-cash reduction in the amount of approximately
EUR 4.0 million was made prior to December 31, 2000, with a corresponding
reduction in goodwill, principally related to a lease liability that was
canceled.
See Note 21 to the consolidated financial statements under Item 18 below for
further information on store closing costs.
C. LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, Delhaize Group had EUR 384.7 million of cash and cash
equivalents compared to EUR 233.9 million at December 31, 2000. Historically,
Delhaize Group's principal source of liquidity was cash generated from
operations. Recently, debt has also become an important tool in the funding
policy of Delhaize Group because of its significant growth. Cash flow from
operations is reinvested each year in new stores, store remodeling and store
expansions, as well as in store efficiency-improving measures and retailing
innovations. Cash flow from operations has also been used historically to
service outstanding debt and for the payment of dividends. Delhaize Group
believes that its working capital is sufficient for its present requirements.
OPERATING ACTIVITIES
Cash provided by operating activities was EUR 1,208.5 million, EUR 670.5
million and EUR 621.7 million during the years ended December 31, 2001, 2000 and
1999, respectively. The net increase in 2001 over 2000 was primarily due to
increased cash flow from operations, improved working capital and reduced tax
payments, partially offset by higher interest payments as a result of the
refinancing of the short-term debt related to the Hannaford acquisition.
Large adjustments in non-cash charges were due to the first full year
consolidation of Hannaford and the share exchange with Delhaize America. Working
capital requirements decreased by EUR 70.1 million primarily due to cash
management improvements at Delhaize America.
INVESTING ACTIVITIES
Cash used in investing activities decreased to EUR 608.3 million during the
year ended December 31, 2001 compared with EUR 3,330.4 million for the year
ended December 31, 2000 and EUR 758.6 million for the year ended December 31,
1999. The net decrease in cash used in investing activities in 2001 compared to
2000 was primarily due to the Hannaford acquisition in 2000. The net increase in
cash used in investing activities in 2000 over 1999 was primarily due to higher
acquisition activity. In 2000, Delhaize Group used approximately EUR 2,862
million, net of cash acquired, for the Hannaford acquisition and used EUR 56
million in connection with the purchase of 2.9 million Delhaize America shares
on the open market.
Capital expenditures were EUR 553.6 million for the year ended December 31,
2001 compared with EUR 544.7 million for the year ended December 31, 2000 and
EUR 524.7 million for the year ended December 31, 1999. The modest increase was
due to the deceleration of store openings, specifically in the United States.
During 2001 Delhaize Group added 83 new stores to its sales network through
store openings and added 51 stores through its acquisitions. Additionally,
Delhaize America renovated 145 existing stores. In 2001, total selling area
(including acquisitions) of Delhaize Group increased by 3.9% from 4.8 million
square meters (52.1 million square feet) at the end of 2000 to 5.0 million
square meters (54.2 million square feet) at the end of 2001. During 2000,
Delhaize Group added 152 new stores to its sales network through store openings
and added 127 stores through its acquisitions.
31
Delhaize America renovated, and in most cases also enlarged, 173 existing
stores. During 1999, Delhaize Group added a total of 110 stores to its sales
network through store openings, while Delhaize America renovated 145 existing
stores. In 2000, total selling area (including acquisitions) of Delhaize Group
increased 16.1% from 4.2 million square meters (44.8 million square feet) at the
end of 1999 to 4.8 million square meters (52.1 million square feet) at the end
of 2000. The following shows the breakdown of capital expenditures by geographic
area in 2001, 2000 and 1999.
CAPITAL EXPENDITURES BY GEOGRAPHIC AREA
YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- --------
(AMOUNTS IN MILLIONS OF EUR)
United States............................................. 431.3 435.1 376.5
Belgium................................................... 93.8 73.5 86.4
Other..................................................... 28.5 36.1 61.8
----- ----- -----
Total........................................... 553.6 544.7 524.7
===== ===== =====
Business Acquisitions and Share Exchange
The growth strategy of Delhaize Group includes selective acquisitions.
Historically, Delhaize Group has focused on two types of acquisitions: smaller
acquisitions to enter a new market and acquisitions to reinforce its existing
presence by increasing the density of its sales network. Since 1997, Delhaize
Group has entered new markets through acquisitions in Romania, Singapore,
Thailand and Indonesia.
As noted earlier, on April 25, 2001, Delhaize Group and Delhaize America,
Inc. consummated a share exchange whereby Delhaize Group exchanged each
outstanding share of the Delhaize America Class A and Class B common stock not
already directly or indirectly held by Delhaize Group for 0.4 Delhaize Group
ADSs listed on the NYSE, or at the option of each shareholder, 0.4 Delhaize
Group ordinary shares listed on the Euronext Brussels. Delhaize America became a
wholly-owned subsidiary of Delhaize Group as a result of the share exchange.
Prior to that time, Delhaize Group owned 44.88% of Delhaize America's stock.
As consideration for this share exchange, Delhaize Group issued
approximately 40.2 million shares having an aggregate value of approximately EUR
2.3 billion for the remaining 55.12% of Delhaize America's stock not previously
owned. Additional direct costs incurred in connection with the acquisition,
principally investment banking, legal and other professional fees, in the amount
of EUR 24.5 million have been included in the purchase price allocation.
In January 2001, Delhaize Group acquired Trofo S.A., a Greek food retailer,
and its wholly-owned subsidiary ENA, S.A., and paid approximately EUR 49.3
million. This acquisition was accounted for using the purchase method of
accounting and resulted in goodwill of approximately EUR 77.9 million. Goodwill
is being amortized over 20 years using the straight-line method.
On July 31, 2000, Delhaize America completed its acquisition of Hannaford.
The total consideration of approximately EUR 3.7 billion consisted of
approximately EUR 3.0 billion in cash and approximately 25.6 million shares of
Delhaize America Class A common stock valued at approximately EUR 714.0 million.
Delhaize America utilized a USD 2.5 billion (approximately EUR 2.8 billion)
364-day term loan facility and an existing revolving credit facility to fund the
acquisition of Hannaford. To obtain approval of the Hannaford transaction, an
agreement was reached with the United States Federal Trade Commission under
which 38 of Hannaford's stores in the Southeast United States were sold.
Additionally, Hannaford closed its 13 other stores in the Southeast United
States. After these divestitures and closings, Hannaford operated 106 stores,
exclusively in the Northeast United States. These store operations are expected
to contribute approximately EUR 3.2 billion in sales to the consolidated results
of Delhaize Group on an annual basis.
In May 2000, Delhaize Group acquired 51% of Mega Image, which management
believes is the largest supermarket chain in Romania based on net sales. The
acquisition price was financed through available cash and debt. Mega Image
reported sales of EUR 20.2 million in 2000 since the date of acquisition.
32
FINANCING ACTIVITIES
Cash used in financing activities was EUR 460.1 million during the year
ended December 31, 2001, compared to cash provided by financing activities of
EUR 2,515.6 million in 2000 and cash provided by financing activities of EUR
256.9 million in 1999. In April 2001, Delhaize America refinanced the USD 2.5
billion (approximately EUR 2.8 billion) short-term loan facility used to fund
the acquisition of Hannaford. Delhaize America issued USD 600 million
(approximately EUR 681 million) of 7.375% notes due in 2006, USD 1,100 million
(approximately EUR 1,248 million) of 8.125% notes due in 2011 and USD 900
million (approximately EUR 1,021 million) of 9.000% debentures due in 2031. In
February 2001, Delhaize The Lion Nederland issued EUR 150 million, 5.5%
Eurobonds due in 2006. Delhaize Group used the proceeds from these issuances to
repay EUR 2.9 billion in short-term loans. In 1999, Delhaize America entered
into agreements to hedge a potential increase in interest rates prior to its
planned long-term bond offering noted above. The notional amounts of the
agreements were settled upon issuance of the bonds and debentures in April 2001,
resulting in a cash outflow of USD 214.1 million (approximately EUR 239.0
million), before taxes.
The net increase in cash provided by financing activities increased in 2000
primarily as a result of EUR 2.9 billion in short-term borrowings for the
Hannaford acquisition by Delhaize America including approximately EUR 50 million
of fees paid in connection with the financing. This increase was partially
offset by additional repayments of short-term loans of approximately EUR 390
million, the suspension of Delhaize America's share repurchase program in 2000
(approximately EUR 134 million in 1999) and the decrease in cash provided by
long-term borrowings of approximately EUR 140 million, which mostly related to
Delhaize Belgium's 1999 Eurobond issuance.
Long-term Borrowings
As previously discussed, on April 19, 2001, Delhaize America refinanced its
USD 2.5 billion (approximately EUR 2.8 billion) short-term loan facility used to
fund the acquisition of Hannaford by completing a private offering of USD 600
million (approximately EUR 681 million) of 7.375% notes due in 2006, USD 1,100
million (approximately EUR 1,248 million) of 8.125% notes due in 2011 and USD
900 million (approximately EUR 1,021 million) of 9.000% debentures due in 2031,
which we refer to in this report as the old securities. These old securities are
general, unsecured obligations of Delhaize America and are fully and
unconditionally guaranteed by Food Lion, LLC, Hannaford Bros. Co. and 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. and Boney Wilson & Sons, Inc., all direct and
indirect subsidiaries of Delhaize America. On November 16, 2001, Delhaize
America offered to exchange the old securities for exchange securities that are
identical in all material respects to the old securities except that such
exchange securities are registered under the Securities Act, are not subject to
the transfer restrictions applicable to the old securities and are not subject
to any covenants regarding exchange or registration rights. The exchange offer
expired on December 17, 2001. USD 2,542,142,000 (approximately EUR
2,884,569,000) of old securities were tendered for exchange securities. USD
57,858,000 (approximately EUR 65,651,000) in old securities remain outstanding.
In connection with the acquisition of Hannaford in July 2000, Delhaize Group
assumed notes of approximately EUR 124 million and mortgages of approximately
EUR 58 million.
Short-term Borrowings
During 2001, Delhaize America maintained two revolving credit facilities
with a syndicate of commercial banks providing USD 1.0 billion (approximately
EUR 1.1 billion) in committed lines of credit. After reviewing Delhaize
America's working capital requirements, Delhaize America did not renew USD 500
million (approximately EUR 550 million) of these credit facilities when it
expired in November 2001. The remaining USD 500 million (approximately EUR 550
million) line of credit expires in July 2005. As of December 31, 2001, Delhaize
America had USD 140 million (approximately EUR 158.9 million) in outstanding
borrowings. During 2001, Delhaize America had average borrowings of USD 126.8
million (approximately EUR 141.6 million) at a daily weighted average interest
rate of 5.99%. There were borrowings of USD 285.0 million (approximately EUR
306.3 million) outstanding at December 31, 2000.
33
In 2000, in connection with the acquisition of Hannaford, Delhaize America
obtained a 364-day short-term loan facility that provided USD 2.5 billion
(approximately EUR 2.8 billion). At December 31, 2000, Delhaize America had USD
2.4 billion (approximately EUR 2.6 billion) in outstanding borrowings against
this short-term loan facility. During 2000, Delhaize America had average
borrowings of EUR 1.1 billion at a daily weighted average interest rate of 8.07%
on this short-term loan facility. Delhaize America paid fees for this short-term
loan facility of EUR 31.7 million which have been amortized to expense over the
term of the short-term borrowing. Delhaize America refinanced this term loan
through a long-term bond offering in April 2001. See the section above entitled
"Long-Term Borrowings."
Delhaize Group had approximately EUR 296.8 million and EUR 286.0 million
outstanding at December 31, 2001 and 2000, respectively, in other borrowings of
less than one year (the "Short-term Credit Institution Borrowings"). The
approximate weighted average rates of interest for the Short-term Credit
Institution Borrowings were 4.48 % and 6.18% during 2001 and 2000, respectively.
The Short-term Credit Institution Borrowings and the Medium-term Credit
Institution Borrowings (collectively, the "Credit Institution Borrowings"),
generally bear interest at the inter-bank offering rate of the originating
country plus a margin, or at the market rate plus a margin upon withdrawal.
Total amounts authorized under the Credit Institution Borrowings were
approximately EUR 820 million and EUR 665 million at December 31, 2001 and 2000,
respectively. The Credit Institution Borrowings require maintenance of various
financial and non-financial covenants. At December 31, 2001 and 2000, Delhaize
Group was in compliance with all such covenants.
Delhaize Group had approximately EUR 115.6 million and EUR 160.8 million in
short-term notes outstanding under the Treasury Program (see Note 12 to the
consolidated financial statements) at December 31, 2001 and 2000, respectively.
Contractual Obligations and Commitments
The following table summarizes Delhaize Group's contractual obligations and
commitments as of December 31, 2001
TOTAL 2002 2003 2004 2005 2006 THEREAFTER
(IN MILLIONS OF EUR)
Short-term revolving credit facilities 158.9 158.9
Short-term credit institution borrowings 296.8 296.8
Short-term treasury program notes 115.6 115.6
Long-term debt 3,799.5 22.1 34.5 29.2 15.9 865.6 2,832.2
Capital lease obligations 813.2 44.5 63.4 62.9 61.1 60.7 520.6
Operating leases 3,545.3 300.4 292.5 283.8 269.8 260.3 2,138.5
D. FACTORS AFFECTING FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL RISK MANAGEMENT. Delhaize Group has, as a global market
participant, exposure to different kinds of market risk. The major exposures are
foreign currency exchange rate and interest rate risks. The continuously
evolving financial and business environment represents a challenge to the
treasury function.
Delhaize Group aims to optimize internal cash flows in order to minimize the
number of external transactions. Net exposure is subsequently managed in the
financial markets.
Delhaize Group's treasury department works together with the operating units
to determine the best hedging strategy for the respective units. Delhaize Group
does not speculate with derivatives. Delhaize Group's treasury department uses
limited foreign exchange forward contracts, interest rate swaps and currency
swaps.
FOREIGN EXCHANGE RISK. Because a substantial portion of Delhaize Group's
assets, liabilities and operating results are denominated in U.S. dollars, it is
exposed to fluctuations in the value of the U.S. dollar against the Euro.
Delhaize Group does not hedge this U.S. dollar net investment. In 2001, a
variation of 1 cent in the exchange rate of the Euro would have caused net
income to vary by 1%, or EUR 3.3 million. Net income in 2001 would have
decreased over that of 2000 by 9.8%, at constant exchange rates, rather than
7.0%.
34
Delhaize Group finances the operations of its subsidiaries primarily through
borrowings in its subsidiaries' local currencies. Substantially all of Delhaize
Group's borrowings are denominated in U.S. dollar or Euro-zone currencies.
Delhaize Group's only significant foreign currency transaction exposure as a
result of its borrowings is due to U.S. dollar denominated debt at one of its
Belgian entities which has a Euro functional currency. These borrowings were
used to acquire non-monetary assets in the United States. At December 31, 2001,
this subsidiary had approximately EUR 56.2 million of U.S. dollar borrowings
outstanding. Under Belgian GAAP, foreign currency transaction gains and losses
are deferred until the related benefits are provided from the non-monetary
assets acquired with the borrowing proceeds. Under US GAAP, realized and
unrealized foreign currency transaction gains and losses are recognized in
income.
Delhaize Group's financial risk management policy for non-U.S. dollar
denominated assets is to match the currency distribution of its borrowings to
the denomination of its assets and/or of its receivables to the denomination of
its equity funding. As a result, fluctuations in its balance sheet ratios
resulting from changes in exchange rates are generally limited. Dividends and
borrowings are the only significant components of cash flow in Delhaize Group
that are influenced by variations in exchange rates.
INTEREST RATE RISK. Delhaize Group manages its debt and overall financing
strategies using a combination of short, medium and long-term debt. Delhaize
Group finances its daily working capital requirements, when necessary, through
the use of its various committed and uncommitted lines of credit, the use of its
commercial paper programs and cash on hand. These short and medium-term
borrowing arrangements generally bear interest at the inter-bank offering rate
of the originating country plus a margin, or at the market rate plus a margin at
the borrowing date. At December 31, 2001, 81% of Delhaize Group's net debt was
fixed for a period of at least one year; therefore, a one-point variation in
interest rates would not materially affect interest expense of Delhaize Group in
2002.
During 2001, Delhaize America, a subsidiary of Delhaize Group, entered into
interest rate swap agreements to manage the exposure to interest rate movements
by 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, which mature in 2006, involve the exchange of fixed rate
payments 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 USD LIBOR and are reset on a semiannual 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.
The notional principal amount of the interest rate swap arrangements is
approximately EUR 340.4 million (approximately USD 300 million).
In 2000, Delhaize America entered into agreements to hedge against a
potential increase in interest rates prior to its long-term bond offering, see
section "Long-term Borrowing." The agreements were structured to hedge against
the risk of increasing market interest rates based on U.S. treasury rates, with
the specified rates based on the expected maturities of the planned debt issue.
The notional amount of the agreements totaled USD 1.75 billion (approximately
EUR 1.9 billion). The agreements were settled upon issuance of the debt. The
unrealized loss of approximately EUR 239.0 million paid by Delhaize America will
be amortized as interest expense over the life of the underlying debt.
Additionally, in October 2000, Delhaize America entered into related agreements
to limit the amount of any unrealized loss associated with future interest rate
reduction. Delhaize America paid USD 19.8 million (approximately EUR 21.3
million), as consideration for these agreements which was amortized to expense
over the period of the contract through April 26, 2001.
HEDGING. The policy of Delhaize Group is to hedge only interest rate or
foreign exchange transaction exposure that is clearly identifiable and, in
principle, not to hedge foreign exchange translation exposure. Delhaize Belgium
has hedged foreign exchange transaction risk on inter-company receivables
denominated in currencies other than the Euro. Delhaize Belgium has treated its
U.S. dollar borrowings to finance purchases of Delhaize America shares on the
open market, as an economic hedge.
SELF-INSURANCE RISK. Delhaize America is self-insured for workers'
compensation, general liability, and vehicle accident claims up to USD 500,000,
including defense costs, per occurrence. The self-insurance liability is
determined actuarially, based on claims filed and an estimate of claims incurred
but not yet reported. Delhaize America is insured for covered costs, including
defense costs, in excess of the retained limits. Delhaize Belgium is
35
partially self-insured for doubtful debtors, loss of products due to
contamination, loss of revenue due to work stoppages, and similar insurable
risks.
Delhaize America implemented a captive insurance program in 2001; whereby,
the self-insured reserves related to workers' compensation, general liability
and auto coverage were reinsured by The Pride Reinsurance Company ("Pride"), an
Irish reinsurance captive fully owned by a subsidiary of Delhaize Group. The
purpose for implementing the captive insurance program was to provide Delhaize
America continuing flexibility in its risk program, while providing certain
excess loss protection through anticipated reinsurance contracts with Pride.
FOREIGN INVESTMENT RISKS. In addition to its significant operations in the
United States and Belgium, Delhaize Group continues to expand its operations and
other investments in a number of other countries. Foreign operations and
investments are subject to the risks normally associated with conducting
business in foreign countries such as:
o labor disputes;
o uncertain political and economic environments;
o risks of war and civil disturbances;
o risks associated with the movement of funds;
o deprivation of contract rights;
o loss of property by nationalization or expropriation without fair
compensation;
o risks relating to changes in laws or policies of particular countries,
such as foreign taxation;
o risks associated with obtaining necessary governmental permits,
limitations on ownership and on repatriation of earnings; and
o foreign currency exchange rate fluctuations.
There can be no assurance that these problems or other problems relating to
foreign operations will not be encountered by Delhaize Group in the future.
Foreign operations and investments may also be adversely affected by laws and
policies of the United States, Belgium and the other countries in which Delhaize
Group operates governing foreign trade, investment and taxation.
INFLATION AND CHANGING PRICES. During the fiscal year ended December 29,
2001, Delhaize America experienced a slight inflation on merchandise purchases
of 1.1%, compared with 0.4% deflation during the fiscal year ended December 30,
2000. During the year ended December 31, 2001, food prices in Belgium increased
by 4.2%, compared with an inflation rate of 0.9% during the year ended December
31, 2000. As in prior years, Delhaize Group experienced an increase in its labor
costs during the year which was partially offset by increased productivity, as
measured by the sales per man-hour ratio.
Although there is the risk that inflation in Southeast Asia and in certain
European countries in which Delhaize Group operates could have a material effect
on Delhaize Group's results, such inflation has not had a material effect on
sales or results of operations in these regions to date.
EURO CONVERSION. On January 1, 1999, all the member countries of the
European Union (other than the United Kingdom, Sweden, Denmark and Greece)
established the EMU, which utilizes a single currency known as the Euro. Greece
joined the EMU as of January 1, 2001. The introduction of the Euro has received
significant attention in 2001 and early 2002. The cost of the introduction of
the Euro to Delhaize Group was approximately EUR 3.8 million. These costs were
expensed as incurred. Two-thirds of the costs were spent on modifying the
information technology systems and one-third on staff training, customer
information and miscellaneous additional operating costs.
36
E. RECENT EVENTS AND OUTLOOK
RECENT EVENTS
On May 23, 2002, Delhaize Group's shareholders, at an extraordinary general
meeting, authorized the Board of Directors of Delhaize Group, at its discretion,
for a period of five years expiring in June 2007, 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 approximately EUR 46 million. 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 issuance 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 23, 2002, Delhaize Group's shareholders, at an extraordinary general
meeting, authorized the Board of Directors of Delhaize Group to purchase
Delhaize Group's ordinary shares, for a period of three years expiring in 2005,
where such a purchase is necessary in order to avoid serious and imminent damage
to Delhaize Group. The Board of Directors is also authorized for a period of 18
months expiring in 2003, to purchase, with no special conditions attached, a
maximum of 10% of the outstanding Delhaize Group shares at a price between EUR 1
and EUR 150.
On May 23, 2002, Delhaize Group's shareholders, at an extraordinary general
meeting, approved proposed amendments to Delhaize Group's Articles of
Association, which are set forth in a Press Release, dated April 27, 2002, of
Delhaize Group (English translation) announcing an extraordinary general meeting
to be held on Thursday, May 23, 2002, filed as Exhibit 99.1 to Delhaize Group's
report on Form 6-K filed with the SEC on May 3, 2002 and incorporated by
reference herein.
OUTLOOK
In 2002, Delhaize Group expects to increase its sales network by a net
amount of 131 stores to a total of 2,575 sales outlets. In 2002, Delhaize
Group's expected capital expenditures for operations will be approximately EUR
715 million.
In 2002, Delhaize America expects to open 45 new supermarkets, including 11
stores to be relocated, resulting in a total of 1,493 stores at the end of 2002.
Approximately 137 stores will be remodeled or expanded. The total net selling
area is expected to grow in 2002 by approximately 3.0%. Delhaize America will
continue to balance sales and margin growth, and realize important synergies due
to the acquisition of Hannaford.
In 2002, Delhaize Belgium expects to add 61 stores to its sales network,
including three supermarkets. In 2002, Delhaize Belgium extended its new
commercial policy initiated in 2000 and 2001 in its produce and meat
departments, to the full range of Delhaize Belgium's offerings. Under the new
commercial policy, called Every Day Fair Prices, prices are consistently held at
a fair level, while weekly promotions are abandoned and the weekly distribution
of flyers is cancelled. The impact of this change is to lower costs in the
supply chain and in store management allowing reinvestment in lower prices.
In 2002, Delhaize Group also intends to add four stores in the Czech
Republic and one in Slovakia. Five stores will be opened in Romania and one in
Greece. In Southeast Asia, Delhaize Group will enlarge its sales network with 10
stores in Indonesia, 10 stores in Thailand and 5 stores in Singapore.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. BOARD OF DIRECTORS
In accordance with Belgian law, Delhaize Group's affairs are managed by its
Board of Directors. Under the Articles of Association of Delhaize Group, the
Board of Directors must consist of at least three directors. The Delhaize Group
Board of Directors currently consists of 14 directors. Eleven of the directors
are non-executive
37
directors and three members, Pierre-Olivier Beckers, the Chief Executive Officer
of Delhaize Group, Bill McCanless, Executive Vice President of Delhaize Group
and Chief Executive Officer of Delhaize America, and Hugh Farrington, Executive
Vice President of Delhaize Group and Vice Chairman of Delhaize America, are
executive directors. Eight of the current members of the Board of Directors
represent different family branches descended from the founders of Delhaize
Group. Five members of the Board of Directors, Frans Vreys, Arnoud de Pret Roose
de Calesberg, William G. Ferguson, Richard Goblet d'Alviella and Robert J.
Murray, are independent, which means generally that they are not officers or
employees of Delhaize Group, family members of any executive officer of Delhaize
Group, or, to our knowledge, directors, officers or employees of any significant
shareholder of Delhaize Group. On June 13, 2002, Marcel Degroof (72) resigned
from Delhaize Group's Board of Directors.
Delhaize Group's Articles of Association provide that a director's term of
appointment is for a maximum of six years. As of January 1, 1999, the term of
all directors' appointments was set at three years.
The Board of Directors of Delhaize Group has established a general age limit
policy, from which the Board of Directors has discretion to grant exceptions,
for directors and the Chief Executive Officer. The current age limit is 70 for
the Chairman of the Board and other directors and 65 for the Chief Executive
Officer. The age limit for directors who became directors prior to 1999 is 75.
The Delhaize Group Board of Directors and biographical information
concerning its members are set forth below.
DIRECTOR TERM
NAME POSITION SINCE EXPIRES
- ------------------- -------------------------- ---------- -------
Gui de Vaucleroy.............................. Chairman May 1980 2004
Pierre-Olivier Beckers........................ President, Chief Executive May 1995 2003
Officer & Director
Roger Boin.................................... Director May 1990 2005
Baron de Cooman d'Herlinckhove................ Director May 1973 2003
Hugh G. Farrington............................ Executive Vice May 2001 2004
President & Director
William G. Ferguson........................... Director May 2001 2004
Richard Goblet d'Alviella..................... Director May 2001 2004
Jacques Le Clercq............................. Director May 1969 2003
R. William McCanless.......................... Executive Vice May 2001 2004
President & Director
Robert J. Murray.............................. Director May 2001 2004
Arnoud de Pret Roose de Calesberg............. Director May 2002 2005
Didier Smits.................................. Director May 1996 2003
Philippe Stroobant............................ Director May 1990 2005
Frans Vreys................................... Director May 1982 2003
Gui de Vaucleroy (68). Gui de Vaucleroy has been Chairman of the Board of
Directors of Delhaize Group since January 1, 1999. Mr. de Vaucleroy received his
law degree and a Master's degree in economic sciences from U.C.L. He joined
Delhaize Group in 1960 and was appointed successively member of the Executive
Committee, Vice-President of the Executive Committee, Chief Executive Officer
and President of the Executive Committee. From 1999 to 2002, Mr. de Vaucleroy
was Chairman of the Federation of Belgian Enterprises.
Pierre-Olivier Beckers (42). Pierre-Olivier Beckers has been President and
Chief Executive Officer of Delhaize Group since January 1, 1999 and Chairman of
the Board of Directors of Delhaize America since April 1999. Mr. Beckers earned
a Bachelor's degree in applied economics at I.A.G., Louvain-La-Neuve and an MBA
from Harvard
38
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 Delhaize Group in
1983, and before assuming his current positions, gained a wide experience in the
positions of buyer, director of purchasing, member of the Executive Committee,
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, awarded by the leading Belgian business magazine Trends/Tendances. Mr.
Beckers is, since June 2002, Chairman of CIES - the Food Business Forum. Mr.
Beckers is also a member of the Food Marketing Institute (FMI).
Roger Boin (63). Roger Boin was elected Director of Delhaize Group in 1990.
Mr. Boin received a degree in graphic arts from La Cambre in Brussels. From 1961
to 1996, Mr. Boin developed synthetic images at the French section of Belgian
national television.
Edgar-Charles de Cooman d'Herlinckhove (68). Baron de Cooman d'Herlinckhove
earned a law degree and a Master's degree in economic sciences from U.C.L. and
joined Delhaize Group in 1960. In 1968, he became member of the Executive
Committee and was successively appointed Executive Director responsible for the
supermarket division, purchasing of grocery and fresh products, distribution
centers and information technology. Baron de Cooman d'Herlinckhove retired in
1995 and acted as a strategic consultant for Delhaize Group until 1998. In 1998,
he became a non-executive director of the Company.
Hugh G. Farrington (57). Hugh G. Farrington is an Executive Vice President
of Delhaize Group and Vice Chairman of Delhaize America. Mr. Farrington was
elected to the Board of Directors of Delhaize Group in 2001 and in 2000 was
appointed as Vice Chairman of Delhaize America. Mr. Farrington was the Chief
Executive Officer of Hannaford from 1992 to 2001. Mr. Farrington joined
Hannaford in 1968. Over the next several years, he served as Assistant Store
Manager, Store Manager, Regional Supervisor and General Manager and Vice
President. Mr. Farrington was promoted in 1980 to Executive Vice President of
Retail Operations. In 1984, Mr. Farrington became President and Chief Operating
Officer of Hannaford. From 1992 to 2001, Mr. Farrington held the office of
President and Chief Executive Officer of Hannaford. Mr. Farrington received a
Bachelor's degree from Dartmourth College, Hanover, New Hampshire and a Master
of Education from the University of New Hampshire. Mr. Farrington serves on the
Board of Trustees of Maine Medical Center and Maine Health, and also serves on
the Maine Medical Assessment Foundation Board of Directors. Mr. Farrington was
elected to the Board of Directors in May 2001.
William G. Ferguson (74). William G. Ferguson has been a member of the
Board of Directors of Delhaize America since 1993. Mr. Ferguson was a member of
the Delhaize America Audit and Stock Option Committees and was Chairperson of
the Delhaize America Senior Management Compensation Committee. Mr. Ferguson has
been a director of Snow Aviation International, Inc. since 1988 and the
Executive Vice President since 1989. Mr. Ferguson was Chairman and Chief
Executive Officer of TTI Systems, Inc. from 1977 through the sale of TTI
Systems, Inc. to Transco Energy Company in 1986 and until he retired from
Transco in 1989. From 1988 to 1997, Mr. Ferguson was Director of Jamestown
Foundation, Washington D.C. Mr. Ferguson also served as President of Ashland
Chemical Co., a division of Ashland Oil from 1969-1972. Mr. Ferguson holds a
Bachelor's degree in biological sciences and chemistry from Washington
University, St. Louis. Mr. Ferguson was elected to the Board of Directors in May
2001.
