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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 1, 2005

Commission File No. 0-6080

DELHAIZE AMERICA, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 704-633-8250

Securities registered pursuant to Section 12(b) of the Act: None

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act):    Yes  ¨    No  x

All of the registrant’s voting and non-voting common stock was held by affiliates on June 3, 2004.

Outstanding shares of common stock of the Registrant as of April 1, 2005.

THIS REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I (1) (A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

Exhibit index is located on sequential page 82 hereof.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

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DELHAIZE AMERICA, INC.

FORM 10-K

FOR THE YEAR ENDED JANUARY 1, 2005

TABLE OF CONTENTS

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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PART I

Item 1. Business.

Delhaize America, Inc., a wholly owned subsidiary of Delhaize Group, engages in one line of business, the operation of retail food supermarkets in the eastern United States. The Company was incorporated in North Carolina in 1957 and maintains its corporate headquarters in Salisbury, North Carolina. Delhaize America is a holding company that does business primarily under the banners Food Lion, Hannaford, Kash n’ Karry and Harveys.

Delhaize America makes available free of charge, on or through the SEC documents section of Delhaize Group’s web site (http://www.delhaizegroup.com), the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.

New Banner

In fiscal 2004, the Company started the process of rebranding its Kash n’ Karry stores to a new concept, format and banner named “Sweetbay Supermarket” by opening one new Sweetbay and converting five Kash n’ Karry stores to the Sweetbay banner. For more information concerning the new banner, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Executive Summary.”

Merchandising

The Company’s 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. The Company offers nationally and regionally advertised brand name merchandise as well as products manufactured and packaged for the Company under the private labels of “Food Lion”, “Hannaford”, “Kash n’ Karry” and “Harveys”. Sales of private label products represented 17%, 19%, 15% and 12% of Food Lion’s, Hannaford’s, Kash n’ Karry’s and Harveys’ respective sales in fiscal 2004.

Procurement

The Company procures products through its retail operating companies and special procurement entities, with operations in Salisbury, North Carolina; Scarborough, Maine; Tampa, Florida; and Nashville, Georgia. The regional centralization of the buying function allows management of the Company to establish long-term relationships with many vendors providing various alternatives for sources of product supply.

Business Conditions and Competition

The business in which the Company is engaged is highly competitive and characterized by narrow profit margins. The Company competes with national, regional and local supermarket chains, supercenters, discount food stores, specialty stores, convenience stores, warehouse clubs, drug stores and restaurants. The Company expects to continue to develop and evaluate new retailing strategies responsive to its customers’ needs. Seasonal changes have no material effect on the operation of the Company’s supermarkets.

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Stores

As of January 1, 2005, 1,523 supermarkets were in operation as follows:

The following table shows the number of stores opened, closed and relocated, and the number of stores open at the end of each year for the past three fiscal years.

Warehousing and Distribution

Warehousing and distribution facilities, including the transportation fleet, are operated by the Company and are located in Green Cove Springs and Plant City, Florida; Nashville, Georgia; South Portland and Winthrop, Maine; Salisbury, Butner and Dunn, North Carolina; Schodack, New York; Greencastle, Pennsylvania; Elloree, South Carolina; Clinton, Tennessee; and Disputanta, Virginia.

Employees

As of January 1, 2005, the Company employed 43,136 full-time and 62,259 part-time employees.

Acquisitions

On November 26, 2004, the Company completed its acquisition of 19 Victory Super Markets (“Victory”) with 17 stores located in central and southeastern Massachusetts and two stores located in southern New Hampshire. The Company paid approximately $175.0 million in cash (subject to adjustment under the terms of the agreement), net of cash of $13.2 million and marketable securities of $1.8 million acquired. The Company’s Consolidated Statement of Income (Loss) included the results of operation of Victory prospectively from November 27, 2004.

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In November and December 2004, the Company completed its acquisition of ten Winn-Dixie stores in North Carolina and Virginia. These stores reinforce the store network of Food Lion in its existing trade area.

On October 27, 2003, the Company completed its acquisition of 43 Harveys supermarkets, 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-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 Company’s Consolidated Statement of Income (Loss) included the results of operation of Harveys prospectively from October 26, 2003.

