UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2004

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 0-6080

DELHAIZE AMERICA, INC.

(704) 633-8250

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 registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):

Yes [  ] No [X]

Outstanding shares of common stock of the Registrant as of May 18, 2004.

Class A Common Stock – 91,270,348,481
Class B Common Stock – 75,468,935

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) and (b) OF
FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

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DELHAIZE AMERICA, INC.
INDEX TO FORM 10-Q
April 3, 2004

Unless the context otherwise requires, the terms “Delhaize America,” the “Company,” “we,” “us” and “our” refer to Delhaize America, Inc., a North Carolina corporation together with its consolidated subsidiaries.

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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 America 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 America 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 Group, 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 we believe that these statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date this quarterly report on Form 10-Q is filed with the Securities and Exchange Commission. We assume no obligation to update or revise them or provide reasons why actual results may differ. Important factors that could cause our actual results to differ materially from our expectations include, without limitation:

	•		The grocery retailing industry continues to experience fierce competition from other food retailers, supercenters, mass merchandisers, club or warehouse stores, drug stores and restaurants. Our continued success is dependent upon our ability to compete in this industry, develop and implement retailing strategies and continue to reduce operating expenses. The competitive environment may cause us to reduce our prices in order to gain or maintain share of sales, thus reducing margins. While we believe our opportunities for sustained, profitable growth are considerable, unanticipated actions of competitors could impact our sales and net income.
	•		Our future results could be adversely affected due to pricing and promotional activities of existing and new competitors, including non-traditional food retailers; our response actions; the state of the economy, including inflationary or deflationary trends in certain commodities; recessionary times in the economy; and our ability to sustain the cost reductions that we have identified and implemented.
	•		Changes in the general business and economic conditions in our operating regions, including the rate of inflation, population growth, and employment and job growth in the markets in which we operate may affect our ability to hire and train qualified employees to operate our stores. This would negatively affect earnings and sales growth. General economic changes may also affect the shopping habits of our customers, which could affect sales and earnings.
	•		Consolidation in the food industry is likely to continue and the effects on our business, favorable or unfavorable, cannot be foreseen.
	•		Our ability to integrate any companies we acquire or have acquired and achieve operating improvements at those companies will affect our financial results.
	•		Increases in the cost of inputs, such as utility costs or raw material costs, increased product costs, and increased labor and labor related (e.g., health and welfare and pension) costs could negatively impact financial ratios.
	•		Adverse weather conditions could increase the cost our suppliers charge for their products, decrease or increase the customer demand for certain products, interrupt operations at affected stores, or interrupt operations of our suppliers.
	•		We are subject to labor relations issues, including union organizing activities, that result in an increase in costs or lead to a strike, thus impairing operations and decreasing sales. We are also subject to labor relations issues at entities involved in our supply chain, including both suppliers and those involved in transportation and shipping.
	•		Changes in laws and regulations, including changes in accounting standards, taxation requirements, and environmental laws may have a material impact on our financial statements.
	•		Our future results could be adversely affected by issues affecting the food distribution and retail industry generally, such as food safety concerns, an increase in consumers eating away from home and the manner in which vendors target their promotional dollars.
	•		Our comparable store sales growth could be affected by increases or decreases in private-label sales, the impact of our new store openings, as well as competitor’s openings.

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	•		Interest expense on variable rate borrowings will vary with changes in capital markets and the amount of debt that we have outstanding. Also, although we have long-term notes payable which bear an effective fixed interest rate, the fair market value of our fixed rate long-term notes payable is sensitive to changes in interest rates. We run the risk that market rates will decline, and the required payments will exceed those based on current market rates.
	•		Our capital expenditures could differ from our estimate if we are unsuccessful in acquiring suitable sites for new stores, if development costs vary from those budgeted, or if significant projects are not completed in the time frame expected or on budget.
	•		Depreciation and amortization expenses may vary from our estimates due to the timing of new store openings.
	•		LIFO charges and credits will be affected by changes in the cost of inventory
	•		We are self-insured for workers’ compensation, general liability, vehicle accident and druggist claims. 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.
	•		Our access to capital markets on favorable terms and leasing costs could be negatively affected by credit conditions.