Richard Goblet d'Alviella (53). Richard Goblet d'Alviella has been the Chief
Executive Officer of Sofina S.A., a Belgian financial holding company, since
1989. Mr. 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 Tractebel, Azeo, Danone Asia, Societe Europeenne des
Satellites and ADSB Communications (Belgacom). Prior to joining Sofina, Mr.
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.
Mr. Goblet d'Alviella holds a Commercial Engineer's degree from Universite Libre
de Bruxelles, Brussels, and a Master's degree in business administration from
Harvard Business School. Mr. Goblet d'Alviella was elected to the Board of
Directors in May 2001.
Jacques Le Clercq (72). Jacques Le Clercq received a degree in commercial
and colonial sciences. He joined Delhaize Group in 1958 and has served as
director of purchasing, warehousing and transportation, President of Delhaize
The Lion America, Chairman of Super Discount Markets and member of the Executive
Committee and Board of Directors of Food Lion, Inc. In 1969, he was elected
Director of Delhaize Group and he still serves as a non-executive director of
Delhaize Group.
39
R. William McCanless (44). Bill McCanless is an Executive Vice President of
Delhaize Group and President and Chief Executive Officer of Delhaize America.
Mr. McCanless has been President, Chief Executive Officer and member of the
Board of Directors of Delhaize America since August 1999 and Chief Executive
Officer and member of the Board of Directors of Food Lion since April 1999. From
1995 to 1999, Mr. McCanless was Senior Vice President of Administration and
Chief Administrative Officer of Food Lion. Mr. McCanless received a Juris
Doctorate degree from Wake Forest University School of Law and a Bachelor's
degree in accounting from the University of North Carolina at Charlotte. Mr.
McCanless is a member of the North Carolina State Bar and serves on the Board of
Trustees of the University of North Carolina, Charlotte. Mr. McCanless was
elected to the Board of Directors in May 2001.
Robert J. Murray (60). Robert J. Murray has been Chairman of the Board,
President and Chief Executive Officer of New England Business Service, Inc.
since 1995. Mr. Murray has been a director of New England Business Service, Inc.
since 1991. From 1997 to 2001, 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 LoJack Corporation and Allmerica Financial Corporation.
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.
Arnoud de Pret Roose de Calesberg (57). From 1991 to 2000, Arnoud de Pret
was a member of the Executive Committee and Chief Financial Officer of the
Belgian metals company Umicore. He continues as a non-executive Board member of
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 Interbrew, the Belgian brewery
company.
Philippe Stroobant (49). Philippe Stroobant received a Bachelor's degree in
economics and a Master's degree in commercial affairs at I.C.H.E.C. in Brussels.
He joined Delhaize Group in 1980 and successively became responsible for the
beverages department, member of the Executive Committee, Vice President of the
Executive Committee and Chairman of the Management Committee of Delhaize
Belgium. In 1990, he was elected Director of Delhaize Group. On January 1, 1998,
Mr. Stroobant left Delhaize Group as manager and in the same year was elected
Chairman of Fost Plus.
Didier Smits (40). 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
of Delhaize Group and he still serves as a non-executive director of Delhaize
Group. From 1986 to 1991, Mr. Smits was a Manager at Advanced Technics Company.
In 1991, Mr. Smits became Managing Director of Papeteries Aubry SPRL.
Frans Vreys (73). Frans Vreys earned a degree in commercial and financial
Sciences at K.U. Leuven. From 1955 to 1994, Mr. Vreys worked for Cobepa, of
which he became director and a member of the Management Board. In 1982, he was
elected Director of Delhaize Group. In 1995, he became Chairman of the Board of
Directors of Delhaize Group. On January 1, 1999, Mr. Vreys, who reached the age
limit of the Chairmanship of the Board of Directors, resigned as Chairman of the
Board. He still serves as a non-executive director of Delhaize Group. Mr. Vreys
also serves as a director of Assubel, Paribas Deelnemingen, URS and VUM Group.
On March 15, 2001, Delhaize Group announced the creation of three committees
of the Board of Directors: an Audit Committee, a Governance Committee and a
Compensation Committee. These committees were formally established following the
general meeting of shareholders of Delhaize Group on May 23, 2001.
AUDIT COMMITTEE
The purpose of the Audit Committee is to assist the Board of Directors in
fulfilling its responsibility to Delhaize Group shareholders, potential
shareholders, and the investment community relating to accounting and reporting
practices of Delhaize Group. Specifically, the Audit Committee assists the Board
of Directors with keeping accurate and complete accounting and financial
information of Delhaize Group, and verifies and makes recommendations with
respect to the adequacy of the accounting and financial reporting methods used
by Delhaize Group. The Audit Committee reviews, with the assistance of the
statutory auditor, Delhaize Group's financial reporting procedures and
40
internal financial control systems, as well as the activities and independence
of independent auditors. The members of the Audit Committee are Robert J.
Murray, who is the Chairperson of the Audit Committee, Baron de Cooman
d'Herlinckhove, Didier Smits, Philippe Stroobant, Frans Vreys and Richard Goblet
d'Alviella.
GOVERNANCE COMMITTEE
The purpose of the Governance Committee is to submit proposals to the Board
of Directors regarding new directors to be nominated for election, or appointed
in the case of a vacancy, to the Board of Directors. The Governance Committee
evaluates the qualifications of any new director nominee with respect to the
needs of the Board of Directors. The members of the Governance Committee are Gui
de Vaucleroy, who is the Chairperson of the Governance Committee, Pierre-Olivier
Beckers, Philippe Stroobant and William G. Ferguson.
COMPENSATION COMMITTEE
The purpose of the Compensation Committee is to review, analyze and make
recommendations to the Board of Directors concerning the compensation of
Delhaize Group's executive directors and executive officers, any stock option or
stock incentive plans and awards under such plans, and any other compensation
issues for Delhaize Group and its subsidiaries. The members of the Compensation
Committee are Gui de Vaucleroy, who is the Chairperson of the Compensation
Committee, Jacques Le Clercq, William G. Ferguson and Richard Goblet d'Alviella.
B. EXECUTIVE OFFICERS
In 2001, Delhaize Group implemented a new management structure which
consists of:
o a management structure organized around three operational regions
(United States, Europe and Southeast Asia) and four support functions
(finance department, legal affairs department, human resources
department and information technology department);
o an Office of the CEO which assists the President and Chief Executive
Officer in the management of Delhaize Group; and
o an expanded Executive Committee, which prepares the strategy proposals
for the Board of Directors, oversees the operational activities and
analyzes the business performance of Delhaize Group.
41
OPERATIONAL REGIONS
-----------------------
EXECUTIVE COMMITTEE
-----------------------
|
- --------------------------------------------------------------------------------
| | | |
| ---------------- ------------------- ----------------------
| UNITED STATES EUROPE ASIA
| ---------------- ------------------- ----------------------
| | | |
|-- Finance Delhaize America Belgium Thailand
| o Delhaize Belgium o Food Lion Thailand
|-- Human o Food Lion Greece
| Resources o Alfa-Beta Indonesia
| o Hannaford Czech Republic o Super Indo
|-- Information o Delvita
| Technology o Kash n' Karry Slovakia Singapore
| o Delvita o Shop N Save
|-- Legal Romania
Affairs o Mega Image
United States. Bill McCanless, Executive Vice President of Delhaize Group
and President and Chief Executive Officer of Delhaize America, is responsible
for all U.S. activities of Delhaize Group, which is comprised of Food Lion,
Hannaford, Kash n' Karry and Super Discount Markets.
Europe. Renaud Cogels is the Chief Executive Officer of Delhaize Europe,
which is comprised of Delhaize Belgium (Belgium), Alfa-Beta (Greece), Delvita
(Czech Republic and Slovakia) and Mega Image (Romania).
Southeast Asia. Denis Knoops, Vice President of Asian Activities, is
responsible for the Asian activities of Delhaize Group, which is comprised of
Food Lion (Thailand), Super Indo (Indonesia) and Shop N Save (Singapore).
OFFICE OF THE CEO
The Office of the CEO assists Pierre-Olivier Beckers, President and Chief
Executive Officer, in the management of Delhaize Group. In addition to Mr.
Beckers, the Office of the CEO includes: Craig Owens, Executive Vice President
and Chief Financial Officer Delhaize Group; Bill McCanless, Delhaize Group
Executive Vice President and Chief Executive Officer of Delhaize America; Renaud
Cogels, Delhaize Group Executive Vice President and Chief Executive Officer of
Delhaize Europe; and Hugh Farrington, Delhaize Group Executive Vice President
and Vice Chairman of Delhaize America.
EXECUTIVE COMMITTEE
The Executive Committee of Delhaize Group reviews and prepares strategic
proposals for the Board of Directors, oversees the operational activities of the
Company's operating units, and analyzes the business performance of Delhaize
Group. The Executive Committee is composed of the members of the Office of the
CEO (indicated above) and the following persons: Jean-Claude Coppieters `t
Wallant, Delhaize Group Senior Vice President and General Secretary; Arthur
Goethals, Delhaize Group Senior Vice President and General Manager of Delhaize
Belgium; Michael Waller, Delhaize Group Senior Vice President and General
Counsel; and Pierre Dumont, Delhaize Group Senior Vice President of Human
Resources and Secretary of the Executive Committee.
42
Delhaize Group's current Executive Committee members and biographical
information concerning such individuals are set forth below (except for the
biographical information of the executive officers who are also members of the
Board of Directors, which is set forth above).
EXECUTIVE OFFICER/
MEMBER OF THE
EXECUTIVE COMMITTEE
NAME POSITION SINCE
------------------------- --------------------------- -------------------
Pierre-Olivier Beckers...................... President and Chief Executive Officer 1990
Bill McCanless.............................. Executive Vice President 2001
Hugh Farrington............................. Executive Vice President 2001
Renaud Cogels............................... Executive Vice President 1988
Craig Owens................................. Executive Vice President and Chief 2001
Financial Officer
Jean-Claude Coppieters `t Wallant........... Senior Vice President and General 1987
Secretary
Michael Waller.............................. Senior Vice President and General 2001
Counsel
Arthur Goethals............................. Senior Vice President 1994
Pierre Dumont............................... Senior Vice President of Human 1995
Resources and Secretary of the
Executive Committee
Renaud Cogels (53). Renaud Cogels is an Executive Vice President of Delhaize
Group and Chief Executive Officer of Delhaize Europe. Mr. Cogels was previously
General Manager of Delhaize Belgium. After starting his career in the banking
industry, Mr. Cogels joined Delhaize Group 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 the
Executive Committee of Delhaize Group. Mr. Cogels received a Master's degree in
economics at the University of Louvain. Mr. Cogels has been a member of the
Board of Directors of Fedis, the Belgian retail federation, since 1998 and of
Eurocommerce, the European retail federation, since 2000.
Craig Owens (48). Craig Owens is Executive Vice President and Chief
Financial Officer of Delhaize Group. Before joining Delhaize Group, Mr. Owens
worked 19 years at Coca-Cola in different financial and management positions,
including four years as President and Chief Executive Officer of the French
bottler Coca-Cola Enterprise S.A. and lastly in the U.K. as Chief Financial
Officer of Coca-Cola Beverages PLC, franchise owner in 13 European countries.
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
Business of the University of Pennsylvania and the Fletcher School at Tufts
University.
Jean-Claude Coppieters `t Wallant (56). Jean-Claude Coppieters 't Wallant is
a Senior Vice President and General Secretary of Delhaize Group, as well as
Secretary to the Board of Directors of Delhaize Group. Mr. Coppieters was Chief
Financial Officer of Delhaize Group from 1998 - 2001, and has been Secretary of
the Board of Directors of Delhaize Group since 1990. Mr. Coppieters joined
Delhaize Group in 1971 as a member of the financial department. Mr. Coppieters
became Director of Finance in 1974. In 1980, Mr. Coppieters became responsible
for store expansion, real estate and insurance, and for accounting in 1990. From
1984 to 1987, Mr. Coppieters was Secretary of the Executive Committee and in
1987 he became a member of the Executive Committee. Mr. Coppieters received a
Bachelor's degree in commercial and financial sciences at I.C.H.E.C., Brussels.
Since 1994 Mr. Coppieters has been a member of the Board of Directors of Assubel
"Accidents de Travail."
Michael Rex Waller (48). Michael Rex Waller is a Senior Vice President and
General Counsel of Delhaize Group, as well as Executive Vice President, General
Counsel and Secretary of Delhaize America. Mr. Waller has
43
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's degree in arts 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'Connor, Jr. in the Southern district of Texas.
Arthur Goethals (56). Arthur Goethals is a Senior Vice President of Delhaize
Group and General Manager of Delhaize Belgium. Mr. Goethals was previously the
Chief Operating Officer of Delhaize Belgium and has been a member of the
Executive Committee of Delhaize Group since 1994. Mr. Goethals joined Delhaize
Group in 1972 and became successively store manager, district manager and
assistant to the sales department. 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 for Delhaize Group. 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.
Pierre Dumont (64). Pierre Dumont is Senior Vice President of Human
Resources and Secretary to the Executive Committee. Mr. Dumont has been Director
Development Group Human Resources of Delhaize Group since 1998 and Secretary of
the Executive Committee of Delhaize Group since 1995. Mr. Dumont served as a
member of the Board of Directors of Delhaize America from 1999-2001. Mr. Dumont
earned a Juris Doctorate degree at the Vrije Universiteit Brussel, Brussels.
After practicing law at the bar in Antwerp, Mr. Dumont joined Delhaize Group in
1964. Mr. Dumont was Vice President Human Resources from 1971 to 1997. He became
advisor to the Executive Committee of Delhaize Group in 1984. Mr. Dumont has
been Chairman of the social committee of Fedis, the Belgian retail organization,
since 1995. Since 1970, Mr. Dumont has been a Judge at the Brussels Social Court
of Appeal. In 1994, Mr. Dumont was awarded the Belgian Human Resources Manager
of the Year.
C. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF DELHAIZE GROUP
For the year ended December 31, 2001, the aggregate amount of compensation
paid by Delhaize Group to its directors and executive officers as a group (20
persons) for services in all capacities was approximately EUR 7.5 million. The
aggregate amount which Delhaize Group set aside or accrued to provide pension,
retirement or similar benefits for the same directors and executive officers as
a group for the year ended December 31, 2001 was approximately EUR 1.0 million.
During 2001, Delhaize Group had no service contracts with any of its directors
which provide benefits upon termination of service.
D. EMPLOYEES
As of December 31, 2001, Delhaize Group employed approximately 147,000
employees (of which approximately 63,000 were full-time employees and
approximately 84,000 were part-time employees) compared to approximately 152,000
as of December 31, 2000. As of December 31, 2001, Delhaize Group employed
approximately 114,000 employees in the United States, approximately 15,000 in
Belgium and approximately 18,000 in other regions.
As of December 31, 2000, Delhaize Group employed approximately 152,000
employees (of which approximately 63,500 were full-time employees and
approximately 88,500 were part-time employees) compared to approximately 125,000
as of December 31, 1999. As of December 31, 2000, Delhaize Group employed
approximately 122,000 employees in the United States, approximately 15,000 in
Belgium and approximately 15,000 in other regions.
As of December 31, 1999, Delhaize Group employed approximately 125,000
employees compared to approximately 119,000 as of December 31, 1998. As of
December 31, 1999, Delhaize Group employed approximately 95,500 employees in the
United States, approximately 14,000 in Belgium and approximately 15,500 in other
regions
44
Delhaize Group's 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
The directors and executive officers of Delhaize Group as a group as of June
21, 2002 owned 1,268,238 Delhaize Group ordinary shares, which represents
approximately 1.4% of the outstanding Delhaize Group ordinary shares. To our
knowledge, no director or executive officer of Delhaize Group beneficially owns
more than 1% of Delhaize Group's shares.
F. OPTIONS TO PURCHASE SHARES FROM DELHAIZE GROUP AND STOCK INCENTIVE PLAN
DELHAIZE GROUP OPTIONS AND WARRANTS
In April 2002, the Delhaize Group Board of Directors adopted the Delhaize
Group 2002 Stock Incentive Plan (the "2002 Incentive Plan"), an incentive plan
that is primarily targeted to management of Delhaize America and its
subsidiaries. The 2002 Incentive Plan was approved by Delhaize Group's
shareholders at the May 2002 Annual General Meeting. On May 22, 2002, the Board
of Directors issued under the authorized capital and with effect on May 23,
2002, approximately 3.9 million warrants to the beneficiaries of the newly
adopted 2002 Incentive Plan, with 1,793,825 of those warrants representing newly
issued options and 2,059,753 of those warrants representing previously
outstanding options transferred from Delhaize America's 2000 stock incentive
plan to the 2002 Incentive Plan. The 2002 Incentive Plan will replace the
currently existing Delhaize America stock incentive plan and allow Delhaize
Group to satisfy option exercises in a more cost effective manner. Options
issued under the 2002 Incentive Plan become exercisable as determined by the
Board of Directors or a committee of the Board of Directors on the date of
grant, provided that no option may be exercised more than ten years after the
date of grant. Options may be either non-qualified stock options or incentive
stock options. The options issued in 2002 will be exercisable until 2012. As of
June 17, 2002, there were 3,853,578 options outstanding under the 2002 Incentive
Plan.
In June 2002, the Delhaize Group Board of Directors launched a stock option
plan for its management employees of non-U.S. operating companies. The Board of
Directors authorized the offer of a maximum of 220,000 options to acquire
Delhaize Group ordinary shares as incentive compensation to approximately 540
managers in Belgium and other executives in non-U.S. operating companies of
Delhaize Group. Options offered under the plan can be accepted from June 6, 2002
through August 4, 2002. The recipients of the options are able to exercise the
options from January 1, 2006 through June 5, 2009. The exercise price for the
options is EUR 54.30 per ordinary share.
In June 2001, the Delhaize Group Board of Directors launched a stock option
plan for its management employees of non-U.S. operating companies. The Board of
Directors authorized the offer of a maximum of 150,000 options to acquire
Delhaize Group ordinary shares as incentive compensation to approximately 480
managers in Belgium and other executives in non-U.S. operating companies of
Delhaize Group. Options under the plan could be issued from June 5, 2001 through
August 3, 2001. The recipients of the options are able to exercise the options
from January 1, 2005 through June 4, 2008. The exercise price for the options is
EUR 64.16 per ordinary share. As of August 3, 2001, the closing date of the
offer, 134,900 options to acquire Delhaize Group ordinary shares were accepted
and are still outstanding as of June 17, 2002.
In May 2000, the Delhaize Group Board of Directors authorized the grant of
warrants to subscribe to up to 130,000 Delhaize Group ordinary shares during
various exercise periods between June 2004 and December 2006. As of the date of
this document, Delhaize Group had issued warrants entitling beneficiaries to
subscribe to 115,000 ordinary shares under this authorization, 114,400 of which
are currently outstanding at an exercise price of EUR 63.10 per share.
In June 1996, the Board of Directors of Delhaize Group authorized the
issuance of up to 10,400 bonds with 50 warrants attached to each bond. Each
warrant entitled the holder of such warrant to subscribe for one Delhaize Group
ordinary share at an exercise price of EUR 44.62 per share. As of June 21, 2002,
Delhaize Group had issued 9,943 of such bonds with 50 warrants attached. The
warrants were exercisable during various periods through June
45
20, 2001. The exercise of warrants led to the issuance of 179,450 new shares in
2001. The unexercised warrants have become null and void.
For additional information, see Note 21 to the consolidated financial
statements under Item 18 below.
DELHAIZE AMERICA STOCK INCENTIVE PLANS
Prior to the adoption of the 2002 Incentive Plan, Delhaize America sponsored
a stock incentive plan under which options to purchase Delhaize Group ADRs were
granted to officers, outside directors, key employees, consultants and
individuals to whom written offers of employment have been made. With the
adoption of the 2002 Incentive Plan no further options will be granted under
Delhaize America's sponsored stock incentive plan. As of June 25, 2002, there
were options to acquire 747,395 ADRs outstanding under this plan.
Prior to the adoption of the 2002 Incentive Plan, Delhaize America's stock
incentive plan also provided for restricted stock grants for officers, outside
directors, key employees, consultants and individuals to whom written offers of
employment have been made. The grants of restricted stock generally were made to
executive officers and normally vest 25% each year starting on the second
anniversary from the date of the grant. As of June 25, 2002, there were grants
for 215,154 unvested ADRs outstanding under this plan.
In May 2002, Delhaize America implemented a restricted stock unit plan that
provides for restricted stock unit grants for officers, outside directors, key
employees, consultants and individuals to whom offers of employment have been
made. The grants of restricted stock units generally are made to executive
officers and normally vest 25% each year starting on the second anniversary from
the date of the grant. As of June 25, 2002, there were grants for 121,560
unvested restricted stock units outstanding.
For additional information, see Note 21 to the consolidated financial
statements under Item 18 below.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
Belgian law requires that each shareholder or group of shareholders owning
more than 5% of the shares of a Belgian listed company notify a disclosure
statement to such company and the Banking and Finance Commission.
On April 25, 2001, The Bank of New York addressed a disclosure statement to
Delhaize Group whereby it declared to hold 43.57 % of the total number of the
outstanding shares of Delhaize Group as of that date. On April 30, 2001, The
Bank of New York addressed a second disclosure statement to Delhaize Group to
inform the company that the number of shares held by it was reduced to 28.17 %
of such total number. In these two disclosure statements, The Bank of New York
declared that it was only holding the shares of Delhaize Group in its capacity
of Depositary for the account of the holders of ADRs and in its capacity of
Exchange Agent intervening in the exchange of the shares of Delhaize Group
against the shares of Delhaize America. In accordance with the provisions of the
Deposit Agreement governing the ADR Program of Delhaize Group in which The Bank
of New York acts as Depositary, The Bank of New York also announced in these
disclosure statements that it will only exercise the voting rights attached to
the shares deposited with it pursuant to voting instructions of the ADRs
holders.
To the exception of the disclosure statements of The Bank of New York, no
shareholder or group of shareholders declared ownership of more than 5% of the
capital of Delhaize Group as of December 31, 2001. Delhaize Group is not aware
of the existence of agreements in respect of the shares of the company between
family shareholders who are descendants of the founders of the company.
The information set forth under the heading entitled "Share Ownership of
Delhaize Group Management" under Section E of Item 6 above of this document is
incorporated herein by reference.
As of June 17, 2002, Delhaize Group's register of holders of its ordinary
shares had one holder having a registered address in the United States. This one
holder is the depositary for the Delhaize Group ADSs, The Bank of New York. Each
ADS represents the right to receive one Delhaize Group ordinary share, which is
deposited with
46
The Bank of New York. The ADSs are represented by ADRs which trade on the New
York Stock Exchange. The Bank of New York has informed us that as of June 24,
2002, there were 14,761,065 ADRs outstanding and 20,351 record owners with a
registered address in the United States. The Delhaize Group ADRs outstanding as
of June 24, 2002 represent approximately 16.0% of the outstanding ordinary
shares of Delhaize Group.
B. RELATED PARTY TRANSACTIONS
On April 25, 2001, Delhaize Group and Delhaize America consummated a share
exchange transaction in which Delhaize Group acquired all of the outstanding
shares of Delhaize America which it did not already own. Delhaize America
shareholders exchanged their shares of Delhaize America common stock for either
Delhaize Group ADRs or ordinary shares. As a result of the share exchange,
Delhaize America became a wholly-owned subsidiary of Delhaize Group. The
Delhaize Group share exchange was unanimously approved by our Board of Directors
and the Board of Directors of Delhaize America, unanimously recommended to the
Delhaize America Board of Directors by a four-person special committee of
independent directors of Delhaize America, and approved by our shareholders and
the shareholders of Delhaize America.
Delhaize Group has a 60% ownership interest in Super Discount Markets, a
U.S. supermarket company located in the Atlanta market that filed for bankruptcy
on November 11, 2001. Prior to such date, Delhaize Group, after a strategic
review of its operations, had decided to sell the nine Save-a-Lot discount
stores and close the 19 Cub Foods supermarkets of Super Discount Markets.
Delhaize Group determined that an investment necessary to make Super Discount
Markets successful in the highly competitive Atlanta market could not be
justified. At the end of 2001, Super Discount Markets did not operate any
stores. Super Discount Markets has an agreement with SuperValu Inc., its other
shareholder, which requires Super Discount Markets to purchase a minimum amount
of its general store inventory on an annual basis from SuperValu Inc. through
February 2005. Inventory purchases under the supply agreement with SuperValu
Inc. were approximately EUR 114.5 million, EUR 152.8 million and EUR 133.9
million in 2001, 2000 and 1999, respectively. Additionally, Super Discount
Markets also pays franchise fees to Super Valu Inc. These fees were
approximately EUR 0.1 million, EUR 0.4 million and EUR 0.4 million in 2001, 2000
and 1999, respectively.
During 2001, Delhaize Group increased its ownership interests in several of
its Belgian subsidiaries through purchases of interests held by certain
employees. In the aggregate, Delhaize Group paid approximately EUR 0.7 million
for these acquisitions.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION
Delhaize Group's consolidated financial statements are included in this
annual report under Item 18. The Company's consolidated financial statements
have been audited by independent auditors in accordance with auditing standards
generally accepted in Belgium and the United States. The principal differences
between Belgian GAAP and US GAAP, as they relate to Delhaize Group, are
presented in Note 21 to the consolidated financial statements included under
Item 18 below.
B. SIGNIFICANT CHANGES
In March 2001, Delhaize Group decided to reorganize the management structure
of Delhaize Group. For a description of this reorganization, see the information
under Section B in Item 6 above.
On April 19, 2001, Delhaize America refinanced the USD 2.5 billion term loan
facility used to fund the acquisition of Hannaford. For a description of the
refinancing, see the information under Section A in Item 4 and Section E in Item
5 above.
On April 25, 2001, Delhaize Group and Delhaize America consummated a share
exchange transaction in which Delhaize Group acquired all of the outstanding
shares of Delhaize America which it did not already own. As a result of the
share exchange, Delhaize America became a wholly-owned subsidiary of Delhaize
Group.
C. LEGAL PROCEEDINGS
Delhaize Group is from time to time involved in legal actions in the
ordinary course of its business. Delhaize Group is not aware of any pending or
threatened litigation, arbitration or administrative proceedings the likely
outcome of which (individually or in the aggregate) it believes is likely to
have a material adverse effect on its business, financial condition or future
results of operations. Any litigation, however, involves risk and potentially
significant litigation costs, and therefore Delhaize Group cannot give any
assurance that any litigation now existing or which may arise in the future will
not have a material adverse effect on its business, financial condition or
future results of operations.
47
ITEM 9. THE OFFER AND LISTING
A. STOCK PRICE INFORMATION
The trading market for Delhaize Group ordinary shares is Euronext Brussels
in Belgium. Delhaize Group ordinary shares have been listed in Belgium since
1962. Delhaize Group ordinary shares are included in the Bel20 Index, an index
of 20 of the largest Belgian publicly traded companies, the pan-European Dow
Jones Stoxx Euro and the new Euronext 100 index.
In 2001, 51.9 million Delhaize Group ordinary shares were traded on Euronext
Brussels for a total of EUR 3.2 billion. This represented approximately 66% of
the average Delhaize Group market capitalization of EUR 4.9 billion in 2001. The
highest share price was EUR 72.00, the lowest EUR 48.72. The average daily
trading volume was EUR 12.6 million, or an average daily volume of 205,037
shares. In 2000, 26.4 million Delhaize Group ordinary shares were traded on
Euronext Brussels for a total of EUR 1.5 billion. This represented 49.3% of the
average Delhaize Group market capitalization of EUR 3.1 billion in 2000. The
highest share price was EUR 76.50, the lowest EUR 48.05. The average daily
trading volume was EUR 6.1 million, or an average daily volume of 105,314
shares. As of June 24, 2002, Delhaize Group had a market capitalization of
approximately EUR 4.2 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.
Delhaize Group ordinary shares trade on the Euronext Brussels under the symbol
"DELB." On June 24 2002, the last reported price for a Delhaize Group ordinary
share, as reported on Euronext Brussels, was EUR 45.72. Delhaize Group's ADRs
are listed on the New York Stock Exchange under the symbol "DEG." On June 24
2002, the last reported price for a Delhaize Group ADR, as reported on the New
York Stock Exchange, was USD 44.95.
DELHAIZE GROUP DELHAIZE GROUP
YEAR/QUARTER/MONTH ORDINARY SHARES ADRS
------------------ ------------------------- ----------------------
HIGH LOW HIGH LOW
----------- --------- ----------- ------
(AMOUNTS IN EUR) (AMOUNTS IN USD)
1997*...................................... 51.44 38.55 --- ---
1998
First Quarter*............................. 63.21 47.35 --- ---
Second Quarter*............................ 67.18 58.87 --- ---
Third Quarter*............................. 83.79 64.58 --- ---
Fourth Quarter*............................ 78.09 51.69 --- ---
1999
First Quarter.............................. 91.00 72.10 --- ---
Second Quarter............................. 86.45 79.20 --- ---
Third Quarter.............................. 86.20 73.00 --- ---
Fourth Quarter............................. 76.85 65.70 --- ---
2000
First Quarter.............................. 73.75 49.50 --- ---
Second Quarter............................. 72.00 53.90 --- ---
Third Quarter.............................. 68.90 51.70 --- ---
Fourth Quarter............................. 55.70 48.25 --- ---
2001
First Quarter.............................. 63.80 48.72 --- ---
Second Quarter**........................... 72.00 56.00 61.40 50.55
Third Quarter.............................. 70.40 54.75 60.77 50.15
Fourth Quarter............................. 66.70 54.50 59.80 49.40
2002
January.................................... 61.10 52.65 54.50 47.55
February................................... 56.80 49.41 49.00 42.80
March...................................... 54.30 51.05 46.80 44.50
April...................................... 57.05 52.20 50.35 45.00
May........................................ 56.45 51.55 51.63 46.80
June (through June 24)..................... 55.50 45.60 52.00 44.75
----------
48
* Beginning January 4, 1999, the closing price for Delhaize Group
ordinary shares was quoted in Euros. Prior to that date, the
closing price for Delhaize Group ordinary shares was quoted in
Belgian Francs. As part of the introduction of the Euro throughout
the EMU, the exchange rates between the legacy currencies and the
Euro were fixed on January 1, 1999. The historic closing prices for
Delhaize Group ordinary shares for periods prior to January 4, 1999
that were reported on the applicable exchange in Belgian Francs
have been translated solely for convenience into Euros using the
fixed conversion rate of EUR 1 = BEF 40.3399.
