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DELHAIZE GROUP 20-F 2011 Documents found in this filing:Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20–F (Mark One)
or
For the fiscal year ended December 31, 2010 or
For the transition period from to or
Date of event requiring this shell company report Commission file number: 333-13302
(Exact name of Registrant as specified in its charter)*
(Translation of Registrant’s name into English)*
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨ If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Table of ContentsTABLE OF CONTENTS
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Table of ContentsGENERAL INFORMATION References to “Delhaize Group” and to “our company,” “Group,” “we,” “us” and “our” in this Annual Report are to Etablissements Delhaize Frères et Cie “Le Lion” (Groupe Delhaize) and its consolidated and associated companies, unless the context otherwise requires. We are a food retailer headquartered in Belgium, which operates in six countries and on three continents. We were founded in Belgium in 1867. As of December 31, 2010, we had a sales network (which includes company-operated, affiliated and franchised stores) of 2,800 stores and employed approximately 138,600 people. Our principal activity is the operation of food supermarkets in the United States, Belgium and Greece, with a small percentage of our operations in Luxembourg, Romania and Indonesia. Such retail operations are primarily conducted through (i) our consolidated subsidiary, Delhaize America, LLC, which we refer to as Delhaize America, (ii) our businesses in Belgium and the Grand Duchy of Luxembourg, which we refer to collectively as Delhaize Belgium, and (iii) the business of Alfa Beta Vassilopoulos S.A. in Greece. Our ordinary shares are listed under the symbol “DELB” on the regulated market NYSE Euronext, Brussels. Our American Depositary Shares (“ADSs”), evidenced by American Depositary Receipts (“ADRs”), each representing one ordinary share, are listed on the New York Stock Exchange under the symbol “DEG.” Our website can be found at www.delhaizegroup.com and www.delhaize.com. The results of operations of our company and those of our subsidiaries outside the United States are presented on a calendar-year basis. The fiscal year for our wholly-owned subsidiary Delhaize US Holding, Inc., the direct parent of Delhaize America and the holding company for our U.S. operations, ends on the Saturday nearest December 31. The consolidated results of Delhaize Group for 2010, 2009, and 2008 include the results of operations of its U.S. subsidiaries for the 52 weeks ended January 1, 2011, 52 weeks ended January 2, 2010 and 53 weeks ended January 3, 2009, respectively. Delhaize Belgium in the past has included our operations in Germany which were classified as discontinued operations as of December 31, 2008 until September 2009, when we completed our sale of the stores in Germany. Our financial information includes all of the assets, liabilities, sales and expenses of all fully consolidated subsidiaries, i.e. over which we can exercise control. Our consolidated financial statements appear in Item 18 “Financial Statements” of this Annual Report on Form 20-F. Our consolidated financial statements presented herein were prepared using accounting policies in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and as adopted by the European Union, or EU. The only difference between the effective IFRS as issued by the IASB and adopted by the EU relates to certain paragraphs of IAS 39 Financial Instruments: Recognition and Measurement, which are not required to be applied in the EU (so-called “carve-out”). We are not affected by the carve-out, and for us there is therefore no difference between the effective IFRS as issued by the IASB and the pronouncements adopted by the EU, as of December 31, 2010. Consequently, Delhaize Group’s consolidated financial statements are prepared in accordance with IFRS, as issued by the IASB. The euro is our reporting currency. The translations of euro (“EUR” or “€”) amounts into U.S. dollar (“USD” or “$”) amounts are included solely for the convenience of readers and have been made, unless otherwise noted, at the rate of exchange of EUR 1.00 = USD 1.3362, the reference rate of the European Central Bank on December 31, 2010. Such translations should not be construed as representations that euro amounts could be converted into U.S. dollars at that or any other rate. For more information on foreign currency translation and presentation in this report, see Note 2.3 to the consolidated financial statements included in this document. Our address, telephone number and Internet address: Etablissements Delhaize Frères et Cie “Le Lion” (Groupe Delhaize) Square Marie Curie 40 1070 Brussels, Belgium +32-2-412-2211 www.delhaizegroup.com
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Table of ContentsCAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS Statements included in, or incorporated by reference into, this Annual Report, other than statements of historical fact, which address activities, events or developments that we expect or anticipate will or may occur in the future, including, without limitation, statements regarding the expansion and growth of our business, anticipated store openings and renovations, future capital expenditures, projected revenue growth or synergies resulting from acquisitions, and business strategy, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, Section 21E of the Securities and Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995 about us that are subject to risks and uncertainties. These forward-looking statements generally can be identified as statements that include phrases such as “believe,” “project,” “estimate,” “strategy,” “may,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “should” or other similar words or phrases. Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included under “Risk Factors” of Item 3 “Key Information” within this Annual Report. Other important factors that could cause actual results to differ materially from our expectations are described under “Factors Affecting Financial Condition and Results of Operation” of Item 5 “Operating and Financial Review and Prospects” and elsewhere below. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
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Table of ContentsPART I
Not applicable.
Not applicable.
SELECTED FINANCIAL DATA The following selected financial data is derived from our audited consolidated financial statements, included in Item 18 “Financial Statements” of this Annual Report, which have been prepared using accounting policies in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and as adopted by the European Union, or EU. The only difference between the effective IFRS as issued by the IASB and as adopted by the EU relates to certain paragraphs of IAS 39 Financial Instruments: Recognition and Measurement, which are not required to be applied in the EU (so-called “carve-out”). We are not affected by the carve-out and for us there is therefore no difference between the effective IFRS as issued by the IASB and the pronouncements adopted by the EU. The selected financial data presented below should be read in conjunction with our consolidated financial statements, related notes thereto and other financial information included in this Annual Report. Our reporting currency is the euro. U.S. dollar amounts contained in the income statement data, balance sheet data and other data tables below are provided solely for the convenience of the reader and have been calculated using the exchange rate of EUR 1.00 = USD 1.4292, the reference rate of the European Central Bank on June 15, 2011. Such translations should not be construed as representations that euro amounts could be converted into U.S. dollars at that or any other rate.
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Dividends The following table sets forth, for the periods indicated, historical dividend information per Delhaize Group ordinary share. Each year indicated in the following table represents the fiscal year of Delhaize Group to which the dividend relates. Actual payment of the annual dividend for each fiscal year occurs following Delhaize Group’s annual shareholders’ meeting in the subsequent year. The amounts set forth below in U.S. dollars represent the gross dividend per Delhaize Group American Depositary Receipt, or ADR, paid by the depositary to holders of Delhaize Group ADRs on the dividend payment date. The dividend amounts do not reflect any withholding taxes with respect to such dividends.
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Table of ContentsBelgian law requires us to contribute at least 5% of our annual profit to the statutory reserves until such reserve has reached an amount equal to 10% of our capital. Subject to this requirement, our Board of Directors may propose, at a shareholders’ meeting at which annual accounts are approved, to distribute as a dividend all or a portion of our net profits from the prior accounting years available for distribution. In connection with the approval of our accounts, our shareholders may, at a general meeting, authorize a distribution of our net profits to shareholders from reserves, subject to the requirement to contribute to the statutory reserves referenced in the first sentence of this paragraph. Citibank, as our depositary, holds the underlying ordinary shares represented by our American Depositary Shares, or ADSs, as evidenced by ADRs. Each Delhaize Group ADS represents an ownership interest in the underlying Delhaize Group ordinary share and the right to receive one Delhaize Group ordinary share, which has been deposited with the depositary. Because Citibank holds the underlying ordinary shares, holders of the ADSs will generally receive the benefit from such underlying shares through Citibank. A deposit agreement among Citibank, Delhaize Group and all holders from time to time of the Delhaize Group ADSs sets forth the obligations of Citibank. Citibank will, as promptly as practicable after payment of a dividend, convert any cash dividend or distribution we pay on the ordinary shares, other than any dividend or distribution paid in U.S. dollars, into U.S. dollars if it can do so on a reasonable basis and can legally transfer the U.S. dollars to the United States. If that is not possible on a reasonable basis, or if any approval from any government is needed and cannot be obtained, the deposit agreement allows Citibank to distribute the foreign currency only to those Delhaize Group ADS holders to whom it is possible to do so or to hold the foreign currency it cannot convert for the account of the Delhaize Group ADS holders who have not been paid. Before making a distribution, any withholding taxes that must be paid under applicable laws will be deducted. See “Taxation” under Item 10 “Additional Information” in this Annual Report. Citibank will distribute only whole U.S. dollars and cents and will round any fractional amounts to the nearest whole cent. Exchange Rates As stated above, our reporting currency is the euro. The euro to U.S. dollar exchange rate was EUR 1 = USD 1.3362 on December 31, 2010 based on the reference rate of the European Central Bank. The following tables set forth, for the periods and dates indicated, certain information concerning the exchange rates for the euro expressed in U.S. dollars per euro. Information concerning the U.S. dollar exchange rate is based on the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York, which we refer to as the noon buying rate. The rate on June 3, 2011 was $1.4604 per euro. The table below shows the average noon buying rate of the euro from 2006 to 2010.
The table below shows the high and low noon buying rates expressed in U.S. dollars per euro for the previous six months.
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Table of ContentsRISK FACTORS The following discussion of risks should be read carefully in connection with evaluating our business, our prospects and the forward-looking statements contained in this Annual Report. Any of the following risks could have a material adverse effect on our financial condition, results of operations, liquidity, the trading price of our securities and the actual outcome of matters as to which forward-looking statements contained in this Annual Report are made. The risks and uncertainties described below are not the only ones that we may face. In addition to the following factors, please see the information under the heading entitled “Factors Affecting Financial Condition and Results of Operations” under Item 5 “Operating and Financial Review and Prospects.” For additional information regarding forward-looking statements, see “Cautionary Note Concerning Forward-Looking Statements” included in this Annual Report. Risks Related to Operations of Our Company Our results are subject to risks relating to competition and narrow profit margins in the food retail industry. The food retail industry is competitive and generally characterized by narrow profit margins. Our competitors include international, national, regional and local supermarket chains, supercenters, independent grocery stores, specialty food stores, warehouse club stores, retail drug chains, convenience stores, membership clubs, general merchandisers, discount retailers and restaurants. Food retail chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. We believe that we could face increased competition in the future from all of these competitors. To the extent we reduce prices to maintain or grow our market share in the face of competition, net income and cash generated from operations could be adversely affected. Some of our competitors have financial, distribution, purchasing and marketing resources that are greater than ours. Our profitability could be impacted as a result of the pricing, purchasing, financing, advertising or promotional decisions made by competitors. We have substantial financial debt outstanding that could negatively impact our business. We have substantial debt outstanding. At December 31, 2010, we had total consolidated debt outstanding of approximately €2.8 billion and approximately €699 million of unused commitments under our revolving credit facilities. Our level of debt could:
We may borrow additional funds to support our capital expenditures and working capital needs and to finance future acquisitions. The incurrence of additional debt could make it more likely that we will experience some or all of the risks described above. For additional information on liquidity and leverage risk, see “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources.” If we do not generate positive cash flows, we may be unable to service our debt. Our ability to pay principal and interest on our debt depends on our future operating performance. Future operating performance is subject to market conditions and business factors that often are beyond our control. Consequently, we cannot assure you that we will have sufficient cash flows to pay the principal, premium, if any,
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Table of Contentsand interest on our debt. If our cash flows and capital resources are insufficient to allow us to make scheduled payments on our debt, we may have to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our debt. We cannot assure you that the terms of our debt will allow these alternative measures or that such measures would satisfy our scheduled debt service obligations. If we cannot make scheduled payments on our debt, we will be in default and, as a result:
Certain of our debt agreements require us to maintain specified financial ratios and meet specific financial tests. Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we were unable to make this repayment or otherwise refinance these borrowings, our lenders could foreclose on our assets. If we were unable to refinance these borrowings on favorable terms, our business could be adversely impacted. General economic factors may adversely affect our financial performance. General economic conditions in the areas where we operate, including Greece, may adversely affect our financial performance. Higher interest rates, higher fuel and other energy costs, weakness in the housing market, inflation, deflation, higher levels of unemployment, unavailability of consumer credit, higher consumer debt levels, higher tax rates and other changes in tax laws, overall economic slowdown and other economic factors could adversely affect consumer demand for the products and services we sell, change the mix of products we sell to one with a lower average gross margin and result in slower inventory turnover and greater markdowns on inventory. Higher interest rates, higher fuel and other energy costs, transportation costs, inflation, higher costs of labor, insurance and healthcare, foreign exchange rates fluctuations, higher tax rates and other changes in tax laws, changes in other laws and regulations and other economic factors can increase our cost of sales and operating, selling, general and administrative expenses, and otherwise adversely affect our operations and operating results. These factors affect not only our operations, but also the operations of suppliers from whom we purchase goods, a factor that can result in an increase in the cost to us of the goods we sell to our customers. Our operations are subject to economic conditions that impact consumer spending. Our results of operations are sensitive to changes in overall economic conditions in the areas where we operate, including Greece, that impact consumer spending, including discretionary spending. Consumers may reduce spending or change purchasing habits due to certain economic conditions such as decreasing employment levels, slowing business activity, increasing interest rates, increasing energy and fuel costs, increasing healthcare costs and increasing tax rates. A general reduction in the level of consumer spending or our inability to respond to shifting consumer attitudes regarding products, store location and other factors could adversely affect our growth and profitability. Turbulence in the global credit markets and economy may adversely affect our financial condition and liquidity. Current economic conditions have been, and continue to be, volatile. Disruptions in the capital and credit markets could adversely affect our ability to draw on our bank credit facilities or enter into new bank credit facilities. Our access to funds under our bank credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding commitments. Those banks may not be able to meet their funding commitments to us if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from Delhaize Group and other borrowers within a short period of time. Also, disruptions in the capital and credit markets may impact our ability to renew those bank credit facilities or enter into new bank credit facilities as needed. In addition, our suppliers and third-party service providers could experience credit or other financial difficulties that could result in their inability or delays in their ability to supply us with necessary goods and services.
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Table of ContentsThe significance of the contributions of our U.S. operations to our revenues and the geographic concentration of our U.S. operations on the east coast of the United States make us vulnerable to economic downturns, natural disasters and other catastrophic events that impact that region. During 2010, 68.1% of our revenues were generated through our U.S. operations. We depend in part on Delhaize US Holding Inc., the holding company grouping our U.S. operations, for dividends and other payments to generate the funds necessary to meet our financial obligations. Substantially all of our U.S. operations are located on the east coast of the United States. Consequently, our operations depend significantly upon economic and other conditions in this area, in addition to those that may affect the United States or the world as a whole. Our results of operations may suffer based on a general economic downturn, natural disaster or other adverse condition impacting the east coast of the United States. During April 2011, severe weather in the southeastern U.S., including tornadoes, resulted in damage to the Food Lion distribution center at Dunn, North Carolina and several Food Lion stores. Delhaize Group has utilized disaster recovery plans that had been put in place previously, and has been able to continue to serve the stores served by the Dunn distribution center with assistance from other distribution centers. Delhaize Group is continuing to assess the damage at the Dunn distribution center, and operations at that distribution center have been partially reestablished. While Delhaize Group expects most of the damage is covered by insurance, the disruption could adversely affect our operations and financial performance. Increases in interest rates and/or a downgrade of our credit ratings could negatively affect our financing costs and our ability to access capital. We have exposure to future interest rates based on the variable rate debt held by us and to the extent we raise debt in the capital markets to meet maturing debt obligations, to fund our capital expenditures and working capital needs and to finance future acquisitions. Daily working capital requirements are typically financed with operational cash flow and through the use of various committed and uncommitted lines of credit and a commercial paper program. The interest rate on these short and medium term borrowing arrangements is generally determined either as the inter-bank offering rate at the borrowing date plus a pre-set margin or based on market quotes from banks. Although we employ risk management techniques to hedge against interest rate volatility, significant and sustained increases in market interest rates could materially increase our financing costs and negatively impact our reported results. We rely on access to bank and capital markets as sources of liquidity for cash requirements not satisfied by cash flows from operations. A downgrade in our credit ratings from the internationally-recognized credit rating agencies, particularly to a level below investment grade, could negatively affect our ability to access the bank and capital markets, especially in a time of uncertainty in either of those markets. A ratings downgrade could also impact our ability to grow our businesses by substantially increasing the cost of, or limiting access to, capital. Our senior unsecured debt ratings from Standard & Poor’s and Moody’s are BBB- and Baa3 investment grades, respectively. A rating is not a recommendation to buy, sell or hold debt, inasmuch as the rating does not comment as to market price or suitability for a particular investor. The ratings assigned to our debt address the likelihood of payment of principal and interest pursuant to their terms. A rating may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating that may be assigned to our securities. A competitive labor market as well as changes in labor conditions may increase our costs. Our success depends in part on our ability to attract and retain qualified personnel in all areas of our business. We compete with other businesses in our markets in attracting and retaining employees. Tight labor markets, increased overtime, collective labor agreements, increased healthcare costs, government mandated increases in the minimum wage and a higher proportion of full-time employees could result in an increase in labor costs, which could materially impact our results of operations. A shortage of qualified employees may require us to increase our wage and benefit offerings to compete effectively in the hiring and retention of qualified employees or to retain more expensive temporary employees. In addition, while we believe that relations with our employees are good, we cannot provide assurance that we will not become the target of campaigns to unionize our associates. Also, we always face the risk that legislative bodies will approve law that liberalizes the procedures for union
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Table of Contentsorganization. If more of our workforce were to become unionized, it could affect our operating expenses. Increased labor costs could increase our costs, resulting in a decrease in our profits or an increase in our losses. There can be no assurance that we will be able to fully absorb any increased labor costs through our efforts to increase efficiencies in other areas of our operations. Because of the number of properties that we own and lease, we have a potential risk of environmental liability. We are subject to laws, regulations and ordinances that govern activities and operations that may have adverse environmental effects and impose liabilities for the costs of cleaning, and certain damages arising from sites of past spills, disposals or other releases of hazardous materials. Under applicable environmental laws, we may be responsible for the remediation of environmental conditions and may be subject to associated liabilities relating to our stores, warehouses and offices, as well as the land on which they are situated, regardless of whether we lease, sublease or own the stores, warehouses, offices or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant. The costs of investigation, remediation or removal of environmental conditions may be substantial. Certain environmental laws also impose liability in connection with the handling of or exposure to asbestos-containing materials, pursuant to which third parties may seek recovery from owners, tenants or sub-tenants of real properties for personal injuries associated with asbestos-containing materials. There can be no assurance that environmental conditions relating to prior, existing or future store sites will not harm us through, for example, business interruption, cost of remediation or harm to reputation. If we are unable to locate appropriate real estate or enter into real estate leases on commercially acceptable terms, we may be unable to open new stores. Our ability to open new stores is dependent on our success in identifying and entering into leases on commercially reasonable terms for properties that are suitable for our needs. If we fail to identify and enter into leases on a timely basis for any reason, including our inability due to competition from other companies seeking similar sites, our growth may be impaired because we may be unable to open new stores as anticipated. Similarly, our business may be harmed if we are unable to renew the leases on our existing stores on commercially acceptable terms. Unfavorable exchange rate fluctuations may negatively impact our financial performance. Our operations are conducted primarily in the U.S. and Belgium and to a lesser extent in other parts of Europe and in Southeast Asia. The results of operations and the financial position of each of our entities outside the euro zone are accounted for in the relevant local currency and then translated into euro at the applicable foreign currency exchange rate for inclusion in the Group’s consolidated financial statements, which are presented in euro (see also Note 2.3 in the consolidated financial statements with respect to translation of foreign currencies, being included under Item 18 in this document). Exchange rate fluctuations between these foreign currencies and the euro may have a material adverse effect on our consolidated financial statements. These risks are monitored on a regular basis at a centralized level. Because a substantial portion of our assets, liabilities and operating results are denominated in U.S. dollars, we are particularly exposed to currency risk arising from fluctuations in the value of the U.S. dollar against the euro. We do not hedge the U.S. dollar translation exposure. The translation risk resulting from the substantial portion of U.S. operations is managed by striving to achieve a natural currency offset between assets and liabilities and revenues and expenditures denominated in U.S. dollars. Remaining intra-Group cross-currency transaction risks which are not naturally offset concern primarily dividend payments by the U.S. subsidiary and cross-currency lending, which in accordance with IFRS survive the consolidation process. When appropriate, we enter into agreements to hedge against the variation in the U.S. dollars in relation to dividend payments between the declaration by the U.S. operating companies and payment dates. Intra-Group cross-currency loans not naturally offset are generally fully hedged through the use of foreign exchange forward contracts or currency swaps. After cross-currency swaps, 85% of net financial debt is denominated in U.S. dollar while 71% of profits from operations are generated in U.S. dollars. Significant residual positions in currencies other than the functional currency of the operating companies are generally also fully hedged in order to eliminate any remaining currency exposure (see also Note 19 in the consolidated financial statements included under Item 18 of this document).