CAUTIONARY NOTE CONCERNING 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 annual report on Form 10-K is filed with the Securities and Exchange Commission. We assume no obligation to update or revise them. Important factors that could cause our actual results to differ materially from our expectations include, without limitation:

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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. Pursuant to our self-insurance program, self-insured reserves related to workers’ compensation, general liability and auto coverage are reinsured by Pride Reinsurance Company (“Pride”), an Irish reinsurance captive, owned by an affiliated company of Delhaize Group. Premiums are transferred annually to Pride through Delhaize Insurance Co., a subsidiary of Delhaize America.

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.

Item 2. Properties.

The Company operated 1,222 supermarkets under the Food Lion banner at the end of fiscal 2004 in the mid-Atlantic and southeastern regions of the United States. Food Lion stores average approximately 35,400 square feet. The current Food Lion store prototypes are approximately 28,000 and 38,000 square feet.

At the end of fiscal 2004, the Company operated 142 Hannaford supermarkets, which included 19 Victory stores acquired during the fourth quarter of 2004. The Company plans to convert all of the Victory stores to the Hannaford banner during fiscal 2005. Of the 142 operating stores, 98 are combination stores, which consist of traditional all-department supermarkets, together with pharmacies, other services and expanded general merchandise under one roof. Hannaford supermarkets are located in Maine, New Hampshire, Vermont, upstate New York and Massachusetts. Hannaford stores average approximately 48,700 square feet. The current Hannaford store prototypes are approximately 35,000, 47,000 and 55,000 square feet.

At the end of fiscal 2004, the Company operated 104 Kash n’ Karry supermarkets in central Florida. Of the 104 operating stores, six are Sweetbay Supermarkets discussed below in the Executive Summary. Kash n’ Karry stores average approximately 42,400 square feet. As the Company rebrands its Florida business, the current Sweetbay prototypes are approximately 44,000 and 49,000 square feet.

At the end of fiscal 2004, the Company operated 55 Harveys supermarkets in central and south Georgia and the Tallahassee, Florida, area. Harveys stores average approximately 27,700 square feet.

All of the Company’s supermarkets are primarily self-service stores, which have off-street parking facilities. With the exception of operating 116 owned supermarkets, the Company occupies its various supermarket premises under lease agreements providing for initial terms of 20 and 25 years, with renewal options generally ranging from five to 20 years.

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The following table identifies the location and square footage of the 13 distribution centers and four offices operated by the Company as of January 1, 2005. The Company owns all of its distribution centers and office space, except for the square footage leased as identified in the table.

Distribution Centers

Offices

Item 3. Legal Proceedings.

Delhaize America is from time to time involved in legal actions in the ordinary course of its business. We are not aware of any pending or threatened litigation, arbitration or administrative proceedings involving claims or amounts that, individually or in the aggregate, we believe are likely to materially harm our business, financial condition or future results of operation. Any litigation, however, involves risk and potentially significant litigation costs, and therefore we cannot give any assurance that any such litigation will not materially harm our business, financial condition or future results of operation.

Item 4. Submission of Matters to a Vote of Security Holders.

Omitted pursuant to General Instruction I(2) of Form 10-K.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Delhaize Group, together with its wholly-owned subsidiary, Delhaize the Lion America, Inc. (“DETLA”), owns all of the outstanding shares of our common stock. As a result, there is no established public market for our common stock.

Dividends Declared Per Share of Common Stock

Item 6. Selected Financial Data.

Omitted pursuant to General Instruction I(2) of Form 10-K.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

The following discussion and analysis of our financial condition and results of operation should be read in conjunction with our consolidated financial statements and the accompanying notes that appear under Item 8 in this Form 10-K.

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 that does 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 narrow profit margins. We compete with national, regional and local supermarket chains, supercenters, discount food stores, specialty 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.

2004 Highlights:

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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 more appealing and customer focused, particularly in the produce and meat departments. As an integral part of this project, Food Lion also brings a sharper focus on assortment development, marketing, merchandising and training associates. Also Food Lion opened five pilot stores in fiscal 2004 to test a new store concept, format and brand name. The pilot stores are named “Bloom, A Food Lion Market”, a new brand under the Food Lion banner. These stores focus on driving convenience to a level of distinction and are designed to provide a simple, uncomplicated and hassle-free shopping experience. As its “Thought for Food” tagline suggests, Bloom appeals 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 Delhaize Group that developed this new store concept based on comprehensive consumer research.