** Delhaize Group ADRs began trading on the New York Stock Exchange on
April 26, 2001.
B. EURONEXT BRUSSELS
In July 1999, three Belgian entities, the Brussels Stock Exchange, CIK and
Belfox merged to create a new legal entity, 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 which 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.
C. CUSTODY, CLEARING AND SETTLEMENT OF DELHAIZE GROUP ORDINARY SHARES
Delhaize Group ordinary shares underlying the Delhaize Group ADRs will be
available only in bearer form and they initially will be represented by a single
global certificate in bearer form deposited with BXS-CIK, for safekeeping.
CIK, now known as BXS-CIK, is the Belgian national central securities
depositary which, as discussed above, merged in July 1999 with the Brussels
Stock Exchange and Belfox. BXS-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. BXS-CIK participants include banks, securities brokers and dealers
and other financial institutions. Non-participants of BXS-CIK may hold and
transfer book-entry interests in Delhaize Group ordinary shares through accounts
with a direct participant of CIK or any other securities intermediary that holds
a book-entry interest in Delhaize Group ordinary shares through one or more
securities intermediaries standing between such other securities intermediary
and BXS-CIK. It is anticipated that during the next three years, Euroclear Bank,
the Brussels based settlement service provider, will progressively consolidate
with BXS-CIK and the Dutch entity, Necigef, so that Euroclear Group will provide
an integrated settlement system for all trades executed on Euronext.
Since February 1, 2001, all trades in cash, derivatives and other products
executed on Euronext markets are cleared and netted through Clearnet, the French
clearinghouse which is currently a wholly-owned subsidiary of Euronext Paris.
49
ITEM 10. ADDITIONAL INFORMATION
A. DESCRIPTION OF DELHAIZE GROUP ORDINARY SHARES
As of June 17, 2002, Delhaize Group's corporate capital was EUR
46,196,352.00. The issuance premium on the Delhaize Group capital is EUR
2,264,224,571.50. This corporate capital is represented by 92,392,704 Delhaize
Group ordinary shares, without nominal value each having a par value of EUR
0.50. At an extraordinary general meeting held on May 23, 2002, Delhaize Group
shareholders approved the proposal to authorize the Delhaize Group Board of
Directors to increase the corporate capital by 100%. This authorization will
expire in June 2007, but may be renewed.
Delhaize Group ordinary shares may be in either bearer or registered form,
at the holder's option. Each shareholder is entitled to one vote for each
ordinary share held on each matter submitted to a vote of shareholders. When,
taking into account any carried-forward profits, Delhaize Group in a given
fiscal year realizes sufficient earnings, Delhaize Group shareholders may
authorize a dividend distribution to shareholders. In the event of a
liquidation, dissolution, or winding up of Delhaize Group, holders of Delhaize
Group ordinary shares are entitled to receive, on a pro rata basis, any proceeds
from the sale of Delhaize Group's assets remaining available for distribution to
the holders of Delhaize Group ordinary shares.
Under Belgian law, the holders of Delhaize Group 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 Delhaize Group,
subject to certain limitations.
B. SUMMARY OF PROVISIONS OF THE ARTICLES OF ASSOCIATION AND OTHER MATTERS
General Meetings of Shareholders. Each holder of Delhaize Group 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
Delhaize Group's registered office, or such other place as is 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 Delhaize
Group's 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 takes 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.
Under Belgian law, shareholders have sole authority with respect to the
following matters:
- 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;
- the determination of 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 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 Delhaize Group's corporate object or
authorize the Board of Directors to repurchase Delhaize Group ordinary shares.
50
Under Belgian law, Delhaize Group is required to publish notices for each
meeting of the shareholders in the Belgian Official Gazette at least eight days
prior to a meeting and in Belgian newspapers beginning at least 16 days prior to
such meeting. In addition, a copy of the notice must be sent to each holder of
Delhaize Group ordinary shares in registered form at least fifteen days prior to
the meeting. The 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. The 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 Delhaize Group 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. Delhaize Group has agreed in the deposit agreement to give
notice of a proposed shareholders' meeting to the depositary on or before the
first date Delhaize Group gives or publishes notice of the meeting to the
holders of Delhaize Group ordinary shares.
Neither Belgian law nor the Articles of Association limit the rights of
non-resident or foreign investors to hold or vote the Delhaize Group ordinary
shares or, subject to tax laws, to receive dividends paid on the Delhaize Group
ordinary shares.
ELECTION AND TENURE OF DIRECTORS. Directors are elected by majority vote at
a general meeting of shareholders for a maximum term of six years. 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. As of January 1, 1999, the term of director
appointments was generally set at three years.
ANNUAL FINANCIAL STATEMENTS. Under Belgian law, the annual general meeting
of shareholders must be held within six months after the close of Delhaize
Group's 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, along with the referenced
report, to Delhaize Group's statutory auditor. The auditor is required to review
the accounts and prepare a report on the accounts for the benefit of Delhaize
Group's shareholders. Fifteen days before the date of Delhaize Group's annual
general meeting, the shareholders are entitled to review, at Delhaize Group's
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 Delhaize
Group's statutory auditor. In addition, Delhaize Group is required to provide a
copy of each of these documents with the notice sent to each holder of Delhaize
Group ordinary shares in registered form. So long as ADRs are outstanding,
Delhaize Group will furnish to its 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 the 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, Delhaize Group is required to set aside at
least 5% of its net profits during each fiscal year and contribute such sum to
Delhaize Group's statutory reserve until such reserve has reached an amount
equal to one-tenth of Delhaize Group's 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
Delhaize Group's net profits relating to the prior accounting years available
for distribution. At the annual general meeting, in connection with the approval
of Delhaize Group's accounts, the shareholders may decide to make a distribution
of Delhaize Group's net profits to all shareholders out of available reserves.
Liquidation Rights. In the event of a liquidation of Delhaize Group, 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
Delhaize Group ordinary shares, subject to prior liquidation rights of any
preferred stock then outstanding.
51
Ownership Reporting. Under Belgian law, any beneficial owner or any two or
more persons acting as a partnership, limited partnership, syndicate, or group,
each of which shall be deemed a "person" for such purposes, who after- acquiring
directly or indirectly the beneficial ownership of any Delhaize Group ordinary
shares and other securities giving the right to acquire additional Delhaize
Group ordinary shares (either directly or by virtue of the ownership of Delhaize
Group ADRs), is directly or indirectly the beneficial owner of 5%, 10%, 15% (or
any other multiple of 5%) of the total voting rights of Delhaize Group, or such
lesser percentage as may be required to be disclosed from time to time under any
law, regulation, or the Articles of Association, and every subsequent
acquisition or disposition which causes such beneficial owner's or person's
total voting rights to increase or decrease past any such threshold percentage,
shall, within two Belgian business days after becoming so beneficially
interested, send to Delhaize Group and to the Belgian Banking and Finance
Commission, the information set forth in the March 2, 1989 Act or in the Royal
Decree implementing this Act.
Under the Articles of Association as amended since May 23, 2002 any person
or legal entity, which owns or acquires securities of the company granting
voting right, whether representing the share capital or not, must disclose to
the company and to the Banking and Finance Commission, in compliance with legal
provisions in force, 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 three (3,-) per cent or
more of the total of the voting rights existing when the situation triggering
the disclosure obligation occurs.
Such person or legal entity must also do so 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 five (5,-) per cent, ten (10,-) per cent, and so on by blocks of
five (5,-) per cent of the total of the voting rights existing when the
situation 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 which acquires or transfers, alone or jointly,
the direct or indirect control of a corporation which owns three (3,-) per cent
at least of the voting rights of the company must disclose such acquisition or
transfer to the company and to the Banking and Finance Commission in compliance
with legal provisions in force.
Disclosure statements relating to the acquisition or transfer of securities,
which are made in compliance with this requirement, must be addressed to the
Banking and Finance Commission and to the Board of Directors of the company at
the latest the second business day after the occurrence of the triggering event.
The number of securities acquired by succession must only be disclosed thirty
days after such succession has been accepted, under the benefit of inventory as
the case may be.
In order for a beneficial owner to be eligible to exercise voting rights
with respect to all Delhaize Group ordinary shares held by a beneficial owner
exceeding such thresholds, such beneficial owner must have (a) complied in a
timely manner with these disclosure requirements and (b) provided the required
disclosure materials at least 20 days prior to the date of the shareholders'
meeting with respect to such Delhaize Group ordinary shares. 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 prior to 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 so timely report beneficial ownership of
Delhaize Group ordinary shares may 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.
Holders of Delhaize Group ordinary shares and holders or beneficial owners
of Delhaize Group ADRs are subject to the same reporting requirements as
summarized above.
In addition, holders of Delhaize Group ordinary shares and holders of 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 person beneficially owns more than 5% of the
outstanding Delhaize Group ordinary shares.
52
Preferential Subscription Rights. Under Belgian law, shareholders of
Delhaize Group have preferential subscription rights, in proportion to the
number of Delhaize Group ordinary shares held by them, with respect to issuances
of new Delhaize Group ordinary shares by Delhaize Group 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 provided that it has been authorized to do so by the shareholders at a
general meeting. At an extraordinary general meeting of shareholders held on May
23, 2002, the Delhaize Group shareholders approved the proposal to authorize the
Delhaize Group Board of Directors to limit or remove these rights in connection
with an increase in Delhaize Group's capital of up to EUR 46,196,352. Such
permission may be renewed through a vote at a general meeting of shareholders.
Acquisition, Holding in Pledge and Transfer by Delhaize Group of Delhaize
Group ordinary shares. Under its Articles of Association the company may acquire
or hold in pledge its own shares in compliance with legal provisions in force.
The Board of Directors is authorized to transfer through public or private
transactions the shares that the company acquired, under conditions determined
by the Board of Directors, without the prior approval of the shareholders
meeting, in compliance with legal provisions in force.
On May 23, 2002, the extraordinary shareholders meeting authorized the Board
of Directors to acquire and transfer company's shares when such acquisition or
transfer is necessary in order to prevent serious and imminent damage to the
company. Such authorizations are granted for a period of three years as from the
date of publication of this authorization in the Appendix of the Official
Gazette.
The above-mentioned authorizations also relate to acquisitions and transfers
of shares of the company by direct subsidiaries of the company and are renewable
in compliance with legal provisions in force. In addition, on May 23, 2002, the
extraordinary shareholders meeting authorized the Board of Directors to acquire
company's shares up to a maximum amount of ten per cent of the aggregate number
of outstanding shares, at a minimum unit price of one Euro (Euro 1,-) and a
maximum unit price of one hundred and fifty Euros (Euros 150,-), for a duration
of eighteen months as from the date of the extraordinary general meeting of May
23, 2002. Such authorization also relates to the acquisition of shares of the
company by one or several direct subsidiaries of the company, as defined by
legal provisions on acquisition of shares of the mother company by subsidiaries.
Ability of Delhaize Group to issue Ordinary Shares in Response to a Takeover
Bid. Under Belgian law, the person intending to make a takeover bid must notify
the Belgian Banking and Finance Commission in advance and the latter must 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 Board of Directors has been previously authorized to issue new shares, it
may decide to issue such shares to the extent that their issuance price is at
least equal to the price offered by the bidder, that these shares be fully
paid-up upon issuance and that the number of these new shares does not exceed
10% of the number of the 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.
C. MATERIAL CONTRACTS
On November 16, 2000, Delhaize Group and Delhaize America entered into an
agreement and plan of share exchange. Pursuant to the terms of the share
exchange agreement, at the closing on April 25, 2001, Delhaize Group acquired
all of the outstanding shares of Delhaize America which it did not already own.
Delhaize America shareholders exchanged their shares of Delhaize America common
stock for either ADRs, which are listed on the New York Stock Exchange, or
ordinary shares, which are listed on Euronext Brussels. At the closing of the
share exchange, 40,181,529 Delhaize Group ordinary shares were issued. For
further description of the material terms of the share exchange agreement, see
the information under the heading "Terms of the Share Exchange Agreement" in our
registration statement on Form F-4 (File No. 333-13302) filed with the SEC on
March 23, 2001. The full text of the share exchange agreement is available as
Annex A to our registration statement on Form F-4 (File No. 333-13302) filed
with the SEC on March 23, 2001.
53
In connection with the share exchange transaction and as contemplated by the
share exchange agreement, on April 26, 2001, Delhaize Group, The Bank of New
York and all holders from time to time of Delhaize Group ADRs entered into a
deposit agreement. Under the terms of the deposit agreement, Delhaize Group ADRs
evidencing Delhaize Group ADSs are issuable by The Bank of New York on behalf of
Delhaize Group. The Bank of New York, as depositary, holds the underlying
ordinary shares represented by the Delhaize Group ADSs. Each Delhaize Group ADS
represents ownership interests in the underlying Delhaize Group ordinary share
and the right to receive one Delhaize Group ordinary share deposited by Delhaize
Group. For further description of the material terms of the deposit agreement,
see the information under the heading "Description of Delhaize Group American
Depositary Receipts" in our registration statement on Form F-4 (File No.
333-13302) filed with the SEC on March 23, 2001. The full text of the deposit
agreement is available as an exhibit to our registration statement on Form F-4
(File No. 333-13302) filed with the SEC on March 23, 2001.
On April 19, 2001, Delhaize America refinanced its USD 2.5 billion
(approximately EUR 2.8 billion) short-term loan facility used to fund the
acquisition of Hannaford by completing a private offering of USD 600 million
(approximately EUR 681 million) of 7.375% notes due in 2006, USD 1,100 million
(approximately EUR 1,248 million) of 8.125% notes due in 2011 and USD 900
million (approximately EUR 1,021 million) of 9.000% debentures due in 2031. In
connection with the issuance of the notes and debentures, Delhaize America
entered into an indenture, dated as of April 15, 2001, among Delhaize America,
Food Lion, LLC and The Bank of New York, as trustee, as amended by a First
Supplemental Indenture, dated as of April 19, 2001, among Delhaize America, Food
Lion, LLC and The Bank of New York, as trustee, as further amended by a Second
Supplemental Indenture, dated as of September 6, 2001, among Delhaize America,
Food Lion, LLC, Hannaford Bros. Co., Kash n' Karry Food Stores, Inc. and The
Bank of New York, as trustee and as further amended by a Third Supplemental
Indenture, dated as of November 15, 2001, 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. For further
description of the refinancing and related agreements, as well as certain other
financing arrangements of Delhaize Group, see Sections C and E under Item 5
above.
D. EXCHANGE CONTROLS
See Sections C and D under Item 11 below.
E. TAXATION
The following is a description of the United States and Belgian tax
consequences of owning and disposing of Delhaize Group ADRs and ordinary shares.
The discussion applies only to U.S. Holders (as defined below) who hold Delhaize
Group 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 the light of their
particular circumstances such as:
o 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;
o persons who are residents of Belgium or engaged in a trade or business
in Belgium through a permanent establishment or a fixed base;
o persons who acquired their Delhaize Group ADRs or ordinary shares
pursuant to the exercise of employee stock options or otherwise as
compensation; or
o U.S. Holders who are subject to special treatment under United States
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.
54
The following discussion does not address the effect of applicable United
States state or local tax laws or of United States 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, U.S. Treasury
Regulations, 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.
CERTAIN UNITED STATES TAX CONSEQUENCES OF OWNERSHIP OF DELHAIZE GROUP ADRS OR
ORDINARY SHARES
OWNERSHIP OF ADRS. For United States federal income tax purposes, U.S.
Holders of Delhaize Group ADRs will 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 who
is:
(a) a citizen or resident of the United States;
(b) a corporation or partnership created in or organized under the laws
of the United States or any political subdivision of the United States;
(c) an estate the income of which is subject to United States federal
income tax regardless of its source; or
(d) a trust if a United States court can exercise primary supervision
over the administration of such trust, and one or more United States 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 Delhaize Group ordinary shares, excluding distributions
of Delhaize Group ordinary shares, if any, distributed pro rata to all
shareholders of Delhaize Group, and holders of Delhaize Group ADRs, but
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, which in the case of a U.S. Holder of Delhaize Group ADRs
generally will be the date of receipt by the depositary, to the extent such
distributions are made from the current and accumulated earnings and profits, as
determined under United States federal income tax principles, of Delhaize Group.
Such dividends will not be eligible for the dividends received deduction
generally allowed to U.S. corporations. To the extent, if any, that the amount
of any distribution by Delhaize Group exceeds current and accumulated earnings
and profits, as determined under United States 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 Delhaize Group ADRs, as
the case may be, and thereafter as capital gain.
Subject to certain limitations, Belgian tax withheld from dividends at the
applicable treaty rate will be eligible for credit against a U.S. Holder's
federal income taxes or, at the election of the holder, may be deducted 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. For this purpose, dividends paid by Delhaize Group
generally will be "passive" income or, in the case of certain holders,
"financial services" income. Foreign tax credits will not be allowed for
withholding taxes imposed with respect to certain short-term or hedged positions
or with respect to certain arrangements in which a U.S. Holder's expected
economic profit, after foreign taxes, is insubstantial.
If dividends are paid in Belgian Francs or 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 Belgian Francs or Euros, determined at a spot
exchange rate between Belgian Francs and U.S. dollars, or Euros and U.S.
dollars, as the case may be, on the date
55
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 Delhaize Group ADRs,
as the case may be. Any gain or loss will be a capital gain or loss, and will be
long-term capital gain or loss if the Delhaize Group ordinary shares or Delhaize
Group ADRs, as the case may be, were held for more than one year. A gain or
loss, if any, recognized by a U.S. Holder generally will be treated as U.S.
source income or loss for United States foreign tax credit purposes.
PASSIVE FOREIGN INVESTMENT COMPANY. U.S. Holders should be aware that
special United States tax laws would apply to U.S. Holders of Delhaize Group
ordinary shares and Delhaize Group ADRs if Delhaize Group (or any corporate
subsidiary of Delhaize Group) is characterized as a passive foreign investment
company ("PFIC"). In particular, if Delhaize Group (or any corporate subsidiary)
is a PFIC in any taxable year, U.S. Holders may be subject to a special tax
regime (a) with respect to gains realized on the sale or other disposition of
Delhaize Group ordinary shares or Delhaize Group ADRs, as the case may be, and
(b) with respect to distributions on Delhaize Group ordinary shares or Delhaize
Group ADRs, as the case may be, held for more than one taxable year to the
extent those distributions constitute "excess distributions." In general,
Delhaize Group (or any corporate subsidiary of Delhaize Group) will be
characterized as a PFIC during a taxable year if (a) 75% or more of its income
is "passive" for purposes of the PFIC rules, or (b) 50% or more of its assets
produce or are held for the production of "passive" income. Delhaize Group does
not believe that it or any of its subsidiaries is currently or will be in the
future a PFIC. However, Delhaize Group can provide no assurance as to such
conclusion.
FOREIGN PERSONAL HOLDING COMPANY. U.S. Holders should be aware that special
United States tax laws would apply to U.S. Holders of Delhaize Group ordinary
shares and Delhaize Group ADRs if Delhaize Group (or any corporate subsidiary of
Delhaize Group) is characterized as a foreign personal holding company ("FPHC").
In particular, if Delhaize Group (or any corporate subsidiary) is an FPHC in
respect of any taxable year, U.S. Holders may be subject to current tax on their
(direct or indirect) pro rata share of the income of the FPHC. In general,
Delhaize Group (or any corporate subsidiary of Delhaize Group) will constitute
an FPHC during a taxable year if (a) a specified percentage of its income is
"passive" for purposes of the FPHC rules, and (b) at any time during the taxable
year five or fewer individuals who are United States citizens or residents own
(directly, indirectly or constructively) more than 50 percent of the voting
power or value of Delhaize Group's ordinary shares. Delhaize Group does not
believe that it or any of its subsidiaries is currently or will be in the future
a PFIC. However, Delhaize Group can provide no assurance as to such conclusion.
UNITED STATES 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 the rate of 30% with respect to
dividends paid on the Delhaize Group ADRs, or the proceeds of sale of Delhaize
Group 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 United States federal
income tax liability.
56
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 the 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 in this
discussion reference is only made to ADRs, unless otherwise stipulated. However,
it must be noted that 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;
(b) reductions of statutory capital (except for reductions carried out in
accordance with the Belgian Company Act and to the extent that the statutory
capital qualifies as so-called fiscal capital); and
(c) reimbursements of share capital and issuance premiums (except for
reimbursements carried out in accordance with the provisions of the Belgian
Company Act and to the extent the statutory capital and issue premiums qualify
as so-called fiscal capital).
As a general rule, dividends attributed to a Belgian resident company are
under Belgian domestic law subject to a 25% withholding tax. No withholding tax
is, however, due on stock redemption and liquidation proceeds; although, the
introduction of a 10% withholding tax is being considered by the government. 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 as from January 1, 1994 (a) pursuant to a public issuance in Belgium
and 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, either registered with the issuing company or
given in open custody to a bank, to a public credit institution, to a stock
broker or to savings bank submitted to the supervision of the Belgian Banking
and Finance Commission. These shares are sometimes referred to as VVPR-shares
(Verlaagde Voorheffing/Precompte Reduit). 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.
Under the Belgium-United States tax treaty, the Belgian withholding tax
shall be reduced to 15% of the gross amount of the dividends if the U.S. Holder,
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. As a general
rule, 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-Etrangers,
Place J. Jacobs 10, 1000 Brussels, Belgium. As a general rule, the reduced
treaty rate can also be obtained at source. To this end, a U.S. Holder should
file, within 10 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 of dividends, and as to the procedural requirements for obtaining the
reduced withholding rate at source or for making claims for reimbursement.
Provided that the required formalities are complied with, dividends paid by
Delhaize Group to certain United States organizations that are not 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 an
individual 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 surcharge of 6% of the tax due and a crisis
contribution of up to a maximum of 3% of the tax due) if the Belgian tax
57
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 operations 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
approximately EUR 248 per transaction and per party) on the purchase and on the
sale in Belgium of existing shares of a Belgian company. The subscription of
newly issued shares in a Belgian company pursuant to a public issue is subject
to this tax in the amount of 0.35 % (but limited to EUR 250 per order).
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 approximately EUR 248 per
transaction and per party on the purchase and on the sale in Belgium of the
qualifying certificates. The subscription of qualifying, newly issued
certificates pursuant to a public issue is subject to this tax in the amount of
0.14 % (but limited to approximately EUR 248 per order).
The following persons do not need to pay the TOB:
o professional intermediaries referred to in Article 2 of the Law of April
6, 1995 acting for their own account;
o insurance companies referred to in Article 2,ss.1 of the Law of July 9,
1975 acting for their own account;
o pension funds referred to in Article 2,ss.3 6(degree)of the Law of July
9, 1975 acting for their own account;
o collective investment institutions referred to in the Law of December 4,
1990 acting for their own account; and
o 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 the U.S. Holders
on the subscription, buying or selling 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 or
pursuant to an issuance by a Belgian company triggers a tax in the amount of
0.2% on the value of the ordinary shares.
If Delhaize Group bearer shares are delivered to an investor through:
(a) the issuance of the Delhaize Group bearer shares;
58
(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 0.2% on the value of the Delhaize Group shares
will be due. Certain financial intermediaries benefit from an exemption from
this tax.
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 inspection upon request at the corporate office of Delhaize Group
located at rue Osseghem 53, B-1080 Brussels, Belgium (tel. +32-2-41-2111). In
addition, Delhaize Group files reports and other information with the SEC. Any
documents that Delhaize Group files with the SEC may be read and copied at the
SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549
and 500 Madison Street, Suite 1400, Chicago, Illinois 60661. 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.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A. INFORMATION ABOUT MARKET RISK
See the information under Section D of Item 5 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 which are listed on the New
York Stock Exchange. In addition, since any cash dividends that Delhaize Group
pays to its shareholders will be denominated in Euro, exchange rate fluctuations
will affect the U.S. dollar amounts which owners of ADRs will receive on
conversion of dividends.
See the information under the headings entitled "Risk Factors" and "Exchange
Rates" under Item 3 above.
C. EXCHANGE CONTROLS
Belgian exchange control regulations impose no limitations on the amount of
cash payments that may be remitted by Delhaize Group to residents of the United
States. However, when there is a transfer of funds by Delhaize Group an
obligation to notify the Institut Belgo-Luxembourgeois du Change arises. If the
transfer of funds is handled by Belgian financial institutions, that institution
will give 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 Delhaize Group through one or more transactions
relating to the Delhaize Group shares, the acquiror must notify the Belgian
Banking and Finance Commission of the contemplated transaction at least five
business days prior to such acquisition. If the contemplated share transfer
includes a control premium, the acquiror must offer to all other shareholders of
Delhaize Group the opportunity to sell their shares at the highest price offered
by the acquiror for shares during the 12 months preceding the acquisition of
control of Delhaize Group. The acquiror must give the other shareholders this
opportunity within 30 days after its acquisition of control either:
(1) in the form of a public takeover bid; or
(2) under an undertaking to support the stock price of the acquired company
on the relevant stock exchange.
59
Public takeover bids are subject to the supervision of the Belgian Banking
and Finance Commission. Prior to making a bid, a bidder must issue a prospectus
which must be approved by the Belgian Banking and Finance Commission. If the
Belgian Banking and Finance Commission determines that a takeover bid is
contrary to the interests of the shareholders of Delhaize Group, 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.
In case of a public takeover bid, the European Commission must approve the
transaction if, among other items:
(1) the combined worldwide revenues of both the bidder and the target to be
acquired exceed EUR 2.5 billion;
(2) the combined revenues of the bidder and the target to be acquired amount
in each of at least three EU member states to EUR 100 million;
(3) the revenues of the bidder or target to be acquired in each of such
three EU member states exceed EUR 25 million; and
(4) the total community-wide revenues of the bidder and the target to be
acquired individually exceed EUR 100 million.
A business' concentration through a public takeover bid which does not fall
into the scope of the European competition regulation must however be approved
by the Belgian Competition Authorities if:
(1) the combined revenues in Belgium of both the bidder and the target to be
acquired exceed EUR 24,790,000; and
(2) the revenues in Belgium of at least two of the businesses concerned
exceed EUR 9,916,000.
Under Belgian law, a company must also notify the Minister for Economic
Affairs, the Minister of Finances, as well as the relevant regional Minister for
Economic Affairs, prior to any transaction which will transfer more than
one-third of the capital of a company whose activities are located in Belgium if
such company has capital in excess of EUR 2,480,000.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
60
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.
[Reserved]
ITEM 16.
[Reserved]
61
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable. See Item 18 below.
ITEM 18. FINANCIAL STATEMENTS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2001 AND 2000 AND FOR EACH OF
THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 2001.
INDEPENDENT AUDITORS' REPORT............................................... F-1
CONSOLIDATED STATEMENTS OF INCOME.......................................... F-2
CONSOLIDATED BALANCE SHEETS................................................ F-3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY................................................................... F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................... F-5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS............................. F-7
62
ITEM 19. EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -------------------
1.1 Articles of Association of Delhaize Group (English translation)
(Filed as Exhibit 4.1 to Delhaize Group's registration statement
on Form S-8 (File No. 333-89292) filed with the SEC on May 29,
2002 and incorporated herein by reference)
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 ,
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)
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)
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 Generale 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)
63
EXHIBIT
NO. DESCRIPTION
------- -------------------
4.4 Credit Agreement dated October 25, 1999 among Delhaize Group,
Delhaize The Lion Coordination Center and Generale De Banque
(Filed as Exhibit 10.3 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 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)
4.6 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
Generale 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)
8.1 Subsidiaries of Delhaize Group (as of December 31, 2001)
10.1 Consent of Deloitte & Touche Reviseurs d'Entreprises SC sfd SCRL
10.2 Delhaize Group Annual Report to Shareholders for 2001
64
SIGNATURES
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 FRERES ET CIE
"LE LION"(GROUPE DELHAIZE)
By: /s/ Pierre-Olivier Beckers
-----------------------------------
Pierre-Olivier Beckers
President and Chief Executive
Officer
Date: July 1, 2002
S-1
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Etablissements Delhaize Freres et Cie "Le Lion" S.A.:
We have audited the accompanying consolidated balance sheets of
Etablissements Delhaize Freres et Cie "Le Lion" S.A. and consolidated and
associated companies ("Delhaize Group") at December 31, 2001 and 2000 and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2001
(expressed in euros). These consolidated financial statements are the
responsibility of the management of Delhaize Group. Our responsibility is to
express an opinion on the consolidated financial statements based on our audits
We conducted our audits in accordance with auditing standards generally
accepted in Belgium and in the United States of America. 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,
2001 and 2000, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in Belgium.
Accounting principles generally accepted in Belgium vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of net income for each of the three years in the period ended
December 31, 2001 and the determination of shareholders' equity at December 31,
2001 and 2000, to the extent summarized in Note 21 to the consolidated financial
statements.
Our audits also comprehended the translation of euros into United States
dollar amounts and, in our opinion, such translation has been made in conformity
with the basis stated in Note 1 to the consolidated financial statements. Such
United States dollar amounts are presented solely for the convenience of readers
in the United States of America.
