Executive Summary

Delhaize America, a wholly owned subsidiary of Delhaize Group, engages in one line of business, the operation of retail food supermarkets in the eastern United States. Delhaize America is a holding company having four subsidiary operating companies that do business primarily under the banners Food Lion, Hannaford, Kash n’ Karry and Harveys. Our stores sell a wide variety of groceries, produce, meats, dairy products, seafood, frozen food, deli-bakery and non-food items such as health and beauty care, prescriptions, and other household and personal products. We offer nationally and regionally advertised brand name merchandise as well as products manufactured and packaged for us under the private labels of “Food Lion”, “Hannaford”, “Kash n’ Karry” and “Harveys”.

Our business is highly competitive and characterized by low profit margins. We compete with national, regional and local supermarket chains, supercenters, discount food stores, single unit stores, convenience stores, warehouse clubs, drug stores and restaurants. We continue to develop and evaluate new retailing strategies at each of our banners in the eastern United States to respond to local consumers’ needs and maintain and increase our market share.

Fiscal year 2003 was a good year for Delhaize America with increased sales, increased operating margins and successful cost and expense initiatives.

	•		Food Lion Focus. During 2003, Food Lion focused on excellence in execution, in-stock conditions, cleanliness, freshness, increased convenience, customer service and local marketing. Food Lion accelerated sales momentum in 2003 as compared to 2002.
	•		Market Renewal. During 2003, we completed a market remodel project in our Raleigh, North Carolina stores (“Market Renewal”). Market Renewal represented a change in Food Lion’s historical approach to remodeling activity. In the past, annual capital spending for remodel activity was dedicated to stores based on age and our related remodel calendar. Through Market Renewal, remodel spending is focused on key markets to maximize consumer recognition and reaction. Market Renewal was developed to make our stores, particularly produce and meat departments, more appealing and customer focused. As an integral part of this project, Food Lion also brought a sharper focus on assortment development, marketing, merchandising and training associates.
	•		Festival Strategy. At Hannaford, the Festival Strategy supported strong sales performance throughout the year. The Festival Strategy is designed to create a sustainable advantage against all competitive impacts including traditional and non-traditional competitors.
	•		Cost Reduction and Continuous Improvement. In addition to our sales growth, we continued our focus in 2003 on cost reduction efforts, particularly at our Food Lion banner, and created a continuous improvement process at our Hannaford banner to drive further efficiencies in our systems and technology. These efforts allowed us to make planned price investments during 2003 to meet the continued competitive environment, particularly in the Southeast and Florida. We plan to continue cost savings and continuous improvement initiatives to maintain and reinforce the price leadership of Food Lion among supermarket operators in the Southeast, re-position our Kash n’Karry banner and continue the strong performance of Hannaford.
	•		Inventory Management. During 2003, we began transitioning our Food Lion inventory system to the existing Hannaford system, adapting the Hannaford system to Food Lion needs with upgrades. The system will improve our current margin analysis, shrink control and inventory management at Food Lion, since it contains full visibility to item-level data. At the end of 2003, the new inventory system and processes had been implemented in over 250 Food Lion stores and should be implemented in all our stores by the third quarter of 2004. We will also roll out the Hannaford inventory system in our Kash n’ Karry banner during 2004.

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Acquisition of Harveys. In October of 2003, we expanded our business by acquiring Harveys, a chain of 43 supermarkets primarily in South Georgia. We believe this chain will strengthen our position in a Georgia market where we do not currently have a strong presence and will give us opportunities to focus on local consumers’ needs in this market to grow the Harveys business.

Though the competitive climate remained aggressive in all our markets during 2003, the economy recovered slightly in 2003 in the Southeast and Florida, which helped sales for our Food Lion and Kash n’ Karry banners. Creating a sales-focused culture and continuing to focus on executional excellence also increased sales at these companies.

During 2004, Delhaize America plans to continue its refocus on its core markets to build on accelerating supermarket sales momentum. As part of this strategy, Kash n’ Karry, which had strong comparable sales in the last half of 2003, will be rebranded over the coming three years to the new banner name “Sweetbay Supermarket”. As a part of this effort, we closed 34 underperforming Kash n’ Karry stores in the Orlando area and east coast of Florida in the first quarter of fiscal 2004 to focus our efforts in the remaining stores in our core area on the west coast of Florida, including the Tampa/St. Petersburg market where we have a solid market position and consumer perceptions are strong. We plan to build on this position by delivering on meat and produce quality, variety and value for consumers in ways that differentiate us from our competitors. At our Food Lion banner in the short term, we will continue to focus on excellence in execution, in-stock conditions, cleanliness, freshness, increased convenience, customer service and local marketing. In the medium term, we will focus on Market Renewal in key markets. At Hannaford, the Festival Strategy will evolve in response to shifting customer needs, as this strategy is founded on the principle of listening to consumers and anticipating their needs.

On March 15, 2004, the Company reached an agreement with The United Food & Commercial Workers International Union (the “UFCW”) providing that the UFCW will end its “corporate campaign” against the Company. The agreement additionally resolves all outstanding disputes between the UFCW and the Company, including all litigation.

Critical Accounting Policies

We have chosen accounting policies we believe are appropriate to accurately and fairly report our operating results and financial position and we apply these accounting policies in a consistent manner. The significant accounting policies are summarized in Note 1 to the consolidated financial statements.

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The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants, lawyers and actuaries to assist in our evaluation. We believe the following accounting policies are the most critical because they involve the most significant judgments and estimates used in preparation of our consolidated financial statements.

Asset impairment - During 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which is effective for financial statements issued for years beginning after December 15, 2001. In accordance with SFAS No. 144, we periodically evaluate the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. We monitor the carrying value of our retail stores, our lowest level asset group for which identifiable cash flows are independent of other groups of assets and liabilities, for potential impairment based on projected undiscounted future cash flows. If impairment is identified for retail stores, we compare the asset group’s estimated fair value to its current carrying value and record provisions for impairment as appropriate. With respect to owned property and equipment associated with closed stores, the value of the property and equipment is adjusted to reflect recoverable values based on our previous experience in disposing of similar assets and current economic conditions.

