DELHAIZE GROUP 20-F 2012
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the fiscal year ended December 31, 2011
For the transition period from to
Date of event requiring this shell company report
Commission file number: 333-13302
ETABLISSEMENTS DELHAIZE FRÈRES ET CIELE LION
(Exact name of Registrant as specified in its charter)*
Delhaize Brothers and Co. The Lion (Delhaize Group)
(Translation of Registrants name into English)*
(Jurisdiction of incorporation or organization)
Square Marie Curie 40
1070 Brussels, Belgium
(Address of principal executive offices)
Tel: +32 2 412 22 11
Fax: +32 2 412 22 22
Square Marie Curie 40
1070 Brussels, Belgium
(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 issuers 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 CONTENTS
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 Belgian international food retailer present in eleven countries on three continents. We were founded in Belgium in 1867. Our principal activity is the operation of food supermarkets. As of December 31, 2011, we had a sales network (which includes company-operated, affiliated and franchised stores) of 3,408 stores and employed approximately 160,000 people. Such retail operations are primarily conducted through (i) our consolidated subsidiary, Delhaize America, LLC, for our businesses in the United States, 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) our businesses in Greece, Romania, Serbia, Bosnia and Herzegovina, Montenegro, Albania, Bulgaria and Indonesia, which we refer to collectively as Southeastern Europe and Asia. 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.
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 2011, 2010, and 2009 include the results of operations of its U.S. subsidiaries for the 52 weeks ended December 31, 2011, 52 weeks ended January 1, 2011 and 52 weeks ended January 2, 2010, 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, 2011. Consequently, Delhaize Groups consolidated financial statements are prepared in accordance with IFRS, as issued by the IASB.
On March 7, 2012, our Board of Directors authorized for issue the consolidated financial statements for the year ended December 31, 2011, subject to approval of the shareholders at the ordinary general meeting scheduled for May 24, 2012 including our statutory non-consolidated annual accounts for such period, with a proposed distribution of an aggregate gross dividend of 179 million, or 1.76 per share.
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 1.2939, the reference rate of the European Central Bank on December 31, 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. 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
CAUTIONARY 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, cost savings from internal reorganizations, 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.
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 1.2939, the reference rate of the European Central Bank on December 31, 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.
The following table sets forth, for the periods indicated, historical dividend information per Delhaize Group ordinary share. The 2011 dividend was proposed by the Board of Directors but still needs to be formally approved by the shareholders at the Ordinary General Meeting of May 24, 2012. 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 Groups 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 for the fiscal year 2011 becomes payable to ADR holders on June 6, 2012. The dividend amounts do not reflect any withholding taxes with respect to such dividends.
Belgian 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.
As stated above, our reporting currency is the euro. The euro to U.S. dollar exchange rate was EUR 1 = USD 1.2939 on December 31, 2011 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 March 15, 2012 was $1.3070 per euro.
The table below shows the average noon buying rate of the euro from 2007 to 2011.
The table below shows the high and low noon buying rates expressed in U.S. dollars per euro for the previous six months.
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, 2011, we had total consolidated debt outstanding of approximately 3.2 billion and approximately 0.7 billion 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 guarantee that we will have sufficient cash flows to pay the principal, premium, if any, and 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 guarantee 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.
The 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 2011, 65.4% 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.
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 & Poors and Moodys 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 organization. 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, including Greece, and Indonesia. 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 Groups 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, 71% of net financial debt is denominated in U.S. dollar while 66% 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 2011 net profit would have increased/decreased by 2 million (2010 and 2009 3 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 preparation, 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 from 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.
In May 2011, we launched our Food Lion brand repositioning initiative which included, among other things, the relaunch 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 these initiatives have resulted in increased revenues, there can be no assurance that they will continue to be successful and that we will achieve the expected results.
We may not achieve the annual positive impact on operating profit that we expect will result from our closure of underperforming stores that we completed in January 2012.
In January 2012, we announced the planned closure of a total of 146 stores across our network in the U.S. and Southeastern Europe and the planned conversion of 64 Bloom and Bottom Dollar Food stores to Food Lion in the U.S. This included at Food Lion the closure of 113 underperforming stores, most of which were in markets with the lowest store density, and one distribution center, as well as converting 42 Bloom stores to Food Lion, the closure of the remaining 7 Bloom stores and the retirement of the Bloom brand. In addition, it included the planned conversion or closure of the Bottom Dollar Food brand stores in North Carolina, Virginia and Maryland. This will result in the conversion of 22 Bottom Dollar Food stores to Food Lion and the closing of 6 stores in these markets. Finally, the announcement included the planned closure of 20 underperforming stores in Southeastern Europe. These include small convenience stores, supermarkets and hypermarkets in Serbia, Bulgaria and Bosnia and Herzegovina.
The net impact of the portfolio optimization on our Group will be a reduction in our number of stores by approximately 4.3% and an initial reduction in Group revenues of approximately 500 million or 2.4%, consisting of approximately $650 million in revenues
from Delhaize U.S. and 35 million in revenues from Southeastern Europe. We recorded an impairment charge of approximately 127 million (approximately $177 million) in the fourth quarter of 2011. Beginning in the first quarter of 2012, we expect earnings to be impacted by approximately 200 million (approximately $235 million for the U.S. and 30 million for Southeastern Europe) to reflect store closing liabilities including a reserve for ongoing lease and severance obligations, accelerated depreciation related to store conversions, conversion costs, inventory write-downs and sales price mark downs. This should result in an after tax impact of approximately 125 million in 2012. While we expect this portfolio optimization will have an annual positive impact on operating profit once the conversions and closings are complete, which we intend to fully reinvest in our business, there can be no assurance an annual positive impact will be achieved.
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 and Pittsburgh areas, and our planned expansion into the Youngstown, Ohio area. We also occasionally consider opportunities to expand into new regions. On July 27, 2011, Delhaize Group acquired 100% of the shares and voting rights of Delta Maxi for an amount of 933 million (enterprise value) including net debt and other customary adjustments of 318 million, resulting in a total purchase price of 615 million, which is subject to customary purchase price adjustments. At acquisition date, Delta Maxi operated 485 stores and 7 distribution centers in five countries in Southeastern Europe (Serbia, Bulgaria, Bosnia and Herzegovina, Montenegro and Albania). Delta Maxi is consolidated into Delhaize Groups consolidated financial statements as of August 1, 2011 and is included in the SEE & Asia segment.
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 and integration strategy, store renovations, market renewals or store openings, including our acquisition of Delta Maxi and the recent expansion of our Bottom Dollar Food operations into the greater Philadelphia, Pennsylvania area, the Pittsburgh, Pennsylvania area and the Youngstown, Ohio area, and failure to do so may have a material adverse effect on our business, financial condition and results of operations.
Unexpected 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 20% of the stores in our sales network are franchised or affiliated. Our franchised and affiliated stores account for approximately 9.5% 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.
In 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.
We 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.
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 (IBNR), making it possible that the final resolution of some of these claims may require us to make significant expenditures in excess of existing reserves.
Self-insurance reserves of 143 million are included as liabilities on the balance sheet as of December 31, 2011. 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 2011. 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 2011, we recognized a net liability of 90 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 U.S. 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 the 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.
Risks 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 depositarys 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 companys behalf, are more limited than in the United States.
In addition, the rights of a shareholder to attend the general meeting of shareholders and to vote are subject to the registration of these shares in the name of this shareholder at midnight (European Central Time) on the record date, which is the fourteenth day before the meeting, either by registration of registered shares in the register of registered shares of the company, or by registration of dematerialized shares in the accounts of an authorized securities account keeper or clearing institution, or by delivery of printed bearer shares to a financial intermediary. Shareholders must notify the company (or the person designated by the company for this purpose) of their intent to participate in the general meeting of shareholders, no later than six days before the date of the meeting pursuant to the modalities set forth in the notice to the meeting. Similarly, a holder of our ADRs who gives voting instructions to the depositary must arrange for having those ADSs registered on the record date set by the Company, which is the fourteenth day before the 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
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.