Other factors and assumptions not identified above could also cause actual results to differ materially from those set forth in the forward-looking information. Accordingly, actual events and results may vary significantly from those included in or contemplated or implied by forward-looking statements made by us or our representatives.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DELHAIZE AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the 13 weeks ended April 3, 2004 and March 29, 2003
(Dollars in thousands)

See notes to unaudited condensed consolidated financial statements.

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DELHAIZE AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of April 3, 2004 and January 3, 2004
(Dollars in thousands)

See notes to unaudited condensed consolidated financial statements.

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DELHAIZE AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 13 weeks ended April 3, 2004 and March 29, 2003
(Dollars in thousands)

See notes to unaudited condensed consolidated financial statements.

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Notes to Unaudited Condensed Consolidated Financial Statements

1) Basis of Presentation:

The accompanying condensed consolidated financial statements are presented in accordance with the requirements for Form 10-Q and, consequently, do not include all the disclosures normally required by generally accepted accounting principles or those normally made in the Annual Report on Form 10-K of Delhaize America,Inc. (“Delhaize America” or the “Company”). Accordingly, the reader of this Form 10-Q should refer to the Company’s Form 10-K for the year ended January 3, 2004 for further information. Reclassifications and restatements for discontinued operations have been made for all current and historical information presented herein from that contained in the Company’s prior SEC filings on Forms 10-Q and 10-K.

The financial information presented herein has been prepared in accordance with the Company’s customary accounting practices. In the opinion of management, the financial information includes all adjustments, including normal recurring items, necessary for a fair presentation of interim results.

2) Supplemental Disclosure of Cash Flow Information:

Selected cash payments and non-cash activities during the period were as follows:

3) Inventories

Inventories are stated at the lower of cost or market. Inventories valued using the last-in, first-out (LIFO) method comprised approximately 80% and 78% of inventories on April 3, 2004 and January 3, 2004, respectively. Meat, produce and deli inventories are valued on the average cost method rather than the LIFO method. If the Company did not report under the LIFO method, inventories would have been $34.9 million and $33.6 million greater as of April 3, 2004 and January 3, 2004, respectively. Application of the LIFO method resulted in increases in cost of goods sold of $1.3 million for the 13 weeks ended April 3, 2004 and no impact on cost of goods sold for the 13 weeks ended March 29, 2003. As stated in Note 10, the Company changed its application of the LIFO method of accounting for store inventories from the retail method to the average item cost method effective December 29, 2002.

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”, certain vendor allowances are recorded as a reduction of inventory. Previously, the Company recorded vendor allowances as a reduction of cost of sales when earned. This change had a timing impact on certain vendor allowances that are now an adjustment to inventory cost and recognized in cost of sales when the product is sold.

4) 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 Company performs the related activities.

In 2003, upon the adoption of EITF Issue No. 02-16, in-store promotion and co-operative advertising allowances are now recorded as a reduction in the cost of inventory and recognized in cost of sales when the product is sold unless the allowance represents the reimbursement

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of a specific, identifiable cost incurred by the Company to sell the vendor’s product. The reimbursement of specific, identifiable costs to sell a vendor’s product should be netted against the cost the Company incurs and any excess reimbursement should be included in cost of sales and inventory. The Company has reviewed the promotional funding received from vendors and concluded that these arrangements are primarily for general advertising purposes and not the reimbursement of a specific, identifiable cost incurred by the Company.

Upon adoption of EITF Issue No. 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 as a decrease in net income in the Company’s consolidated statement of income and reflects an adjustment, which decreased the Company’s opening inventory balance. The adoption effectively transfers a portion of the benefit associated with supplier allowances from cost of sales to inventory until the related product is sold.