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

Goodwill and other intangible assets — On December 30, 2001, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, which required that we cease amortizing goodwill and other intangible assets with indefinite lives, and begin an annual assessment of potential impairment of goodwill and other indefinite lived intangible assets by comparing the book value of these assets to their current fair value. Fair value is estimated based on discounted cash flow projections provided by reporting unit management. When the carrying value of the reporting unit exceeds its fair value, a provision for impairment is recorded. We conduct an annual impairment assessment in the fourth quarter of each year in accordance with SFAS No. 142.

The evaluation of goodwill and intangibles with indefinite useful lives for impairment requires management to use significant judgments and estimates including, but not limited to, projected future revenue, cash flows and discount rates. We believe that, based on current conditions, materially different reported results are not likely to result from goodwill and intangible impairments. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different reported results.

Inventories- Inventories are stated at the lower of cost or market. Inventories valued using the last-in, first out (LIFO) method comprised approximately 78% and 80% of inventories, in 2003 and 2002, respectively. Meat, produce and deli-bakery inventories are valued on the average cost method rather than the LIFO method. We evaluate inventory shrinkage throughout the year based on actual physical counts in our stores and distribution centers and record adjustments based on the results of these counts to provide for the estimated shrinkage as of the balance sheet date.

Supplier Allowances- The Company receives allowances and credits from suppliers primarily for volume incentives, new product introductions, in-store promotion income and co-operative advertising income. Volume incentives are based on contractual arrangements generally covering a period of one year or less and have been historically included in the cost of inventory and recognized as earned in cost of sales when the product is sold. New product introduction allowances compensate the Company for costs incurred associated with product handling and have been historically deferred and recognized as a reduction in cost of sales over the product introductory period. Non-refundable credits from suppliers for in-store promotions such as product displays require related activities by the Company. Similarly, co-operative advertising requires the Company to conduct the related advertising. In-store promotions income and co-operative advertising income have historically been included in cost of sales and recognized when the related activities are performed by the Company.

In 2003, upon the adoption of Emerging Issues Task Force (EITF) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor”, in-store promotion and co-operative advertising allowances are now included in cost of inventory and recognized when the product is sold unless they represent reimbursement of a specific, identifiable cost incurred by the Company to sell the vendor’s product. The Company has reviewed the promotional funding received from vendors and concluded that these agreements are primarily for general advertising purposes and not the reimbursement of a specific, identifiable cost incurred by the Company.

Upon adoption of EITF 02-16 in 2003, the Company recorded the cumulative effect of a change in accounting principle of $10.9 million, net of tax during the first quarter of 2003. This charge was recorded in the Company’s consolidated statement of income (loss) and reflects an adjustment of the Company’s inventory balance.

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

Self-insurance- We are self-insured for workers’ compensation, general liability, vehicle accident and druggist claims. The self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. Maximum self-insured retention, including defense costs per occurrence, ranges from $0.5 million to $1.0 million per individual claim for workers’ compensation and $3.0 million for automobile liability and general liability with a $2.0 million and a $5.0 million deductible in addition to the retention on the excess policy for automobile liability and druggists, respectively. We are insured for covered costs, including defense costs, in excess of these retentions and deductibles. The significant assumptions used in the development of the actuarial estimates are grounded upon our historical claims data, including the average monthly claims and the average lag time between incurrence and payment.

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The actuarial estimates are subject to a high degree of uncertainty from various sources, including changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although the Company believes that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Company’s self-insurance obligations and future expense.

Store closing reserves- We provide for closed store liabilities relating to the estimated post-closing lease liabilities and related other exit costs associated with store closing commitments. 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. We estimate the lease liabilities net of sublease income, using a discount rate based on the current treasury note rates adjusted for our current credit spread to calculate the present value of the remaining rent payments on closed stores. Other exit costs include estimated real estate taxes, common area maintenance, and insurance costs to be incurred after the store closes (all of which are contractually required payments under the lease agreements) over the remaining lease term. Store closings are generally completed within one year after the decision to close. Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess store closing liability remaining upon settlement of the obligation is reversed in the period that such settlement is determined.

Inventory write-downs, if any, in connection with store closings, are classified in cost of sales. Costs to transfer inventory and equipment from closed stores are expensed as incurred. When severance costs are incurred in connection with store closings, a liability for the termination benefits is recognized and measured at its fair value at the communication date. Store closing liabilities are reviewed quarterly to ensure that any accrued amounts appropriately reflect the outstanding commitments and that any additional costs are accrued or amounts that are no longer needed for their originally intended purpose are reversed.

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

Results of Operation

On October 27, 2003, we completed our acquisition of 43 Harveys stores, located in central and south Georgia and the Tallahassee Florida area. The acquisition included the Harveys corporate headquarters building and warehouse in Nashville, Georgia. To acquire the Harveys stores, the Company paid approximately $28.4 million in cash and assumed approximately $16.6 million in accounts payable and other short-

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term liabilities associated with the operation of Harveys. The Company also purchased $2.0 million in additional inventory from the seller in connection with the seller’s exercise of an inventory put option agreement. The financial information discussed in the remaining discussion and analysis of our financial condition and results of operation includes the results of Harveys for the ten weeks beginning October 26, 2003 and ending January 3, 2004.