DELOITTE & TOUCHE
REVISEURS D'ENTREPRISES SC sfd SCRL
Represented By:
James Fulton
Brussels, Belgium
March 22, 2002
F-1
DELHAIZE GROUP
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2001
USD 2001 2000 1999
(NOTE 1) EUR EUR EUR
---------- ---------- ---------- ----------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
REVENUE
Sales.................................................. 20,764,765 21,395,945 18,168,166 14,310,129
Other operating income................................. 508,618 524,078 408,563 279,077
------- ------- ------- -------
Total Revenue..................................... 21,273,383 21,920,023 18,576,729 14,589,206
OPERATING COSTS
Cost of goods sold..................................... 15,497,303 15,968,370 13,695,993 10,806,796
Selling, administrative, and other operating expenses.. 1,482,872 1,527,946 1,307,643 1,001,080
Salaries, social security and pensions................. 2,700,912 2,783,011 2,328,085 1,805,243
Depreciation and amortization.......................... 698,171 719,393 505,495 327,905
------- ------- ------- -------
Total Operating Costs............................. 20,379,258 20,998,720 17,837,216 13,941,024
---------- ---------- ---------- ----------
OPERATING INCOME....................................... 894,125 921,303 739,513 648,182
FINANCIAL INCOME....................................... 14,792 15,242 15,060 9,040
FINANCIAL EXPENSES
Interest expense and similar charges................... 432,159 445,295 282,132 130,932
Valuation allowance for treasury shares................ 1,469 1,514 -- --
Other financial expenses............................... 31,730 32,695 29,152 18,222
------ ------ ------ ------
Total Financial Expenses.......................... 465,358 479,504 311,284 149,154
------- ------- ------- -------
INCOME BEFORE TAXATION AND EXCEPTIONAL ITEMS........... 443,559 457,041 443,289 508,068
EXCEPTIONAL INCOME
Gain on disposal of fixed assets....................... 8,153 8,401 37,961 17,685
Other exceptional income............................... 2,890 2,978 1,000 1,955
----- ----- ----- -----
Total Exceptional Income.......................... 11,043 11,379 38,961 19,640
EXCEPTIONAL EXPENSES
Loss on disposal of fixed assets....................... 12,188 12,558 2,636 15,046
Other exceptional expenses............................. 92,461 95,271 77,624 1,959
------ ------ ------ -----
Total Exceptional Expenses........................ 104,649 107,829 80,260 17,005
------- ------- ------ ------
INCOME BEFORE TAXATION................................. 349,953 360,591 401,990 510,703
TAXATION
Deferred taxes......................................... 66,417 68,436 41,784 32,188
Current taxes.......................................... 119,757 123,397 103,944 157,339
------- ------- ------- -------
Total Taxation.................................... 186,174 191,833 145,728 189,527
------- ------- ------- -------
INCOME AFTER TAXATION AND BEFORE
MINORITY INTERESTS AND INVESTEES
UNDER THE EQUITY METHOD............................. 163,779 168,758 256,262 321,176
SHARE IN LOSS OF COMPANIES ACCOUNTED FOR
UNDER THE EQUITY METHOD............................ -- -- 80 --
MINORITY INTERESTS..................................... 18,768 19,338 95,495 151,290
------ ------ ------ -------
NET INCOME........................................ 145,011 149,420 160,687 169,886
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING.................... 79,494 79,494 52,023 51,983
====== ====== ====== ======
EARNINGS PER SHARE..................................... 1.82 1.88 3.09 3.27
==== ==== ==== ====
See notes to the consolidated financial statements.
F-2
DELHAIZE GROUP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------------------
2001
USD 2001 2000
(NOTE 1) EUR EUR
---------- --------- ---------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS)
LONG-TERM ASSETS
Debt issuance costs, net........................................... 23,873 24,599 3,641
Intangible assets, net............................................. 1,371,587 1,413,279 614,963
Goodwill arising on consolidation, net............................. 3,344,290 3,445,945 3,050,227
Tangible fixed assets, net......................................... 4,092,480 4,216,878 3,792,149
Long-term investments and receivables.............................. 33,400 34,415 26,417
------ ------ ------
Total Long-term Assets........................................ 8,865,630 9,135,116 7,487,397
OTHER ASSETS
Deferred taxes..................................................... 14,637 15,082 17,074
Inventories, net................................................... 1,806,820 1,861,741 1,864,398
Receivables, net................................................... 513,083 528,679 664,177
Treasury shares.................................................... 16,930 17,445 --
Short-term investments............................................. 26,877 27,694 33,388
Cash............................................................... 353,417 364,160 239,747
Prepayments and other.............................................. 131,890 135,899 91,497
------- ------- ------
Total Other Assets............................................ 2,863,654 2,950,700 2,910,281
--------- --------- ---------
TOTAL ASSETS....................................................... 11,729,284 12,085,816 10,397,678
========== ========== ==========
SHAREHOLDERS' EQUITY
Capital shares..................................................... 44,833 46,196 26,016
Additional paid-in capital......................................... 2,197,430 2,264,225 26,232
Revaluation reserves............................................... 17,263 17,788 18,227
Retained earnings.................................................. 1,143,418 1,178,174 1,167,988
Cumulative translation adjustment and other........................ 203,469 209,654 126,228
------- ------- -------
Total Shareholders' Equity.................................... 3,606,413 3,716,037 1,364,691
MINORITY INTERESTS................................................. 34,544 35,594 1,509,720
PROVISIONS FOR LIABILITIES AND DEFERRED TAXATION
Pension liabilities................................................ 25,134 25,898 9,973
Accrued liabilities................................................ 332,024 342,116 343,577
Deferred taxes..................................................... 606,851 625,297 225,041
------- ------- -------
Total Provisions for Liabilities and Deferred Taxation........ 964,009 993,311 578,591
LONG-TERM DEBT
Long-term borrowings............................................... 3,650,183 3,761,136 689,779
Capitalized lease commitments...................................... 746,061 768,739 649,065
Other.............................................................. 15,797 16,277 11,316
------ ------ ------
Total Long-term Debt.......................................... 4,412,041 4,546,152 1,350,160
SHORT-TERM OBLIGATIONS
Current portion of long-term debt.................................. 64,580 66,543 174,831
Short-term borrowings.............................................. 554,445 571,298 3,348,439
Accounts payable and other liabilities............................. 1,619,941 1,669,182 1,557,021
Accrued income taxes............................................... 72,724 74,935 102,999
Accrued salaries and benefits...................................... 270,027 278,235 285,239
Dividends and directors remuneration payable....................... 130,560 134,529 125,987
------- ------- -------
Total Short-term Obligations.................................. 2,712,277 2,794,722 5,594,516
TOTAL LIABILITIES.................................................. 8,088,327 8,334,185 7,523,267
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY, MINORITY INTERESTS AND
LIABILITIES...................................................... 11,729,284 12,085,816 10,397,678
========== ========== ==========
See notes to the consolidated financial statements.
F-3
DELHAIZE GROUP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CUMULATIVE
NUMBER OF ADDITIONAL TRANSLATION TOTAL
SHARES PAID-IN REVALUATION RETAINED ADJUSTMENT SHAREHOLDERS'
OUTSTANDING CAPITAL CAPITAL RESERVES EARNINGS AND OTHER EQUITY
----------- ------- ---------- ----------- -------- ----------- -------------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF EUR, EXCEPT NUMBER OF OUTSTANDING SHARES)
BALANCES AT JANUARY 1,
1999.................... 51,962,625 25,139 23,183 17,053 876,874 (30,932) 911,317
Capital increases......... 54,300 27 2,396 -- -- -- 2,423
Dividends and directors
remuneration............ -- -- -- -- (65,427) -- (65,427)
Change in cumulative
translation adjustment.. -- -- -- -- -- 113,908 113,908
Changes in equity due to
subsidiary capital
transactions. See Note
11 to the consolidated
financial statements.... -- -- -- -- (46,589) -- (46,589)
Other..................... -- -- -- (440) 440 47 47
Net income................ -- -- -- -- 169,886 -- 169,886
---------- -------- --------- ------ ------- ------ -------
BALANCES AT DECEMBER 31,
1999.................... 52,016,925 25,166 25,579 16,613 935,184 83,023 1,085,565
Capital increases......... 14,800 7 653 -- -- -- 660
Dividends and directors
remuneration............ -- -- -- -- (125,987) -- (125,987)
Change in cumulative
translation adjustment.. -- -- -- -- -- 43,252 43,252
Changes in equity due to
subsidiary capital
transactions. See Note
11 to the consolidated
financial statements.... -- -- -- -- 198,508 -- 198,508
Other..................... -- 843 -- 1,614 (404) (47) 2,006
Net income................ -- -- -- -- 160,687 -- 160,687
---------- -------- --------- ------ ------- ------ -------
BALANCES AT DECEMBER 31,
2000.................... 52,031,725 26,016 26,232 18,227 1,167,988 126,228 1,364,691
Capital increases......... 40,360,979 20,180 2,237,993 2,258,173
Dividends and directors
Remuneration............ -- -- -- -- (134,529) -- (134,529)
Change in cumulative
translation adjustment.. -- -- -- -- -- 83,426 83,426
Changes in equity due to
subsidiary capital
transactions. See Note
11 to the consolidated
financial statements.... -- -- -- -- (5,144) -- (5,144)
Other..................... -- -- -- (439) 439 -- --
Net income................ -- -- -- -- 149,420 -- 149,420
---------- -------- --------- ------ ------- ------ -------
BALANCES AT DECEMBER 31,
2001.................... 92,392,704 46,196 2,264,225 17,788 1,178,174 209,654 3,716,037
========== ====== ========= ====== ========= ======= =========
See notes to the consolidated financial statements.
F-4
DELHAIZE GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2001
USD 2001 2000 1999
(NOTE 1) EUR EUR EUR
--------- --------- --------- --------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS)
OPERATING ACTIVITIES
Net income............................................. 145,011 149,420 160,687 169,886
Minority interests..................................... 18,768 19,338 95,495 151,290
Share in loss of companies accounted for under the
equity method........................................ -- -- 80 --
Adjustments for:
Depreciation and amortization........................ 713,647 735,340 512,367 327,904
Provisions for losses on accounts receivable
and inventory obsolescence......................... 4,128 4,253 3,330 16,315
Income taxes......................................... 119,757 123,397 103,944 157,339
Interest expense and similar charges................. 432,159 445,295 282,132 130,932
Investment income.................................... (9,612) (9,904) (9,718) (4,528)
Loss on disposal of fixed assets..................... 12,188 12,558 2,636 15,046
Gain on disposal of fixed assets..................... (8,153) (8,401) (37,961) (17,685)
------- ------- -------- --------
1,427,893 1,471,296 1,112,992 946,499
Changes in working capital requirements:
Decrease (increase) in inventories................... 84,648 87,221 88,747 (84,193)
Decrease (increase) in receivables................... 70,588 72,734 (177,209) (96,840)
Decrease (increase) in prepayments and other......... 31,843 32,811 (33,186) (7,600)
(Decrease) increase in accounts payable and other
liabilities........................................ (64,051) (65,998) (29,136) 75,097
(Decrease) increase in accrued income taxes.......... (41,076) (42,325) 92,945 23,998
(Decrease) increase in accrued salaries and benefits. (13,880) (14,302) (24,177) 27,984
Additions to provisions for liabilities and deferred
taxation........................................... 57,520 59,268 62,936 23,916
------ ------ ------ ------
Cash generated from operations....................... 1,553,485 1,600,705 1,093,912 908,861
Interest paid........................................ (356,816) (367,662) (268,979) (110,625)
Income taxes paid.................................... (23,833) (24,557) (154,443) (176,501)
-------- -------- --------- ---------
Net Cash Provided By Operating Activities............ 1,172,836 1,208,486 670,490 621,735
INVESTING ACTIVITIES
Purchase of shares in consolidated companies,
net of cash and cash equivalents acquired............ (67,886) (69,950) (2,948,965) (226,225)
Purchase of tangible fixed assets...................... (537,239) (553,569) (544,717) (524,660)
Purchase of financial assets........................... (4,356) (4,488) (2,216) --
Purchase of intangible assets.......................... (12,345) (12,720) (1,672) (29,636)
Sale of shares in consolidated companies, net of
cash and cash equivalents disposed of................ -- -- 70,963 --
Sale of tangible fixed and intangible assets........... 23,868 24,593 94,192 18,212
Sale of financial assets............................... -- -- 688 8
Cash loans made........................................ (9,548) (9,838) (8,535) (920)
Cash received from the repayment of loans.............. 7,508 7,736 105 73
Dividends received..................................... 156 161 655 137
Interest received...................................... 9,456 9,743 9,062 4,391
----- ----- ----- -----
Net Cash Used in Investing Activities.................. (590,386) (608,332) (3,330,440) (758,620)
--------- --------- ----------- ---------
Cash Flow Before Financing Activities.................. 582,450 600,154 (2,659,950) (136,885)
F-5
DELHAIZE GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2001
USD 2001 2000 1999
(NOTE 1) EUR EUR EUR
-------- ------- ------- -------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS)
FINANCING ACTIVITIES
Proceeds from the exercise of share warrants........... 7,771 8,007 660 2,423
Borrowings under long-term loans....................... 2,984,674 3,075,398 17,150 158,125
Direct financing costs................................. (30,406) (31,330) -- --
Repayment of long-term loans........................... (203,101) (209,275) (93,258) (107,492)
Borrowings under short-term loans (> 3 months)......... 459,985 473,967 371,799 402,059
Repayment of short-term loans (> 3 months)............. (487,421) (502,237) (557,134) (168,568)
(Repayments of) additions to short-term loans
(< 3 months) (2,779,674) (2,864,167) 2,888,683 202,950
Dividends and directors remuneration paid.............. (122,191) (125,905) (65,427) (59,104)
Dividends paid by subsidiaries to minority interests... (17,904) (18,448) (51,779) (40,656)
Subsidiary capital transactions........................ -- -- -- (133,930)
Increase in capital of subsidiaries by minority interests 187 193 -- --
Proceeds upon conversion of stock options at a subsidiary 8,715 8,980 4,858 1,122
Purchases of treasury shares........................... (35,174) (36,243) -- --
Loss on rate-lock related to long-term bond............ (231,976) (239,027) -- --
--------- --------- --------- ---------
Net Cash (Used-in) Provided By Financing Activities.... (446,515) (460,087) 2,515,552 256,929
EFFECT OF FOREIGN EXCHANGE
TRANSLATION DIFFERENCES.............................. 9,121 9,398 14,458 20,823
CHANGE OF THE SCOPE OF CONSOLIDATION................... 1,349 1,390 -- 2,187
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 146,405 150,855 (129,940) 143,054
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS-- BEGINNING OF THE YEAR...... 226,975 233,875 363,815 220,761
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS-- END OF THE YEAR............ 373,380 384,730 233,875 363,815
========= ========= ========= =========
CASH AND CASH EQUIVALENTS INCLUDED IN THE STATEMENTS OF CASH FLOWS ARE
COMPOSED OF THE FOLLOWING AMOUNTS:
DECEMBER 31,
--------------------------------------------------
2001
USD 2001 2000 1999
(NOTE 1) EUR EUR EUR
-------- ------- ------- -------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS)
Cash and short-term investments........................ 380,294 391,854 273,135 366,090
Bank overdrafts payable on demand...................... (6,914) (7,124) (39,260) (2,275)
------- ------- -------- -------
Cash and cash equivalents.............................. 373,380 384,730 233,875 363,815
======= ======= ======== =======
See notes to the consolidated financial statements.
F-6
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The principal activity of Etablissements Delhaize Freres et Cie "Le Lion"
S.A. and consolidated and associated companies ("Delhaize Group") is the
operation of food supermarkets in North America, Europe and Southeast Asia. Such
retail operations are primarily conducted through Delhaize Group's consolidated
subsidiary, Delhaize America, Inc. ("Delhaize America") and its businesses in
Belgium (collectively, "Delhaize Belgium"). Additional food supermarkets
included in Delhaize Group's sales network, in which Delhaize Group has no
direct investment, are operated under affiliate and franchise agreements.
Delhaize Group's ordinary shares are listed on Euronext Brussels under the
symbol "DELB" and Delhaize Group's American Depository Shares ("ADS") are listed
on the New York Stock Exchange ("NYSE") under the symbol "DEG."
Consolidation
Generally, all companies over which Delhaize Group can exercise control or
where Delhaize Group has a direct or indirect interest of more than 50% are
fully consolidated. Companies over which joint control is exercised are
proportionately consolidated. Companies whose results are not significant to
Delhaize Group and whose activity is fundamentally different from that of
Delhaize Group are excluded from the scope of consolidation. Unconsolidated
companies are stated at historical cost less any provision required to reflect a
long-term impairment of value. All significant intercompany accounts and
transactions are eliminated in consolidation. See Note 20 to the consolidated
financial statements for a list of Delhaize Group's consolidated and associated
companies at December 31, 2001 and 2000.
Fiscal Year
Delhaize Group's year ends on December 31. For Delhaize Group's consolidated
subsidiary, Delhaize America, the results of its operations covered 52 weeks in
Delhaize Group's years ended December 31, 2001, 2000 and 1999. Super Discount
Markets ("SDM") results of operations included in Delhaize Group's years ended
December 31, 2001, 2000 and 1999 covered the period through November 12, 2001,
the date SDM filed for bankruptcy, and covered 52 weeks for 2000 and 1999. The
results of operations for the remaining consolidated subsidiaries of Delhaize
Group are presented on a calendar year basis.
Accounting Principles
The financial statements and related notes of Delhaize Group presented
herein are prepared on a consolidated basis in conformity with accounting
principles generally accepted in Belgium ("Belgian GAAP"), which differ in
certain respects from accounting principles generally accepted in the United
States of America ("US GAAP"). The principal differences between Belgian GAAP
and US GAAP, as they relate to Delhaize Group, are presented in Note 21 to the
consolidated financial statements.
Comparability of the Consolidated Financial Statements with those included in
the Annual Report of Delhaize Group
The consolidated financial statements and related notes of Delhaize Group
presented herein, differ in certain respects from the consolidated financial
statements and related notes presented in the 2001 Annual Report of Delhaize
Group published in accordance with Belgian law. The principal differences are
reclassifications within
F-7
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
certain financial statement categories, terminology changes and additional
disclosures that have been provided in order to present these consolidated
financial statements in a format more customary to readers of annual reports in
the United States of America.
Use of Estimates
The preparation of Delhaize Group's consolidated financial statements in
conformity with Belgian GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the balance
sheets and reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
Foreign Currency Translation
In the consolidation, subsidiaries' balance sheets whose functional currency
is not the euro are translated at exchange rates prevailing at the end of the
fiscal year; the amounts in the subsidiaries' income statements denominated in
currencies other than the euro are translated at the average daily rate (i.e.,
the yearly average of the rates each working day of the currencies involved).
The resulting exchange rate differences are added or charged directly to
shareholders' equity. Such translations were made at the following rates of
exchange:
UNITED GREEK CZECH SLOVAK ROMANIAN THAI INDONESIAN
STATES DRACHMA CROWN CROWN LEI SINGAPORE BAHT RUPIAH
DOLLAR (X100)(1) (X100) (X100) (X100) DOLLAR (X100) (X100)
------ --------- ------- ------ -------- --------- ------ ----------
(EUR PER LOCAL CURRENCY)
RATE AT DECEMBER 31,
2001......................... 1.1347 -- 3.1287 2.3375 0.0036 0.6133 2.5573 0.0108
2000......................... 1.0747 0.2935 2.8245 2.2717 0.0041 0.6128 2.4499 0.0110
AVERAGE DAILY RATE:
2001......................... 1.1166 -- 2.9353 2.3095 0.0038 0.6235 2.5120 0.0110
2000......................... 1.0850 0.2971 2.8099 2.3455 0.0049 0.6293 2.7040 0.0130
1999......................... 0.9386 0.3070 2.7127 2.2635 -- 0.5563 2.4846 0.0121
(1) Effective January 1, 2001, Greece joined the European Monetary Union and
thereby adopted the Euro.
The translations of the EUR amounts into USD amounts are included solely for
the convenience of readers in the United States of America and have been made at
the rate of exchange of EUR 1 = USD 0.9705, the noon buying rate on June 21,
2002. Such translations should not be construed as representations that the euro
amounts could be converted into United States dollars at that or any other rate.
ALL AMOUNTS PRESENTED IN THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
EXCEPT WHERE INDICATED, ARE EXPRESSED IN EUROS.
Earnings Per Share
Earnings per share are calculated by dividing net income by the weighted
average number of shares outstanding during the year, excluding treasury shares
Statements of Cash Flows
Delhaize Group considers all highly liquid investment instruments purchased
with an original maturity of three months or less to be cash equivalents. Cash
equivalents are classified in Short-term investments. The carrying values of
these instruments approximate their fair values.
F-8
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The consolidated statements of cash flows have been prepared in accordance
with International Accounting Standard No. 7, Cash Flow Statements. Net income
is adjusted for non-cash items, including provisions on current assets to arrive
at gross cash flow.
Supplemental disclosure of cash flow information is as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------
2001 2000 1999
----------- ---------- ------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS
OF EUR)
Non-cash investing and financing activities:
Capitalized lease obligations incurred for store
Properties and equipment....................................... 75,174 106,714 41,098
Capitalized lease obligations terminated for store
Properties and equipment....................................... 15,779 17,625 30,986
Share exchange with Delhaize America (see note 2 to the
consolidated financial statements):
Fair value of assets acquired................................ 1,216,078 -- --
Cash paid (net of cash acquired)............................. 24,531 -- --
Capital consideration given.................................. 2,250,166 -- --
Minority interest............................................ (1,538,052) -- --
Liabilities assumed.......................................... 479,433 -- --
Acquisition of Trofo (see note 2 to the consolidated
financial statements):
Fair value of assets acquired................................ 149,320 -- --
Cash paid (net of cash acquired)............................. 45,370 -- --
Liabilities assumed.......................................... 103,950 -- --
Acquisition of Hannaford (see note 2 to the consolidated
financial statements):
Fair value of assets acquired................................ -- 4,370,292 --
Cash paid (net of cash acquired)............................. -- 2,861,547 --
Capital consideration given.................................. -- 714,222 --
Liabilities assumed.......................................... -- 794,523 --
Financial Instruments
FINANCIAL RISK MANAGEMENT. Delhaize Group has, as a global market
participant, exposure to different kinds of market risk. The major exposures are
foreign currency exchange rate and interest rate risks. Delhaize Group does not
speculate with derivatives. Delhaize Group uses a limited number of foreign
exchange forward contracts, interest rate swaps and currency swaps. Delhaize
Group's policy is to enter into financial instruments to manage and reduce its
exposure to fluctuations in interest rates and foreign currency exchange rates.
These financial instruments are generally designated as hedges of the underlying
exposure. Gains and losses on interest rate and foreign currency agreements are
generally accounted for in the same period as the item being hedged. Delhaize
Group is subject to risk that the other parties to the agreements may fail to
perform or may not fully or adequately perform, however, it does not anticipate
such nonperformance as such parties are highly rated major international banks
and financial institutions.
FOREIGN EXCHANGE RISK. Because a substantial portion of Delhaize Group's
operations are throughout the world, Delhaize Group's assets, liabilities and
operating results denominated in foreign currencies, primarily U.S. dollars.
Delhaize Group's does not hedge this U.S. dollar translation exposure, but
rather manages its U.S. dollar foreign currency exposure by financing such
operations in U.S. dollars to the extent possible. Delhaize Group's financial
risk management policy for non-U.S. dollar denominated assets is to match the
currency distribution of its borrowings to the denomination of its assets and of
its receivables to the denomination of its equity funding. As a result,
fluctuations in its balance sheet ratios resulting from changes in exchange
rates are generally limited. Dividends and borrowings are the only significant
components of cash flow in Delhaize Group that are influenced by variations in
exchange rates.
F-9
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INTEREST RATE RISK. Delhaize Group manages its debt and overall financing
strategies using a combination of short, medium and long-term debt and interest
rate swaps. Delhaize Group finances its daily working capital requirements, when
necessary, through the use of its various committed and uncommitted lines of
credit. These short and medium-term borrowing arrangements generally bear
interest at the inter-bank offering rate of the originating country plus a
margin, or at the market rate plus a margin at the borrowing date.
Accounting for Sales of Shares by a Subsidiary
Delhaize Group's policy when there are changes in its ownership percentage
in a subsidiary that is caused by issuances of that subsidiary's shares without
commensurate subscription by Delhaize Group, is to record the difference between
the per-share proceeds received by a subsidiary on issuance of its shares and
the per-share carrying value of Delhaize Group's investment in that subsidiary
as an adjustment to shareholders' equity.
Treasury Shares
Delhaize Group records purchases of its ordinary shares or ADRs as assets.
The asset is maintained at the lower of cost or market with the resulting change
in value being recorded in earnings.
Receivables/Payables
Accounts receivable and payable are recorded at their face value less
provisions for uncollectible amounts. Generally, amounts receivable and payable
in currencies other than the functional currency of each consolidated entity are
valued at the exchange rate on the reporting date. The resulting conversion
difference is written-off if it is a loss or deferred if it is a gain. Exchange
gains and losses and conversion differences arising on debts contracted to
finance non-monetary assets are deferred, as an offset to shareholders' equity,
and recognized based on the principle of matching expenses to the income to
which they relate.
Inventories
Inventories are valued at the lower of cost or market on the first-in,
first-out method.
Tangible Fixed Assets
Tangible fixed assets are stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method based on
the estimated useful lives of the related assets. In the case of capital leases
and leasehold improvements, the estimated useful lives of the related assets do
not exceed the remaining term of the corresponding leases. Land is not
depreciated. Assigned economic lives of tangible fixed assets are as follows:
CATEGORY ASSIGNED ECONOMIC LIFE
-------- ----------------------
(IN YEARS)
Buildings............................................. 33 to 40
Plant, machinery, and equipment....................... 3 to 14
Furniture, vehicles, and other tangible fixed assets.. 5 to 10
Intangible Assets
Intangible assets primarily include goodwill and rights to use trade names,
distribution networks, assembled workforce, favorable lease rights and
prescription files. Delhaize Group separates goodwill created from equity
purchases of businesses, classified in Goodwill arising on consolidation, net,
and goodwill created from asset purchases of businesses, classified in
Intangible assets, net. Goodwill created from equity purchases of businesses is
amortized over their estimated useful lives on a straight-line basis over a
period not exceeding 20 to 40 years. The
F-10
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
choice of rate depends on the country where the investment is made: up to 40
years for countries with mature economies and up to 20 years for countries with
emerging economies. The rights to use trade names, other intangible assets, and
goodwill created from asset purchases of businesses are amortized on a
straight-line basis over their estimated useful lives as follows:
CATEGORY ASSIGNED ECONOMIC LIFE
-------- ----------------------
Tradenames........................................ 40 years
Distribution network.............................. 40 years
Assembled workforce............................... 2 to 13 years
Goodwill:
Favorable lease rights....................... Lease term
Prescription files........................... 15 years
Impairment of Long-lived Assets
If an event has caused a change in the operational or economic circumstances
of an asset (e.g., a store closing decision) that would indicate that a
permanent diminution in value exists, Delhaize Group reviews the carrying value
of the long-lived asset for impairment. If the net book value of a long-lived
asset is greater than its fair value, Delhaize Group will record an impairment
reserve to reduce the asset's net book value to fair value in the period the
change in the operational or economic circumstances of the asset is observed. If
the impairment reserve is no longer justified in future periods, due to recovery
in the asset's fair value, the impairment reserve is reversed.
Debt Issuance Costs
Generally, debt issuance costs are capitalized and amortized over the life
of the loan.
Establishment (Organization) Costs
These costs are capitalized only by a decision of the Board of Directors and
are amortized over a period of five years.
Revenue Recognition
Revenues are recognized at the point of sale to retail customers and upon
delivery of inventory to franchised and affiliated customers. Delhaize Group
records shipping and handling costs billed to customers as sales revenues. Costs
incurred for shipping and handling are included in "selling, administrative and
other operating expenses", "salaries, social security and pensions" and
"depreciation and amortization", depending on the nature of the cost.
Income from suppliers for in-store promotions are non-refundable credits or
payments that are recognized when the related activities that are required by
the supplier are completed, the amount is fixed and determinable and the
collectibility is reasonably assured. This income is included in "other
operating income." Income from co-operative advertising is recognized in the
period the related advertising occurs as "other operating income."
Cost of Goods Sold
Purchases are recorded net of cash discounts. Supplier allowances and
credits that relate to Delhaize Group's buying and merchandising activities,
primarily for volume incentives, are based on contractual arrangements covering
a period of one year or less. Delhaize Group is not obligated to purchase the
product and recognizes such volume incentives as they are earned based on
quantities purchased.
Delhaize Group has several "loyalty card" programs that provide its
customers with discounts and incentives on purchases. The discounts and
incentives offered through these cards include price discounts from the regular
retail
F-11
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
price for specific items, "buy one, get one free" incentives, and earning of
"points" or similarly named awards that may later be submitted for point of sale
discounts. The vendors fund some of the discounts, while Delhaize Group funds
others. Discounts and incentives funded by Delhaize Group are recognized as a
reduction in sales as products are sold. Incentives from vendors are recorded
as a reduction to "cost of goods sold."
Current Income Taxes/Deferred Income Taxes
Current income taxes are determined on the basis of earnings reported by
each tax entity, adjusted for permanent differences between income as calculated
for financial and tax reporting purposes at latest enacted tax rates.
Delhaize Group accounts for deferred income tax assets and liabilities for
its United States subsidiaries under the provisions of United States Statement
of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes
("SFAS 109"). For all other consolidated entities, deferred income tax assets
and liabilities are calculated on certain, but not all, temporary differences
arising in the accounts of these consolidated entities. Deferred income tax
assets and liabilities are not calculated on tax-exempt reserves and tax loss
carryforwards.
Advertising Costs
Advertising costs are expensed as incurred and classified in Selling,
administrative, and other operating expenses. Delhaize Group recorded
advertising expense of approximately EUR 142.6 million in 2001, EUR 118.3
million in 2000 and EUR 97.5 million in 1999.
Interest and Similar Charges
Interest expense and similar charges were approximately EUR 445.3 million,
EUR 282.1 million and EUR 130.9 million for the years ended December 31, 2001,
2000 and 1999, respectively, net of interest amounts capitalized of
approximately EUR 3.4 million, EUR 4.0 million and EUR 3.5 million,
respectively.