The aim of a judicial reorganization is to maintain, under courts supervision, the continuity of all or part of a stressed enterprise or of its activities.
The judicial reorganization involves a moratorium granted to the debtor for a period of up to six months (extendable in certain circumstances). During this moratorium period, no enforcement can take place against the debtors assets and no bankruptcy proceedings can be opened in respect of the debtor. Creditors will however be able to effect set-off in certain circumstances, 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 courts 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.
Judicial 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 debtors 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.
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 debtors 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, as a rule, regain their ability to enforce their rights under the security after the bankruptcy trustee has verified the creditors claims.
We 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. One or more shareholders holding together at least 3% of the share capital can request to put an item on the agenda of the shareholders meeting and table resolution proposals for items included on the agenda of the shareholders meeting. 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.
Holders 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 NYSEs 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.
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 liability 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 eleven countries on three continents North America, Europe and Asia. At December 31, 2011, our sales network (which includes company-operated, affiliated and franchised stores) consisted of 3,408 stores, and we employed approximately 160,000 people. In 2011, we recorded revenues of 21.1 billion and Group share in net profit of 475 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 96% 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, Southeastern Europe and Asia:
Sales Network (number of stores)
Revenues (in millions of EUR)
Our operations are located primarily in the United States, Belgium and Southeastern Europe (Greece, Romania, Serbia, Bulgaria, Bosnia and Herzegovina, Montenegro and Albania), with a small percentage of our operations in Indonesia. In 2011, operations in the United States accounted for 65.4% of revenues. Operations in Belgium and the Grand Duchy of Luxembourg accounted for 23.0% of revenues. Operations in Southeastern Europe and Asia accounted for 11.6% of revenues.
HISTORY 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 NYSE 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 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 serves 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 2009, we acquired 4 supermarkets in Romania previously operated under the Prodas name and the Greek retailer Koryfi which operated 11 stores and a distribution center in the Northeast of Greece
In 2010, our wholly owned Dutch subsidiary Delhaize The Lion Nederland B.V. (Delned) obtained 100% of the voting rights of Alfa Beta following two tender offers and the exercise of its squeeze-out right. On October 1, 2010, Alfa Beta was delisted from the Athens Stock Exchange.
During 2011, 2010 and 2009, we also entered into several smaller agreements acquiring individual stores in various parts of the world.
On July 27, 2011, we acquired 100% of the shares and voting rights of Delta Maxi, a Serbian based food retailer active in five countries in the Southeastern part of Europe and with a network of approximately 485 stores, including convenience stores, supermarkets and hypermarkets and 7 distribution centers.
On January 12, 2012, we announced a thorough portfolio review and our decision to close 146 underperforming stores across our network (126 in the U.S. and 20 in Southeastern Europe) and to convert 42 Bloom and 22 Bottom Dollar Food stores to Food Lion in the U.S. In addition, we decided to retire the Bloom brand and to focus on a roll-out of Bottom Dollar Food stores in markets which provide the greatest opportunity for growth such as in the Philadelphia and Pittsburgh area. Bottom Dollar Food is a soft discount format offering customers an easy and full shopping experience at affordable prices.
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:
Delhaize Group achieves its success through the combination of a local go-to-market strategy, regional leadership, the Groups 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.
Delhaize Groups segment reporting is geographical, based on the location of customers and stores, which matches the way we manage our operations. In 2011, reportable segments include the United States, Belgium (including Belgium and the Grand Duchy of Luxembourg) and Southeastern Europe and Asia, which includes Maxi (Serbia, Bulgaria, Bosnia and Herzegovina, Montenegro and Albania), Alfa Beta (Greece), Mega Image (Romania) and 51% of Super Indo (Indonesia).
As of December 31, 2011, we operated the following banners:
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, Reids and Harveys.
For the fiscal year ended December 31, 2011, we had revenues of 13.8 billion ($19.2 billion) in the United States. At the end of 2011, we employed approximately 107,000 people in the United States.
Food Lion stores are located from Delaware through Florida. Hannaford and Kash n Karry (which operates Sweetbay Supermarket) are located respectively throughout New England and Florida. Harveys is located primarily in Georgia and Florida. Bloom and Bottom Dollar Food stores can be found in the mid-Atlantic section of the United States.
Sales network. The growth of our U.S. sales network has historically been based on store openings, complemented by selective acquisitions. In 2011, we opened 33 new stores in the United States, closed and relocated five stores and decided to close five other stores. This resulted in a net increase of 23 stores. As a result, as of December 31, 2011, we operated 1,650 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 2011, we re-opened 66 supermarkets in the U.S. after remodeling or expansion work, including market renewals in the markets of Roanoke and Lynchburg, Virginia and Fayetteville, North Carolina.
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. Based on the positive results in the 200 Phase One Food Lion stores, we will accelerate the brand repositioning work in 600 to 700 additional Food Lion stores in 2012.
In 2010, the low-cost grocery store Bottom Dollar Food entered into the greater Philadelphia, Pennsylvania 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 2011, Bottom Dollar Food counted 24 stores in that new area.
On January 12, 2012, we announced the completion of a thorough portfolio review and the subsequent decision to close 126 underperforming stores in the U.S. and to convert 42 Bloom and 22 Bottom Dollar Food stores to Food Lion. In addition, we decided to retire the Bloom brand and to focus on a roll-out of Bottom Dollar Food stores in markets that provide the greatest opportunity for growth such as in the Philadelphia and Pittsburgh areas.
Competition 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 Groups 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 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 and Harveys offer between 15,000 and 20,000 stock-keeping units (SKUs) in their supermarkets, Bloom between 21,000 and 25,000 SKUs, Bottom Dollar Food between 6,000 and 8,000 SKUs, Sweetbay between 28,000 and 42,000 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, Natures 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 their 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 from private brand products represented 25.7%, 27.9% and 27.4% of Food Lions, Hannafords and Sweetbay respective revenues in fiscal year 2011. As of December 31, 2011, Food Lion carried more than 5,100 private brand SKUs, Hannaford approximately 6,170 private brand SKUs and Sweetbay offered more than 5,000 SKUs under its private brand program. We have a common three-tier private brand program in our U.S. operations, including a premium brand, a house brand and a value line as well as category-specific private brand lines for organic products, general merchandise and prepared meals. In the second quarter of 2011, we introduced My Essentials, a new value line of private brands that replaces 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 85% of revenues at Food Lion in 2011. During the fiscal year ended December 31, 2011, approximately 14.9 million households actively used the MVP program.
Pharmacies. As of December 31, 2011, there were 143 pharmacies in Hannaford stores, 78 in Sweetbay stores, 40 in Food Lion stores, 27 in Harveys stores and six 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 competitive prices. In 2011, we had revenues of 4.8 billion in Belgium and the Grand Duchy of Luxembourg, an increase of 0.9% over 2010. Comparable store sales evolution was -0.6% in an
environment with very low internal inflation and decreasing consumer confidence. Delhaize Belgium ended the year 2011 with a 25.8% market share (source: AC Nielsen), a decrease of 46 basis points compared to 2010. At the end of 2011, we employed approximately 17,000 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, 2011, our sales network consisted of 821 stores in Belgium and the Grand Duchy of Luxembourg, a net increase of 16 stores since 2010.