On April 25, 2001, the Company and Delhaize Group completed a share exchange, whereby each outstanding share of the Company’s Class A and Class B common stock not already owned by Delhaize Group or its wholly-owned subsidiary, Delhaize The Lion America, Inc. (“Detla”), was exchanged for 0.40 Delhaize Group American Depositary Shares (“ADSs”), which are listed on the New York Stock Exchange, or, at the option of a Delhaize America shareholder, 0.40 Delhaize Group ordinary shares, which are listed on Euronext Brussels. We became a wholly-owned subsidiary of Delhaize Group as a result of the Delhaize Group share exchange. The Delhaize Group share exchange was accounted for using the purchase method of accounting. Effective as of the end of our April 28, 2001 fiscal period, we recorded adjustments to reflect the accounting basis of Delhaize Group in our financial statements (Note 2 of the Company’s Consolidated Financial Statements). In connection with the recording of Delhaize Group’s accounting basis, a new entity has been deemed to be created for financial reporting purposes. Accordingly, the periods prior to the date of the Delhaize Group share exchange relate to the “predecessor company”, and the periods subsequent to the date of the Delhaize Group share exchange relate to the “successor company.” The results of the predecessor company and the successor company have been combined for the 2001 fiscal year ended December 29, 2001, since separate discussions of the 17 weeks ended April 28, 2001 and the 35 week period between April 29, 2001 and December 29, 2001 are not meaningful in terms of their operating results or comparisons to the prior period. The following table sets forth the consolidated statements of income (loss) for the fiscal years ended January 3, 2004, December 28, 2002 and December 29, 2001.

Note: Cost of goods sold includes an initial $87.3 million (0.56% of sales) charge in fiscal 2003 related to the conversion in inventory accounting from the retail method to the average item cost method at the Food Lion and Kash n’ Karry banners. The cumulative effects of changes in accounting principle are discussed below (see Note 19 of the Company’s Consolidated Financial Statements for further discussion).

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The following table sets forth, for the periods indicated, the percentage at which the listed amounts bear to net sales and other revenues:

Note: Cost of goods sold includes an initial $87.3 million (0.56% of sales) charge in fiscal 2003 related to the conversion in inventory accounting from the retail method to the average item cost method at the Food Lion and Kash n’ Karry banners. The cumulative effects of changes in accounting principle are discussed below (see Note 19 of the Company’s Consolidated Financial Statements for further discussion).

Sales

We record revenues primarily from the sale of products in our retail stores. Net sales and other revenues were $15.6 billion for the year ended January 3, 2004 compared to $14.9 billion for the year ended December 28, 2002, an increase of 4.58%. Of this increase, 2.12% resulted from the extra week of sales, 53 weeks in 2003 compared with 52 weeks in 2002, and from the acquisition of the 43 Harveys stores during the fourth quarter. During fiscal 2003, we had a net increase of 30 store openings, and we remodeled 94 stores. Comparable store sales increased 0.6% during 2003 over the comparable period in 2002. Sales in 2003 have been positively impacted by a continued focus on operational excellence at Food Lion and the continued strength of Hannaford’s Festival Strategy. The sales momentum during the 53 weeks of 2003 was achieved despite the impact of soft economic conditions and continued competitive activity in the Company’s major operating areas. Most of our stores are located in the southeast region of the United States, which during most of 2003, experienced corporate layoffs, continued unemployment, and generally soft economic conditions.

We continue to see an increase in competitive activity as a greater number of retailers battle for the consumers’ dollars. During 2003, we experienced 104 net competitive openings in our operating area - increasing the amount of grocery square footage available to consumers. In

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addition, many competitors continued to invest heavily in promotional spending in the form of aggressive advertised pricing, buy one and get one or two free offers, double and triple couponing and other aggressive pricing strategies.

At the end of fiscal 2003, we operated 1,515 stores, which consisted of 1,213 stores operating under the Food Lion banner, 122 stores operating under the Hannaford banner (the remaining 11 Shop n’ Save stores at the end of 2002 converted to the Hannaford banner as of September 2003), 137 stores operating under the Kash n’ Karry banner, and 43 stores under the Harveys banner. During 2003, we opened 36 new stores, including 31 Food Lion stores, four Hannaford stores, one Kash n’ Karry store, and acquired 43 Harveys stores. In addition, we relocated two Food Lion stores and one Hannaford store, and closed 44 Food Lion stores and two Kash n’ Karry stores, resulting in a net increase of 30 stores. During 2003, we also remodeled 94 stores, including 79 Food Lion stores (of which 68 stores were remodeled with the Market Renewal), eight Hannaford stores, and seven Kash n’ Karry stores. Retail store square footage totaled 55.5 million square feet at January 3, 2004, resulting in a 1.6% increase over fiscal 2002.

We continue to deliver low prices through our MVP and PCC customer loyalty card programs at Food Lion and Kash n’ Karry stores. These programs provide customers with additional discounts on a selection of featured items. At the end of 2003, the MVP customer loyalty card program accounted for approximately 77% of sales dollars and 62% of all transactions at Food Lion stores. More than 8.7 million households used a MVP card within the last quarter of fiscal 2003. At the end of 2003, the PCC loyalty card program accounted for approximately 55% of sales dollars and 48% of all transactions at Kash n’ Karry stores. Kash n’ Karry has currently issued more than 1.3 million PCC cards. We have used information from transactions that are processed using the loyalty cards to confidentially offer meaningful targeted promotion and direct mail programs exclusively to MVP and PCC card customers.

Net sales and other revenues were $14.9 billion in fiscal 2002, compared to $14.7 billion in fiscal 2001, resulting in an annual increase of 0.97%. During fiscal 2002, we had a net increase of 26 new store openings and we remodeled 127 stores. Comparable store sales decreased 1.0% during 2002 over the comparable period in 2001. While sales at Hannaford evolved favorably during 2002, Food Lion and Kash n’ Karry posted weaker sales. Sales performance during 2002 at these two banners was negatively impacted by soft economic conditions and heightened competitive activity in the company’s major operating areas.

At the end of fiscal 2002, we operated 1,485 stores, which consisted of 1,228 stores operating under the Food Lion banner, 119 stores operating under the Hannaford of which 11 were under the Shop n’ Save banners and 138 stores operating under the Kash n’ Karry banner. During 2002 we opened 41 new stores, including 32 Food Lion stores, five Hannaford stores and four Kash n’ Karry stores. In addition, we also remodeled 127 stores in 2002 including 105 Food Lion stores, five Hannaford stores and 17 Kash n’ Karry stores. During 2002 we relocated seven Food Lion stores and one Kash n’ Karry store, and closed four Food Lion stores and three Kash n’ Karry stores, resulting in a net increase of 26 stores. Retail store square footage totaled 54.7 million square feet at December 28, 2002, resulting in a 2.5% increase over fiscal 2001.