Store Opening Costs
Costs associated with the opening of new stores are expensed as incurred.
Store Closing Costs
Plans related to store closings are completed within one year of making the
decision to close, and Delhaize Group generally intends to complete the closings
within a one year period following the business decision to close. As most of
the Delhaize Group's stores are located in leased facilities, a lease liability
is recorded for the present value of the estimated remaining non-cancelable
lease payments after the closing date, net of estimated subtenant income. In
addition, Delhaize Group records a liability for expenditures to be incurred
after the store closing which are contractually required under leases or local
ordinances for site preservation during the period before lease termination or
sale of the property. These other exit costs include estimated real estate
taxes, common area maintenance, insurance and utility costs to be incurred after
the store closes. The value of owned property and equipment related to a closed
store is reduced to reflect recoverable values based on Delhaize Group's
previous efforts to dispose of similar assets and current economic conditions.
Any reductions in the recorded value of owned property and equipment for closed
stores is reflected as an asset impairment charge. Delhaize Group discontinues
depreciation on owned property and equipment for closed stores at the date of
closing. Disposition efforts related to store leases and owned property begins
immediately following the store closing.
Inventory write-downs, if any, in connection with store closings, are
classified in Cost of goods sold. Costs to transfer inventory and equipment from
closed stores are expensed as incurred. Severance costs are rarely incurred in
F-12
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
connection with store closings. Store closing liabilities are reviewed quarterly
to ensure that current estimates are consistent with amounts recorded in the
financial statements.
Significant cash outflows associated with closed stores relate to ongoing
lease payments. Because closed store operating leases are classified
consistently with capital leases, the principal portion of lease payments
reduces the lease liability, while the interest portion of the lease payment is
recorded as interest expense in the current period.
Self-Insurance
Delhaize America is self-insured for workers' compensation, general
liability and vehicle accident claims up to USD 500,000, including defense
costs, per occurrence. The self-insurance liability is determined actuarially,
based on claims filed and an estimate of claims incurred but not yet reported.
Delhaize America is insured for covered costs, including defense costs, in
excess of the retained limits. It is possible that the final resolution of some
of these claims may require Delhaize America to make significant expenditures in
excess of its existing reserves over an extended period of time and in a range
of amounts that cannot be reasonably estimated. Delhaize America recorded
self-insurance expense of approximately EUR 48 million in 2001, EUR 48 million
in 2000 and EUR 30 million in 1999. Total claim payments were approximately EUR
49 million in 2001, EUR 40 million in 2000 and EUR 31 million in 1999.
Self-insurance liabilities were approximately EUR 118.l million and EUR 116.4
million at December 31, 2001 and 2000, and have been classified as accrued
liabilities in Provisions for liabilities and deferred taxation.
Delhaize America implemented a captive insurance program in 2001; whereby,
the self-insured reserves related to workers' compensation, general liability
and auto coverage were reinsured by The Pride Reinsurance Company ("Pride"), an
Irish reinsurance captive fully owned by a subsidiary of Delhaize Group. The
purpose for implementing the captive insurance program was to provide Delhaize
America continuing flexibility in its risk program, while providing certain
excess loss protection through anticipated reinsurance contracts with Pride.
Delhaize Belgium is partially self-insured for doubtful debtors, loss of
products due to contamination, loss of revenue due to work stoppages and similar
insurable risks. Self-insurance expense and claim payments for each of the three
years in the period ended December 31, 2001 were not significant.
Benefit Plans
According to the laws and customary practices of each country, the
subsidiaries in Delhaize Group have obligations in terms of pension and other
retirement plans, life and disability insurance plans, medical plans applicable
to active employees and other benefit plans. Delhaize Group accounts for defined
benefit and defined contribution plans for its United States subsidiaries under
the provisions of SFAS No. 87, Employers' Accounting for Pensions ("SFAS 87").
For all other consolidated entities, Delhaize Group accounts for obligations for
its defined benefit and defined contribution plans as expense as contributions
are made. Delhaize Group recorded expense related to these plans of
approximately EUR 266.2 million in 2001, EUR 254.5 million in 2000 and EUR 205.5
million in 1999.
F-13
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Exceptional Income and Exceptional Expenses
Exceptional income and exceptional expenses primarily represent income and
expenses incurred outside of Delhaize Group's normal ongoing business operations
(i.e., food retail sales) and include gains and losses on disposals of fixed
assets. During 2001, 2000 and 1999, exceptional income and exceptional expenses
consisted of the following:
YEAR ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999
------------ ------------ ------------
(ALL AMOUNTS ARE EXPRESSED IN MILLIONS OF EUR)
Gains on disposals of fixed assets................................. 8 6 18
Gain on disposal of investment in P.G.............................. -- 32 --
Loss on disposals of fixed assets.................................. (12) (3) (15)
Merger costs related to the Hannaford acquisition.................. (25) (42) --
Costs related to the share exchange with Delhaize America.......... (17) -- --
Costs incurred to close 15 Delhaize America stores................. -- (32) --
Costs incurred to close Super Discount Markets, Inc................ (35) -- --
Costs incurred relating to the impairment of seven Delvita stores as
well as relating to the closure of eight other Delvita stores.... (19) -- --
Other income (expense), net........................................ 4 (2) --
------------ ------------ ------------
Total exceptional (expense) income, net............................ (96) (41) 3
============ ============ ============
Reclassifications
Certain financial statement items previously reported have been reclassified
to conform to the current year presentation.
NOTE 2 BUSINESS ACQUISITIONS
SHARE EXCHANGE
On April 25, 2001, Delhaize Group and Delhaize America, Inc. ("Delhaize
America") consumated a share exchange whereby Delhaize Group exchanged each
outstanding share of the Delhaize America Class A and Class B common stock not
already directly or indirectly held by Delhaize Group for 0.4 Delhaize Group
ADSs listed on the NYSE, or at the option of each shareholder, 0.4 Delhaize
Group ordinary shares listed on the Euronext Brussels. Delhaize America became a
wholly-owned subsidiary of Delhaize Group as a result of the share exchange.
Prior to that time, Delhaize Group owned 44.88% of Delhaize America's stock.
As consideration for this share exchange, Delhaize Group issued
approximately 40.2 million shares having an aggregate value of approximately EUR
2.3 billion for the remaining 55.12% of Delhaize America's stock not previously
owned. Additional direct costs incurred in connection with the acquisition,
principally investment banking, legal and other professional fees, in the amount
of EUR 24.5 million have been included in the purchase price allocation.
The share exchange was accounted for using the purchase method of
accounting. The purchase price was allocated to acquired assets and liabilities
based on their estimated fair values at the date of acquisition, and any excess
was allocated to goodwill. The acquisition resulted in goodwill of approximately
EUR 270 million, which will be amortized over 40 years using the straight-line
method.
F-14
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The net purchase price was allocated as follows (in millions of EUR):
Goodwill arising on consolidation................................ 270
Tangible fixed assets............................................ 221
Intangible assets................................................ 808
Other assets (55.12% of deferred loss on a previously settled
hedging arrangement, net of tax) .............................. (81)
Minority interests............................................... 1,538
Provisions for liabilities and deferred taxation................. (418)
Long-term debt (primarily capital lease obligations)............. (66)
Short-term obligations........................................... 3
-----
Purchase price................................................... 2,275
=====
Delhaize Group's accounting for the share exchange transaction resulted in
an allocation of the purchase price to Delhaize America's assets and
liabilities, comprising 44.88% of the historical basis and 55.12% of the fair
value as of the share exchange date.
Significant fair value increases to tangible fixed assets were primarily
related to buildings and improvements of approximately EUR 220.6 million.
Increases to identified intangible and other non-current assets consisted of
economic lease values of approximately EUR 370.9 million, trademarks of
approximately EUR 270.4 million, assembled workforce of approximately EUR 62.9
million and distribution network of approximately EUR 135.1 million, which was
offset by the reductions in the fair values of the prescription files and other
assets of approximately EUR 10.6 million and of approximately EUR 20.6 million,
respectively.
The following table reflects the results of operations on a pro forma basis
as if the share exchange and the acquisition of Hannaford in 2000 had been
completed as of the beginning of the fiscal periods presented. This unaudited
pro forma financial information is not necessarily indicative of the operating
results that would have occurred had these transactions been consummated as of
the dates indicated, nor are they necessarily indicative of future operating
results.
YEAR ENDED
DECEMBER 31,
--------------------------------------
2001 2000
------------ ------------
(ALL AMOUNTS ARE EXPRESSED IN MILLIONS
OF EUR, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
Revenue........................... 21,920 20,408
Net income........................ 151 155
Earnings per share................ 1.64 1.69
HANNAFORD
On July 31, 2000, Delhaize Group's subsidiary, Delhaize America, completed
its acquisition of Hannaford Bros. Co. ("Hannaford"), a United States-based
supermarket retailer, in a cash and stock transaction totaling approximately EUR
3.7 billion. Delhaize Group began including the results of operations of
Hannaford prospectively from July 31, 2000.
As consideration for this acquisition, Delhaize America paid cash of
approximately EUR 3.0 billion, and issued 25.6 million shares of its Class A
common stock having an aggregate value of approximately EUR 714 million.
Delhaize America also issued fully vested options for its own common stock in
exchange for Hannaford options held by employees of Hannaford. Additional direct
costs incurred in connection with the acquisition, principally investment
banking, legal and other professional fees, in the amount of EUR 24.0 million
have been included in the purchase price allocation.
F-15
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Hannaford acquisition was accounted for using the purchase method of
accounting. The purchase price was allocated to acquired assets and liabilities
based on their estimated fair values at the date of acquisition, and any excess
was allocated to goodwill. The acquisition resulted in goodwill of approximately
EUR 2.8 billion, which will be amortized over 40 years using the straight-line
method.
The net purchase price was allocated as follows (in millions of EUR):
Goodwill arising on consolidation........................ 2,762
Tangible fixed assets.................................... 805
Intangible assets........................................ 520
Other assets ............................................ 453
Provisions for liabilities and deferred taxation......... (223)
Long-term debt........................................... (240)
Short-term obligations................................... (332)
-----
Purchase price........................................... 3,745
=====
The following table reflects the results of operations on a pro forma basis
as if the acquisition had been completed as of the beginning of the fiscal
periods presented. This unaudited pro forma financial information is not
necessarily indicative of the operating results that would have occurred had the
acquisition been consummated as of the dates indicated, nor are they necessarily
indicative of future operating results.
YEAR ENDED
DECEMBER 31,
--------------------------------------
2000 1999
------------ ------------
(ALL AMOUNTS ARE EXPRESSED IN MILLIONS
OF EUR, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
Revenue............................ 20,408 17,214
Net income......................... 118 118
Earnings per share................. 2.28 2.26
OTHER ACQUISITIONS
In January 2001, Delhaize Group acquired Trofo S.A., a Greek food retailer,
and its wholly-owned subsidiary ENA, S.A., and paid approximately EUR 49.3
million. This acquisition was accounted for using the purchase method of
accounting and resulted in goodwill of approximately EUR 77.9 million. Goodwill
is being amortized over 20 years using the straight-line method. See Note 19 to
the consolidated financial statements.
During 2000 and 1999, Delhaize Group increased its ownership interest in
Delhaize America through a series of open market purchases of Delhaize America
Class A and Class B common stock for a total amount of approximately EUR 56
million and EUR 204 million in 2000 and 1999, respectively. These purchases were
accounted for using the purchase method of accounting and resulted in the
recording of goodwill of approximately EUR 19 million and EUR 132 million in
2000 and 1999, respectively. Goodwill is being amortized over 40 years using the
straight-line method.
In connection with the share exchange with Delhaize America, the ownership
interest of Delhaize Group in the Thai subsidiary Bel-Thai Supermarkets
increased to 100%, as Delhaize America owned 51% of Bel-Thai Supermarkets.
During 2000, one of Delhaize Group's subsidiaries acquired 51% of Mega Image.
Delhaize Group acquired also, through Delhaize America, the remaining 51%
interest in Bel-Thai Supermarkets, increasing Delhaize Group's ownership
interest to approximately 72% in Bel-Thai Supermarkets. Effective May 31, 2002,
Bel-Thai Supermarkets Co., Ltd. changed its name to Food Lion (Thailand)
Limited. Both investments were made for an aggregate EUR 19.9 million. These
acquisitions were accounted for using the purchase method of accounting and
F-16
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
resulted in goodwill of approximately EUR 17.0 million. Goodwill is being
amortized over 20 years using the straight-line method.
During 2001 and 2000, Delhaize Group also increased its ownership interests
in various of its Belgian subsidiaries through purchases of interests held by
certain employees. In the aggregate, Delhaize Group paid approximately EUR 0.7
million and approximately EUR 3.3 million, respectively, for these acquisitions.
NOTE 3 DEBT ISSUANCE COSTS, NET
DECEMBER 31,
--------------------------
2001 2000
------ -----
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Balance at beginning of year, net.............. 3,641 3,758
Additions...................................... 22,205 19
Amortization................................... (1,747) (391)
Translation effect............................. 500 255
------- -----
Balance at end of year, net.................... 24,599 3,641
======= =====
Additions to the debt issuance costs primarily relate to the issuance of
bonds and debentures by Delhaize America of EUR 3.0 billion (USD 2.6 billion)
and by Delhaize "The Lion" Nederland of EUR 150 million.
NOTE 4 INTANGIBLE ASSETS, NET
Intangible assets, net, consist primarily of goodwill created from asset
purchases of businesses, trade names, distribution networks, assembled
workforce, favorable lease rights and prescription files. (see Note 1 to the
consolidated financial statements).
DECEMBER 31,
--------------------------
2001 2000
----------- -------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
COST
Balance at beginning of year....................... 652,311 128,162
Additions.......................................... 12,710 1,658
Sales and disposals................................ (4,372) (1,359)
Interaccount transfers and other .................. 2,891 --
Acquisitions and divestitures ..................... 782,828 520,202
Translation effect................................. 49,638 3,648
----------- -------
Balance at end of year............................. 1,496,006 652,311
ACCUMULATED DEPRECIATION, AMORTIZATION AND OTHER
Balance at beginning of year....................... 37,348 19,620
Current year expenses.............................. 68,519 17,076
Reversal of depreciation and amortization
due to disposals of assets....................... (2,528) (557)
Interaccount transfers and other................... 558 2
Acquisitions and divestitures ..................... (23,958) --
Translation effect................................. 2,788 1,207
----------- -------
Balance at end of year............................. 82,727 37,348
----------- -------
NET BOOK VALUE OF INTANGIBLE ASSETS AT END OF YEAR. 1,413,279 614,963
=========== =======
The increase in 2001 was principally related to the share exchange. See Note
2 to the consolidated financial statements.
F-17
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5 GOODWILL ARISING ON CONSOLIDATION, NET
Goodwill arising on consolidation, net, consists primarily of goodwill
created from equity purchases of businesses (see Note 1 to the consolidated
financial statements).
DECEMBER 31,
--------------------------------
2001 2000
-------------- --------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Balance at beginning of year, net.................................. 3,050,227 318,724
Increase due to acquisitions of businesses (including
increases in holding percentages)................................ 350,318 2,785,565
Amortization expense............................................... (89,957) (39,932)
Other increases.................................................... 2,760 --
Other decreases.................................................... -- (47)
Translation effect................................................. 132,597 (14,083)
--------- ---------
Balance at end of year, net........................................ 3,445,945 3,050,227
========= =========
The increase in 2001 was principally related to the share exchange. See Note
2 to the consolidated financial statements.
F-18
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6 TANGIBLE FIXED ASSETS, NET
DECEMBER 31,
--------------------------------
2001 2000
-------------- --------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Land and buildings............................................... 1,412,251 1,226,155
Plant, machinery and equipment................................... 1,214,484 1,163,578
Furniture, fixtures and vehicles................................. 113,405 88,732
Property under capital leases.................................... 727,641 578,514
Other tangible fixed assets...................................... 699,765 672,825
Construction in progress and advance payments.................... 49,332 62,345
--------- ---------
Total tangible fixed assets, net............................ 4,216,878 3,792,149
========= =========
PLANT, FURNITURE, PROPERTY OTHER CONSTRUCTION
MACHINERY FIXTURES UNDER TANGIBLE IN PROGRESS
LAND AND AND AND CAPITAL FIXED AND ADVANCE
BUILDINGS EQUIPMENT VEHICLES LEASES ASSETS PAYMENTS
--------- --------- -------- --------- -------- --------------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF EUR)
COST
Balance at December 31, 2000........ 1,422,327 2,338,127 286,974 817,589 1,105,651 65,326
Additions........................... 91,080 265,143 52,546 75,228 70,777 74,080
Sales and disposals................. (27,601) (122,671) (18,278) (18,993) (38,791) (1,086)
Interaccount transfers and other.... 17,641 (10,134) 1,013 (648) 68,611 (84,501)
Acquisitions and divestitures....... 38,950 (568,946) (71,220) (33,050) (211,687) --
Translation effect.................. 67,189 105,419 11,326 44,672 49,658 3,638
------ ------- ------ ------ ------ -----
Balance at December 31, 2001........ 1,609,586 2,006,938 262,361 884,798 1,044,219 57,457
REVALUATION SURPLUS:
Balance at December 31, 2000........ 32,961 -- -- -- -- --
Change in the scope of consolidation (267) -- -- -- -- --
------ ------- ------ ------ ------ -----
Balance at December 31, 2001........ 32,694 -- -- -- -- --
ACCUMULATED DEPRECIATION
AND OTHER
Balance at December 31, 2000........ (229,133) (1,174,549) (198,242) (239,075) (432,826) (2,981)
Depreciation expense................ (60,369) (282,004) (39,551) (53,425) (134,393) (5,375)
Reversal of depreciation expense due 2,395 119,604 16,804 5,792 35,805 597
to disposals of assets and other..
Interaccount transfers and other.... (3,122) 2,313 (315) 589 (1,893) --
Acquisitions and divestitures....... 68,898 592,052 79,537 139,741 204,814 (43)
Translation effect.................. (8,698) (49,870) (7,189) (10,779) (15,961) (323)
------- -------- ------- -------- -------- -----
Balance at December 31, 2001........ (230,029) (792,454) (148,956) (157,157) (344,454) (8,125)
--------- --------- --------- --------- --------- -------
NET BOOK VALUE OF TANGIBLE
FIXED ASSETS AT
DECEMBER 31, 2001................. 1,412,251 1,214,484 113,405 727,641 699,765 49,332
========= ========= ======= ======= ======= ======
Net book value at December 31, 2001 of Property under capital leases
consists mainly of land and buildings of approximately EUR 727 million.
F-19
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7 LONG-TERM INVESTMENTS AND RECEIVABLES
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Companies accounted for under the equity method:
Investments................................................ 531 531
Other companies:
Investments................................................ 7,115 2,511
Receivables................................................ 26,769 23,375
----------- -----------
Total long-term investments.............................. 34,415 26,417
=========== ===========
Investments at December 31, 2001 primarily represent Delhaize Group's
investment in the Worldwide Retail Exchange, an electronic business-to-business
market place. This investment of EUR 6.4 million represents an ownership
interest of approximately 5.6%.
NOTE 8 INVENTORIES, NET
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Consumables................................................... 11,165 11,695
Goods for resale.............................................. 1,819,299 1,833,199
Other......................................................... 31,277 19,504
------------- -----------
Total inventories, net................................... 1,861,741 1,864,398
============= ===========
NOTE 9 RECEIVABLES, NET
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Trade receivables............................................ 459,257 435,972
Non-trade receivables........................................ 69,422 228,205
------------ ---------
Total receivables, net.................................. 528,679 664,177
============ =========
Trade receivables include primarily receivables from suppliers for
charge-backs for in-store promotion and advertising, for co-operative
advertising and for supplier allowances, representing volume rebates earned from
buying and merchandising activities, receivables from franchised and affiliated
stores and customer returned checks. See Note 1 to the consolidated financial
statements. At December 31, 2001, non-trade receivables include primarily
prepaid income taxes. At December 31, 2000, non-trade receivables included a
receivable from the disposal of an investment.
F-20
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Allowances for doubtful accounts at December 31, 2001 and 2000, were as
follows:
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Balance at beginning of year................................. 11,301 7,251
Additions charged to expense................................. 2,588 3,851
Other additions (principally acquisitions)................... 4,806 1,535
Write-offs and recoveries.................................... (396) (1,794)
Translation effect........................................... 670 458
------------ ---------
Balance at end of year....................................... 18,969 11,301
============ =========
NOTE 10 DEFERRED TAXATION
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Deferred tax assets:
Deferred tax assets of United States subsidiaries......... 13,646 15,218
Deferred tax assets of other subsidiaries................. 1,436 1,856
----------- ---------
Total deferred tax assets............................... 15,082 17,074
----------- ---------
Deferred tax liabilities:
Deferred tax liabilities of United States subsidiaries.... 571,466 187,345
Deferred tax liabilities of other subsidiaries............ 53,831 37,696
----------- ---------
Total deferred tax liabilities.......................... 625,297 225,041
----------- ---------
Net deferred tax liabilities............................ 610,215 207,967
=========== =========
Net deferred tax liabilities increased due to the deferred tax liability
recorded in connection with the share exchange. See note 2 to the consolidated
financial statements.
NOTE 11 SHAREHOLDERS' EQUITY
Ordinary Shares
There were 92,392,704 and 52,031,725 Delhaize Group ordinary shares
outstanding at December 31, 2001 and 2000, respectively (par value of EUR 0.50).
Included in the shares outstanding at December 31, 2001, were 298,452 ordinary
shares held as treasury shares. Delhaize Group ordinary shares may be in either
bearer or registered form, at the holder's option. Each shareholder is entitled
to one vote for each ordinary share held on each matter submitted to a vote of
shareholders. The Board of Directors may propose a dividend distribution to
shareholders up to the amount of the distributable equity, including the
earnings of the latest fiscal year. The shareholders at Delhaize Group's annual
general meeting must approve such dividends.
In the event of a liquidation, dissolution or winding up of Delhaize Group,
holders of Delhaize Group ordinary shares are entitled to receive, on a pro rata
basis, any proceeds from the sale of Delhaize Group's remaining assets available
for distribution. Under Belgian law, the holders of Delhaize Group ordinary
shares are required to approve any future capital increases, and are entitled to
preferential subscription rights to subscribe to a pro rata portion of any such
future capital increases of Delhaize Group, subject to certain limitations.
F-21
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Legal Reserves
Under Belgian law, 5% of net income must be transferred to a legal reserve
until the legal reserve reaches 10% of the capital par value. At December 31,
2001, Delhaize Group's legal reserve was EUR 4.6 million and classified in
retained earnings. Generally, this reserve cannot be distributed to the
shareholders other than in liquidation.
Authorized Capital
As authorized by the extraordinary general meeting of shareholders held on
December 15, 2000, the Board of Directors of Delhaize Group may, for a period of
five years expiring in January 2006, within certain legal limits, 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
approximately EUR 26 million. 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
issuance 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.
Share Repurchase Program
As authorized by the extraordinary general meeting of shareholders held on
December 15, 2000, the Board of Directors of Delhaize Group is authorized to
purchase Delhaize Group's ordinary shares, for a period of three years expiring
in 2003, where such a purchase is necessary in order to avoid serious and
imminent damage to Delhaize Group.
The Board of Directors is also authorized for a period of 18 months expiring
in 2002, to purchase, with no special conditions attached, a maximum of 10% of
the outstanding Delhaize Group shares at a price between EUR 1 and EUR 150.
Retained Earnings
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Consolidated retained earnings.............................. 1,104,161 1,101,520
Parent retained earnings.................................... 74,013 66,468
----------- -----------
Total retained earnings................................ 1,178,174 1,167,988
=========== ===========
Changes in Equity Due to Subsidiary Capital Transactions
The following subsidiary capital transactions have affected Delhaize Group's
consolidated shareholders' equity balances at December 31, 2001, 2000 and 1999:
DECEMBER 31,
-------------------------------------------
2001 2000 1999
------------- ------------ -----------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF EUR)
Increase as a result of the Hannaford acquisition............. -- 198,350 --
Delhaize America stock repurchase program..................... -- -- (46,955)
Delhaize America stock option plans........................... (5,144) 158 366
------- ---------- --------
Total.................................................... (5,144) 198,508 (46,589)
======= ========== ========
o During 2001 and prior to the share exchange, Delhaize America, through a
stock option plan available to officers and key employees and a
restricted stock plan for executive employees, issued 974,001 of its
stock.
F-22
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
These transactions decreased Delhaize Group's percentage ownership
interest in Delhaize America prior to the share exchange and decreased
shareholders' equity of Delhaize Group due to the number of restricted
stock outstanding at the time of the share exchange. Also, in 2000 and
1999, Delhaize America, through these plans, issued 442,000 and 83,000
of its stock (after giving consideration to its 1 for 3 stock split in
1999), respectively. Although these transactions decreased Delhaize
Group's percentage ownership interest in Delhaize America, they
increased shareholders' equity of Delhaize Group.
o In 2000, Delhaize America issued 25.6 million shares of its Class A
common stock in its acquisition of Hannaford (see Note 2 to the
consolidated financial statements). Although this transaction decreased
Delhaize Group's percentage ownership interest in Delhaize America, it
increased shareholders' equity of Delhaize Group.
o In 1999, Delhaize America, through a stock repurchase program initiated
in 1995, acquired 4.4 million of its shares (after giving consideration
to its 1 for 3 stock split in 1999) through purchases on the open market
in 1999. Although these transactions increased Delhaize Group's
percentage ownership interest in Delhaize America, they decreased
shareholders' equity of Delhaize Group. During the third quarter of
fiscal 1999, Delhaize America suspended its share repurchase program.
NOTE 12 LONG-TERM BORROWINGS AND CAPITALIZED LEASE COMMITMENTS
Long-term Borrowings
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Non-subordinated borrowings:
Debentures, 9.00% (due 2031), unsecured............................... 1,021,219 --
Notes, 8.125% (due 2011), unsecured................................... 1,248,156 --
Notes, 7.375% (due 2006), unsecured................................... 680,812 --
Debt securities, 7.55% to 8.05% (due 2007 to 2027), unsecured......... 333,075 322,407
Medium-term notes, 5.00% to 14.15% (due 2002 to 2016), unsecured...... 123,105 246,060
1999 Eurobonds, 4.625% (due 2009), unsecured.......................... 149,002 148,866
2001 Eurobonds, 5.50% (due 2006), unsecured........................... 150,000 --
Medium-term Treasury Program notes, 6.80% (due 2006), unsecured....... 12,395 12,395
Medium-term Credit Institution Borrowings, 5.14% and 6.34%,
Respectively (see Note 13 to the consolidated financial statements).. 14,392 37,247
Mortgages payable, 7.50% to 10.20% (due 2003 to 2016)................. 45,205 51,093
Other................................................................. 4,035 12,139
--------- --------
Total non-subordinated borrowings................................... 3,781,396 830,207
Less: current portion................................................. (20,260) (140,428)
--------- --------
Total non-subordinated borrowings, long-term........................ 3,761,136 689,779
========= ========
On April 19, 2001, Delhaize America refinanced its USD 2.5 billion
(approximately EUR 2.8 billion) short-term loan facility used to fund the
acquisition of Hannaford by completing a private offering of USD 600 million
(approximately EUR 681 million) of 7.375% notes due in 2006, USD 1,100 million
(approximately EUR 1,248 million) of 8.125% notes due in 2011 and USD 900
million (approximately EUR 1,021 million) of 9.000% debentures due in 2031,
which we refer to in this report as the old securities. These old securities are
general, unsecured obligations of Delhaize America and are fully and
unconditionally guaranteed by Food Lion, LLC, Hannaford Bros. Co. and 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. and Boney Wilson & Sons, Inc., all direct and
indirect subsidiaries of Delhaize America. On November 16, 2001, Delhaize
America offered to exchange the old securities for exchange securities that are
identical in all material respects to the old securities except that such
exchange securities are registered under the Securities Act,
F-23
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
are not subject to the transfer restrictions applicable to the old securities
and are not subject to any covenants regarding exchange or registration rights.
The exchange offer expired on December 17, 2001. USD 2,542,142,000
(approximately EUR 2,884,569,000) of old securities were tendered for exchange
securities. USD 57,858,000 (approximately EUR 65,651,000) in old securities
remain outstanding.
On February 15, 2001, a Dutch subsidiary of Delhaize Group, Delhaize The
Lion Nederland, issued bonds having an aggregate principal amount of EUR 150
million for net proceeds of approximately EUR 149.5 million (the "2001
Eurobonds"). The 2001 Eurobonds mature in 2006 and bear interest at 5.50%,
payable in arrears on February 15 of each year. The discount upon issuance is
being amortized over the life of the bond. The 2001 Eurobonds are subject to
redemption in whole, at the principal amount, together with accrued interest, at
the option of Delhaize Group at any time in the event of certain changes
affecting taxes in the Netherlands.
Delhaize Group has a multi-currency treasury notes program. Under this
treasury notes program, Delhaize Group may issue both short-term notes (e.g.,
commercial paper) and medium-term notes in amounts up to EUR 500 million, or the
equivalent thereof in other eligible currencies (collectively, the "Treasury
Program"). Approximately EUR 12.4 million in medium-term notes were outstanding
at December 31, 2001 and 2000, under this Treasury Program.