The network included 376 supermarkets under the Delhaize Le Lion, AD Delhaize and Red Market banners, 308 smaller conveniently located stores primarily under the Proxy Delhaize, Delhaize City and Shop n Go banners. It also included 137 pet food and products stores operated under the Tom & Co. banner. At the end of 2011, 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 2011, there were 141 company-operated supermarkets of which 23 supermarkets were remodeled in 2011. 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 2011, Delhaize Group operated seven 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 308 stores under the Delhaize City, Proxy Delhaize and Shop n Go banners at the end of 2011. 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, 2011, 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 2011, 97 stores were equipped with Delhaize Direct.
Specialty stores. Tom & Co. is a specialty chain focusing on food and accessories for pets. At the end of 2011, the large majority of the 137 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.
Competition is based primarily on location, price, consumer loyalty, product quality, variety and service. In Belgium, we focus 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). Operating hours are regulated and company-operated stores cannot open on Sunday, except in a small number of designated tourist zones.
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.
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. At the end of 2008, Delhaize Belgium introduced Eco-line, an assortment of environmentally 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 2011, 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 2011, the 365 offering included approximately 500 SKUs in Belgium and accounted for approximately 4% of revenues. In 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. Our stores in Belgium use a loyalty card known as the Plus card, which was used by customers for approximately 92% of total sales in Delhaize Le Lion supermarkets in 2011. The Plus card also provides benefits for shoppers at our other stores in Belgium. We have developed partnerships with other companies in Belgium to offer additional benefits to holders of the Plus Card.
Southeastern Europe & Asia
Overview. In 2011, Delhaize Group combined the newly acquired Maxi-operations in five countries in the Balkans with the existing activities of Alfa Beta in Greece and Mega Image in Romania, including Super Indo in Indonesia, in the South Eastern Europe & Asia (SEE & Asia) segment. With 2.5 billion, this segment represented in 2011 11.6% of the total Group turnover. In 2011, revenues of the Southeastern Europe and Asia segment increased by 32.0% (+32.1% at identical exchange rates), mainly as a result of the Delta Maxi acquisition and to a lesser extent as a result of revenue growth in Greece despite a difficult economic environment, as well as excellent revenues in Romania and store openings throughout the segment. In Greece, Alfa Betas market share increased throughout the year while the overall Greek food retail market has been under strong pressure. Alfa Betas market share increased by 120 basis points to 19.3% (source: AC Nielsen).
Sales network. At year-end, the Southeastern Europe and Asia sales network of Delhaize Group included 937 stores, 569 more than at the end of 2010 including 492 Maxi stores (485 acquired and a net addition of seven stores since August 1, 2011), 28 additional stores in Greece, 33 in Romania and 16 in Indonesia.
Greece. As of December 31, 2011, Alfa Beta had 251 stores, of which 170 directly operated supermarkets under the Alfa Beta banner, 12 cash & carry stores under the ENA banner, 25 AB City stores and served 44 affiliated stores operated under the AB Food Market and AB Shop & Go banners. At the end of 2011, Alfa Beta employed approximately 10,400 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 with 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.
Romania. We own 100% of Mega Image since 2004. As of December 31, 2011, Mega Image operated 105 supermarkets in Romania and employed approximately 4,300 people. Mega Images network is concentrated in the Romanian capital of Bucharest, one of the most densely populated areas in Europe. During 2011, Mega Image accelerated its expansion with the opening of 33 new stores. Mega Images stores all offer the private brand ranges 365, Care and the house brands available at Delhaize Belgium and Alfa Beta.
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 89 stores as of December 31, 2011, employing almost 5,200 associates. We own 51% of Super Indo. The remaining 49% is owned by the Indonesian Salim Group.
Serbia, Bulgaria, Bosnia and Herzegovina, Montenegro and Albania. On July 27, 2011, we acquired 100% of Delta Maxi, a Serbian food retailer present in five Balkan countries. At year-end 2011, we operated 366 stores in Serbia, 44 in Bosnia and Herzegovina, 42 in Bulgaria, 22 in Montenegro and 18 in Albania. We had approximately 11,000 employees in Serbia, 2,400 in Bulgaria, 1,200 in Bosnia and Herzegovina, 700 in Montenegro and 500 in Albania.
DESCRIPTION OF PROPERTY
Store Ownership of Sales Network (as of December 31, 2011)
The majority of our company-operated stores are leased, with lease terms (including reasonably certain renewal options) generally ranging from 1 to 40 years and with renewal options ranging from 3 to 36 years. At the end of 2011, 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, 2011, we owned 151 of our stores (or 18.4% of our total Belgian 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, 2011, we owned 323 stores and nine distribution centers and leased 614 stores and five distribution centers in our Southeastern Europe and Asia segment.
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.
This discussion is intended to provide 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 2011, 2010 and 2009, 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, 2011. 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 2011, 2010, and 2009 include the results of operations of its U.S. subsidiaries for the 52 weeks ended December 31, 2011, 52 weeks ended January 1, 2011 and 52 weeks ended January 2, 2010, respectively. Our financial information includes all of the assets, liabilities, sales and expenses of all fully consolidated subsidiaries, i.e., those over which we can exercise control.
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 local companies benefiting from and contributing to our Groups strength, expertise and successful practices.
In 2011, almost 90 percent of our consolidated revenues were generated through the operation of retail food supermarkets in the United States, Europe and Indonesia. 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.
Our financial results 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.
At the end of 2011, our store network totaled 3,408 stores. Our sales network consists primarily of retail food supermarkets, and 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 products to commercial customers. Approximately 80% of our stores are company-operated and 20% 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 2011, our operations were comprised of three segments:
2011 Financial Result
In 2011, we had:
In October 2011, we completed the public offering of our 7-year 4.25% retail bond in Belgium and in the Grand Duchy of Luxembourg in a principal amount of 400 million. The retail bond was issued on October 18, 2011 and is listed on NYSE Euronext Brussels.
On July 27, 2011, we acquired 100% of the shares and voting rights of Delta Maxi, a food retailer which, at acquisition date, operated 485 stores and seven distribution centers in five countries in Southeastern Europe. The acquisition price was 933 million (enterprise value), including net debt and other customary adjustments of 318 million, resulting in a total purchase price of 615 million, which is subject to customary purchase price adjustments but not any earn-out or similar clauses. Delta Maxi is consolidated into our consolidated financial statements as of August 1, 2011 and is included in the Southeastern Europe & Asia segment. We incurred approximately 11 million acquisition-related costs that were included in selling, general and administrative expenses in the Corporate segment.
Further information regarding acquisitions and divestitures can be found 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 materially 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.
Asset 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 values. 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 values 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, a 200 basis point increase in the sales growth assumption used in the cash flow projections would not have resulted in fewer stores being identified for impairment, and would also not have decreased the impairment losses recognized. On the other hand, a 200 basis point decrease in the sales growth assumption used in the cash flow projections would have resulted in five additional stores being identified for impairment, and would have increased the impairment losses of the year by an amount less than 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 CGUs are described in Note 6 to our consolidated financial statements, included under Item 18 to this document. Goodwill relating to our U.S. CGUs 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 approach 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.
The assumptions employed 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 significant 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 3.0 billion in 2011 and would not have resulted in the carrying amounts of the significant CGUs exceeding their recoverable amounts.
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, changes in customer payment terms and insurance coverage, if any. 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 concentrations of credit risk.
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. The assessment of our tax position relies on the judgment of management to estimate the exposures associated with our various filing positions. 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.
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.
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.
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.
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, except for the restricted stock unit awards for which the fair value is based on the share price on the date of grant. The resulting cost is charged to the income statement over the vesting period of the related share-based awards. 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. 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. By the nature of such estimates, the actual amounts recorded may differ. Adjustments to closed store provisions and other exit costs primarily relate to changes in subtenant income and actual exit costs. 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 sub-lessees, 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 the estimated 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 2011 store closing activities and increased / decreased the total closed store provision by 3 million.