5) Reclassification

Certain financial statement items in the prior period have been reclassified to conform to the current period’s presentation.

6) Accounting for Stock Issued to Employees

The Company participates in a stock option plan (the “Delhaize Group Plan) of its parent, Delhaize Group, which is described fully in Note 14 to the Company’s Annual Report on Form 10-K for the year ended January 3, 2004. The Company accounts for the Delhaize Group Plan under the recognition and measurement principles of Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees, and Related Interpretations”. No stock-based employee compensation cost is reflected in net income, as all options granted under the Delhaize Group Plan have an exercise price equal the market value of the underlying Delhaize Group American Depository Share stock on the date of grant. Additionally, the Company still has options outstanding under a 1996 Food Lion Plan, 1988 and 1998 Hannaford Plans and a 2000 Delhaize America Plan; however, the Company can no longer grant options under these plans.

The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”, to stock-based employee compensation.

The weighted average fair value at date of grant for options granted under the Delhaize Group Plan during the first quarter of 2004 and 2003 was $10.65 and $5.36 per option, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model based on the following assumptions:

7) Derivative Financial Instruments

During the fourth quarter of 2001 and the third quarter of 2002, the Company entered into interest rate swap agreements, effectively converting a portion of the 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 the Company’s agreements are based on six-month or three-month U.S. dollar 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. On December 30, 2003, the Company terminated $100 million of the 2011 interest rate swap arrangements. The notional principal amounts of interest rate swap arrangements at April 3, 2004 were $300 million maturing in 2006 and $100 million maturing in 2011. For the 13 weeks ended April 3, 2004 and March 29, 2003, interest expense was reduced by $3.4 million and $4.2 million, respectively, in connection with these agreements. These agreements met the criteria for using the short-cut method, which assumes 100% hedge effectiveness, as prescribed by SFAS No. 133, “Derivative Instruments

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and Hedging Activities”. The Company has recorded a derivative asset in connection with these agreements in the amount of $24.8 million and $19.5 million at April 3, 2004 and January 3, 2004, respectively, which is included in the Company’s Condensed Consolidated Balance Sheet in Other Assets.

Prior to the offering of bonds and debentures in 2001, the Company entered into interest rate agreements to hedge against potential increases in interest rates. These hedge agreements were settled in 2001 with the loss recorded in other comprehensive income (loss), net of taxes and amortized to interest expense over the term of the associated debt securities. This 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 April 3, 2004, and January 3, 2004, totaled approximately $43.0 million and $44.3 million, respectively.

8) Intangible Assets

Intangible assets are comprised of the following:

The following represents a summary of changes in gross goodwill at April 3, 2004 and fiscal 2003.

Amortization expense totaled $10.1 million for the 13 weeks ended April 3, 2004 and $9.1 million for the 13 weeks ended March 29, 2003.

The Company’s policy requires that an annual impairment assessment be conducted in the fourth quarter of each year in accordance with SFAS 142. The Company had no impairment loss for 2003.

The carrying amount of goodwill and trademarks at each of the Company’s reporting units follows:

As of April 3, 2004 and January 3, 2004, the Company’s intangible assets with finite lives consist of favorable lease rights, liquor licenses, pharmacy files, and developed software. The components of its intangible assets with finite lives are as follows:

Estimated amortization expense for intangible assets with finite lives for the five succeeding fiscal years follows:

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9) Comprehensive Income (Loss)

Comprehensive income (loss) includes net earnings and other comprehensive earnings (losses). Other comprehensive earnings (losses) include items that are currently excluded from the Company’s net income (loss) and recorded directly to shareholders’ equity. Included in other comprehensive income (loss) are unrealized losses on hedges, minimum pension liability adjustments and unrealized security holding gains. Comprehensive income was $24.9 million and $5.3 million for the 13 weeks ended April 3, 2004 and March 29, 2003, respectively.