To protect our future profitability and to strengthen our competitive position in the current challenging retail environment, 34 underperforming Kash n’ Karry stores were closed in the first quarter of fiscal 2004. We expect these 34 store closings to have a positive impact on our Company’s ongoing operational results. Pre-tax expenses associated with these store closings will be approximately $86 million to be recorded in the first quarter of 2004 in accordance with the provisions of SFAS No. 144 and 146.

In 2004, we plan to open approximately 58 new stores, which includes ten stores that will convert from the Food Lion banner to the Harveys banner. During fiscal 2004, we also intend to relocate seven stores and close approximately 45 stores, which includes the 34 Kash n’ Karry stores discussed above and the ten Food Lion stores that will convert to the Harveys banner, which will result in 3 net store openings in 2004. In addition, corporate growth plans for 2004 include remodeling and/or expanding approximately 111 existing stores. We believe this growth plan will position us to maintain market leadership in a majority of our primary operating markets. In addition, our on-going review and evaluation of our store base may lead to decisions to close stores to take advantage of relocation opportunities or eliminate operating losses in underperforming stores in an effort to maximize company performance. Most importantly, our growth strategy will remain flexible and responsive to the current, future and changing needs of our retail customers.

Gross Profit

Gross profit as a percentage of sales was 24.70% for the year ended January 3, 2004, compared to 25.86% for the same period last year. Gross

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margin comparisons with last year are negatively impacted by the Company’s store inventory accounting change from the retail method to the average item cost method. The effect of the change on the December 28, 2002 inventory valuation resulted in a decrease in inventory of $87.3 million at the beginning of the year with a corresponding increase to cost of goods sold. In comparison with 2002 and excluding the initial $87.3 million charge, the impact of changing from the retail method to the average item cost method resulted in an $8.5 million increase in cost of sales in fiscal year 2003.

Also, gross profit for fiscal 2003 was negatively affected by the impact of Hurricane Isabel, which resulted in product losses of $14.3 million, 0.09% of sales, at more than 200 Food Lion stores due to power failure, mandatory evacuation and temporary store closings.

During the second quarter of 2003, we began planned price investments at our Food Lion banner that positively impacted sales performance and trends throughout the remainder of fiscal 2003. These planned margin investments include a combination of promotional activity and every day shelf pricing adjustments that were funded by operating cost reductions that materialized in 2003.

Gross profit as a percentage of sales was 25.86% in fiscal 2002, compared to 25.54% in fiscal 2001. Despite lower than expected sales volume in 2002, we posted a solid gross profit performance as a result of the continued implementation of zone pricing and improved private label product penetration primarily at the Food Lion banner. The change in basis of accounting related to the Delhaize Group share exchange discussed above (see Note 2 of the Company’s Consolidated Financial Statements) had no material impact on the related gross profits.

In 2002, Food Lion transitioned to an Every Day Low Cost (EDLC) program in order to more efficiently and effectively manage the business. EDLC is not a promotional strategy but is a program that impacts the everyday cost of each item. This program factors vendor promotional dollars into the everyday cost of goods through a discount provided by the vendors off the list price on the invoice, which is reflected as a reduction of inventory balances and ultimately lower cost of goods sold when the inventory is sold. EDLC supports more effective promotional plans, which in turn, allows us to deliver the best value to our customers.

Selling and Administrative Expenses

Selling and administrative expenses (which include depreciation and amortization) were 20.17% of sales in fiscal 2003 compared to 20.80% in fiscal year 2002. Excluding depreciation and amortization, selling and administrative expenses as a percentage of sales were 17.22% for the year ended January 3, 2004, compared to 17.72% for the year ended December 28, 2002. The decrease in selling and administrative expenses (excluding depreciation and amortization) in fiscal 2003 is primarily due to decreases in store labor costs as a result of productivity and operational improvements, lower retirement plan expense as a result of changes in plan provisions for Food Lion and Kash n’ Karry and the impact of Food Lion’s cost reduction and corporate support streamlining efforts during 2003. An additional decrease in selling and administrative expenses in fiscal 2003 as compared to last year is due to a decrease in the asset impairment provision.

The above decreases in selling and administrative expenses in fiscal 2003 were offset by an impairment of $8.0 million on our investment in the Worldwide Retail Exchange, LLC,“WWRE”, recorded in the fourth quarter of 2003. As a founding member of WWRE, we have an ownership share of 5.5555% and recorded our investment of $9.5 million under the cost method. We continue to participate and support the development of WWRE’s business plan initiatives, and we expect to benefit from the use of WWRE’s service offering; however, we do not expect the return to shareholders of WWRE to recover the carrying value of investment. Therefore, we compared the carrying value of our investment to a recoverable value developed through a discounted cash flow analysis based on WWRE’s business model and recorded the impairment of $8.0 million in fiscal 2003.

Selling and administrative expenses (which include depreciation and amortization) as a percentage of sales were 20.80% in fiscal 2002 and 20.80% in fiscal 2001. Excluding depreciation and amortization, selling and administrative expenses as a percentage of sales were 17.72% and 17.12% for fiscal 2002 and fiscal 2001, respectively. During fiscal 2002, selling and administrative expenses were negatively impacted by increased store labor costs to support improved customer service at all banners, increased self-insurance costs due to an adjustment of $7.8 million necessary to meet the annual actuarial estimates and charges related to the reorganization of the Company’s senior management

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team during the quarter ended September 28, 2002, offset by lower medical costs due to changes in medical plan benefit provisions. An additional increase in selling and administrative expenses in 2002 is due to the increase in the asset impairment provision as compared to 2001.

Depreciation and amortization as a percentage of sales was 2.95% in fiscal 2003 compared to 3.08% in fiscal 2002. The decrease in depreciation and amortization for the fiscal year 2003 compared to the corresponding prior year is due to lower capital expenditures this year, partially as a result of construction delays related to prolonged rain and related weather conditions along the east coast of the United States during the spring of 2003, and as a result of our management of capital spending to support the generation of free cash flow and debt reduction.