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Sweetbay is a totally new store concept, experience and brand built upon extensive customer research, focused upon delivering a vibrant shopping experience with a strong emphasis on fresh food, high quality and variety and great value. Kash n’ Karry carried strong sales gain momentum through the year.

2005 Outlook:

During 2005, Delhaize America plans to continue to improve sales performance through sale initiatives and an increased schedule of store remodeling and store openings. As part of this strategy:

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.

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 - 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 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.

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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 – We conduct an annual assessment of potential impairment of goodwill and other indefinite lived intangible assets by comparing the book value of these assets to their current fair value. Fair value is estimated based on discounted cash flow projections provided by 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 or when events or circumstances indicate that an impairment may have occurred in accordance with SFAS 142, “Goodwill and Other Intangible Assets”.

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, material goodwill and intangible impairments are not likely to occur. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of material impairment.

Inventories- Inventories are stated at the lower of cost or market determined by the Last-in, First-out (“LIFO”) method. 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.

Leases- Our stores operate principally in leased premises. We account for leases under the provisions of SFAS No. 13, “Accounting for Leases”, and related accounting guidance. For lease agreements that provide for escalating rent payments, we recognize rent expense on a straight-line basis over the non-cancelable lease term and option renewal periods where failure to exercise such options would result in an economic penalty such that renewal appears, at the inception of the lease, to be reasonably assured. Rent incurred during the construction and development of a store is capitalized as a component of property and equipment. The lease term commences when we become obligated under the terms of the lease agreement and extends over the non-cancelable term and option renewal periods where failure to exercise such option would result in an economic penalty such that renewal appears to be reasonably assured.

When evaluating leases we use significant judgments and estimates, which include the determination of the lease term, incremental borrowing rates and fair market values. The determination of the lease term involves judgments as to whether an economic penalty exists which reasonably assures renewal of option periods. The incremental borrowing rate is used to calculate the present value of future rent payments and is based on the current yield for publicly traded debt for our company. The fair market value of the leased premises is based on our experience and knowledge of the real estate markets where the store is located and includes an independent third-party appraiser in certain situations.

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 retention, including defense costs per occurrence, ranges from (i) $0.5 million to $1.0 million per accident for workers’ compensation, (ii) $5.0 million per accident for automobile liability and (iii) $3.0 million per accident for general liability, with an additional $5.0 million retention in excess of the primary $3.0 million general liability retention for druggist liability. We are insured for costs related to covered claims, including defense costs, in excess of these retentions. The significant assumptions used in the development of the actuarial estimates are 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.

Our property insurance includes self-insured retentions per occurrence to (i) $5.0 million for named storms, (ii) $5.0 million for Zone A flood losses, (iii) $5.0 million for earthquakes and (iv) $2.5 million for all other losses.

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 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.

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Store closing reserves-We provide for closed store liabilities to reflect the estimated post-closing lease liabilities and other exit costs associated with the related store closing commitments. Other exit costs include estimated real estate taxes, common area maintenance, and insurance costs to be incurred after the store closes over the remaining lease term (all of which are contractually required payments under the lease agreements). Store closings are generally completed within one year after the decision to close. The closed store liabilities are paid over the lease terms associated with the closed stores. 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. 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 liabilities on closed stores

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.

Supplier allowances- We receive allowances, credits and income from suppliers primarily for volume incentives, new product introductions, in-store promotions and co-operative advertising. 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 our Company. Similarly, co-operative advertising requires us to conduct the related advertising. In-store promotions income and co-operative advertising income have historically been recognized in cost of sales when we perform the related activities.

In 2003, upon the adoption of EITF Issue No. 02-16, in-store promotion and co-operative advertising income is 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, incremental and identifiable cost incurred by us to sell the vendor’s product. We have reviewed the funding received from vendors for in-store promotions and co-operative advertising and concluded that these arrangements are primarily for general advertising purposes and not the reimbursement of a specific, incremental and identifiable cost incurred by our Company.