10) Accounting Changes

In the second quarter of 2003, the Company changed its application of the LIFO method of accounting for store inventories 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 fiscal year 2003. The change was made to more accurately reflect inventory value by eliminating the estimation inherent in the retail method. The cumulative effect of this change on periods prior to December 28, 2002 cannot be determined and accordingly, the effect of this change has been included as a component of cost of sales in the condensed consolidated statement of income for the 13 weeks ended March 29, 2003.

In addition, the Company adopted EITF Issue No. 02-16 during first quarter of 2003 and recorded the cumulative effect of a change in accounting principle of $10.9 million, net of tax during the first quarter.

11) Store Closings

The following table shows the number of stores closed at the end of the first quarter of 2004:

The following table reflects closed store liabilities as of April 3, 2004 and activity during the quarter, including additions to closed store liabilities charged to operations or discontinued operations and adjustments to liabilities based on changes in facts and circumstances and payments made.

The April 3, 2004 balance of approximately $186.8 million consisted of lease liabilities and other exit cost liabilities of $155.5 million and $31.3 million, respectively and includes lease liabilities of $65.4 million and other exit costs of $9.8 million associated with discontinued operations. During the first quarter of 2004, the Company completed the closure of 35 underperforming stores, 34 Kash n’Karry stores and one Food Lion store.

The Company provided for closed store liabilities in the quarter to reflect the estimated post-closing lease liabilities and other exit costs associated with the related store closing commitments. These 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. The closed store liabilities are usually paid over the lease terms associated with the closed stores having remaining terms ranging from one to 19 years. 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

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of the obligation is reversed in the period that such settlement is determined. The Company uses a discount rate based on the current treasury note rates adjusted for the Company’s current credit spread to calculate the present value of the remaining rent payments on closed stores.

The revenues and operating results for stores closed and not relocated, with the exception of stores that have been classified as discontinued operations, are not material to the Company’s revenues and operating results for the quarter. Future cash obligations for closed store liabilities are tied principally to the remaining non-cancelable lease payments less sublease payments to be received.

12) Discontinued Operations

The Company classifies operations as discontinued if the operations and cash flows have been eliminated from ongoing operations, there is no significant continuing involvement and a re-location within the vicinity has not occurred.

The Company closed 35 underperforming stores during the 13 weeks ended April 3, 2004, as well as, 44 underperforming stores through fiscal 2003. In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, a portion of the costs associated with the closure of these stores, as well as related operating activity prior to closing for these stores, was recorded in “Loss from discontinued operations, net of tax” in the Company’s Consolidated Statement of Income.

Operating activity prior to closing for the discontinued stores is shown below:

During the first quarter of 2004 in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, the Company recorded a $72.8 million loss to discontinued operations ($46.4 million after taxes). The loss included an initial reserve of $53.5 million for rent, real estate taxes, common area maintenance expenses (other liabilities) and $1.9 million for severance and outplacement costs (accrued expenses). The remaining loss included property retirement (asset impairment) of $22.1 million and gains on capital lease retirements of $4.7 million. Additional discontinued operations expenses not reserved totaled $1.8 million after taxes for the first quarter of 2004.

In the first quarter of 2003, the Company recorded an initial reserve of $27.5 million to discontinued operations ($17.7 million after taxes) for rent, real estate taxes and common area maintenance expenses (other liabilities) and severance and outplacement costs (accrued expenses). The Company recorded property retirement (asset impairment) of $5.0 million, which was substantially offset by gains on capital lease retirements of $5.0 million. Additional discontinued operations expenses not reserved totaled $0.8 million after taxes for the first quarter of 2003.

The following table shows the reserve balances for discontinued operations as of April 3, 2004:

13) Recently Issued and Adopted 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. This standard does not currently have an impact on the Company’s financial statements.