Depreciation and amortization as a percentage of sales was 3.08% in fiscal 2002 compared to 3.68% in fiscal 2001. During 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, effective December 31, 2001. As a result, we no longer amortize goodwill and intangible assets with indefinite lives. In fiscal 2001, depreciation and amortization was further impacted by the revaluation performed in conjunction with the Delhaize Group share exchange (see Note 2 of the Company’s Consolidated Financial Statements). Excluding the impact of the discontinuance of goodwill and indefinite lived intangibles amortization and the effects of additional depreciation and amortization resulting from the revaluation process, depreciation and amortization would have been approximately $492.8 million or (3.31% of sales) during 2002.

Asset Impairment

During 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, effective December 31, 2001. Under SFAS No. 142, the Company is required to cease amortizing goodwill and other intangible assets with indefinite lives and begin an annual assessment of goodwill and other intangibles with indefinite lives by comparing the book value of these assets to their current fair value. The Company’s transitional impairment analysis (required upon adoption of the standard) resulted in an impairment charge totaling $288 million before tax ($284 million after tax) which was recorded in the first quarter of 2002 as a cumulative effect of a change in accounting principle on the Company’s Statement of Income (Loss) (see Note 4 of the Company’s Consolidated Financial Statements). This impairment charge relates primarily to goodwill associated with the Delhaize Group share exchange and with the Company’s acquisitions of Kash n’ Karry and Hannaford. In addition, this impairment, including the fourth quarter of 2002 reduction in intangible values noted below at the Kash n’ Karry banner, is due to Kash n’ Karry’s recent and projected operating performance. The Florida market, where Kash n’ Karry is concentrated, is one of the most competitive markets in the southeast region. In addition, this market experienced the impact of security concerns and economic pressures, which continued to negatively impact temporary residence and tourism in the state. The Hannaford banner carries a significant goodwill balance due to the initial acquisition in 2000 and the assignment of goodwill to this banner related to the share exchange.

The Company’s policy requires that an annual impairment assessment for goodwill and other intangible assets with indefinite lives will be conducted in the fourth quarter of each year in accordance with SFAS No. 142. Goodwill is tested for impairment at the operating banners since each chain represents a separate operating segment as defined by SFAS 131 and a separate reporting unit as defined in SFAS 142. The fair value of each reporting unit is compared with its carrying value, including goodwill. The Company estimated fair value based on projected discounted cash flows provided by management of each reporting unit. Trade names for each individual operating banner were also tested for impairment by comparing its fair value with its carrying value. The fair value of trade names were estimated using revenue projections of each reporting unit and applying an estimated royalty rate developed by a third party valuation expert. The cash flows were discounted to determine the fair value of the trade names. During the fourth quarter of 2002, testing led to additional impairment loss at the Company’s Kash n’ Karry banner. As a result, the intangible values at our Kash n’ Karry banner were reduced by approximately $26.9 million during the fourth quarter of 2002. We had no impairment loss under SFAS No. 142 for fiscal 2003.

Also during 2002, we adopted, SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. During 2003, the total pre-tax asset impairment charge of $7.9 million included in our income statement in selling and administrative expenses was attributable to the book value of certain underperforming store assets that exceeded the estimated fair values associated with those store assets in accordance with SFAS No. 144. We had no impairment charge as a result of our impairment analysis review performed during 2002. In 2001, we recorded an asset impairment charge of $7.0 million in accordance with SFAS No. 121.

In accordance with SFAS No. 144, we periodically evaluate the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. We monitor the carrying value of our retail stores, our lowest level asset group for which identifiable cash flows are independent of other groups of assets and liabilities for potential impairment based on projected undiscounted future cash flows. If impairment is identified for retail stores, we compare the asset group’s estimated fair value to its

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current carrying value and record provisions for impairment as appropriate. With respect to owned property and equipment associated with closed stores, the value of the property and equipment is adjusted to reflect recoverable values based on our previous experience in disposing of similar assets and current economic conditions. The carrying value of assets to be disposed amounted to approximately $21.8 million, $21.1 million and $42.4 million at January 3, 2004, December 28, 2002, and December 29, 2001, respectively. At January 3, 2004, under the guidance of SFAS No. 144, these assets were classified as held for use because they did not meet the probability of sale within the one year period criteria.

Merger Expenses

Merger expenses for fiscal 2001 consisted principally of the amortization of costs incurred in connection with the borrowings related to the Hannaford acquisition. This expense in fiscal 2001 also included costs incurred in connection with the Delhaize Group share exchange, including an $11.7 million charge to compensation expense related to the exchange of our stock options for Delhaize Group options.

Interest Expense

Interest expense decreased in fiscal 2003 over fiscal 2002 primarily due to the interest reduction from the interest rate swap agreements and the repurchase in fiscal 2002 of $68.975 million in debentures and other borrowings. Interest expense decreased in fiscal 2002 over 2001 primarily due to the interest reduction from the interest rate swap agreements, the repurchase in fiscal 2002 of $68.975 million in debentures and other borrowings as well as reduced short-term borrowings. Interest expense was further impacted by the purchase price allocation performed in conjunction with the Delhaize Group share exchange. Excluding the impact of the share exchange, interest expense would have been approximately $343.6 million or (2.31% of sales) for fiscal 2002.

LIFO

Our inventories are stated at the lower of cost or market and we value approximately 78% of our inventory using the last-in, first-out, or LIFO method.

Our LIFO reserve increased $1.8 million in 2003, decreased $32.8 million in 2002 and increased $1.5 million in 2001. The increase in 2003 is due primarily to inflation in our prescription drug category. Our LIFO reserve decreased $32.8 million in 2002 primarily as a result of the new Every Day Low Cost (EDLC) program discussed below. Although inventory levels from 2000 to 2001 decreased approximately $100.0 million (excluding purchase accounting adjustments), we experienced slight inflation, which resulted in a charge to cost of sales of $1.5 million. Most of this inflation in 2001 occurred in tobacco and dairy products.