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 vendors product. Such reimbursements 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 regularly 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 differs 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 typically define an amount of benefit that an employee will receive upon retirement, usually depending on factors such as age, years of service and similar criteria. Such plans are either funded or unfunded and our net liability recognized in the balance sheet is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, adjusted by any unrecognized past service costs.
Calculating the net pension liability 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 inputs and 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 a component of equity, and impact immediately the net pension liability. 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 the key assumptions applied to estimate the annual pension costs are required, the future amounts of the pension benefit costs may be materially affected.
SELECTED RESULTS OF OPERATIONS
During 2011, our revenues increased 1.3% compared 2010. During 2010, our revenues increased 4.6% compared to 2009. In 2011, there was a negative translation effect in our sales as a result of the weakening of the U.S. dollar against the euro by 4.8% compared to 2010. 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. The translation effect is the effect of fluctuations in the exchange rates in the functional currencies of certain 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, 2011 revenue growth at identical exchange rates was calculated by converting 2011 revenues of our U.S., Romanian and Indonesian operations at the 2010 average exchange rates. For our acquired activities in the Balkan areas (floating currencies in Serbia and Albania), we used the opening rate of August 1, 2011 to calculate data at identical exchange rates.
We ended 2011 with a sales network of 3,408 stores, an increase of 608 stores compared to 2010. We ended 2010 with a sales network of 2,800 stores, an increase of 68 stores compared to 2009.
Net profit attributable to equity holders of our company (our company share in net profit) for 2011 decreased by 17.4% compared with our company share in net profit for 2010. This decrease in 2011 was mainly a result of a lower operating profit partly offset by lower income taxes and lower net financial expenses. Net profit attributable to equity holders of our company 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 partially offset by higher income taxes and a lower result from discontinued operations.
The following table sets forth, for the periods indicated, our revenues contribution by geographic region:
Revenues increased 1.3% for 2011 compared to 2010, negatively impacted by the weakening of the U.S. dollar by 4.8% against the euro. Revenue growth was 4.6% at identical exchange rates. This growth was the result of the acquisition of Delta Maxi (a total of 492 stores at year-end 2011), a net increase in the sales network in our other operations of 116 stores and a comparable store sales growth of 0.7% in the U.S., partially offset by a negative comparable store sales evolution of -0.6% in Belgium. Comparable store sales are sales of the same stores, including relocations and expansions and adjusted for calendar effects.
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.
Revenues decreased 2.6% for 2011 compared to 2010. This increase was a result of the weakening of the U.S. dollar by 4.8% against the euro. At identical exchange rates, revenues increased by 2.2%. Comparable store sales evolution was 0.7% in 2011 impacted by challenging economic conditions, especially in Southeastern U.S., with food inflation particularly high in the second half of the year. We finished 2011 with 1,650 supermarkets in the U.S., an addition of 23 stores in comparison to 2010, of which 13 were Bottom Dollar Food stores.
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 negative 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 by 0.9% for 2011 over 2010. This increase was the result of a net increase of 16 stores and VAT refunds amounting to 15 million partly offset by a comparable store sales decline of 0.6%. In 2011, Delhaize Belgium was negatively impacted by low consumer confidence and low retail inflation. Delhaize Belgium ended the year 2011 with a 25.8% market share (source: AC Nielsen), a decrease of 46 basis points compared to 2010.
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.
Southeastern Europe and Asia
Revenues increased by 32.0% for 2011 over 2010 (+7.3% excluding Delta Maxi) primarily driven by the acquisition of Delta Maxi and store openings across the segment. In 2011, the number of stores in the segment increased by 569 to a total of 937 stores of which 492 were Maxi stores.
Revenues increased by 9.4% for 2010 over 2009 primarily driven by 35 additional stores and totaling 368 stores at the end of 2010.
Gross profit increased by 0.2% for 2011 compared to 2010 (increase of 3.7% at identical exchange rates). Gross margin decreased 28 basis points in 2011 in comparison to 2010. In the U.S., gross margin decreased by 33 basis points from 27.6% to 27.3% primarily as a result of price investments especially at Food Lion, partly offset by procurement savings. At Delhaize Belgium, gross margin increased by 28 basis points from 20.8% to 21.0% as a result of 15 million VAT refunds and better supplier terms which were used to fund price investments. Gross margin for the Southeastern Europe and Asia segment decreased by 22 basis points due to the lower margin of Maxi. Excluding Maxi, gross margin for the segment increased by 65 basis points resulting from better supplier terms partly offset by price investments.
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. Gross margin for Southeastern Europe and Asia increased by 31 basis points, resulting from better supplier terms partly offset by price investments.
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 38.9% to 118 million for 2011 compared to 2010. This increase is mainly due to an insurance reimbursement related to tornado damages, higher rental income and more waste recycling income, all at Delhaize America.
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).
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) increased by 2.4% for 2011 compared to 2010 (increase of 6.0% at identical exchange rates). SG&A as a percentage of revenues increased by 24 basis points to 21.3%. In the U.S., SG&A as a percentage of U.S. revenues increased by 27 basis points to 22.7% of revenues mainly due to the impact of limited sales growth, partly offset by a cost reduction efforts. At Delhaize Belgium, SG&A expenses increased by 24 basis points to 16.8% of Belgian revenues mainly due to the negative impact of automatic salary indexation, partly offset by cost reduction efforts. In the Southeastern Europe and Asia segment, SG&A increased by 25 basis points to 20.5% of related revenues mainly as a result of higher taxes in Greece due to austerity measures and higher rents due to new store openings. At Corporate, SG&A includes 11 million costs related to the acquisition of Delta Maxi.
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%. 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 the Southeastern Europe and Asia segment, SG&A decreased 5 basis points.
Other Operating Expenses
Other operating expenses include expenses incurred outside the normal cost of operating stores, including losses on disposal of property, plant and equipment, impairment losses, store closing expenses and restructuring charges.
Other operating expenses amounted to 169 million in 2011 and increased by 149 million compared to 2010. The 2011 results included 135 million impairment charges (14 million in 2010). During the fourth quarter of 2011, we performed a thorough review of our store portfolio (Portfolio Review) and concluded that 146 underperforming stores would be closed during the first quarter of 2012. We recorded 127 million impairment charges relating to 126 stores in the U.S. (113 Food Lion, seven Bloom and six Bottom Dollar stores), one distribution center and several investment properties, while the underperformance of 20 Maxi stores (in Serbia, Bulgaria and Bosnia and Herzegovina) was already reflected in the fair values of the related assets in the opening balance sheet.
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.
The following table sets forth, for the periods indicated, our operating profit contribution by segment:
Our operating margin for 2011 decreased to 3.8% compared to 4.9% in 2010. The operating margin of the U.S. operations decreased from 5.3% in 2010 to 3.9% in 2011 driven by impairment charges related to the Portfolio Review and price investments partly offset by procurement savings. The operating margin of the Belgian operations increased slightly from 4.9% in 2010 to 5.0% in 2011 primarily due to 15 million VAT refunds, favorable supplier terms and cost reductions partly offset by the negative impact of salary indexation and additional price investments. In 2011, the operating margin of the Southeastern Europe and Asia segment decreased from 3.7% in 2010 to 3.3% in 2011 as a result of the integration of Maxi (excluding Maxi, operating margin would have been 3.9%, increasing 19 basis points vs. 2010 driven by a higher gross margin partly offset by higher SG&A as a percentage of revenues).
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 Southeastern Europe and Asia segment increased from 3.4% in 2009 to 3.7% in 2010 driven by a higher gross margin and fairly stable SG&A as a percentage of revenues.
Operating profit decreased by 20.8% to 812 million for 2011 compared to 2010. At identical exchange rates, operating profit decreased 18.1%.
Operating profit increased by 8.7% to 1,024 million for 2010 compared to 2009. At identical exchange rates, operating profit increased 4.7%.