Capitalized Lease Commitments
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Capitalized lease commitments................................. 813,247 683,467
Less: current portion...................................... (44,508) (34,402)
-------- --------
Total capitalized lease commitments, long-term........... 768,739 649,065
======== ========
Long-term Debt by Maturity Date
The maturity dates of long-term debt at December 31, 2001 were as follows:
AMOUNTS
FALLING DUE
AMOUNTS AFTER ONE AMOUNTS
FALLING DUE YEAR AND FALLING DUE
WITHIN ONE WITHIN FIVE AFTER FIVE
YEAR YEARS YEARS
------------- ----------- ------------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF
EUR)
Non-subordinated borrowings........................................ 20,260 942,947 2,818,189
Capitalized lease commitments...................................... 44,508 248,133 520,606
Other.............................................................. 1,775 2,274 14,003
------------- ----------- ---------
Total......................................................... 66,543 1,193,354 3,352,798
============= =========== =========
Approximate maturities of long-term debt at December 31, 2001 were as
follows (in thousands of EUR):
2002......................................................... 66,543
2003......................................................... 97,900
2004......................................................... 92,130
2005......................................................... 77,042
2006......................................................... 926,282
Thereafter................................................... 3,352,798
---------
Total................................................... 4,612,695
=========
F-24
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Long-term Debt by Currency
The main currencies in which Delhaize Group's long-term debt were
denominated were as follows:
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
United States dollars....................................... 4,279,636 1,338,159
Euro-zone currencies........................................ 317,136 169,951
Other currencies............................................ 15,923 16,881
----------- ----------
Total.................................................. 4,612,695 1,524,991
=========== ==========
Collateralizations
The portions of Delhaize Group's long-term borrowings and capitalized lease
commitments that were collateralized by mortgages and security charges granted
or irrevocably promised on Delhaize Group's assets, were as follows:
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Non-subordinated borrowings................................ 72,099 112,133
Trade creditor............................................. 3,933 --
Capitalized lease commitments.............................. 22 993
---------- ----------
Total borrowings...................................... 76,054 113,126
========== ==========
At December 31, 2001 and 2000, EUR 79.9 million and EUR 91.1 million,
respectively, in assets were pledged as collateral for mortgage payables.
Debt Covenants
Delhaize Group or one of its subsidiaries is subject to certain restrictive
covenants related to debt instruments indicated above. Restrictive covenants
include a minimum fixed charge coverage ratio and maximum leverage ratios. At
December 31, 2001, Delhaize Group and its subsidiaries were in compliance with
its debt covenants.
NOTE 13 SHORT-TERM BORROWINGS
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Short-term loan facility...................................... -- 2,595,377
Short-term Revolving Credit Facilities........................ 158,856 306,287
Short-term Credit Institution Borrowings...................... 296,803 285,965
Short-term Treasury Program notes............................. 115,639 160,810
------- ---------
Total short-term borrowings.............................. 571,298 3,348,439
======= =========
During 2001, Delhaize America maintained two revolving credit facilities
with a syndicate of commercial banks providing USD 1.0 billion (approximately
EUR 1.1 billion) in committed lines of credit. After reviewing Delhaize
America's working capital requirements, Delhaize America let USD 500 million
(approximately EUR 550 million)
F-25
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
expire in November 2001. The remaining USD 500 million (approximately EUR 550
million) line of credit expires in July 2005. As of December 31, 2001, Delhaize
America had USD 140 million (approximately EUR 158.9 million) in outstanding
borrowings. During 2001, Delhaize America had average borrowings of USD 126.8
million (approximately EUR 141.6 million) at a daily weighted average interest
rate of 5.99%. There were borrowings of USD 285.0 million (approximately EUR
306.3 million) outstanding at December 31, 2000.
At December 31, 2000, Delhaize America had USD 2.4 billion (approximately
EUR 2.6 billion) in outstanding borrowings at 8.1875% under a USD 2.5 billion
(approximately EUR 2.8 billion) 364-day term loan facility that expired in July
2001. The borrowings under this facility were used to fund the cash portion of
the purchase price of the Hannaford acquisition. On April 19, 2001, Delhaize
America refinanced this facility by completing the private offering of long-term
notes and debentures. See Note 12 to the consolidated financial statements.
Delhaize Group had approximately EUR 296.8 million and EUR 286.0 million
outstanding at December 31, 2001 and 2000, respectively, in other borrowings of
less than one-year (the "Short-term Credit Institution Borrowings"). The
approximate weighted average rates of interest for the Short-term Credit
Institution Borrowings were 4.48 % and 6.18% during 2001 and 2000, respectively.
The Short-term Credit Institution Borrowings and the Medium-term Credit
Institution Borrowings (collectively, the "Credit Institution Borrowings"),
generally bear interest at the inter-bank offering rate of the originating
country plus a margin, or at the market rate plus a margin upon withdrawal.
Total amounts authorized under the Credit Institution Borrowings were
approximately EUR 820 million and EUR 665 million at December 31, 2001 and 2000,
respectively. The Credit Institution Borrowings require maintenance of various
financial and non-financial covenants. At December 31, 2001 and 2000, Delhaize
Group was in compliance with all such covenants.
Delhaize Group had approximately EUR 115.6 million and EUR 160.8 million in
short-term notes outstanding under the Treasury Program (see Note 12 to the
consolidated financial statements) at December 31, 2001 and 2000, respectively.
NOTE 14 ACCOUNTS PAYABLE AND OTHER LIABILITIES
DECEMBER 31,
---------------------------------
2001 2000
------------- ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Accounts payable............................................. 1,438,813 1,392,532
Notes payable................................................ 4,669 4,241
Accrued expenses and deferred income......................... 172,293 128,384
Other liabilities............................................ 53,407 31,864
--------- ----------
Total accounts.......................................... 1,669,182 1,557,021
========= =========
F-26
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 15 OPERATING RESULTS
YEAR ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999
------------- ------------ ------------
AVERAGE WORKFORCE
Manual workers.......................................... 11,203 14,065 11,767
Salaried and store employees............................ 123,227 115,445 105,812
Management.............................................. 8,218 5,145 5,282
------------- ------------ ------------
Total.............................................. 142,648 134,655 122,861
============= ============ ============
YEAR ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999
------------- ------------ ------------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF EUR)
EMPLOYMENTS COSTS
Salaries and direct benefits........................... 2,269,622 1,854,252 1,414,419
Employer's social security contributions............... 240,243 206,245 177,519
Employer's premiums for supplementary insurance........ 205,453 161,554 101,193
Other personnel expenses............................... 6,991 13,094 7,755
Pensions............................................... 60,702 92,940 104,357
----------- --------- ---------
Total............................................. 2,783,011 2,328,085 1,805,243
=========== ========= =========
NOTE 16 LEASES
Delhaize Group's stores operate principally in leased premises. Lease terms
generally range from 3 to 30 years with renewal options ranging from 3 to 20
years. The average remaining lease term for closed stores is 7.9 years. The
following schedule details, at December 31, 2001, the future minimum lease
payments under capital and operating leases:
OPERATING LEASES
--------------------------
CAPITAL OPEN CLOSED
LEASES STORES STORES
------------- ------------ -----------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF
EUR)
2002................................................... 128,378 269,409 30,939
2003................................................... 127,983 262,563 29,912
2004................................................... 127,056 255,743 28,094
2005................................................... 125,940 242,988 26,779
2006................................................... 124,563 235,202 25,089
Thereafter............................................. 1,074,320 2,000,593 137,947
------------ --------- -------
Total minimum payments............................ 1,708,240 3,266,498 278,760
========= =======
Less estimated executory costs......................... 42,073
------
Net minimum lease payments............................. 1,666,167
Less amount representing interest...................... 852,920
-------
Present value of net minimum lease payments............ 813,247
=======
Minimum payments have not been reduced by minimum sublease income of
approximately EUR 63 million due over the term of non-cancelable subleases.
Rent payments, including scheduled rent increases, are recognized on a
straight-line basis over the minimum lease term. Total rent expense under
operating leases for open and closed stores was approximately EUR 298 million,
EUR 257 million, and EUR 203 million in 2001, 2000 and 1999, respectively.
In addition, Delhaize Group has signed lease agreements for additional store
facilities, the construction of which was not complete at December 31, 2001. The
leases generally range from 3 to 30 years with renewal options
F-27
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
generally ranging from 3 to 20 years. Total future minimum rents under these
agreements are approximately EUR 410 million.
Provisions of approximately EUR 176 million and EUR 164 million at December
31, 2001 and 2000, respectively, for remaining lease liabilities on closed
stores are included in Accrued liabilities, less the current portion. Delhaize
Group uses a discount rate based on the current treasury note rates to calculate
the present value of the remaining rent payments on closed stores.
NOTE 17 SEGMENT INFORMATION
Delhaize Group is engaged in one transnational line of business, the
operation of food supermarkets, under different banners that have similar
economic and operating characteristics. The operation of food supermarkets
represents more than 94% of Delhaize Group's consolidated revenue and was its
only reportable segment in 2001, 2000 and 1999.
Information regarding Delhaize Group's geographic locations is as follows:
UNITED
STATES BELGIUM OTHER TOTAL
------------ ---------- ---------- -----------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF EUR)
YEAR ENDED DECEMBER 31, 2001:
Sales.................................................. 16,905,047 3,212,895 1,278,003 21,395,945
Assets in use for operational activities *............. 8,184,235 447,089 479,193 9,110,517
Income before minority interests....................... 187,736 11,098 (30,076) 168,758
Net income............................................. 169,371 11,066 (31,017) 149,420
YEAR ENDED DECEMBER 31, 2000:
Sales.................................................. 14,069,532 2,983,534 1,115,100 18,168,166
Assets in use for operational activities *............. 6,712,149 398,345 373,262 7,483,756
Income before minority interests....................... 180,081 41,832 34,269 256,182
Net income............................................. 88,517 41,832 30,338 160,687
YEAR ENDED DECEMBER 31, 1999:
Sales.................................................. 10,505,737 2,802,203 1,002,189 14,310,129
Assets in use for operational activities *............. 2,434,799 371,861 392,022 3,198,682
Income before minority interests....................... 285,174 32,165 3,837 321,176
Net income............................................. 135,030 32,295 2,561 169,886
- ----------
* Assets in use for operational activities represent all geographic assets
less debt issuance costs.
NOTE 18 FINANCIAL INSTRUMENTS
During 2001, a subsidiary of Delhaize Group, Delhaize America, entered into
interest rate swap agreements to manage the exposure to interest rate movements
by 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, which mature in 2006, involve the exchange of fixed rate
payments for variable rate payments without the exchange of the underlying
principal amounts. Variable rates for the these agreements are based on
six-month or three-month USD LIBOR and are reset on a semiannual 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. The notional principal amount of the interest rate swap arrangements is
approximately USD 300 million (approximately EUR 340.4 million).
In November 2001, a subsidiary of Delhaize Group entered into a foreign
currency swap with a commercial bank to hedge foreign currency risk of
intercompany loans denominated in a currency (USD) other than its functional
currency. The terms of the foreign currency swap provided Delhaize Group's
subsidiary USD 50.8 million (approximately EUR 57.6 million) on November 14,
2001 in exchange for the same amount delivered to the bank on
F-28
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
January 15, 2002. The terms also required Delhaize Group's subsidiary to pay the
bank EUR 57.1 million on November 14, 2001 in exchange for EUR 57.0 million
delivered from the bank on January 15, 2002. The fair value of this swap at
December 31, 2001, was offset by an unrealized gain on Delhaize Group's USD
loan.
During 2001, a subsidiary of Delhaize Group entered into foreign currency
swaps with various commercial banks to hedge foreign currency risk on
intercompany loans denominated in a currency (Czech Crown) other than its
functional currency. In the aggregate, the foreign currency swaps provided
Delhaize Group's subsidiary Czech Crown 2.2 billion, or approximately EUR 63.8
million, on the trade dates in exchange for the same amount delivered to the
bank with interest accrued at a weighted average rate of 5.63% on the expiration
dates. The terms of the foreign currency swaps also required Delhaize Group's
subsidiary to pay the bank EUR 63.8 million on the trade dates in exchange for
the same amount delivered from the bank with interest accrued at a weighted
average rate of 4.72% on the expiration dates. The fair value of these swaps at
December 31, 2001, was offset by a net unrealized gain on Delhaize Group's Czech
Crown loan.
In 2000, Delhaize America entered into agreements to hedge against a
potential increase in interest rates prior to its long-term bond offering. See
Note 12 to the consolidated financial statements. The agreements were structured
to hedge against the risk of increasing market interest rates based on U.S.
treasury rates, with the specified rates based on the expected maturities of the
planned debt issue. The notional amount of the agreements totaled USD 1.75
billion (approximately EUR 1.9 billion). The agreements were settled upon
issuance of the debt. The unrealized loss of approximately EUR 239.0 million
paid by Delhaize America will be amortized as interest expense over the life of
the underlying debt. Additionally, in October 2000, Delhaize America entered
into related agreements to limit the amount of any unrealized loss associated
with future interest rate reduction. Delhaize America paid USD 19.8 million
(approximately EUR 21.3 million) as consideration for these agreements, which
was amortized to expense over the period of the contract through April 26, 2001.
In December 2000, a subsidiary of Delhaize Group entered into a foreign
currency swap with a commercial bank to hedge foreign currency risk of
intercompany loans denominated in a currency (USD) other than its functional
currency. The terms of the foreign currency swap provided Delhaize Group's
subsidiary USD 50.0 million (approximately EUR 53.7 million) on December 14,
2000 in exchange for the same amount delivered to the bank on March 14, 2001.
The terms also required Delhaize Group's subsidiary to pay the bank EUR 57.1
million, on December 14, 2000, in exchange for EUR 56.9 million, delivered from
the bank on March 14, 2001.
During 2000, a subsidiary of Delhaize Group entered into foreign currency
swaps with various commercial banks to hedge foreign currency risk on
intercompany loans denominated in a currency (Czech Crown) other than its
functional currency. In the aggregate, the foreign currency swaps provided
Delhaize Group's subsidiary Czech Crown 2.2 billion, or approximately EUR 62.1
million, on the trade dates in exchange for the same amount delivered to the
bank with interest accrued at a weighted average rate of 6.70% on the expiration
dates. The terms of the foreign currency swaps also required Delhaize Group's
subsidiary to pay the bank EUR 62.1 million on the trade dates in exchange for
the same amount delivered from the bank with interest accrued at a weighted
average rate of 4.94% on the expiration dates. The fair value of these swaps at
December 31, 2000, was offset by a net unrealized gain on Delhaize Group's Czech
Crown loan.
In October 1999, a subsidiary of Delhaize Group entered into an interest
rate swap with a commercial bank to hedge its floating interest rate exposure on
a medium-term borrowing. The notional amount of the interest rate swap is Czech
crown 280 million, or approximately EUR 7.9 million. The interest rate swap
allows Delhaize Group to exchange the net difference between a floating interest
rate (12 month PRIBOR) and a fixed interest rate (7.885%) over the term of the
swap, which matures on October 11, 2004. The fair value of the interest rate
swap at December 31, 2001, represents the estimated payment that would terminate
the interest rate swap at December 31, 2001.
In October 1999, a subsidiary of Delhaize Group entered into a foreign
currency swap with a commercial bank to hedge foreign currency risk on a loan
denominated in a currency (Czech Crown) other than its functional currency. The
terms of the foreign currency swap provided Delhaize Group's subsidiary Czech
crown 300 million, or
F-29
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
approximately EUR 8.2 million, on the trade date in exchange for the same amount
delivered to the bank with interest accrued at 6.875% on October 30, 2000. The
terms also required Delhaize Group's subsidiary to pay the bank BEF 330 million,
or approximately EUR 8.2 million, on the trade date in exchange for the same
amount delivered from the bank with interest accrued at 4.435% on October 30,
2000. The fair value of this swap was offset by an unrealized gain on Delhaize
Group's Czech Crown loan.
NOTE 19 COMMITMENTS AND CONTINGENCIES
In 2001, Delhaize Group entered into an agreement to acquire Trofo, a Greek
food retailer, for EUR 66.9 million. Delhaize Group paid EUR 49.3 million in
2001. The payment of the remaining consideration of EUR 17.6 million is subject
to the outcome of arbitration proceedings with the seller.
Delhaize Group had an agreement with one of its venture partners, which
owned 40% of SDM, to purchase a minimum amount of its general store inventory on
an annual basis for this subsidiary, until February 2005. Inventory purchases
from this venture partner were approximately EUR 115 million, EUR 153 million
and EUR 134 million, for the years ended December 31, 2001, 2000 and 1999,
respectively. Such agreement was in the ordinary course of business at
negotiated prices comparable to those of transactions with other suppliers. In
2001, this agreement was terminated in connection with the liquidation of SDM.
See Note 20 to the consolidated financial statements.
Delhaize Group has guaranteed portions of its trade creditor, liabilities
for taxes, salaries and social security by mortgages or security charges granted
or irrevocably promised on Delhaize Group's assets. At December 31, 2001 and
2000, amounts guaranteed totaled EUR 3.9 million and EUR 6.1 million,
respectively.
Delhaize Group has been involved in a number of disputes and legal cases
arising in the normal course of business. Although the final outcome of these
proceedings cannot be predicted with certainty, management believes that
obligations that could result from them will not have a significant effect on
the consolidated financial statements of Delhaize Group.
F-30
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 20 LIST OF CONSOLIDATED AND ASSOCIATED COMPANIES AT DECEMBER 31, 2001 AND
2000
A. FULLY CONSOLIDATED
OWNERSHIP
SHARE HELD (IN %) SHARE HELD (IN %) INTEREST
-------------------- -------------------- --------------
DIRECTLY INDIRECTLY DIRECTLY INDIRECTLY (IN %)
-------- ---------- -------- ---------- --------------
NAME OF COMPANY COUNTRY 2001 2001 2000 2000 2001 2000
- --------------- ----------------- -------- --------- -------- ---------- ------ ------
Aidi Center S.P.R.L. Belgium.......... -- 100.0 -- 100.0 100.0 100.0
Albatros S.A. Belgium.......... -- 100.0 -- 100.0 100.0 100.0
Alfa-Beta Vassilopoulos S.A. Greece........... -- 50.6 -- 50.6 50.6 50.6
Aniserco S.A. Belgium.......... 72.2 27.8 72.2 27.8 100.0 100.0
Athenian Real Estate Development, Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
Atlas A.S. Czech Republic... -- 100.0 -- 100.0 100.0 100.0
ATTM Consulting and Commercial, Ltd Cyprus........... 51.0 -- -- 51.0 51.0 51.0
Birdshop S.P.R.L. Belgium.......... -- 100.0 -- 100.0 100.0 100.0
Boney Wilson & Sons, Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
Boxer S.P.R.L. Belgium.......... -- 100.0 -- 100.0 100.0 100.0
Delanthuis N.V. Belgium.......... 86.0 14.0 86.0 14.0 100.0 100.0
Delhaize America, Inc. United States.... 80.6 19.4 26.9 18.2 100.0 45.1(1)
Delhaize Finance B.V. The Netherlands.. -- 100.0 -- -- 100.0 --
Delhaize Insurance Corp., Inc. United States.... -- 100.0 -- -- 100.0 --
Delhaize The Lion America, Inc. United States.... 100.0 -- 100.0 -- 100.0 100.0
Delhaize The Lion Asia, Ltd. Hong Kong........ 100.0 -- 100.0 -- 100.0 100.0
Delhaize The Lion Coordination Center Belgium.......... 100.0 -- 100.0 -- 100.0 100.0
S.A.
Delhaize "The Lion" Nederland B.V. The Netherlands.. -- 100.0 -- 100.0 100.0 100.0
Delhaize The Lion Pacific Thailand......... 100.0 -- 100.0 -- 100.0 100.0
Delhome S.A. Belgium.......... 80.0 20.0 80.0 20.0 100.0 100.0
Delimmo S.A. Belgium.......... 100.0 -- 100.0 -- 100.0 100.0
Delnemo A.S. Czech Republic... -- 100.0 -- 100.0 100.0 100.0
Delrest, Inc. United States.... -- 100.0 -- 100.0 100.0 100.0
Delshop S.A. Belgium.......... 100.0 -- 100.0 -- 100.0 100.0
Delvita A.S. Czech Republic... -- 100.0 -- 100.0 100.0 100.0
Delvita S.R.O. Slovakia......... -- 100.0 -- 100.0 100.0 100.0
ENA S.A. Greece........... -- 100.0 -- -- 50.6 --
Essex Realty Corp. United States.... -- 100.0 -- 100.0 100.0 45.1
FL Food Lion, Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
Food Lion, LLC United States.... -- 100.0 -- 100.0 100.0 45.1
Food Lion (Thailand), Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
Food Lion (Thailand) Limited Thailand......... -- 100.0 -- 100.0 100.0 72.0
Frippiat S.A. Belgium.......... -- 100.0 -- 100.0 100.0 100.0
Gillo S.P.R.L. Belgium.......... -- 100.0 -- 100.0 100.0 100.0
Hannabro, Co. United States.... -- 100.0 -- 100.0 100.0 45.1
Hannaford Bros., Co. United States.... -- 100.0 -- 100.0 100.0 45.1
Hannaford Licensing Corp. United States.... -- 100.0 -- 100.0 100.0 45.1
Hannaford Procurement Corp. United States.... -- 100.0 -- 100.0 100.0 45.1
Hannaford Trucking Company United States.... -- 100.0 -- 100.0 100.0 45.1
Hancot, Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
Jan Van Gent S.P.R.L. Belgium.......... -- 100.0 -- 100.0 100.0 100.0
Kash n' Karry Food Stores, Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
Lion Garden Food Company Thailand......... -- 100.0 -- 100.0 100.0 72.0
Martin's Food of South Burlington, Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
Mega Doi Romania.......... -- 86.0 -- 86.0 51.0 51.0
Mega Dolphin Romania.......... -- 59.3 -- 59.3 51.0 51.0
Mega Image Romania.......... -- 51.0 -- 51.0 51.0 51.0
NP Lion Leasing & Consulting, Ltd. Cyprus........... 51.0 -- -- 51.0 51.0 51.0
Plain Street Properties, Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
Points Plus Punten S.A. Belgium.......... 100.0 -- 100.0 -- 100.0 100.0
Progressive Distributors, Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
P.T. Lion Super Indo Indonesia........ -- 51.0 -- 51.0 51.0 51.0
Redelcover S.A. Luxembourg....... -- 100.0 -- 100.0 100.0 100.0
Regab B.V. The Netherlands.. -- 100.0 -- -- 100.0 --
Risk Management Services, Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
Serdelco S.A. France........... -- 100.0 -- 100.0 100.0 100.0
F-31
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OWNERSHIP
SHARE HELD (IN %) SHARE HELD (IN %) INTEREST
-------------------- -------------------- --------------
DIRECTLY INDIRECTLY DIRECTLY INDIRECTLY (IN %)
-------- ---------- -------- ---------- --------------
NAME OF COMPANY COUNTRY 2001 2001 2000 2000 2001 2000
- --------------- ----------------- -------- --------- -------- ---------- ------ ------
Shop 'N Save-- Mass., Inc. United States.... -- 100.0 -- 100.0 100.0 45.1
SID S.A. Belgium.......... -- 100.0 -- -- 100.0 --
Svermark B.V. The Netherlands.. -- 100.0 -- -- 100.0 --
Super Discount Markets, Inc. United States.... -- 60.0 -- 60.0 60.0 60.0 (2)
Super Dolphin Romania.......... -- 51.0 -- 51.0 51.0 51.0
The Pride Reinsurance Company, LTD. Ireland.......... -- 100.0 -- -- 100.0 --
Trofo S.A. Greece........... -- 100.0 -- -- 50.6 --
Vadis S.P.R.L. Belgium.......... -- 100.0 -- 100.0 100.0 100.0
Wambacq & Peeters S.A. Belgium.......... 85.0 -- 55.0 -- 85.0 55.0
Wintrucks S.A. Belgium.......... 20.0 80.0 20.0 80.0 88.0 64.0
B. PROPORTIONALLY CONSOLIDATED
Shop N Save Singapore........ -- 49.0 -- 49.0 49.0 49.0
C. ASSOCIATED COMPANIES
Accounted under the equity method:
Debarry Center United States.... -- 50.0 -- 50.0 50.0 50.0
Accounted under the cost method:
ENA Bulgaria EOOD Bulgaria......... -- 100.0 -- -- 50.6 --
HomeRuns.com United States.... -- -- -- 8.6 -- 3.6
Special Event S.A. Belgium.......... 30.0 -- 30.0 -- 30.0 30.0
- ----------
(1) Delhaize Group consolidated and controlled the operations of Delhaize
America for all periods presented. In April 2001, Delhaize Group completed
its purchase of Delhaize America in a share exchange. See Note 2 to the
consolidated financial statements. At December 31, 2000, Delhaize Group
owned 37.2% of Delhaize America's non-voting Class A common stock and 56.3%
of Delhaize America's voting Class B common stock resulting in an effective
ownership interest in Delhaize America of 45.1%.
(2) On November 12, 2001, SDM filed for protection under Chapter 11 of the
United States bankruptcy code and is in liquidation. See Note 19 to the
consolidated financial statements.
NOTE 21 RECONCILIATION OF BELGIAN GAAP TO US GAAP AND PRESENTATION OF CONDENSED
CONSOLIDATED FINANCIAL INFORMATION PREPARED IN ACCORDANCE WITH US GAAP
The consolidated financial statements have been prepared in accordance with
Belgian GAAP, as described in Note 1 to the consolidated financial statements.
Those principles differ in certain significant respects from US GAAP. These
differences relate mainly to the items that are described below and are
summarized in the following tables. Such differences affect both the
determination of net income and shareholders' equity, as well as the
classification and format of the consolidated financial statements.
ITEMS AFFECTING NET INCOME AND SHAREHOLDERS' EQUITY
a. GOODWILL -- STOCK REPURCHASE PROGRAM
As described in Note 11 to the consolidated financial statements,
Delhaize Group's subsidiary, Delhaize America, initiated a stock repurchase
program in 1995 that resulted in an aggregate increase in Delhaize Group's
ownership interest in Delhaize America. Under Belgian GAAP, for consolidated
reporting purposes, Delhaize Group recognized Delhaize America's treasury
transactions as capital transactions. Under US GAAP, acquisitions of stock
held by minority shareholders of a consolidated subsidiary are accounted for
under the purchase method of accounting at the Delhaize Group level in
accordance with the requirements of Accounting
F-32
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Interpretations No. 26 to Accounting Principles Board Opinion ("APBO") No.
16, Business Combinations ("APBO 16").
b. GOODWILL -- PURCHASE ACCOUNTING
Share Exchange - As described in Note 2 to the consolidated financial
statements, Delhaize Group and Delhaize America consummated a share exchange
that resulted in Delhaize Group purchasing the minority interests of
Delhaize America. The determination of the consideration paid in connection
with the share exchange differs under Belgian GAAP and US GAAP. Under
Belgian GAAP, the shares that were issued were valued at EUR 56.00 per
share, representing the share price at the date when the share exchange was
consummated, April 25, 2001. Under US GAAP, the shares were valued at EUR
52.31 per share, representing the average of the share price three days
before and three days after the date when the share exchange agreement was
signed, November 16, 2000. Also, certain transaction expenses (i.e., stamp
duties and notary fees related to the capital increase) that were expensed
under Belgian GAAP were included in the purchase price under US GAAP.
Finally, under Belgian GAAP, the payments made in 2001 by Delhaize Group, or
Delhaize America, to repurchase Delhaize Group's shares in the open market
to satisfy Delhaize America employee stock option exercises, net of cash
received from those employees, were recorded in the purchase price
allocation. These payments were excluded from the purchase price allocation
under US GAAP. These differences in determining the amount of consideration
paid affected the amount of goodwill recorded in the share exchange.
Hannaford - As described in Note 2 to the consolidated financial
statements, Delhaize America issued fully vested options for its own common
stock in exchange for Hannaford options held by employees of Hannaford.
Under Belgian GAAP, the notional value of stock options is not recognized.
Under US GAAP, in accordance with the requirements of Financial Accounting
Standards Board Interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation, in a purchase business combination, vested
stock options or awards issued by an acquirer in exchange for outstanding
awards held by employees of the acquiree shall be considered to be part of
the purchase price paid by the acquirer for the acquiree and accounted for
under APBO 16. Accordingly, under US GAAP, the fair value of the new
Delhaize America awards was included as part of the purchase price of
Hannaford. Accordingly, goodwill recorded in connection with the Hannaford
acquisition increased by approximately EUR 43 million under US GAAP.
c. GOODWILL -- ASSET LIVES
Management believes that goodwill acquired in conjunction with business
combinations in countries with mature economies (including United States and
France) has an indefinite life. Prior to 1999, management's policy, for
Belgian GAAP purposes, was to amortize such goodwill over a twenty-year
period in accordance with practices common in Belgium. Beginning in 1999,
management changed its Belgian GAAP policy for such goodwill to amortize
goodwill acquired in conjunction with business combinations over its
estimated useful life not to exceed forty years. This change in Belgian GAAP
policy applies to both existing and new goodwill balances, although amounts
previously amortized have not been restated. Under US GAAP, Delhaize Group's
policy for goodwill acquired in conjunction with business combinations is to
amortize such goodwill over its estimated useful life, not to exceed forty
years.
d. IMPAIRMENT OF LONG-LIVED ASSETS
Under Belgian GAAP, Delhaize Group reviews long-lived assets for
impairment when an event has occurred that would indicate that a permanent
diminution in value exists (e.g., store closing decision). If the net book
value of a long-lived asset is greater than its fair value, Delhaize Group
will record an impairment reserve to reduce the asset's net book value to
fair value in the period the change in the operational or economic
circumstances of the asset is observed. If the impairment reserve is no
longer justified in future periods, due to recovery in the asset's fair
value, the impairment reserve is reversed. Under US GAAP, Delhaize Group
reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount
F-33
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of the assets may not be recoverable; if these events or changes in
circumstances indicate that such amounts could not be recoverable, Delhaize
Group estimates the future cash flows expected to result from the use of the
asset and its eventual disposition; if the sum of undiscounted future cash
flows is less than the carrying amount of the asset, Delhaize Group
recognizes an impairment loss for the difference between the carrying value
of the asset and its fair value. The estimate of fair value considers prices
for similar assets and the results of analyses of expected future cash flows
using a discount rate commensurate with the risks involved. After an
impairment is recognized, the reduced carrying amount of the asset shall be
accounted for as its new cost. For a depreciable asset, the new cost shall
be depreciated over the asset's remaining useful life. Restoration of
previously recognized impairment losses is not recorded.