Upon adoption of EITF Issue No. 02-16 in fiscal 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 (Loss) 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.

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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.

Results of Operation

The following tables set forth the Consolidated Statements of Income (Loss) for the fiscal years ended January 1, 2005, January 3, 2004 and December 28, 2002 for informational purposes. The 2003 and the 2002 results have been adjusted to classify the results of operation for the 39 stores closed during fiscal 2004 as “discontinued operations”. The net sales and other revenues, cost of goods sold, and selling and administrative expenses relating to the closed stores are reflected on a net basis in “discontinued operations” in our Consolidated Statements of Income (Loss).

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

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Notes:

Cost of goods sold includes an initial $87.3 million (0.57% 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 increased 3.31% in fiscal 2004 in comparison with fiscal 2003. The 2004 sales increase was impacted by the 43 Harveys stores acquired during the fourth quarter of 2003 and the 19 Victory stores acquired during the fourth quarter of 2004 offset by the additional week of sales in fiscal 2003 – 53 weeks as compared to 52 weeks for fiscal 2004. During fiscal 2004, we had a net increase of eight store openings, and we remodeled 79 stores. Comparable store sales increased 1.5% during fiscal 2004 over the comparable period in 2003. Sales for fiscal 2004 strengthened in comparison with fiscal 2003 due to successful sales initiatives and focused store remodeling in our Food Lion and Kash n’ Karry banners and the continued strength of our Hannaford banner.

We continue to see significant competitive activity as a greater number of retailers battle for the consumers’ dollars. During fiscal 2004, we experienced 85 net competitive openings in our operating area - increasing the amount of grocery square footage available to consumers. In 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 2004, we operated 1,523 stores. Our retail store square footage totaled 56.1 million square feet at January 1, 2005, resulting in a 1.1% increase over fiscal 2003. Detail of store activity for fiscal 2004 is shown below:

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We continue to deliver low prices through our MVP customer loyalty card program at Food Lion. This program provides customers with additional discounts on a selection of featured items. At the end of fiscal 2004, the MVP customer loyalty card program accounted for approximately 78% of sales dollars and 65% of all transactions at Food Lion stores. More than 8.9 million households used a MVP card within the last quarter of 2004. 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 card customers.

Net sales and other revenues increased 4.62% in fiscal 2003 in comparison with fiscal 2002. During fiscal 2003, we had a net increase of 30 new store openings and we remodeled 94 stores. Comparable store sales increased 0.6% during fiscal 2003 over the comparable period in 2002. Sales in fiscal 2003 were 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 our major operating areas.

At the end of fiscal 2003, we operated 1,515 stores. Our retail store square footage totaled 55.5 million square feet at January 3, 2004, resulting in a 1.6% increase over fiscal 2002. Detail of store activity for fiscal 2003 is shown below:

In fiscal 2005, we plan to open approximately 50 new stores, relocate 11 stores and close approximately 17 stores, which would result in 22 net store openings in fiscal 2005. In addition, corporate growth plans for fiscal 2005 include remodeling or expanding approximately 181 existing stores. Also, we plan to convert 12 Food Lion stores to Harveys 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

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The gross profit increase for fiscal 2004 as a percentage of sales compared with fiscal 2003 is primarily due to lower inventory shrink at Food Lion and continued focus on optimizing margin to drive sustainable, profitable sales at all of our operating companies. We have now successfully completed the transition of all of our Food Lion and Kash n’ Karry stores to a new inventory and margin management system, which was first developed at Hannaford and modified to address the specific needs of Food Lion and Kash n’ Karry. This system has enabled us to improve our current margin analysis, shrink control and inventory management through full visibility to item-level detail data.

Gross margin comparisons for fiscal 2004 with fiscal 2003 are positively impacted by our store inventory accounting change last year 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 2003 with a corresponding increase to cost of goods sold (0.57% of sales).

Also, gross profit comparisons for fiscal 2004 and fiscal 2003 were negatively affected by the impact of hurricanes for both fiscal years 2004 and 2003, which resulted in product losses and other costs of $5.7 million (0.04% of sales) this year for hurricanes experienced compared to $14.7 million (0.10% of sales) last year for Hurricane Isabel. Product losses were lower this year due to our advanced preparation efforts.