Net Financial Expenses
Net financial expenses during 2011 were 22 million below 2010 and represented, as a percentage of revenues, 0.9% in 2011 and 1.0% in 2010. At identical exchange rates, net financial expenses decreased by 16 million mainly due to fair value gains on derivatives, gains on the disposal of financial assets, the positive impact of the 2010 bond exchange and a $50 million bond reimbursement in April 2011, partly offset by the financing of the acquisition of Delta Maxi.
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. dollars.
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 24.7%, 29.8% and 30.8% for 2011, 2010 and 2009, respectively. The effective tax rate for continuing operations for 2011 decreased by 5.14 percentage points in comparison to 2010, mainly as a result of the lower weight of our U.S. operations due to the recorded impairment charges. 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 (including discontinued operations) was 24.7%, 29.8% and 30.4% for 2011, 2010 and 2009, respectively. The effective tax rates differ from the effective tax rate for continuing operations in 2009 because the result from discontinued operations included a non-taxable gain in 2009, which is 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 2010 and 2011, we expect continued audit activity in 2012. 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.
Result from Discontinued Operations
In 2011, there was no result from discontinued operations, net of tax.
In 2010, the result from discontinued operations, net of tax, amounted to a loss of 1 million.
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.
Net Profit Attributable to Equity Holders of Delhaize Group
The lower operating profit partly offset by lower income taxes and lower net financial expenses resulted in a 17.4% decrease in net profit attributable to equity holders of our company (our company share in net profit) for 2011 compared to 2010.
The positive result from a higher operating profit partly offset by higher income taxes and a lower result from discontinued operations resulted in an 11.7% increase in net profit attributable to equity holders of our company (our company share in net profit) for 2010 compared to 2009.
LIQUIDITY AND CAPITAL RESOURCES
We had 432 million of cash and cash equivalents as of December 31, 2011, compared to 758 million at December 31, 2010. 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.
Net cash provided by operating activities was 1,106 million, 1,317 million and 1,176 million during 2011, 2010 and 2009, respectively. The decrease in 2011 over 2010 was primarily due to a lower net profit (100 million), lower income tax and net finance expenses (112 million) and higher cash used in operating assets and liabilities (196 million in 2011 compared to 67 million in 2010 primarily due to reducing overdue supplier balances at Maxi) partly offset by higher impairment expenses (121 million) due primarily to the Portfolio Review. 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.
Net cash used in investing activities was 1,265 million for 2011, compared to 665 million during 2010 and 555 million for 2009. The increase in 2011 is primarily due to higher amounts for business acquisitions (increase of 572 million resulting from the acquisition of Delta Maxi) and capital expenditures that were 102 million higher than in 2010. The increase in 2010 is mainly due to capital expenditures that were 140 million higher than in 2009, partly offset by lower amounts for business acquisitions.
Capital expenditures were 762 million for 2011 compared with 660 million for 2010 and 520 million for 2009. The increase of 15.5% in 2011 (18.7% increase at identical rates) is mainly a result of additional store openings in Southeastern Europe and Asia and the start of the construction of a new automated distribution center in Belgium. The increase of 26.8% in 2010 (22.7% increase at identical exchange rates) is mainly a result of the delayed spending in 2009 on store remodeling activity in the U.S.
Capital Expenditures by Geographical Area
Capital Expenditures by Type
In 2011, we remodeled or expanded 66 supermarkets in the U.S. (compared to 72 in 2010) and 23 supermarkets were remodeled in Belgium (18 in 2010). The other capital expenditures mainly relate to capital spending for information technology, logistics and distribution.
Our growth strategy includes selective acquisitions. During 2011, we entered into one significant and several small agreements. The small agreements allowed for the acquisition of 17 individual stores in various parts of the world, and the total consideration transferred during 2011 for these transactions was 16 million and resulted in an increase of goodwill of 10 million, which mainly represented expected benefits from the integration of the stores into the existing sales network, the locations and customer base of the various stores acquired, which are expected to produce all resulting in synergy effects for the Group.
In addition, we made a final payment of 1 million during 2011 related to the acquisition of stores which occurred in 2010.
Acquisition of Delta Maxi
On July 27, 2011, we acquired 100% of the shares and voting rights of Delta Maxi for an amount of 933 million (enterprise value), including net debt and other customary adjustments of 318 million, resulting in a total purchase price of 615 million, which is subject to customary purchase price adjustments, but not any earn-out or similar clauses. At December 31, 2011, the total consideration transferred amounts to (i) 574 million in cash, net of 21 million cash acquired, of which 100 million is held in escrow by the seller and (ii) 20 million held in escrow by us. The acquired business, in combination with our existing operations in Greece and Romania, will make us a leading retailer in Southeastern Europe. At acquisition date, Delta Maxi operated 485 stores and seven distribution centers in five countries in Southeastern Europe. Delta Maxi is included in our consolidated financial statements as of August 1, 2011 and is part of our Southeastern Europe & Asia segment. We incurred approximately 11 million acquisition-related costs that have been included in selling, general and administrative expenses in the Corporate segment. This transaction is also detailed in Note 4.1 of our consolidation financial statements, included in Item 18 in this document.
Net cash used in financing activities was 146 million in 2011, compared to cash used in financing activities of 343 million and 496 million in 2010 and 2009, respectively. Net cash used in financing activities decreased by 197 million in 2011 mainly due to additional long-term debt resulting from the issuance of a 400 million retail bond in October 2011 which was primarily used to repay Delta Maxi long-term and short-term debt.
Purchase of non-controlling interests
Subsequent to the acquisition of Delta Maxi end July 2011, we started the process of acquiring non-controlling interests held by third parties in several Delta Maxi subsidiaries. Until December 31, 2011, we acquired non-controlling interests of a carrying amount of 14 million. The cash consideration transferred for the acquired non-controlling interests was 10 million. The difference between the carrying amount of non-controlling interests and the fair value of the consideration paid was recognized directly in retained earnings and attributed to the shareholders of the Group for an amount of 4 million.
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 additional 24.7% Alfa Beta shares we purchased in 2009.
In 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 of 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% of Alfa Beta shares we purchased in 2010.
In 2011, our long-term debt increased by 131 million. This increase is primarily the combined effect of the issuance of a Delhaize Group 7-year retail bond in principal amount of 400 million in October 2011, which was partly used to early reimburse the existing debt of the acquired Delta Maxi Group (186 million), the repayment at maturity of a $50 million bond (38 million) and 53 million finance lease obligations.
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 in principal amount 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 in principal amount of 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 $300 million in principal amount of (208 million) senior notes with an annual interest rate of 5.875% due 2014. During 2009, we repaid at maturity the outstanding convertible bonds in principal amount of 170 million (2.75% interest), a Eurobond of 150 million (4.625% interest) and finance lease obligations of 45 million.
In 2003, Hannaford invoked the defeasance provisions of several of its outstanding notes and placed sufficient funds in an escrow account to satisfy the remaining principal and interest payments due on these notes. As a result of this defeasance, Hannaford is no longer subject to the negative covenants contained in the agreements governing the notes. As of December 31, 2011, 2010 and 2009, 6 million, 8 million and 9 million in aggregate principal amount of the notes was outstanding, respectively. Cash committed to fund the escrow and not available for general corporate purposes is considered restricted. At December 31, 2011, 2010 and 2009, restricted securities of 9 million, 10 million and 10 million, respectively, were recorded in investment in securities on the balance sheet.
At December 31, 2011, the carrying value of our long-term borrowings (including current portion and excluding finance leases), net of discounts and premiums, deferred transaction costs and hedge accounting fair value adjustments, can be summarized as follows:
The table below provides per currency the expected principal payments (undiscounted) and related interest rates of our long-term borrowings by year of maturity as of December 31, 2011. For the definition of fair value, see Note 18.1 to the consolidated financial statements included in this document.