As a result of applying US GAAP, Delhaize Group recorded a non-cash,
pre-tax impairment charge of EUR 7.7 million, EUR 17.1 million, and EUR 9.6
million in 2001, 2000 and 1996, respectively, in accordance with SFAS No.
121, Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of ("SFAS 121") related to certain operating stores.
Under Belgian GAAP, these impairment charges were not recorded.
The effect of the difference in accounting policies relating to
restoration of previously recognized impairment losses on the results of
operations and financial condition of Delhaize Group is immaterial for all
periods presented.
e. PENSIONS
e-1) As described in Note 1 to the consolidated financial statements,
Delhaize Group does not account for pension plan obligations for all member
companies of Delhaize Group under the provisions of SFAS 87. Under US GAAP,
all pension plan obligations are calculated in accordance with the
provisions of SFAS 87.
e-2) Additionally, under Belgian GAAP when Delhaize Group does follow
the provisions of SFAS 87, changes to the minimum pension liability are
recorded in "Prepayments and other." Under US GAAP, this amount is recorded
in "other comprehensive income" ("OCI").
f. FOREIGN CURRENCY TRANSACTIONS
Under Belgian GAAP, Delhaize Group has deferred, as an offset to
shareholders' equity, foreign currency transaction exchange rate losses
incurred on debts contracted to finance non-monetary assets. These losses
are recognized based on the principle of matching expenses to the income to
which they relate. Under US GAAP, a change in exchange rates between the
functional currency and the currency in which a transaction is denominated
increases or decreases the expected amount of functional currency cash flows
upon settlement of the transaction. That increase or decrease in expected
functional currency cash flows is a foreign currency transaction gain or
loss that is included in determining net income for the period in which the
exchange rate changes.
g. REVALUATION OF LONG-LIVED ASSETS
Under Belgian GAAP, assets of certain member companies of Delhaize Group
have been revalued according to the applicable laws of each country. The
resulting unrealized gains were added to the revaluation reserves, which are
classified in Shareholders' equity. The revaluation amounts are depreciated
over the lives of the related assets. Upon disposition of the revalued
assets, the relevant part of the revaluation reserve is considered realized
and included in the determination of net income. Under US GAAP, such
revaluations are not permitted.
F-34
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
h. INCOME TAXES
As described in Note 1 to the consolidated financial statements,
Delhaize Group does not account for deferred income tax assets and
liabilities for all member companies of Delhaize Group under the provisions
of SFAS 109. Under US GAAP, income taxes are accounted for under the
provisions of SFAS 109 for all subsidiaries of Delhaize Group.
i. LEASE ACCOUNTING
Under Belgian GAAP, a capital lease is defined as one that transfers
substantially all the risks and rewards of ownership of an asset to the
lessee. Under US GAAP, SFAS No. 13, Accounting for Leases, defines criteria
for companies to evaluate whether, at inception of the lease contract, a
lease should be accounted for as a capital lease or an operating lease.
Accordingly, Delhaize Group has certain leases that are classified as
operating leases under Belgian GAAP that would be classified as capital
leases under US GAAP.
j. NET US GAAP ADJUSTMENTS FOR EQUITY METHOD OF ACCOUNTING INVESTEES
Under Belgian GAAP, companies over which joint control is exercised
should be consolidated proportionately (see Note 20 to the consolidated
financial statements). Also, companies over which legal majority ownership
control is exercised should be consolidated even though the minority
interest holders may have participating rights that restrict Delhaize
Group's ability to control the entity. Under US GAAP, Delhaize Group
accounts for these investments under the equity method.
These differences in accounting policy have no effect on the net income
or shareholders' equity of Delhaize Group; however, the results of
operations and financial position of these investees must be recast into US
GAAP prior to Delhaize Group's recognition of its share in income of
companies accounted for under the equity method. The adjustments to present
investees under US GAAP relate primarily to accounting for foreign currency
transactions, income taxes and pensions. The differences in accounting
policy would also affect sales, operating income and total assets and
liabilities as reported under Belgian GAAP.
Delhaize Group has a 30% investment in Special Event, S.A. ("Special
Event"). Under Belgian GAAP and Delhaize Group policy, companies whose
results are not significant to Delhaize Group and whose activity is
fundamentally different from that of Delhaize Group are excluded from the
scope of consolidation. Under US GAAP, as Delhaize Group owns 30% of the
voting capital of Special Event and has appointed two of the five members of
the Board of Directors, the presumption is that Delhaize Group has the
ability to exercise significant influence over the operating and financial
policies of Special Event. As such, Delhaize Group should account for
Special Event under the equity method of accounting for US GAAP. However,
the effect of accounting for Special Event under the equity method of
accounting from the cost method of accounting would not materially effect
Delhaize Group's investment or reported results of operations during any
period presented.
k. STOCK BASED COMPENSATION
Under Belgian GAAP, compensation expense related to stock options is not
recorded. Under US GAAP, Delhaize Group has elected to follow the accounting
provisions of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APBO 25"), for grants of shares, stock options,
and other equity instruments. This resulted in the recording of compensation
expense relating to Delhaize America's restricted stock plan in 2000. The
compensation expense in 1999 was de minimis. There was also compensation
expense recorded relating to Delhaize Group's stock option plan.
Also, in 2001 as a result of the share exchange, a new measurement date
was established for the Delhaize America stock option and restricted stock
plans under US GAAP. Accordingly, a one-time, non-cash compensation expense
of EUR 13.1 million (before taxation) was recorded under US GAAP.
F-35
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
l. DIVIDENDS ON ORDINARY SHARES
Under Belgian GAAP, the proposed annual dividend on ordinary shares to
be approved at the annual meeting of shareholders, which is held subsequent
to year-end, is accrued at year-end. Under US GAAP, such dividends are not
considered an obligation until approved.
m. DIRECTORS REMUNERATION
The directors of Delhaize Group receive an annual remuneration based on
Delhaize Group's financial performance in accordance with provisions of
Delhaize Group's articles of association. Under Belgian GAAP, this
remuneration is considered a distribution of profits, similar to a dividend
to shareholders, and is recorded as a charge to Retained earnings, when
proposed by the Board of Directors. Under US GAAP, such remuneration is
considered compensation expense.
n. HIGHLY INFLATIONARY ECONOMIES
Under Belgian GAAP and Delhaize Group accounting policy, there are no
specific accounting consequences for financial statements of a foreign
entity in a highly inflationary economy. Under US GAAP, the financial
statements of a foreign entity in a highly inflationary economy are
remeasured as if the functional currency was the reporting currency. These
translation adjustments are included in the determination of net income.
o. DISPOSAL OF INVESTMENT
In September 2000, Delhaize Group sold its 50% investment in P.G. of
France and realized a gain on the sale of the net assets of EUR 32.4 million
on a Belgian GAAP basis. The sale of the investment on a US GAAP basis
resulted in a reduction of the gain realized by EUR 1.7 million, principally
due to different bases of acquisition goodwill.
p. TREASURY SHARES
Under Belgian GAAP, Delhaize Group records purchases of its ordinary
shares or ADRs as assets. The shares are maintained at the lower of cost or
market with the resulting change in value being recorded in earnings. Under
US GAAP, Delhaize Group accounts for treasury shares using the cost method.
Under the cost method, the cost of the ordinary shares or ADRs repurchased
is charged to treasury shares, a contra equity account.
q. DERIVATIVE INSTRUMENTS
Under Belgian GAAP, the accounting for derivative instruments is
primarily driven by two factors: 1) by the purpose for entering into the
derivative instrument, either hedging or non-hedging (speculative); 2) by
the accounting treatment of the underlying hedged item. If the derivative
instrument is not designated as a hedge, it is maintained at the lower of
cost or market. If the derivative instrument is designated as a hedge, the
accounting treatment for the derivative instrument mirrors that of the
hedged item (i.e., if the underlying hedged item is maintained at cost, the
derivative instrument is maintained at cost; if the underlying hedged item
is marked to market, the derivative instrument is marked to market). See
Note 1 to the consolidated financial statements.
Under US GAAP, Delhaize Group adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), as amended by
SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133 and SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities, as of January 1, 2001. The accounting required under SFAS 133 is
more prescriptive that Belgian GAAP on the overall treatment and definition
of a
F-36
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
derivative, when to record derivatives, classification of derivatives, and
when to designate a derivative as a hedge. Therefore, differences between
Belgian GAAP and US GAAP arise which affect net income for US GAAP. If the
derivative is designated as a fair value hedge, the changes in fair value of
the derivative and the hedged item are recognized in earnings. If the
derivative is designated as a cash flow hedge, the changes in fair value of
the derivative are recorded in OCI and are recognized in the income
statement when the hedged item affects earnings.
The adoption of SFAS 133 resulted in a cumulative pre-tax reduction to
OCI of EUR 213.6 million (EUR 132.4 million after-tax). The reduction to OCI
was mostly attributable to EUR 212.3 million (EUR 131.7 million after-tax)
loss on interest rate hedge agreements against potential increases in
interest rates prior to the offering of certain debt securities by Delhaize
America. See Note 12 to the consolidated financial statements. In April
2001, the hedge agreements were settled as planned in connection with the
completion of the private offering of debt securities resulting in the
payment of approximately EUR 239.0 million. As a result of the share
exchange (see Note 2 to the consolidated financial statements), this loss
recorded to OCI was reduced by EUR 131.5 million (EUR 81.5 million
after-tax). Delhaize Group will continue to amortize the remaining balance
over the life of the underlying debt instruments. Delhaize Group expects to
reclassify EUR 6.0 million (after-tax) from OCI to earnings over the next
twelve months.
Under Belgian GAAP, the loss (net of tax) related to these interest rate
hedge agreements was classified in the balance sheet caption "prepayments
and other."
r. OTHER ITEMS
INTEREST COSTS
Under Belgian GAAP, certain subsidiaries of Delhaize Group have expensed
interest cost incurred as a part of the historical cost of constructing
certain assets. Under US GAAP, interest cost incurred as a part of the
historical cost of constructing certain assets is capitalized.
DEVELOPMENT OF INTERNALLY DEVELOPED SOFTWARE
Under Belgian GAAP, certain subsidiaries of Delhaize Group have expensed
costs in the development of internally developed software. Under US GAAP,
certain of these costs are required to be capitalized.
s. TAX EFFECTS ON US GAAP ADJUSTMENTS
TAX EFFECTS OF US GAAP ADJUSTMENTS -- NET INCOME RECONCILIATION
The US GAAP adjustments denoted by footnotes (a), (c), (h), (j), (m),
(o), and (p) do not have tax consequences. Part of the US GAAP adjustment
denoted by footnote (b) was related to non-deductible amortization expense.
The tax effects relating to the remaining US GAAP adjustments were
calculated at the prevailing statutory tax rates of the related entities.
The approximate weighted average statutory tax rate on these US GAAP
adjustments was 34%, 35%, and 40% for the years ended December 31, 2001,
2000, and 1999.
F-37
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
TAX EFFECTS OF US GAAP ADJUSTMENTS -- SHAREHOLDERS' EQUITY RECONCILIATION
The US GAAP adjustments denoted by footnotes (a), (c), (h), (j), (l),
(m), (o), and (p) do not have tax consequences. Part of the US GAAP
adjustment denoted by footnote (b) was a reclassification entry only and did
not have tax consequences. The tax effects relating to the remaining US GAAP
adjustments were calculated at the prevailing statutory tax rates of the
related entities as follows:
DECEMBER 31,
--------------------------------
2001 2000
---------- ------------
(ALL AMOUNTS ARE EXPRESSED IN
THOUSANDS
OF EUR, EXCEPT PERCENTAGES)
Total amount of US GAAP adjustments denoted by footnotes (b), (d),
(e-1), (e-2), (g), (i), (n), (q), and (r)............................... (287,991) (24,778)
Less non-taxable portion of footnote (b)................................ 131,535 (19,128)
---------- ------------
Total amount of taxable US GAAP adjustments (156,456) (43,906)
Approximate weighted average statutory tax rate relating to the above
adjustments........................................................... 38% 39%
Resulting tax effect.................................................... 59,773 17,139
Cumulative tax effect at statutory rates of US GAAP adjustments denoted
By footnotes (f) and (k) that were recorded directly to shareholders'
equity
For Belgian GAAP purposes and recorded to the statement of income for
US GAAP purposes...................................................... 11,838 4,569
--------- ------------
Total tax effect of US GAAP adjustments on shareholders' equity......... 71,611 21,708
========= ============
F-38
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
RECONCILIATION TO US GAAP
Reconciliation to US GAAP of net income and shareholders' equity would be as
follows:
YEAR ENDED DECEMBER 31,
------------------------------------------
2001 2000 1999
----------- ----------- -----------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF
EUR)
NET INCOME IN ACCORDANCE WITH BELGIAN GAAP........................ 149,420 160,687 169,886
ITEMS HAVING THE EFFECT OF INCREASING (DECREASING) REPORTED NET
INCOME:
a. Goodwill-- Stock repurchase program........................... (1,995) (1,995) (1,995)
b. Goodwill-- Purchase accounting................................ 12,963 219 --
c. Goodwill-- Assets lives....................................... (294) (294) (362)
d. Impairment of long-lived assets............................... (7,071) (7,047) 170
e. Pensions
e-1. SFAS 87 provision...................................... (1,569) (2,293) (1,307)
f. Foreign currency transactions................................. 2,504 (8,353) (5,575)
g. Revaluation of long-lived assets.............................. 731 1,154 637
h. Income taxes.................................................. 6,168 452 345
i. Lease accounting.............................................. 3,029 5,002 3,761
j. Net US GAAP adjustments for equity method of accounting
investees..................................................... (340) 305 13
k. Stock based compensation...................................... (19,514) (1,517) --
m. Directors remuneration........................................ (1,106) (949) (926)
n. Highly inflationary economies................................. 286 513 --
o. Disposal of investments....................................... -- (1,739) --
p. Treasury shares............................................... 1,517 -- --
q. Derivative instruments........................................ (970) 3,274 --
r. Other items................................................... 238 9 467
---------- ---------- ----------
Total US GAAP adjustments before tax effects................. (5,423) (13,259) (4,772)
s. Tax effects of US GAAP adjustments............................ 4,049 3,247 740
----------- ---------- ----------
NET INCOME IN ACCORDANCE WITH US GAAP............................ 148,046 150,675 165,854
=========== ========== ==========
F-39
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31,
--------------------------------
2001 2000
------------ ------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
SHAREHOLDERS' EQUITY IN ACCORDANCE WITH BELGIAN GAAP..................... 3,716,037 1,364,691
ITEMS HAVING THE EFFECT OF INCREASING (DECREASING) REPORTED
SHAREHOLDERS' EQUITY:
a. Goodwill-- Stock repurchase program................................. 71,857 73,852
b. Goodwill-- Purchase accounting...................................... (121,263) 19,128
c. Goodwill-- Assets lives............................................. 11,382 13,713
d. Impairment of long-lived assets..................................... (15,746) (8,132)
e. Pensions:
e-1. SFAS 87 provision............................................ (21,492) (19,906)
e-2. Reclassification............................................. (15,309) --
g. Revaluation of long-lived assets.................................... (16,948) (17,680)
h. Income taxes........................................................ (16,315) (22,040)
i. Lease accounting.................................................... 979 (2,050)
j. Net US GAAP adjustments for equity method of accounting investees... 15 (246)
l. Dividends on ordinary shares........................................ 133,046 125,038
n. Highly inflationary economies....................................... 2,040 1,267
o. Disposal of investment.............................................. -- (1,739)
p. Treasury shares..................................................... (17,445) --
q. Derivative instruments.............................................. (102,900) --
r. Other items......................................................... 2,648 2,595
------------ -----------
Total US GAAP adjustments before tax effects....................... (105,451) 163,800
s. Tax effects of US GAAP adjustments.................................. 71,611 21,708
----------- -----------
SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP........................ 3,682,197 1,550,199
=========== ===========
EARNINGS PER SHARE
In accordance with SFAS No. 128, Earnings per Share, basic earnings per
share are computed by dividing income available to ordinary shareholders by the
weighted average number of ordinary shares outstanding. The computation of
diluted earnings per share is a pro forma presentation that reflects the
dilution of basic earnings per share that would have occurred if all contingent
issuances of ordinary shares that would individually reduce earnings per share
had taken place at the beginning of the period (or the date issued, if later).
F-40
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The computation of basic and diluted earnings per share for the years ended
December 31, 2001, 2000 and 1999 prepared in accordance with US GAAP was as
follows:
YEAR ENDED DECEMBER 31,
------------------------------------------
2001 2000 1999
----------- ----------- -----------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF
EUR, EXCEPT PER SHARE DATA)
Net income in accordance with US GAAP available to ordinary
shareholders..................................................... 148,046 150,675 165,854
Dilutive effect on earnings of ownership in subsidiary shares.... -- (1,228) --
---------- --------- ----------
Net income for diluted earnings per ordinary share............... 148,046 149,447 165,854
========== ========= ==========
Weighted average number of ordinary shares outstanding........... 79,494 52,023 51,983
Dilutive effect of employee stock options........................ 710 46 102
---------- --------- ----------
Weighted average number of diluted ordinary shares outstanding... 80,204 52,069 52,085
========== ========= ==========
Basic earnings per ordinary share............................. 1.86 2.90 3.19
Diluted earnings per ordinary share........................... 1.85 2.87 3.18
For the year ended December 31, 2001, approximately 424,000 shares
attributable to the exercise of outstanding options were excluded from the
calculation of diluted EPS because the effect was antidilutive.
STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31,
------------------------------------------
2001 2000 1999
----------- ----------- -----------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Net income in accordance with US GAAP................................. 148,046 150,675 165,854
Other comprehensive income:
Derivative instruments:
Cumulative effect of accounting change, net of tax effect of
EUR 81.2 million (see US GAAP adjustment (q))................... (132,420) -- --
Change in fair value at the date interest rate lock agreements
were settled, net of tax effect of 7.3 million.................. (11,055)
Adjustment in connection with the share exchange, net of tax
effect of EUR 50.0 million (see Note 2 to the consolidated
financial statements)........................................... 81,489 -- --
Reclassification adjustment recorded to net income, net of tax
effect of EUR 2.9 million....................................... 4,607 -- --
Unrealized loss on securities...................................... (265) -- --
Changes in unrealized foreign exchange gains and losses............ 82,298 50,118 119,693
Additional pension liability, net of tax effect of EUR 5.9 million. (9,704) (128) (117)
----------- ---------- ----------
Other comprehensive income............................................ 14,950 49,990 119,576
----------- ---------- ----------
Comprehensive income in accordance with US GAAP....................... 162,996 200,665 285,430
=========== ========== ==========
Accumulated other comprehensive income, end of year:
Derivative instruments............................................. (57,379) -- --
Securities......................................................... (265) -- --
Unrealized foreign exchange gains and losses....................... 221,177 138,879 88,761
Pension liability, net............................................. (38,014) (28,310) (28,182)
----------- ---------- ---------
Accumulated other comprehensive income, end of year................... 125,519 110,569 60,579
=========== ========== =========
The following presents Delhaize Group's condensed consolidated statements of
income and condensed consolidated balance sheets prepared in accordance with US
GAAP considering all the items discussed previously in this note and certain
other reclassifications that do not affect net income or shareholders' equity,
including
F-41
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
transactions considered exceptional or non-operating under Belgian GAAP that are
classified as operating under US GAAP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
------------------------------------------
2001 2000 1999
----------- ----------- -----------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Sales and other revenues............................................... 21,278,324 17,946,676 14,086,428
Cost of sales.......................................................... 16,140,723 13,764,324 10,859,830
---------- ---------- ----------
Gross profit........................................................... 5,137,601 4,182,352 3,226,598
Selling, general, and administrative expenses.......................... 4,362,424 3,568,742 2,605,771
Other (expense) income, net............................................ (4,035) 35,713 2,639
---------- ---------- ----------
Operating income....................................................... 771,142 649,323 623,466
Interest expense, net.................................................. 423,464 272,771 123,412
Income from companies accounted for under the equity method............ 496 3,130 3,346
---------- ---------- ----------
Income before income taxes and minority interests...................... 348,174 379,682 503,400
Income taxes........................................................... 178,668 138,529 186,854
---------- ---------- ----------
Income after taxes and before minority interests....................... 169,506 241,153 316,546
Minority interests..................................................... 21,460 90,478 150,692
---------- ---------- ----------
Net income............................................................. 148,046 150,675 165,854
========== ========== ==========
Cost of sales includes shipping and handling costs, bottling costs,
advertising costs and promotional allowances. "Cost of sales" under US GAAP
differs from "cost of goods sold" under Belgian GAAP, as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
2001 2000 1999
----------- ----------- ----------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Shipping and handling costs (a)................................. 488,137 378,866 290,505
Bottling costs (a).............................................. 20,947 22,178 22,243
Equity method investees-- see Note 21(j)........................ (124,207) (198,465) (189,992)
Other income, net (b)........................................... (212,524) (134,248) (69,722)
--------- ---------- ---------
Total........................................................... 172,353 68,331 53,034
========= ========== =========
- ----------
(a) Included as "selling, administrative and other operating expenses,"
"salaries, social security, and pensions" or "depreciation and
amortization," depending on the nature of the cost, in the Belgian GAAP
statement of income.
(b) Other income, net, primarily consists of income from in-store promotions
and co-operative advertising (presented as "other operating income" in the
Belgian GAAP statement of income), offset by advertising costs (presented
as "selling, administrative and other operating expenses" in the Belgian
GAAP statement of income).
Selling, general, and administrative expenses include all costs incurred to
deliver products from stores to the customers.
"Other income (expense), net" primarily includes gains and losses on
disposals of fixed assets.
F-42
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Income from companies accounted for under the equity method primarily
represents income from those investees of Delhaize Group that are
proportionately consolidated under Belgian GAAP (See Note 20 to the consolidated
financial statements). Under US GAAP, these investments would be accounted for
using the equity method of accounting. The following footnote summarizes the
investments proportionately consolidated under Belgian GAAP (amounts presented
in accordance with Belgian GAAP):
DECEMBER 31,
-----------------------------
2001 2000
---------- ---------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Current assets................................. 10,380 8,766
Current liabilities............................ 17,125 17,777
Non-current assets............................. 19,849 21,858
Non-current liabilities........................ 338 --
YEAR ENDED DECEMBER 31,
-------------------------------
2001 2000 1999
-------- -------- -------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Net sales................................ 74,054 190,255 206,738
Operating income......................... 1,004 2,880 4,563
Net income............................... 475 1,513 2,550
Cash flows from operating activities..... 2,350 8,769 6,721
Cash flows from investing activities..... (558) (6,226) 258
Cash flows from financing activities..... (1,185) (5,253) (6,902)
Exceptional items under Belgian GAAP, as disclosed in Note 1 to the
consolidated financial statements, do not qualify as extraordinary items under
US GAAP. These amounts, under US GAAP, for 2001, 2000 and 1999, have been
classified in operating income as "other income/expense, net," and "selling,
general and administrative expenses" depending on the nature of the cost.
F-43
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------------
2001 2000
-------------- --------------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................ 383,550 259,688
Receivables.............................................................. 505,878 617,878
Inventories.............................................................. 1,839,699 1,842,738
Prepaid expenses......................................................... 59,197 89,566
Deferred tax assets...................................................... 1,494 --
-------------- --------------
Total current assets............................................ 2,789,818 2,809,870
Property, at cost, less accumulated depreciation......................... 4,190,533 3,756,536
Intangible assets, at cost, less accumulated amortization................ 4,822,027 3,800,169
Investment in companies accounted for under the equity method............ 11,028 10,922
Deferred tax assets...................................................... 15,170 4,713
Other assets............................................................. 82,523 50,978
-------------- --------------
TOTAL ASSETS.................................................... 11,911,099 10,433,188
============== ==============
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY
Current liabilities...................................................... 2,701,841 5,539,045
Long-term borrowings..................................................... 3,761,637 688,702
Capital lease obligations................................................ 788,745 667,552
Deferred tax liabilities................................................. 591,217 203,251
Other long-term liabilities.............................................. 356,202 258,616
-------------- --------------
Total liabilities............................................... 8,199,642 7,357,166
Minority interests....................................................... 29,260 1,525,823
Shareholders' equity..................................................... 3,682,197 1,550,199
-------------- --------------
TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY.. 11,911,099 10,433,188
============== ==============
PRESENTATION OF ADDITIONAL FINANCIAL INFORMATION IN ACCORDANCE WITH US GAAP
STORE CLOSINGS
Delhaize Group's Belgian GAAP accounting policy related to store closings is
described in Note 1, Store Closing Costs, to the consolidated financial
statements. Delhaize Group's Belgian GAAP store closing costs recognition and
measurement criteria do not differ from its US GAAP accounting policy.
Under Belgian GAAP, store closing costs related to store closings in the
normal course of business (i.e., on a store-by-store basis) are charged to
operating income as "selling, administrative and other operating expenses" and
store closing costs related to store closings outside of the normal course of
business (e.g., a specific market area, Delhaize Group store banner) are charged
to "exceptional expenses." Under US GAAP, store closing costs, regardless of
their nature, are charged to operating income.
In September 2001, a subsidiary of Delhaize Group, Delvita, recorded closed
store liabilities of EUR 2.6 million related to eight store closings. These
liabilities primarily relate to lease obligations. During 2001, Delvita recorded
cash payments against these reserves of approximately EUR 0.1 million.
In October 2001, Delhaize Group made the strategic decision to exit the
Atlanta, Georgia market in the United States by selling nine Save-a-Lot discount
stores and closing 19 Cub Foods supermarkets that were operated by its
subsidiary, SDM. As a consequence of this decision, SDM filed for protection
under Chapter 11 of the United
F-44
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
States bankruptcy code on November 12, 2001 and is in liquidation. In connection
with these closings, Delhaize Group recorded liabilities of EUR 34.5 million.
Other than those store closings in 2001 relating to Delvita and SDM, the
majority of Delhaize Group's store closings in 2001, 2000 and 1999 relate to
Delhaize America.
The following table is presented to show the number of Delhaize America
stores closed and planned to be closed at December 31, 2001, 2000 and 1999 that
compose Delhaize America's closed store liabilities at those dates.
Additionally, the number of stores committed for closure, the number of stores
closed, the number of closed stores acquired and the number of stores sold or
for which the lease was terminated in 2001, 2000 and 1999:
PLANNED
CLOSED CLOSINGS TOTAL
---------- ---------- -----------
Balance, January 1, 1999............................... 131 26 157
Stores added........................................... -- 16 16
Stores acquired........................................ 14 -- 14
Planned closings completed............................. 35 (35) --
Stores sold/lease terminated........................... (24) -- (24)
------ ------ --------
Balance, December 31, 1999............................. 156 7 163
Stores added........................................... -- 36 36
Stores acquired........................................ 25 1 26
Planned closings completed............................. 30 (30) --
Stores sold/lease terminated........................... (24) -- (24)
------ ------ --------
Balance, December 31, 2000............................. 187 14 201
Stores added........................................... -- 8 8
Stores acquired........................................ -- -- --
Planned closings completed............................. 12 (12) --
Stores sold/lease terminated........................... (20) -- (20)
------ ------ --------
Balance, December 31, 2001............................. 179 10 189
====== ====== ========
The following table reflects Delhaize America's closed store liabilities at
December 31, 2001, 2000 and 1999 and activity during 2001, 2000 and 1999
including additions to closed store liabilities charged to operations, additions
for closed stores acquired in purchase transactions, adjustments to liabilities
based on changes in facts and circumstances and payments made:
YEAR ENDED DECEMBER 31,
----------------------------------------
2001 2000 1999
----------- ----------- ----------
(ALL AMOUNTS ARE EXPRESSED
IN MILLIONS OF EUR)
Beginning of year balance, January 1,.................................. 199.0 106.3 96.9
Additions charged to earnings:
Store closings-- lease obligations.................................. 3.2 36.3 12.9
Store closings-- other exit costs................................... 0.3 5.0 1.6
Adjustments to prior year estimates-- lease obligations............. 4.7 0.9 (0.9)
Adjustments to prior year estimates-- other exit costs.............. 0.3 4.2 --
Reserves reversed to income......................................... -- -- (1.7)
--------- --------- --------
Total charge to earnings, net..................................... 8.5 46.4 11.9
Reductions:
Lease payments made................................................. (17.1) (11.9) (7.7)
Lease terminations.................................................. (1.3) (3.7) (9.9)
Payments for other exit costs....................................... (5.0) (6.5) (3.6)
--------- --------- ---------
Total reductions.................................................. (23.4) (22.1) (21.2)
Closed store liabilities associated with purchase transactions:
Lease obligations................................................... -- 43.2 2.3
Other exit costs.................................................... -- 21.6 0.8
Adjustments to goodwill............................................. (7.8) (4.0) --
--------- --------- ---------
F-45
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Total acquired liabilities........................................ (7.8) 60.8 3.1
Translation adjustments................................................ 10.7 7.6 15.6
--------- --------- ---------
Ending balance, December 31,........................................... 187.0 199.0 106.3
========= ========= =========
The balance at December 31, 2001 of EUR 187.0 million consisted of lease
obligations and other exit costs of EUR 159.2 million and EUR 27.8 million,
respectively. The balance at December 31, 2000 of EUR 199.0 million consisted of
lease obligations and other exit costs of EUR 163.6 million and EUR 35.4
million, respectively. The balance at December 31, 1999 of EUR 106.3 million
consisted of lease obligations and other exit costs of EUR 96.5 million and EUR
9.8 million, respectively. The opening balance at January 1, 1999 of EUR 96.9
million consisted of lease obligations and other exit costs of EUR 87.4 million
and EUR 9.5 million, respectively.
Delhaize America provided for closed store liabilities in each of the years
presented in the above table relating to the estimated post-closing lease
obligations and related other exit costs (which include estimated real estate
taxes, common area maintenance and other costs contractually required to be paid
in connection with the lease obligations) associated with the store closing
commitments. Store closings are generally completed within one year after the
decision to close. The closed store liabilities are usually paid over the lease
terms associated with the closed stores having remaining terms ranging from one
to 20 years. Adjustments to closed store liabilities and other exit costs
primarily relate to changes in subtenants, changes in actual store closing dates
that differ from planned store closing dates and actual exit costs differing
from original estimates. Adjustments are made for changes in estimates in the
period in which the change becomes known. Store closing liabilities are reviewed
quarterly to ensure that current estimates are consistent with amounts recorded
in the financial statements.