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Table of ContentsIf the average U.S. dollar exchange rate had been 1 cent higher/lower and all other variables were held constant, our net profit would have increased/decreased by €3 million (2009: €3 million and 2008: €2 million). This is mainly attributable to our exposure to exchange rates on our revenues in U.S. dollars. For additional information on exchange rate fluctuations, see “Item 3. Key Information — Selected Financial Data — Exchange Rates.” Various aspects of our business are subject to federal, regional, state and local laws and regulations in the U.S., Belgium and other countries, in addition to environmental regulations. Our compliance with these laws and regulations may require additional expenses or capital expenditures and could adversely affect our ability to conduct our business as planned. In addition to environmental regulations, we are subject to federal, regional, state and local laws and regulations in the U.S., Belgium and other countries relating to, among other things, zoning, land use, workplace safety, public health, community right-to-know, store size, alcoholic beverage sales and pharmaceutical sales. A number of jurisdictions regulate the licensing of supermarkets, including retail alcoholic beverage license grants. In addition, under certain regulations, we are prohibited from selling alcoholic beverages in certain of our stores. Employers are also subject to laws governing their relationship with employees, including minimum wage requirements, overtime, working conditions, collective bargaining, disabled access and work permit requirements. Compliance with, or changes in, these laws could reduce the revenue and profitability of our supermarkets and could otherwise adversely affect our business, financial condition or results of operations. A number of laws exist which impose obligations or restrictions on owners with respect to access by disabled persons. Our compliance with these laws may result in modifications to our properties, or prevent us from performing certain further renovations. As a result of selling food products, we face the risk of exposure to product liability claims and adverse publicity. The packaging, marketing, distribution and sale of food products purchased from others entail an inherent risk of product liability, product recall and resultant adverse publicity. Such products may contain contaminants that may be inadvertently redistributed by us. These contaminants may, in certain cases, result in illness, injury or death if processing at the foodservice or consumer level does not eliminate the contaminants. Even an inadvertent shipment of adulterated products is a violation of law and may lead to an increased risk of exposure to product liability claims. There can be no assurance that such claims will not be asserted against us or that we will not be obligated to perform such a recall in the future. If a product liability claim is successful, our insurance may not be adequate to cover all liabilities we may incur, and we may not be able to continue to maintain such insurance, or obtain comparable insurance at a reasonable cost, if at all. If we do not have adequate insurance or contractual indemnification available, product liability claims relating to defective products could have a material adverse effect on our ability to successfully market our products and on our business, financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could have a material adverse effect on our reputation with existing and potential customers and on our business and financial condition and results of operations. Strikes, work stoppages and slowdowns could negatively affect our financial performance. A number of employees of our companies, mostly outside of the United States, are members of unions. It is possible that relations with the unionized portion of our workforce will deteriorate or that our workforce would initiate a strike, work stoppage or slowdown in the future. In such an event, our business, financial condition and results of operations could be negatively affected, and we cannot provide assurance that we would be able to adequately meet the needs of our customers utilizing our remaining workforce. In addition, similar actions by our non-unionized workforce are possible. We may not be able to successfully complete renovation, conversion and brand repositioning plans. A key to our business strategy has been, and will continue to be, the renovation and/or conversion of our existing stores, as well as the renovation of our infrastructure. Although it is expected that cash flows generated
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Table of Contentsfrom operations, supplemented by the unused borrowing capacity under our credit facilities and the availability of capital lease financing, will be sufficient to fund our capital renovation programs and conversion initiatives, sufficient funds may not be available. Our inability to successfully renovate and/or convert our existing stores and other infrastructure could adversely affect our business, results of operations and ability to compete successfully. We recently announced the launch of our Food Lion brand repositioning initiative which included, among other things, the re-launch of approximately 200 stores in the Raleigh (North Carolina) and Chattanooga (Tennessee) markets to highlight the Food Lion price, assortment and shopping experience. As part of the re-launch we made operational enhancements to the Raleigh and Chattanooga stores, such as staffing and process improvements, product handling and replenishment improvements in the produce department, increased SKU counts, improved price positioning and an easy and convenient shopping experience. While we expect these initiatives to result in increased revenues, there can be no assurance that they will be successful and that we will achieve the expected results. We may be unsuccessful in managing the growth of our business or the integration of acquisitions we have made. As part of our long-term strategy, we continue to reinforce our presence in the geographic locations where we currently operate and in adjacent regions, by pursuing acquisition opportunities in the retail grocery store industry and engaging in store renovations and market renewals and opening new stores, including the recent expansion of our Bottom Dollar Food operations into the greater Philadelphia area. However, as the food retail industry consolidates, we face the risk that certain of our competitors may have more resources to make acquisitions, or expand operations, or that they otherwise may make acquisitions that we would have been interested in making. In addition, we face risks commonly encountered with growth through acquisition and conversion or expansion. These risks include, but are not limited to, as applicable, incurring significantly higher than anticipated financing related risks and operating expenses, failing to assimilate the operations and personnel of acquired businesses, failing to install and integrate all necessary systems and controls, the loss of customers, entering markets where we have no or limited experience, the disruption of our ongoing business and the dissipation of our management resources. Realization of the anticipated benefits of an acquisition, store renovation, market renewal or store opening may take several years or may not occur at all. Our growth strategy may place a significant strain on our management, operational, financial and other resources. In particular, the success of our acquisition strategy will depend on many factors, including our ability to:
There can be no assurance that we will be able to execute successfully our acquisition strategy, store renovations, market renewals or store openings, including the recent expansion of our Bottom Dollar Food operations into the greater Philadelphia, Pennsylvania area, and failure to do so may have a material adverse effect on our business, financial condition and results of operations. We are presently a party to a definitive agreement to acquire 100% of the registered share capital and voting rights of Delta Maxi Group, a retail company operating more than 450 stores in five countries in Southeastern Europe, for a purchase price of €933 million (enterprise value) including net debt of approximately €300 million. The acquisition is subject to mutually agreed upon and customary conditions, including the approval by the Serbian merger control authority. While we expect to close the deal in the third quarter of Serbian 2011, there can be no assurance that the transaction will close or in the event that it does, that we will achieve the expected revenues and earnings from synergies.
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Table of ContentsUnexpected outcomes with respect to jurisdictional audits of income tax filings could result in an adverse effect on our financial performance. We are regularly audited in the various jurisdictions in which we do business, which we consider to be part of our ongoing business activity. While the ultimate outcome of these audits is not certain, we have considered the merits of our filing positions in our overall evaluation of potential tax liabilities and believe we have adequate liabilities recorded in our consolidated financial statements for potential exposures. Unexpected outcomes as a result of these audits could adversely affect our financial condition and results of operations. Risks associated with the suppliers from whom our products are sourced could adversely affect our financial performance. Significant disruptions in operations of our vendors and suppliers could materially impact our operations by disrupting store-level product selection or costs, resulting in reduced sales. The products we sell are sourced from a wide variety of domestic and international suppliers. Our ability to find qualified suppliers who meet our standards and to access products in a timely and efficient manner is a significant challenge. Political and economic instability in the countries in which suppliers are located, the financial instability of suppliers, suppliers’ failure to meet our standards, labor problems experienced by our suppliers, the availability of raw materials to suppliers, competition for products from other retailers, the impact of adverse weather conditions, product quality issues, currency exchange rates, transport availability and cost, inflation, deflation, and other factors relating to the suppliers and the countries in which they are located are beyond our control. In addition, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the limitation on the importation of certain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade are beyond our control. These factors and other factors affecting our suppliers and access to products may result in decreased product selection and increased out-of-stock conditions, as well as higher product costs, which could adversely affect our operations and financial performance. Risks associated with our franchised and affiliated stores could adversely affect our financial performance. Approximately 24% of the stores in our sales network are franchised or affiliated. Our franchised and affiliated stores account for approximately 9.4% of our sales. The operators of our affiliated and franchised stores operate and oversee the daily operations of their stores and are independent third parties. Although we attempt to properly select, train and support the operators of our affiliated and franchised stores, the ultimate success and quality of any affiliated or franchised store rests with its operator. If the operators of our affiliated and franchised stores do not successfully operate in a manner consistent with our standards, our image and reputation could be harmed, which could adversely affect our business and operating results. In addition, we have large accounts receivables associated with our franchised and affiliated stores. If the operators of these stores do not operate successfully, we could be forced to write-off a portion of or all of the accounts receivables associated with such franchised and affiliated stores. Natural disasters and geopolitical events costs could adversely affect our financial performance. The occurrence of one or more natural disasters, such as hurricanes, earthquakes, tsunamis or pandemics, or other severe weather, whether as a result of climate change or otherwise, or geopolitical events, such as civil unrest in a country in which we operate or in which our suppliers are located, and attacks disrupting transportation systems, could adversely affect our operations and financial performance. Such events could result in physical damage to one or more of our properties, the temporary closure of one or more stores or distribution centers (as occurred with our Dunn distribution center as described above), the temporary lack of an adequate work force in a market, the temporary decrease in customers in an affected area, the temporary or long-term disruption in the supply of products from some local and overseas suppliers, the temporary disruption in the transport of goods from overseas, delay in the delivery of goods to our distribution centers or stores within a country in which we are operating and the temporary reduction in the availability of products in our stores. These factors could otherwise disrupt and adversely affect our operations and financial performance.
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Table of ContentsIn our control systems there are inherent limitations, and misstatements due to error or fraud may occur and not be detected, which may harm our business and financial performance and result in difficulty meeting our reporting obligations. Effective internal control over financial reporting is necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our business and operating results could be harmed. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risks that the control may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in its implementation of internal controls, our business and operating results could be harmed and we could fail to meet our reporting obligations. Our operations are dependent on information technology, or IT, systems, the failure or breach of security of any of which may harm our reputation and adversely affect our financial performance. Many of the functions of our operations are dependent on IT systems developed and maintained by internal experts or third parties. The failure of any of these IT systems may cause disruptions in our operations, adversely affecting our sales and profitability. We have disaster recovery plans in place to reduce the negative impact of such IT systems failures on our operations, but there is no assurance that these disaster recovery plans will be completely effective in doing so. If third parties or our associates are able to penetrate our network security or otherwise misappropriate our customers’ personal information or credit or debit card information, or if we give third parties or our associates improper access to our customers’ personal information or credit card information, we could be subject to liability. This liability could include claims for unauthorized purchases with credit card information, identity theft or other similar fraud-related claims. This liability could also include claims for other misuses of personal information, including for unauthorized marketing purposes. Other liability could include claims alleging misrepresentation of our privacy and data security practices. Any such liability for misappropriation of this information could decrease our profitability. Our security measures are designed to protect against security breaches, but our failure to prevent such security breaches could subject us to liability, damage our reputation and diminish the value of our brand-names. Our Hannaford and Sweetbay banners experienced an unauthorized intrusion, which we refer to as the Computer Intrusion, into portions of their computer system that process information related to customer credit and debit card transactions, which resulted in the potential theft of customer credit and debit card data. Also affected was credit card data from cards used at certain independently-owned retail locations in the Northeast of the U.S. that carry products delivered by Hannaford. The Computer Intrusion was discovered during February 2008, and we believe the exposure window for the Hannaford and Sweetbay credit and debit card data was approximately December 7, 2007 through early March 2008. There is no evidence that any customer personal information, such as names or addresses, was obtained by any unauthorized person. Various legal actions have been taken, and various claims have been otherwise asserted, against Hannaford and affiliates relating to the Computer Intrusion. While we intend to defend the legal actions and claims vigorously, we cannot predict the outcome of such legal actions and claims. A change in supplier terms could adversely affect our financial performance. We receive allowances, credits and income from suppliers primarily for volume incentives, new product introductions, in-store promotions and co-operative advertising. Certain of these funds are based on our volume of net sales or purchases, growth rate of net sales or purchases and marketing programs. If we do not grow our net sales over prior periods or if we are not in compliance with the terms of these programs, there could be a material negative effect on the amount of incentives offered or paid to us by our suppliers. Additionally, suppliers routinely change the requirements for, and the amount of, funds available. No assurance can be given that we will continue to receive such incentives or that we will be able to collect outstanding amounts relating to these incentives in a timely manner, or at all. A reduction in, the discontinuance of, or a significant delay in receiving such incentives, as well as the inability to collect such incentives, could have a material adverse effect on our business, results of operation, and financial condition.
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Table of ContentsWe are subject to antitrust and similar legislation in the jurisdictions in which we operate. We are subject to a variety of antitrust and similar legislation in the jurisdictions in which we operate. In a number of markets, we have market positions which may make future significant acquisitions more difficult and may limit our ability to expand by acquisition or merger, in the event we wish to do so. In addition, we are subject to legislation in many of the jurisdictions in which we operate relating to unfair competitive practices and similar behavior. We have been subject to and may in the future be subject to allegations of, or further regulatory investigations or proceedings into, such practices. Such allegations or investigations or proceedings (irrespective of merit), may require us to devote significant management resources to defending ourselves against such allegations. In the event that such allegations are proven, we may be subject to significant fines, damages awards and other expenses and our reputation may be harmed. On April 24, 2007, representatives of the Conseil de la Concurrence/Raad voor de mededinging (Belgian competition authority), visited our offices in Zellik, Belgium, and requested that we provide to them specified documents. This request was a part of what appears to be a local investigation affecting several companies in Belgium in the retail sector. We understand that the investigation relates to prices of perfume, beauty products and other household goods. We have cooperated with the Belgian competition authority in connection with their requests for documentation and information and, as of the date of this filing, no statement of objections has been lodged against our company in relation to this matter. The maximum fine for violations of the related competition laws in Belgium is capped at ten percent of our company’s annual sales in Belgium. If the Belgian competition authority formally charges us with a violation of Belgian competition laws, our reputation may be harmed, and if a violation of such laws is proven we could be fined and incur other expenses, and there may be a material adverse effect on our financial condition and results of operations. On January 11, 2010 the Auditor of the Belgian Competition Council issued a report resulting from its investigation of a potential violation of Belgian competition laws by a supplier and several retailers active on the market of chocolate candies, chocolate spread and pocket candies. On April 7, 2011, the Belgian Competition Council considered, however, that the Auditor violated the parties’ rights of defense and rejected the case. It is now up to the auditor to determine whether and how it will continue to pursue this case. Unexpected outcomes in our legal proceedings could materially impact our financial performance. From time to time, we are party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property, competition/antitrust matters, landlord-tenant matters, tax matters and other proceedings arising in the ordinary course of business. We have estimated our exposure to the claims and litigation arising in the normal course of business and believe we have made adequate provisions for such exposure. Unexpected outcomes in these matters could have an adverse effect on our financial condition and results of operations. We may experience adverse results arising from claims against our self-insurance programs. Our U.S. operations are self-insured for workers’ compensation, general liability, automotive accident, pharmacy claims and healthcare (including medical, pharmacy, dental and short-term disability). We use self-insured retention programs for workers’ compensation, general liability, automotive accident, pharmacy claims, and healthcare (including medical, pharmacy, dental and short-term disability). We also use captive insurance arrangements for some of our self-insurance programs to provide flexibility and optimize costs. Self-insurance liabilities are estimated based on actuarial valuations of claims filed and an estimate of claims incurred but not reported. We believe that the actuarial estimates are reasonable. These estimates are subject to a high degree of variability and uncertainty caused by such factors as future interest and inflation rates, future economic conditions, litigation and claims settlement trends, legislative and regulatory changes, changes in benefit levels and the frequency and severity of incurred but not reported claims, making it possible that the final resolution of some of these claims may require us to make significant expenditures in excess of existing reserves.
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Table of ContentsSelf-insurance reserves of €121 million are included as liabilities on the balance sheet as of December 31, 2010. More information on self-insurance can be found in Note 20.2 to the consolidated financial statements included in this document. Increasing costs associated with our defined benefit pension plans may adversely affect our results of operations, financial position or liquidity. Most of our operating companies have pension plans, the structures and benefits of which vary with conditions and practices in the countries concerned. Pension benefits may be provided through defined contribution plans or defined benefit plans. A defined contribution plan is a post-employment benefit plan under which we and / or the associate pays fixed contributions usually to a separate entity. Under such a plan, there are no legal or constructive obligations to pay further contributions, regardless of the performance of the funds held to satisfy future benefit payments. The actual retirement benefits are determined by the value of the contributions paid and the subsequent performance of investments made with these funds. A defined benefit plan is a post-employment benefit plan which normally defines an amount of benefit that an employee will receive upon retirement, usually dependent on one or more factors such as age, years of services, compensation and / or guaranteed returns on contributions made. We have defined benefit plans at several of our entities and a total of approximately 20% of our associates were covered by defined benefit plans at the end of 2010. Assumptions related to future costs, return on investments, interest rates and other actuarial assumptions have a significant impact on our funding requirements related to these plans. These estimates and assumptions may change based on actual return on plan assets, changes in interest rates and any changes in governmental regulations. Therefore, our funding requirements may change and additional contributions could be required in the future. If, as of a balance sheet date, the fair value of any plan assets of a defined benefit plan is lower than the defined benefit obligations (determined based on actuarial assumptions), we bear a theoretical “underfunding risk” at that moment in time. At the end of 2010, we recognized a net liability of €79 million. Details on our pension plans can be found in Note 21.1 to the consolidated financial statements included in this document. We may not achieve all cost savings anticipated through our U.S. support services restructuring, which may reduce, delay or otherwise hinder our ability to implement our “New Game Plan” that we announced in December 2009 involving our operating companies’ fine-tuning their pricing strategies to achieve local value leadership and accelerated growth. Effective February 1, 2010, the support functions for Food Lion, Bloom, Harveys, Bottom Dollar Food, Hannaford and Sweetbay began to be integrated within the U.S. segment of Delhaize Group, while maintaining the unique go-to-market strategies of each of these banners. In this new structure, the banner organizations can benefit from by common U.S. support services for supply chain, IT, finance, human resources, organizational change management, legal and government relations, communications, strategy and research, and corporate development. The goal of these common support services is to create greater efficiencies and scale, and the elimination of redundancies, as well as to become more flexible in the integration of acquisitions, and ultimately better serve our banners and customers. This restructuring is also expected to simplify our legal, accounting and tax compliance requirements. We anticipate that cost savings achieved through our U.S. support services restructuring will help fund our New Game Plan that was announced in December 2009. A significant component of our New Game Plan involves, among other things, our operating companies’ fine-tuning their pricing strategies to achieve local value leadership. Our New Game Plan is intended to accelerate our growth. However, we cannot provide assurance that we will achieve all cost savings anticipated through our U.S. support services restructuring, or through other related initiatives, which may reduce, delay or otherwise hinder our ability to implement our New Game Plan.
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Table of ContentsRisks Relating to Our Securities and Our Incorporation in Belgium The trading price of our ADRs and dividends paid on our ordinary shares underlying the ADRs may be materially adversely affected by fluctuations in the exchange rate for converting euros into U.S. dollars. Fluctuations in the exchange rate for converting euros into U.S. dollars may affect the value of our ADRs and ordinary shares. Specifically, as the relative value of the euro to the U.S. dollar declines, each of the following values will also decline (and vice versa):
Due to delays in notification to and by the depositary, the holders of Delhaize Group ADRs may not be able to give voting instructions to the depositary or to withdraw the Delhaize Group ordinary shares underlying their ADRs to vote such shares in person or by proxy. Despite our best efforts, the depositary may not receive voting materials for Delhaize Group ordinary shares represented by Delhaize Group ADRs in time to ensure that holders of Delhaize Group ADRs can either instruct the depositary to vote the shares underlying their ADRs or withdraw such shares to vote them in person or by proxy. In addition, the depositary’s liability to holders of Delhaize Group ADRs for failing to execute voting instructions or for the manner of executing voting instructions is limited by the deposit agreement. As a result, holders of Delhaize Group ADRs may not be able to exercise their right to give voting instructions or to vote in person or by proxy and they may not have any recourse against the depositary or our company if their shares are not voted as they have requested or if their shares cannot be voted. We are incorporated in Belgium, which provides for different and in some cases more limited shareholder rights than the laws of jurisdictions in the United States. We are a Belgian company and our corporate affairs are governed by Belgian corporate law. Although provisions of Belgian company law resemble various provisions of the corporation laws of a number of states in the United States, principles of law relating to such matters as:
may differ from those that would apply if we were incorporated in a jurisdiction within the United States. For example, there are no statutory dissenters’ rights under Belgian law with respect to share exchanges, mergers and other similar transactions, and the rights of shareholders of a Belgian company to sue derivatively, on the company’s behalf, are more limited than in the United States. In addition, if a holder of our ordinary shares in registered form wishes to attend a general meeting, such holder must send to Delhaize Group’s registered office an attendance form evidencing his or her intent to exercise his or her rights at the meeting at least four business days prior to such meeting, and must remain the holder of such shares until the day after the meeting. A holder of our ordinary shares in bearer form must deposit the ordinary shares under which voting rights will be exercised with our registered office, or such other place as specified in the
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Table of Contentsnotice for the meeting, at least four business days prior to the applicable meeting. A holder of our ordinary shares in dematerialized form must provide notice of his or her intent to exercise his or her rights at the meeting to one of the financial institutions indicated in the notice to the meeting or any institution specified in such notice and pursuant to the modalities set forth in such notice, no later than four business days prior to such meeting. Similarly, a holder of our ADRs who gives voting instructions to the depositary must arrange for blocking transfers of those ADRs during the period from the date on which such voting instructions are received by the depositary until the day after such meeting. Belgian insolvency laws may adversely affect a recovery by the holders of amounts payable under our debt securities. We are incorporated, and have our registered office, in Belgium and, consequently, may be subject to insolvency laws and proceedings in Belgium. There are two types of insolvency procedures under Belgian law:
Belgian Act on Continuity Amicable settlement Any company can enter into an amicable settlement with some or all of its creditors to address its difficult financial situation or to reorganize its enterprise. The amicable settlement does not affect the rights of third parties. The Belgian Act on Continuity provides a safe haven against the risk of the amicable settlement and the related transactions being set aside. In order to benefit from this safe haven, the company has to file a copy of the amicable settlement with the court registry. Judicial reorganization The aim of a judicial reorganization is to maintain, under court’s supervision, the continuity of all or part of a stressed enterprise or of its activities. Moratorium The judicial reorganization involves a moratorium granted to the debtor for a period of up to six months. During this moratorium period, no enforcement can take place against the debtor’s assets and no bankruptcy proceedings can be opened in respect of the debtor. Creditors will however be able to effect set-off, enforce security over financial collateral and enforce pledges on receivables. Judicial reorganization by way of amicable settlement During the moratorium period, the debtor can negotiate an amicable settlement with two or more of its creditors. This negotiation takes place under court’s supervision. Once agreed, the amicable settlement will be presented to the court and the moratorium will end. The amicable settlement as presented to the court benefits from the same safe haven as the amicable settlement reached outside of the judicial reorganization (as set out above). Judicial reorganization by way of a collective agreement The debtor can also prepare a reorganization plan involving a description of the restructuring it intends on implementing and a description of the creditors’ rights following that restructuring. Certain secured creditors can see their payments deferred and enforcement rights suspended in the reorganization plan for a period of up to 24 months on the condition that they are being paid interest. The reorganization plan must be approved by more than half of the creditors representing more than half of the principal amount of the claims involved. If the plan is approved, the court will sanction the reorganization plan and the moratorium will end. The debtor will be held to implement and comply with the reorganization plan and if it fails to do so, the creditors may require the court to revoke its approval of the reorganization plan.