In 2002, Food Lion transitioned to an EDLC program in order to more efficiently and effectively manage its business. EDLC is not a promotional strategy, but is a program that impacts the everyday cost of each item. This program factors vendor promotional dollars into the everyday cost of goods through a discount provided by the vendors off the list price on the invoice, which is reflected as a reduction of inventory balances and ultimately lowers cost of goods sold when the inventory is sold. EDLC supports more effective promotional plans, which in turn, allows us to deliver the best value to our customers. This new EDLC program and its impact on cost is the primary cause of the $32.8 million decrease in our LIFO reserve during fiscal 2002.

Discontinued Operations

The Company closed 44 underperforming Food Lion and Kash n’ Karry stores during fiscal 2003, of which 42 were closed during first quarter of 2003, one was closed during second quarter of 2003 and one was closed during the fourth quarter of 2003. In accordance with the provisions of SFAS No. 144, a portion of the costs associated with the closure of these stores, as well as related operating activity prior to closing for these

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stores, was recorded in “Loss from discontinued operations, net of tax” in the Company’s Consolidated Statement of Income (Loss).

Income Taxes

Our effective tax rate increased in fiscal 2003 from fiscal 2002 due primarily to increased state audit activity. The effective tax rate decreased in fiscal 2002 from fiscal 2001 due to the discontinuance of non-deductible goodwill amortization in accordance with SFAS No. 142.

Liquidity and Capital Resources

We have funded our operations and acquisitions from cash generated from our operations and borrowings.

At the end of fiscal 2003, we had cash and cash equivalents of $313.6 million. We have historically generated positive cash flow from operations. Cash provided by operating activities was $739.1 million in fiscal 2003, compared to $848.4 million in 2002 and $784.2 million in 2001. The decrease in cash provided by operating activities in fiscal 2003 in comparison with fiscal 2002 was primarily due to an increase in income taxes paid — $213.0 million compared to $98.9 million for fiscal 2003 and 2002, respectively. Higher tax payments in fiscal 2003 relate primarily to deferred tax movement associated with the charge recorded to change inventory methods, a lower level of tax deductions in 2003 compared to 2002 which included a detailed asset review project for tax purposes, state audit payments related to prior years, and a federal tax payment made upon filing our 2002 tax return in 2003. Also impacting cash flow from operating activities was a decrease in accounts payable and accrued expenses. These decreases were offset by an increase in income before the cumulative effect of changes in accounting principle and change in accounting method and a decrease in inventory (excluding the impact of the accounting change — Note 19) due primarily to the closing of 44 underperforming stores this year. The increase in cash provided by operating activities in 2002 was due to income of $251.7 million before cumulative effect of change in accounting principle, increases in accounts payable of $68.5 million, decreases in receivables of $60.4 million offset by increases in inventory of $101.4 million. Additional increase in cash flow from operating activities in 2002 was due to the one-time reinsurance payment made in 2001. In fiscal 2001, during the third quarter, we transferred our life-to-date loss reserves and premiums for workers’ compensation and general liability to the Pride Reinsurance Company, wholly owned by an affiliated company of Delhaize Group. The cash flow from operating activities in 2001 was primarily due to a collection of an income tax receivable of $74.0 million, a reduction of receivables and inventory of $106.2 million (excluding purchase accounting adjustments), increased income before non-cash charges offset by a decrease in accounts payable of $68.8 million.

Cash flows used in investing activities were decreased to $406.5 million in fiscal 2003, compared to $472.1 million in fiscal 2002 and $379.1 million in fiscal 2001. The decrease in investing activities from fiscal 2002 to fiscal 2003 is primarily due to the decrease in capital expenditures, partially offset by the acquisition of Harveys in 2003. The decrease in capital expenditures is attributable to fewer store openings in 2003 partially as a result of construction delays related to prolonged rain and related weather conditions along the east coast of the United States during the spring of 2003, and as a result of the Company’s management of capital spending to support the generation of free cash flow and debt reduction. The increase in investing activities from fiscal 2001 to fiscal 2002 is primarily due to an increase in capital expenditures.

Capital expenditures were $379.5 million in fiscal 2003 compared to $485.0 million in fiscal 2002 and $394.8 million in fiscal 2001. During fiscal 2003, we opened 36 new stores and renovated 94 existing stores. During fiscal 2002, we opened 41 new stores and renovated 127 existing stores. During fiscal 2001, we opened 47 new stores and renovated 145 existing stores.

Total store square footage increased 1.6% from 54.7 million at the end of fiscal 2002 to 55.5 million at the end of fiscal 2003, primarily due to

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the opening of 36 new stores, the acquisition of 43 Harveys stores offset by the 46 stores closed in fiscal 2003. Total store square footage increased 2.5% from 53.3 million square feet at the end of fiscal 2001 to 54.7 million at the end of fiscal 2002, primarily due to the opening of 41 new stores. Our total operating distribution space was 10.2 million square feet at the end of fiscal 2003 and 9.5 million square feet at the end of fiscal 2002 and 2001.

In fiscal 2004, we plan to incur approximately $450 million of capital expenditures. We plan to finance capital expenditures during fiscal 2004 through funds generated from operations and existing bank facilities and through use of leases when necessary.

Cash used in financing activities was $150.7 million in fiscal 2003 compared to $381.8 million in fiscal 2002 and $403.6 million in fiscal 2001. The decrease in cash used in financing activities from fiscal 2002 to fiscal 2003 was primarily the result of short-term borrowings repaid in 2002 and a dividend payment in fiscal 2002 of $86.0 million, offset partially by the commitment of escrow funds for the senior notes at Hannaford during the third quarter of 2003 (see discussion below in Debt). The decrease in cash used in financing activities from fiscal 2001 to fiscal 2002 was primarily the result of a cash settlement on April 19, 2001 for the hedge contracts related to the $2.6 billion bond offering used as long-term financing for the Hannaford acquisition. In addition, we made a dividend payment of $86.0 million in 2002 compared to $28.6 million in 2001.