USD denominated debt
Euro denominated debt
Debt Covenants for Long-Term Debt
We are subject to certain financial and non-financial covenants related to the long-term debt instruments indicated above.
Indentures covering the notes due in 2014 ($), 2014 (), 2017 ($), 2027 ($) and 2040 ($) and the debentures due in 2031 ($) and the retail bond due in 2018 () 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 and 2018 () bonds also contain a provision granting their holders the right to redemption at 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 contains 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.
At December 31, 2011, 2010 and 2009, we were in compliance with all covenants for long-term debt.
On April 15, 2011, Delhaize Group and certain of its subsidiaries, including Delhaize America LLC, entered into a 600 million, five-year multi-currency, unsecured revolving credit facility (the New Facility Agreement).
At that date, Delhaize America, LLC terminated all of its commitments under the 2009 Credit Agreement and joined the New Facility Agreement. Delhaize America, LLC had no outstanding borrowings under this agreement as of December 31, 2011 and no outstanding borrowings under the 2009 Credit Agreement as of December 31, 2010 and $50 million (35 million) as of December 31, 2009.
Under the credit facilities that were in place at the various reporting dates, Delhaize America, LLC had no average daily borrowings during 2011, $2 million (2 million) during 2010 and $3 million (2 million) during 2009. In addition to the New Facility Agreement, Delhaize America, LLC had a committed credit facility exclusively to fund letters of credit of $35 million (27 million) of which approximately $16 million (13 million) was outstanding to fund letters of credit as of December 31, 2011, $20 million (15 million) and $37 million (26 million) as of December 31, 2010 and 2009, respectively.
Further, Delhaize America, LLC has periodic short-term borrowings under uncommitted credit facilities that are available at the lenders discretion and these facilities were $150 million (116 million) at December 31, 2011. As of December 31, 2011, 2010 and 2009, Delhaize America, LLC had no borrowings outstanding under such arrangements, but used $5 million (4 million) to fund letters of credit at December 31, 2011.
Europe and Asia
At December 31, 2011, 2010 and 2009, the Groups European and Asian entities together had credit facilities (committed and uncommitted) of 864 million (of which 736 million of committed credit facilities and including the 600 million New facility Agreement described above), 490 million and 542 million, respectively, under which Delhaize Group can borrow amounts for less than one year.
Borrowings under the credit facilities 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, Delhaize Group had 60 million in outstanding short-term bank borrowings at December 31, 2011, of which 46 million was drawn from the committed credit lines, compared to 14 million in outstanding short-term bank borrowings at December 31, 2010 and 28 million borrowings outstanding at December 31, 2009, respectively, with an average interest rate of 2.95%, 4.83% and 3.83%, respectively. During 2011, the Groups European and Asian average borrowings were 189 million at a daily average interest rate of 5.20%.
In addition, European and Asian entities have credit facilities (committed and uncommitted) of 14 million (of which 2 million are committed), exclusively to issue bank guarantees. Of these credit facilities approximately 10 million was outstanding to fund letters of guarantee as of December 31, 2011 (4 million at December 31, 2010 and 3 million at December 31, 2009).
Debt Covenants for Short-Term Borrowings
The New Facility Agreement, which replaced the 2009 Credit Agreement, and 129 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 and maximum leverage 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, 2011, 2010 and 2009, we were in compliance with all covenants conditions for Short-term Bank Borrowings.
Standard & Poors Rating Services (S&P) and Moodys Investors Service, Inc. (Moodys) rate our senior unsecured long-term debt. S&P and Moodys 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 2011.
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, 2011:
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.
FACTORS 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 and interest rate 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 speculation purposes.
Currency Risk Business Operations. Our reporting currency is the euro. Our operations are conducted primarily in the U.S., Belgium and Southeastern Europe, which includes operations in Greece, Serbia, Bosnia and Herzegovina, Montenegro, Albania, Bulgaria and Romania. A small percentage of our operations is also conducted in Indonesia. The results of operations and the financial position of each of our entities outside the euro zone are accounted for in the relevant functional currency and then translated into euro at the applicable foreign currency exchange rate for inclusion in the Groups 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 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 between 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, 2011, after cross-currency swaps, 71 % of financial debt is denominated in U.S. dollars while also 66% 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 2 million (2010: 3 million; 2009: 3 million).
Foreign Currency Risk Financial Instruments. Foreign 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 currency exchange rates. Foreign 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 foreign currency risks only on monetary items not denominated in the functional currency of the respective reporting entity, such as trade receivables and payables 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.
At December 31, 2011, if the U.S. dollar had weakened/strengthened by 22% (estimate based on the standard deviation of daily volatilities of the EUR/USD rate during 2011 using a 95% confidence interval), our net profit (all other variables held constant) would have been 3.8 million higher/lower (2010: 1.4 million higher / lower with a rate shift of 20%; 2009: 3.4 million higher/lower with a rate shift of 24%). Due to our financing structure, such a change in EUR/USD exchange rate would have no impact on our equity.
Interest 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 (see also Note 19 in the consolidated financial statements with respect to derivative financial instruments and hedging).
At the end of 2011, 75.1% of our financial debts after swaps were fixed-rate debts (2010: 72.3% fixed-rate debt; 2009: 69.1% 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. Our interest rate risk management policy aims at reducing earnings volatility.
December 31, 2011 (in millions of EUR)
December 31, 2010 (in millions of EUR)
December 31, 2009 (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, money market funds 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).
Our short-term investments are required to have a rating of at least Al (Standard & Poors) / PI (Moodys). 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. Most of Delhaize Groups 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 2011, we had committed credit lines totaling 765 million, of which 46 million was utilized for credit. These credit lines include a syndicated multi-currency credit facility of 600 million for the Company and certain of its subsidiaries including Delhaize America, LLC, 136 million of bilateral credit facilities for European entities and 29 million credit facilities for letters of credit and guarantees of which 15 million was used at December 31, 2011. At December 31, 2011, the maturities of the committed credit facilities were as follows: 88 million maturing in 2012, 75 million maturing in 2013, 2 million maturing in 2014 and 600 million maturing in 2016.
At December 31, 2011 the maturities of the long term debt were 87 million in 2012, 80 million in 2013 and 755 million in 2014. For further details see Note 18.1 in the consolidated financial statements included under Item 18 to this document.
The financial rating agencies Standard & Poors and Moodys 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 others 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 retention 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 143 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 2011, according to the U.S. Bureau of Labor Statistics, the U.S overall inflation was 3.0% (1.5% in 2010 and 2.7% in 2009) primarily driven by higher energy prices which continued to increase and higher food prices. Food inflation was 4.7% (1.5% in 2010 and -0.5% in 2009) and food at home inflation rose 6.0% following an increase of 1.7% in 2010. (source: B.L.S.). In 2011, economic conditions were challenging especially in the Southeastern U.S., with food inflation particularly high in the second half of the year.
In 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.
For Delhaize Belgium, national food inflation in 2011 was of 2.4% compared to 1.5% in 2010. In an environment with very low internal inflation and decreasing consumer confidence, consumers continued to trade down, demonstrated by the increase in the 365 value line private brand revenues and strong revenue growth at Red Market, the soft discount format that was further tested in the Belgian market.
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 challenging in 2011. Real gross domestic product growth (GDP) was 1.7%, lower than the 3.0% growth in 2010. The increase in real GDP in 2011 primarily reflected positive contributions from personal consumption expenses, exports, and nonresidential fixed investment that were partly offset by negative contributions from state and local government spending, private inventory investment, and federal government spending. The economic conditions in the U.S. remain difficult with unemployment at 8.5% in December 2011 down from 9.4% in December 2010. Approximately 46.5 million Americans received food stamps in December 2011, 5.5% more than a year earlier. General inflation was 3.0% in 2011 compared to 1.5% in 2010 still driven by increasing energy prices. Food inflation for the year was 4.7% for the year compared to 1.5% in 2010.