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Table of ContentsJudicial reorganization by way of a transfer of enterprise under court supervision The court can order the transfer of all or part of the activity of the debtor either with the debtor’s consent or without such consent at the request of any interested party in the event the debtor is bankrupt or if an attempted reorganization of the debtor has failed. The court will appoint a representative who will manage the sale and transfer. Once an offer has been selected, the court will hear the various stakeholders, including the creditors, and will approve, where appropriate subject to conditions, or reject the sale. The employment contracts will transfer with the enterprise but the purchaser can decide how many employees are transferred and can renegotiate the terms of the employment contracts. Following the completion of the sale of the enterprise, the creditors will be entitled to exercise their rights on the sale proceeds and the judicial reorganization will be closed. The remaining part of the enterprise can then be submitted to other insolvency, reorganization or winding-up proceedings. Bankruptcy A company which, on a sustained basis, has ceased to make payments and whose credit is impaired, will be deemed to be in a state of bankruptcy. Within one month after the cessation of payments, the company must file for bankruptcy. Bankruptcy procedures may also be initiated on the request of unpaid creditors or on the initiative of the public prosecutor. Once the court decides that the requirements for bankruptcy are met, the court will establish a date before which claims for all unpaid debts must be filed by creditors. A bankruptcy trustee will be appointed to assume the operation of the business and to organize a sale of the debtor’s assets, the distribution of the proceeds thereof to creditors and the liquidation of the debtor. Payments or other transactions (as listed below) made by a company during a certain period of time prior to that company being declared bankrupt (the “suspect period”) (période suspecte/verdachte periode) can be voided for the benefit of the creditors. The court will determine the date of commencement and the duration of the suspect period. This period starts on the date of sustained cessation of payment of debts by the debtor. The court can only determine the date of sustained cessation of payment of debts be a date earlier than the bankruptcy judgment if it has been requested to do so by a creditor proceeding for a bankruptcy judgment or if proceedings are initiated to that effect by the bankruptcy trustee or by any other interested party. This date can in principle not be earlier than six months before the date of the bankruptcy judgment. The ruling determining the date of commencement of the suspect period or the bankruptcy judgment itself can be opposed by third parties, such as other creditors, within 15 days following the publication of that ruling in the Belgian Official Gazette. The rules on transactions which can or must be voided for the benefit of the bankrupt estate in the event of bankruptcy include the following:
Following a judgment commencing a bankruptcy proceeding, enforcement rights of individual creditors are suspended. Creditors secured by in rem rights, such as share pledges, will regain their ability to enforce their rights under the security after the bankruptcy trustee has verified the creditors’ claims.
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Table of ContentsWe are a Belgian company and a majority of our directors and many of our officers are not residents of the United States. As a result, a litigant may be unable to serve legal process within the United States or enforce in the U.S. judgments against us and our non-resident directors and officers. We are a Belgian company and a majority of our directors and many of our officers are not residents of the United States. Furthermore, a substantial portion of the assets of these non-resident persons are located outside the United States. As a result, a litigant may be unable to effect service of process within the United States upon these non-resident persons or to enforce in the United States any judgments obtained in U.S. courts against any of these non-resident persons or us based upon the civil liability provisions of the securities or other laws of the United States. Civil liabilities based upon the securities and other laws of the United States may not be enforceable in original actions instituted in Belgium, or in actions instituted in Belgium to enforce judgments of U.S. courts. Civil liabilities based upon the securities and other laws of the United States may not be enforceable in original actions instituted in Belgium, or in actions instituted in Belgium to enforce judgments of U.S. courts. Actions for the enforcement of judgments of U.S. courts might be successful only if the Belgian court confirms the substantive correctness of the judgment of the U.S. court, and is satisfied that:
Holders of our ADRs or ordinary shares have limited rights to call shareholders’ meetings or to submit shareholder proposals, which could adversely affect their ability to participate in the governance of Delhaize Group. Except under limited circumstances, only our Board of Directors may call a shareholders’ meeting. Shareholders who collectively own at least 20% of the corporate capital of Delhaize Group may require the Board of Directors or the statutory auditor to convene an extraordinary general meeting of shareholders. As a result, the ability of holders of our ADRs or ordinary shares to participate in and influence the governance of Delhaize Group is limited.
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Table of ContentsHolders of our ADRs have limited recourse if we or the depositary fails to meet its respective obligations under the deposit agreement or if they wish to involve Delhaize Group or the depositary in a legal proceeding. The deposit agreement expressly limits the obligations and liability of Delhaize Group and the depositary. Neither we nor the depositary will be liable to the extent that liability results from the fact that they:
In addition, neither we nor the depositary has any obligation to participate in any action, suit or other proceeding in respect of our ADRs which may involve it in expense or liability unless it is indemnified to its satisfaction. These provisions of the deposit agreement will limit the ability of holders of our ADRs to obtain recourse if Delhaize Group or the depositary fails to meet its respective obligations under the deposit agreement or if they wish to involve us or the depositary in a legal proceeding. We, as a non-U.S. issuer, are subject to disclosure standards that differ from those applicable to U.S. domestic issuers, which may limit the information available to holders of our ADRs, and corporate governance standards that differ from those applicable to U.S. domestic issuers, which may limit the transparency and independence of corporate governance, in each case as compared to U.S. domestic issuers. As a non-U.S. issuer, we are not subject to the U.S. insider “short-swing” profit disclosure and reporting rules under Section 16 of the Securities Exchange Act. Although we are subject to the periodic reporting requirements of the Exchange Act, the periodic disclosure required of non-U.S. issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Therefore, there may be less publicly available information about us than is regularly published by or about U.S. domestic issuers in the U.S. In addition, as a Belgian company subject to the rules and regulations of the Securities and Exchange Commission, or SEC, we may publicly file our earnings reports later than U.S. issuers. We are required to file with the SEC annual reports on Form 20-F and reports on Form 6-K. We historically have filed reports on Form 6-K containing financial information on a quarterly basis, but such reports may not contain the same information as would be found in quarterly periodic reports filed by U.S. domestic issuers. Our ordinary shares are listed on NYSE Euronext Brussels under the symbol “DELB” and our American Depositary Shares, or ADSs, as evidenced by American Depositary Receipts, or ADRs, are listed on the New York Stock Exchange, NYSE, under the symbol “DEG.” Delhaize Group, as a non-U.S. company listed on the New York Stock Exchange (“NYSE”), is permitted to follow home country practice in lieu of certain corporate governance provisions of the NYSE applicable to US domestic companies. Under the NYSE’s corporate governance listing standards and the requirements of Form 20-F, we must disclose any significant ways in which our corporate governance practices differ from those followed by U.S. domestic companies under NYSE listing standards. For more information, see Item 16G, “Corporate Governance” below.
INTRODUCTION The commercial name of our company is Delhaize Group. The legal names of our company are “Etablissements Delhaize Frères et Cie “Le Lion” (Groupe Delhaize)”, in Dutch “Gebroeders Delhaize en Cie “De Leeuw” (Delhaize Groep)” and in English “Delhaize Brothers and Co. “The Lion” (Delhaize Group)”, in abridged “Groupe Delhaize”, in Dutch “Delhaize Groep” and in English “Delhaize Group”, the company being allowed to use any of its full legal corporate names or any of its abridged legal corporate names. Delhaize Group is a limited
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Table of Contentsliability company incorporated and domiciled in Belgium. Our principal executive offices are located at Square Marie Curie 40, 1070 Brussels, Belgium. Our telephone number at that location is +32 2 412 22 11. Our Internet address is www.delhaizegroup.com. The information on our website is not a part of this document. We are a food retailer headquartered in Belgium with operations in six countries on three continents — North America, Europe and Asia. At December 31, 2010, our sales network (which includes company-operated, affiliated and franchised stores) consisted of 2,800 stores, and we employed approximately 138,600 people. In 2010, we recorded revenues of €20.8 billion and Group share in net profit of €574 million. Our primary store format consists of retail food supermarkets. Our sales network also includes other store formats such as proximity stores and specialty stores. In total, approximately 95% of our sales network is engaged in food retailing. In addition to food retailing, we engage in food wholesaling and non-food retailing of products such as pet products and prescription drugs. Delhaize Group SA is the parent company of a number of direct and indirect subsidiaries. A list of subsidiaries and related information is included in Note 36 to the consolidated financial statements included in this document. The following table sets forth, at the dates indicated, our sales network in the United States, Belgium and other regions: Sales Network (number of stores)
Revenues (in millions of EUR)
Our operations are located primarily in the United States, Belgium and Greece, with a small percentage of our operations in Romania and in Indonesia. In 2010, operations in the United States accounted for 68.1% of revenues. Operations in Belgium and the Grand Duchy of Luxembourg accounted for 23.0% of revenues. Operations in Greece accounted for 7.5% of revenues. Romania and Indonesia accounted for 1.4% of revenues in 2010.
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Table of ContentsHISTORY AND DEVELOPMENT OF THE DELHAIZE GROUP In 1867, the brothers Jules and Edouard Delhaize and their brother-in-law Jules Vieujant founded our company as a wholesale supplier of groceries in Charleroi, Belgium. In 1957, we opened our first supermarket in Belgium. Since that date, we have expanded our supermarket operations across Belgium and into other parts of Europe, North America and Southeast Asia. We were converted from a limited partnership to a limited liability company on February 22, 1962. We entered the United States in 1974, acquiring approximately 35% of Food Town Stores, Inc., a food retailer that operated 22 stores in the southeastern United States. In 1976, we increased our stake to 52%. In 1983, Food Town Stores, Inc. was renamed Food Lion, Inc. In December 1996, our U.S. operations were expanded when Food Lion acquired Kash n’ Karry. In July 2000, we acquired Hannaford Bros. Co, a supermarket chain operating in the Northeastern U.S. In October 2003, we acquired J.H. Harvey Co., a supermarket business operating in Georgia and Florida, and added it to our U.S. store network. In November 2004, we acquired Victory Distributors, Inc., a 19-store business operating in Massachusetts and New Hampshire under the trade name Victory Super Markets, and added it to our U.S. store network and converted the stores to the Hannaford banner. In April 2001, we and Delhaize America, our consolidated subsidiary through which our U.S. operations are conducted, consummated a share exchange transaction in which we acquired all of the outstanding shares of Delhaize America that we did not already own. Delhaize America shareholders exchanged their shares of Delhaize America common stock for either our American Depositary Receipts, or ADRs, which are listed on the New York Stock Exchange, or our ordinary shares, which are listed on Euronext Brussels. The 1990s were a period of international expansion outside of Belgium and the United States for our company. The following subsidiaries were integrated into our company in the following countries during this time: Delvita - Czech Republic (1991), Alfa Beta – Greece (1992), PG – France (1994), Food Lion Thailand – Thailand (1997), Super Indo – Indonesia (1997), Delvita – Slovakia (1998), Shop N Save – Singapore (1999) and Mega Image – Romania (2000). Since then, some of these businesses have been divested to focus our resources on better investment opportunities or because the activity had become non-strategic: PG – France (2000), Shop N Save – Singapore (2003), Food Lion Thailand – Thailand (2004), Delvita – Slovakia (2005), Delvita – Czech Republic (2007) and Delhaize Deutschland - Germany (2009). In 2001, Alfa Beta, our Greek operating company, acquired Trofo, a chain of stores operating in Greece that were subsequently re-branded into one of the Alfa Beta banners. In 2005, we acquired Cash Fresh, a chain of 43 supermarkets located mainly in the northeastern part of Belgium. In April 2008, Alfa Beta acquired 34 Plus Hellas stores (of which five were closed) and a brand new distribution center located in the North of Greece. In 2008, Alfa Beta launched a new store brand with the opening of two Lion Food Stores. These stores offer a reduced assortment at discount prices. In September 2008, we completed the acquisition of the La Fourmi chain of 14 supermarkets in Romania. In January 2009, Delhaize Group opened a new concept store in Belgium called Red Market. This store will serve as a laboratory for new concepts in the Belgian market and elsewhere throughout the Group. Red Market focuses on ease and speed of shopping, a reduced assortment, convenience and low prices. In 2010, the Red Market concept was introduced in Greece and Romania. On May 18, 2009, we launched through our wholly owned Dutch subsidiary Delhaize “The Lion” Nederland B.V. (Delned) a voluntary tender offer to acquire all of the common registered shares of Alfa Beta, which were not yet held by any of the consolidated companies of Delhaize Group. At the end of the acceptance period on July 9, 2009, Delned had acquired 89.56% of Alfa Beta. On February 9, 2010, Delned crossed the 90% share ownership threshold of Alfa Beta shares. On March 12, 2010, Delned launched a new tender offer to acquire the remaining 9.99% of Alfa Beta at €35.73 per share. At the end of the acceptance period of this tender offer on May 12, 2010, Delned had acquired approximately 90.83% of Alfa Beta. On June 4, 2010, Delned exercised the right to acquire any remaining shares that were not tendered in the tender offer or otherwise held by Delned as of June 2, 2010 (squeeze-out right). On August 9, 2010, Delned obtained 100% of the voting rights of Alfa Beta. On October 1, 2010, Alfa Beta was delisted from the Athens Stock Exchange. In July 2009, we closed the acquisition of 4 supermarkets in Romania previously operated under the Prodas name. In November 2009, we acquired the Greek retailer Koryfi which operated 11 stores and a distribution center in the Northeast of Greece.
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Table of ContentsDuring 2009 and 2010, we also entered into several smaller agreements acquiring individual stores in various parts of the world. On March 3, 2011, Delhaize Group announced that it had reached an agreement to acquire 100% of Serbian based food retailer Delta Maxi Group active in 5 countries in the Southeastern part of Europe. The company operates a network of approximately 450 stores at the end of 2010. Its formats include convenience stores, supermarkets and hypermarkets. We expect to be able to close this transaction in the third quarter of 2011. Competitive Strengths We believe that we are well positioned to capitalize on opportunities that exist in the supermarket industry in the geographical markets in which we operate. We seek to differentiate ourselves from our competitors through our competitive strengths, which include:
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Our Strategy Delhaize Group achieves its success through the combination of a local go-to-market strategy, regional leadership, the Group’s knowledge and expertise and a firm commitment to stay focused on the long-term while addressing short-term challenges. Our operating companies all rally around the same vision and group values that are the basis of everything we do. Our values are determination, integrity, courage, humility, and humor. Our goal is to achieve value leadership in all of our markets leading to superior top-line and operating profit growth and make Delhaize Group an effective acquirer. The sustainability of our business is based on a clear strategy, called our New Game Plan, of generating profitable revenue growth, pursuing best-in-class execution and operating as a responsible citizen.
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Table of ContentsBUSINESS OVERVIEW Delhaize Group’s segment reporting is geographical, based on the location of customers and stores, which matches the way we manage our operations. In 2010, reportable segments include the United States, Belgium (including Belgium and the Grand-Duchy of Luxembourg), Greece and “Rest of the World.” In January 2011, Delhaize Group amended its internal reporting and now prepares sub-consolidated information for all of Southeastern Europe (consisting presently of Greece and Romania) together. Consequently, Delhaize Group decided that Greece will no longer be a separate reportable segment, but subsumed in the “Rest of the World” segment, which has been renamed “Southeastern Europe and Asia” (SEE & Asia). As of December 31, 2010, we operated the following banners:
United States Overview. We engage in one line of business in the United States, the operation of food supermarkets in the southeastern, mid-Atlantic and northeastern regions of the United States under the banners Food Lion, Hannaford, Sweetbay Supermarket, Bloom, Bottom Dollar Food, Reid’s and Harveys. For the fiscal year ended December 31, 2010, we had revenues of €14.2 billion ($18.8 billion) in the United States. We were the third largest supermarket operator on the east coast of the United States for fiscal year 2010 based on sales. At the end of 2010, we employed approximately 104,000 people in the United States. Food Lion stores are located from Delaware through Florida. Hannaford and Kash n’ Karry (which operates Sweetbay Supermarket) became wholly-owned subsidiaries of Delhaize America in 2000 and 1996, respectively, and are located respectively throughout New England and Florida. Harveys is located primarily in Georgia and Florida and has been consolidated into Delhaize America’s results since October 26, 2003. Bloom and Bottom Dollar Food stores can be found in the mid-Atlantic section of the United States and began operations in 2004 and 2005, respectively. We announced our Sweetbay initiative in 2004 to convert all Kash n’ Karry stores, which are located in Florida, to the new brand Sweetbay Supermarket. By August 2007, all Kash n’ Karry stores had been remodeled and re-branded Sweetbay Supermarket stores.
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Table of ContentsSales network. The growth of our U.S. sales network has historically been based on store openings, complemented by selective acquisitions. In 2010, we opened 40 new stores in the United States, closed and relocated 2 stores and decided to close 18 other stores. This resulted in a net increase of 20 stores. As a result, as of December 31, 2010, we operated 1,627 supermarkets in 17 states in the eastern United States.
In recent years, we have pursued a significant remodeling program in the United States to provide our customers with a more convenient atmosphere, an enhanced merchandise assortment and improved customer service. In 2010, we re-opened 72 supermarkets in the U.S. after remodeling or expansion work. This included 31 stores in the markets of Richmond, Virginia and Greenville, North Carolina. The market renewal process is based on our commitment to better match stores to local demographics and shopping behavior (Food Lion, Bloom and Bottom Dollar Food). Remodeled stores received new interiors, new merchandising fixtures, expanded perishable offerings and changed product selections. On May 4, 2011, Food Lion re-launched approximately 200 stores in the Raleigh (North Carolina) and Chattanooga (Tennessee) markets. In addition to price, we have identified concrete action plans to strengthen other attributes of our Food Lion brand in those markets, focused on the quality of the assortment, the ease and convenience of the shopping experience as well as additional price investments. In 2010, the low-cost supermarket Bottom Dollar Food entered into the greater Philadelphia, PA area, a new market for the Group. We believe in the potential of Bottom Dollar Food in that market as the banner responds to the needs of the local population. At the end of 2010, Bottom Dollar Food counted 16 stores in that new area.