Gross margin comparisons for fiscal 2003 to fiscal 2002 were negatively impacted by our 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 fiscal 2003 with a corresponding increase to cost of goods sold. In comparison with fiscal 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 2003.

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 fiscal 2003.

In fiscal 2002, Food Lion transitioned to an Every Day Low Cost (“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.

Selling and Administrative Expenses

Selling and administrative expenses as a percent of sales for fiscal 2004 increased in comparison with fiscal 2003 primarily due to increased medical costs, and expenses for the Harveys and Victory acquisitions during the last quarter of 2003 and 2004, respectively. Selling and administrative expenses for fiscal 2004 includes $5.7 million in preparation and other costs incurred for the hurricanes experienced during the year offset by a $4.0 million insurance reimbursement related to Hurricane Isabel in fiscal 2003. Selling and administrative expenses for fiscal 2003 included $2.2 million in preparation and other costs for Hurricane Isabel.

Selling and administrative expenses as a percent of sales in fiscal 2003 decreased compared to fiscal 2002 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 fiscal 2003. An additional decrease in selling and administrative expenses in fiscal 2003 as compared to fiscal 2002 was 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

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WWRE, we have an ownership share of 5.64301% 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 our 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.

Depreciation and Amortization Expense

Depreciation and amortization expense for fiscal 2004 increased when compared to fiscal 2003 primarily due to the lease accounting adjustments (see discussion below in “Lease Accounting Adjustments”), increased capital expenditures in fiscal 2004, primarily due to software purchases and upgrades for the transition of its Food Lion and Kash n’ Karry banners to a new inventory system, and equipment purchases for new stores and renovations since fiscal 2003. Additional increase in depreciation and amortization for fiscal 2004 is due to the acquisition of the 43 Harveys stores acquired during the last quarter of 2003.

The decrease in depreciation and amortization as a percent of sales for fiscal 2003 compared to fiscal 2002 is due to lower capital expenditures in fiscal 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 our management of capital spending to support the generation of free cash flow and debt reduction.

Interest Expense

Interest expense increased in fiscal 2004 over fiscal 2003 primarily due to the lease accounting adjustments (see discussion below in “Lease Accounting Adjustments”), additional store capital leases and a decrease in the benefit from our interest rate swap agreements offset by increased investment income due to higher cash balances and the repurchase and redemption of $52.355 million of debt in fiscal 2004.

Interest expense decreased in fiscal 2003 over fiscal 2002 primarily due to the interest reduction from the interest rate swap agreements and the repurchase of $68.975 million in debentures and other borrowings in fiscal 2002.

LIFO

Our inventories are stated at the lower of cost or market and we value approximately 79% of our inventory using the last-in, first-out, or LIFO method.

Our LIFO reserve increased $6.6 million in fiscal 2004, increased $1.8 million in fiscal 2003, and decreased $32.8 million in fiscal 2002. The increase in fiscal 2004 is due to slight inflation in all of our key merchandise categories. The increase in fiscal 2003 is due primarily to inflation in our prescription drug category. Our LIFO reserve decreased $32.8 million in fiscal 2002 primarily as a result of the new Every Day Low Cost (“EDLC”) program discussed below.

In fiscal 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.

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Discontinued Operations

We closed 39 underperforming stores during fiscal 2004, as well as, 44 underperforming stores in fiscal 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 of these stores, was recorded in “Loss from discontinued operations, net of tax” in our Consolidated Statement of Income (Loss).

Income Taxes

The effective tax rate decreased in fiscal 2004 from fiscal 2003 primarily due to approximately $3.4 million (net of tax) in interest income related to an Internal Revenue Service (“IRS”) refund. This amount was partially offset by increases in reserves related to ongoing audit activity.

The IRS completed its audit for tax years 1999 though 2001, which resulted in a refund of approximately $30 million (plus approximately $5.6 million in interest) associated with the timing of certain tax deductions. Except for the interest recorded in the tax provision, the refund resulted in no impact to our Consolidated Statement of Income (Loss) for the year ended January 1, 2005.