14) Guarantor Subsidiaries

Delhaize America, Inc. has issued 7.375% notes due 2006, 7.55% notes due 2007, 8.125% notes due 2011, 8.05% notes due 2027 and 9.000% debentures due 2031. Substantially all of Delhaize America’s subsidiaries (the “Guarantor Subsidiaries”) have fully and unconditionally, jointly and severally guaranteed this debt. The Guarantor Subsidiaries and non-guarantor subsidiaries are wholly-owned subsidiaries of the Company. The non-guaranteeing subsidiaries represent less than 3% on an individual and aggregate basis of consolidated assets, pretax earnings, cash flow, and equity. Therefore, the non-guarantor subsidiaries’ information is not separately presented in the tables below, but rather is included in the column labeled “Guarantor Subsidiaries”. Condensed consolidated financial information for the Company and its Guarantor Subsidiaries is as follow:

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Delhaize America, Inc.
Consolidated Statements of Income (Loss)
For the 13 Weeks ended April 3, 2004

Delhaize America, Inc.
Consolidated Statements of Income (Loss)
For the 13 Weeks ended March 29, 2003

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Delhaize America, Inc.
Consolidated Balance Sheets
As of April 3, 2004

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Delhaize America, Inc.
Consolidated Balance Sheets
As of January 3, 2004

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Delhaize America, Inc.
Consolidated Statements of Cash Flows
For the 13 Weeks ended April 3, 2004

Delhaize America, Inc.
Consolidated Statements of Cash Flows
For the 13 Weeks ended March 29, 2003

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The wholly-owned direct subsidiaries named below fully and unconditionally and jointly and severally guarantee Delhaize America’s 7.375% notes due 2006, 7.550% notes due 2007, 8.125% notes due 2011, 8.05% notes due 2027 and 9.000% debentures due 2031.

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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.

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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.

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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.

15) Commitments and Contingencies

The Company is involved in various claims and lawsuits arising out of the normal conduct of its business. Although the ultimate outcome of these legal proceedings cannot be predicted with certainty, the Company’s management believes that the resulting liability, if any, would not have a material effect upon the Company’s consolidated results of operation, financial position or liquidity.

Item 2. Management’s Discussion and Analysis of Financial Condition and Result of Operations (13 weeks ended April 3, 2004 compared to the 13 weeks ended March 29, 2003)

The following information should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto in this Quarterly Report and the audited financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operation contained in our Form 10-K for the year ended January 3, 2004.

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.

During the first quarter of fiscal 2004, Delhaize America posted increased sales and successful cost and expense reduction initiatives.

•

Food Lion Focus. During first quarter of 2004, Food Lion continued to focus on excellence in execution, in-stock conditions, cleanliness, freshness, increased convenience, customer service and local marketing. Food Lion continued to experience accelerated sales momentum in first quarter of 2004 as compared to first quarter of 2003.

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Market Renewal. Following the launch of Food Lion’s market renewal in Raleigh in fiscal 2003, a second renewal program is underway in Charlotte, North Carolina. Market renewal represents 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 brings a sharper focus on assortment development, marketing, merchandising and training associates.

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Bloom, A Food Lion Market. Food Lion plans to open five pilot stores to test a new store concept, format and brand name. The pilot stores will be named “bloom, A Food Lion Market”, a new brand under the Food Lion banner. These stores will be supermarkets with a focus on convenience, designed to provide a simple, uncomplicated and hassle-free shopping experience. As its “Thought for Food” tagline suggests, Bloom will appeal to customers with a focus on shopping solutions, value-adding services, home meal replacement, easy-to-shop store lay-out and technology features that expedite the shopping experience to bring full meaning to the broad term “convenience”. The pilot stores are the result of the work of a cross-functional team from around the Group that developed this new store concept based on comprehensive consumer research

•

Festival Strategy. At Hannaford, the Festival Strategy supported strong sales performance throughout first quarter of 2004. The Festival Strategy is designed to create a sustainable advantage against all competitive impacts including traditional and non-traditional competitors.

•

Growth 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 is strengthening our position in a Georgia market where we currently do not have a strong presence and will give us opportunities to focus on local consumers’ needs in this market to grow the Harveys business. As part of this strategy, five Food Lion stores converted to Harveys stores during the first quarter of 2004, while eight additional stores will be converted during 2004.