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Table of ContentsCompetition and regulation. The U.S. business in which we are engaged is competitive and characterized by narrow profit margins. We compete in the United States with international, national, regional and local supermarket chains, supercenters, independent grocery stores, specialty food stores, convenience stores, warehouse club stores, retail drug chains, membership clubs, general merchandisers, discount retailers and dollar stores. Competition is based primarily on location, price, consumer loyalty, product quality, variety and service. In order to support decisions on the competitiveness of the pricing level, Delhaize Group’s operating companies have developed detailed systems to compare prices with the competition. The major competitors of Food Lion are Wal-Mart, Kroger, Harris Teeter, Bi-Lo, Lowes Food and Save-A-Lot. The major competitors of Hannaford are Supervalu (Shaws), Price Chopper, Wal-Mart, DeMoulas (Market Basket) and Royal Ahold (Stop & Shop). The major competitors of Sweetbay are Publix, Winn-Dixie and Wal-Mart. The opening of new stores is largely unconstrained by regulation in most of the states where Food Lion and Sweetbay operate. The majority of the states in which Hannaford operates are more restrictive through regulation of the opening of new stores. Shopping hours are mostly unconstrained by regulation in all of the U.S. states in which we are active. Most of our U.S. stores are open 17 to 18 hours a day and seven days a week. Assortment. Our U.S. supermarkets sell a wide variety of groceries, produce, meats, dairy products, seafood, frozen food, deli/bakery products and non-food items such as prescriptions, health and beauty care and other household and personal products. Our U.S. stores offer nationally and regionally advertised brand name merchandise as well as products manufactured and packaged under private brands. Food Lion offers between 15,000 and 20,000 stock-keeping units (“SKUs”) in its supermarkets, Harveys between 15,000 and 20,000 SKUs, Bloom between 21,000 and 25,000 SKUs, Bottom Dollar Food between 6,500 and 8,000 SKUs, Sweetbay between 28,000 and 41,500 SKUs and Hannaford between 25,000 and 46,000 SKUs. Fresh products are a key category throughout the Group. Organic, natural and international foods are becoming more prevalent in the assortment. Hannaford, Food Lion and Sweetbay feature a strong organic and natural food department, Nature’s Place, in their stores. In Florida, our Sweetbay Supermarket concept strongly focuses on fresh products and specialty foods. Private brand products. Each of our principal U.S. banners offers its own line of private brand products. The Food Lion, Hannaford and Sweetbay private brand programs are consolidated into a single procurement program where appropriate, enhancing the sales and marketing of the various private brand brands, reducing the cost of goods sold for private brand brands and strengthening the margins for these products. Revenues of private brand products represented 26.2%, 27.4% and 27.5% of Food Lion’s, Hannaford’s and Sweetbay respective revenues in fiscal year 2010. As of December 31, 2010, Food Lion carried more than 5,600 private brand SKUs, Hannaford approximately 6,500 private brand SKUs and Sweetbay offered more than 5,000 SKUs under its private brand program. In 2010, we continued the roll out a common three-tier private brand program in our U.S. operations started in 2007, including a premium brand Taste of Inspirations, a house brand and a value line Smart Option as well as category-specific private brand lines for organic products, general merchandise and prepared meals. In the second quarter of 2011, we started to introduce My Essentials, a new value line of private brands that will eventually replace the Smart Option assortment. Loyalty cards. Food Lion operates a customer loyalty card program, which is called the MVP card program, through which customers can benefit from additional savings. Transactions using the MVP card accounted for approximately 84% of revenues at Food Lion in 2010. During the fiscal year ended December 31, 2010, approximately 13.7 million households actively used the MVP program, and their purchases were more than twice the size of non-MVP transactions. Pharmacies. As of December 31, 2010, there were 138 pharmacies in Hannaford stores, 77 in Sweetbay stores, 33 in Food Lion stores, 24 in Harveys stores and eight in Bloom stores. Belgium and the Grand Duchy of Luxembourg Overview. Belgium is our historical home market. The Belgian food retail market is characterized by a large presence of supermarkets, discount stores and independent shopkeepers. Over the years, we have built a strong market position (second in terms of sales), providing our customers with quality products and services at
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Table of Contentscompetitive prices. In 2010, we had revenues of €4.8 billion in Belgium and the Grand Duchy of Luxembourg, an increase of 4.0% over 2009, supported by comparable store sales growth of 3.2%, the highest level in the last seven years and entirely as a result of volume growth. Throughout the year, Delhaize Belgium continued consecutive waves of price investments started in early 2008, and marked the start of a price repositioning campaign. Transaction counts have increased throughout the year and Delhaize Belgium has gained market share throughout 2010 and ended the year with a 26.3% market share (source: A.C. Nielsen), an increase of 61 basis points compared to 2009. At the end of 2010, we employed approximately 17,300 people in Belgium and the Grand Duchy of Luxembourg. Sales network. In Belgium and the Grand Duchy of Luxembourg our sales network consists of several banners, depending on the specialty, the store size and whether the store is company-operated, franchised or affiliated (that is, stores to which we sell wholesale goods). As of December 31, 2010, our sales network consisted of 805 stores in Belgium and the Grand Duchy of Luxembourg, a net increase of 13 stores since 2009. The network included 375 supermarkets under the Delhaize “Le Lion”, AD Delhaize and Red Market banners, 290 smaller conveniently located stores primarily under the Proxy Delhaize, Delhaize City and Shop ‘n Go banners. It also included 140 pet food and products stores operated under the Tom & Co. banner. At the end of 2010, we operated 44 stores in the Grand Duchy of Luxembourg. Supermarkets. The supermarkets that are company-operated in Belgium and the Grand Duchy of Luxembourg carry the Delhaize “Le Lion” banner. At the end of 2010, there were 147 company-operated supermarkets of which 17 supermarkets were remodeled in 2010. A Delhaize “Le Lion” supermarket offers around 17,000 SKUs, depending on its size. The AD Delhaize supermarkets are affiliated stores, operated by independent retailers to whom we sell our products at wholesale prices. The AD Delhaize supermarkets have an average size of 1,125 square meters and offer approximately 12,000 SKUs. Red Market. At the end of 2010, Delhaize Group operated five Red Market stores in Belgium. The Red Market concept is a low-cost supermarket, able to offer permanent low prices on a limited range of approximately 5,700 SKUs including dry and fresh products and national as well as private brand products, in a pleasant and fast shopping experience at the quality standards for which Delhaize Belgium is renowned. Proximity stores. Our network of proximity stores in Belgium and the Grand Duchy of Luxembourg consisted of 290 stores under the Delhaize City, Proxy Delhaize and Shop ‘n Go banners at the end of 2010. The Delhaize City stores are mostly company-operated proximity stores targeting primarily urban customers. Proxy Delhaize and Shop ‘n Go are affiliated stores. Proxy Delhaize stores have an average selling area of approximately 500 square meters and offer approximately 6,500 SKUs. Most Shop ‘n Go stores are located in Q8 gas stations and address customer expectations regarding proximity, convenience, speed and longer operating hours. These stores have an average selling area of 140 square meters and offer approximately 2,000 SKUs. E-commerce. Caddy-Home, our food products home delivery banner in Belgium, sells food products to customers for which orders can be placed by the Internet, telephone or fax. As of December 31, 2010, Caddy-Home delivered in 17 cities throughout Belgium, offering approximately 5,400 SKUs to customers. In 2009, Delhaize Belgium launched Delhaize Direct, allowing customers to order their groceries through the Internet and pick them up at their local store. By the end of 2010, approximately 60 stores were equipped with Delhaize Direct, among which one AD Delhaize and one company-operated supermarket in the Grand Duchy of Luxembourg. Our objective is to have approximately 100 stores equipped with Delhaize Direct by the end of 2011. Specialty stores. Tom & Co. is a specialty chain focusing on food and accessories for pets. At the end of 2010, the large majority of the 140 Tom & Co. stores were operated under franchise agreements with independent operators. Competition and regulation. The Belgian food retail market is competitive and characterized by a large presence of international retailers: Carrefour (France), Louis Delhaize-Cora (France), Aldi (Germany), Makro-Metro (Germany), Lidl (Germany) and Intermarché (France). In addition, we face competition from national retailers in Belgium, such as Colruyt and Mestdagh.
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Table of ContentsCompetition is based primarily on location, price, consumer loyalty, product quality, variety and service. Since 2002, we have focused in Belgium on providing consistently competitive prices supplemented with regular promotions. In early 2007, Delhaize Belgium had its price comparison methodology certified by an independent consumer organization. Belgian law requires that permits be obtained for the opening and extension of stores exceeding certain sizes (always above 400 square meters selling area). Assortment. Our supermarkets in Belgium and the Grand Duchy of Luxembourg sell a wide variety of groceries, produce, meats, dairy products, seafood, frozen food, deli/bakery products and nonfood items such as health and beauty care and other household and personal products. Delhaize Belgium is also selling a basic offering of lottery and postal products in part of its network. Management believes that we are a market leader in Belgium for prepared meals. In Belgium, we have also developed a large range of organic products. Revenues from organic products grew by 17% compared to 2009. At the end of 2008, Delhaize Belgium introduced Eco-line, an assortment of environment-friendly detergents. Private brand. In Belgium, we actively promote three different lines of private brand products, including more than 6,000 different SKUs under the brands “Delhaize,” “Taste of Inspirations” and “365.” In 2010, private brand sales under our brand accounted for approximately 55% of total revenues generated in company-operated stores in Belgium. Our products, which are marketed as value priced products, aim to be comparable in quality to national brand products but are sold for lower prices. Private brand products under our brand are also used as a vehicle to increase differentiation and customer loyalty. “365” products are marketed as low price products with a “no frills” packaging. This private brand was launched in May 2004, initially in our Belgian operations, followed by our Greek and Romanian operations. At the end of 2010, the “365” offering included approximately 465 SKUs in Belgium and accounted for approximately 4% of revenues. During 2007, we rolled out a second pan-European private brand after “365,” called “Care.” The “Care” assortment includes a large variety of general merchandise and health and beauty products. Loyalty Card. Since 1992, our stores in Belgium use a loyalty card known as the Plus card, which was used by customers for approximately 90% of total sales in Delhaize “Le Lion” supermarkets in 2010. The Plus card also provides benefits for shoppers at our other stores in Belgium. Since 1999, we have developed partnerships with other companies in Belgium to offer additional benefits to holders of the Plus Card. Greece Overview. In 2010, revenues of Alfa Beta Vassilopoulos S.A., our Greek subsidiary, increased by 6.3% to €1.6 billion. The performance of Alfa Beta remained strong despite a difficult economic environment. The subsidiary is the second largest food retailer (in terms of sales) in Greece. Sales network. In 2010, we increased the number of stores in Greece by 7 to a total of 223 at the end of 2010. Alfa Beta strengthened its position in Northern Greece with two new locations; the conversion of eight stores acquired in the previous years and another 13 stores. As of December 31, 2010, Alfa Beta directly operated 157 supermarkets under the Alfa Beta banner, 11 cash & carry stores under the ENA banner, 16 AB City stores and served 37 affiliated stores operated under the AB Food Market and AB Shop & Go banners. Within the banner portfolio some shifts were made to better respond to regional and demographical elements. In 2010, the two Lion Food stores were converted to Red Market stores. At the end of 2010, Alfa Beta employed approximately 9,900 people. Alfa Beta seeks to attract customers looking for competitive pricing as well as quality products and services. Since 2005, we have focused on expanding our company-operated and affiliated network. We also reinforced our consumer appeal by focusing on assortment, price competitiveness and service. Alfa Beta continued to reinforce its product range, including organic products and private brand items. The Greek retail market is a fragmented, competitive market characterized by a large number of local retailers. Competition is based primarily on location, price, consumer loyalty, product quality, variety and service. Our company, Carrefour (France), Lidl (Germany) and Makro (Germany) are the only foreign food retail chains
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Table of Contentswith a significant presence in Greece. The most important local food retailers are Sklavenitis, Veropoulos, Atlantic and Massoutis. Alfa Beta competes with supermarket chains, hypermarkets, discount stores and traditional Greek grocery stores and markets. Permits from municipal, health regulation and fire protection authorities are required to open new stores and often require long periods to obtain. Operating hours tend to be strictly enforced, especially in the provinces. Operating stores on Sunday is prohibited, except in select designated tourist zones. Rest of the World Overview. In 2010, revenues in our Rest of the World segment (Romania and Indonesia) increased by 28.9% to €300 million. In 2010, we grew the number of stores in our Rest of the World segment by 28 to a total of 145 at the end of 2010. Romania. We own 100% of Mega Image since 2004. As of December 31, 2010, Mega Image operated 62 supermarkets and 10 Red Market stores in Romania and employed approximately 3,000 people. Mega Image’s network is concentrated in the Romanian capital of Bucharest, one of the most densely populated areas in Europe. During 2010, Mega Image accelerated its expansion with the opening of 10 Red Market stores in more rural and less populated areas outside of the capital. Mega Image’s stores all offer the private brand ranges “365”, “Care” and the house brands available at Delhaize Belgium and Alfa Beta. Mega Image’s private brand assortment increased with 44% to approximately 1,500 SKUs and now accounts for almost 10% of sales. Indonesia. In 1997, we entered Indonesia by acquiring an interest in P.T. Super Indo LLC, an operator of 11 stores at that time. We were operating 73 stores as of December 31, 2010, employing approximately 4,600 associates. We own 51% of Super Indo. The remaining 49% is owned by the Indonesian Salim Group. DESCRIPTION OF PROPERTY Store Ownership of Sales Network (as of December 31, 2010)
The majority of our company-operated stores are leased, mostly in the U.S. With the exception of 144 owned stores in the United States, as of December 31, 2010, Food Lion, Hannaford and Sweetbay Supermarket occupied various store premises under lease agreements. Lease terms (including reasonably certain renewal options) generally range from 1 to 40 years with renewal options ranging from 3 to 36 years. At the end of 2010, we operated 12 warehousing and distribution facilities (totaling approximately 949,000 square meters or approximately 10.2 million square feet) in the United States. We also own and operate most of our U.S. transportation fleet. In Belgium, as of December 31, 2010, we owned 131 of our stores (or 16.3% of our total sales network), owned six of our seven principal distribution centers (one out of the seven is partly owned) and leased our two ancillary distribution centers (external distribution centers managed by an external company). At December 31, 2010, we owned 41 stores and four distribution centers and leased 145 stores in Greece. At December 31, 2010, we owned 15 stores and one distribution center and leased 130 stores in our Rest of the World segment.
None.
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The following section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” of Item 3 “Key Information” above and those set forth under “Factors Affecting Financial Condition and Results of Operations” of this Item 5 below. INTRODUCTION This discussion is intended to provide the reader with information that will assist the reader in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary causes for those changes, as well as how certain accounting principles affect our financial statements. The discussion also includes information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect the financial condition and results of our operations as a whole. In reading the following discussion and analysis, please refer to our audited consolidated financial statements for fiscal years 2010, 2009 and 2008, included under Item 18 in this document. The consolidated financial statements referred to, were prepared using accounting policies in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and as adopted by the European Union, or EU. The only difference between the effective IFRS as issued by the IASB and as adopted by the EU relates to certain paragraphs of IAS 39 Financial Instruments: Recognition and Measurement, which are not required to be applied in the EU (so-called “carve-out”). We are not affected by the carve-out. Therefore, for us, there is no difference between the effective IFRS as issued by the IASB and the pronouncements adopted by the EU, as of December 31, 2010. We further refer to our comments made in connection with Changes in Accounting Policies and Disclosures and Standards and Interpretations issued but not yet effective, which are included under Item 18 in this document. Amounts in U.S. dollars in the following discussion and analysis are translated into euros at the exchange rates used to prepare the consolidated financial statements. The year-end exchange rate is used for balance sheet related items; the average daily exchange rate (i.e., the yearly average of exchange rates on each working day) is used for income statement and cash flow statement related items. The results of operations of our company and those of our subsidiaries outside the United States are presented on a calendar-year basis. The fiscal year for our wholly-owned U.S. subsidiaries ends on the Saturday nearest December 31. The consolidated results of Delhaize Group for 2010, 2009, and 2008 include the results of operations of its U.S. subsidiaries for the 52 weeks ended January 1, 2011, 52 weeks ended January 2, 2010 and 53 weeks ended January 3, 2009, respectively. Delhaize Belgium in the past has included our operations in Germany which were classified as discontinued operations as of December 31, 2008 until September 2009, when we completed the sale of our stores in Germany. Our financial information includes all of the assets, liabilities, sales and expenses of all fully consolidated subsidiaries, i.e., over which we can exercise control. EXECUTIVE SUMMARY The Food Retail Industry We are an international food retailer committed to growing by offering a locally differentiated shopping experience to our customers. This is accomplished through strong regional companies benefiting from and contributing to the Group’s strength, expertise and successful practices. In 2010, approximately 90 percent of our consolidated revenues were generated through the operation of retail food supermarkets in North America, Europe and Southeast Asia. We also sell consumer products at wholesale, mainly to franchised stores and affiliated stores. Our profits are generated by selling products at prices that produce revenues in excess of direct procurement costs and operating expenses. These costs and expenses include procurement and distribution costs, facility occupancy and other operational expenses, and overhead expenses.
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Table of ContentsOur financial results, along with other retail companies, are influenced by various factors such as cost of goods, inflation, deflation, currency exchange fluctuations, fuel prices, consumer preferences, general economic conditions and weather patterns. In addition, we also compete with numerous companies to attract and retain quality employees, as well as for prime retail site locations. Operations At the end of 2010, our store network totaled 2,800 stores. Our sales network consists primarily of retail food supermarkets, which also includes proximity and specialty stores, particularly in Europe. In addition, we have a limited number of company-operated cash n’ carry stores in Greece, which provide food sales to commercial customers. Approximately 76% of our stores are company-operated and 24% are operated as affiliated or franchised stores. Our stores sell a variety of groceries, produce, meats, dairy products, seafood, frozen food, deli-bakery and non-food items such as health and beauty care products, pet products, prescriptions and other household and personal products. Our companies offer nationally and regionally advertised brand name merchandise as well as products under private brands. In 2010, our operations were comprised of four geographical segments:
2010 Financial Results In 2010, we had:
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Table of ContentsOn October 8, 2010, we completed a private debt exchange transaction, pursuant to which we offered to exchange certain notes and debentures previously issued by our wholly owned subsidiary Delhaize America, LLC, for new notes issued by Delhaize Group. In the private debt exchange offer, we offered to exchange any and all of the outstanding 9.00% Debentures due 2031 and 8.05% Notes due 2027 (together the “Existing Securities”) held by eligible holders for new 5.70% Notes due 2040 (the “New Notes”). In total, $588 million of the total principal of $931 million of the Existing Securities were tendered by eligible holders and exchanged for $827 million of the New Notes. 2010 Acquisitions and Divestures During 2010, we entered into several small agreements acquiring a total of 15 individual stores in various parts of the world. Total consideration transferred during 2010 was €16 million in cash, and additional final payments of €1 million are expected to be paid in 2011. These transactions resulted in an increase of goodwill of €12 million, mainly representing expected benefits from the integration of the stores into the existing sales network and the locations and customer base of the various stores acquired, all resulting in synergy effects for the Group. In addition, we made a final payment of €3 million during 2010, relating to the acquisition of Koryfi SA, which occurred in 2009 and for which acquisition accounting was completed during 2010. In May 2009, we announced the launch of a voluntary tender offer for all of the shares of our Greek subsidiary Alfa Beta Vassilopoulos S.A. (“Alfa Beta”) not yet owned by us. The initial tender price was €30.50 per share and increased to €34.00 per share in June 2009. On March 12, 2010, we launched through our wholly owned Dutch subsidiary Delhaize “The Lion” Nederland BV (“Delned”) a new tender offer to acquire the remaining shares of Alfa Beta at €35.73 per share. On June 4, 2010, Delned requested from the Hellenic Capital Market Commission the approval to squeeze-out the remaining minority shares in Alfa Beta, which was granted on July 8, 2010. The last date of trading Alfa Beta shares at the Athens Exchange was July 29, 2010 and settlement occurred on August 9, 2010. Since August 9, 2010, we own 100% of the voting rights in Alfa Beta. Alfa Beta was delisted from the Athens Exchange as of October 1, 2010. No divestures occurred in 2010. Further information regarding acquisitions and divestitures is located in Notes 4 and 5 of our consolidated financial statements, included under Item 18 in this document. CRITICAL ACCOUNTING ESTIMATES We have selected accounting policies that we believe provide an accurate, true and fair report of our consolidated financial condition and results of operations. Those accounting policies are applied in a consistent manner, unless stated otherwise, which is mainly a result of the application of new accounting pronouncements. Details on changes in accounting policies are provided in Note 2.2 to the consolidated financial statements. For a summary of all of our significant accounting policies, please see Note 2.3 to the consolidated financial statements. These consolidated financial statements are included under Item 18 in this document. The preparation of the consolidated financial statements in conformity with IFRS requires that we make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions, although based on historical and other factors that we believe to be reasonable under the circumstances, inherently contain some degree of uncertainty. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants, accountants, lawyers and actuaries to assist us in our evaluation, with the final decision remaining with us. By definition, actual results may and will often differ from these estimates under different assumptions and conditions. In the past, our estimates generally have not deviated significantly from actual results. We believe the following accounting estimates and assumptions are critical because they involve the most significant judgments and estimates used in the preparation of our consolidated financial statements and the impact of the estimates and assumptions on financial condition or operating performance might be material.