We continue to experience both federal and state audits, which we consider to be part of our ongoing business activity. In particular, we have experienced an increase in audit and assessment activity during both fiscal years 2003 and 2004. While the ultimate outcome of these federal and state audits is not certain, we have considered the merits of our filing positions in our overall evaluation of potential tax liabilities and believe we have adequate liabilities recorded in our consolidated financial statements for exposures on these matters. Based on our evaluation of the potential tax liabilities and the merits of our filing positions, we also believe it is unlikely that potential tax exposures over and above the amounts currently recorded as liabilities in our consolidated financial statements will be material to our financial condition or future results of operation.

Liquidity and Capital Resources

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

At the end of fiscal 2004, we had cash and cash equivalents of $499.9 million. We have historically generated positive cash flow from operations. The increase in cash provided by operating activities for fiscal 2004 in comparison with fiscal 2003 was primarily due to lower tax payments, $108.6 million for fiscal 2004 compared with $213.0 million for fiscal 2003. This decrease was primarily due to federal and state refunds received in 2004 (see Income Taxes discussion above), overpayments on the 2003 federal and state tax returns which were credited to the 2004 tax returns, and the fact that payments were made in 2003 for the 2002 tax year. Also contributing to the increase in cash from operations were reductions in inventory due to the closing of the 39 underperforming stores this year.

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 years 2003 and 2002, respectively. Higher tax payments in fiscal 2003 related primarily to a lower level of tax deductions in fiscal 2003 compared to fiscal 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 fiscal 2003. Additionally, some of the payments, which occurred in fiscal 2003, resulted in overpayments on the 2003 tax returns, which were credited to fiscal 2004.

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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 in fiscal 2003. The increase in cash provided by operating activities in fiscal 2002 was due to income of $251.7 million before cumulative effect of change in accounting principle, increases in accounts payable of $67.9 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 fiscal 2002 was due to the one-time reinsurance payment made in fiscal 2001.

The increase in investing activities in fiscal 2004 compared with fiscal 2003 was primarily due to our acquisition of 19 Victory stores during the last quarter of 2004 and an increase in capital expenditures. The decrease in investing activities from fiscal 2002 to fiscal 2003 was primarily due to the decrease in capital expenditures. 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 our management of capital spending to support the generation of free cash flow and debt reduction.

Capital expenditures were $413.7 million in fiscal 2004 compared to $379.5 million in fiscal 2003 and $485.0 million in fiscal 2002. During fiscal 2004, we opened 34 new stores and renovated 79 existing stores. 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.

Total store square footage increased 1.1% from 55.5 million at the end of fiscal 2003 to 56.1 million at the end of fiscal 2004, primarily due to the opening of 34 new stores, the acquisition of 19 Victory stores, offset by the 40 stores closed in fiscal 2004. 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 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 10.3 million square feet at the end of fiscal 2004, 10.2 million square feet at the end of fiscal 2003 and 9.5 million square feet at the end of fiscal 2002.

In fiscal 2005, we plan to incur approximately $550 million of capital expenditures. We plan to finance capital expenditures during fiscal 2005 through funds generated from operations and existing bank facilities and through use of leases when necessary.

Cash used in financing activities decreased from fiscal 2003 to fiscal 2004 due to the commitment of escrow funds for the senior notes at Hannaford during the third quarter of 2003, offset by increased principal payments on long–term debt in fiscal 2004 and increased purchases of parent common stock. The decrease in cash used in financing activities from fiscal 2002 to fiscal 2003 was primarily the result of short-term borrowings repaid in fiscal 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).

Lease Accounting Adjustments

In 2004 and early 2005, we conducted a review of our historical lease accounting, including consideration of a letter from the Chief Accountant of the Securities Exchange Commission (“SEC”) to the American Institute of Certified Public Accountants, dated February 7, 2005, which provided clarification of the SEC staff’s interpretation on certain lease accounting issues.