In Belgium, GDP growth remained positive in 2011 at 1.9%. General inflation increased moderately and food inflation came out at 2.4%. The unemployment rate was 7.3% compared to 8.4% in 2010. The competitive environment remained challenging and focused on price.
RECENT EVENTS AND OUTLOOK
On January 12, 2012, we announced, following a thorough portfolio review of our stores, the decision to close one distribution center and 146 stores across our network: 126 stores in the U.S. (113 Food Lion, seven Bloom and six Bottom Dollar Food) and 20 underperforming Maxi stores (in Serbia, Bulgaria and Bosnia and Herzegovina), and to abandon several of our investment properties. As a result, the Group recorded an impairment charge of 127 million ($177 million) in the fourth quarter of 2011 (see Item 18 Note 28). This charge solely relates to the U.S. operations as the underperformance of the stores in Southeastern Europe was already reflected in the fair values of the related assets recorded in the opening balance sheet.
Beginning in the first quarter of 2012, we expect earnings to be impacted by approximately 200 million (approximately $235 million for the U.S. and 30 million for Southeastern Europe) to reflect store closing liabilities including a reserve for ongoing lease and severance obligations, accelerated depreciation related to store conversions, conversion costs, inventory write-downs and sales price mark downs. This will have an after tax impact of approximately 125 million on our 2012 earnings.
On March 7, 2012, our Board of Directors proposed a gross dividend of 1.76 per share to be paid to owners of ordinary shares against coupon no. 50 on June 1, 2012. After deduction of 25% withholding tax pursuant to Belgian domestic law, this will result in a net dividend of 1.32 per share. This dividend is still subject to approval by shareholders at the Ordinary General Meeting of May 24, 2012 and, therefore, has not been included as a liability in Delhaize Groups consolidated financial statements prepared under IFRS. The estimated dividend liability, based on the number of shares issued at March 7, 2012, is 179 million.
On March 8, 2012 we announced the appointment of:
On March 22, 2012, we commenced a tender offer for cash prior to maturity of up to 300 million of our 500 million 5.625% Senior Notes due 2014, plus accrued and unpaid interest and premium amounts.
In December 2009, we launched our new strategic plan for the years 2010-2012, the New Game Plan (NGP). The NGP aims to generate profitable revenue growth, pursue best in class execution and operate as a responsible citizen through a combination of strategic initiatives, such as:
As a major component of the NGP, we started implementing the new Food Lion brand strategy in our Raleigh, NC and Chattanooga, TN markets in May 2011. The new strategy includes a significant price repositioning and the strengthening of other attributes of the Food Lion brand. The trends in customer visits and number of items sold in these markets, and particularly in Raleigh have significantly outpaced the rest of the Food Lion network, resulting in positive volume growth for the period May until December 2011. As a result, we plan to roll out the new strategy to 600 to 700 additional Food Lion stores in 2012.
In 2012, we will continue the acceleration of our expansion in low cost supermarkets and newer markets. We plan to open 200 to 230 new stores in 2012, compared to 158 gross new stores opened in 2011, mostly in our newer markets and low cost formats. In 2011 we entered the Philadelphia market with our soft discount format Bottom Dollar Food (BDF). Bottom Dollar Food stores offer an easy and full shopping experience at affordable prices. At the beginning of 2012, we expanded the Bottom Dollar Food format to the Pittsburgh area and opened 15 stores. We plan to open additional stores in those two markets in the course of 2012.
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 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 should also contribute to these savings.
In January 2012, based on the positive experience at Delhaize America, we created Delhaize Europe in order to provide support and improve efficiencies in the areas of procurement, finance, legal and human resources and to set up a common European IT platform.
2012 capital expenditures and store opening outlook
We plan to end 2012 with a store network of between 3,428 and 3,458 stores, as a result of opening 200 to 230 new stores net of 146 stores already closed or to be closed as part of the portfolio optimization and as part of ongoing operations. We expect capital expenditures (excluding finance leases) of approximately 800 to 850 million during 2012 (based on an average exchange rate in 2011 of 1 EUR = 1.3920 USD). Approximately 200 stores will be remodeled during 2012.
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 12 directors. Eleven of the directors are non-executive directors and one director, Pierre-Olivier Beckers, our Chief Executive Officer, is an executive director.
In March 2012, the Board of Directors determined that the current directors, with the exception of Chief Executive Officer Pierre-Olivier Beckers, 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. Following recent changes in the Belgian Company Code, Messrs. 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 nine times in 2011.
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.
Upon the recommendation of the Remuneration and Nomination Committee, the Board of Directors will propose to the shareholders for approval at the Ordinary General Meeting to be held on May 24, 2012: (i) the renewal of the mandates of Ms. Claire H. Babrowski for a term of four years, (ii) the renewal of the mandates of Mr. Pierre-Olivier Beckers and Mr. Didier Smits each for a term of three years and (iii) the appointment of Shari L. Ballard as a director for a term of three years.
Our current Board of Directors and nominee, 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. 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 Masters degree in Economic Sciences (UCL, Belgium), and a Masters degree in Economics (University of California, Berkeley, U.S.).
Pierre-Olivier Beckers (1960). Mr. Beckers has been President and Chief Executive Officer of Delhaize Group since January 1, 1999. Mr. Beckers earned a Masters 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 Belgiums 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. Mr. Beckers serves on the Board of Directors of The Consumer Goods Forum. He is also 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. and Quiznos. 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 McDonalds 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. Womens Service Forum. Ms. Babrowski holds a Master in Business Administration from the University of North Carolina.
Jacques 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 AXA Groups Life and Savings and Health businesses. Mr. 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 Bachelors degree from Dartmouth College, Hanover, New Hampshire and a Master of Arts in teaching from the University of New Hampshire.
Jean-Pierre Hansen (1948). Mr. Hansen is member of the Executive Committee of GDF Suez and Chairman of its Energy Policy Committee. From 1992 to March 1999 and from January 2005 to April 2010, 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 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 is a member of the Board of Directors of Electrabel and of a number of other companies belonging to the GDF SUEZ Group. He is Chairman of the Board of SNCB/NMBS Logistics. He is also director of ORES, KBC Group, Group De Boeck (Publihold), Eurelectric and of the Institut Français des Relations Internationales, and an independent director of Compagnie Maritime Belge (CMB). Mr. Hansen is Chairman of the Management Committee of Forem. He is a professor at UCL and the Ecole Polytechnique (Paris), and a member of the Royal Academy of Belgium. Mr. Hansen holds a degree in Civil Engineering (Liège), a Ph. D. in Engineering (Paris VI) and a Masters degree in Economics (Paris II).
Mats Jansson (1951). Mr. Jansson currently serves as an independent board member of Danske Bank. 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&Ps Canadian operations before his appointment as President and Chief Executive Officer of the companys 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 companys 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 Canadas 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.
Robert J. Murray (1941). Mr. 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 Masters degree in Business Administration from Northeastern University.
Didier Smits (1962). Mr. Smits has been Managing Director of Papeteries Aubry SPRL since 1991. From 1986 to 1991, Mr. Smits was a Manager at Advanced Technics Company. Didier Smits received a Masters degree in economic and financial sciences at I.C.H.E.C. in Brussels.
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 Dr. Pepper Snapple Group, Saks Incorporated and Coty Inc. and serves as a member of the US Board of Advisors on CVC Capital Partners Advisory, Inc. 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 Universitéit Leuven, Belgium.