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Table of ContentsAsset Impairment (excluding goodwill) As explained in our description of accounting policies, we test assets with finite useful lives or groups of such assets for which identifiable cash flows are independent of other groups of assets and liabilities (so-called “cash generating units”) for impairment whenever events or circumstances indicate that impairment may exist. Due to the importance to our business, we particularly monitor the carrying value of our retail stores, each representing a cash generating unit, for potential impairment, which we discuss further below. An impairment loss is recorded for stores for which their recoverable value (the higher of value in use, calculated on the basis of projected discounted cash flows, or fair value less costs to sell) is less than the net carrying amount, in which case the carrying value of the store is written down to its recoverable amount. Only if events or circumstances indicate that impairment no longer exists, the impairment loss is reversed. Testing retail stores for impairment is significantly impacted by estimates of future operating cash flows, discount rates and estimates of fair value. Future cash flows are estimated using our past experience and knowledge of the markets in which our stores are located. These estimates are adjusted for various factors such as inflation and general economic conditions. We estimate fair value based on our experience and knowledge of the real estate markets where our stores are located and sometimes use independent third-party appraisers to help estimate the fair values of the stores. We believe the assumptions we use are reasonable, however, as indicated above, changes in economic conditions and operating performance impacting the assumptions used in projecting future operating cash flows will have a potential impact on the determination of the recoverable amount and by that the impairment losses. For example, while a 200 basis points increase in the sales growth assumption used in the cash flow projections would not have resulted in fewer stores being identified for impairment, it would have decreased the impairment losses recognized by an amount below €1 million. On the other hand, a 200 basis points decrease in the sales growth assumption used in the cash flow projections would not have resulted in additional stores identified for impairment, but would have increased the impairment losses of the year also by an amount below €1 million. Goodwill and Intangible Assets In accordance with our accounting policies, we conduct an annual impairment assessment for goodwill and intangible assets with indefinite useful lives in the fourth quarter of each year and, in addition, whenever events or circumstances indicate that impairment may have occurred. The impairment calculation for goodwill involves comparing the recoverable amount of the cash generating unit (“CGU”) that is benefiting from the synergies of the underlying business combination, with its carrying value, including goodwill. The recoverable amount of the cash generating unit is determined based on the higher of value in use (“VIU”) calculations and the fair value less cost to sell (“FVLCTS”). The value in use calculations use cash flow projections based on financial plans approved by management covering a three-year period. Cash flows beyond the three-year period are extrapolated using estimated growth rates. The assumptions applied for our most significant entities are described in Note 6 to our consolidated financial statements, included under Item 18 to this document. Goodwill relating to our U.S. entities was tested applying discounted cash flows models to estimate the VIU. Goodwill at the remaining CGUs with significant goodwill allocation was tested for impairment using a market multiple or market capitalization approach, where possible, to determine FVLCTS and discounted cash flows models to establish the VIU. An impairment loss is recorded if the carrying value exceeds the recoverable amount. Goodwill impairments are never reversed. The evaluation of goodwill for impairment testing requires management to use significant judgments and estimates regarding most importantly, but not limited to, projected future cash flows, growth rates and discount rates. We believe the assumptions used are reasonable. However, changes in economic conditions and operating performance will impact the assumptions used in projecting future operating cash flows and the selection of an appropriate discount rate, which will have a potential impact on the determination of the recoverable amount and by that the impairment losses. As stated, the assumptions represent our best estimates of future developments, and we are of the opinion that no reasonably possible change in any of the key assumptions mentioned would cause the carrying value of the
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Table of Contentssignificant cash generating units to materially exceed their recoverable amounts. For information purposes only, an increase of 100 basis points in the discount rate applied and a simultaneous reduction of the terminal growth rate by 50 basis points would have decreased the total value in use by €4.0 billion in 2010 and would not have resulted in the carrying amounts of the significant CGUs exceeding their recoverable amounts. Trade receivables We maintain an allowance for doubtful trade receivables to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of that allowance, we base our estimates on the aging of accounts receivable balances and historical write-off experience, customer credit worthiness and changes in customer payment terms. If the financial condition of customers were to deteriorate, actual write-offs might be higher than expected. Due to our large and unrelated customer and vendor base, and as there are no individually significant outstanding amounts, we are not exposed to any concentrated credit risk. Income Taxes Current and deferred income tax needs to be determined for each of the jurisdictions in which we operate. Management judgment is required for the calculation of current and deferred taxes. Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted, or substantively enacted, at the balance sheet date, and any adjustment to tax payable (receivable) for prior periods. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and the corresponding tax basis used in the computation of taxable income. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized. Deferred tax assets are recognized to the extent that their utilization is probable. The utilization of deferred tax assets will depend on whether it is possible to generate sufficient taxable income in the respective jurisdiction, taking into account any legal restrictions on the utilization of the asset. Various factors are used to assess the probability of the future utilization of deferred tax assets, including, but not limited to, past operating results, and future operational plans. The financial position, net income or cash flows may be impacted if the actual results differ from these estimates or if these estimates must be adjusted in future periods. In the event that the assessment of future utilization of deferred tax assets changes, the impact on recognized deferred tax assets will be recognized in profit or loss or directly in equity. In addition, we are subject to periodic audits and examinations by tax authorities. Based on our evaluation of the potential tax liabilities and the merits of our filing positions, we believe it is unlikely that any potential tax exposures, in excess of the amounts currently recorded as liabilities in our consolidated financial statements, would be material to our future financial condition or results of operations. Leases As disclosed in Note 8 to our consolidated financial statements, included under Item 18 in this document, the vast majority of our stores operate in leased premises. According to IFRS, leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to us. All other leases are classified as operating leases. Stores operated under finance lease contracts are recognized as assets and liabilities in the balance sheet, with interest and depreciation charges impacting the income statement. Operating lease contracts result in rent payments being charged to the income statement on a straight-line basis, with no assets or liabilities recognized in the balance sheet. A different classification of a lease agreement will therefore significantly impact our balance sheet total. Establishing if a transaction has transferred substantially all of the risks and rewards of ownership to us requires the application of judgment and the use of estimates, which include, but are not limited to the determination of the lease term, incremental borrowing rates, minimum lease payments and contingent rents. The determination of lease terms also involves judgments as to whether an economic penalty exists that reasonably assures the exercise of renewal options. Detailed information on our minimum lease payments, both under finance and operating lease agreements, can be found in Note 18.3 to our consolidated financial statements, included under Item 18 of this document.
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Table of ContentsSelf Insurance As explained in Note 20.2 to our consolidated financial statements, included under Item 18 of this document, in the United States we are self-insured for workers’ compensation, general liability, vehicle accident and pharmacy claims up to a certain retention and we hold excess-insurance contracts with external insurers for any costs in excess of these retentions. Our self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not reported (“IBNR”). The significant assumptions used in the development of the actuarial estimates are based upon our historical claims data, including the average monthly claims and the average duration between incurrence and payment. In addition, our property insurance in the United States includes self-insured retentions per occurrence of $10 million for named windstorms, $5 million for Zone A flood losses and $2.5 million for all other losses. We are also self-insured in the United States for health care which includes medical, pharmacy, dental and short-term disability. The self-insurance liability for IBNR claims is estimated quarterly by management based on available information and considers an annual actuarial evaluation based on historical claims experience, claims processing procedures and medical cost trends. Actuarial estimates are subject to a high degree of uncertainty due to, among other things, changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation and economic conditions. We believe that the actuarial estimates are reasonable and represent our best estimate of the total exposure. However, it lays in the nature of such estimates that significant differences between actual and estimates could materially affect our self-insurance obligations. Share-Based Payments We have equity-settled share-based compensation plans covering employees in the United States and Europe. The fair value of the employee-related services received in exchange for the grant of the share-based awards is recognized as an expense. The fair value of the share-based awards is calculated using the Black-Scholes-Merton option pricing model. The resulting cost is charged to the income statement over the vesting period of the related share-based award. Compensation expense is adjusted to reflect expected and actual levels of vesting. The Black-Scholes-Merton option pricing model incorporates certain assumptions, which are our estimates of the risk-free interest rate, expected volatility, expected dividend yield and expected life of options, to arrive at a fair value estimate. Our assumptions are based on historical, mainly observable market data and are reviewed at each grant date and explained in Note 21.3 of our consolidated financial statements, included under Item 18 of this document. Based on this, we revise our valuation assumptions as appropriate to value share-based awards granted in future periods. Closed Store Provisions We regularly review the operational performance of our retail stores and make assessments of the future developments of the various stores. In some cases, we decide to close stores, which results in a number of accounting activities in order to ensure that assets and liabilities resulting from these decisions are appropriately reflected in our financial statements. This involves testing assets for impairment, see above, but also the recognition of closed store and severance (“termination”) provisions. The provision for closed stores expenditures is estimated based on remaining lease obligations, expected sub-lease income and exit costs associated with store closing commitments. Other exit costs include estimated utilities, real estate taxes, common area maintenance and insurance costs to be incurred after the store closes, all of which are contractually required payments under the lease agreements, over the remaining lease term. The estimates are based on past experience and are reviewed regularly to ensure that accrued amounts continue to reflect our best estimate of the outstanding commitments. It is in the nature of such estimates that actual amounts differ from the estimates. Adjustments to closed store provisions and other exit costs primarily relate to
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Table of Contentschanges in subtenant income and actual exit costs differing from original estimates. Such adjustments are made in the period in which the change becomes known. Any excess store closing provision remaining upon settlement of the obligation is reversed in the period that such settlement is determined. Calculating the estimated store closing losses requires significant judgments and estimates that could be impacted by factors such as the extent of interested buyers, the ability to obtain subleases, the creditworthiness of sublessees, and our success at negotiating early termination agreements with lessors. These factors are significantly dependent on general economic conditions and resulting demand for commercial property. Finally, applying an appropriate discount rate on long-term cash flow projection requires the application of judgment. Varying the discount rate applied by 200 basis points would have resulted in an immaterial increase / decrease of expenses charged to profit or loss for 2010 store closing activities and increased / decreased the total closed store provision by €4 million. Supplier Allowances We receive allowances and credits from suppliers primarily for in-store promotions, co-operative advertising, new product introductions and volume incentives. Allowances for in-store promotions, co-operative advertising and volume incentives are included in cost of inventory and recognized when the product is sold unless they represent reimbursement of a specific, identifiable cost incurred by us to sell the vendor’s product. Such reimbursement allowances are recorded as a reduction in selling, general and administrative expenses. Income from new product introductions constitutes an allowance received to compensate us for costs incurred for product handling and are recognized over the product introduction period in cost of sales. In certain cases, estimating rebates received from third-party vendors requires us to make assumptions and judgments regarding specific purchase or sales levels and to estimate related inventory turnover. We constantly review the relevant significant assumptions and estimates and 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 significant effect on future cost of sales. Amounts owed to us under these arrangements are subject to counterparty credit risk. In addition, the terms of the contracts covering these programs can be complex and subject to interpretation, which can potentially result in disputes. We provide an allowance for uncollectible amounts and to cover disputes in the event that our interpretation of the contract terms differ from that of vendors and vendors seek to recover some of the consideration from us. These allowances are based on the current financial condition of the vendors, specific information regarding disputes and historical experience, and changes to these factors could impact these allowances. Defined Benefit Plans Approximately 20% of our employees are covered by defined benefit plans, which normally define an amount of benefit that an employee will receive upon retirement, usually depending on factors such as age, year of services and similar criteria. Such plans are either funded or unfunded and our net obligation recognized in the balance sheet is the present value of the defined benefit obligation at the balance sheet date less the fair value of any plan assets, adjusted for past service costs. Calculating the net pension obligations involves the application of actuarial valuation methods, which are subject to a number of estimates and assumptions about the future, as detailed in Note 21.1 to our consolidated financial statements, as included under Item 18 of this document. We review all significant assumptions periodically, which are based on observable market input and long-term historical experience. Differences between estimates and actual outcomes and changes in assumptions represent actuarial gains and losses, which are fully recognized in the period they occur in the statement of other comprehensive income, being part of equity, and impact immediately the net pension obligation. However, such actuarial gains or losses do not have an immediate impact on our future contributions to the pension plan. In the event that changes in key assumptions applied to estimate the annual pension costs are required, the future amounts of the pension benefit costs may be materially affected.
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Table of ContentsSELECTED RESULTS OF OPERATIONS Overview During 2010, our revenues increased 4.6% compared to revenues for 2009. During 2009, our revenues increased 4.8% over revenues for 2008. In 2010, there was a positive translation effect in our sales as a result of the strengthening of the average rate of the U.S. dollar against the euro by 5.2% compared to 2009. In 2009, the appreciation of the average exchange rate of the U.S. dollar against the euro was 5.4% compared to 2008. The translation effect is the effect of fluctuations in the exchange rates in the functional currencies of our subsidiaries to the euro, our reporting currency. When discussing our results of operations in this section, we recalculated certain key measures at identical exchange rates by converting the results of our operations denominated in a currency other than the euro at the exchange rate prevailing for the comparative year. For instance, 2010 revenue growth at identical exchange rates was calculated by converting 2010 revenues of our U.S., Romanian and Indonesian operations at the 2009 average exchange rates. We ended 2010 with a sales network of 2,800 stores, an increase of 68 stores compared to 2009. At December 31, 2009, we had a sales network of 2,732 stores, or 59 more than the 2,673 stores in the network at December 31, 2008. Net profit attributable to equity holders of our company (our company share in net profit) for 2010, increased by 11.7% compared with our company share in net profit for 2009. This increase in 2010 was mainly a result of a higher operating profit and less net profit attributable to non-controlling interests partially offset by higher income taxes and a lower result from discontinued operations. Our company share in net profit for 2009, increased by 10.1% compared with our company share in net profit for 2008. This increase in 2009 was mainly a result of a higher operating profit, a higher result from discontinued operations and less net profit attributable to non-controlling interests partially offset by higher income taxes.
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Table of ContentsRevenues The following table sets forth, for the periods indicated, our revenues contribution by geographic region:
Revenues increased 4.6% for 2010 compared to 2009, positively impacted by the strengthening of the U.S. dollar by 5.2% against the euro. Revenue growth was 1.0% at identical exchange rates. This growth was the result of a net increase in the sales network of 68 stores and a comparable store sales growth of 3.2% in Belgium, partially offset by a negative comparable store sales evolution of 2.0% in the U.S. Comparable store sales are sales of the same stores, including relocations and expansions and adjusted for calendar effects. Revenues increased 4.8% for 2009 compared to 2008, positively impacted by the strengthening of the U.S. dollar by 5.4% against the euro. Revenue growth was 1.2% at identical exchange rates. In 2008, our operating companies in the U.S. benefited from a 53rd calendar week resulting in an additional revenue contribution of €258 million. Excluding the effect on revenues of the 53rd week in the U.S., revenue growth was 2.6% at identical exchange rates. This growth was the result of a net increase in the sales network of 59 stores and a comparable store sales growth of 2.7% in Belgium, partially offset by a negative comparable store sales evolution of 0.4% in the U.S. United States Revenues increased 4.2% for 2010 compared to 2009. This increase was a result of the strengthening of the U.S. dollar by 5.2% against the euro. At identical exchange rates, revenues decreased by 1.0%. Comparable store sales evolution was -2.0% in 2010 impacted by prudent consumer spending and a competitive environment which stayed very promotional, especially in the second quarter. We finished 2010 with 1,627 supermarkets in the U.S. In 2010, we opened 40 new stores in the U.S. including 16 Bottom Dollar Food stores and closed 20 stores. This resulted in a net increase of 20 stores. Revenues increased 4.1% for 2009 compared to 2008. This increase was a result of the strengthening of the U.S. dollar by 5.4% against the euro. At identical exchange rates, revenues decreased by 1.3%. Excluding the 53rd week in 2008, revenues increased by 0.7% at identical exchange rates. Comparable store sales evolution was -0.4% in 2009 impacted by declining retail inflation, prudent consumer spending and a very promotional competitive environment. We finished 2009 with 1,607 supermarkets in the U.S. In 2009, we opened 30 new stores in the U.S., closed and relocated 7 stores, and decided to close 17 other stores. This resulted in a net increase of 13 stores. Belgium Revenues increased by 4.0% for 2010 over 2009. This increase was the result of a comparable store sales growth of 3.2% and a net increase of 13 stores in 2010. In 2010, Delhaize Belgium continued to benefit from consecutive waves of price investments which started three years ago, supported by strong communication and targeted promotional activities. Delhaize Belgium ended the year 2010 with a 26.3% market share (source AC Nielsen), an increase of 61 basis points compared to 2009. Revenues increased by 4.7% for 2009 over 2008. This increase was the result of a comparable store sales growth of 2.7% and a net increase of 17 stores in 2009 (including the divestiture of four stores in Germany). In 2009, Delhaize Belgium benefited from multiple waves of price reductions which started in early 2008 and marked the start of a price repositioning campaign. As a result, Delhaize Belgium gained market share in every week of 2009 (compared with the respective corresponding week of 2008) and ended the year with a market share of 25.7% (source: AC Nielsen), an increase of 58 basis points compared to 2008.
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Table of ContentsGreece Revenues increased by 6.3% for 2010 over 2009 despite a difficult economic environment. In 2010, the number of stores in Greece increased by 7 to a total of 223 stores. Market share increased by 160 basis points over 2009 to 18.4% (source AC Nielsen). Revenues increased by 10.2% for 2009 over 2008, due to strong comparable store sales growth, new store openings and the acquisition of 10 Koryfi stores. In 2009, the number of stores in Greece increased by 15 to a total of 216 stores. Rest of the World (Romania and Indonesia) Revenues increased by 28.9% for 2010 over 2009 primarily as the result of the store network expansion in both countries. At the end of 2010, the sales network in the Rest of the World consisted of 145 stores. Revenues increased by 15.5% for 2009 over 2008 primarily as the result of the store network expansion in both countries (primarily from the acquisition of La Fourmi in 2008 and Prodas in 2009, both in Romania). At the end of 2009, the sales network in the Rest of the World consisted of 117 stores. Gross Profit
Gross profit increased by 4.4% for 2010 compared to 2009 (increase of 0.6% at identical exchange rates). Gross margin stayed stable at 25.7% in 2010 in comparison to 2009. In the U.S., gross margin decreased by 32 basis points from 27.9% to 27.6% primarily as a result of price investments at Food Lion which began at the beginning of 2010. At Delhaize Belgium, gross margin increased by 72 basis points from 20.0% to 20.8% as a result of better supplier terms and lower logistics costs. In Greece, gross margin increased by 42 basis points from 23.8% to 24.3% primarily as a result of better supplier terms. Gross profit increased by 6.3% for 2009 compared to 2008 (increase of 2.4% at identical exchange rates). Gross margin increased 37 basis points to 25.7% in 2009 in comparison to 2008. In the U.S., gross margin increased by 18 basis points from 27.7% to 27.9% due to improved inventory results at all three operating companies, lower utility costs and improved distribution labor productivity at Food Lion, partially offset by price investments and promotions. At Delhaize Belgium, gross margin increased by 78 basis points from 19.3% to 20.0% as a result of better supplier terms and improved inventory results. In Greece, gross margin increased by 116 basis points from 22.7% to 23.8% mainly as a result of better supplier terms. Other Operating Income Other operating income includes income generated from activities other than sales and point of sale services to retail and wholesale customers, including mainly waste recycling income, rental income and gains on sale of property, plant and equipment. Other operating income increased by 9.4% to €85 million for 2010 compared to 2009. This increase is mainly due to higher income from waste recycling activities as a result of higher prices for paper (€23 million in 2010 compared to €11 million in 2009).
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Table of ContentsOther operating income decreased by 18.7% to €78 million for 2009 compared to 2008. This decrease is mainly due to lower income from waste recycling activities as a result of lower prices for paper (€11 million in 2009 compared to €18 million in 2008), less income related to the sale of Cash Fresh stores in Belgium (€1 million in 2009 compared to €4 million in 2008) and a €5 million gain in 2008 related to the sales of fixed assets at Alfa Beta. Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) increased by 4.8% for 2010 compared to 2009 (almost flat at identical exchange rates). SG&A as a percentage of revenues increased by 5 basis points to 21.1% at actual rates. In the U.S., SG&A as a percentage of revenues increased by 11 basis points to 22.5% of revenues driven by higher depreciation, amortization and advertising expenses, as well as the impact of lower revenues, partly offset by cost reduction efforts. At Delhaize Belgium, SG&A expenses decreased by 17 basis points to 16.5% of revenues mainly due to the impact of higher revenues and cost reduction efforts. In Greece, SG&A increased by 23 basis points to 20.4% of revenues as a result of salary increases and additional taxes due to government measures. SG&A increased by 5.8% for 2009 compared to 2008 (increase of 2.0% at identical exchange rates). SG&A as a percentage of revenues increased by 20 basis points to 21.0% at actual rates. In the U.S., SG&A as a percentage of revenues increased by 17 basis points to 22.4% of revenues, but remained stable if we exclude the positive effect of the 53rd week in 2008. Major cost reduction efforts, through store labor efficiencies and improved back office and supply chain procedures, have allowed our U.S. operating companies to offset higher staff costs mainly attributable to increases in minimum wage levels and rising health care costs. At Delhaize Belgium, SG&A expenses increased by 33 basis points to 16.7% of revenues mainly due to higher staff costs, increased advertising costs and higher rents and depreciation as a result of new store openings. These cost increases were partly offset by cost savings generated by the “Excel 2008-2010” plan. In Greece, SG&A increased by 21 basis points to 20.2% of revenues as a result of higher staff costs and depreciation charges. Other Operating Expenses Other operating expenses include expenses incurred outside the normal cost of operating supermarkets, including losses on disposal of property, plant and equipment, impairment losses, store closing expenses and restructuring charges. Other operating expenses amounted to €20 million in 2010 and decreased by 71.7% compared to 2009. The 2009 result included a restructuring charge of €21 million and store closing and impairment charges of €23 million, both in the U.S., while an impairment charge of €14 million mainly relating to underperforming stores was recorded in 2010. Effective February 1, 2010, the support functions for Food Lion, Bloom, Harveys, Bottom Dollar Food, Hannaford and Sweetbay began to be integrated within the U.S. segment of Delhaize Group, while maintaining the unique go-to-market strategies of each of these banners. In this new structure, the banner organizations can benefit from common U.S. support services for supply chain, IT, finance, human resources, organizational change management, legal and government relations, communications, strategy and research, and corporate development. The goal of these common support services is to create greater efficiencies and scale, eliminate redundancies, become more flexible in the integration of acquisitions, and ultimately better serve our banners and customers. This restructuring will also simplify our legal, accounting and tax compliance requirements. It will improve the capital structure of the Group and it will allow for a more efficient repatriation of profits and cash from the U.S. to the Belgian parent company.
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Table of ContentsThe U.S. restructuring resulted in a pre-tax charge of €21 million ($29 million) in the fourth quarter of 2009 mainly for employee severance payments and asset write-offs. In conjunction with the U.S. restructuring, Delhaize Group decided to close 15 underperforming Food Lion stores and 1 underperforming Bloom store and recorded impairment charges on other U.S. stores which resulted in an additional pre-tax store closing and impairment charge of €23 million ($32 million). Other operating expenses amounted to €69 million in 2009 and increased by 37.8% compared to 2008. The 2009 result was mainly due to the U.S. restructuring, store closing and impairment charges totaling €44 million (explained above), a change in the discount rate used to calculate U.S. closed store provisions (€4 million), store impairment charges for other underperforming stores across the Group (€6 million) and impairment charges related to the retirement of various software solutions (€5 million). Operating Profit The following table sets forth, for the periods indicated, our operating profit contribution by geographic segment:
Our operating margin for 2010 increased to 4.9% compared to 4.7% in 2009. The operating margin of the U.S. operations decreased slightly from 5.4% in 2009 to 5.3% in 2010 driven by the price repositioning effort at Food Lion and the impact of lower revenues partly offset by the impact of the U.S. restructuring, store closing and impairment charges recorded in 2009 and cost reduction efforts. The operating margin of the Belgian operations increased from 4.0% in 2009 to 4.9% in 2010 driven primarily by favorable supplier terms, the impact of higher revenues and cost reductions. In 2010, the operating margin of the Greek operations remained stable at 4.0% as the favorable gross margin evolution was offset by higher SG&A as a percentage of revenues and lower other operating income. The operating margin of the Rest of the World segment increased from -0.3% in 2009 to 1.8% in 2010 mainly due to the impact of higher revenues, and an improved gross margin. Our operating margin for 2009 decreased slightly to 4.7% compared to 4.8% in 2008. The operating margin of the U.S. operations also decreased slightly from 5.5% in 2008 to 5.4% in 2009 due to the impact of the 53rd week in 2008 and the U.S. restructuring, store closing and impairment charges recorded in 2009. The operating margin of the Belgian operations increased from 3.8% in 2008 to 4.0% in 2009 driven by a favorable gross margin partially offset by higher SG&A as a percentage of revenues, higher other operating expenses and lower other operating income. In 2009, the operating margin of the Greek operations increased to 4.0% compared to 3.4% in 2008 mainly due to a favorable gross margin which was offset partially by higher SG&A as a percentage of revenues and lower other operating income. The operating margin of the Rest of the World segment decreased from 1.5% in 2008 to -0.3% in 2009 mainly due to higher staff costs and depreciation in Romania as a result of new store openings and La Fourmi remodelings. Operating profit increased by 8.7% to €1,024 million for 2010 compared to 2009. At identical exchange rates, operating profit increased 4.7%.