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As a result of this review, we recorded an adjustment in the fourth quarter of 2004 representing a non-cash charge to earnings of $8.5 million after tax, and an increase in assets and liabilities of $34.7 million and $43.2 million, respectively, at January 1, 2005. The adjustment reflects a change in the depreciable lives for buildings to conform to the associated ground lease term, the recognition of straight-line rent expense over the ground lease term, and the recording of certain lease assets and obligations where lessee involvement during asset construction and where sale-leaseback transactions with renewal options precluded operating lease accounting. We believe that the impact of the adjustment is immaterial to both the current year and to any individual prior year. The adjustment does not affect sales, historical or future cash flows, or the timing or amounts of lease payments and has no impact on our compliance with our debt covenants. Furthermore, the impact of the adjustment is not expected to have a material impact on our future earnings.

Debt

We maintain a revolving credit facility with a syndicate of commercial banks providing $350.0 million in committed lines of credit. The credit facility is secured by certain inventory of our Company’s retail 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 1, 2005, 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 1, 2005 and January 3, 2004, and had no borrowings during fiscal years 2004 and 2003. This facility is utilized to provide short-term capital to meet liquidity needs as necessary.

We are currently negotiating a new syndicated credit facility, in advance of the July 2005 maturity of the existing facility.

At January 1, 2005, we had long–term debt as follows:

During the fourth quarter of 2004, we repurchased $36.536 million of our $600 million 7.375% notes, $5.0 million of our $150 million 7.55% notes, $7.867 million of other notes and $2.952 million of our mortgage payables resulting in a $4.7 million loss from the early extinguishment of debt offset by a gain from the interest rate swap, net premium written off and related unamortized debt issuance costs. Net other loss from extinguishment of debt included $0.2 million loss for the related hedge loss written off. These costs are classified in our Consolidated Statement of Income (Loss) for fiscal 2004 below “Interest expense”.

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 1, 2005 and January 3, 2004, $65.2 million and $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. As of January 1, 2005

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restricted funds of $13.1 million and $59.8 million are recorded in Current Other Assets and Non-current Other Assets. As of January 3, 2004 restricted funds of $9.9 million and $74.4 million are recorded in Current Other Assets and Non-current Other Assets.

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% notes resulting in a $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).

We enter into significant leasing obligations related to our store properties. Capital lease obligations outstanding at the end of fiscal 2004 were $762.8 million compared with $721.5 million at the end of fiscal 2003. Lease agreements provide for initial terms of 20 and 25 years, with renewal options ranging from five to 20 years. We also had significant operating lease commitments at the end of fiscal 2004. Total annual minimum operating lease commitments are approximately $229.9 million in fiscal 2005, including approximately $191.4 million related to open store properties and $38.5 million related to closed store properties, decreasing gradually to approximately $184.4 million in fiscal 2009, including approximately $154.0 million related to open store properties and $30.4 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.

We maintain interest rate swaps against certain debt obligations, effectively converting a portion of the debt from fixed to variable rates. The notional principal amounts of interest rate swap arrangements as of January 1, 2005 were $300 million maturing in 2006 and $100 million maturing in 2011. 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 a quarterly basis. The differential between fixed and variable rates to be paid or received is accrued as interest rates change in accordance with the agreements and recognized over the life of the agreements as an adjustment to interest expense. The $100 million notional swaps maturing in 2011 meet the criteria for using the short-cut method, which assumes 100% hedge effectiveness, as prescribed by SFAS No. 133, “Derivative Instruments and Hedging Activities”. During the fourth quarter of 2004, in association with the retirement of $36.536 million of our $600 million 7.375% notes, we de-designated the $300 million notional interest rate swaps as a fair value hedge of 50% of the $600 million 2006 notes, and re-designated them as fair value hedge of 53.242% of the remaining $563.464 million 2006 Notes. These swaps meet the criteria of being highly effective swaps, as prescribed by SFAS No. 133, and currently carry no ineffectiveness. We have recorded a derivative asset in connection with these agreements in the amount of $8.3 million and $16.9 million at January 1, 2005 and January 3, 2004, respectively, which is included in our Consolidated Balance Sheet in Non-current Other Assets.

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In fiscal 2001, we settled certain interest rate hedge agreements in connection with the completion of an offering of notes, resulting in an unrealized loss of approximately $214 million. 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 “Accumulated other comprehensive income (loss), net of tax,” and is being amortized to “Interest expense” over the term of the associated notes. 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 1, 2005 and January 3, 2004 was $38.9 million and $44.3 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 1, 2005.