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Inventory Management. During first quarter of 2004, we continued to transition 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, through full visibility to item-level data. At the end of first quarter of 2004, the new inventory system and processes had been implemented in over 650 Food Lion stores and should be implemented in all of our stores by the third quarter of 2004. We will also roll out the Hannaford inventory system in our Kash n’ Karry banner during the second quarter of 2004.

•

Cost Reduction and Continuous Improvement. In addition to our sales growth, we continued our focus in first quarter of 2004 on cost reduction and continuous improvement efforts, particularly at our Food Lion banner, to drive further efficiencies in our processes and systems. These efforts allow us to make planned price investments 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.

•

Improving Economy. The economy has continued its recovery in the Southeast and Florida, which has helped our sales in these territories.

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 and the first quarter of 2004, will be rebranded over the coming three years to the new banner name “Sweetbay Supermarket”. As 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 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.

Recent Developments

On May 12, 2004, our company, the Bank of New York, as Trustee (the “Trustee”) and Food Lion, LLC, Hannaford Bros. Co., Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods Of South Burlington, Inc., Shop ‘n Save-Mass., Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC and Hannaford Licensing Corp., each

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a direct or indirect wholly-owned subsidiary of our company (collectively, the “Subsidiary Guarantors”), executed a Second Supplemental to the Indenture, dated as of August 25, 1991, between our company and the Trustee, as amended by the First Supplemental Indenture, dated as of April 21, 1997, between our company and the Trustee. Under the terms of the Second Supplemental Indenture, each of the Subsidiary Guarantors fully and unconditionally and jointly and severally guaranteed our $150,000,000 in original aggregate principal amount of 7.55% Notes due 2007 and $150,000,000 in original aggregate principal amount of 8.05% Notes due 2027.

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 our Annual Report on Form 10-K for the year ended January 3, 2004.

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 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. We estimate future cash flows based on the experience and knowledge of the markets in which our stores are located. These estimates are adjusted for variable factors such as inflation and general economic conditions. We estimate fair value based on our experience and knowledge of the real estate markets where the store is located and also include 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. 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 - We receive 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 us 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 us. Similarly, co-operative advertising requires us 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 we perform the related activities.

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In 2003, upon the adoption of EITF Issue No. 02-16, in-store promotion and co-operative advertising allowances are now recorded as a reduction in the cost of inventory and recognized in cost of sales when the product is sold unless the allowance represents the reimbursement of a specific, identifiable cost incurred by us to sell the vendor’s product. The reimbursement of specific, identifiable costs to sell a vendor’s product should be netted against the cost we incur and any excess reimbursement should be included as a reduction in cost of sales and inventory. We have reviewed the promotional funding received from vendors and concluded that these arrangements are primarily for general advertising purposes and not the reimbursement of a specific, identifiable cost incurred by us.

Upon adoption of EITF Issue No. 02-16 in 2003, we 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 as a decrease in net income in our consolidated statement of income and reflects an adjustment, which decreased our opening inventory balance. The adoption effectively transfers a portion of the benefit associated with supplier allowances from cost of sales to inventory until the related product is sold.

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.

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 (“Pride”), 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. Premiums are transferred annually to Pride through Delhaize Insurance Co., a subsidiary of Delhaize America, Inc.

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 we believe that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect our self-insurance obligations and the level of future premiums to Pride.

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.

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Results of Operation

The following tables set forth the unaudited condensed consolidated statements of income for the 13 weeks ended April 3, 2004 and for the 13 weeks ended March 29, 2003 for informational purposes. The 2003 results have been adjusted to classify the results of operation for the 35 stores closed during the 13 weeks ended April 3, 2004 as “discontinued operations”; their net sales and other revenues, cost of goods sold, and selling and administrative expenses have been reflected on a net basis in “discontinued operations” in our condensed consolidated statement of income.

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