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Table of ContentsOperating profit increased by 4.2% to €942 million for 2009 compared to 2008. At identical exchange rates, operating profit was in line with 2008 and increased 3.4% when excluding the effect of the 53rd week of operations in 2008. Net Financial Expenses
Net financial expenses during 2010 were slightly higher than 2009 and represented, as a percentage of revenues, 1.0% in 2010 and 2009. At identical exchange rates, net financial expenses decreased by €7 million mainly due to the positive impact of the 2010 debt exchange and of the 2009 bond refinancing, higher income on financial investments and lower interest rates on our floating rate debt denominated in U.S. dollar. Net financial expenses during 2009 were in line with 2008 and represented, as a percentage of revenues, 1.0% in 2009 and 1.1% in 2008. At identical exchange rates, net financial expenses decreased in 2009 by €8 million compared to 2008 mainly as a result of lower interest rates on USD floating rate debt. Income Tax Expense
Our effective tax rate for continuing operations (total income tax expense from continuing operations divided by profit before tax and discontinued operations) was 29.8%, 30.8% and 30.9% for 2010, 2009 and 2008, respectively. The effective tax rate for continuing operations for 2010 decreased by 94 basis points in comparison to 2009, mainly as a result of the organizational restructuring impact in the U.S. implemented in 2009 and the debt exchange in the fourth quarter of 2010. The effective tax rate for continuing operations for 2009 was comparable to 2008 as the favorable impact of the U.S. organizational restructuring and the positive resolutions of U.S. and Belgian tax matters in 2009 were offset by the favorable resolutions of other federal tax matters in the U.S. in 2008. The effective tax rate (including discontinued operations) was 29.8%, 30.4% and 31.2% for 2010, 2009 and 2008, respectively. The effective tax rates differ from the effective tax rate for continuing operations in 2009 and 2008 because the result from discontinued operations included a non-taxable gain in 2009 and a non-taxable loss in 2008. The non-taxable gain in 2009 and the non-taxable loss in 2008 both related to the divestiture of our German operations. We refer to Note 22 in Item 18 for a reconciliation of our Belgian statutory income tax rate of 34% to our effective income tax rate. We continue to be subject to tax audits in jurisdictions where we conduct business. Although some audits have been completed during 2009 and 2010, we expect continued audit activity in 2011. While the ultimate outcome of tax audits is not certain, we have considered the merits of our filing positions in our overall evaluation of potential tax liabilities and believe we have adequate liabilities recorded in our consolidated financial statements for exposures on these matters. Based on our evaluation of the potential tax liabilities and the merits of our filing positions, we also believe it is unlikely that potential tax exposures over and above the amounts currently recorded as liabilities in our consolidated financial statements will be material to our financial condition or future results of operations.
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Table of ContentsResult from Discontinued Operations In 2010, the result from discontinued operations, net of tax, amounted to a loss of €1million. In 2009, the result from discontinued operations, net of tax, amounted to a profit of €8 million mainly due to the gain on the divestiture of our German operations that were sold during the third quarter of 2009. In 2008, the result from discontinued operations, net of tax, amounted to a loss of €6 million mainly due to the recognition of an €8 million impairment loss in order to write down the carrying value of Delhaize Deutschland GmbH to its fair value less costs to sell, as a result of our decision to sell our German operations. This was partially offset by the liquidation of Food Lion (Thailand), Ltd. (a dormant company) in April 2008 resulting in a gain from discontinued operations of €2 million. Net Profit Attributable to Equity Holders of Delhaize Group The positive result from a higher operating profit partly offset by higher income taxes and a lower result from discontinued operations resulted in a 11.7% increase in net profit attributable to equity holders of our company (our company share in net profit) for 2010 compared to 2009. The positive result from a higher operating profit and an increase in the result from discontinued operations resulted in a 10.1% increase in net profit attributable to equity holders of our company (our company share in net profit) for 2009 compared to 2008.
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Table of ContentsLIQUIDITY AND CAPITAL RESOURCES We had €758 million of cash and cash equivalents as of December 31, 2010, compared to €439 million at December 31, 2009. Our principal source of liquidity is cash generated from operations. Debt is also an important tool in our capital structure. Cash flow from operations is reinvested each year into new stores, store remodeling and store expansions, as well as in store efficiency-improvement measures and retailing innovations. Cash flow from operations is also used to service debt, for working capital needs, the payment of dividends and for financing acquisitions. We believe that our working capital and existing credit lines will be sufficient for our anticipated capital requirements for the foreseeable future. Operating Activities Net cash provided by operating activities was €1,317 million, €1,176 million and €927 million during the years ended December 31, 2010, 2009 and 2008, respectively. The increase in 2010 over 2009 was primarily due to a higher net profit (€ 60 million), higher depreciation and amortization (€ 60 million) and lower tax payments (€58 million income taxes paid in 2010 compared to €248 million in 2009). This was partly offset by unfavorable changes in operating assets and liabilities (a negative €67 million in 2010 versus €92 million in 2009) resulting from higher receivables from affiliated stores at Delhaize Belgium and major improvements in working capital realized in 2009. The increase in 2009 over 2008 was primarily due to higher net profit (€41 million) and improved changes in operating assets and liabilities (€92 million in 2009 versus a negative €188 million in 2008) as a result of improvements in working capital management. This was partly offset by higher tax payments in the U.S., whereas in 2008 we benefited from a tax refund and from the 2008 U.S. Stimulus Act (€248 million income taxes paid in 2009 compared to €130 million in 2008). Investing Activities Net cash used in investing activities was €665 million for 2010, compared to €555 million during 2009 and €758 million for 2008 (both after reclassification of cash flows resulting from the acquisition of non-controlling interests from “Investing” to “Financing” activities due to a change in IFRS, effective in 2010). The increase in 2010 is mainly due to capital expenditures that were €140 million higher than in 2009, partly offset by less business acquisitions. In 2009, we spent €47 million mainly for the acquisitions of Knauf Center Schmëtt SA and Knauf Center Pommerlach SA (both in Luxembourg) and Koryfi SA in Greece. Capital Expenditures Capital expenditures were €660 million for 2010 compared with €520 million for 2009 and €714 million for 2008. The increase of 26.8% in 2010 (22.7% increase at identical rates) is mainly a result of the delayed spending in 2009 on store remodeling activity in the U.S. The decrease of 27.1% in 2009 (29.2% decrease at identical rates) is mainly the result of lower store remodeling activity in the U.S.
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Table of ContentsCapital Expenditures by Geographical Area
Capital Expenditures per Type
In 2010, we remodeled or expanded 72 supermarkets in the U.S. (compared to 53 in 2009) and 18 supermarkets were remodeled in Belgium (17 in 2009). The other capital expenditures mainly relate to capital spending in information technologies, logistics and distribution. Business Acquisitions Our growth strategy includes selective acquisitions. During 2010, we entered into several small agreements acquiring a total of 15 individual stores in various parts of the world. Total consideration transferred during 2010 was €16 million in cash, and additional final payments of €1 million are expected to be paid in 2011. These transactions resulted in an increase of goodwill of €12 million, mainly representing expected benefits from the integration of the stores into the existing sales network and the locations and customer base of the various stores acquired, all resulting in synergy effects for the Group. In addition, we made a final payment of €3 million during 2010, relating to the acquisition of Koryfi SA, which occurred in 2009 and for which acquisition accounting was completed during 2010. This is also detailed in Note 4.1 of our consolidated financial statements, included under Item 18 in this document. Business Disposals No business disposals occurred in 2010. Financing Activities Net cash used in financing activities was €343 million in 2010, compared to cash used in financing activities of €496 million and €105 million in 2009 and 2008, respectively, after the reclassification of cash flows resulting from the acquisition of non-controlling interests from “Investing” to “Financing” activities due to a change in IFRS, effective in 2010. We refer for further comments to Note 4.2 of our financial statements, included under Item 18 in this document. Purchase of non-controlling interests On May 18, 2009, we announced the launch of a voluntary tender offer for all of the shares of our Greek subsidiary Alfa Beta which were not yet held by any of our consolidated companies. At the end of the tender offer period, we held 89.56% of Alfa Beta shares. During the second half of 2009, we acquired additional shares on the market and at December 31, 2009, we owned 11,451,109 shares (representing 89.93%). We paid €108 million for the 24.7% additional Alfa Beta shares we purchased in 2009.
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Table of ContentsIn March, 2010, we launched a final tender offer to acquire the remaining shares of Alfa Beta at €35.73 per share. After approval from the Hellenic Capital Market Commission on the squeeze-out in July, we own since August 9, 2010, 100% of the voting rights in Alfa Beta. We delisted Alfa Beta from the Athens Exchange as of October 1, 2010. We paid €47 million for the remaining 10.07% additional Alfa Beta shares we purchased in 2010. Long-term debt In 2010, our long-term debt decreased by €92 million. During 2010, we repaid at maturity a bond of €40 million (issued by Alfa Beta) and €49 million finance lease obligations. In October 2010, Delhaize Group exchanged $533 million of the 9.00% debentures due 2031 and $55 million of the 8.05% Notes due 2027 issued by the wholly-owned subsidiary Delhaize America, LLC, for $827 million, 5.70% Senior Notes due 2040 issued by Delhaize Group. In 2009, our long-term debt decreased by €142 million. In February 2009, we issued $300 million (€208 million) Senior Notes with an annual interest rate of 5.875% due 2014. During 2009, we repaid at maturity the outstanding convertible bonds of €170 million (2.75% interest), a Eurobond of €150 million (4.625% interest) and finance lease obligations of €45 million. In 2008, we decreased our long-term debt by €69 million. This amount includes the repayment of €100 million 8.00% notes and €39 million finance lease payments partly offset by the issuance of an €80 million five-year bond at 5.1% for the financing of the acquisition of Plus Hellas. In 2003, Hannaford invoked the defeasance provisions of several of its outstanding Notes and placed sufficient funds in an escrow account to satisfy the remaining principal and interest payments due on these Notes. As a result of this defeasance, Hannaford is no longer subject to the negative covenants contained in the agreements governing the Notes. As of December 31, 2010, 2009 and 2008, €8 million, €9 million and €13 million in aggregate principal amount of the Notes was outstanding, respectively. Cash committed to fund the escrow and not available for general corporate purposes is considered restricted. At December 31, 2010, 2009 and 2008, restricted securities of €10 million, €10 million and €15 million, respectively, were recorded in investment in securities on the balance sheet. At December 31, 2010, the carrying value of our long-term borrowings (including current portion and excluding finance leases), net of discounts and premiums, deferred transaction costs and hedge accounting fair value adjustments, can be summarized as follows:
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Table of ContentsThe table below provides per currency the expected principal payments (undiscounted) and related interest rates of our long-term borrowings by year of maturity as of December 31, 2010. For the definition of “fair value”, see Note 18.1 to the consolidated financial statements included in this document. USD denominated debt
Debt Covenants for Long-Term Debt We are subject to certain financial and non-financial covenants related to the long-term debt instruments indicated above. Indentures covering the Notes due in 2011 ($), 2014 ($), 2014 (€), 2017 ($), 2027 ($) and 2040 ($) and the Debentures due in 2031 ($) contain customary provisions related to events of default as well as restrictions in terms of negative pledge, liens, sale and leaseback, merger, transfer of assets and divestiture. The 2014 ($), 2014 (€), 2017 ($) and 2040 ($) Notes also contain a provision granting their holders the right to early repayment for an amount not in excess of 101% of the outstanding principal amount thereof in the event of a change of control in combination with a rating event. While these long-term debt instruments contain certain accelerated repayment terms, none contain accelerated repayment clauses that are subject solely to changes in our credit rating (“rating event”). None of the debt covenants restrict the abilities of our subsidiaries to transfer funds to the parent. The Term Loan maturing in 2012 contains customary provisions related to events of default as well as a minimum fixed charge coverage ratio and a maximum leverage ratio, both based on non-GAAP measures. The Bonds due in 2013 contain customary defined non-GAAP measure based minimum fixed charge coverage and maximum leverage ratios.
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Table of ContentsAt December 31, 2010, 2009 and 2008, we were in compliance with all covenants for long-term debt, and headroom on financial covenants at December 31, 2010, was at least 30% for all ratios. Short-Term Borrowings Delhaize America, LLC entered into an unsecured revolving credit agreement (“the 2009 Credit Agreement”) in 2009, which provided the entity with a three-year $500 million (equal to €374 million at December 31, 2010), unsecured, committed revolving credit facility, including a $100 million (€75 million) sub-limit for the issuance of letters of credit, and a $35 million (€26 million) sub-limit for swingline loans. The 2009 Credit Agreement was guaranteed by substantially all of Delhaize America’s subsidiaries. Delhaize America, LLC had no outstanding borrowings under its 2009 Credit Agreement as of December 31, 2010, $50 million (€35 million) as of December 31, 2009 and no outstanding borrowings as of December 31, 2008. On April 15, 2011, Delhaize America, LLC terminated all of the commitments under its 2009 Credit Agreement in connection with Delhaize Group and certain of its subsidiaries, including Delhaize America, LLC, entering into a €600 million, 5-year, unsecured revolving credit facility agreement (the “New Facility Agreement”). Under the credit facilities that were in place at the following reporting dates, Delhaize America, LLC had average daily borrowings of $2 million (€2 million) during 2010, $3 million (€2 million) during 2009 and $25 million (€18 million) during 2008. No credit agreements amounts were used to fund letters of credit during 2010 and 2009 and approximately $1 million (€1 million), of the 2005 Credit Agreement was used to fund letters of credit during 2008. In addition to the Credit Agreement, Delhaize America, LLC had approximately $20 million (€15 million), $37 million (€26 million) and $77 million (€55 million) outstanding to fund letters of credit as of December 31, 2010, 2009 and 2008 respectively. Further, Delhaize America, LLC has periodic short-term borrowings under uncommitted credit facilities that are available at the lenders’ discretion. The aggregate amount potentially available for borrowings under these facilities was $45 million (€34 million) at December 31, 2010. As of December 31, 2010, 2009 and 2008, Delhaize America, LLC had no borrowings outstanding under such arrangements. At December 31, 2010, Food Lion, LLC had a short term construction facility of $5 million (€4 million) in place, with maturity June 5, 2011, of which $3 million (€2 million) was outstanding. At December 31, 2010, 2009 and 2008 our European and Asian entities together had credit facilities (committed and uncommitted) of €490 million (of which €325 million of committed credit facilities), €542 million and €621 million, respectively, under which we can borrow amounts for less than one year (“Short-term Bank Borrowings”) or more than one year (“Medium-term Bank Borrowings”). The Short-term Bank Borrowings and the Medium-term Bank Borrowings generally bear interest at the inter-bank offering rate at the borrowing date plus a pre-set margin, or based on market quotes from banks. In Europe and Asia, we had €14 million in outstanding short-term bank borrowings at December 31, 2010 compared to €28 million in outstanding short-term bank borrowings at December 31, 2009 and €152 million borrowings outstanding at December 31, 2008, respectively, with an average interest rate of 4.83%, 3.83% and 4.37%, respectively. During 2010, the Group’s European and Asian average borrowings were €41 million at a daily average interest rate of 4.56%. In addition to the Short-term bank borrowings, the Group’s European and Asian entities together had approximately €4 million outstanding to fund letters of guarantees as of December 31, 2010 (€3 million at December 31, 2009 and 2008). Debt Covenants for Short-Term Borrowings The New Facility Agreement, which replaced the 2009 Credit Agreement, and the €325 million committed European bilateral credit facilities require maintenance of various financial and non-financial covenants. The agreements contain customary provisions related to events of default and affirmative and negative covenants applicable to Delhaize Group. The negative covenants contain restrictions in terms of negative pledge, liens, indebtedness of subsidiaries, sale of assets and merger, as well as minimum fixed charge coverage ratios, maximum
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Table of Contentsleverage ratios and maximum equity variation ratios based on non-GAAP measures. For information regarding covenants in the New Facility Agreement, see “Item 10. Additional Information — Material Contracts — Delhaize Group New Facility Agreement.” None of the debt covenants restrict the ability of our subsidiaries to transfer funds to the parent. At December 31, 2010, 2009 and 2008, we were in compliance with all covenants conditions for Short-term Borrowings, and headroom on financial covenants at December 31, 2010, was above 25% for all ratios. Credit Ratings Standard & Poor’s Rating Services (S&P) and Moody’s Investors Service, Inc. (Moody’s) rate our senior unsecured long-term debt (long-term). S&P and Moody’s assign investment grade credit ratings of BBB- and Baa3, respectively, with stable outlooks to our long-term debt. The ratings of both agencies remained unchanged during 2010. Debt ratings are an assessment by the rating agencies of the credit risk associated with us and are based on information provided by us or other sources. Lower ratings generally result in higher borrowing costs and reduced access to capital markets. See “Increases in interest rates and/or a downgrade of our credit ratings could negatively affect our financing costs and our ability to access capital” under Item 3 “Key Information—Risk Factors.” Debt ratings are not a recommendation to buy, sell or hold securities. Ratings may be subject to revision or withdrawal by the rating agencies at any time. As rating agencies may have different criteria in evaluating the risks associated with a company, you should evaluate each rating independently of other ratings. Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of December 31, 2010:
Off-Balance Sheet Arrangements We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations or cash flows.
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Table of ContentsFACTORS AFFECTING FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to the following factors, please see the information under the heading entitled “Risk Factors” under Item 3 “Key Information.” Financial Risk Management. As a global market participant, we have exposure to different kinds of market risk. The major exposures are foreign currency exchange rate, interest rate risks and self-insurance risks. We provide a centralized treasury function for the management and monitoring of foreign currency exchange and interest rate risks for all our operations. Our risk policy is to hedge only interest rate or foreign currency exchange transaction exposure that is clearly identifiable. We do not hedge foreign currency exchange translation exposure. We do not utilize derivatives for speculative purposes. Currency Risk – Business Operations. Our operations are conducted primarily in the U.S. and Belgium and to a lesser extent in other parts of Europe and in Southeast Asia. The results of operations and the financial position of each of our entities outside the euro zone are accounted for in the relevant local currency and then translated into euro at the applicable foreign currency exchange rate for inclusion in the Group’s consolidated financial statements, which are presented in euro (see also Note 2.3 in the consolidated financial statements with respect to translation of foreign currencies, being included under Item 18 in this document). Exchange rate fluctuations between these foreign currencies and the euro may have a material adverse effect on our consolidated financial statements. These risks are monitored on a regular basis at a centralized level. Because a substantial portion of our assets, liabilities and operating results are denominated in U.S. dollars, we are particularly exposed to currency risk arising from fluctuations in the value of the U.S. dollar against the euro. We do not hedge the U.S. dollar translation exposure. The translation risk resulting from the substantial portion of U.S. operations is managed by striving to achieve a natural currency offset between assets and liabilities and revenues and expenditures denominated in U.S. dollars. Remaining intra-Group cross-currency transaction risks which are not naturally offset concern primarily dividend payments by the U.S. subsidiary and cross-currency lending, which in accordance with IFRS survive the consolidation process. When appropriate, we enter into agreements to hedge against the variation in the U.S. dollar in relation to dividend payments between the declaration by the U.S. operating companies and payment dates. Intra-Group cross-currency loans not naturally offset are generally fully hedged through the use of foreign exchange forward contracts or currency swaps. At December 31, 2010, after cross-currency swaps, 85 % of net financial debt is denominated in U.S. dollars while also 71% of profits from operations are generated in U.S. dollars. Significant residual positions in currencies other than the functional currency of the operating companies are generally also fully hedged in order to eliminate any remaining currency exposure (see also Note 19 in the consolidated financial statements included under Item 18 of this document). If the average U.S. dollar exchange rate had been 1 cent higher/lower and all other variables were held constant, our net profit would have increased/decreased by €3 million (2009: €3 million; 2008: €2 million). Currency Risk – Financial Instruments. Currency risk on financial instruments is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of future changes in foreign exchange rates. Currency risks arise on financial instruments that are denominated in a foreign currency, i.e. in a currency other than the functional currency of the reporting entity that holds the financial instruments. From an accounting perspective, we are exposed to currency risks only on monetary items not denominated in the functional currency of the respective reporting entity, such as trade receivables denominated in a foreign currency, financial assets classified as available for sale, derivatives, financial instruments not designated as for hedge relationships and borrowings denominated in a foreign currency. Our functional currency is the euro. At December 31, 2010, if the U.S. dollar had weakened/strengthened by 20% (estimate based on the standard deviation of daily volatilities of the EUR/USD rate during 2010 using a 95% confidence interval), our net profit (all other variables held constant) would have been €1.4 million higher/lower (2009: €3.4 million higher / lower with a rate shift of 24%; 2008: €0.1 million lower/higher with a rate shift of 28%). Due to our financing structure, such a change in EUR/USD exchange rate would have no impact on our equity.