Delhaize America uses a discount rate based on the current treasury note
rates to calculate the present value of the remaining rent payments on closed
stores.
During 2001, Delhaize America recorded additions to closed store liabilities
of EUR 8.5 million related to 12 store closings made in the ordinary course of
business and adjustments to prior year estimates for stores previously closed.
During the same period , Delhaize America recorded cash reductions to its
reserves for closed stores of approximately EUR 23.4 million. These reductions
included cash payments of approximately EUR 17.1 million for ongoing rent
payments on closed stores' remaining lease obligations, net of sublease income,
EUR 1.3 million for lease termination fees and EUR 5.0 million paid for other
exit costs, as discussed above. The non-cash adjustments of EUR 7.8 million
related primarily to two events: 1) the revaluation of closed store liabilities
of approximately EUR 6.7 million as a result of the share exchange by Delhaize
Group; and 2) a reduction for closed stores acquired in the Hannaford
acquisition, based on final purchase accounting allocation of EUR 14.5 million.
During 2000, Delhaize America recorded additions to closed store liabilities
of EUR 64.8 million related to 26 store properties acquired, or for which the
lease was assumed, in the Hannaford acquisition. All but one of the 26 stores
included in the reserve had been closed prior to the acquisition date. The
remaining activities associated with exiting these stores are to maintain the
store under the leasehold requirements, to dispose of any owned property and
equipment and to settle the remaining lease obligations. The acquired Hannaford
liabilities for closed stores include EUR 43.2 million related to the present
value of future unrecoverable lease liabilities with remaining non-cancelable
terms ranging from 3 to 22 years. Other exit costs accrued are approximately EUR
21.6 million for activities that are directly related to the remaining lease
obligations, which comprised EUR 11.2 million for real estate taxes, EUR 8.6
million for property maintenance and utilities and EUR 1.8 million for property
insurance. Accrued other exit costs are paid over the remaining lease term. A
non-cash reduction in the amount of approximately EUR 4.0 million was made prior
to December 31, 2000, with a corresponding reduction in goodwill, principally
related to a lease liability that was canceled.
During 1999, Delhaize America acquired and immediately closed 14 stores in
connection with acquisitions from major supermarket chains. The related lease
obligations and other exit costs for these acquired closed stores were EUR 3.1
million for 1999 and were recorded as an addition to goodwill recorded in the
related purchase transaction.
F-46
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The revenues and operating results for stores closed are not material to
Delhaize Group's total revenues and operating results for any of the years
presented above. Future cash obligations for closed store liabilities are tied
principally to the remaining non-cancelable lease payments less sublease
payments to be received. See Note 16 to the consolidated financial statements
for a summary of the gross future cash flows for closed store lease obligations.
PENSION BENEFIT PLANS
Delhaize America has a non-contributory retirement plan covering all
employees at its operating subsidiaries Food Lion and Kash n' Karry with one or
more years of service. Employees' benefits under the plan become vested after
five years of consecutive service. Forfeitures of the plan are used to off-set
plan expenses. The plan provides benefits to participants upon death, retirement
or termination of employment with Delhaize America. Contributions to the
retirement plan are determined by Delhaize America's Board of Directors. Expense
related to the plan was EUR 52.3 million, EUR 88.1 million and EUR 102.1 million
for the years ended December 31, 2001, 2000 and 1999, respectively.
One of Delhaize America's operating subsidiaries, Hannaford, maintains a
non-contributory, defined benefit pension plan covering approximately 50% of its
employees. The plan provides for payment of retirement benefits on the basis of
employees' length of service and earnings. Delhaize America's policy is to fund
the plan based upon legal requirements and tax regulations. Plan assets consist
of common stocks, cash and cash equivalents and fixed income investments.
Hannaford also provides a defined contribution 401(k) plan to substantially all
employees. The amount charged to expense for this plan in 2001 was approximately
EUR 6.8 million. The amount charged to expense for this plan in 2000 from the
acquisition date of Hannaford through December 31, 2000 was approximately EUR
2.5 million.
Delhaize Belgium has a contributory, defined benefit pension plan covering
approximately 10% of its employees. The plan provides benefits to participants
upon death or retirement and Delhaize Belgium funds the plan based upon legal
requirements and tax regulations.
Delhaize Group's disclosures for defined benefit plans inside and outside
the United States, as required by SFAS No. 132, Employers' Disclosures About
Pensions and Other Postretirement Benefits, are as follows:
F-47
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2001 2000
-------------------------------- ------------------------------
PLANS PLANS
OUTSIDE OUTSIDE
UNITED OF THE UNITED OF THE
STATES UNITED STATES UNITED
PLANS STATES TOTAL PLANS STATES TOTAL
--------- --------- ---------- --------- ---------- ---------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF EUR)
CHANGE IN BENEFIT OBLIGATION:
BENEFIT OBLIGATION AT BEGINNING OF YEAR..... 100,128 77,616 177,744 -- 73,256 73,256
Benefit obligation at acquisition........... -- 1,429 1,429 102,613 -- 102,613
Service cost................................ 4,975 3,274 8,249 1,903 2,586 4,489
Interest cost............................... 7,570 4,687 12,257 3,160 4,378 7,538
Plans' participants' contributions.......... -- 1,250 1,250 -- 1,203 1,203
Plans' amendments 794 -- 794 -- -- --
Actuarial (losses)/gains.................... 1,890 (590) 1,300 (68) -- (68)
Benefits paid............................... (13,034) (6,506) (19,540) (6,519) (3,883) (10,402)
Foreign currency translation................ 5,627 112 5,739 (961) 76 (885)
----- --- ----- ----- ----- -----
BENEFIT OBLIGATION AT END OF YEAR........... 107,950 81,272 189,222 100,128 77,616 177,744
======= ====== ======= ======= ====== =======
CHANGE IN PLANS' ASSETS:
FAIR VALUE OF PLANS' ASSETS AT BEGINNING OF
YEAR........................................ 109,739 47,003 156,742 -- 44,117 44,117
Fair value of plans' assets at acquisition.. -- -- -- 115,321 -- 115,321
Actual return on plans' assets.............. (18,460) 1,854 (16,606) 1,587 2,260 3,847
Group contributions......................... 3,276 5,005 8,281 403 3,306 3,709
Plans' participants' contributions.......... -- 1,250 1,250 -- 1,203 1,203
Benefits paid............................... (13,034) (6,506) (19,540) (6,519) (3,883) (10,402)
Foreign currency translation................ 5,669 -- 5,669 (1,053) -- (1,053)
----- --- ----- ----- ----- -----
FAIR VALUE OF PLANS' ASSETS AT END OF YEAR.. 87,190 48,606 135,796 109,739 47,003 156,742
====== ====== ======= ======= ====== =======
Funded status of the plans.................. (20,760) (32,666) (53,426) 9,611 (30,613) (21,002)
Unrecognized prior service cost............. 807 -- 807 -- -- --
Unrecognized actuarial loss................. 20,197 6,155 26,352 3,239 5,503 8,742
Unrecognized net transition obligation...... -- 997 997 -- 2,681 2,681
----- --- ----- ----- ----- -----
NET AMOUNT RECOGNIZED....................... 244 (25,514) (25,270) 12,850 (22,429) (9,579)
=== ======== ======== ====== ======== ======
2001 2000
-------------------------------- ------------------------------
PLANS PLANS
OUTSIDE OUTSIDE
UNITED OF THE UNITED OF THE
STATES UNITED STATES UNITED
PLANS STATES TOTAL PLANS STATES TOTAL
--------- --------- ---------- --------- ---------- ---------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF EUR)
AMOUNTS RECOGNIZED IN THE CONDENSED
CONSOLIDATED BALANCE SHEETS (PRESENTED
ABOVE):
Prepaid benefit cost........................ -- -- -- 12,850 -- 12,850
Accrued benefit liabilities................. (16,234) (25,726) (41,960) -- (22,650) (22,650)
Intangible Assets........................... 807 -- 807 -- 20 20
Shareholders' equity (representing
accumulated other Comprehensive income
adjustments)................................ 15,671 212 15,883 -- 201 201
------- ------ -------- -------- -------- --------
NET AMOUNT RECOGNIZED....................... 244 (25,514) (25,270) 12,850 (22,429) (9,579)
=== ======== ======== ====== ======== =======
F-48
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Actuarial assumptions have been determined by actuaries on a
country-by-country basis and plan-by-plan. Weighted average actuarial
assumptions have been determined as follows:
2001 2000
-------------------------------- ------------------------------
PLANS OUTSIDE PLANS OUTSIDE
UNITED STATES OF THE UNITED STATES OF THE
PLANS UNITED STATES PLANS UNITED STATES
------------- ------------- ------------- -------------
Discount rate.............................. 7.3% 5.8% 7.5% 5.8%
Rate of compensation increase.............. 4.5% 4.0% 4.5% 4.0%
Expected return on plan assets............. 10.5% 6.6% 10.5% 6.6%
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2001 2000
-------------------------------- ------------------------------
PLANS PLANS
OUTSIDE OUTSIDE
UNITED OF THE UNITED OF THE
STATES UNITED STATES UNITED
PLANS STATES TOTAL PLANS STATES TOTAL
--------- --------- ---------- --------- ---------- ---------
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS OF EUR)
COMPONENTS OF NET PERIODIC BENEFIT COSTS:
Service cost................................ 4,975 4,524 9,499 1,903 3,789 5,692
Plans' participants' contributions.......... -- (1,250) (1,250) -- (1,203) (1,203)
Expected interest cost...................... 7,570 4,687 12,257 3,160 4,378 7,538
Expected return on plans' assets............ (10,353) (3,085) (13,438) (4,957) (2,923) (7,880)
Amortization of actuarial net loss.......... 61 -- 61 -- -- --
Amortization of net transition obligation... -- 1,684 1,684 -- 1,685 1,685
--------- --------- -------- -------- -------- -------
NET PERIODIC BENEFIT COSTS.................. 2,253 6,560 8,813 106 5,726 5,832
========= ========= ======== ======== ======== =======
The aggregate accumulated benefit obligations and fair values of plan assets
for pension plans with accumulated benefit obligations in excess of plan assets
were EUR 161.6 million and EUR 135.8 million, respectively as of December 31,
2001, and EUR 56.0 million and EUR 47.0 million, respectively, as of December
31, 2000.
F-49
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INCOME TAXES
YEAR ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999
----------- --------- -----------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Income before income taxes and minority interests:
Belgian companies................................................. 40,375 52,101 38,212
Foreign companies................................................. 307,799 327,581 465,188
------- ------- -------
Total income before income taxes and minority interests......... 348,174 379,682 503,400
======= ======= =======
Income taxes consist of the following:
Current:
Belgian companies................................................ 3,304 11,533 8,135
Foreign companies................................................ 120,093 91,647 147,392
------- ------ -------
Total current................................................... 123,397 103,180 155,527
Deferred:
Belgian companies................................................ 16,391 2,537 2,188
Foreign companies................................................ 38,880 32,812 29,139
------ ------ ------
Total deferred.................................................. 55,271 35,349 31,327
------ ------ ------
Total income taxes.............................................. 178,668 138,529 186,854
======= ======= =======
The components of deferred income tax assets and liabilities are as follows:
DECEMBER 31,
-------------------------------
2001 2000
------------ ----------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Deferred tax assets:
Pension............................................................. 9,244 8,138
Accrued expenses.................................................... -- 47,798
Prepayments and other assets........................................ 81,289 --
Fixed assets........................................................ 15,437 21,666
Provisions for store closing........................................ 77,044 72,833
Provisions not yet deductible....................................... 1,582 3,547
Leases.............................................................. 63,933 54,435
Operating loss carryforwards and tax credits........................ 78,486 55,458
Deferred charges.................................................... -- 9,646
Others.............................................................. 35,484 7,985
------ -----
Total deferred tax assets......................................... 362,499 281,506
Less: valuation allowances......................................... (58,492) (41,140)
-------- -------
Total deferred tax assets......................................... 304,007 240,366
======== =======
DECEMBER 31,
-------------------------------
2001 2000
------------ ----------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Deferred tax liabilities:
Fixed assets........................................................ (826,903) (364,765)
Inventories......................................................... (17,472) (52,069)
Accrued expenses.................................................... (8,228) --
Other............................................................... (47,745) (26,627)
------------ ---------
Total deferred tax liabilities.................................... (900,348) (443,461)
============ =========
F-50
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Net deferred income tax assets and liabilities are classified in the
accompanying consolidated balance sheets prepared and presented in accordance
with US GAAP as follows:
DECEMBER 31,
-------------------------------
2001 2000
------------ ----------
(ALL AMOUNTS ARE EXPRESSED
IN THOUSANDS OF EUR)
Current deferred tax assets............................................ 1,494 --
Non-current deferred tax assets........................................ 15,170 4,713
Current deferred tax liabilities....................................... (21,788) (4,557)
Non-current deferred tax liabilities................................... (591,217) (203,251)
--------- --------
Net deferred tax liabilities...................................... (596,341) (203,095)
========= ========
The increase of the net deferred tax liability of approximately EUR 393
million does not equal the deferred tax provision in 2001 of approximately EUR
55 million primarily due to a net deferred tax liability of approximately EUR
397 million recorded in connection with the share exchange (allocation of
purchase price) and the translation of deferred income tax items from Delhaize
America.
The increase of the net deferred tax liability of approximately EUR 166
million does not equal the deferred tax provision in 2000 of approximately EUR
35 million primarily due to a net deferred tax liability of approximately EUR
134 million recorded in the acquisition of Hannaford and the translation of
deferred income tax items from Delhaize Group's United States subsidiaries.
At December 31, 2001, Delhaize Group had net operating loss ("NOL") and tax
credit carryforwards, for tax purposes, of approximately EUR 887 million, which
will expire at various dates between 2002 and 2016. Approximately EUR 742
million (USD 654 million) of this amount was due to state tax losses assumed in
the acquisition of Hannaford for which realization is not considered likely.
Accordingly, a valuation allowance of EUR 31.7 million was recorded on the
related deferred tax asset.
At December 31, 2000, Delhaize Group had NOL and tax credit carryforwards,
for tax purposes, of approximately EUR 774 million, which will expire at various
dates between 2001 and 2016. Approximately EUR 703 million (USD 654 million) of
this amount was due to state tax losses assumed in the acquisition of Hannaford
for which realization is not considered likely. Accordingly, a valuation
allowance of EUR 30.0 million was recorded on the related deferred tax asset
The NOL and tax credit carryforwards may not be used to offset income taxes
in other jurisdictions. Delhaize Group has established a valuation allowance to
reduce the tax benefit of certain net operating losses to an amount that is more
likely than not realizable.
F-51
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following is a reconciliation of Delhaize Group's Belgian statutory
income tax rate with Delhaize Group's effective income tax rate:
YEAR ENDED DECEMBER 31,
-----------------------------------
2001 2000 1999
---------- ---------- ---------
Belgian statutory income tax rate...................................... 40.2% 40.2% 40.2%
Items affecting the Belgian statutory income tax rate:
Taxation in jurisdictions outside Belgium: (primarily due to
United States federal and state income tax rates applied
to the income of Delhaize America)(1)............................... 2.1 0.4 (2.0)
Amortization of non-deductible goodwill at non-US subsidiaries...... 4.6 0.9 0.4
Tax charges on dividend income...................................... 0.8 0.8 0.2
Non-taxable income / non-deductible expenses........................ 1.2 (3.9) (1.9)
Non-taxable capital gain............................................ -- (3.4) --
Other............................................................... 2.4 1.5 0.2
----- ----- -----
Effective tax rate................................................ 51.3% 36.5% 37.1%
===== ===== =====
(1) In 2001, approximately 97% of Delhaize Group's consolidated US
GAAP income before income taxes and minority interests was
attributable to Delhaize America, which had an effective tax
rate of 46.8%.
In 2000, approximately 75% of Delhaize Group's consolidated
income before income taxes and minority interests was
attributable to Delhaize America, which had an effective
income tax rate of 41%.
In 1999, approximately 92% of Delhaize Group's consolidated
income before income taxes and minority interests was
attributable to Delhaize America, which had an effective
income tax rate of 38%.
Delhaize Group has not recognized income taxes on undistributed earnings of
certain subsidiaries as management has asserted that it has specific plans to
permanently reinvest the undistributed earnings of these subsidiaries. The
cumulative amount of undistributed earnings on which Delhaize Group has not
recognized income taxes was approximately EUR 1.9 billion and EUR 1.5 billion at
December 31, 2001 and December 31, 2000, respectively.
STOCK BASED COMPENSATION
Under US GAAP, Delhaize Group has elected to follow the accounting
provisions of APBO 25, for grants of shares, share options and other equity
instruments and to adopt the disclosure-only provisions of SFAS No. 123
Accounting for Stock Based Compensation ("SFAS 123").
Delhaize Group Convertible Bonds with Warrants
In June 1996, Delhaize Group granted certain employees the right to purchase
up to 10,400 debenture bonds with detachable warrants. At the date of grant, the
market value of Delhaize Group's ordinary shares was EUR 37.93 per share. In
total, 9,943 bonds were issued representing an aggregate loan to Delhaize Group
of approximately EUR 246,000. There were 50 warrants attached to each bond which
gave the holders of each warrant the right to obtain one ordinary share of
Delhaize Group for EUR 44.62 per share during various periods through June 2001.
The maturity date of the debenture loan was June 30, 2001. The following table
summarizes information about the warrants
F-52
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
outstanding at December 31, 2001, 2000 and 1999:
DECEMBER 31,
--------------------------------------
WARRANTS OUTSTANDING 2001 2000 1999
---------- --------- -----------
Outstanding at beginning of year..................................... 182,450 197,250 251,550
Granted.............................................................. -- -- --
Exercised............................................................ (179,450) (14,800) (54,300)
Expired/Cancelled.................................................... (3,000) -- --
---------- -------- --------
Outstanding at the end of year....................................... -- 182,450 197,250
======== ========
Exercisable at the end of year....................................... -- 182,450 197,250
The fair value of each warrant grant has been determined estimated on the
date of grant using a Black-Scholes pricing model for European-type warrants
with the following assumptions: risk free rate of 5.5%, expected life of 4.75
years, volatility of 8.0% and a dividend yield of 3.6%.
Delhaize Group Stock Options
On June 5, 2001, Delhaize Group commenced a 60-day offering of a maximum of
150,000 stock options to certain employees. During the subscription period
134,900 stock options were subscribed (i.e. accepted by the employees). The
holder of each stock option has the right to acquire one ordinary share of
Delhaize Group for EUR 64.16 per share. The stock options may be exercised
starting January 1, 2005 through June 4, 2008.
On June 5, 2000, Delhaize Group commenced a 60-day offering of a maximum of
130,000 stock options to certain employees. During the subscription period,
115,000 stock options were subscribed (i.e., accepted by employees). The holder
of each stock option has the right to subscribe to one ordinary share of
Delhaize Group for EUR 63.1 per share. The subscription rights may be exercised
on the 1st through the 20th of June, September and December in 2004, 2005 and
2006.
The following table summarizes information about stock options under this
plan granted, outstanding and exercisable at December 31, 2001 and 2000:
DECEMBER 31,
---------------------------
2001 2000
------------ ----------
OPTIONS OUTSTANDING
Outstanding at beginning of period...................... 115,000 --
Granted................................................. 141,000 119,400
Exercised............................................... -- --
Forfeited............................................... (6,700) (4,400)
------- -------
Outstanding at the end of year.......................... 249,300 115,000
======= =======
Options exercisable at the end of period................ -- --
The fair value of each option has been estimated on the date of grant using
a Black-Scholes pricing model with the following assumptions: risk free rate of
5.0% and 5.6% for 2001 and 2000, respectively, expected life of 5 years for 2001
and 2000, volatility of 36.0% and 38.0% for 2001 and 2000, respectively and a
dividend yield of 2.2% and 2.6% for 2001 and 2000, respectively.
Compensation expense for these options recognized during 2001 and 2000 was
approximately EUR 538,000 and EUR 667,000, respectively. The weighted average
fair value of options granted during the respective periods was approximately
EUR 23.35 per option and approximately EUR 24.99 per option.
F-53
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Delhaize America Stock Option Plans
Delhaize America has a stock option plan under which options to purchase up
to 5 million shares of Delhaize Group ADSs may be granted to officers and key
employees at prices equal to fair market value on the date of the grant. Options
become exercisable as determined by the Board of Directors of Delhaize America
on the date of grant, provided that no option may be exercised more than ten
years after the date of grant.
Upon completion of the share exchange (see Note 2 to the consolidated
financial statements), each of the Delhaize America options to purchase Delhaize
America Class A common stock, whether vested or unvested, was converted into an
option to purchase the number of Delhaize Group ADSs, rounded up to the nearest
whole share, equal to the number of shares of Delhaize America Class A common
stock subject to the option, multiplied by 0.40. The converted options are
subject to substantially the same terms and conditions as were applicable to the
converted options prior to the effective time of the share exchange.
A summary of shares reserved for outstanding options, activity and related
weighted average exercise price from the effective date of the share exchange is
presented below:
WEIGHTED
AVERAGE EXERCISE
SHARES PRICE (IN USD)
---------------- ------------------
2001
Conversion to Delhaize Group ADSs
Outstanding as of the effective date of the share exchange............. 3,482,709 39.30
Granted................................................................ 17,284 52.51
Exercised.............................................................. (287,441) 22.22
Forfeited/expired...................................................... (73,206) 55.15
----------------- -----------------
Outstanding at end of year............................................. 3,139,346 40.29
----------------- -----------------
Options exercisable at end of year..................................... 1,493,106 28.39
----------------- -----------------
The following table summarizes options outstanding and options exercisable
as of December 31, 2001, and the related weighted average remaining contractual
life (years) and weighted average exercise price:
OPTIONS OUTSTANDING
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING EXERCISE
NUMBER CONTRACTUAL PRICE (IN
RANGE OF EXERCISE PRICES OUTSTANDING LIFE USD)
------------------------ ----------- ----------- ----------
USD 10.85 - USD 25.60...................................... 933,576 5.25 19.26
USD 25.61 - USD 50.15...................................... 917,978 7.22 41.25
USD 50.16 - USD 94.45...................................... 1,287,792 8.36 54.85
--------- ---- -----
USD 10.85 - USD 94.45...................................... 3,139,346 7.10 40.29
========= ==== =====
OPTIONS EXERCISABLE
WEIGHTED
NUMBER AVERAGE EXERCISE
RANGE OF EXERCISE PRICES EXERCISABLE PRICE (IN USD)
------------------------ ----------- ----------------
USD 10.85 - USD 25.60.................................. 933,576 19.26
USD 25.61 - USD 50.15.................................. 467,360 40.21
USD 50.16 - USD 94.45.................................. 92,170 61.06
------ -----
USD 10.85 - USD 94.45.................................. 1,493,106 28.40
========= =====
F-54
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The weighted average fair value at date of grant for options granted during
2001 was USD 14.38. The fair value of options at date of grant was estimated
using the Black-Scholes model with the following weighted average assumptions:
2001
------
Expected dividend yield (%).............................. 2.2
Expected volatility (%).................................. 36.0
Risk-free interest rate (%).............................. 3.8
Expected term (years).................................... 4.0
Delhaize America has restricted stock plans for executive employees. These
shares of stock will vest over five years from the grant dates. The weighted
average grant date fair value for these shares since the date of the share
exchange was USD 19.27. On a US GAAP basis, Delhaize America recorded
compensation expense related to restricted stock of approximately EUR 6.4
million, EUR 1.7 million and EUR 0.3 million in 2001, 2000 and 1999,
respectively.
A summary of shares reserved for outstanding restricted stock grants and
activity from the effective date of the share exchange:
SHARES
--------
2001
Conversion to Delhaize Group ADSs
Outstanding as of the effective date of the share exchange............ 268,300
Granted............................................................... --
Exercised............................................................. (16,540)
Forfeited/expired..................................................... (711)
-------
Outstanding at year end............................................... 251,049
-------
As of December 31, 2001, there were 3.8 million shares of Delhaize Group
ADSs available for future grants of incentive stock options.
Delhaize Group Pro forma Disclosures
Had compensation cost been determined based on the provisions of SFAS 123,
Delhaize Group's pro forma net earnings and earnings per share, on a US GAAP
basis, would have been as follows:
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
--------- ---------- ---------
(ALL AMOUNTS ARE EXPRESSED IN
THOUSANDS OF EUR, EXCEPT PER SHARE
DATA)
Net income-- as reported................................... 148,046 150,675 165,854
Net income-- pro forma..................................... 136,305 145,989 165,520
Basic earnings per share-- as reported..................... 1.86 2.90 3.19
Basic earnings per share-- pro forma....................... 1.71 2.81 3.18
Diluted earnings per share-- as reported................... 1.85 2.87 3.18
Diluted earnings per share-- pro forma..................... 1.70 2.79 3.18
FAIR VALUE OF FINANCIAL INSTRUMENTS
The disclosure of the fair value of certain financial instruments where
estimates of fair value are practicable is provided herein. Significant judgment
is required to develop estimates of fair value. Estimates presented are not
necessarily indicative of the amounts that Delhaize Group could realize in a
current market exchange. Fair values are stated at year-end and may differ
significantly from current estimates.
F-55
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Cash and cash equivalents, long-term investments and receivables, and
short-term borrowings: The carrying amount of these items approximates fair
value.
Long-term debt : The fair values of Delhaize Group's long-term borrowings
were estimated based upon the current rates offered to Delhaize Group for debt
with the same remaining maturities or generally accepted valuation
methodologies.
DECEMBER 31,
--------------------------
2001 2000
---------- -----------
(ALL AMOUNTS ARE EXPRESSED
IN MILLIONS OF EUR)
Fair value of long-term debt..................... 4,126.1 777.6
Carrying amount of long-term debt................ 3,781.4 828.6
Derivative financial instruments: The fair value of the derivative financial
instruments is the amount at which these instruments could be settled based on
estimates obtained from financial institutions.
DECEMBER 31,
--------------------------
2001 2000
---------- -----------
(ALL AMOUNTS ARE EXPRESSED
IN MILLIONS OF EUR)
Fair Value:
Interest rate instruments...................... (7.8) (212.7)
Cross currency swaps........................... (5.5) (1.0)
Foreign exchange contracts..................... (0.5) 3.3
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the United States Financial Accounting Standards Board
("FASB") issued SFAS No. 141, Business Combinations, ("SFAS 141"), which
eliminates the pooling of interest method of accounting for all business
combinations initiated after June 30, 2001 and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired in a business
combination and supercedes APB 16 and SFAS No. 38, Accounting for
Pre-acquisition Contingencies of Purchased Enterprises. The provisions of SFAS
141 apply to all business combinations initiated after June 30, 2001. Delhaize
Group does not expect this standard to have a significant effect on its
consolidated financial statements.
Also in June, 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), which addresses the financial accounting and
reporting standards for acquisitions of intangible assets outside of a business
combination and for goodwill and other intangible assets subsequent to their
acquisition. Effective January 1, 2002, Delhaize Group will no longer be
required to amortize goodwill and indefinite life intangible assets as a charge
to earnings. In addition, Delhaize Group will be required to conduct an annual
review of goodwill and other intangible assets for potential impairment.
Amortization expense totaled EUR 158.1 million, EUR 59.1 million, and EUR 15.5
million for the years ended December 31, 2001, 2000, 1999, respectively.
Delhaize Group is currently evaluating the provisions of SFAS 142 and has not
yet determined the effect the adoption of this standard will on its consolidated
financial statements.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of long-lived Assets ("SFAS 144"). SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 supersedes SFAS 121, and the accounting and reporting provisions of
APBO No. 30, Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. SFAS 144 also amends Accounting Research
Bulletin No. 51, Consolidated Financial Statements, to eliminate the exception
to consolidation for a
F-56
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
subsidiary for which control is likely to be temporary. SFAS 144 requires that
one accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. SFAS 144 also broadens the
presentation of discontinued operations to include more disposal transactions.
Delhaize Group will be required to adopt SFAS 144, effective January 1, 2002.
Delhaize Group does not believe the adoption of SFAS 144 will have a significant
effect on its consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections
("SFAS 145"). SFAS 144 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor
Carriers. This Statement amends SFAS No. 13, Accounting for Leases, to eliminate
an inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. Delhaize Group does not believe the adoption of SFAS 145 will have a
significant effect on its consolidated financial statements.
Emerging Issues Task Force (EITF) Issue Nos. 00-14, Accounting for Certain
Sales Incentives; 00-22, Accounting for "Points" and Certain Other Time-Based or
Volume-Based Sales and Incentive Offers, and Offers for Free Products or
Services to be Delivered in the Future; 00-25, Vendor Income Statement
Characterization of Consideration from a Vendor to a Retailer; and 01-9,
Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products) become effective for Delhaize Group, relating
to applicable issues, on January 1, 2002. Delhaize Group does not believe that
the adoption of these pronouncements will have a significant effect on its
consolidated financial statements.
F-57
DELHAIZE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ----------- --------------------------------------------------------- --------
1.1 Articles of Association of Delhaize Group (English
translation) (Filed as Exhibit 4.1 to Delhaize Group's
registration statement on Form S-8 (File No. 333-89292)
filed with the SEC on May 29, 2002 and incorporated
herein by reference)
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 , 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)
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)
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 Generale 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)
E-1
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ----------- --------------------------------------------------------- --------
4.4 Credit Agreement dated October 25, 1999 among Delhaize
Group, Delhaize The Lion Coordination Center and Generale
De Banque (Filed as Exhibit 10.3 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 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)
4.6 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 Generale 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)
8.1 Subsidiaries of Delhaize Group (as of December 31, 2001) E-3
10.1 Consent of Deloitte & Touche Reviseurs d'Entreprises
SC sfd SCRL E-5
10.2 Delhaize Group Annual Report to Shareholders for 2001 E-6
E-2