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 1, 2005:

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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 retention, including defense costs per occurrence, ranges from (i) $0.5 million to $1.0 million per accident for workers’ compensation, (ii) $5.0 million per accident for automobile liability and (iii) $3.0 million per accident for general liability, with an additional $5.0 million retention in excess of the primary $3.0 million general liability retention for druggist liability. We are insured for costs related to covered claims, including defense costs, in excess of these retentions. 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.

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, 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.

Our property insurance includes self-insured retentions per occurrence to (i) $5.0 million for named storms, (ii) $5.0 million for Zone A flood losses, (iii) $5.0 million for earthquakes and (iv) $2.5 million for all other losses. We incurred property loss of $11.4 million for hurricanes experienced during fiscal 2004 compared with property loss of $16.9 million related to Hurricane Isabel in fiscal 2003. Also in fiscal 2004, we received insurance reimbursement of $4.0 million related to Hurricane Isabel.

Impact of Inflation

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

During fiscal 2003 some inflation was noted at all of our operating companies. This was composed most significantly of meat inflation, as beef costs continue to rise in the United States. Through fiscal 2003, our reaction to the increase in beef costs has varied across geographical operating 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 still not reflected full cost increases in order to retain low price leadership. Also, during fiscal 2003, we experienced slight inflation primarily due to our 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 our LIFO reserve during fiscal 2002.

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Recently Issued Accounting Standards

In December 2004, the Financial Standards Board (“FASB”) issued a revision of FASB Statement No. 123 (“FAS 123R”), “Accounting for Stock-Based Compensation”. The guidance represents the requirement that the compensation costs related to share-based payment transactions be recognized in the financial statements. Compensation cost should be measured based on the fair value of the equity (or liability) instruments issued. The FAS covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights, and employee purchase plans. Previous guidance established a fair-value-based method of accounting, as preferable, but permitted entities the alternative of continuing to disclose in the footnotes what net income would have been had the preferable method been used. FAS 123R will be effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. Early adoption for interim or annual periods for which financial statements or interim reports have not been issued is encouraged. We are early adopting this standard in the first quarter of fiscal 2005, using the modified prospective method.

In December 2004, FASB issued Financial Accounting Standards (“FAS”) No. 153, “Exchanges of Nonmonetary Assets, An Amendment of Accounting Principles Board (“APB”) Opinion No. 29, ‘Accounting for Nonmonetary Transactions’”. APB Opinion 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance included a narrow exception to the fair value principle, which required the accounting for the exchange of a productive asset with a similar productive asset to be recorded using the carryover basis of the asset relinquished. This FAS eliminates the narrow exception and replaces it with a broader exception (to use carryover basis of accounting) for exchanges of nonmonetary assets that lack “commercial substance”. A nonmonetary exchange lacks commercial substance if the future cash flows of the entity are not expected to change significantly as a result of the exchange. FAS No.153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The adoption of this standard does not have an impact on our financial statements.

In November 2004, FASB issued FAS No. 151, “Inventory Costs – An Amendment of Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, ‘Inventory Pricing’”. This standard clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be treated as current-period charges. In addition, the FAS required that the allocation of fixed production overhead to inventory be based on the normal capacity of the production facilities. FAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during years beginning after November 24, 2004. The adoption of this standard does not have an impact on our financial statements.

In November 2004, FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FAS No. 144, ‘Accounting for the Impairment or Disposal of Long-Lived Assets’, in Determining Whether to Report Discontinued Operations”. When qualifying for discontinued operation treatment, the cash flows of the disposed component should be eliminated from the operations of the ongoing entity. The ongoing entity should not have any significant continuing involvement in the operations of the disposed component after the disposal transaction. The following conclusions were reached:

EITF Issue No. 03-13 should be applied to a component of an enterprise that is disposed of (or classified as held for sale) in fiscal years beginning after December 15, 2004. Operating results related to a component that is disposed of (or classified as held for sale) within an enterprise’s fiscal year that includes November 30, 2004, may be classified to reflect the consensus but is not required. The adoption of this standard does not have an impact on our financial statements.

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 amended in December 2003 (FIN 46R) will be effective by public entities for periods ending after March 15, 2004. This standard does not have an impact on our financial statements.

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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