Debt

We maintain a revolving credit facility with a syndicate of commercial banks providing $350.0 million in committed lines of credit. In December 2002, the credit facility was amended and the line of credit was reduced from $500.0 million to $350.0 million. The credit facility is secured by certain inventory of the Delhaize America operating subsidiaries. The $350.0 million facility expires in July 2005 and contains affirmative and negative covenants. Negative covenants include a minimum fixed charge coverage ratio, a maximum leverage ratio, and an asset coverage ratio. We must be in compliance with these covenants in order to have access to the credit facility. As of January 3, 2004, we were in compliance with all covenants contained in the credit facility. A deteriorating economic or operating environment can subject us to a risk of non-compliance with the covenants. We had no outstanding borrowings under this facility as of January 3, 2004, and had no borrowings during 2003. During 2002, we had average borrowings of $4.7 million at a daily weighted average interest rate of 3.19%. This facility is utilized to provide short-term capital to meet liquidity needs as necessary.

At January 3, 2004, we had long—term debt as follows:

(a) Net of associated discount and premium

Debt Guarantees

The wholly-owned direct subsidiaries named below fully and unconditionally and jointly and severally guarantee Delhaize America’s 7.375% notes due 2006, 8.125% notes due 2011 and 9.000% debentures due 2031.

	•		Food Lion, LLC is a North Carolina limited liability company that operates substantially all of the Company’s Food Lion stores. Food Lion’s executive offices are located at 2110 Executive Drive, Salisbury, North Carolina 28145-1330.
	•		Hannaford Bros. Co. is a Maine corporation that operates substantially all of the Company’s Hannaford’s stores. Hannaford’s executive offices are located at 145 Pleasant Hill Road, Scarborough, Maine 04074.

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	•		Kash n’ Karry Food Stores, Inc. is a Delaware corporation that operates all the Company’s Kash n’ Karry stores. Kash n’ Karry executive offices are located at 6401 Harney Road, Suite A, Tampa, Florida 33610.
	•		J.H. Harvey Co., LLC is a Georgia limited liability company that operates all of the Company’s Harveys stores. Harveys executive offices are located at 727 S. Davis St., Nashville, Georgia 31639.

In October 2003, our Hannaford banner invoked the defeasance provisions of its outstanding 7.41% Senior Notes due February 15, 2009, 8.54% Senior Notes due November 15, 2004, 6.50% Senior Notes due May 15, 2008, 6.58% Senior Notes due February 15, 2011, 7.06% Senior Notes due May 15, 2016 and 6.31% Senior Notes due May 15, 2008 (collectively, the “Notes”) and placed sufficient funds in an escrow account to satisfy the remaining principal and interest payments due on the Notes. As a result of this defeasance, Hannaford is no longer subject to the negative covenants contained in the agreements governing these notes. As of January 3, 2004, $73.8 million in aggregate principal amount of these notes was outstanding. Cash committed to fund the escrow and not available for general corporate purposes is considered restricted. At January 3, 2004, restricted funds of $9.9 million and $74.4 million are recorded in Current Other Assets and Non-current Other Assets, respectively.

During the last half of 2002, we repurchased $45 million of our $900 million 9.00% debentures and $23.975 million of our 8.05% debt securities resulting in $8.1 million gain from the early extinguishment of debt offset by expenses of $1.7 million for the related unamortized debt issuance costs and discount written off. Net other loss from extinguishment of debt included $1.5 million loss for the related hedge loss written off. We elected early adoption of SFAS No.145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB statement No. 13, and Technical Corrections”, and applied the provisions to our early extinguishment of debt activity during fiscal 2002 (see Note 7 of the Company’s Consolidated Financial Statements for further discussion).

On December 12, 2001, we were granted a term loan facility by Delhaize the Lion Coordination Center S.A., a Belgian company wholly-owned by Delhaize Group, in the amount of $38.0 million intended for general corporate and working capital requirements. On September 19, 2002, we repaid the $38.0 million loan plus accrued interest totaling $1.1 million.

We enter into significant leasing obligations related to our store properties. Capital lease obligations outstanding at the end of fiscal 2003 were $721.5 million compared with $730.9 million at the end of fiscal 2002. These leases generally have terms of up to 25 years. We also had significant operating lease commitments at the end of fiscal 2003. Total annual minimum operating lease commitments are approximately $246.9 million in fiscal 2004, including approximately $214.9 million related to open store properties and $32.0 million related to closed store properties, decreasing gradually to approximately $206.5 million in 2008, including approximately $179.9 million related to open store properties and $26.6 million related to closed store properties.

As set forth in the table below, we also have periodic short-term borrowings under informal credit arrangements that are available to us at the lenders’ discretion.

Market Risk

Our company is exposed to changes in interest rates primarily as a result of our long-term debt requirements. Our interest rate risk management objectives are to limit the effect of interest rate changes on earnings and cash flows and to lower overall borrowing costs. We maintain certain variable-rate debt to take advantage of lower relative interest rates currently available. We have not entered into any of our financial instruments for trading purposes.

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During the fourth quarter of 2001 and the third quarter of 2002, we entered into interest rate swap agreements, effectively converting a portion of our debt from fixed to variable rates. Maturity dates of interest rate swap arrangements match those of the underlying debt. These agreements involve the exchange of fixed rate payments for variable rate payments without the exchange of the underlying principal amounts. Variable rates for our agreements are based on six-month or three-month U.S. dollar LIBOR and are reset on a semiannual basis or quarterly basis. The differential between fixed and variable rates to be paid or received is accrued as interest rates change in accordance with the agreements and recognized over the life of the agreements as an adjustment to interest expense. On December 30, 2003, we terminated $100 million of the 2011 interest rate swap arrangements. The notional principal amounts of interest rate swap arrangements as of January 3, 2004 were $300 million maturing in 2006 and $100 million maturing in 2011. These agreements met the criteria for using the short-cut method, which assumes 100% hedge effectiveness, as prescribed by SFAS No. 133. We have recorded a derivative asset in connection with these agreements in the amount of $19.5 million and $24.0 million at January 3, 2004 and December 28, 2002, respectively recorded in our Consolidated Balance Sheets in Other Assets.