Shari L. Ballard (1966). Ms. Ballard has been President, International Enterprise Executive Vice President of Best Buy Co., Inc. since January 2012. Ms. Ballard began her career with Best Buy in 1993 as an assistant store manager, and in 1997 joined its Retail Change Implementation Team. She then moved to Best Buys human resources department, ultimately assuming the role of Executive Vice President of Human Resources and Legal in 2004. She also served as Executive Vice President, Retail Channel Management of Best Buy from 2007 until 2010 and as Co-President of the Americas and Executive Vice President from 2010 until January 2012. Ms. Ballard graduated from the University of Michigan Flint with a Bachelors Degree in Social Work.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has two standing committees: the Audit Committee and the Remuneration and Nomination Committee.
The principal responsibilities of the Audit Committee are to assist the Board in monitoring:
The Audit Committees 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.
The 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.
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 and Baron Vansteenkiste are audit committee financial experts as defined in Item 16A of Form 20-F under the Exchange Act. In 2011, 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 Committees 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, Hugh G. Farrington, Jacques de Vaucleroy, and Mats Jansson. Count Jacobs de Hagen, Jacques de Vaucleroy and Mats Jansson are independent directors, while 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 2011, the Remuneration and Nomination Committee met seven 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.
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).
Pierre Bouchut (1955). Mr. Bouchut is Executive Vice President and Chief Financial Officer of Delhaize Group since March 19, 2012. Mr. Bouchut began his career in 1979 with Citibank Paris. He joined Bankers Trust France SA in 1987 to become Vice-President, Finance. In 1988, he joined McKinsey & Company as a consultant in the Corporate Finance and Integrated Logistics practices. Between 1990 and 2005, Mr. Bouchut was with Group Casino, where he successively held the positions of Chief Financial Officer, Managing Director and CEO responsible for both the French and international operations (USA, Poland, the Netherlands, Taiwan, Brazil, Argentina, Columbia and Venezuela). Between 2005 and 2009, Mr. Bouchut served with Schneider Group as CFO, developing numerous initiatives in the field of structured finance, risk management and external growth. He joined Carrefour in 2009 as Chief Financial Officer and was most recently Executive Director Growth Markets of Carrefour, overlooking operations in Latin America (Brazil, Columbia and Argentina) and in Turkey, India, Indonesia and Malaysia. He was also overlooking Carrefour Personal Financial Services operations worldwide. Mr. Bouchut graduated from HEC and holds a Masters Degree in Applied Economics from Paris Dauphine University.
Stéfan Descheemaeker (1960). Mr. Descheemaeker is Executive Vice President and CEO Delhaize Europe. Mr. Descheemaeker was Chief Financial Officer of Delhaize Group from January 2008 until January 2012. He started his career with Cobepa, at that time the Benelux investment company of BNP-Paribas. He later joined the holding company Defi as CEO of its financial subsidiary Definance. 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 brewers 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. Mr. Descheemaeker holds a Masters degree as Commercial Engineer, Solvay Business School, Brussels, Belgium.
Michel Eeckhout (1949). Mr. Eeckhout is Executive Vice President of Delhaize Group. Mr. Eeckhout was Chief Executive Officer of Delhaize Belgium until December 31, 2011. He joined Delhaize Group 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 the Executive Committee of Delhaize Group in September 2005. He is a Board member of COMEOS (previously named Fedis Fédération belge de la Distribution), UWE, VOKA, Alcopa and Leasinvest Realestate. Mr. Eeckhout earned a Masters degree in economics (UFSIA, Antwerp) and in European economics (Université Libre de Bruxelles, Brussels), and an Executive Master in General Management (Solvay Business School, Brussels).
Ronald C. Hodge (1948). Mr. Hodge is Executive Vice President of Delhaize Group 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 the Sweetbay Supermarket operations. He joined Hannaford in 1980 and has served in various executive roles, including Vice President and General Manager of Hannafords 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 Hannafords entry into upstate New York, Mr. Hodge was elected Chairman of the New York State Food Merchants 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 Regions 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, IT and Sustainability of Delhaize Group 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 founding member and Chairman of Child Planet, a foundation aimed at improving conditions in childrens hospitals and also serves on the board of Face Children. Mr. Hollanders holds Masters degrees in Law and Notary Law and a Post Graduate degree in Economics from the University of Leuven.
Kostas Macheras (1953). Mr. Macheras is Executive Vice President of Delhaize Group 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 Executive Vice President, General Counsel and General Secretary of Delhaize Group and President Director of Super Indo. Additionally, Mr. Waller has been an Executive Vice President, General Counsel and Secretary of Delhaize America since July 2000. Previously, Mr. Waller was a partner in the international law firm Akin, Gump, Strauss, Hauer & Feld, L.L.P. In the years prior to joining Delhaize America, Mr. Waller served as Managing Partner of Akin Gumps 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 OConor, Jr. in the Southern District of Texas.
COMPENSATION 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 15,000 per year for the Chairman of any standing committee of the Board and an amount of up to 10,000 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).
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 2011 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.
Remuneration Granted for Fiscal Year 2011 to Directors of Delhaize Group by Delhaize Group and its Subsidiaries
Remuneration Granted for Fiscal Year 2011 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 Companys consolidated income statements for 2011 and 2010, 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.
Pierre-Oliver Beckers, our President and Chief Executive Officer is compensated both with a director fee and as an executive. Mr. Beckers director fee is set forth in the table above. For 2011, the aggregate amount of compensation paid to Mr. Beckers as an executive was 2.81 million. The compensation of Mr. Beckers was comprised of base pay of 0.97 million, an annual bonus of 0.66 million, other short-term benefits valued at 0.06 million, retirement and post-employment benefits valued at 0.74 million and other long-term benefits valued at 0.38 million. A total of 32,000 Delhaize Group stock options/warrants and 12,000 restricted stock units were granted to Mr. Beckers in 2011, the value of which is not included in the 2.81 million
The members of Executive Management benefit from corporate pension plans, which vary regionally. U.S. members of Executive Management participate in defined benefit and contribution plans in their respective operating companies. The European defined benefit plan is contributory and based on the individuals career length with the Company. In 2010, the members of the Executive Management in Belgium were offered the option to switch to a non-contributory defined contribution plan or to continue in the existing defined benefit plan. We expensed an aggregate amount of 1.3 million with respect to these various plans for the members of the Executive Committee as a group for the year ended December 31, 2011, which amount is included in the 12 million aggregate amount of compensation attributed by us and our subsidiaries to members of the Executive Committee as a group for services in all capacities. The members of the Executive Committee also participate in our stock option, restricted stock unit and performance cash plans. 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 members of the Executive Committee.
Equity Compensation of Executive Management. In 2011, 173,583 stock options and 24,875 restricted stock unit awards were granted to members of our Executive Committee. The exercise price per share for the stock options granted in 2011 amounted to 54.11 for options on ordinary shares traded on Euronext Brussels and $78.42 for options related to our American Depositary Shares traded on the New York Stock Exchange. The options granted in June 2011 under the Delhaize Group 2002 Stock Incentive Plan for executives of our U.S. operating companies vest in equal annual installments of one third over a three-year period following the grant date. Options granted in June 2011 under the 2007 Stock Option Plan for other executives vest after a three and a half year period following the grant date.
The restricted stock unit awards granted in 2011, represent a commitment of Delhaize Group to deliver shares of our stock to the award recipient, at no cost to the recipient (one restricted stock unit equals one ordinary share). The fair value of the restricted stock unit awards granted in 2011 is $78.42. The shares are delivered over a five-year period starting at the end of the second year after the award. These shares can be sold by the award recipient at any time following the delivery of the shares consistent with the guidelines and restrictions contained in our trading policies.
The table below sets forth the number of restricted stock unit awards, stock options and warrants granted by our company and its subsidiaries during 2011 to our Chief Executive Officer and the other members of the Executive Committee. For additional information regarding equity compensation of executive management, see Long-Term Incentive Plans and Note 21.3 to the consolidated financial statements included in this document.