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Table of ContentsInterest Rate Risk. Interest rate risk is the risk that arises on interest-bearing financial instruments and represents the risk that the fair value or the expected cash flows will fluctuate because of future changes in market interest rates. We are exposed to interest rate risk due to working capital financing and the overall financing strategy. Daily working capital requirements are typically financed with operational cash flow and through the use of various committed and uncommitted lines of credit and a commercial paper program. The interest rate on these short and medium term borrowing arrangements is generally determined either as the inter-bank offering rate at the borrowing date plus a pre-set margin or based on market quotes from banks. Our interest rate risk management objective is to achieve an optimal balance between borrowing cost and management of the effect of interest rate volatility on earnings and cash flows. We manage our debt and overall financing strategies using a combination of short, medium, long-term debt and interest rate derivatives. We review our interest rate risk exposure on a quarterly basis and at the inception of any new financing operation. As a part of our interest rate risk management efforts, we enter into interest rate swap agreements when appropriate. At the end of 2010, 72.3% of our net financial debt after swaps were fixed-rate debts (2009: 69.1% fixed-rate debt; 2008: 67.4% fixed-rate debt). The sensitivity analysis presented in the table below estimates the impact on the income statement and equity of a parallel shift in the interest rate curve. The shift in that curve is based on the standard deviation of daily volatilities of the “Reference Interest Rates” (Euribor 3 months and Libor 3 months) during the year, within a 95% confidence interval. The estimated possible impact on net profit and equity increased compared to 2009 due to an observed increase in volatility of interest rates during 2010. December 31, 2010 (in millions of EUR)
Credit Risk/ Counterparty Risk. Credit risk is the risk that one party to an agreement will cause a financial loss to another party by failing to discharge its obligation to a financial instrument, such as trade receivables, holdings in investment securities, derivatives and cash and cash equivalents. We manage this risk by obtaining credit insurance and regular credit reviews in case of trade receivables and by requiring a minimum credit quality of our financial investments (see also Note 11 in our consolidated financial statements included under Item 18 of this document).
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Table of ContentsOur short-term investments are required to have a rating of at least A1 (Standard & Poor’s) / P1 (Moody’s). Our long-term investment policy requires a minimum credit rating of A-/A3 for our financial investments (see also Note 11 in our consolidated financial statements included under Item 18 of this document in connection with the credit quality of our investments). Deposits should be maintained with banks having a minimum long-term credit rating of A-/A3, although we may from time to time deviate from this policy for deposits which are held with certain banks for operational reasons. Our exposure to changes in credit ratings of our counterparties is continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Counterparty risk is always assessed with reference to the aggregate exposure to a single counterparty or group of related parties to avoid or minimize concentration risk. Delhaize Group’s derivatives are regulated by International Swap Dealer Association Agreements (“ISDAs”) with Credit Support Agreements requiring the posting of collateral when the marked-to-market value of the derivative reaches a certain threshold, limiting the counterparty risk. Liquidity Risk. Liquidity risk is the risk that we will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or other financial assets. We are exposed to liquidity risk as we have to be able to pay our short and long-term obligations when they are due. We have a centralized approach to reduce the exposure to liquidity risk which aims at matching the contractual maturities of our short and long-term obligations with our cash position. Our policy is to finance our operating subsidiaries through a mix of retained earnings, third-party borrowings and capital contributions and loans from the parent and subsidiary financing companies, with the aim of ensuring a balanced repayment profile of the financial debts. We manage the exposure by closely monitoring the cash resources required to fulfill the working capital needs, capital expenditures and debt requirements. Furthermore, we closely monitor the contractual maturity profiles and the amount of short-term funding and the mix of short-term funding to total debt, the composition of total debt and the availability of committed credit facilities in relation to the level of outstanding short-term debt (see also Notes 18.1 and 18.2 in the consolidated financial statements included under Item 18 of this document with respect to maturity information on long-term debts and for Debt Covenants information). A liquidity gap analysis is performed on a quarterly basis in which we anticipate large future cash inflows and outflows. At year-end 2010, we had committed credit lines totaling €699 million, none of which was utilized. These credit lines include a syndicated U.S. credit facility of $500 million (equal to €374 million at December 31, 2010) for Delhaize America, LLC and €325 million of bilateral credit facilities for European entities. At December 31, 2010, the maturities of the committed credit facilities were as follows: €200 million maturing in 2011, €424 million maturing in 2012 and €75 million maturing in 2013. As described in Note 18.1 in the consolidated financial statements included under Item 18 to this document, no major principal payment of financial debt will occur until 2014. At December 31, 2010 the maturities of the long term debt were €40 million in 2011, €85 million in 2012 and €80 million in 2013. The financial rating agencies Standard & Poor’s and Moody’s have attributed investment grade long term ratings to us of BBB- and Baa3, respectively. This credit status is supported by cross-guarantee arrangements between Delhaize Group and Delhaize America LLC, whereby the entities are guaranteeing each other’s financial debt obligations. Self-Insurance Risk. We manage our insurable risk through a combination of external insurance coverage and self-insurance. In deciding whether to purchase external insurance or manage risk through self-insurance, we consider the frequency and severity of losses, our success in managing risk through safety and other internal programs, the cost and terms of external insurance coverage and whether external insurance coverage is mandatory. External insurance is used when available at a reasonable cost and terms. The amount and terms of insurance purchased are determined by an assessment of our risk exposure, by comparison with standard industry practices and by assessment of the available financing capacity in the insurance market. The main risks covered by our insurance policies are property, liability and health care. Our U.S. operations are self-insured for workers’ compensation, general liability, automotive accident and pharmacy claims and healthcare including medical, pharmacy, dental and short-term disability. We use self-insured
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Table of Contentsretention programs for workers’ compensation, general liability, automotive accident, pharmacy claims, and healthcare. We also use captive insurance arrangements for some of our self-insurance programs to provide flexibility and optimize costs. Self-insurance liabilities are estimated based on actuarial valuations of claims filed and an estimate of claims incurred but not yet reported. Maximum retention, including defense costs per occurrence, are $1 million per accident for workers’ compensation, $3 million per accident for vehicle liability and $3 million per accident for general liability, with an additional $2 million retention in excess of the primary $3 million general liability retention for pharmacy liability. We are insured for costs related to the covered claims, including defense costs, in excess of these retentions. We believe that the actuarial estimates are reasonable; however, these estimates are subject to a high degree of variability and uncertainty caused by such factors as future interest and inflation rates, future economic conditions, litigation and claims settlement trends, legislative and regulatory changes, changes in benefit levels and the frequency and severity of incurred but not reported claims, making it possible that the final resolution of some of these claims may require us to make significant expenditures in excess of its existing reserves. Our property insurance in the United States includes self-insured retentions per occurrence of $10 million for named wind storms, $5 million for Zone A flood losses and $2.5 million for all other losses. Self-insurance provisions of €121 million are included as liabilities on the balance sheet. It is possible that the final resolution of some of the claims against these self-insurance programs may require us to make significant expenditures in excess of our existing reserves over an extended period of time and in a range of amounts that cannot be reasonably estimated. Foreign Investment Risks. In addition to our significant operations in the United States and Belgium, we operate in a number of other countries. Foreign operations and investments are subject to the risks typically associated with conducting business in foreign countries such as:
There can be no assurance that these risks or other risks relating to foreign operations will not be encountered by us in the future. Foreign operations and investments may also be adversely affected by laws and policies governing foreign trade, investment and taxation in the United States, Belgium and the other countries where we operate. Inflation and Changing Prices. Labor and cost of merchandise sold, our primary operating costs, increase with inflation and, where possible, are recovered through operating efficiencies and retail price adjustments. In 2010, according to the U.S. Bureau of Labor Statistics, the U.S overall inflation was 1.5% (2.7% in 2009 and 0.1% in 2008) primarily driven by higher energy prices which continued to increase. Food inflation was 1.5% (-0.5% in 2009 and 5.9% in 2008) and food at home inflation rose 1.7% after a decline of 2.4% in 2009. (source: B.L.S.).
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Table of ContentsIn 2010, Food Lion began with important price investments as part of the New Game Plan which had a negative impact on internal inflation. In 2009, revenue growth in the U.S was impacted by declining inflation (retail food inflation was 0.5% for 2009 compared to 5.3% for 2008), prudent consumer spending and a very promotional competitive environment. Our U.S. operating companies managed to improve the trends of number of transactions and number of items per transaction for the year as a whole mainly as a result of outstanding execution and targeted promotional offers and price investments. In 2008, increased inflation, while helping revenue growth in value had a negative impact on revenues in terms of volume (number of items purchased per transaction). We also experienced increases in payroll expenses and energy prices. We were able to largely offset the negative effect of increased inflation on our operating margin due to a favorable sales mix driven by improved private brand penetration and also improved inventory management and various cost saving initiatives. For Delhaize Belgium, national food inflation in 2010 was of 1.5% compared to 1.1% in 2009. Over the last three years, Delhaize Belgium’s sustained investments through 8 consecutive waves of price decreases have significantly improved its price position, a fact confirmed in the annual price comparison study by the country’s leading consumer organization. Supported by targeted communication activities, price perception has reached its best level in years. Although there is the risk that inflation in Southeast Asia and in other European countries where we operate could have an effect on our results, such inflation has not had a material effect on our sales or results of operations to date. Economic Conditions. The U.S. economic environment remained very challenging in 2010. Gross domestic product growth was 2.8%, a little better than the 2.4% in 2009. The federal government launched $790 billion in fiscal stimulus measures to be used in the next 10 years and of which a large portion was already used in 2010. Consumer spending was heavily impacted by unemployment levels, with customers increasingly using coupons, food stamps and shifting to private brand assortments. About 9.5% of the active American population remained jobless, down from the 10.1% peak in 2009. In spite of improving growth and stable to lower jobless rates, American households remained very cautious in their spending behavior. On an annual basis, retail sales showed an increase of 0.6%, resulting from a weak first half and a modest recovery in the second part of the year. Different job markets and diverging growth trends result in very different economic realities between our U.S. markets. The recovery in the Northeast started in the second half of the year and gained momentum in the fourth quarter while the Southeastern economy proved to be less resilient. At the end of 2010, the unemployment rate in some Southeastern states significantly exceeded the national average. General inflation was 1.5% in 2010 compared to 2.7% in 2009 still largely driven by increasing energy prices. Food inflation for the year returned and amounted to 1.5% for the year compared to -0.5% in 2009. As in most other European countries, the recession that hit the world economy also lingered on in Belgium. Consumer sentiment improved gradually throughout the year and allowed private consumption to grow by 1.5% in 2010. GDP growth remained positive throughout the whole year and ended at 2.1% for the full year. General inflation increased moderately and food inflation came out at 1.5%. The unemployment rate was 8.4% compared to 8.3% in 2009. Customers remained cautious as a result of the uncertain economic and political environment. The competitive environment remained challenging and focused on price.
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Table of ContentsRECENT EVENTS AND OUTLOOK Recent Events At our Ordinary General Meeting of shareholders on May 26, 2011, our shareholders approved the distribution of a €1.72 gross dividend per share for fiscal year 2010. After deduction of a 25% withholding tax pursuant to Belgian domestic law, this resulted in a net dividend of €1.29 per share. The 2010 dividend became payable to owners of our ordinary shares beginning on June 6, 2011 against coupon number 49. The payment of the dividend to our ADR holders was made through Citibank, N.A. beginning on June 9, 2011. On April 15, 2011, Delhaize Group entered into a €600 million, 5-year, unsecured revolving credit facility agreement (the “New Facility Agreement”) by and among Delhaize Group, the subsidiaries of Delhaize Group listed in Part I of Schedule 1 thereto as original borrowers, the subsidiaries of Delhaize Group listed in Part I of Schedule 1 thereto as original guarantors, Fortis Bank SA/NV, Banc of America Securities Limited, Deutsche Bank AG, London Branch and J.P. Morgan PLC, as bookrunning mandated lead arrangers, the financial institutions listed in Part II of Schedule 1 thereto as lenders, and Fortis Bank SA/NV as agent of the arrangers and the original lenders. In connection with Delhaize Group entering into the New Facility Agreement, Delhaize America, LLC terminated all of the Commitments under its $500 million (equal to €374 million at December 31, 2010), unsecured, committed revolving Second Amended and Restated Credit Agreement, dated as of December 1, 2009, by and among Delhaize America, LLC, as borrower, and Delhaize Group, certain subsidiaries of Delhaize America, LLC, as guarantors, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, issuing bank and swingline lender, Bank of America, N.A. and Fortis Capital Corp., as syndication agents, issuing banks and swingline lenders, and Morgan Stanley MUFG Loan Partners, LLC, as documentation agent, as supplemented by the Guaranty Supplement dated as of December 18, 2009, between Delhaize US Holding, Inc. and the Administrative Agent, and as amended by Amendment No. 1 to Second Amended and Restated Credit Agreement, dated as of March 11, 2010, (as supplemented and amended, the “Existing Credit Agreement”). Delhaize America, LLC had no outstanding borrowings under the Existing Credit Agreement when it terminated the Commitments under the Existing Credit Agreement. During April 2011, severe weather in the southeastern U.S., including tornadoes, resulted in damage to the Food Lion distribution center at Dunn, North Carolina and several Food Lion stores. Delhaize Group has utilized disaster recovery plans that had been put in place previously, and has been able to continue to serve the stores served by the Dunn distribution center with assistance from other distribution centers. Delhaize Group is continuing to assess the damage at the Dunn distribution center, and operations at that distribution center have been partially reestablished. On March 3, 2011, we announced the signing of an agreement to acquire 100% of the registered share capital and voting rights of Delta Maxi Group, a retail company operating more than 450 stores in five countries in Southeastern Europe. The agreed total purchase price amounts to €933 million (enterprise value), including net debt of approximately €300 million. The acquisition remains subject to mutually agreed upon and customary conditions, including the approval by the Serbian merger control authority. We expect to close the deal in the third quarter of 2011, as from which date Delta Maxi Group will be fully consolidated into our consolidated financial statements. In February 2011, we were notified that some former Greek shareholders of Alfa Beta Vassilopoulos S.A., who together held 7% of Alfa Beta shares, have filed a claim in front of the Court of First Instance of Athens challenging the price paid by us during the squeeze-out process that was approved by the Hellenic Capital Markets Commission. We are convinced that the squeeze-out transaction has been executed and completed in compliance with all legal and regulatory requirements. We are currently in the process of reviewing the merits and any potential exposure of this claim and will vigorously defend ourselves. The first hearing has been scheduled in October 2013. On January 11, 2010 the Auditor of the Belgian Competition Council issued a report resulting from its investigation of a potential violation of Belgian competition laws by a supplier and several retailers active on the markets of chocolate candies, chocolate spread and pocket candies. On April 7, 2011, the Belgian Competition Council considered however that the Auditor violated the parties’ rights of defense and rejected the case. It is now up to the auditor to determine whether and how it will continue to pursue this case.
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Table of ContentsOutlook Operational initiatives In addition to continuing to sharpen our operations’ price position, we have identified concrete action plans to strengthen other attributes of our Food Lion brand and will start rolling these out in two representative markets (Raleigh, NC and Chattanooga, TN), starting in the second quarter of 2011. In those markets, we will strengthen the quality of the assortment, the ease and convenience of the shopping experience as well as engage in additional price investments. Further, our U.S. operating companies are reinforcing their private brand assortment through the introduction of a new value line called My Essentials. We intend to carry 500 My Essentials products in all our U.S. stores by the end of the second quarter of 2011. Our target for U.S private brand is to reach 35% of total store revenues by the end of 2013, compared to approximately 27% at the end of 2010. In December 2009, we launched our new strategic plan for the years to come, the New Game Plan (“NGP”). The NGP aims at accelerating revenue and profit growth through a combination of strategic initiatives. First, we began implementing a new vision and common set of values that present the framework for all our operating companies within which strategic and operating decisions are made. The NGP aims at accelerating revenue growth by means of the following levers:
The NGP foresees that these initiatives will be enabled by associate development and funded by increased efficiencies and cost savings that we anticipate will be generated in the areas of selling, general and administrative expenses (“SG&A”) as well as cost of sales (“COS”). By the end of 2012, we plan to generate €500 million in gross annual SG&A and COS savings. We plan to realize the SG&A savings primarily through the creation of one common support services organization for our U.S. operations. This organization encompasses support functions like finance and accounting, legal, information technology, human resources management and corporate development. Additionally, we plan to generate savings in other areas of our operations such as store labor scheduling, advertising and marketing, as well as in repairs and maintenance. COS savings are expected to be realized primarily through the creation of one common category management and procurement organization for our U.S. operations. The new organization will support our U.S. banners with assortment and promotions planning and execution, sourcing and procurement, private brand management and pricing expertise. The finalization of one single supply chain master network for all of our U.S. operations, improvements in buying conditions through the application of more facts-based supplier negotiations across the Group and the optimization of labor costs throughout the supply chain will also contribute to these savings. Effect acquisition 100% of Delta Maxi Group As mentioned above, we reached an agreement in March 2011 to acquire 100% of the Serbian retailer Delta Maxi Group, an acquisition that will make us a leading retailer in Southeastern Europe. Through combining Delta Maxi Group with our existing network in Greece and Romania, we expect to operate 800 stores in the Southeast of Europe at the end of 2011. We anticipate that this transaction that will change our growth profile in a market with considerable potential. We expect to close the acquisition in the third quarter of 2011.
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Table of Contents2011 capital expenditures and store opening outlook We plan to end 2011 with a store network of between 2,915 and 2,925 stores, as a result of the net addition of 115 to 125 stores (not including the acquisition of Delta Maxi Group). We expect capital expenditures (excluding finance leases) of approximately €900 million during 2011 (based on the average exchange rate in 2010 of 1 EUR = 1.3257 USD and excluding the acquisition of Delta Maxi Group).
BOARD OF DIRECTORS In accordance with Belgian law, our affairs are managed by our Board of Directors. Under our Articles of Association, the Board of Directors must consist of at least three directors. Our Board of Directors consists of 13 directors. Twelve of the directors are non-executive directors and one director, Pierre-Olivier Beckers, our Chief Executive Officer, is an executive director. In March 2011, the Board of Directors determined that the current directors, with the exception of Chief Executive Officer Pierre-Olivier Beckers, Richard Goblet d’Alviella, Robert J. Murray, Didier Smits and Hugh G. Farrington, are independent under the criteria of the Belgian Company Code, the Belgian Code on Corporate Governance and the rules of the NYSE. The Board made its determination based on information furnished by all directors regarding their relationships with us. In addition, at the Ordinary General Meeting of May 26, 2011, the shareholders acknowledged that Messrs. Luc Vansteenkiste, Jacques de Vaucleroy, Jean-Pierre Hansen, William G. McEwan and Mats Jansson are independent within the meaning of the Belgian Company Code. Following recent changes in the Belgian Company Code, Messrs. Goblet d’Alviella, Murray and Smits are no longer considered independent under the Belgian Company Code because they each have served on the board of directors as a non-executive director for more than three consecutive terms. Mr. Farrington is no longer considered independent under the Belgian Company Code because he has been compensated formerly as an executive of our subsidiary Hannaford Brothers. The Board of Directors met seven times in 2010. On the recommendation of the Remuneration and Nomination Committee, the Board proposes the appointment of directors to the shareholders for approval at the Ordinary General Meeting. Pursuant to our Articles of Association, directors may be appointed for a maximum term of office of six years. From 1999 to 2009, our Board of Directors set the length of director terms for persons elected during such period at a maximum of three years. Starting with elections in 2010, our Board of Directors decided to set the term of the mandate of a director to three years for the first term, then, provided that our Board of Directors determines such director is independent at re-election, up to four years for subsequent terms. The term of directors who are not considered independent by our Board of Directors at the time of their election though has been set by our Board of Directors at three years. Unless otherwise decided by our Board of Directors, a person who is up for election to our Board of Directors and who would turn age 70 during our standard director term length may instead be elected to a term that would expire at the ordinary general meeting occurring in the year in which such director would turn 70. Directors may be removed from office at any time by a majority vote at any meeting of shareholders. Each year, typically, there are a few directors who have reached the end of their current term of office and may be reappointed. On May 26, 2011, the shareholders at the Ordinary General Meeting renewed the mandate of (i) Hugh G. Farrington for a term of three years, (ii) Baron Luc Vansteenkiste for a term of four years and (iii) Jacques de Vaucleroy for a term of four years and appointed Jean-Pierre Hansen, William G. McEwan and Mats Jansson as directors each for terms of three years. At that time, the mandates of Arnoud de Pret and Francois Cornélis expired, and they did not stand for reappointment.
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Table of ContentsOur current Board of Directors and biographical information concerning such individuals are set forth below. The business address of each of our directors is Square Marie Curie 40, 1070 Brussels, Belgium.