Prior to the offering of the bonds and debentures on April 19, 2001, “original debt securities”, we entered into interest rate hedge agreements to hedge against potential increases in interest rates. The notional amount of these hedge agreements was $1.75 billion. These 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 related securities. These hedge agreements were settled in connection with the completion of the offering of the original debt securities, resulting in a payment in the amount of an unrealized loss of approximately $214 million in 2001. As a result of the adoption of Statement of Accounting Standards No. 133 at the beginning of fiscal 2001, the unrealized loss was recorded in other comprehensive income (loss), net of taxes, and is being amortized to interest expense over the term of the associated debt securities. The unrealized loss was reduced as of the date of the Delhaize Group share exchange as a result of the application of purchase accounting. The remaining unrealized loss net of taxes at January 3, 2004 and December 28, 2002 was $44.3 million and $49.5 million, respectively.

The table set forth below provides the expected principal payments and related interest rates of our long-term debt by fiscal year of maturity as of January 3, 2004.

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(a) $300.0 million notional amount was swapped for a variable interest rate based on a six-month or three-month U.S. dollar LIBOR reset on a semiannual or a quarterly basis. The carrying value of these notes was increased by $13.0 million at January 3, 2004, to reflect the fair value of the interest rate swap.

(b) $100.0 million notional amount was swapped for a variable interest rate based on a six-month or three-month U.S. dollar LIBOR reset on a semiannual or a quarterly basis. The carrying value of these notes was increased by $1.0 million at January 3, 2004, to reflect the fair value of the interest rate swap.

(c) See Note 7 of the Company’s Consolidated Financial Statements for Hannaford defeasance discussion.

We do not trade in foreign markets or in commodities, nor do we have significant concentrations of credit risk. Accordingly, we do not believe that foreign exchange risk, commodity risk or credit risk pose a significant threat to our company.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of January 3, 2004:

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

Self-Insurance

We are self-insured for workers’ compensation, general liability, vehicle accident and druggist claims. The self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. Maximum self-insured retention, including defense costs per occurrence, ranges from $0.5 million to $1.0 million per individual claim for workers’ compensation and $3.0 million for automobile liability and general liability, including druggist liability, with a $2.0 million and a $5.0 million deductible in addition to the retention on the excess policy for automobile liability and druggists, respectively. We are insured for covered costs, including defense costs, in excess of these retentions and deductibles. It is possible that the final resolution of some of these claims may require us to make significant expenditures in excess of our existing reserves over an extended period of time and in a range of amounts that cannot be reasonably estimated.

In the fourth quarter of 2003, we renegotiated our property insurance lowering our self-insured retention per occurrence to $5.0 million for named storms and $2.5 million for all other losses. Prior to the renewal, the amount of the deductible for each named storm occurrence as insured was calculated as five percent of the total insured value at all locations where physical loss or damage occurred. In fiscal 2003, we incurred property loss of $16.9 million (which includes a $14.3 million loss of inventory) related to Hurricane Isabel.

We implemented a captive insurance program in fiscal 2001 pursuant to which the self-insured reserves related to workers’ compensation, general liability and auto coverage were reinsured by Pride Reinsurance Company, an Irish reinsurance captive, owned by an affiliated company of Delhaize Group. The purpose for implementing the captive insurance program is to provide Delhaize Group continuing flexibility in its risk management program while providing certain excess loss protection through anticipated reinsurance contracts with Pride Reinsurance Company. Premiums are transferred annually to Pride Reinsurance Company through Delhaize Insurance Co., a subsidiary of Delhaize America, Inc.

Impact of Inflation

Some inflation was noted at all four operating companies. This was composed most significantly of meat inflation, as beef costs continue to rise in the United States. Through fiscal 2003, the Company’s reaction to the increase in beef costs has varied across geographical operating

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territories, based on unique competitive environments. In the Northeast, Hannaford has offset the increase in beef costs through retail price increases consistently throughout the year. In the southeast, Food Lion avoided significant retail price increases until late in September, absorbing the increased beef costs in lower meat gross margin. Since September, Food Lion has modified its retail price but has still not reflected full cost increases in order to retain low price leadership. Also, during fiscal 2003, we experienced slight inflation primarily due to the Company’s pharmacy operations.

During fiscal 2002, we experienced actual deflation in our cost of merchandise as a result of transitioning to an Every Day Low Cost (EDLC) program at Food Lion. EDLC is not a promotional strategy, but is a program that impacts the everyday cost of each item. This program factors vendor promotional dollars into the everyday cost of goods through a discount provided by the vendors off the list price on the invoice, which is reflected as a reduction of inventory balances and ultimately lowers cost of goods sold when the inventory is sold. EDLC supports more effective promotional plans, which in turn, allows our Company to deliver the best value to our customers. This new EDLC program and its impact on cost is the primary cause of the $32.8 million decrease in the Company’s LIFO reserve during fiscal 2002. During fiscal 2001, we experienced slight inflation on merchandise purchases of 1.09%.

Recently Issued Accounting Standards

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities”, which is an interpretation of Accounting Research Bulletin (ARB) No. 51. FIN 46 addresses consolidation by business enterprises of variable interest entities. The objective of this Interpretation is not to restrict the use of variable interest entities but to improve financial reporting by enterprises involved with variable interest entities. The FASB believes that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity should be included in consolidated financial statements with those of the business enterprise. FIN 46 applies to all newly created variable interest entities. In addition, FIN 46, as amended in December 2003 (FIN 46R), will be effective by public entities for periods ending after March 15, 2004.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information set forth beneath the heading “Market Risk” under Item 7 hereof is hereby incorporated by reference.

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Item 8. Financial Statements and Supplementary Data

Delhaize America, Inc.
Consolidated Statements of Income (Loss)

See notes to the consolidated financial statements.

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Delhaize America, Inc.
Consolidated Balance Sheets

See notes to the consolidated financial statements.

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Delhaize America, Inc.
Consolidated Statements of Cash Flows

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See notes to the consolidated financial statements.

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29

See notes to the consolidated financial statements.

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Delhaize America, Inc.
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)