Georges Jacobs de Hagen (1940). Count Jacobs de Hagen has been Chairman of our Board of Directors since January 1, 2005. He started his career as an economist with the IMF in Washington in 1966. He joined the UCB Group (biopharmaceutical group based in Belgium) in 1970 and was Chairman of its Executive Committee from 1987 until the end of 2004. Count Jacobs de Hagen serves on the Board of Directors of Belgacom and Brussels Airlines. He was President of BUSINESSEUROPE (formerly UNICE, Union of Industrial and Employers’ Confederations of Europe) between 1998 and 2003. He is Honorary Chairman of the Federation of Belgian Companies. Count Jacobs de Hagen is a Doctor at Laws (UCL, Belgium), holds a Master’s degree in Economic Sciences (UCL, Belgium), and a Master’s degree in Economics (University of California, Berkeley, U.S.). Pierre-Olivier Beckers (1960). Mr. Beckers has been the President and Chief Executive Officer of Delhaize Group since January 1, 1999. Mr. Beckers earned a Master’s degree in applied economics at I.A.G., Louvain-La-Neuve and an MBA from Harvard Business School. He began working in the food retail industry in 1982 as a store manager for a bakery chain in Belgium. Mr. Beckers joined us in 1983, to work initially three years in our U.S. operations as a store manager. After his return to Belgium, he broadened his retail experience as a buyer, director of purchasing, member of the Executive Committee and Director and Executive Vice-President in charge of international activities. In January 2000, Mr. Beckers was named Manager of the Year by the leading Belgian business magazine Trends/Tendances. In 2009, he was named Belgium’s BEL 20 CEO of the year by the Belgian newspapers Le Soir and De Standaard. Until June 2010, he was Co-Chairman of the Consumer Good Forum, a global association of leading consumer goods retailers and manufacturers. Previously, Mr. Beckers served as chairman of the CIES, the Food Business Forum, from 2002 to 2004 and again from July 2008 until its merger and transformation into the Consumer Goods Forum. He is on the Board of Directors of the Food Marketing Institute and is Vice-Chairman of the Executive Committee of FEB/VBO, the Belgian Employers Federation. He is a member of Guberna and, until 2010, the Belgian Commission on Corporate Governance. He is President of the BOIC (Belgian Olympic Interfederal Committee) since December 2004, with a current term expiring in 2013. Claire H. Babrowski (1957). Ms. Babrowski is a retired retail executive. She serves on the Board of Directors of Pier 1 Imports, Inc. From 2007 until 2010, Ms. Babrowski was the Executive Vice President, Chief Operating Officer of Toys “R” Us, a specialty toy retailer operating more than 1,500 stores throughout the world. She started her career spending 30 years at McDonald’s Corporation, where her last position was Senior Executive Vice President and Chief Restaurant Operations Officer. From 2005 to 2006, she worked for RadioShack, serving as Executive Vice President and Chief Operating Officer, and then President, Chief Operating Officer and acting Chief Executive Officer. In 1998, she received the Emerging Leader Award from the U.S. Women’s Service Forum. She is a member of the “Committee of 200,” a professional U.S. organization of preeminent women entrepreneurs and corporate leaders. Ms. Babrowski holds a Master in Business Administration from the University of North Carolina.
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Table of ContentsJacques de Vaucleroy (1961). Mr. de Vaucleroy is CEO of the Northern, Central and Eastern Europe business unit of AXA since March 2010. He is also in charge of AXA Bank Europe. Since April 2010, he has been a member of the AXA Management Committee. On January 1, 2011, he assumed global responsibility for the Group’s AXA Life and Savings and Health businesses. Jacques de Vaucleroy has made most of his career within the ING Group, where he was a member of the Executive Board of ING Group and CEO of ING Insurance and Investment Management Europe. He has extensive experience in the banking and insurance and asset management business, both in Europe and in the U.S. Jacques de Vaucleroy holds a law degree (Université Catholique de Louvain, Belgium) and a Master in Business Law (Vrije Universiteit Brussels, Belgium). Hugh G. Farrington (1945). Following a retail management career starting in 1968 at Hannaford, a U.S. subsidiary of Delhaize Group, Mr. Farrington served as President and Chief Executive Officer of Hannaford from 1992 to 2001. In 2000, he was appointed as Vice Chairman of Delhaize America, and in 2001, he became our Executive Vice President and member of our Board of Directors. In 2003, Mr. Farrington left the Board of Directors and resigned from his executive functions within our company. He rejoined the Board as a director in 2005. Mr. Farrington holds a Bachelor’s degree from Dartmouth College, Hanover, New Hampshire and a Master of Arts in teaching from the University of New Hampshire. Richard Goblet d’Alviella (1948). Count Goblet d’Alviella has been the Chief Executive Officer of Sofina S.A., a Belgian financial holding company, since 1989. Count Goblet d’Alviella is Vice-Chairman of the Board of Directors of Sofina and a board member of a number of the companies in which Sofina has interests or is affiliated, such as GDF Suez, Eurazeo, Danone, Henex and Caledonia Investments. Prior to joining Sofina, Count Goblet d’Alviella was a Managing Director of the Paine Webber Group and he has a 15-year background in international investment banking in London and New York. Count Goblet d’Alviella holds a Commercial Engineer’s degree from Université Libre de Bruxelles, Brussels, and a Master’s degree in business administration from Harvard Business School. Jean-Pierre Hansen (1948). Mr. Hansen is member of the Executive Committee of GDF Suez and Chairman of its Energy Policy Committee. From January 2005 to April 2010 and from 1992 to March 1999, Mr. Hansen served as Chief Executive Officer of Electrabel and as Chairman of the Board of Directors of Electrabel from 1999 till 2004. Mr. Hansen was Chief Operating Officer and Vice-Chairman of the Executive Committee of the Suez Group from 2003 till 2008. He is a member of the Board of Directors of Electrabel, Compagnie Nationale à Portefeuille, KBC and SNCB Logistics. He was Vice-President of the Federation of Enterprises in Belgium (FEB) and a Member of the Council of Regency of the National Bank of Belgium. He was awarded an Honorary Doctorate by the Katholieke Universiteit Leuven and lectures in economics at the Université Catholique Louvain and the Ecole Polytechnique in Paris. He is a Visiting Scholar at MIT (Cambridge, US). Mr. Hansen holds a degree in Civil Engineering (Liège), a Ph. D. in Engineering (Paris VI) and a Master’s degree in Economics (Paris II). Mats Jansson (1951). Mr. Jansson currently serves as an independent board member of Danske Bank and Falck. Mr. Jansson began his career with ICA, a leading Swedish food retailer, holding positions of increasing responsibility over a period of more than 20 years and serving as President of ICA Detaljhandel and Deputy CEO and Chairman of the Group from 1990 to 1994. He then served as CEO of Catena/Bilia (1994 to 1999) and Karl Fazor Oy (1999 to 2000). From 2000 to 2005 Mr. Jansson held the position of CEO with Axfood, a publicly-traded Swedish food retailer. From 2005 to 2006 Mr. Jansson served as President and CEO of Axel Johnson AB, a family owned conglomerate of distribution and services companies. Mr. Jansson was President and CEO of SAS, the Scandinavian airline company, from 2006 to 2010. He also previously has served as a director of Axfood, Mekonomen, Swedish Match and Hufvudstaden. Mr. Jansson studied economical history and sociology at the University of Örebro. William G. McEwan (1956). Mr. McEwan is President & Chief Executive Officer of Sobeys Inc. and a member of the Board of Directors of its parent company, Empire Company Limited. Between 1989 and 2000, Mr. McEwan held a variety of progressively senior marketing and merchandising roles in the consumer packaged goods industry with Coca-Cola Limited and in grocery retail with The Great Atlantic and Pacific Tea Company (A&P) both in Canada and in the United States. He served as President of A&P’s Canadian operations before his appointment as President and Chief Executive Officer of the company’s US Atlantic Region, the position he held immediately prior to joining Sobeys Inc. Since joining Sobeys in November 2000, Mr. McEwan has overseen the development and execution of the company’s long-term strategic plan. Mr. McEwan is on the Board of Directors of The Consumer Goods Forum. In November, 2005 Mr. McEwan was presented the Golden Pencil Award, The Food Industry Association of Canada’s highest distinction. In May 2006, the Canadian Council of Grocery Distributors presented Mr. McEwan with the Robert Beaudry Award of Excellence for leadership in the grocery industry.
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Table of ContentsRobert J. Murray (1941). Robert J. Murray served as Chairman of the Board and President and Chief Executive Officer of New England Business Service, Inc. from 1995 to 2004. From 1997 to 2001, Mr. Murray was a member of the Board of Directors of Hannaford. Mr. Murray retired from The Gillette Company in 1995, having been with Gillette for more than 34 years. From 1991 until his retirement in 1995, Mr. Murray was Executive Vice President, North Atlantic Group of Gillette. Mr. Murray is a director of Tupperware Brands, Inc., IDEXX Corp., LoJack Corporation and The Hannover Insurance Group. Mr. Murray is a graduate of Boston College and holds a Master’s degree in Business Administration from Northeastern University. Didier Smits (1962). Didier Smits received a Master’s degree in economic and financial sciences at I.C.H.E.C. in Brussels. From 1986 to 1991, Mr. Smits was a Manager at Advanced Technics Company. In 1991, Mr. Smits became Managing Director of Papeteries Aubry SPRL. Jack Stahl (1953). Mr. Stahl served in the role of President and Chief Executive Officer of cosmetics company Revlon from 2002 until his retirement in September 2006. Prior to joining Revlon, Mr. Stahl had a 22-year career as an executive with the Coca-Cola Company culminating in the role of President and Chief Operating Officer. He also served as Group President of Coca-Cola Americas and Chief Financial Officer. Mr. Stahl started his professional career as an auditor at Arthur Andersen & Co. Mr. Stahl served on the Board of pharmaceutical company Schering-Plough until December 2009 and currently serves on the Board of the soft drinks company Dr. Pepper Snapple Group. He is also a Board member of several non-profit organizations such as The Boys and Girls Clubs of America and The United Negro College Fund. Mr. Stahl received his undergraduate degree from Emory University and holds an MBA from the Wharton Business School of the University of Pennsylvania. Luc Vansteenkiste (1947). Baron Vansteenkiste is President of the Board of the Belgian company Sioen and Vice President of the Board of Recticel. Baron Vansteenkiste is also a member of the Board of the Belgian company Spector Photo Group. BaronVansteenkiste is Honorary Chairman of the Federation of Belgian Companies and Board member of Guberna. Baron Vansteekiste was Chief Executive Officer of Recticel until April 1, 2010. Baron Vansteenkiste earned his degree in civil engineering at the Katholieke Universiteit Leuven, Belgium. COMMITTEES OF THE BOARD OF DIRECTORS Our Board of Directors has two standing committees: the Audit Committee and the Remuneration and Nomination Committee. Audit Committee The principal responsibilities of the Audit Committee are to assist the Board in monitoring:
The Audit Committee’s specific responsibilities are set forth in the Terms of Reference of the Audit Committee, which is attached as Exhibit B to our Corporate Governance Charter, which is posted on our website at www.delhaizegroup.com.
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Table of ContentsThe Audit Committee is composed solely of independent directors. The members of the Audit Committee are Jack Stahl, who is the Chair, Claire Babrowski and Luc Vansteenkiste. Effective May 27, 2010, Robert J. Murray resigned as member of the Audit Committee because he no longer was independent under the Belgian Company Code from that date. Mr. Stahl replaced Mr. Murray as Chair and Mr. Vansteenkiste joined the Audit Committee at that time. Effective May 26, 2011, Arnoud de Pret Roose de Calesberg’s mandate on the Company’s Board of Directors expired and he ceased to be a member of the Board, and as a related matter also ceased to be a member of the Audit Committee. Our Terms of Reference of the Audit Committee require that all members satisfy the independence requirements of Belgian law, the Belgian Code on Corporate Governance, and the New York Stock Exchange. The Board of Directors has determined that Mr. Stahl, Ms. Babrowski, Baron Vansteenkiste and Count de Pret Roose de Calesberg (prior to his departure from the Audit Committee) are “audit committee financial experts” as defined in Item 16A of Form 20-F under the Exchange Act. In 2010, the Audit Committee met five times. Remuneration and Nomination Committee The principal responsibilities of the Remuneration and Nomination Committee are to:
The Remuneration and Nomination Committee’s specific responsibilities are set forth in the Terms of Reference of the Remuneration and Nomination Committee, which is attached as Exhibit C to our Corporate Governance Charter, which is posted on our website at www.delhaizegroup.com. The members of the Remuneration and Nomination Committee are Count Jacobs de Hagen, who is the Chair, Jacques de Vaucleroy, Count Goblet d’Alviella, Hugh G. Farrington and Mats Jansson. Count Jacobs de Hagen, Jacques de Vaucleroy and Mats Jansson are independent directors, while Count Goblet d’Alviella is no longer considered independent under the Belgian Company Code effective May 27, 2010 because he has served on the board of directors as a non-executive director for more than three consecutive terms, and Mr. Farrington is no longer considered independent under the Belgian Company Code effective May 26, 2011 because he has been compensated formerly as an executive of our subsidiary Hannaford Brothers. For additional information, see “Item 16G. Corporate Governance.” In 2010, the Remuneration and Nomination Committee met nine times. Our Remuneration Policy for Directors and the Executive Management can be found as Exhibit E to our Corporate Governance Charter, which is posted on our website at www.delhaizegroup.com. EXECUTIVE OFFICERS Management Structure Our management structure consists of:
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Table of ContentsUnited States. Ron Hodge, Executive Vice President of Delhaize Group and Chief Executive Officer of Delhaize America. Belgium. Michel Eeckhout, Executive Vice President of Delhaize Group and Chief Executive Officer of Delhaize Belgium, which comprises Belgium and the Grand Duchy of Luxembourg. Southeastern Europe & Asia. Kostas Macheras, Executive Vice President of Delhaize Group and the Chief Executive Officer of Southeastern Europe, is responsible for Alfa Beta and Mega Image (Romania). Michael Waller, our Executive Vice President, General Counsel and General Secretary, is responsible for Lion Super Indo (Indonesia). Executive Committee Our Chief Executive Officer, Pierre-Olivier Beckers, is in charge of our day-to-day management with the assistance of the Executive Committee. The Executive Committee, chaired by our Chief Executive Officer, prepares the strategy proposals for the Board of Directors, oversees the operational activities and analyzes the business performance of our company. The age limit set by the Board for the Chief Executive Officer is 65. Our Executive Committee does not qualify as a management committee (“comité de direction / directiecomité”) under Belgian law and as such does not hold the Board of Directors’ management powers. The members of the Executive Committee are appointed by the Board of Directors. Our Chief Executive Officer is the only member of the Executive Committee who is also a member of the Board of Directors. Our Board of Directors decides on the compensation of the members of the Executive Committee and our other senior officers upon recommendation by our Remuneration and Nomination Committee. Our Chief Executive Officer recuses himself from any Board of Directors decision regarding his own compensation. Our current Executive Committee members and biographical information concerning such individuals are set forth below (except for the biographical information of our President and Chief Executive Officer who is also a member of the Board of Directors, which is set forth above).
Stéfan Descheemaeker (1960). Mr. Descheemaeker has been an Executive Vice President and Chief Financial Officer of our company since 2009. Prior to joining Delhaize Group, Mr. Descheemaeker spent 12 years at Anheuser-Busch InBev. In 1996, he joined the Belgian brewer Interbrew, where he became head of Strategy & External Growth, managing its M&A operations, culminating with the merger of Interbrew and AmBev in 2004. At that point in time, he transitioned to operational management, in charge of respectively the brewer’s operations in the U.S. and Mexico, Central and Eastern Europe, and, eventually, Western Europe. In 2008, Mr. Descheemaeker ended his operational responsibilities at Anheuser-Busch InBev and joined its Board as non-executive director. He started his career with Cobepa, which at that time was the Benelux investment company of BNP-Paribas. He later joined the holding company Defi as CEO of its financial subsidiary Definance. Mr. Descheemaeker holds a Masters’ degree as Commercial Engineer, Solvay Business School, Brussels, Belgium.
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Table of ContentsMichel Eeckhout (1949). Mr. Eeckhout is Executive Vice President of our company and Chief Executive Officer Delhaize Belgium. He joined us in 1978, as IT project leader and IT manager. In addition, he became Group coordinator for the IT-activities in Europe and Asia in 1992 and member of the Executive Committee of Delhaize Belgium in 1995. He was appointed Delhaize Group Vice President of Information Technology Processes and Systems in 2001 and was Chief Information Officer from 2002 to 2007. He became a member of our Executive Committee in September 2005. He is a Board member of COMEOS (previously named Fedis Fédération belge de la Distribution). Mr. Eeckhout earned a Master’s degree in economics (at UFSIA, Antwerp) and in European economics (at Université Libre de Bruxelles, Brussels), and an Executive Master in General Management, from the Solvay Business School, Brussels. Ronald C. Hodge (1948). Mr. Hodge is Executive Vice President of our company and Chief Executive Officer of Delhaize America. Prior to his current role Mr. Hodge served as Chief Executive Officer of Delhaize America Operations. Mr. Hodge served as Executive Vice President and Chief Executive Officer of Hannaford and was responsible for our Sweetbay Supermarket operations. He joined Hannaford in 1980 and has served in various executive roles, including Vice President and General Manager of Hannaford’s New York Division, Senior Vice President of Retail Operations, Executive Vice President of Sales and Marketing, and Executive Vice President and Chief Operating Officer. He became President of Hannaford Bros. Co. in December 2000 and Chief Executive Officer in 2001. While leading the start-up of Hannaford’s entry into upstate New York, Mr. Hodge was elected Chairman of the New York State Food Merchant’s Association, and served on several Community Agency Boards of Directors. He chaired the Northeastern New York United Way Campaign in 1995 and was selected as the New York Capital Region’s Citizen of the Year in 1996. Mr. Hodge holds a Bachelor of Science degree in business administration from Plymouth State College, Plymouth, New Hampshire. Nicolas Hollanders (1962). Mr. Hollanders has been Executive Vice President of Human Resources and Organizational Development of our company since 2007. He started his career as a lawyer. In 1989, he joined Delvaux, a Brussels-based manufacturer and distributor of luxury leather goods and accessories, first as General Manager, and from 1993 as Managing Director. In 1995, Mr. Hollanders joined the executive search firm Egon Zehnder International, where he served successively as consultant, principal and partner. Mr. Hollanders is Chairman of the Jury “Hors pistes” of the King Baudouin Foundation and founding member and Chairman of Child Planet, a foundation aimed at improving conditions in children’s hospitals. Mr. Hollanders holds a Master’s degrees in Law and Notary Law and a Post Graduate degree in Economics from the University of Leuven. Kostas Macheras (1953). Mr. Macheras is an Executive Vice President of our company and Chief Executive Officer Southeastern Europe. Mr. Macheras joined Delhaize Group in 1997 as General Manager of Alfa Beta Vassilopoulos. In 2009 Mr. Macheras added Mega Image, the Romanian operations of Delhaize Group, to his responsibilities. Mr. Macheras started his professional career in retailing in the U.S., as purchasing manager at the Quality Super Market Company in Chicago. He worked for 14 years for Mars, Inc. In 1982, he was in charge of sales, marketing and export in The Netherlands, and later became General Manager for Greece and Italy. From 1996-1997 he served as General Manager of Chipita International in Greece. He is a Board member of EEDE (Hellenic Management Association) for nine years. He has been a member of the Board of Directors at EASE (Association of Greek Executive Officers) since 2008, and is also currently a Board member of SEET (Association of Greek Food Enterprises). In 2005, he was named Officer in the Order of Leopold II by King Albert II of Belgium. In April 2009, Mr. Macheras was elected Manager of the Year 2008 by the Hellenic Management Association. Mr. Macheras holds a BA from Piraeus University and an MBA from the Roosevelt University of Chicago (Business Administration & Marketing). Michael R. Waller (1953). Mr. Waller is an Executive Vice President, General Counsel and General Secretary of our company and President Director of Super Indo. Additionally, Mr. Waller has been an Executive Vice President of Delhaize America since July 2000. Previously, Mr. Waller was a partner in the international law firm Akin, Gump, Strauss, Hauer & Feld, L.L.P. In the years prior to joining Delhaize America, Mr. Waller served as Managing Partner of Akin Gump’s Moscow and London offices, and maintained an international corporate practice. Mr. Waller earned a Bachelor of Arts degree in psychology from Auburn University and a Juris Doctorate degree from the University of Houston, where he served as Editor-in-Chief of the Houston Law Review. Prior to entering private practice, Mr. Waller served as a law clerk for U.S. District Judge Robert O’Conor, Jr. in the Southern district of Texas.
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Table of ContentsCOMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF DELHAIZE GROUP Our directors are remunerated for their services with a fixed compensation, decided by the Board of Directors and not to exceed the maximum amounts set by our shareholders. The maximum amount approved by the shareholders is €80,000 per year per director, increased by an additional amount of up to €10,000 (€15,000 starting in 2011) per year for the Chairman of any standing committee of the Board and an amount of up to €5,000 (€10,000 starting in 2011) per year for services as a member of any standing committee of the Board. For the Chairman of the Board, the maximum remuneration amount is €160,000 per year (exclusive of any amount due as Chairman of any standing committee starting in 2011). Our non-executive directors do not receive any remuneration, benefits or equity-linked or other incentives from us and our subsidiaries other than their remuneration for their service as directors of our company. For some non-Belgian directors, we pay a portion of the cost of preparing the Belgian and U.S. tax returns for such directors. The aggregate amount of remuneration granted for fiscal year 2010 to our directors by us and our subsidiaries is set out in the table below. The compensation of the executive director as set forth in the table below relates solely to his compensation as director and excludes his compensation as an executive of our company. Delhaize Group has not extended credit, arranged for the extension of credit or renewed an extension of credit in the form of a personal loan to or for any director.
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Table of ContentsRemuneration Granted for Fiscal Year 2010 to Directors of Delhaize Group by Delhaize Group and its Subsidiaries
Remuneration Granted for Fiscal Year 2010 to Executive Officers of Delhaize Group by Delhaize Group and its Subsidiaries The aggregate compensation for the members of the Executive Committee recognized in the Company’s consolidated income statements for 2010 and 2009, respectively, is stated below. Amounts are gross amounts before deduction of withholding taxes and social security levy. They do not include the compensation of the CEO as director of the Company that is separately disclosed above.
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